To the disappointment of many financial professionals and other businesses in these Islands, it does appear that the US Senate and President Barack Obama have decided to cut off their noses to spite their faces.
A bill now before the Senate seeks to make changes in US tax laws that are not only likely to be devastating to the Cayman Islands and other offshore financial service centres, but devastating to America’s own businesses and the remaining workers employed at those companies.
The proposal, similar to the Stop Tax Havens Abuse Act offered last year by Senator Carl Levin (D-Michigan), seeks to treat foreign corporations managed and controlled in the US as domestic corporations for income tax purposes.
It also would close an offshore tax dividend loophole that enables non-US citizens to avoid payment of US taxes on US stock dividends, and expands tax return reporting requirements for passive foreign investment corporations to include US citizens who don’t own a PFIC, but have formed, sent assets to, received assets from, or benefited from a PFIC.
The plan, that not only discourages foreign investment in the US but which also could lead to further corporate layoffs, appears to be fully supported by President Obama’s administration.
We pause here to point out that the US President chooses to crusade against suspected tax evasion after nominating a vice president who hails from the state of Delaware, where some 200,000 businesses are incorporated because of the tax advantages its laws provide. It appears tax ‘evasion’ is alright…as long as it occurs within Uncle Sam’s borders.
But the point of this writing is not to castigate the US, Vice President Joe Biden or Mr. Obama.
Because the truth is Cayman needs the US.
Our large, and until recently, prosperous neighbours to the north are responsible for 80 per cent of the tourism dollars spent in Cayman. Many US companies take advantage of Cayman’s tax minimisation regimes and business-friendly climate.
We can only hope that US officials will manage to look around the political rhetoric of recent weeks and pay attention to the facts, facts contained in a report from their own Government Accountability Office completed last year.
We will quote from our editorial ‘The Senate Show (Part !)’ published in July 2008:
‘The GAO found that ‘the Cayman Islands legal and regulatory system is generally regarded as stable and compliant with international standards.’
‘The report also found that most of the illegal activity, which had occurred, was perpetrated by individuals, small businesses or promoters, not large corporations.’
‘If anything, the GAO report showed that there had been a failure by the people who were attempting to evade taxes using offshore regimes to report their own activities.’
‘We can’t imagine why.’
Again, we strive to point out that neither the Cayman Islands, nor Bermuda, nor the BVI, nor any other so called ‘offshore tax haven’ has the financial resources or the legal mandate to police every other country’s tax laws. We certainly do not receive any payments from the US or the UK to help us do so, despite the fact the latter still refers to us as an overseas territory.
We believe, aside from the numerous politically-inspired aspersions being cast our way, the US and the companies that employ its people realise they need Cayman and other business-friendly jurisdictions that offer top-notch financial services…just as much as we realise we need the US and all our international partners.
In a time of unprecedented world financial upheaval, businesses need every competitive advantage they can get. That means working with the people who can provide those advantages and coming to agreements that are mutually beneficial to all parties involved, including those parties that earn their daily bread from the entities that the US government apparently regards as little more than revenue targets.
We pray that is the message our delegation has gotten through to Washington DC. If not, Caymanians may have to go back to fishing and twisting rope.
And the US may find itself in the throes of an economic depression worse than anything seen in the 1930s.