Obama takes on tax havens

President Barack Obama called out the Cayman Islands in his vow Monday to detect and pursue American tax evaders as he announced a plan to close loopholes and clamp down on overseas shelters.

But financial experts here say his threat won’t be a problem because of Cayman’s robust regulatory regime.

‘As ever, Maples are keeping a close eye on developments and particularly on the effect this may have on so-called check-the-box corporations. But it’s too soon to come to any firm conclusion and besides, it’s not really for us to comment on any other country’s domestic tax policy,’ said Charles Jennings, managing director of Maples and Calder

‘Otherwise and from what we’ve seen so far, a lot of these proposals seek to counter tax evasion. This should not concern us since Cayman already has a fully effective tax information exchange agreement with the United States and several times has condemned tax evasion.’

Obama’s plan would supposedly generate $210 billion in new taxes over 10 years and aid companies in creating jobs at home.

‘I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens,” Obama said in a news conference Monday at the White House. ‘If financial institutions won’t cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly.’

Under the plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for US companies to base all or part of their operations in other countries.

Tim Ridley, former head of the Cayman Islands Monetary Authority, also noted that the latest proposals must be added to the existing proposals from senators Levin and Baucus.

‘It is hard to predict the outcome, as there will be serious lobbying by US multinationals and other interest groups, who fear their and thus US international competitiveness may be seriously damaged should the proposals be enacted,’ he continued.

In March, about 200 companies and trade associations, including Pfizer, Oracle, Johnson & Johnson Co Microsoft, General Electric and the United States Chamber of Commerce, signed a letter stating that the proposed tax changes would put them at a disadvantage with their rivals.

‘These lobbying efforts can be extremely helpful to offshore centres. For its part, Cayman can assist by informing the decision makers and thought leaders with academic and factual studies showing the true benefit of offshore financial centres to legitimate global trade and finance,” said Mr. Ridley.

Anthony Travers, chairman of the Cayman Islands Financial Services Association said his organisation recognises that the issue of whether US subsidiaries should be entitled to tax deferral is entirely a matter of United States tax policy.

‘Some would argue that it is short sighted to suppose that tax policy can dictate on the issue of where US corporations should most economically locate manufacturing operations and whether US tax revenue will be increased in the long term by taxing the offshore profits of US Companies given tax deferral effectively serves to boost capital for reinvestment,’ he said.

‘However, that is a matter for the US Treasury. Since the number of US corporations that have subsidiaries in the Cayman Islands that have benefited from this proposal is statistically insignificant, CIFSA doubts that there will be any material adverse effect to the Cayman Financial Industry. CIFSA, however, wholly endorses President Obama’s proposal that additional reporting requirements are placed on those US citizens who seek to evade US taxation,’ he said.

‘Only thereby will the President come to understand that because of its full tax information treaty with the US, United States citizens and corporations do not evade tax through the Cayman Islands, rather, the international capital markets use those 12,000 companies to invest into the United States and that Cayman is therefore an essential part of the US financial architecture.’