On 4 May 2009, the White House released a summary of President Obama’s speech called ‘Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas’.
One of the ways in which the proposal seeks to remove the tax incentives for shifting jobs overseas is to end the immediate tax deduction which US corporations may take for expenses supporting their overseas investments; for example, in establishing subsidiaries for manufacturing purposes. The logic behind the proposal is that such expenses should be taken only when the profits are repatriated to the US.
In my opinion, this proposal may have the unintended consequence that US corporations may move their real – as opposed to nominal – worldwide headquarters to a tax-neutral or tax-friendlier jurisdiction, leaving in place a US headquarters only for the US subsidiary.
Where is the opportunity in this for Cayman? It follows from the unintended consequence that Cayman, being tax-neutral and having first world facilities and talent, has an opportunity to be the location of the real worldwide headquarters of such corporations. Of course, this would mean that Cayman proactively would have to roll-out the welcome mat for such a development and make full use of the existing provisions of the Local Companies (Control) Law.
Currently, one of the criticisms against Cayman is that, while some corporations have their nominal worldwide administrative headquarters in Cayman, in reality there is nothing here but a registered office. Welcoming such real worldwide headquarters would mute such criticism and be a welcome boost to our economy.