Life after white listing debated

OECD’s move seen as positive first step

Leaders in Cayman’s financial services industry see Cayman’s moving to the Organisation for Economic Co-operation and Development’s white list only as a first step in addressing international pressures against offshore financial centres.

The OECD moved the Cayman Islands from its so-called grey list to its white list Friday after Leader of Government Business McKeeva Bush signed Cayman’s twelfth Tax Information Exchange Agreement, with New Zealand, the previous day in Washington, DC.

The white list means the Cayman Islands has substantially implemented international tax standards.

James Bergstrom, managing partner at law firm Ogier and president of the Caymanian Bar Association, welcomed the OECD decision.

‘This is a positive first step for the Cayman Islands and all businesses in the financial services industry,’ he said. ‘But there remains a lot to be done in terms of the current plethora of international regulatory and tax initiatives that confront Cayman.

‘These challenges can only be comprehensively dealt with by the close co-operation of the public and private sectors in the Cayman Islands.’

Mr. Bergstrom expects further pressure to come from the G20, the US and the European Union and predicts future changes to the way tax information exchange agreements are structured.

‘There is no doubt that the criteria for appearing on the white list will be updated over time,’ he said. ‘The OECD’s stated aim is a system for the automatic multi-lateral exchange of information.’

The OECD had previously determined a minimum of 12 TIEAs as the threshold to distinguish between white list jurisdictions and grey list countries that have committed to international tax standards but not yet fully implemented them.

Currently TIEAs based on the OECD standards are bi-lateral and information is only exchanged upon request.

Alasdair Robertson, partner at Maples and Calder, agreed the international pressure was far from over.

‘Looking forward, the reality is that we cannot afford to simply sit back and relax,’ he said. ‘The goalposts have moved many a time in the last 10 years and there is no reason not to expect them to do so again.

‘However, we are encouraged by and support the government’s initiative to continue to agree and sign tax information agreements with all other G20 and OECD members as soon as it is practicable; as well as continuing to engage with the OECD, G20 and other key participants in the international financial system,’ he said.

In addition to the 12 signed TIEAs, the Cayman Islands government is in advanced stages of negotiation with seven states over the conclusion of further TIEAs.

Cayman has also enacted legislation and developed a mechanism that allows it to exchange tax information unilaterally with 12 countries. However, this unilateral mechanism has yet to gain the approval of the OECD Global Forum on Transparency and Exchange of Information.

A statement from Jeffrey Owens, director of the OECD’s Centre for Tax Policy and Administration, made it clear that more is expected from the Cayman Islands, as well as the British Virgin Islands, which also came off the grey list after signing its twelfth TIEA on Thursday with New Zealand.

‘We look forward to working further with the British Virgin Islands and the Cayman Islands as they extend their network of agreements and work to swiftly and effectively implement them,’ Mr. Owens said.

The grey and white lists first appeared in April when the OECD Secretariat was asked to present a progress report on the implementation of OECD tax information exchange standards to the G20 meeting in London.

At the summit the Group of 20 industrial and developing economies threatened sanctions against alleged uncooperative tax havens. The governments of the UK and France demanded a March 2010 deadline for countries to sign tax agreements and improve tax transparency.

The OECD said six former grey list countries have been placed on the white list since April.

Anthony Travers, chairman of the Cayman Islands Financial Services Association, said the white listing removed ‘any basis on which legitimate criticism can now be levelled at the Cayman Islands on the subject of tax transparency’.

With regard to the effect the white listing will have on Cayman’s financial services industry, Mr. Travers said that historically Cayman has experienced increased transactional flow following improvements in tax and financial transparency.

‘We have no reason now to doubt a similar positive outcome,’ he said.

Mr. Travers downplayed future pressures from the OECD.

‘We are pleased that CIFSA’s lobbying efforts on this subject caused sufficient resources to be brought to bear by the new administration which have achieved the right result,’ he said. ‘We also believe that this issue will shortly be regarded as an historical footnote.’

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