Financial industry slams fee increases

STEP and Law Society speak out

An annual renewal fee for tax and trust undertakings, one of the measures proposed to increase government revenue, is facing opposition from the Society of Trust and Estate Practitioners and the Cayman Islands Law Society.

The 2009/10 budget calls for an increase in tax and trust undertaking fees from $500 to $1,500. The government hopes to raise an additional $8.9million in a full year and $5.9 million in the budget year 2009/10.

In separate letters to the government by the STEP and the Law Society this fee increase has been criticised.

‘We consider that the increase of CI$1,000 for Tax and Trust Undertaking Certificates from CI$500 to CI$1,500, which represents a 300 per cent increase on the current fee, is excessive and will be badly received,’ wrote STEP Chairman Carlos de Serpa Pimentel.

The Cayman Islands Law Society President Charles Jennings equally disapproved of the revenue measure in a letter to Mr Bush.

‘With respect, this is a disguised incorporation fee increase and we believe it will have a major negative impact on the number of incorporations in the Cayman Islands,’ Mr Jennings wrote.

Under section 6 of the Tax Concessions Law, companies, trusts and limited liability partnerships that are exempted are entitled to apply for a tax undertaking certificate. The certificate guarantees that no law enacted in the Cayman Islands to raise taxes shall apply to the entity in question.

The majority of Cayman exempted companies take advantage of this option and, until now, had to pay a one-off fee of $500 to obtain the certificate for a period of 20 years.

In addition to the fee increase the Cayman government now plans to introduce an additional annual renewal fee of $200 for exempted companies, trusts and LLPs that have obtained a tax undertaking certificate.

The fee will be due to the Company Registry each year in January, when renewing company fees. The government expects to raise CI$15 million annually from the fee.

Similar to a double tax, the annual renewal fee appears to be levied on something that has already been paid for by the tax undertaking fee.

‘We are seriously concerned that the CI$200 annual renewal fee to be introduced on exempted companies, exempted trusts and exempted limited partnerships which currently have a tax undertaking certificate will be seen as breaking the promise made by previous governments that these entities would not be subject to taxation within the Cayman Islands for 20 to 50 years,’ wrote Mr Pimentel.

‘After all, the proposed annual renewal fee amounts to nothing more than a revenue raising measure on the entity itself in contradiction to the terms of its existing undertaking.’

Mr Pimentel also raised the question whether the new fee would mean that clients who do not pay the annual renewal fee on time will lose their exemption.

The Law Society suggested in its letter that it ‘has been informed on good authority’ that the government is planning to make it mandatory for all exempted companies to obtain a tax certificate, a point that is also addressed by STEP.

‘I should add that the rumoured introduction of a requirement that all exempt companies should be obliged to apply for a tax exemption certificate regardless of whether they need one or not would be a very damaging alternative for many financial services businesses here, not only reducing their client base substantially but driving future business away to other jurisdictions,’ wrote Mr Pimentel.

Mr Jennings came to the same conclusion, stating that incorporation fees would effectively rise to over CI$2,000 for all exempted companies, exceeding many times the level of comparable fees in the British Virgin Islands and other jurisdictions.

The financial secretary would, as a result, have to increase his forecast of a 10 percent reduction in the number of new incorporations for next year, both letters argued.

Mr Jennings explained that banks and financial institutions that use the Cayman financial services have no ‘brand loyalty’ to the Cayman Islands and would just move to another jurisdiction if they are able to find better conditions there.

The BVI is currently the leading domicile for international companies with more than 800,000 registered companies, compared to Cayman’s 90,000.

New company registrations in Cayman have been in decline for some time. In the first quarter of 2009 the total number of new company registrations dropped by 44.2 per cent. This followed a decrease in the number of company formations of 16.2 per cent in 2008.

Both STEP and the Law Society also lamented a lack of consultation by the government on the budget revenue measures and fee increases that directly affect the sectors they represent.

Mr Jennings wrote that, while there may be a belief within the government that the Law Society approved of the budget measures, this was not the case.

‘We are unable to approve or disapprove them until they have been revealed to us and we have been given sufficient time to comment on them,’ he wrote.

Commenting on the issue in Legislative Assembly, Mr. Bush said government had indeed consulted with various stakeholders.

Those consulted included Canover Watson, James Bergstrom, CIMA, Deloitte, the insurance industry and others, he said.

‘There was a representative group. I dare say every association was represented in the room that day,’ Mr. Bush said.

But each time a consensus appeared to have been reached, certain representatives of financial services sector or other businesses would ‘go behind your back or behind each other’s back’ to complain to someone about it, he said.

This was compounded by the tight timeline dictated by the four month appropriation period that ran out on 31 October, he said.

0
0

NO COMMENTS