Following an invitation by the European Parliament’s TAXE2 Committee, Minister of Financial Services Wayne Panton outlined to the committee members in Brussels last week how the Cayman Islands financial services industry supports the global economy and the various mechanisms through which Cayman collaborates with other countries in international tax matters.
The committee had invited the Cayman Islands government to discuss “the specific features of your corporate tax system and recent developments both at EU and OECD levels in relation to the issues of tax avoidance, exchange of information and base erosion and profit shifting (BEPS).”
The TAXE2 committee was established by the European Parliament in December 2015 to focus on harmful corporate tax regimes at the European and international level with the aim of fighting tax evasion and aggressive tax planning, notably by increasing transparency and cooperation between governments and between national parliaments.
“The meeting gave Cayman a remarkable opportunity to define key features of our economic model for European Union lawmakers,” Minister Panton said. “In particular we explained how our consumption-based tax model ably supports our public finances, and how our mechanisms support the rights of other countries to be able to enforce their tax laws.”
In addition to explaining Cayman’s tax system at the meeting, the minister noted that although tax neutrality is part of the rationale for using Cayman Islands structures, it is only a small part. Instead, Cayman is chosen predominantly, he said, because it provides “cost effective flexible platforms, which have been tried and tested, to facilitate international business in the context of complex regulatory, securities and tax rules relevant to different investors, banks, management firms and other stakeholders.”
Mr. Panton added, “Well developed and recognized legal concepts including those in relation to security over property and rights, advice and services by a deep bench of professional advisers and familiarity by investors, onshore service providers, rating agencies and clients are all key elements as well.”
Cayman structures are more efficient, the minister told EU parliamentarians, because they do not impose an additional layer of tax or capital controls. At the same time, they do not affect the amount of taxation that is collected by the home jurisdictions of investors, where such tax remains due.
With respect to the various tax information exchange mechanisms that Cayman is engaged in, the minister pointed out that the lack of corporate or other income taxes means that Cayman does not receive any tax information in return for its transparency.
“This has a cost to us which we choose to bear because we respect the right of other countries to be able to enforce their tax laws. It is important to us to maintain our strong reputation as a responsible partner in the global financial arena,” he said.
In relation to BEPS, Mr. Panton said, the government is consulting on how Cayman can ensure that it supports the principles of the BEPS work, including country-by-country reporting and harmful tax practices. “Our current analysis does not indicate that we have major activity in this area, given the core of Cayman’s business and the absence of a direct tax system,” he said.
Other offshore financial centers, including Jersey, Guernsey, Bermuda, Gibraltar, Andorra, Liechtenstein and Monaco have also addressed the committee on similar subjects.