Government: ‘Critical errors’ in tax haven report

Oxfam report names Cayman as ‘second worst’ tax haven

Financial Services Minister Wayne Panton in a previous sitting of the LA.

A report by aid agency and advocacy group Oxfam which names Cayman the world’s second worst tax haven – behind Bermuda and ahead of the Netherlands – is riddled with errors and misinformation trying to influence public policy, the Cayman Islands government said in a statement.

Oxfam said its “Tax Battles” report shows how tax havens “are leading a global race to the bottom on corporate tax that is starving countries out of billions of dollars needed to tackle poverty and inequality.”

It lists the “world’s worst tax havens” based on whether they employ “damaging tax policies,” such as zero corporate tax rates, unfair tax incentives and the extent to which they fail to cooperate with international tax transparency efforts to tackle tax avoidance.

“Once you’ve read the report, and particularly the methodology, government believes that the public will understand that certain organizations’ continued efforts to exploit misinformed public opinion, as part of an agenda to influence the public policy of G-20 countries, is unhelpful at best,” said Financial Services Minister Wayne Panton. “Indeed, it may be detrimental to the overall shared goal of combating criminal behavior and addressing income inequality.”

Oxfam claims “tax dodging by multinational corporations” is taking at least $100 billion from poor countries every year.

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“Corporate tax havens are helping big business cheat countries out of billions of dollars every year,” said Esme Berkhout, tax policy adviser for Oxfam. “They are propping up a dangerously unequal economic system that is leaving millions of people with few opportunities for a better life.”

Oxfam’s overriding error, Minister Panton said, is its failure to differentiate between capital flows and profit shifting.

“To engage in profit shifting, a country must attract significant multinational corporations, or MNCs. Cayman does not have this type of business. We do, however, receive capital flows that are used to the benefit of other jurisdictions, via investment projects,” he said.

In a veiled reference to the upcoming EU blacklist for uncooperative countries in tax matters, Oxfam demands that tax blacklists should be based on “objective, comprehensive criteria, including whether or not a country offers zero rates of corporate tax.”

Mr. Panton noted the Cayman Islands has never had a direct tax system, choosing instead an indirect tax system that adequately meets the need of its population.

“There is, therefore, no ‘race to the bottom’ and no tax incentives system designed to target non-resident individuals or legal entities,” he said.

Cayman had adopted several transparency and exchange of information mechanisms, including all three of the OECD criteria listed by Oxfam as important, he added.

Minister Panton said the Cayman Islands also supports the OECD-developed Base Erosion and Profit Shifting framework, and in particular, country-by-country reporting, called for by Oxfam. He said Cayman already has begun the work to consider the relevant aspects of the initiative for local adoption next year.

“With our demonstrable history of upholding international standards and engaging with foreign authorities on anti-tax evasion measures and against other serious crimes, it is wholly inaccurate for Oxfam to include Cayman on its ‘tax haven’ list,” he said.

“Examining the Oxfam definition of a tax haven and the methodology that they have chosen exposes the flaws in their reporting.”

Essentially, Oxfam’s report calls for international cooperation in the setting of corporate tax rates. It says tax havens are only part of the problem and notes that worldwide, countries have slashed corporate tax rates to attract business.

In the G-20 countries, for instance, average corporate tax rates dropped from an average of 40 percent 25 years ago to less than 30 percent today.

This reduction is borne by individual taxpayers, often through increased tax rates on consumption, the report noted. “When corporate tax bills are cut, governments balance their books by reducing public spending or by raising taxes such as VAT, which fall disproportionately on poor people. For example, a 0.8 percent cut in corporate tax rates across OECD countries between 2007 and 2014 was partially offset by a 1.5 percent increase in the average standard VAT rate between 2008 and 2015,” Oxfam said.

“There are no winners in the race to the bottom on corporate tax. Ordinary people – particularly the poorest – are paying the price for this reckless competition through increases in personal taxes and cuts to essential services, such as healthcare and education. Governments must work together to stop this crazy race to the bottom on corporate tax and ensure companies pay their fair share,” said Ms. Berkhout.

The full list of “the world’s worst tax havens” in the report includes: (1) Bermuda; (2) the Cayman Islands; (3) the Netherlands; (4) Switzerland; (5) Singapore; (6) Ireland; (7) Luxembourg; (8) Curaçao; (9) Hong Kong; (10) Cyprus; (11) Bahamas; (12) Jersey; (13) Barbados; (14) Mauritius; and (15) the British Virgin Islands.

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