Coming out of Switzerland is a developing story that’s not exactly “Man bites dog,” but certainly constitutes “Man bites back,” and is particularly instructive to the people of the Cayman Islands.
In brief, Swiss voters rejected plans (backed by top politicians, big business and European interests) to end special tax breaks for foreign companies based in Switzerland, fearing that proposed reforms would lead to cuts in government services and/or higher taxes on individual residents.
The “powers that be” (or at least “pretend to be”), including the European Union and the Organisation for Economic Co-operation and Development, have been pressuring Switzerland to do away with relatively low tax rates for multinationals for more than a decade. (It’s a familiar application of the OECD’s financial philosophy masquerading as concern over “fairness.)
The Swiss government capitulated, promising in 2014 to end the “loophole” by 2019. To make up for the expected increase in federal taxation for the multinationals, officials concocted a package of reforms, including local tax breaks and deductions for those companies. Switzerland’s Federal Assembly passed the measures, but the Swiss people successfully petitioned for a referendum.
When the government’s tax reform platter was presented to voters – they turned up their noses and refused to eat it. That’s sent officials back to the drawing board … er, kitchen cutting board … to see what else they can cook up.
Strictly speaking, what happens in Switzerland no longer stays in Switzerland, after their government (again under EU pressure) poked bigger holes in the country’s famous “bank secrecy” regime than are present in the country’s famous slices of Swiss cheese. But what happens to Switzerland should be watched quite carefully, and with great caution, by territories that are striving to emulate and eventually surpass the Swiss offshore model — including Cayman.
Cayman prides itself (and rightly so) for being one of the largest financial services centers facilitating the global economy. In the offshore world, the seminal pioneer and ultimate standard by which all other jurisdictions are judged is, of course, Switzerland.
Cayman is a pretty big fish in the offshore pond, but Switzerland is the biggest.
Accordingly, if something is foisted upon Switzerland (with all its clout, wealth and history), it is easy to imagine its being foisted upon Cayman.
The “globalist/localist” dynamic playing out in Switzerland is, in our minds, illustrative of the greater pattern of shifting alliances across the planet. In simple and limited terms, it could be described as the promoters of “tax fairness” versus the proponents of “tax competition.”
In the former camp fall the “Old Global Guard” representing the EU, European Commission, Angela Merkel’s Germany, OECD, Financial Action Task Force, etc. We think of them collectively as “Brussels’ Bullies,” full of self-importance and bureaucratic bluster, comprised, mostly, of discredited leftist/socialist orthodoxy better suited for a Harvard class on Keynes than the real world.
In the latter camp are Theresa May’s United Kingdom and Donald Trump’s United States, with upstarts in France, Greece and other places threatening to upend the “Euro-centric” order that has been the mentality, sentimentality and reality for the past 30-plus years.
In the middle, offshore financial centers occupy somewhat-shifting ground, with the most prominent constantly under siege by the OECD and their like-minded ilk. That, of course, includes Cayman, and to an even greater extent, Switzerland.
We in Cayman should keep in mind the following: Although Switzerland and Cayman share common foes, our relationship is one of friendly rivals. Every dollar that Switzerland loses, or surrenders, is an opportunity for someone else. (Why not Cayman?)
That being said, we applaud our Swiss friends who had to the good sense to realize that the “power of the vote” translates deftly into the “power of the purse.”