Premier: ‘We cannot make unreasonable concessions’ to EU

Europe accounts for 8 percent of investment in Cayman funds

Premier Alden McLaughlin confided he had experienced “sleepless nights” in preparing for his Legislative Assembly speech Wednesday in which he indicated Cayman’s leadership was at wit’s end trying to comply with all directives, tax exchange agreements and information-sharing requirements promulgated by the EU and Britain.

“Only about 8 percent of the investment in Cayman funds comes from Europe,” Mr. McLaughlin pointed out. “[Of] the two big financial powerhouses in Europe, one is already outside the EU, Switzerland, and Britain is on her way out. So, I have no doubt, whether Cayman escapes the blacklist or not, I have no doubt that over the medium term … the use of this jurisdiction and jurisdictions like ours by EU nations is going to fall away to almost nothing.

“[The blacklisting] will have significant reputational consequences, negative consequences. We are doing everything we can to avoid that eventuality.

“But … we have done everything that every other country in the world has done, and some more than most of them, 30-plus tax exchange agreements …. We know the beneficial ownership of every entity registered in Cayman, which the U.K. can’t say and no country in Europe can say. Forget about the U.S. What more can we do?”

“We cannot make unreasonable concessions which will have the effect of making the Cayman Islands irrelevant to the very business that is the basis of our existence as a financial services jurisdiction,” Mr. McLaughlin said during a Legislative Assembly debate. “So, if the choice is the blacklist or maintaining the basis of the business that we have now, we’ll choose the blacklist.

“Cayman will survive and continue to thrive. I wonder if the EU will?”

The Cayman Islands is one of 92 jurisdictions that expect to learn by Dec. 5 if they will be placed on a European Union “blacklist” being drawn up as part of a tax avoidance crackdown.

The European Commission’s Code of Conduct Group (Business Taxation), one of the EC’s most private governing bodies, has been reviewing various taxation criteria since January 2016 for all jurisdictions that have significant dealings with the EU. Placement on the EU tax blacklist could lead to as yet unspecified economic sanctions being imposed by year’s end, according to earlier statements from the commission.

Premier McLaughlin said Cayman’s public and private sector leaders have been working largely “behind the scenes” for the past two years to meet the criteria set out by the EU committee, and have met with senior European Commission officials several times.

There are three general areas the Code of Conduct Group members are looking into during their evaluation. The first two – compliance with measures aimed to prevent tax base “erosion” when companies shift profits from their home country to lower or no-tax jurisdictions; and general adherence to tax transparency practices – are not considered a major problem.

However, there is concern about the third area, which involves whether jurisdictions operate a “fair” tax system, according to EU standards. Cayman has no direct taxation, but its indirect taxes raise the equivalent of 28 percent of the territory’s gross domestic product. The concern is that adopting a different system of direct taxation would make Cayman’s current financial services business model far less viable.

Although the idea has been bandied about privately among financial services practitioners and local politicians for the last few years, Premier McLaughlin has previously refrained from accusing EU members of playing politics with the blacklisting decision.

He did not do so on Wednesday night.

“[This] blacklist … I am willing to wager just about anything, save my soul, [it] will never include some of the greatest offenders, some of the least transparent and [least] cooperative jurisdictions in the world when it comes to tax matters and when it comes to money laundering issues, like the mighty United States of America and China,” he said.

“You can walk into any bank in Miami and open an account in 15 minutes with whatever money you have in your pocket and your driver’s license. Try to find out anything about the beneficial ownership of any company registered in the state of Delaware. Those countries, that state, runs no risk of appearing on any blacklist promulgated by the European Union.”

Mr. McLaughlin also referred to the recent release of the “Paradise Papers” – hundreds of thousands of documents held by the Appleby law firm that revealed details of offshore investments by wealthy individuals – as a “deliberate and powerful effort to influence the views” of the EU finance ministers.

“No mention is made of the fact that the information, the confidential information, all of which by their own admission represents legally conducted business and business affairs, no discussion is made of this huge criminal offense or set of offenses which have not just been sanctioned, apparently, by members of the international media, but they also appear to be part and parcel of what is an ongoing set of crimes.”

Premier McLaughlin said Cayman does have allies, or potential allies, in this fight. Those include the Organisation for Economic Co-operation and Development, which he said is not supportive of this EU blacklist exercise. Also, Mr. McLaughlin called on the U.K., still a member of the EU until its exit from the union takes place, to “do her duty by her territories.”

A jurisdiction can only be “blacklisted” in December if all 28 EU finance ministers, comprising a group called ECOFIN, agree to place it on that list.

“The U.K. remains a full member, with voting rights until the day they exit the EU,” he said. “If the U.K. holds out, Cayman or no other [British] territory can be blacklisted.”

Mr. McLaughlin has also found an unlikely ally in the form of Cayman’s political opposition. Bodden Town West MLA Chris Saunders said his side of the political aisle backed the premier’s Wednesday statement in full.

“If, at the end of the day they decide to blacklist us, all of those countries that we have [tax information exchange agreements] with … we should look at canceling some of those agreements,” Mr. Saunders said. “What’s the use of us bending over backwards, chasing after 8 percent of the businesses while we’re losing 92 percent of the business?”

1 COMMENT

  1. However, there is concern about the third area, which involves whether jurisdictions operate a “fair” tax system, according to EU standards. Cayman has no direct taxation, but its indirect taxes raise the equivalent of 28 percent of the territory’s gross domestic product. The concern is that adopting a different system of direct taxation would make Cayman’s current financial services business model far less viable.

    Enforcing a direct taxation system on places like the Cayman Islands puts these places out of the business altogether….something the economic superpowers…the USA and EU wants very badly.

    Any new system and forms of direct taxation becomes immediately applicable to all investment clients and funds held in Cayman…including corporation and inheritance tax, which completely undermines the reason to us low-tax jurisdictions for financial transactions.

    The EU knows this very well and in its push to become the world’s leading economic superpower, any means justifies that end and any entity is expendable; certainly jurisdictions outside its on geographical borders, unlike Switzerland and Luxembourg.

    What the EU…or USA does not know or care about is the economic and social impact that direct taxation will have on the local economy and population, Cayman already being one of the countries in the world with the highest cost of living, a direct result of indirect taxation (mainly import duties) being passed on to the consumer….

    And a burgeoning crime rate linked to social decay and deprivation .

    Maybe it might have been best to wait to see what the UK negotiates in its Brexit talks rather than go running to the EU for individual talks as soon as Brexit was announced.

    What the Cayman Islands will soon learn is the merciless and undemocratic policies of the EU from which Britain has decided to withdraw and let the UK lead this process and negotiate any new deals for its territories….or offer protection from any threatened sanctions should ‘blacklisting’ become a reality.

  2. Both the Premier and MLA Sanders are 100% correct on this issue. Cayman and other BOTs should continue pressure on the EU and UK to make sure Cayman is not on this political enemies list. After all, this is what it is.

  3. Thanks are due to Premier McLaughlin for standing up, unapologetically, for the Cayman Islands. His comments were long overdue. The undeniable truth is that the EU — and the U.S. — want to put the Cayman Islands, as we know them, out of business. We must have no illusions about this. We’ve bent over backwards for far too long. It’s obvious that no amount of concession on our part will ever be enough, short of total capitualation. We must therefore start acting more in accordance with what’s in OUR best interest, not THEIRS. Thanks also to opposition member Saunders for recognizing that this issue transcends party and partisanship.

  4. Thank you for standing up to the EU. I agree with you, it is better to be blacklsted than to abide by their rules!!
    I also congratulate you on a government whose parties agree with one another unlike that big guy up north (USA).

  5. Cayman Must stand up against Europe , and America. I agree 100% . I am in Canada and they want to put you out of business and Cayman and all offshore country must stand up against that. Here they want to hold the ball of all the citizen, when they finish they want to do the same with small country. Enouph is enouph, Stand Up Cayman we love you.

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