Thriving Cayman represents EU’s worst nightmare

There comes a point in every failed negotiation where the words used should indicate that there is no possibility whatsoever of reaching an agreement with the negotiating party. In the present case, this is because the negotiating party, here the European Union, has no intention whatsoever of doing so.

This is the position we have arrived at and Premier Alden McLaughlin is right to call the European Union position for what it is, effectively a charade representing a hidden agenda. For the EU to use “noncooperation” as the basis for blacklisting the Cayman Islands, is not merely tortuous linguistics, it reveals the unbridgeable philosophical divide and the fear and loathing which reside within the EU of any jurisdiction which can demonstrate its success without the imposition of unreasonably high taxation. And unreasonably high taxation we can predict with certainty is the doom of all EU resident taxpayers.

The fact is that Cayman has complied with every FATF and OECD initiative and has been rated “largely compliant,” a somewhat uninspirational label that ought to more clearly establish the thought that the transparency demonstrated by Cayman in relation to tax matters and law enforcement is unparalleled globally. To ignore this indicates the extent of our divide with the EU.

Pierre Moscovici comments that the Cayman Islands still exhibits a “high and mitigatable risk that it can be used for tax avoidance practices,” a nonsensical statement given that tax avoidance is a function of the abuse of Double Tax Treaty networks from within the EU, of which he sits as a Tax Commissioner. Either Mr. Moscovici does not understand how tax avoidance works or he believes he can say what he likes because no one else does.

The Premier is also right that nothing further can be done with the EU. There is no further initiative with which Cayman can cooperate. Nor is the OECD blameless; we should remember that its Charter requires it to promote economic benefits in a non-discriminatory manner. It is not entitled to mischaracterize the legitimate economic activity in Cayman in a misguided attempt to support the EU tax base.

And that brings us to the hidden agenda and the root of the problem. Chancellor Angela Merkel is fond of quoting this crucial but alarming statistic – Europe accounts for just 7 percent of the world’s population and 25 percent of its GDP, yet it accounts for a massive 50 percent of its welfare spending. This is completely out of control and unaffordable compared to the rest of the world. The populist politicians in Europe have bought their votes with unsustainable government spending and borrowing and neither Ms. Merkel nor any of them have the will to do anything about it.

The long-term concern in Europe is that fertility rates are decreasing and life expectancy is increasing, which means that the cost of European spending on healthcare and pensions must increase dramatically while tax revenues from the working populations decrease. The migrant issue which was the EU quick fix and supposed to assist by providing inexpensive labour has turned into the worst nightmare imaginable; the German Commissioner for Immigration believes that up to 75 percent of immigrants will be unemployed in five years and that Germany alone expects to spend an estimated $86 billion on refugees between 2016-2020 or US$48,000 per migrant. The net result of these demographic and failed policy issues is that taxes in Europe must not only increase significantly but the EU must harmonize tax rates and at the highest levels.

In this context, a thriving Cayman Islands applying no tax at all represents the EU’s worst philosophical nightmare. Not because we are a jurisdiction for tax evasion or avoidance, neither of which allegations are supportable, but simply because we exist as an example to all of how to get it right when the EU is demonstrating how to get it wrong. If it were not for the fact that Mario Draghi at the European Central Bank is printing almost a trillion euros a year which do not exist, the EU project would have failed already. We are targeted for that reason alone.

Only 8 percent of investment in our fund industry comes from EU jurisdictions, which means that 92 percent of our investment comes from the rest of the world. It may well be, in the event we are blacklisted by the EU, that there will be a period of belt tightening. But as I have said before, you cannot appease an alligator that is hell bent on your extinction.

For the time being, until Brexit is completed, the U.K. has a veto power over any EU blacklist. On the grounds of decency alone, the FCO ought to exercise it, but I will not hold my breath. What I would suggest, since there is evidently no quid pro quo being demonstrated by the EU, is that a letter be written to the EU Tax Commissioners and to the OECD and copied to every European MEP, the Prime Minister, her Cabinet and the FCO, listing every single act of cooperation in relation to every single transparency initiative entered into by the Cayman Islands since 2000, and making it very clear that if Cayman is blacklisted, it will reconsider its implementation of the OECD Common Reporting Standard and reconsider the benefits of every Tax Information Exchange Agreement entered into with each EU jurisdiction.

Revocation of those arrangements would set back the OECD’s transparency initiative by a good 20 years but at the very least, would provide the start point for a more sensible negotiation that we should undertake in plain English.

Anthony Travers,
Senior Partner, Travers Thorp Alberga

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