There’s good news, there’s bad news and then there’s … gray news.
Developments out of Brussels this week fell into the last category, as the European Union placed the Cayman Islands among 46 other countries and jurisdictions on a so-called “graylist” – meaning our government has made certain commitments in writing to address EU criteria on tax transparency and “fairness,” which the EU claims we do not now meet.
The good news, of course, is that Cayman was not outright blacklisted by the EU for being “non-cooperative” on taxation matters, thanks in no small measure to the efforts of our financial services “diplomats,” including Premier Alden McLaughlin, Financial Services Minister Tara Rivers and the ministry’s Chief Officer Dax Basdeo. Eric Bush, Cayman’s representative in London, and Andre Ebanks, senior legislative policy advisor, also played important roles.
Premier McLaughlin told us the series of discussions comprised the most challenging set of circumstances he has faced in public office. Hearkening back to his adversarial interview with tough BBC journalist Stephen Sackur in 2014, the premier said, in effect, compared to the EU discussions, “HARDtalk was softball.”
It is important to understand clearly what happened last week in Brussels. The graylist is not by any means an acquittal of Cayman by the EU, but can be thought of more as a one-year reprieve during which Cayman must make changes to the requirements it imposes on companies registered in these islands.
During the next year, our leaders have committed to address the EU’s concerns regarding “fair taxation” and “economic substance” – aimed at discouraging “letterbox companies,” which are legal but distinct from bricks-and-mortar enterprises resident in the jurisdiction.
However, when it comes to Cayman’s relationship with the EU, we should not be unduly distracted by “letterboxes” or “ticking the boxes.” It is imperative to keep in mind the underlying motivations and goals of the EU as they relate to offshore jurisdictions.
Fortunately, for clarification, we need look no further than statements made by EU tax commissioner Pierre Moscovici, a longtime leader of the French Socialist Party. Mr. Moscovici is a plain-talking individual who recently spoke thusly:
“[The EU list] remains an insufficient response to the scale of tax evasion worldwide.”
“The countries that have taken commitments must change their tax laws as soon as possible. I also call on ministers to agree quickly on dissuasive national sanctions. We must do everything we can to keep up the pressure on all of these countries. We must not accept unfair tax competition and opacity.”
“Tax havens must not slip off of Europe’s radar screen. As a European citizen, I share the expectations of those who hoped for more. I say to them, let us take this list for what it is: a first step. And let us keep up the pressure together, on the member states and on third countries.”
Cayman should never lose sight of the fact that the European Union, which is attempting to dictate the tax and economic policies of our islands and dozens of other countries around the world, is itself an amalgam of debt-laden, left-leaning states.
The fact that these countries (some of which are on life-support umbilical cords to German banks and the International Monetary Fund, among others) would put themselves forward as a model for other countries to emulate borders on the preposterous. It portrays a level of arrogance rarely witnessed (thank Heaven) anywhere but on the European stage. The curtain on that stage, we predict, may soon fall.
While we should make every reasonable effort to pursue a mutually beneficial resolution with the EU, we must also contemplate a future for these islands that does not include the EU.
There is a probability that the European bloc will implode under the weight of its own debt and its smothering liberal orthodoxy, or, despite our best efforts, we may be unable to reach a satisfactory resolution of our differences with these European nations.
While no one wants that outcome, Cayman must be prepared to reimagine and reposition our financial services industry so that it remains viable without our surrendering to, or succumbing to, the dictates of bureaucrats in Brussels.