Rivers to discuss ‘gray list’ in Brussels

Minister for Financial Services Tara Rivers will travel to Brussels to discuss Cayman’s tax system with EU officials after Cayman last year narrowly avoided being included on a blacklist of countries deemed uncooperative in tax matters.

Instead, the European Union included Cayman on a gray list of countries that promised to address “shortcomings” in their tax system, identified by the EU, by the end of 2018.

Minister Rivers will meet with the Code of Conduct Group of the European Council, which is responsible for the monitoring of any progress made by blacklisted and gray-listed countries.

On Nov. 6, 2017, the European Council wrote to the Cayman Islands government inviting it to cooperate with the Code of Conduct Group and to commit “at a high level” to address EU concerns over Cayman’s tax system.

According to the EU, Cayman’s tax system is not in line with a fair tax criterion that prescribes “jurisdictions should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction.”

Based on its own technical analysis, the EU concluded that its concerns relate mainly to a “de facto lack of substance, which may be due to the absence of legal substance requirements for entities doing business in or through [the] jurisdiction.”

The same technical analysis noted that in Cayman “legal mechanisms exist that enable the granting of advantages only to non-residents or in respect of transactions carried out with non-residents, in particular, through the incorporation of entities which are not permitted to carry on business in [the] jurisdiction.”

The letter stated that, as a result of this, experts had “provisionally considered the tax system of [the] Cayman Islands as harmful.”

The EU Council asked the government to discuss with the Code of Conduct Group the types of steps that would ensure that businesses in Cayman have “sufficient substance.”

“A way to achieve this could be through the imposition of substance requirements, where appropriate,” the letter from November 2017 stated. “In addition, [the] Cayman Islands is asked to abolish or amend legal mechanisms that enable the granting of advantages only to non-residents or in respect of transactions carried out with non-residents.”

It might also require the introduction of additional accounting and tax reporting obligations, the EU Council said.

In addition to the meeting with the Code of Conduct Group, Minister Rivers will meet with the EU Commission’s Directorate-General Taxation and Customs Union (DG TAXUD) and members of the European Parliament. Ms. Rivers said her visits, and previous government engagement, demonstrate Cayman’s ongoing commitment of working with the EU as part of the EU’s process of identifying jurisdictions that it considers uncooperative with EU member states on tax matters.

“Cayman was deemed to be a cooperative jurisdiction and was not on the EU’s list that was published on Dec. 5, 2017,” she said. “Continuing the dialogue, at the policy and political levels, is important in our efforts to ensure that our cooperation with EU member states is recognized.”

It will be Ms. Rivers’ third trip to Brussels since she was appointed financial services minister in June 2017. During the week-long stay in Europe, she will also participate with the OECD and a member of the European Parliament in a panel discussion, titled “Towards Fairer Corporate Taxation: Is Europe Getting the Policy Mix Right?” The panel is organized by the Centre for European Policy Studies think tank.

She then will join EU Commissioner Pierre Moscovici and other participants for a European Business Summit (EBS) panel on EU tax policy.

“Speaking on the CEPS and EBS panels next week will provide a great opportunity to tell Cayman’s story in a way that many Europeans may not know,” Ms. Rivers said. “It allows us to engage directly with the EU thought leaders who help to shape and inform EU policy.”

In addition to the ongoing international engagements, the minister said she had meetings with local members of the financial services industry about the efforts undertaken by the government to date and the way forward with respect to the House of Commons’ amendment regarding public beneficial ownership registers, as well as the EU listing process.

“Government believes our best response is based on a jurisdictional perspective,” she said. “Government and the ministry have worked hard, and will continue to work hard, to keep industry informed and engaged in these matters; and I very much appreciate the support given by industry during our meetings and discussions held, and the cooperative working approach adopted.”

Minister Rivers will be accompanied in Brussels by the Department of Financial Services’ Director Michelle Bahadur, and Policy Officer Shanna Best.

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