The Legislative Assembly is set to reconvene on Monday to pass three separate bills caused by the threat of a European Union tax blacklisting and global regulatory pressure.
Government last week released the International Tax Co-operation (Economic Substance) Bill, 2018, the Local Companies (Control) (Amendment) Bill, 2018 and the Companies (Amendment) (No. 2) Bill, 2018, following a commitment made in December 2017 that it would remedy any shortcomings in its tax systems identified by the EU before the end of this year through legislative changes.
The EU claims that Cayman is violating “fair tax” standards by enabling tax structures that attract foreign profits without any real economic activity locally.
The International Tax Co-operation (Economic Substance) Bill introduces a substance test that companies deemed tax resident in Cayman and engage in certain defined activities must pass.
To be recognized as tax resident in Cayman and to ensure that profits flowing through these entities remain untaxed, the companies would have to demonstrate that they have sufficient economic activity on island in terms of adequate physical office space, management presence and a sufficient number of qualified staff employed locally.
The economic activity standards are expected to eventually become a global standard under the OECD’s Base Erosion and Profit Shifting (BEPS) Inclusive Framework.
The EU further denounced that the different treatment of local and exempted companies registered in Cayman enabled the granting of advantages only to non-residents or in respect to transactions carried out with non-residents.
The amendments to the Local Companies Control Law and the Companies Law aim to put exempted companies on the same legal footing as local companies by allowing them to apply for a trade and business license and operate in Cayman. Currently, exempted companies are prohibited from engaging in business on island except to further their activities carried on outside of Cayman.
The late release of the bills leaves lawmakers little time to debate them, after extensive industry consultation during the drafting of the bills pushed Cayman close to a potential EU blacklisting, if legislative changes are not in effect by Jan. 1, 2019.
This is underlined by government still having to release guidance notes on the draft legislation, which are expected to provide more detail on how the law will operate in practice.
Related Videos
