Senior Partner, Travers Thorp Alberga
The difficulty of attempting to deal with the EU and the OECD in relation to their ridiculously entitled ”harmful” tax practices initiative, whether through the introduction of economic substance legislation or howsoever, is well illustrated today by that paragon of tax avoidance techniques The Netherlands which, when I last looked, was a member of the EU, now introducing its independent “black list” including the Cayman Islands.
That should have surprised no one.
As matters stand under EU law, EU countries retain the right of self-determination over tax matters and it seems therefore what they should and should not be shy about.
But clearly the policy of appeasement adopted by the Cayman Islands government (no doubt in good faith) is rendered somewhat more difficult when dealing with a multi-headed hydra comprising, it seems now, the EU, the OECD and each independent EU jurisdiction.
An alternative strategy might begin with someone, anyone, explaining precisely what is ”harmful“ about Cayman Islands tax structuring which, I am as certain as may be, involves full taxes being paid on profits in the jurisdiction of investment.
Clearly, therefore, what the EU and the OECD must simply mean, and their objective, is that Cayman Islands investment vehicles will be “harmful“ unless taxed twice (difficult as a proposition for a global standard), or otherwise rendered uncompetitive through the entirely novel and entirely fanciful “economic substance” initiative. (This is much, much easier since firstly, no one has the slightest idea what this means, except we can say with certainty that for Cayman it cannot possibly mean anything good and, secondly, since now we have the legislation, the EU can make up the rules as it goes along, however arbitrary and discriminatory.)
There is no other sound explanation for the EU and OECD position. And since a satisfactory explanation cannot, as a matter of logic or international tax law, be forthcoming, we should ask how precisely a policy of appeasement is intended to achieve an outcome that does not secure the EU and OECD objective.