EDITORIAL – No ‘Dutch treat’: Netherlands attacks Cayman via ‘blacklist’

By issuing a “blacklist” of 21 low-tax jurisdictions (including the Cayman Islands), the Netherlands has demonstrated that it is full of … well, call it “gall.”

The Netherlands’ State Secretary for Finance Menno Snel said, “By drawing up its own stringent blacklist, the Netherlands is once again showing that it is serious in its fight against tax avoidance.”

Remember that it was the Netherlands and Ireland that enabled major corporations such as Apple, Google and Microsoft to avoid, legally, hundreds of billions of dollars in taxation (through schemes such as the infamous “double Irish with a Dutch sandwich”). If the Netherlands were to hold up a mirror and gaze at the reflection of its financial sector, we think it would be staring at something strikingly similar to Cayman, Bermuda, Guernsey, Jersey and other entities that it has elected to blacklist – apparently on the sole criterion that the jurisdictions have a corporate tax rate of between 0-9 percent. (Perhaps to its credit, the Netherlands ignored completely the EU’s current favorite but nonsensical standard of “economic substance,” and went right to the tangible issue of taxes.)

Noticeable but not-unexpected “no-shows” on the Dutch blacklist include: China, the U.S., Singapore, Switzerland and fellow members of the EU.

Sanctimonious statements aside, it appears that the Dutch blacklist is less a tool to prevent tax avoidance than a weapon to be wielded by one of the world’s largest centers for “aggressive tax planning” against its competitors.

In 2017, the Netherlands received some US$5.2 trillion in “foreign direct investment,” with US$4.2 trillion being routed through shell companies to other jurisdictions, including offshore centers.

According to an analysis of International Monetary Fund data published in our sister publication Cayman Financial Review, Cayman entities received about US$53 billion in foreign direct investment from the Netherlands in 2015, while sending about US$49 billion from Cayman to the Netherlands.

The Dutch blacklist is simultaneously absurd and quite serious – far more serious than the direct but limited consequences of the blacklist, i.e., companies registered in blacklisted jurisdictions being subjected to a 20.5 percent withholding tax on interest and royalties received from the Netherlands.

Our concern is not so much about what the Dutch blacklist does, but what it portends, in the words of Travers Thorp Alberga Senior Partner Anthony Travers, published Wednesday in the Compass in a letter to the editor: “a multi-headed hydra comprising, it seems now, the EU, the OECD and each independent EU jurisdiction.”

That is a potential cacophony of gray lists, blacklists, rules, regulations and standards, custom-made by each country, but, it seems, with the common consequence of making it more difficult to do business with Cayman.

Brussels’s bullying attitude toward small offshore jurisdictions extends far beyond the borders of Belgium. It is like an infection spreading throughout the 28 member states of the EU, including our colonial matron, the United Kingdom.

As outlined in today’s front page story on the challenges facing Cayman’s financial services sector, the “taxes-too-low penalty” established by the Dutch comes amid the U.K.’s demands for “public beneficial ownership registers” and the EU’s insistence on “adequate physical presence” – a standard that doesn’t exist and doesn’t make sense, yet which Cayman legislators hurriedly enshrined in bills passed a week before Christmas, the expected ramifications of which they have yet to explain to the public.

It is perhaps somewhat understandable if Financial Services Minister Tara Rivers, Premier Alden McLaughlin and our country’s team of negotiators felt they did not have the firepower or the fortitude to take on an entity as big as the EU, but now at Cayman’s gate is a new, smaller antagonist.

Anything less than a muscular response from Cayman can be considered an invitation to all foreign powers, great and small, to launch economic assaults against our country for whatever reason they care to put in a press release.

Minister Rivers, Premier McLaughlin: What are you going to do about the unwarranted Dutch assault on these islands? Play nice and remain silent – or fight back aggressively and publicly?