Following the implementation of new legislation that forces certain companies to demonstrate they have enough economic activity on island to fall under Cayman’s tax regime, high-ranking members of the OECD Centre for Tax Policy and Administration visited the Cayman Islands on Jan. 3 and 4.
Pascal Saint-Amans, director and head of OECD’s Harmful Tax Practices unit, and Melissa Dejong met with Cabinet, caucus members, regulators, and business and financial services representatives.
Mr. Saint-Amans played a key role in advancing the OECD tax transparency agenda with the G-20, and he continues to advise and work with the G-20 on global tax developments. Ms. Dejong leads the OECD’s tax and crime team in addition to managing the work of the OECD’s Forum on Harmful Tax Practices (FHTP).
Although Cayman’s new substance legislation was passed in response to the threat of an EU tax blacklisting, the standard used to ensure sufficient economic activity by resident companies was developed by the OECD Forum to counter harmful preferential tax regimes. These are tax regimes that offer tax incentives and concessions to purely tax-driven operations that involve no economic activity.
As part of one of its action points to combat the erosion of tax bases and the shifting of profits to low-tax jurisdictions, the OECD’s BEPS (Base Erosion and Profit Shifting) initiative last year extended the application of the FHTP substance requirements to all “no or nominal tax jurisdictions,” effectively treating them in the same way as harmful preferential tax regimes.
The EU subsequently endorsed the substance rules as the standard for its own tax blacklist.
Noting that he and Ms. Dejong routinely visit jurisdictions in fulfillment of their secretariat role, Mr. Saint-Amans said the OECD is extremely appreciative of Cayman’s commitment to global standards, including its membership in the OECD’s BEPS Inclusive Framework; and its membership and leadership in the Global Forum on Transparency and Exchange of Information for Tax Purposes.
“All of Cayman’s efforts are building a positive reputation. In fact, your reputation with governments and the international business community is positive, because you’ve done the job in the area of transparency,” he said, confirming that he had heard “no complaints” from governments regarding Cayman’s exchanges of information for tax purposes.
According to a government press release, Mr. Saint-Amans said it was difficult to explain changes imposed from outside a jurisdiction.
“There is a gap between being recognized by partners, and public reputation,” he said.
He noted that “one should first think about what a tax haven is, before putting that label on the Cayman Islands,” but also that “tax neutrality should not be a code name for tax evasion.”
Cayman Islands Premier Alden McLaughlin said the OECD visit was helpful in giving an impartial view of Cayman’s regime and its progress.
“Their comments to the various audiences confirm that Cayman’s standards, when considered alongside those of our peers and larger economies, are currently keeping pace with developments,” he said.
“Of course, as standards evolve, all jurisdictions will have scope to further enhance their regimes. Government recognizes this and is committed to developing our framework in a way that meets these standards, while also best supporting our local economy.”
Tara Rivers, minister of financial services, said that is why government held extensive consultation in relation to legislation passed last December, in response to Cayman’s commitments to the EU on its non-cooperative tax jurisdiction initiative.
“The time spent analyzing various scenarios, and speaking with local and international stakeholders, was to position our financial services industry for continued stability and growth, for the ultimate benefit of the people of the Cayman Islands,” she said.
“The Cayman Islands is, and always has been, a very resilient jurisdiction. Historically our financial services industry grew from strength to strength, even after adopting significant changes as a result of evolving global standards over the many decades; and based on our history, we anticipate that this ability to adapt and prosper will continue into the future.”
Ms. Dejong, who in her role with the Forum on Harmful Tax Practices liaises closely with the EU on its initiative, confirmed that Cayman’s December legislation is similar to that passed in other jurisdictions, including the U.K.’s Crown Dependencies and other overseas territories, the government press release said.
The EU is expected to announce the results of the latest evaluation of countries against its tax cooperation standards by mid-February. Later this year, the OECD Forum will conduct an assessment of jurisdictions, including Cayman, against the harmful tax practices standards.
In addition to discussions about Cayman’s engagement in global tax matters, Mr. Saint-Amans, Ms. Dejong and participants in the various meetings talked about the entrenchment of tax issues on political agendas, and tax challenges of the digitalization of the global economy, the ministry of financial services said.
Mr. Saint-Amans acknowledged that the continued leveling of the global playing field in financial services is a development that Cayman and other jurisdictions have long supported, from the standpoint of equity in global standards.
The ministry’s release stated that the OECD representatives, therefore, encouraged Cayman to remain engaged with global developments, to best position Cayman’s domestic policy and legislative development in the future.