On March 12, government and the financial sector awaited with bated breath the outcome of the European Union’s evaluation of Cayman’s tax regime. The EU process of listing countries as either cooperative or uncooperative in tax matters started in 2017 and saw Cayman escape a blacklisting only after making some last-minute written commitments to amend its legislation by the end of 2018.
The EU claimed that Cayman and several other offshore financial centres had infringed a somewhat arbitrary fair tax criterion by facilitating offshore structures that attract profits with little or no economic activity locally.
The EU Code of Conduct Group, which was tasked with assessing third countries, used the country-by-country financial statements of European banks to determine that a full-time employee of a European bank in Cayman generated an average profit of EUR6,298,000 (US$7,070,733) in 2015, whereas the global average was only €45,000 (US$50,520). “The profitability per employee and per country in the Cayman Islands appears to be the highest all over the world,” the 2017 assessment stated.
The Cayman Islands government at the time submitted an analysis by its banking regulator, the Cayman Islands Monetary Authority, which showed Cayman-licensed banks may have employees in other jurisdictions that were not included in the data. These employees could give the Cayman Islands company a permanent establishment in the relevant jurisdiction making it subject to taxation in that jurisdiction.