EDITORIAL – Offshore finance: Time to set the record straight

Once again, the Cayman Islands finds its name is being dragged through the mud by international ‘tax fairness’ advocates.

As the Compass reported this week, the Tax Justice Network recently ranked Cayman, along with jurisdictions such as the British Virgin Islands and Bermuda, as one of the “most corrosive tax havens in the world”, responsible for undermining governments’ ability to collect tax from multinational corporations.

It is only the most recent attack on offshore financial centres such as ours, which for years have served as convenient scapegoats for tax-happy politicians, class warfare pot-stirrers and sour-grapes socialists who misunderstand global capitalism.

This latest accusation fits the mould cast by so many others throughout the years: Long on passion, yet short on facts. So allow us to correct the record.

The Cayman Islands’ financial services industry is highly skilled, professional, appropriately transparent, cooperative and accommodating of evolving international regulations and best practises. It is a crucial facilitator of international commerce and access to capital.

The myth that global financial centres are parasites, sucking life-giving revenue from certain tax authorities, is precisely that – a myth. A misunderstanding of the world economy and the vital role of ‘offshore’.

The financial services industry is much more than the lifeblood of our own economy, In fact, it is thanks in large part to offshore jurisdictions such as the Cayman Islands that the wheels of the global economy continue to turn so smoothly. Nor is it true that the world is somehow worse off because of the mere fact that we exist.

Researchers such as Oxford-trained economist Diego Zuluaga have pointed out that offshore centres, as important facilitators of aggregate investment, are, in fact, associated with improved economic outcomes.

Further, in a recent paper, Zuluaga clearly showed that corporate tax revenues have increased as a share of all tax revenues in the average OECD country since 1980. As he wrote, “The popular account of offshore centres is an outdated caricature that bears little resemblance to how OFCs in fact operate. Undermining their existence would harm investment, economic growth and international capital flows, while the promised benefits from intervention are unlikely to materialize.”

As the Compass has noted, longtime Tax Justice Network member Richard Murphy, himself, recently penned a report that found Europe’s primary revenue concerns are onshore tax evasion by individual taxpayers, not corporate tax avoiders. That does not prevent his group from calling us out as the ‘bad guy’ once again.

Their proposed solution: a unified (i.e., global) approach to taxation that would tie multinational entities’ profits to ‘real economic activity.’ Or, as Tax Justice Network Chief Executive Alex Cobham put it, “Corporations should be taxed where their employees work, not where their ledgers hide.” he said.

His catchy statement, perhaps intentionally, attempts to reduce complex international issues to a hopeless caricature. His group’s endless war on offshore financial centres is, to put it kindly, misplaced.