Cayman Finance analysis takes aim at Tax Justice Network report

Cayman Finance has released another report finding that “extremely distorted estimates” and other errors made the latest Tax Justice Network assessment of the Cayman Islands highly unreliable.

A study released by Cayman Finance in September criticised the use of what it called incorrect data and biased criteria in the compilation of the Tax Justice Network’s Financial Secrecy Index, concluding that it led to “distorted final rankings” and “misleading conclusions”.

The latest Cayman Finance report targets the conclusions of the tax advocacy group’s State of Tax Justice 2021 report.

In the research released this week, the tax campaigners claim that estimated losses to tax abuse had risen from $427 billion last year to $483 billion in 2021. Of the $483 billion lost a year, $312 billion was the result of cross-border corporate tax abuse by multinational corporations and $171 billion was due to offshore tax abuse by wealthy individuals. The report also noted that rich countries were responsible for facilitating 78% of the tax losses.

According to the analysis, the Cayman Islands had the highest share (99.97%) of ‘abnormal bank deposits’ and the second highest volume ($1.6 trillion) trailing only the United States.

The TJN defines ‘abnormal deposits’ as bank deposits that are disproportionately large in relation to the size of a jurisdiction’s economy combined with strong secrecy laws.

In a press release, Cayman Finance said the Tax Justice Network’s “use of extremely distorted estimates and its failure to acknowledge the Cayman Islands’ tax neutrality and significant safeguards against tax evasion and aggressive tax avoidance have resulted in a report that is highly unreliable in its conclusions about the Cayman Islands financial services industry”.

The organisation that represents Cayman’s financial services industry said its own research demonstrated that TJN reports consistently lacked credibility because of significant problems with their choice of data and application of methodology.

Cayman Finance’s own report – “TJN’s State of Tax Justice: A Critical Review” – evaluates the State of Tax Justice reports for 2020 and 2021.

The author, economist Julian Morris, targets both “highly inaccurate estimates of corporate tax data as well as substantial errors in TJN’s reporting on the legal and regulatory environment in the Cayman Islands”, Cayman Finance said.

Jude Scott, the CEO of Cayman Finance, said, “Cayman Finance has once again produced a careful analysis that relies on credible research to document TJN’s efforts to manipulate data to produce pre-determined results.

“TJN’s reports like the State of Tax Justice and the Financial Secrecy Index cannot be taken seriously unless TJN begins to use more accurate data and reliable assumptions – and Cayman Finance will continue to shine a bright light on their work until they do,” he added.

The State of Tax Justice report’s accuracy has in the past even been criticised within the TJN itself.

One of the TJN’s founders Richard Murphy, who has since resigned, said the 2020 report was widely criticised for its poor quality.

He said the report had inflated its estimates of how much money is lost globally to tax abuse by wealthy individuals and ignored the “many good reasons” why some companies, such as reinsurers, might hold cash balances offshore.

Cayman Finance highlighted Murphy’s criticism noting that the reports use of Bank for International Settlements data failed to differentiate personal and corporate deposits and that offshore holdings may not necessarily exist for the purposes of tax abuse.

The report said, the TJN’s own metrics for banking secrecy showed that Cayman was not a secrecy jurisdiction.

“Indeed, Cayman’s verified beneficial ownership registry combined with its tax information exchange agreements strongly disincentivizes individuals from attempting to use the jurisdiction to engage in tax evasion.”

The review’s author Morris noted that the TJN uses erroneous methods to derive estimates of tax avoidance and evasion.

“As a result, it wildly exaggerates the extent of avoidance and evasion facilitated by Cayman,” he said.