The economic downturn has raised new criticisms against Cayman in its role as a major offshore finance player, and Alden McLaughlin, in his capacity as Minister for International Financial Services Policy, has come out swinging.
At a recent conference, 17 states led by Germany and France led the charge to establish a new and expanded blacklist of offshore jurisdictions deemed to be ‘uncooperative tax havens’ for refusing to share sufficient information on their finance sectors.
Calling the recent events a ‘degeneration in discourse,’ Minister McLaughlin lamented the fact that Cayman seems to be once again in the sights of the Organization for Economic Cooperation and Development’s anti-offshore camp.
‘Cayman has already established that our business is not built around tax evasion and that we have no difficulty with the concept of effective cooperation in tax matters,’ he said.
‘Our difficulty arises where not only is such cooperation a one-way street, but we are also expected to stand in the middle of that street and be run over.”
Mr. McLaughlin pointed out that the calls for a reassessment of Cayman’s favourable status in the eyes of the OECD, while potentially damaging, are also very troubling.
“As a participant on the OECD level playing field sub-group, Cayman is fully aware of developments and these have been and will continue to be assessed by the Financial Services Council, and the assessment informs government policy,’ he said.
‘Having committed to addressing level playing field issues, it is publicly evident that at least some OECD member states have devolved to the primeval state in which the OECD process began: threats, coercion and misrepresentation,’ he continued.
‘This degeneration in the discourse is disappointing and the other OECD participants ought to find it so as well.’
Recent comments from former Cayman Islands Monetary Authority chief Tim Ridley underscore the concern that despite past efforts, Cayman may not make it onto the new (green) list of ‘good guys’ the OECD plans to release next spring.
‘In 1998, when the OECD first prepared its list of non cooperative tax havens, the Cayman Islands narrowly avoided being listed because it gave an advance commitment to cooperate by eliminating what were perceived to be unfair competitive tax practices, by enhancing transparency and by entering into exchange of information agreements on tax matters,’ said Mr. Ridley.
Since then, Cayman entered into the first Tax Information Exchange Agreement with the USA and implemented the EU Savings Directive.
‘Good faith negotiations, at least on Cayman’s part, were also started with other jurisdictions, including the UK, with a view to agreeing TIEA’s or similar arrangements – hopefully with some benefits flowing to Cayman as well as to the other party,’ he said.
But he noted that these talks seem to have stalled and Cayman needs to renew its engagement efforts in order to stay in the OECD’s good books.
‘What would happen in the event Cayman were to be blacklisted is currently rather unclear. However, if you look back at the history of this since 1998, the threat is that OECD members will be encouraged to enact domestic laws making it even more difficult for their taxpayers to legally invest in Cayman structures and for Cayman vehicles to invest tax efficiently in those same OECD countries,’ said Mr. Ridley.
‘It is also a significant reputational minus to be on the blacklist as it will negatively and unfairly impact our image and incite unfavorable media comment. Finally, it will give a competitive advantage to those jurisdictions that are not on the blacklist, as high profile global firms do not like to be seen to be doing business in, and through, places that are blacklisted.’
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