The Cayman Islands are a fully transparent tax jurisdiction. Statements to the contrary in the United States are incorrect.
The Caymans direct international capital flows in a tax-efficient manner. We provide a tax-neutral platform from which trillions of dollars move from international capital markets to the balance sheets of U.S. financial institutions for the benefit of pension funds and universities as well as ordinary investors. At bottom, it is unfair to mischaracterize Cayman as a “tax haven” - a phrase that implies secrecy and wrongdoing - as President Obama and others have done recently.
The Caymans are worlds apart from nontransparent jurisdictions such as Andorra, Monaco, Liechtenstein and Switzerland - where recent reports indicate tax evasion actually occurs. By contrast, the Cayman Islands have full-transparency tax treaties with the United States and the European Union. Those treaties - little publicized - took tax evasion off the list of options for Cayman investors a decade ago.
No tax evader would seek to use the Cayman Islands, given the unrestricted powers of the U.S. Internal Revenue Service, the U.S. Department of Justice and the European Union’s treasury departments to obtain full information on any Cayman account.
To avoid any further confusion on this issue, we agree the United States should take the opportunity to make its agreement with Cayman even more transparent by making it proactive. What would that mean? Reporting to the U.S. government the opening of a bank account in Cayman the day it is opened - without waiting to be asked by the U.S. authorities. Proactive reporting would assist U.S. policymakers in understanding that no additional U.S. tax revenue is to be derived from the Cayman Islands, because it is not, in fact, a locale used by U.S. citizens to evade tax.
Tax evasion is illegal. Tax avoidance is not. Every country has domestic tax laws that present corporations with a set of rules. In the United States, those rules for multinational corporations have included tax deferral, meaning a corporation can wait to pay tax on profits earned overseas until those profits are repatriated in the United States. The corporations already pay tax in the countries where their business is conducted and the profits are made. These U.S. tax-deferral rules have been a central plank in U.S. corporate tax policy to keep multinationals on an even footing with competitors, most of whom pay tax only once and in the country where their business is conducted.
While we accept that good reasons may exist to change U.S. law on this point, describing the tax conduct of every Fortune 500 company that has lawfully relied on a legitimate provision of U.S. law as “using a loophole” is wrong, and implying that the Cayman Islands is complicit in that wrongdoing is unnecessary.
It is axiomatic that the United States has the absolute ability to change its domestic law at any time. The issue of tax avoidance is always a question of domestic tax law. If the United States removes the anomalies or loopholes in its domestic tax law, the issue of tax avoidance will disappear.
Should the lawful structuring of a fund or finance vehicle that accesses the international capital markets for the benefit of U.S. financial institutions and markets be changed? Is it really objectionable to locate management, administration, custodial arrangements, shareholder servicing, legal domicile and boards of directors in different jurisdictions when that is done for the purpose of efficiency and not illegality? The 18,000 corporations listed in one building - described as an “outrage” by Mr. Obama - are necessarily domiciled there to ensure the application of the Cayman legal system and its zero tax to the capital flows from which U.S. financial institutions and markets have received trillions of dollars.
The international capital markets are pillars of global financial architecture. The Cayman Islands is an important participant in those markets, similar to any other transparent, tax-neutral platform through which those capital markets are invariably but lawfully and transparently accessed. It is the absolute right of the U.S. government to amend its domestic tax law as it sees fit to remove any form of tax avoidance. We respect that. But please, can we stop the unnecessary name-calling that is obscuring the benefits the Cayman Islands has conferred on the United States and let the U.S. government use the real facts to decide whether and how to change its tax laws?
Anthony Travers is chairman of the Cayman Islands Financial Services Association.
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