(CNS)-- Government has accused The Netherlands of including the Cayman Islands on its separate blacklist as a way of diverting criticisms of its own tax practices by attacking legitimate tax regimes. Officials here said it was “unjustified” and “wholly lacking in fairness and credibility” to place Cayman on the list of 21 jurisdictions. Cayman found itself on the latest blacklist coming from a European country last month and the local government has said the only reason appears to be because the corporate tax rate here is lower than any EU state. The move is also fueling concern that constant appeasement by the Cayman government of onshore countries is not working.
In a short statement from the premier’s office on Friday, officials said that despite the unjustified move, Cayman would continue the longstanding commitment to global standards and working with the international community to improve their effectiveness.
“The Cayman Islands Government regrets the unjustified ‘blacklisting’ and rejects it as wholly lacking in fairness and credibility. It is unfortunate that The Netherlands has chosen to attempt to divert criticism of its own tax practices by attacking the legitimate tax regimes of other jurisdictions,” the statement read.
“This ‘blacklisting’ does not take into account Cayman’s demonstrated adherence to international standards for tax transparency, or participation with the OECD’s BEPS Inclusive Framework, and ignores our engagement with the EU’s Code of Conduct Group over the last two years to address their concerns regarding economic substance,” officials added.
The listing comes less than three weeks after new and far-reaching legislation was steered through the Legislative Assembly to meet the demands of the wider European Union and prevent Cayman from being blacklisted by all of the member states in the list produce by the EU last year. The laws pave the way for offshore exempt companies domiciled here to have a greater substance and to do actual business in the Cayman Islands.
But many have said that the constant appeasement of jurisdictions such as Cayman and other offshore financial centres labelled as tax havens is not preventing onshore, larger countries from continuing to attack their financial industries.
Anthony Travers, the former chair of Cayman Finance an outspoken advocate for the offshore sector, is one of a number of people who believe the policy of appeasing isn’t working and the blacklisting should not come as a surprise.
“The difficulty of attempting to deal with the EU and the OECD in relation to their ridiculously entitled ‘harmful’ tax practices initiative, whether through the introduction of economic substance legislation or howsoever, is well illustrated today by that paragon of tax avoidance techniques The Netherlands which, when I last looked, was a member of the EU, now introducing its independent ‘black list’ including the Cayman Islands,” he wrote on his website following the publication of the Dutch list.
Travers, the chair of the Cayman Islands Stock Exchange Board, said the government’s appeasement was rendered more difficult “when dealing with a multi-headed hydra comprising, it seems now, the EU, the OECD and each independent EU jurisdiction”.
He has suggested that “someone, anyone, explaining precisely what is ‘harmful’ about Cayman Islands tax structuring” would be a better place to start, as the EU and the OECD must believe that the Cayman Islands investment vehicles will be “harmful“ unless taxed twice or otherwise rendered uncompetitive through what he described as the “entirely novel and entirely fanciful economic substance initiative”.
No one has the slightest idea what this means, Travers wrote, except that for Cayman it cannot possibly mean anything good, as he accused the EU of making up the rules as it goes along.
“And since a satisfactory explanation cannot, as a matter of logic or international tax law, be forthcoming, we should ask how precisely a policy of appeasement is intended to achieve an outcome that does not secure the EU and OECD objective,” he added.
The decision by The Netherlands to create its own blacklist comes ahead of the anticipated review of the wider European Union blacklist update, which is now expected to be revised in February. Although the government believes the laws it passed last month should ensure that Cayman is not blacklisted, there are no guarantees that the jurisdiction will not be on a new grey-list, or watch list, as the EU seeks to monitor how the new laws work.
The ongoing pressures and threats from blacklisting, which would have a negative impact on the offshore sector, are being weighed against the increase in costs for the industry. And as government seeks to balance these issues, it is also engaged in a direct battle with the United Kingdom and its demand that the jurisdiction introduces a public beneficial ownership register, following the passage of Sanctions and Anti-Money Laundering Bill in the British parliament.
Although the original demand had been for that to happen by the end of 2020, the UK government has said that it will not impose an order-in-council immediately if there is no register at that point but will allow Cayman and other overseas territories impacted by the legislation another three years to implement the register, by which time the UK hopes the registers will be a global standard.
While the Cayman government has welcomed the additional time, the premier has stated that Cayman has always been willing to comply if that is the case. But speaking in the Legislative Assembly last month, he expressed doubts that public registers would be up and running in every country, even by 2023.