05/01/21

CAYMAN ISLANDS: Jurisdiction faces new EU blacklisting.

As published on caymannewsservice.com, Monday 4 January, 2021.

(CNS): The European Parliament is planning a new blacklist of tax havens and the Cayman Islands appears to be at the heart of the move. While local political leaders here have made much of the efforts last year to get this jurisdiction removed from the existing blacklist, MEPs believe the removal of Cayman from it makes a mockery of the concept. As a result they have voted for new criteria that will see Cayman and other places with zero tax rates on corporate profits blacklisted again.

Reforming the blacklist of tax havens was discussed at a meeting in early December of the EU Subcommittee on Tax Matters (FISC), and the de-listing of the Cayman Islands in October was a significant issue. During his introduction to the meeting, Dutch MEP Paul Tang, who chairs the committee, said, “A list of tax havens that fails to include the world’s biggest tax haven doesn’t really deserve to carry the name.”

CNS contacted the Cayman Islands Ministry of Financial Services about the latest threat and officials said that the Cayman government will continue engaging with the EU on the issue this year, albeit given the limitations on travel.

“The EU listing process has evolved several times since the initiative was launched in 2017. Regarding the MEPs’ vote, we note that they call for EU Member States to also be included in the EU listing process,” the ministry stated.

The ministry said that in an earlier meeting the EU had noted the importance of dialoguing with regulatory bodies, including the OECD, in relation to the ongoing work of listing process. “The Cayman Islands Government notes that the OECD, following an assessment of our tax regime, gave it their highest rating of not harmful,” officials stated in an emailed response.

But the debate and press release from the later meeting on this issue makes it clear that the dissatisfaction with Cayman having been removed from the list goes beyond OECD standards.

MEPs referred to the Tax Justice Network’s research on the 60% of profit that they said goes through this jurisdiction and escapes taxation in their countries, compared to the mere 2% going through the nations that are on the blacklist. The issue of Cayman’s zero tax rate is the problem.

MEPs said the fact that the Cayman Islands had been removed from the blacklist while running a zero percent tax rate policy is proof enough, and all jurisdictions with a zero percent corporate tax rate or with no taxes on companies’ profits should be automatically placed on the list.

In correspondence seen by CNS, Cayman Finance identified the problem of the EU’s reliance on research by the Tax Justice Network. CEO Jude Scott told board members that the “tremendous reliance by EU decision makers on reports by TJN”, which had fundamental statistical flaws, needed to be addressed.

He said Cayman Finance was seeking support from the government’s statistical team or for public cash to be used to fund external experts to do a full analysis of the 2020 TJN reports to give Cayman “a credible basis for challenging, and, if appropriate, publicly discrediting, the TJN ratings of the Cayman Islands”.

But he added, “To date, we have not received this support.” As a result he is now seeking support from the Cayman Finance board to fund the external experts themselves, as he highlighted the urgency of the situation.

Meanwhile, although the FISC has accepted that EU countries are responsible for 36% of tax havens and it must scrutinise all member states as well, the MEPs are seeking new criteria “to judge if a country’s tax system is fair”. They also said that “removal from the blacklist should not be the result of only token tweaks”, a point that will have a direct impact on the Cayman Islands’ main economic pillar.

The MEPs have already adopted a resolution setting out the changes they want to see to make the process of listing or de-listing a country more transparent, consistent and impartial. “It also proposes adding criteria to ensure that more countries are considered a tax haven and prevent countries from being removed from the blacklist too hastily,” members said in their press release.

Tang said, “While the list can be a good tool, it is currently lacking an essential element: actual taxhavens.”