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Published 9th February 2017, 9:21am

Good afternoon, and thank you, Mr Lannoo.

As an indication of increasing global commitment, support for international tax compliance is stronger than ever. In 20 years there have been more bilateral and multilateral agreements implemented than ever before; and revamped and new initiatives are being developed at an unprecedented pace.

Indeed, international tax compliance is central to the complex ecosystem that we call the global financial services industry; and it is driven by behavior. On one side are bad actors who exploit every weakness in the system. On the other are hard-working men and women who are committed to bringing some degree of discipline, balance, and fairness to this ecosystem. They acknowledge their responsibility to make this ecosystem work to the betterment of all people, in all countries around this world.

For nearly two decades, the Cayman Islands has acknowledged, and acted upon, our responsibility to support international tax compliance. We have come a very long way, as evidenced by third-party assessments. Yet nevertheless, long-outdated perceptions linger.

So I thank CEPS for inviting me to be a panelist today, because it gives me an opportunity to tell you the true story of Cayman, from the source. Central to this story is our willingness to challenge our own assumptions about our system, in order to support other jurisdictions in properly administering their tax system; and the willingness to continuously improve our system, in line with global standards.

As we in Cayman are willing to challenge our assumptions, I trust that you are willing to challenge yours. We cannot achieve transparency outcomes until we stop basing global initiatives on alternative facts, posing as unassailable truths.

Allow me to be systematic in my responses to the questions posed to this panel, as much for my sake as for yours, because I want to ensure that I cover it all.

The first question is, does the G20 and OECD’s BEPS agenda; and the EU’s Anti-Tax Avoidance Package, which implements BEPS for the EU, address the right issues?

Yes, they do. The measures make great strides in tackling global abuses in the international tax system. Recognising that global issues require global participation, Cayman is taking steps in relation to implementing country-by-country reporting and we are participating in the BEPS Inclusive Framework.

As to whether the initiatives go far enough to fight avoidance and evasion through third countries,again, Cayman’s answer is yes – precisely because the initiatives do not focus solely on third countries. BEPS wisely does not single out any one country, or group of countries; rather, it quite appropriately addresses the global ecosystem of financial services.

The second question asks what more should be done to enhance the fairness and efficiency in tax collection in the EU and third countries.

This gets us to a very interesting facet of the discussion.

In order to gauge fairness and efficiency of any mechanism, there must be baseline measurement – otherwise, what is the value of your initiative? Can you evaluate the outcomes?

And here is the fundamental flaw that severely undermines the efficacy of global regulatory initiatives: no recent international measures have been given the chance to work before other initiatives are introduced.

Cayman is fully committed to global initiatives that address illegal activity and harmful practices. We also are fully committed to engaging in ongoing discussions that are intended to enhance international initiatives, for the good of the ecosystem.

But because our system is different from many, our commitment is misrepresented; our regime is misunderstood; and as a result, stubborn misperceptions of Cayman remain.

Again, we cannot achieve transparency outcomes until we stop basing global initiatives on alternative facts, posing as unassailable truths.

So there are three points that I would like to raise.

Point 1: The Cayman Islands has never had a direct tax system, and has never had a preferential tax regime.

Instead, Cayman has a consumption-based model rather than a direct taxation model. In the decades since, we have evolved our tax system to suit our needs, as is our right. And we have never designed the system to compete with tax systems in any other jurisdiction.

But nevertheless, we are often seen as a tax competition threat – and this clouds the reality that our system supports rather than harms other jurisdictions.

Point 2: Our system supports transparency. Despite not having a direct tax system and consequently no Double Tax Agreements, and also no preferential regime, we continue to engage globally in a cooperative and transparent manner. Our bilateral and multilateral agreements are publicly available for all to see, but I point out that Cayman is an early adopter of the Common Reporting Standard; US FATCA and the UK equivalent; and the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters, representing more than 100 countries in all. We also have provided information automatically to EU Member States for the EUSD since 2005.

I also emphasise that we have steadily improved the accuracy of the information held in our jurisdiction, and after 15 years of collecting beneficial ownership information, we have a system that is vastly better than many G20 jurisdictions. So the indirect tax system works well for Cayman.

Point 3: By facilitating global investment, Cayman benefits including investment into EU countries.

For example, IMF data demonstrate that foreign direct investment from EU countries into Cayman is about $45 billion US dollars. However, investment flowing from Cayman to the EU amounts to about $201 billion.

Not only is Cayman conducive to the effectiveness of global investment flows, but it also has the level of transparency necessary for the tax authorities in partner jurisdictions to take action where necessary.

These points are only strengths when supported by a strong regulatory environment and cooperative framework. And over the last 20 years, as the world has changed, we’ve kept pace and sometimes gone beyond these global standards.

Like pressure upon coal, we’ve learned from our experiences that participation and adherence to globally recognised standards has not hurt our business. If anything, it has benefited us. We increasingly attract good business and, just as in your country, we are humbled by the fact that good business allows us to provide a high level of social services for persons in our country who are in need and indeed, to occasionally provide assistance to other countries.

But we also engage in transparency discussions and initiatives in order to help raise the level of dialogue, so that we do focus on the correct variables in order to achieve transparency.

Jumping from one mechanism to another, without assessing results and more damaging, building the mechanisms on falsehoods, compounds the inherent complexity of international regulation. Even more concerning, it contributes to ineffectiveness. When we focus so intently on the wrong key variables in the global financial services ecosystem, we make it impossible to achieve the transparency outcomes we are working so hard to achieve.

Ladies and gentlemen, simply put, Cayman’s primary function in the ecosystem is to provide a market in which investment flows can be efficiently and effectively deployed around the world. And due to our adherence and ongoing support of international standards, international competent authorities, including the relevant authorities from each EU Member State, have access to the information they need from Cayman to protect their own tax bases. And furthermore, Cayman’s self-sufficiency contributes to the stability of the global economy.

Again, I thank you the audience and CEPS for the opportunity to answer your questions. This gives us an opportunity to continue challenging our assumptions about our regime, so that we can become even better global citizens.

But I do urge you to be open minded as well, to challenge your own assumptions about the global financial services ecosystem. I believe it’s fair to say that all of us in this room support enhancing that ecosystem through honest dialogue, in order to provide fairness, and benefits and opportunities for all peoples, in all countries.

 

For more information, please contact the Financial Services Secretariat at (345) 945-5819 or via email at financepr@gov.ky.