Cayman Braces For $50 Million Loss From Savings Tax Directive

by Amanda Banks, Tax-News.com, London

04 February 2003

A report conducted on behalf of the Cayman Islands by Cambridge-based economics expert, Professor Sir James Mirrlees has warned that the jurisdiction faces a potential economic loss of around $50 million per year as a result of the European Union's Savings Tax Directive, which will directly affect the jurisdiction, as a UK Crown Dependency.

According to the Cayman Net News, the report suggested that: 'The (EU) Directive will change the relative attractiveness of investing in the Cayman Islands rather than, say, Hong Kong or Singapore. That is bound to induce many investors to hold less of their wealth in the Caymans and more in other countries not subject to the Directive.'

Professor Mirrlees noted that it is unlikely that there will be an immediate mass exodus of funds in 2004, suggesting that the drift to other jurisdictions is likely to be a more gradual one. However, he concluded that despite the good reputation built up by the Cayman Islands over the years:

''The brute fact is that the expected return on investment, net of tax, for many Europeans placing their funds in the Cayman Islands will be less than the expected return in a non-reporting country, also with no withholding tax. Capital, in the form of investments in Cayman Institutions, can be moved cheaply and quickly.'

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