Travers Issues Robust Cayman Defence

by Phillip Morton, Investors Offshore.com

05 August 2010

In an open letter, Anthony Travers, the Chairman of Cayman Finance, has denounced US Senator Carl Levin’s endorsement and usage of a report issued by the ‘Business and Investors Against Tax Haven Abuse’ group, which Travers has said is fallacious and 'misguided.'

Last month, Sen. Levin, a long-time anti tax haven campaigner, used this report to justify the introduction of a number of provisions that would give the US Treasury Department the authority to block transactions with foreign banks which are found to be “impeding US tax enforcement”. Other proposals would prohibit firms from transferring intellectual property offshore to avoid US taxes, and ban "phony offshore corporations", which were said to report income offshore but have their central place of management in the US. Disincentives to discourage government contractors from using offshore jurisdictions, were also advocated, with measures including tougher penalties.

The text of Travers's letter, dated July 27, is reproduced below:

"Your support for the group calling itself 'Business and Investors Against Tax Haven Abuse' necessitates this response. Your endorsement of that organization’s recent report well might lend credibility to statements that are in error and recommendations that are misguided."

”The report that this group issued this week perpetuates the myth that the Cayman Islands are a ‘tax haven’, or operate secretively, which they emphatically are not, and do not. To be very clear, all Cayman Islands companies are required to operate on the basis of full tax and anti-money laundering transparency under our own domestic law and under existing treaties with the US and many other G20 jurisdictions. Further, profits generated in the US are taxed in the US. In the latter regard, the tax deferral provisions of which these groups complain are provisions of domestic US law, which it is absolutely within your authority to amend. But, changing these laws has nothing whatsoever to do with the idea of tax evasion, and we do wish you would be careful about noting the difference.”

“We respect absolutely that you and the Congress as a whole may favour taxing US multinationals twice, and you may well believe that US companies will still be competitive internationally if you do so. However, please do not confuse people by suggesting that you intend to close some offshore ‘loophole’ when what you actually object to is a provision of domestic US law on which US corporations are fully entitled to rely. Furthermore, as a sovereign tax jurisdiction, we have the right to set our own rate of tax — just as Ireland and other jurisdictions do — that is all in accordance with the rule of law, and neither we nor these other jurisdictions can properly be accused of thereby undertaking anything ‘abusive’. The only question is whether those US multinationals are making use of our jurisdiction in accordance with US law which under current US law is categorically the case.

"Consider these points:

• “The Cayman Islands have full income tax transparency with the United States and proactive tax reporting with 27 members of the European Union. The US Department of Justice has had full authority to conduct a criminal investigation regarding any file in the Cayman Islands since 1990;
• As a member of the International Organization of Securities Commissions (IOSCO), the Cayman Islands has full 'regulator-to-regulator' disclosure with all IOSCO regulators;
• The anti-money laundering legislation of the Cayman Islands has been evaluated by the International Monetary Fund and by the Financial Action Task Force, and has been found to be superior to that of the United States and most EU jurisdictions;
• The report also ignores the very substantial benefits that the Cayman Islands’ financial industry confers on the United States’ economy;
• One key result of our international financial business in Cayman is the funding of trillions of dollars from the international capital markets onto the balance sheets and trading accounts of US financial institutions. The essential question is not why that occurred (although that is of interest) but what the US financial system would have looked like without that assistance;
• US-based fund managers are taxed on their profits under US state and federal law. The distinction between the Cayman fund and the fund manager is maintained in accordance with the rule of law and is a recognized distinction under US and Cayman legal principle;
• The favoured location for inward investment by Cayman funds is the United States; the preponderant flow of capital is from the Cayman Islands into, not out of, the United States.”

“We respect that the taxation of US corporations and managers within the territory of the United States is a matter for you, but bear in mind that there is nothing that requires a US fund manager to remain in the US if his return becomes non-competitive."

“This is a global marketplace, and the financial universe no longer revolves around the United States. Your message seems to be that low (or no) tax jurisdictions hurt the US economy and cost US taxpayers’ money. In so far as the Cayman Islands are concerned, where tax evasion is off the table, that is simply wrong, and the groups who you support gravely misunderstand the position. US domestic spending and deficits hurt the US economy, high tax policies make the US less competitive in the world economy, and, thankfully, places like the Cayman Islands have in a fully transparent and accountable manner provided a massive source of inward capital flow and taxable income for the US.”

.

Recommended

Write a comment