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Cayman Hits Back Over Senate Probe

by Amanda Banks,, London

11 June 2007

The Cayman Islands authorities have hit back following the US Senate Finance Committee's announcement last week that it had requested that the Government Accountability Office (GAO) investigate the Ugland House building in the Cayman Islands, which, as the Cayman headquarters of international law firm Maples & Calder, acts as the registered office for thousands of companies, US and otherwise.

Maples and Calder is the largest law firm in the Cayman Islands and has practised Cayman Islands law for more than 40 years. The firm opened additional offices in Hong Kong in 1995, London in 1997, the British Virgin Islands and Jersey in 2004, Dubai in 2005 and Dublin in 2006. It now has over 550 lawyers and staff worldwide.

Asking the GAO delegation to evaluate the associated US tax compliance implications of the use of the building as the registered office for thousands of US firms, Finance Committee Chairman, Senator Max Baucus (D-Mont) argued that:

“As the global economy grows, so do its complexities, and that makes it increasingly difficult to track transactions that are legally subject to taxation. I want the GAO to go looking in one of the most likely places shady tax transactions could be sheltered, and that’s this building in the Caymans.”

“We need to make sure American companies have access to healthy foreign trade, and at the same time make sure honest American taxpayers are not footing the bill for corporations that aren’t paying their fair share. If American companies are setting up shop at the beach just to avoid their tax obligations, we can’t keep our heads in the sand," added Baucus.

Later in the week, the Cayman government defended the jurisdiction's acknowledged reputation as an established finance centre, compliant with internationally - and thus presumably US - recognised standards.

In a statement, the Portfolio of Finance & Economics observed that:

"The Cayman Islands financial services industry operates on the principle that the presence – not the absence – of effective laws and regulations has contributed to our growth as an institutionally-focused, specialised financial services centre over the past 40 years."

The department continued:

"The law enforcement, regulatory and tax information exchange channels between the Cayman Islands and US– some dating back more than 20 years – offer no protection for Americans who are seeking to evade their tax obligations. The Cayman Islands has solid working relationships with the Treasury (including the IRS), the SEC, and the Department of Justice; a product of extensive cooperation between our two countries."

"Cayman Islands Government officials have reiterated this point on many occasions both in person and with the support of our counterparts within various areas of the US administration."

The Cayman authorities concluded:

"Substantially all of the answers to the questions that the Senate Committee on Finance is requesting the GAO collect are fully in the public domain. The Cayman Islands (and the companies established here) provide an effective and cost efficient tax-neutral platform for international payment flows, which typically raise finance more cheaply or package financial risk so that it is more easily borne by the markets. This ultimately benefits onshore businesses, their shareholders, their consumers and their governments."

As part of efforts to dispel the misconception of the jurisdiction as a "tax haven" by US politicians such as Senator Baucus and Senator Chuck Grassley, the Finance Committee's ranking member, the Cayman Islands has developed a detailed document, entitled, 'The Facts About Company Formation in the Cayman Islands'.

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