Responding to public and media pressure brought on by the so-called Panama and Paradise papers exposés, the European Union has been compiling, tweaking and talking for months about its “blacklist” of “non-compliant” jurisdictions. On 5 December, it published a working list of some 17 jurisdictions, which by 13 March, amid much public discussion and media comment, it had reduced to a final nine (while stressing that this list would be updated at least once a year, if not more often if necessary).
Last week, the UK Parliament’s Treasury Sub-Committee announced a “Tax Avoidance and Evasion inquiry” into “what progress has been made in reducing the amount of tax lost to avoidance and offshore evasion”, even as the Labour MP who chairs the Sub-Committee shared his apparently deeply-held views on the matter, in a Guardian newspaper column.
Here, Anthony Travers OBE, a senior partner with the Cayman law firm Travers Thorp Alberga and chairman of the Cayman Islands Stock Exchange, asks – on behalf, he says, of Her Majesty’s 14 Overseas Territories and three Crown Dependencies – “the seemingly obvious question: ‘Non-compliant with what?'”
In the light of FATCA – the US’s legislation aimed at forcing all US citizens to declare their assets to the IRS –coupled with the unprecedented global tax transparency and tax neutrality that will be evidenced over the next few years by the OECD’s Common Reporting Standard, currently coming into force and signed up to by more than 100 countries, and similar schemes establishing beneficial ownership registers, it might have been hoped that common sense might by now have restrained further talk of “tax haven lists”.
At least until these various new, and significant, programmes have had time to bed in.
But it seems not. We need look no further than a December 2017 briefing of the European Parliamentary Research Service, entitled Understanding the rationale for compiling ‘tax haven’ lists, authored by Cecil Remeur of the Members Research Service, for an example of the hundreds of pages of irrelevance that are still being produced on the subject.
Remeur’s target, as so typically is the case in such treatises, is the offshore financial centre, or – as it is most often (and pejoratively) referred to in such situations – the “offshore tax haven”.
He defines it here, even as countries around the world are moving to comply with the CRS and new beneficial ownership rules, as all those jurisdictions that make it “possible to escape taxation: low or no taxation, [and which offer] fictitious residence ([with] no bearing on reality), and tax secrecy”.
The last two features, he continues, with the zeal of a socialist high tax campaigner from the 1970s, “are key for hiding the ultimate beneficial owner and consequently, for money laundering”.
Remeur’s tests for determining whether a jurisdiction actually is a tax haven do, though, seem to vary. A footnote reference, for example, states that “in a nutshell, a tax haven could be defined as a low tax jurisdiction which provides opportunity for tax avoidance”, all of which flawed analysis is confirmed with the mandatory flourish reserved for such occasions: a requisite, hackneyed reference to the OECD 1998 Harmful Tax Competition Initiative. As if to say “I rest my case””.
The reasons why this Eurospeak is now irrelevant becomes evident on the most cursory review of the facts.
First of all, for nearly two decades now, full tax transparency has been available to tax authorities in all the major EU-member countries of entities in the Cayman Islands and other British Overseas Territories and Crown Dependencies.
Currently the US, UK and most of the main EU countries have around 35 tax information exchange agreements in place, with that of the Cayman Islands dating from the early 2000s. And the legal channels that exist in relation to criminal assistance typically date from the 1980s, depending on the jurisdiction in question. Yet despite this existing degree of transparency and long-established ability to enforce existing tax avoidance regulations, this has yet to result in any statistically-relevant evidence of tax evasion or avoidance.
What’s more, thanks to the Common Reporting Standard, as mentioned above, even greater transparency is coming into play, as the more than 100 countries that have signed up to it begin automatically exchanging tax-relevant information with one another.
(The US, it is worth noting here, isn’t participating in the CRS, arguing that it doesn’t need to, as it has its own tax information disclosure scheme, FATCA – although, of course, this conveniently offers minimal reciprocity to those countries that provide it with the account details of Americans.)
Thus the bewilderment, for many of those based in countries on the EU’s “blacklist” and its “grey list”, as to what “secrecy” Mr Remeur and others in the EU are talking about.
Either Remeur thinks the OECD’s Common Reporting Standard won’t work – (and actually, we are ourselves sceptical that it will, but for different reasons than I suspect Mr Remeur would give) – or else he is effectively saying that you believe the EU authorities are incompetent.
Either way, he cannot both eat his croissant and have it too.
And in what way, exactly, is the more than $4trn of audited structured investment through recognised Cayman Islands legal vehicles, which issue enforceable security interests to investors and hold enforceable title to their investments, to be regarded as” unreal”?
References to the “Panama Papers” exposé, meanwhile, have no bearing on the Cayman Islands, the other Overseas Territories, or the Crown Dependencies.
As for the “Paradise Papers”, which involved a Bermudian law firm, these stolen documents have been widely acknowledged to have failed to produce any convictions in relation to tax evasion, money laundering or anything else meaningful.
Their most significant contribution to the global conversation was to highlight the way tax experts, often with considerable skill and an understanding of their clients’ individual needs, have made use of existing and legitimate tax avoidance programmes, provided to them for this purpose by governments.
Meantime, given the fact that entities in such European Union jurisdictions as Ireland, the Netherlands and Luxembourg have, evidence suggests, been making use of the OECD’s existing – and I would argue, entirely flawed – double tax treaty structures to engage in a form of tax avoidance, to the tune of hundreds of millions of dollars annually, it is hard to see how anyone in these jurisdictions could then possibly point, with a straight face, at the Panama and Paradise papers exposés as evidence of problematic tax avoidance.
The Beneficial Ownership Question
References to “hiding the ultimate beneficial owner”, meanwhile, are equally ill informed. The Cayman Islands, along with the other Overseas Territories and Crown Dependencies, has maintained 10% beneficial ownership records for more than two decades. These records have all been available to law enforcement and tax authorities, and yet, again, there’s been no discernable evidence revealed as a result of tax evasion or tax avoidance having taken place.
Given this historic transparency, we can predict that the new, and in some cases revamped, beneficial ownership registers now being introduced in various jurisdictions are unlikely to turn up any astonishing revelations of previously-unrealised ownerships.
The “harmful tax” shibboleth
As for European Tax Commissioner Pierre Moscovici’s comments to the effect that investment in and through the Cayman Islands might in any way be “harmful” to Europe’s interests, I’m afraid they’re just economically flawed and intellectually bankrupt, however reassuring to his fellow Europeans, who, like him, might wish this were the case.
Investments made by Cayman Islands funds are inevitably into the financial markets of, or for the purposes of, acquiring assets in onshore jurisdictions, where those investments are necessarily taxed in accordance with the laws of those jurisdictions. It is up to onshore jurisdictions to settle their own incentives to promote inward investment.
The United States and the United Kingdom certainly do so. But so does France, which has just granted a five-year tax holiday to attract UK “Remainers” wishing to relocate in order to stay inside the EU after Brexit.
What it really boils down to…
In the end, once we cut out the redundant references flying around Europe to tax avoidance, tax evasion and money laundering – none of which can be substantiated in any statistically relevant way – what Mr Moscovici and the European Union’s position boils down to is simply this.
The European Union must increase its tax rates substantially, across all EU member states, to meet burgeoning social welfare costs in the face of a declining birth rate and increased longevity; and it will endeavour to do so by means of increasing taxes uniformly across the EU, through the Common Consolidated Corporate Tax Base initiative.
Given such a scenario, it would be a serious embarrassment to the bloc if it then were to have among its membership jurisdictions that sought to balance their budget by applying an indirect tax system.
Because if the EU is to survive, although no one wants to say it, it must have a global rate of tax and ideally, one that is set by Brussels.
When set against this vision, offshore financial centres emerge as a threat, not because they facilitate tax evasion, tax avoidance or money laundering, but because, with the lower-tax regimes, they represent a threat to any form of EU-driven, pan-global tax homogenisation effort.
In this scenario, Mr Moscovici emerges as a proponent of a new – and I would argue, troubling – twenty-first century colonialism, which seeks to overreach the territorial boundaries of the EU, with an increasingly unrealistic and out-of-touch fiscal policy.
The Cayman Islands’ indirect tax system, which involves no income taxes ( ie, import duties and land taxes etc) has operated for more than two hundred years. And unless and until the supposed “harm” it causes can be better articulated by the EU or the OECD, there is no reason to suppose it will not continue to do so.
Under Cayman Island structuring, taxes are paid where profits are made — which ironically is precisely what the OECD’s Base Erosion and Profit Shifting standard seeks to ensure.
Anthony Travers OBE is a senior partner with the Cayman law firm Travers Thorp Alberga, and chairman of the Cayman Islands Stock Exchange. The Cayman Islands is not on the EU’s tax haven “blacklist”, as published in February.