Following yesterday’s announcement that President Barack Obama intends to introduce measures to crack down on US companies that attempt to hide their assets in offshore tax havens, chair of the Cayman Islands Financial Services Association, Anthony Travers, has said that it will have little detrimental impact on the jurisdiction and will hopefully demonstrate that the Cayman Islands is an essential part of the US financial architecture.
During his speech yesterday, Obama urged Congress to close loopholes in the federal tax code that he believes will save some 11 million jobs projected to move overseas in the next decade, as well as an estimated $210 billion in possible lost tax revenues. Obama’s concern is that the current tax code rewards US corporations for creating jobs overseas and penalizes them for doing it at home. The White House is reportedly expecting a major battle with corporations, lobbyists and their allies in Congress over the reform package. Yesterday a number of democratic senators said a closer look would be needed to ensure there were no unintended consequences regarding the proposals.
Even Senate Finance Committee Chairman Max Baucus called for “further study” of Obama’s proposals within minutes of the president’s announcement, according to Bloomberg. Representative Joseph Crowley from the Ways and Means Committee said he was wary because the tax changes would hurt Ctigroup, his New York district’s largest private-sector employer.
Meanwhile in Cayman, in the wake of the announcements, Travers explained that CIFSA recognizes that the issue of whether US subsidiaries should be entitled to tax deferral is entirely a matter of United States tax policy.
“Some would argue that it is short sighted to suppose that tax policy can dictate on the issue of where US corporations should most economically locate manufacturing operations and whether US tax revenue will be increased in the long term by taxing the offshore profits of US Companies given tax deferral effectively serves to boost capital for reinvestment,” he said. However, noting that was a matter for the US Treasury, he also said it was unlikely to seriously impact Cayman’s business. "Since the number of US corporations that have subsidiaries in the Cayman Islands that have benefited from this proposal is statistically insignificant, CIFSA doubts that there will be any material adverse effect to the Cayman Financial Industry,” he added.
“CIFSA however wholly endorses President Obama’s proposal that additional reporting requirements are placed on those US citizens who seek to evade US taxation. Only thereby will the President come to understand that because of its full tax information treaty with the US, United States citizens and corporations do not evade tax through the Cayman Islands. Rather, the international capital markets use those 12,000 companies to invest into the United States and that Cayman is therefore an essential part of the US financial architecture.”
Given Obama’s comments yesterday, however, convincing the US that the Cayman Islands is a necessary part of the US economy remains challenging as the US President once again focused on what he has called the biggest tax scam in the world -- Ugland House.
“On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 businesses claiming this building as their headquarters,” Obama said. “And I’ve said before, either this is the largest building in the world or the largest tax scam. And I think the American people know which it is: The kind of tax scam that we need to end.”
However, Maples’ senior partner Charles Jennings defended his now infamous office and told Bloomberg yesterday that Obama was mistaken. “I’m sorry to disappoint anyone, but our office is neither the largest building in the world nor a centre of financial misconduct,” said Jennings.
“Having a registered office address in the Cayman Islands is driven by commercial considerations, not by tax avoidance. It allows companies to raise capital and conduct global business.”
Reports across the US media yesterday focused on which leading US corporations have offices in offshore financial centres and used many that are listed here in Cayman as an example. Bloomberg cited US Del Monte Fresh Produce Inc., whose corporate headquarters is in Coral Gables, Florida, but which also has a registered office at Walker’s House in George Town. Bloomberg stated that Del Monte’s effective tax rate for 2008 was 3%, up from 1% the year before and said that Del Monte spokeswoman Vidya Samsundar had no immediate comment on why the company is incorporated in Cayman.