Tax law changes pave way for wider revelations

(CNS):  Amendments passed in the Legislative Assembly on Friday, 19 December, to the Tax Information Authority Law will allow the Cayman Island government to give more information relating to business conducted here in regards to tax matters in the countries of origin of those involved. The changes will enable Cayman to enter into bi-lateral tax agreements with other jurisdictions to reveal more information regarding accusations of tax avoidance.

As a result of various international obligations, the Cayman Islands already provide information regarding tax information to other jurisdictions. These amendments widen the scope of information including documents and correspondence. The primary purpose of the bill however, is to allow the government to enter into treaties with other countries without falling foul of the country’s strict privacy laws.

The law has raised controversy on both sides of the debate as some say it has been enacted too quickly and does not go far enough and others have raised concerns about where information about local off-shore businesses would be revealed and to whom .

Given the international climate and issues relating to offshore tax havens, the amendments could go some way to help Cayman silence some of the critics and demonstrate the islands’ strong commitment to meeting all international obligations.

Minister with responsibility for the offshore sector, Alden McLaughlin, recently said in the wake of criticisms that Cayman had already established that the financial services sector was not built around tax evasion. There had been issues regarding the establishment of treaties with some countries as he said they tend to be a one-way street, with Cayman giving everything and receiving no business benefit in return.

Tim Ridley, the former Chair of The Cayman Islands Monetary Authority, noted that the problem was a failure of Cayman to keep up the Tax Information Exchange Agreement talks with onshore jurisdictions. “In 1998, when the OECD first prepared its list of non cooperative tax havens, the Cayman Islands narrowly avoided being listed because it gave an advance commitment to cooperate by eliminating what were perceived to be unfair competitive tax practices, by enhancing transparency and by entering into exchange of information agreements on tax matters,” said Ridley.

Since then, Cayman entered into the first Tax Information Exchange Agreement with the USA and implemented the EU Savings Directive. But other negotiations have been stalled and Ridley believes Cayman needs to renew its efforts in order to stay in the OECD’s good books.

However, McLaughlin has said that the negotiations have been one-sided and Cayman will not sign deals that give the jurisdication no benefit. “We have no difficulty with the concept of effective cooperation in tax matters,” he said recently in the local press. “Our difficulty arises where not only is such cooperation a one–way street, but where we are also expected to stand in the middle of that street and be run over.”

With a deterioration recently in negotiations over Tax Information Exchange Agreements and Cayman’s failure to make it into the most recent ‘green list’ of what the OECD sees as jurisdictions following the rules, the Minister said it was disappointing.

Whether the new law will pave the way for more effective agreements remains to be seen and a number of those in the financial sector have already raised concerns that the amendments have been passed with a lack of transparency and discussion.