GAO report fires more shots

(CNS):  While the Cayman Islands government has said it is far from happy about the most recent report from the United States Government Accountability Office (GAO), which once again places the jurisdiction in the US firing line, it is not surprised by it. This report criticizes US companies, particularly those which have received bail out cash from the government, with subsidiaries in what it describes as tax havens, such as the Citigroup which has 90 subsidiaries in Cayman.

Released on Friday 16 January by Democrat Senators Byron Dorgan and Carl Levin, the report forms part of a continued barrage of criticism in recent months which the CI government considers unfounded and misplaced.  Commenting on it, the Portfolio of Economics and Finance said that, although not surprised by it, the Cayman Islands government took the same position that the US treasury outlined in a letter submitted to the authors and found on page 59 of the full report – International Taxation: Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions

“We are in agreement with the comments made by the US treasury that the definition of ‘tax haven’ is problematic and it has listed all low or no tax jurisdictions as such which is unhelpful,” said Ted Bravakis, the Director of the Public Relations Unit. “What is interesting is that many of these corporations which have subsidiaries either here in the Cayman Islands or other offshore fFinancial service centres, many actually have their headquarters registered in Delaware in the United States.”

The US Treasury Department  submission criticizes how the GOA report has listed all low tax or no tax regimes together and notes that there is no agreed definition of a tax haven. In a letter on behalf of the department Deputy Assistant Secretary for International Tax Affairs, Michael Mundaca, explains that in try to simplify what is a very complex financial area, the GOA leaves itself open to misunderstandings and mistakes.

“The lack of a universally accepted list of ‘tax havens’ simply reflects the fact that the term does not have a universally accepted definition. That lack of consensus results from the fact that the different problems presented by the so-called tax havens often involve different groups of countries,” Mundaca wrote. He explained that the list of countries which will not agree to exchange tax information is not directly related to countries that do not have direct taxation.

Bravakis said the CI government agreed with Mundaca’s conclusion that any list of countries would be under inclusive and over inclusive depending on the issues and thatsuch lists could be regarded as black lists, which he said, “..may inappropriately negatively affect our economic and other relations with listed countries.”

The report, however, lists the US major companies, including financial organizations, which many people in OECD countries are blaming for the current global crisis and will not easily understand how organizations like Citigroup can have 90 offshore subsidiaries in Cayman and still need government bail out funds. The report also shows Bank of America Corporation as having a total of 115 subsidiaries in various offshore centres, 59 of which are here in Cayman. General motors, one of the US car firms that went to the US government for help to rescue the industry recently, also has 113 subsidiaries, only 4 of which are in Cayman.

As a result of this list, both US senators have heavily criticized the way in which corporations use offshore centres and have vowed to introduce legislation to stop them from doing so. "I think we should take action to shut down these tax dodgers and we will be introducing legislation to do just that," Dorgan said.