President Obama’s ‘notorious tax havens’

On Monday May  4, 2009, US President Barack Obama took the first steps toward making good on his campaign promise to finance his initiatives and social programs “by closing corporate loopholes and tax havens that don’t help America grow”.

President Obama served notice to offshore jurisdictions worldwide, announcing his intentions to reshape the US Tax Code and, in the process, eliminate the loopholes that allow U.S. corporations to use offshore financial jurisdictions. President Obama highlighted the Cayman Islands as one of the “notorious tax havens” targeted as a financial jurisdiction they feel is assisting U.S. corporations and individuals to avoid potential tax exposure.

Similar sentiments were echoed by Prime Minister Gordon Brown on March 4, 2009 before the U.S. Congress, "How much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and outlaw offshore tax havens?"

What’s at stake for the US and UK? The Obama administration states that closing these loopholes would generate approximately $200 billion in tax revenue over the next decade. In a report by the U.S Government Accountability Office “Eighty-six of the 100 largest publicly traded U.S. corporations had foreign subsidiaries and sixty-three of the 100 largest publicly traded U.S. federal contractors in terms of fiscal year 2007 contract obligations, reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions.” By some estimates reported in The Wall Street Journal “$700 billion or more in U.S. corporate earnings have accumulated in overseas accounts in recent years.” In the U.K. the BBC has reported that “According to one estimate tax havens cost the U.K. revenue at least £18.5billion every year – a loss which has to be made up by ordinary tax payers.”

It is therefore understandable that we find ourselves under attack from foreign governments seeking to recoup some of these losses.

Governments around the world have communicated their desires to shut down offshore jurisdictions for years, but none have been as persistent as the current administrations we now face. They have been backed into a corner and are now forced to find funding while facing a global economic crisis. However, with the current status of the world economy the consequences that would come with these tax initiatives are far more widespread and damaging than the administrations wants to admit.

The proposed changes to tax codes would leave multinational corporations at a great disadvantage, essentially leaving them unable to compete against companies operating in countries with less tax exposure. Such a scenario would ultimately lead to many of the companies the administrations are trying to protect, vulnerable to takeover by foreign competitors.

Some estimations state that approximately 50% of our GDP can be attributed to the financial services sector. However I believe that the loss of any portion of this industry would have a much more severe impact that 50%. We cannot pretend that this will quietly go away; instead we now have to be proactive and deal with the reality that these administrations want their money back.

At last month’s G20 meeting in London the so called "notorioustax havens" had little or no representation at the table during discussions that have the potential to significantly impact us. This is not just a problem for Cayman; these initiatives will impact many of our neighbours including the Bahamas, Bermuda, British Virgin Islands, and the Turks and Caicos.

I find it curious that the countries with so much to lose have not come together to refute the claims made against them. For example, at last months Summit of the Americas, the Cayman Islands was not represented. It is ironic that the countries we find pointing fingers at our financial industry today such as the US and UK fail to recognize the regulatory failures in their own systems; essentially trying to pass the buck on to countries with little voice on the world stage.

The global economic meltdown has just started to have visible effects on our Islands, and it is now time for us to reassess ourselves and start the reforms and re-inventions necessary to sustain ourselves through these uncertain times and beyond. This is just one of the many issues confronting us today.

The good news however, is that we still have the capable people and financial resources necessary to develop the policies and strategies necessary to reform and re-invent the product that will allow us to adapt to these difficult times. There is no international rescue plan for the Cayman Islands; we must rescue ourselves.

In order for Cayman to remain a significant player in the world financial industry we have to utilize the best and brightest minds we have available, in both the public and private sectors.

However time is against us and the time for talk is over. It is now time for us to take action but the first action must be to elect the right people on May 20, 2009.

Derrington Bo Miller is an Independent Candidate for the District of George Town