(CNS Business): Responding to a report on a major US television network news station on the use of offshore accounts in the Cayman Islands by Mitt Romney and the corporation he once ran, Cayman Finance said it displayed a total misunderstanding of the role of the Cayman Islands’ tax neutral framework. The Cayman government has also issued a statement calling allegations in the report of improper secrecy in its dealings as an offshore jurisdiction "unfounded". The report on ABC News, which referred to the Cayman Islands as “a notorious Caribbean tax haven, where secrecy is the rule” (an updated video today refers to Cayman as “one of the world’s great tax havens”), said the Republican frontrunner for nomination to run for president used “tax loopholes available only to the super rich”, which resulted in a 15% tax rate, much lower than most Americans.

Washington lawyer Jack Blum told ABC News, “If you have a Cayman corporation, you do not pay any tax to the Cayman government, and the Cayman Islands don’t report any income made to the US government.”

ABC News said Bain Capital, the private equity partnership Romney once ran, had "set up some 138 secretive offshore funds in the Caymans, which are nothing more than a post office box.”

"Contrary to the ABC News report, the Cayman Islands is not a secrecy jurisdiction that facilitates the avoidance or evasion of taxes by US or other persons," the Cayman Islands Ministry of Finance said in a statement Friday. "Although the Cayman Islands does not itself impose income taxes, it shares financial and other confidential information with the IRS and other US federal agencies through various agreements with the US Government. That includes information requested for purposes of enforcing US income tax laws."

The CIG explained that, as in the US, private information is generally protected from public disclosure because such disclosure is not for law enforcement purposes and the information could be used for improper or harmful purposes. "The registration of companies in the Cayman Islands and arrangements for receipt of mail at their registered addresses are essentially the same as arrangements for companies registered in Delaware and elsewhere in the US. Furthermore, despite the unfounded allegations of improper secrecy made in its report, ABC News was able to verify the existence of various investment funds through documents which are publicly available from the Government of the Cayman Islands." (Full statement from the Cayman government's Ministry of Finance attached below.)

“The report displays a total misunderstanding of the role of the Cayman Islands’ tax neutral framework,” Cayman Finance Chairman Richard Coles said Thursday. “All international investors are ultimately responsible for paying their taxes in their home country under their respective laws and there is nothing in the Cayman Islands laws that interferes with that.”

Coles explained in a release from Cayman Finance that not only does the Cayman Islands laws not prevent investors from complying with their tax obligations but that in fact the Cayman Islands are involved in a number of initiatives that encourage full cooperation with US authorities on numerous levels in the area of international cooperation on tax matters. Some of these include; a bilateral agreement which has been in place since 2006, a mutual legal assistance treaty and the Cayman Islands involvement with, and recognition by, the OECD Global Forum which focuses on tax information exchange.

"We do understand that this is election season in the US and typically these types of reports surface as part of that process but it is unfortunate that despite significant evidence to the contrary, journalists would continue to suggest that the laws of the Cayman Islands encourage avoidance of tax," Coles said.

"In fact, our tax neutral framework has played an important role in enabling ordinary Americans to efficiently invest via their pension funds and many US corporations have been able to maintain their international competitiveness through the use of Cayman Islands structures," Coles said. “We are always happy to explain the nature of our regime to journalists and we continue to welcome their queries on how we conduct financial services business in the Cayman Islands.”

The ministry statement noted that Cayman’s legal, regulatory and judicial framework has been recognised as being of high standard by the OECD and other international organizations at the forefront of global tax-information exchange efforts. "The Cayman Islands also has been recognised by the US Department of Justice and the IRS for its high level of cooperation with US law enforcement efforts. For example, in a 2008 report by the US Government Accountability Office, the US Department of Justice describes the Cayman Islands as “one of our best partners” among offshore jurisdictions in law enforcement matters.

"Furthermore," the ministry said, "small international financial centres are an important element that supports the global economy, the ministry maintained, saying that they foster international trade and economic growth as facilities for trade and financial services intermediation, allow collective investment among investors with varying characteristics, provide liquidity to markets, lowering the cost of capital for business, and provide tax-neutral, low-cost facilities for cross-border foreign direct investment aiding economic growth [for G20 countries]."

The Romney campaign also issued a statement saying, “ABC is flat wrong. The Romneys’ investments in funds established in the Cayman Islands are taxed in the very same way they would be if those funds were established in the United States. These are not tax havens and it is false to say so.”

Related articles:

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Romney and Cayman Islands, commentary on Offshore Green

Mitt Romney's Cayman Islands skeletons pop out, commentary on Tax Justice Network