(CNS Business): The Cayman Islands has been named as one of the worst corporate tax havens in the world in a new report examining the impact that tax-dodging corporations have on the world’s poorest people. The report, by the international charity Oxfam, lists Cayman in second place behind Bermuda because of the zero-rated corporate income tax and what the charity said is a lack of cooperation with international efforts against tax avoidance.Responding to this latest critical report, Financial Services Minister Wayne Panton accused Oxfam of making errors on its list and of exploiting misinformed public opinion, as part of an agenda to influence the public policy of G20 countries.
“It is unhelpful at best,” Panton said about the report.
“Indeed, it may be detrimental to the overall shared goal of combating criminal behaviour and addressing income inequality. Oxfam’s overriding error is their failure to differentiate between capital flows and profit shifting.”
Panton explained that to engage in profit shifting, a country must attract significant multinational corporations, or MNCs. “Cayman does not have this type of business. We do, however, receive capital flows that are used to the benefit of other jurisdictions, via investment projects,” the minister added.
But Oxfam stated in the report that there is a destructive race to the bottom on corporate tax.
This has seen governments across the globe slash corporate tax bills to attract business. But that competition between governments in every region of the world to offer ever more favourable tax rates to global corporations and the super-rich is damaging their own economies as well as those of developing countries and is not in the public interest, the charity pointed out.
“Tax revenues are needed to fund public goods and services, which contribute to the reduction of poverty and to the development of social and economic infrastructure,” Oxfam said.
It added that the growth in the use of tax havens means countries are finding it harder and harder to tax income from capital. Government coffers are declining and the burden of tax has shifted toward poorer workers and small businesses and away from powerful conglomerates and the world’s high net worth individuals.
“Ultimately, the most harm falls on the public, which is faced with the triple impacts of a higher tax burden, declining public goods and services, and having to subsidise corporate profits and private wealth,” the report found.
Oxfam names on-shore countries as well as offshore financial centres, such as Cayman and Bermuda, but the charity is calling on world governments and corporations to facilitate much more transparency over who owns what and who pays tax where on their earnings and profits. The charity also raised concerns that in the country-by-country reporting between government authorities the information is still not public. This means developing countries cannot access the data.
Oxfam stated that until information about earnings and tax is more public, civil society cannot hold corporations and governments to account for their tax practices.
But Panton said that the Cayman Islands has never had a direct tax system, choosing instead an indirect system that adequately meets the needs of its population.
“There is, therefore, no ‘race to the bottom’ and no tax incentives system designed to target non-resident individuals or legal entities,” he stated.
Pointing to the array of information exchange mechanisms Cayman now has, including all three of the OECD criteria listed by Oxfam as important, the minister said that for more than a decade, Cayman has required the collection, updating and maintenance of information on beneficial owners of the legal entities in the jurisdiction. This information has been exchanged with tax and law enforcement authorities.
“Oxfam’s insistence on public disclosure of beneficial ownership information as part of this criteria is disingenuous as it conveniently ignores valid concerns regarding human rights and the fact that the majority of countries do not have public registers of beneficial ownership information,” Panton said.
As the Cayman Islands supports the BEPS inclusive framework, and country-by-country reporting in particular, Panton said the jurisdiction has begun the work to consider the relevant aspects of the initiative for local adoption next year.
“With our demonstrable history of upholding international standards and engaging with foreign authorities on anti-tax evasion measures and against other serious crimes, it is wholly inaccurate for Oxfam to include Cayman on its ‘tax haven’ list,” he said. “Rather, examining the Oxfam definition of a tax haven and the methodology that they have chosen exposes the flaws in their reporting,” the minister added in defence of the local offshore sector.
See the Oxfam full report here