Financial industry unconcerned about new global tax rate
The Cayman Islands has nothing to fear from a new global minimum corporate tax rate, financial industry leaders insist.
A panel of experts presented a united, upbeat front, suggesting the new rules – intended as an international clampdown on large corporations that shift profits across borders to avoid taxes – could be good for Cayman.
Steve McIntosh, CEO of Cayman Finance, said he was not losing sleep over the policy.
He said Cayman’s position in the global economy was not dependent on tax structuring or tax avoidance.
Speaking at the RF Cayman Economic Outlook Conference on 16 March, McIntosh said the financial services sector would not have much trouble complying with the new standard.
“Overall it is not going to have a material negative impact on the financial industry.”
He said three of Cayman’s key financial industry sectors – funds, structured finance and trusts – are excluded from the global minimum tax, while the exposure in the banking, insurance and reinsurance industries is relatively low.
The global minimum corporate tax means multinational companies that book profits in low-tax jurisdictions, including the Cayman Islands, will have to pay top-up taxes in the country where the profits were accrued, up to a minimum level of 15%.
The measure was designed to stop major companies, like Amazon and Google, that operate across multiple jurisdictions, from ‘profit shifting’ to avoid corporate taxes in the areas where they earn their biggest income.
So far, nearly 140 countries have agreed to cross-border cooperation to apply a minimum tax rate of 15% on large multinationals.
Some low or zero corporate tax jurisdictions, like Bermuda and Jersey, are considering implementing their own tax regimes in an effort to allow their national treasury’s to profit from the measure.
Julian Morris, a Cayman Islands-based economist who was also a guest on Thursday’s panel discussion at the Kimpton Seafire Resort, suggested this would effectively defeat the object of the measure – which is intended to repatriate wealth to the US and European countries.
Morris suggested this reaction from competitor jurisdictions would play into Cayman’s hands.
“Cayman will remain a pure tax-neutral jurisdiction and therefore could become even more attractive as a domicile,” he suggested.
McIntosh added that implementing a brand new corporate tax regime – as Bermuda has mooted – may add layers of complexity and cost that international businesses don’t want to deal with.
He believes it could backfire and potentially drive business out of that jurisdiction.
Cayman’s strategy will be to ensure compliance with the global minimum tax regime but leave the actual taxation to the larger countries.
“The Cayman Islands position has always been that tax on profits should be paid where profits arise,” McIntosh said.
“As long as that continues and as long as the rich countries that put these initiatives together want capital to continue to flow efficiently across borders, I think the Cayman business model is pretty safe.”
The Organisation for Economic Cooperation and Development – which represents 38 of the world’s biggest economises – estimates the global minimum tax would result in annual global revenue gains of around US$220 billion.
Compliance ‘not onerous’ for Cayman
McIntosh said it would not be onerous to comply and doing so would help resuscitate Cayman’s image internationally, neutralising criticism that the jurisdiction is helping businesses avoid tax.
“All of these initiatives that we comply with take criticism off the table one by one.”
Morris noted his belief that the tax would be harmful to global economic growth and could tangentially impact Cayman that way.
Marla Dukharan, a Caribbean economist who was also on the panel, suggested the tax initiative was more about politics than economics.
She said the figures involved did not justify the ‘global drama’ it had created and suggested it was another measure for larger wealthy countries to target smaller jurisdictions.
“They want to hold us accountable for things they don’t hold themselves accountable for,” she said.
The Cayman Islands government has previously described the global minimum corporate tax as “manageable” because Cayman has “minimal exposure” to multinational companies.
The financial services industry’s focus on investment funds and lack of double-taxation agreements means that the minimum tax should be less of a concern, according to Financial Services Minister André Ebanks.
Importantly, the Cayman Islands will not need to, and has no intention to, change its tax system.
Source: Cayman Compass
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