The inaugural summit hosted by Cayman Finance on 6 May left those in attendance with a lot to think about thanks to a host of speakers who covered a wide range of issues, with many paying particular attention to domestic and international tax policies, reports Basia Pioro McGuire.
Cayman Finance Chair Anthony Travers said the board was delighted with the turnout.
“We had some 250 in attendance with standing room only and there wasn’t a spare seat at the close,” he said.
“We were treated to some of the finest speakers on their subjects who fully understood the highly complex nature of our financial services industry and why the imposition of direct taxation is not only counter-productive and will result in lower government revenues, but mimics the politics of failure,” he continued.
“It is unusual to have speakers of this quality in a one day conference and it was good to get validation of the macro picture and where we stand even if some of our fears were confirmed.”
Some might argue a highlight of the day’s proceedings was a rousing call by keynote speaker, former US House Majority leader, Dick Arney to stand up to bullying from supranational organisations like the OECD. The packed programme tackled a whole range of developments in tax policy both in Cayman and abroad, along with a number of other issues impacting the sector.
US tax policy merited some particular attention as a result of the new Hiring Incentives to Restore Employment, or HIRE, Act signed into law on 18 March.
Steven Cantor of Cantor & Webb elaborated on the act’s Foreign Account Tax Compliance Act provisions, which are designed to prevent US citizens from hiding their identities behind foreign corporations, trusts, foundations, investment funds and other types of foreign entities in order to evade US taxes.
Cantor explained the FATCA’s provisions include a 30 per cent withholding regime on United States source payments to foreign financial institutions, foreign trusts, and foreign corporations that do not agree to disclose their United States account holders and owners to the Internal Revenue Service.
Another provision is the requirement that United States taxpayers disclose their foreign accounts on their United States tax returns and that certain United States shareholders in passive foreign investment companies file annual reports with the IRS.
“It also includes an extension of the statute of limitations to six years for failure by a United States taxpayer to report certain offshore transactions and income; clarification of when a foreign trust is considered to have a United States beneficiary; and treatment of substitute dividend and dividend equivalent payments made to foreign persons under “specified notional principal contracts” as dividends for purposes of United States withholding tax, said Cantor.
The effective date of the withholding provisions does not start until 1 January, 2013, giving US citizens living in Cayman along with companies dealing with funds held by US citizens at least a few months to prepare.
But it wasn’t just tax policy on the conference agenda. In his opening remarks, Ministry of Finance Chief Officer Dax Basedo noted the Cayman Islands Government is still looking for ways to reduce the government’s 2010-11 budget.
He said government is encouraging investment that stimulates the economy and generates revenue, pointing to the planned Cayman Narayana Health University, which will include a 200 bed hospital.
Basdeo also laid out the government’s attempts to strengthen the Financial Services Secretariat within the Ministry of Finance, and noted the newly-formed National Investment Council is developing a coordinated economic development strategy to drive growth within the financial services sector.
He also discussed Cayman’s efforts to contribute to the development of global financial services standards in areas like tax transparency.
Speaking next on the agenda, Travers provided an overview of where Cayman finds itself in the international arena, suggesting a number of mischaracterisations aimed at Cayman were rooted in the hidden agenda of the OECD with respect to its interest in harmonising global taxes.
He also argued that Cayman’s financial services industry has to change if it is to maintain its significant contribution to government revenues, which has been pegged at over 50 per cent, as well as adapting to the demands of bodies like the OECD requiring proof of substantial presence in Cayman.
Arguing for long term security of tenure for high quality financial professionals Travers also noted an overall loss of jobs as a result of companies leaving for greener pastures was a loss to Cayman considering the large proportion of Caymanians benefitting from employment in the sector.
Next up was Richard Teather of Bournemouth University, who recently completed a report for Cayman Finance urging public expenditure cuts over taxation as the solution to tackling Cayman’s budget deficit. Dan Mitchell of the Cato Institute then presented his arguments supporting the theory that the true agenda of supranational organizations like the OECD was to discredit low-tax jurisdictions.
Next, Matthew Jones of the Alternative Investment Management Association outlined the objectives and political background to the European Commission’s new Alternative Investment Fund Managers directive and its possible implications for Cayman. While its stated objective may seem to be to rein in reckless fund managers, Jones made a persuasive case for the influence of the socio-political machinations taking place behind the scenes, saying that the negotiations are dominated by disagreements at the national level.
Gary Hufbauer of the Peterson Institute for International Economics followed up with a discussion of the impact of international tax proposals, including the possibility that international corporations will be taxed on their incomes overseas at the same rate they would be taxed in the US. He noted that there might be opportunities to create derivatives markets in places like Cayman in areas like corporate debt, and recommended Cayman set up a task force to identify regulatory structures that could be set up in a very short time if, for example, the Vlocker rule (as part of the new Finance Bill) forces large banks to cut back on proprietary trading or sell off their stakes in hedge funds and private-equity funds.
Steven Entin of the Institute for Research on the Economics of Taxation took on the task of clarifying the ideas behind consumed income and the consumption tax model. It was a model revisited by a few of the speakers, as some of its opponents argue its overall aim is to even out global taxation levels to the detriment of low-tax jurisdictions like Cayman.
A much-anticipated presentation from James Miller and David Shaw reviewed the proposals in their recent and widely-publicised report undertaken for the Cayman Islands Government offering strategies for Cayman to take control of its finances through new revenue measures.
Miller later noted that while he was pleased by the reception the report received, he was disappointed with the seeming reluctance to date to adapt many of the strategies it proposed. Shaw added that critics might also revisit the report to familiarise themselves with its 18 pages of recommendations for addressing the government’s fiscal sustainability.
Closing out the conference, Jack Irvine of Media House International and Jack Quinn of Quinn Gillespie and Associates outlined their lobbying efforts for Cayman Finance in Washington and London, gently suggesting that a lapse in efforts until quite recently may have had a negative impact on Cayman’s perception overseas.
“Cayman Finance must be seen to lead the debate on these issues because we best understand the financial services industry and the implications of policy,” Travers commented later.
“Now and then it helps to remind people of why that is the case and there could have been no more effective way of doing so than by attending at this conference,” he added.
“Further, the conference gave Cayman Finance a platform to lay out the future direction for the financial industry in a changed financial and regulatory environment and it was therefore good to have representatives from the Ministry of Finance present. There have been requests that we repeat this event soon in the major financial centres and we will plan to do so.”