When people are too deeply involved in something, they tend to forget the basics. In tourism, marketers often get so excited about the “next big thing” that they need to be reminded “don’t forget about the sun, sea and sand”. Of course we need new (and well marketed) products to keep things fresh, but we should never forget our core competitive strengths.
In Cayman’s offshore finance industry, I don’t hear people in that industry express enough, particularly to the Cayman public, what our core strengths are. Let me therefore say, on their behalf, what the number one competitive asset is. Tax.
There, I’ve said it. Our finance industry depends on Cayman being globally competitive to attract business to our shores and the most powerful weapon in our competitive arsenal is that we have low taxes. In addition to that, we have legislation and regulations that are carefully tailored and crafted to suit our customers, and (historically, at least) kept as current as possible. As a top Cayman lawyer put it to me recently, what we offer is “tax and regulatory arbitrage”, backed up, of course, by excellent professional services.
As yet another attack on Cayman as a tax haven was launched with a book released this January, the book review the eminent Economics columnist of The Scotsman, Bill Jamieson, were telling, as you can see from this excerpt:
“Of the many toxic elements in this book, two stand out. The first is a failure to see that tax competition is a legitimate, and indeed desirable, feature of modern finance: without it you write a carte blanche for high tax tyranny.
The second is a failure to distinguish between lawful tax avoidance and illegal tax evasion. An oil worker whose work takes him to many countries, not all of them stable, is not a crook in having his financial affairs based in Jersey. A public company is not breaking the law when it pursues legal and accepted tax mitigation and avoidance. And an investment company is not the spawn of Satan by seeking to ensure a lawful minimisation of tax for its investors.”
If you search for and read the full review, you will likely agree that Mr Jamieson has presented a strong, well researched, and powerful defence of Cayman and our Offshore Finance sector. Perhaps we should hire him to present such well researched and thought out opinions as they seem very appropriate for reactive defence to attacks upon our reputation ?
Now, back to being globally competitive. In prior columns and blogs, I have addressed industry concerns about Cayman’s ability to remain timely with regulatory change and the negative impact that has on our competitiveness. Today, though, let me touch on tax competition.
The level of taxes in Cayman impacts our competitiveness in attracting global capital and commercial corporate vehicles, but also in attracting businesses to locate “mind and matter” on our shores.
If the leaders of our offshore finance sector are perhaps too quiet on the fact that being a low tax jurisdiction is key to us, they are certainly too indirect in making it abundantly clear that our taxes have increased to the point where our competitiveness is being seriously eroded. For global capital, that is certainly having an impact, but for attracting “mind and matter”, with people who can create jobs and spend money in our economy, the impact of higher taxes has been devastating.
Yes, that is right, our taxes are getting too high. Whilst it is accurate that we have no “direct” taxes, this fact maintains a view held by many of the general public that our offshore finance industry still enjoys great competitive advantages and so can continue to bear cost increase after cost increase in order to continue to fund our public sector at the size that political will currently bears. The cost of setting up and running a business here is now profoundly uncompetitive in many areas when compared to other attractive “low tax” jurisdictions.
The gap between the reality of loss of competitiveness and the public perception that we can keep fleecing the once golden calf is wide and growing. We need to narrow that gap and not by reacting with soundbites, but by concise, reasoned and well-presented arguments, both locally and internationally.