Cayman will remain a successful offshore financial center if it changes the message it has sent out to the world over the past decades, according to Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD.
“You need to get the narrative right, and the narrative will be right if it is based on substance,” he told delegates at a tax transparency conference hosted by the Cayman Islands Ministry of Financial Services in April.
Cayman needs to explain what is happening in the jurisdiction, but, he added, “you need to understand the outside perspective that is full of suspicion about how there can be so much business in such a small jurisdiction without any substance.”
Politicians and industry representatives should stop with the narrative used 20 years ago that offshore centers lower the cost of capital by allowing tax avoidance.
Yes, tax avoidance reduces the cost of capital, but it also deprives countries of taxes that they are entitled to, he noted. Moreover, this type of argument has a “certain smell,” Saint-Amans said. It was going to work and Cayman did not need it.
The head of tax at the OECD believes Cayman already has a good narrative if it focuses on properly dealing with any past misconduct and if there is a good strategy for making beneficial ownership data available and accessible.
Legacy issues exist even in the most advanced jurisdictions, and the U.S. Department of Justice together with public pressure from campaigners and whistleblowers should make the business community focus on past conduct, Saint-Amans said.
The next big thing ahead will be the issue of beneficial ownership, he predicted, but acknowledged the public availability of information on who truly owns Cayman-based companies and other entities raises privacy concerns.
“It is true, there is an issue of privacy and that is why privacy is at top of the OECD priority list.” The same applies to the automatic exchange of tax information.
The big challenges ahead in terms of tax information exchange are all about implementation.
The OECD will design terms of reference and a methodology for the assessment of the compliance with the standard of automatic exchange of information.
While it is easy to assess compliance with the exchange of information on request by simply asking the partners whether they are satisfied with the information they received, this is not the case with automatic exchange.
Partner countries can assess the information they get, but there may well be information that they are not receiving, Saint-Amans said, because part of the industry will withhold information from the government. That is where you have the challenge.”
Even a very compliant government could face the risk of some operators not being compliant.
The countries that want more transparency will need success stories to demonstrate that the system works, the OECD tax chief said, and claimed that this was also in the interest of offshore centers to stop further leaks of client data.
“It is like water running through the pipes. If it is blocked because there is too much secrecy, you will have leaks,” he said.
The objective of the conference, titled “Tax Transparency in the Global Financial Services Ecosystem,” was to put the global tax system under a microscope and to challenge assumptions about its nature and functioning.
Speaking at the conference, Minister of Financial Services Wayne Panton defended government’s engagement with proponents of tax transparency, stating it has made Cayman stronger.
“The Cayman Islands financial services industry overall is in a strong position – perhaps our strongest position ever – and we have achieved this while complying with global regulatory standards that are consistently improving tax transparency, for the benefit of all countries.”