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Cayman Finance rejects claims that low tax jurisdictions hurt US economy

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The financial services industry in the Cayman Islands has rejected claims by a US business group that low or no-tax jurisdictions hurt the US economy because they encourage tax evasion.

"The deliberate misrepresentation of lawful tax structuring as illegal tax evasion should be a source of real concern to the US Congress and the public it represents," Cayman Finance chairman Anthony Travers wrote in an open letter.

The US business group, called Business and Investors against Tax Haven Abuse, is endorsed by Senator Carl Levin. Levin was a co-author (along with then-Senator Barack Obama) of the Stop Tax Haven Abuse bill, which was supplanted by disclosure legislation in what became the Hiring Incentives to Restore Employment Act.

"This mischaracterisation is not only grossly misleading in describing the proper function of the offshore financial centre and the benefits it confers on the US, but forms a wholly unsound basis on which to formulate United States tax policy," Travers said.

The Cayman Finance response, addressed to Senator Levin and printed as an open letter in Washington, D.C. newspaper Politico, details Cayman’s compliance with international regulation and transparency legislation and spells out Cayman’s full income tax transparency agreement with the US.

The International Monetary Fund and the Financial Action Task Force reports demonstrate that Cayman’s all crimes anti-money laundering regime is among the best in the world; Cayman’s Iosco membership ensures proactive regulator-to-regulator disclosure.

Travers said: "These claims promote the falsehood that US companies which rely on legitimate provisions of the US tax code are in some way engaged in tax evasion, which is illegal and completely off the table in the Cayman Islands. This particular falsehood completely misses the point that the US is the major recipient of the capital flows from of the Cayman Islands. That capital provides the liquidity that is essential to the recuperation and ongoing health of the US economy. 

"The laws cited by the US business group are US laws, and that all Cayman Islands companies are required to operate on the basis of full tax and anti-money laundering transparency under Cayman law and under existing treaties with the US and many other G20 jurisdictions. It need hardly be said that profits generated in the U.S. by Cayman entities are taxed in the US.”

Travers said the claim that low or no-tax jurisdictions hurt the US economy through tax evasion does not take into account the tax transparency treaties that are in place, nor does it reflect the growing body of academic reports that suggest that international financial centres such as Cayman are well-regulated, neutral jurisdictions that facilitate cross-border business. 

The Cayman Islands provides liquidity to markets around the globe by increasing investment into developed nations such as the US as well as into developing economies, where project financing is needed to fuel job creation and alleviate poverty. 

The open letter in Politico points out that changing the laws in the US to seek to apply US tax extraterritorially to Cayman mutual and hedge funds with US-based fund managers will inevitably lead to those fund managers relocating outside of the US in search of competitive returns which are not reduced by additional layers of taxation.

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