“VEXING AS THE SITUATION IS FOR CAYMAN AS A JURISDICTION,
THERE IS NOT CURRENTLY A GREAT DEAL OF CONCERN FOR CAYMAN
CAPTIVES.” ROBERT HUMPHRIES, SOLOMON HARRIS
In assessing whether a jurisdiction is cooperative, the EU has set
requirements that must be met, including tax transparency, fair taxation,
and the commitment to measures against base erosion and profi t
In this list, the Cayman Islands had been confi rmed as a cooperative
jurisdiction, and excluded from the EU’s ‘blacklist’: jurisdictions that
have been determined uncooperative in tax matters.
Industry bodies within the Cayman Islands have welcomed the
EU’s cooperative jurisdiction confi rmation. The Insurance Managers
Association of Cayman (IMAC), for example, highlighted the fact that
the Cayman Islands is committed to supporting global efforts to tackle
corruption, tax evasion and money laundering.
Some examples of this include Cayman’s membership within the
Global Forum on Transparency and Exchange of Information for Tax
Purposes, where it maintains a ‘largely compliant’ rating in 2017’s
Global Forum Peer Review.
But while Cayman has avoided the blacklist, it has been placed on
the ‘grey list’, which means that while it has been deemed cooperative,
it will have to demonstrate that it has addressed certain concerns
surrounding tax matters—and demonstrate that companies domiciled
in and conducting business from the jurisdiction have an acceptable
level of economic substance—before December 2018 in order to
avoid getting placed on the blacklist for 2019, and potentially beyond.
The Cayman Islands government has been working closely with the
relevant EU representatives in meeting its targets, and in September
2018, Tara Rivers, fi nancial services minister, met with EU offi cials
about Cayman’s latest efforts to develop proposals and update
legislation where appropriate to keep it off the blacklist.
A close look at Cayman
In terms of the EU’s checklist, the concerns have little to do with tax
transparency or tax information-sharing—areas where Cayman has
scored highly for the steps it has taken to address these issues over
the last decade or so—according to Robert Humphries, an attorney at
legal fi rm Solomon Harris.
Instead, Humphries notes, Cayman has been accused of falling
short of one of the EU’s more subjective “tax fairness” criteria, aimed
at tax regimes that facilitate offshore structures which attract profi ts
without real economic activity.
“The EU feels these companies are formed as ‘letterboxes’ aimed
at facilitating the evasion or aggressive avoidance of taxes,” explains
Entities that are accused of being letterboxes are those that are
used solely to avoid tax obligations rather than to achieve economic
objectives, and some Cayman-based companies have come under
fi re for not having an appropriate level of physical presence.
“The reality is very different and although it is true that many Cayman
companies lack bricks, mortar and a permanent staff contingent,
they are formed for legitimate purposes such as pooling and onward
investment of international investor funds critical to liquidity and
capital fl ows in international fi nancial markets, rather than some sort
of mechanism for the evasion of taxes,” adds Humphries.
Many captive insurance entities in the Cayman Islands insure against
the risks of their parent companies based in the US, and are liable for
applicable US taxes.
“As most owners of for-profi t Cayman captives will know, the Internal
48 cayman captive 2019
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