Tax-neutral jurisdictions are not well understood around
the world, yet this is one of the main types of taxation
approaches to supporting global financial services
transactions. The three main types are: (i) moderate to high
tax jurisdictions; (ii) jurisdictions that support tax minimisation; and
(iii) tax-neutral jurisdictions
Simply stated, tax neutrality means that the country where the entity
is formed does not impose a duplicative layer of taxes on the fund entity.
As a tax-neutral jurisdiction, the Cayman Islands does not add an
extra layer of tax to financial services transactions. It is a transparent
regime with a stated tax rate that is the same as the effective tax rate.
It does not have a preferential tax regime. In addition, the Cayman
Islands does not use any tax treaty networks. The jurisdiction poses
no risk of unfair tax base shifting from other countries’ tax bases.
Investee entities and investors are still subject to reporting and
paying relevant taxes in their home jurisdiction. This is ensured by
Cayman meeting all globally-accepted standards for transparency and
cross-border cooperation with tax authorities and law enforcement
around the world.
The Cayman Islands is an optimal model of a tax-neutral jurisdiction
that is an efficient and neutral platform. It is an extender of value,
supporting global financial services transactions without adding an
extra layer of taxes. Each party to the transaction is responsible for
reporting and paying its own taxes in its home jurisdiction.
Anti-base erosion is already in place for tax-neutral jurisdictions
such as Cayman that do not utilise tax treaty networks. Payments
such as interest, dividends and royalties are already subject to
Accordingly, tax-neutral jurisdictions such as the Cayman Islands
support the free flow of capital, trade, financing, and services around
the world while causing no harm to other countries’ tax bases.
CAYMAN FUNDS | 2019 15
Shutterstock / Clifford S Toy