Farrington-McSweeney: A few of our partners and senior managers
were in Singapore two weeks ago and everyone you speak to wants
to know what Cayman is doing, it was the hot topic. They want to
know about the new regulatory updates, if funds are growing, new
structures. No, we can’t rest on our laurels but I think the root of the
interest is the economic substance concerns.
Guilfoyle: We’re not seeing people closing structures and saying
‘we’re going to go somewhere else where this is not an issue’. The
regulation applies to all the jurisdictions we compete against.
Mark Cook: If anything this is our opportunity to leverage the broad
network that we have here, and our infrastructure. We’re much better
off compared with most jurisdictions. We’ve got people across many
professional services looking after the funds in the industry across
hedge funds and PE and other investment vehicles.
If economic substance is going to apply to everyone then surely
we’re miles ahead in terms of being able to demonstrate that we’ve
got the right people in the right roles and the right infrastructure
already here to prepare for what’s coming in the future.
Where are we with the economic
Bahadur: Last year the ministry was spending much of its time
engaging in dialogue with the EU on addressing economic substance
concerns. Three laws were passed at the end of last year which
came into force on January 1 which are meant to deal with the EU’s
concerns on economic substance.
The EU initiative is based on the international standards set by the
OECD’s Forum on Harmful Tax Practices (FHTP). These standards
apply to more than 120 jurisdictions that are members of the inclusive
framework. As the FHTP has extended the scope of its work to what
are considered the low and nominal tax jurisdictions, Cayman is now
required to comply with the standard. Because these requirements
are globally accepted, it will be difficult for entities to relocate
Work is still being done on exactly how the FHTP will assess
no and nominal tax jurisdictions against its criteria, and we are
directly speaking with the OECD on those matters so that our regime
Murray: People always say, ‘why does Cayman do it first, why are we
jumping to do this?’. But it is because we can help define the scope of
the regulations and we can decide how they are implemented. Then
other jurisdictions usually follow our version of the implementing law.
Bahadur: We have been at the table when these initiatives have
been developed, so we can provide input and explain regarding how
Cayman works. It is about providing and getting the message out
there. It’s very important for us to be able to explain what it is we do
as a jurisdiction and dispel myths.
The EU is currently reviewing that framework and we were
anticipating that conclusions would be developed in February but we
have been advised that that has been pushed back to March.
We are continuing our discussions with the EU to ascertain the
outcome of their assessment of Cayman’s legislative framework. We
also recently concluded a consultation on the economic substance
guidance notes; those are currently being revised and will be formally
issued before the end of this month.
Scott: When we look at the substance requirement and changes that
are being imposed globally, they’re primarily being driven to try to
deal with tax threats.
We’re dealing with the process in a very prudent, pragmatic fashion,
and it also gives us the opportunity to explain how the jurisdiction
works and how the jurisdiction is well positioned providing benefits
globally and not posing tax harm.
Whether we choose as part of emerging global standards to also
implement aspects of substance, even without that in place we
structurally do not pose a tax harm because we’re truly tax-neutral.
It’s important for us to make sure we continue telling our story to
make sure that when we’re looking for examples in the funds space
there is an awareness that we have good consistent standards in
place, so they see that we’re able to explain what we’re doing.
As we go through the process, it’s probably going to drive more fund
administration to the jurisdictions, it’s going to drive more demand for
directorship services, we’re going to see more family offices setting
up in Cayman and using our products. We’re also going to see more
attractiveness for actual investment management being located in
Giorgio Subiotto: We feel very confident with the fact that the EU
and the FHTP seem to have recognised that the fund structures are
not profit-shifting structures and I think that’s been well accepted.
Funds are the backbone of our industry, so that causes us to relax
a bit and it does open opportunities because the bigger clients are
getting bigger and we’re seeing a bottoming out of the startup
managers. Bigger clients don’t shy away from regulation; for some
the more regulation the better as it doesn’t stop them doing what
they need to be doing.
Some embrace this slight increase in regulation we’ve been
seeing in Cayman and are very comfortable with it. For example, the
requirement to have some sort of management activity here might
not be something that they’ll shy away from, and that will play into
the hands of Cayman.
“Creating a space where
you can learn alongside
each other is an approach
that has been taken in other
jurisdictions.” Heather Smith
28 CAYMAN FUNDS | 2019