cayman islands gets concessions and favours in return for information exchange
The heated debate between the Cayman Islands and the British government over implementing EU Savings Directive-friendly policies has ended in victory for the offshore jurisdiction in the form of a series of concessions and favourable treatments.
But the UK may have in the process threatened the agreements it has already struck with the other British dependencies, including the Isle of Man, Jersey and Guernsey, who neither asked for nor received any such sweeteners.
Having initially pulled out of the negotiations on the grounds that agreeing to exchange tax information or setting up a withholding tax would severely damage the economy of the islands, the Caymans has agreed to a compromise which will see the UK government help the Caymans sell its financial services into Europe; remove the jurisdiction from any blacklists; officially recognise the Cayman Islands Stock Exchange to help Eurobond listings; and promote tourism.
The British government will put in place a comprehensive agreement which will give the Cayman Islands access to the UK"s tax treaty network, which offers great potential advantages, and would help to attract business to Cayman.
Having the UK use its influence with other countries to remove Cayman from their blacklists would help get access to markets from which the island is presently excluded. The British Government is also to actively promote the Cayman Islands as a centre for high standards of regulation and financial rules that meet international standards.
The Cayman Islands government had warned the Savings Tax Directive would place heavy burdens on the government and business in its implementation, the main burden being the cost by the government of funding the regulatory requirements of the directive and the burden on business to put systems in place to be able to identify EU residents and report back.
According to the directive, instead of exchanging information, jurisdictions can collect a withholding tax.
Anthony Travers, partner at Maples and Calder, said: "The widely held view is that the withholding tax option is relevant only for those jurisdictions which have a significant book of business that continues to be non-tax compliant."
A statement by KPMG said that applying a withholding tax is perceived by many in the Islands as being counterproductive to transparency and the perception of the jurisdiction as tax neutral.
Many believe that it would be more onerous to implement than exchange of information and could result in the significant loss of business to competing jurisdictions.
Cayman has agreed to implement exchange of information with EU member states, consistent with the directive, but implementation will impose obligations only on 'paying agents" within the Cayman Islands who make or hold payments of 'savings income" for individuals who are tax residents of EU Member States.
People, corporate structures, other investment vehicles and institutions which do not fall within the scope of the directive will be unaffected.
According to Travers, the Caymans have not historically been a jurisdiction used by EU resident individuals, being primarily a jurisdiction for institutional structuring of hedge funds and structured debt products.
There has been no official response from the other dependencies although International Investment understands that following this development, attempts will be made to renegotiate on more favourable terms.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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