Tax lawyers defend off-shore regimes

IFEAR you will have no choice but to consider new taxes, perhaps payroll and property taxes such as in the British Virgin Islands,&rdquo; wrote Chris Bryant, the junior foreign office minister, to the Cayman Islands government this month. It was a withering response to a request made by the British overseas territory to Westminster for permission to borrow emergency funds. It would be &ldquo;unwise&rdquo; to expect that the Islands&rsquo; prosperity &ldquo;can presume on an offshore tax haven status&rdquo;, the minister noted.<br /><br />The Guardian newspaper, which is campaigning for a &ldquo;more open and fairer tax system&rdquo;, detected &ldquo;palpable relish&rdquo; in Bryant&rsquo;s words. It predicted other low-tax offshore jurisdictions, like the Channel Islands, were also running &ldquo;unsustainable business models&rdquo; badly exposed by the downturn. &ldquo;Hurricane Lehman&rdquo;, the paper argued, represented the &ldquo;perfect storm&rdquo; for a cash-strapped Caribbean country with a major black-hole in its public spending.<br /><br />Anthony Travers OBE, chairman at Cayman Islands Financial Services Association and former senior partner of the major offshore firm Maples &amp; Calder, is not impressed. The Bryant letter amounts to &ldquo;a lecture on the propriety of deficit spending&rdquo;. &ldquo;If we were asking for a lecture on how to manage a country&rsquo;s finances, the last institution on earth that we&rsquo;d be seeking advice from would be the Foreign and Commonwealth office &ndash; and you can quote me on that.&rdquo;<br /><br />Travers calls the allegations &ldquo;unsubstantiated and blatant piece of propaganda, entirely erroneous&rdquo;. The way the lawyer explains it is that Cayman requires British government consent as a matter of constitutional law. &ldquo;They have declined to consent thus far and it&rsquo;s hard to understand why,&rdquo; he adds.<br /><br />Maples &amp; Calder came in the firing line when its offices at Ugland House in Cayman were revealed to be home to some 18,857 shell companies. &ldquo;Ugland House&rdquo; quickly became political shorthand for the perceived excesses of offshore practice. Travers points out that the companies are listed there for &ldquo;precisely the same reasons that 217,000 companies are listed at one registered office in the vice-president&rsquo;s state of Delaware&rdquo; to &ldquo;obtain the benefit of superior legal structures&rdquo;. <br /><br />&ldquo;Cayman isn&rsquo;t a tax haven,&rdquo; Travers insists. &ldquo;It has had full transparency with respect to tax matters for over a decade, most importantly, with the US since 2001 and with all 27 countries under the European Union since 2003.&rdquo; The Organisation for Economic Co-operation and Development (OECD) has produced a three-tier list, featuring a &ldquo;white list&rdquo; for those offshore locations that have &lsquo;substantially implemented&rsquo; information-sharing agreements. Cayman recently made it on to the white list, alongside Jersey and Guernsey. <br /><br />Richard Murphy is an accountant with the Tax Justice Network and an outspoken critic of the offshore business community. &ldquo;Cayman is just the first coming to terms with the fact that it is basically bust. I think others will follow,&rdquo; he says. &ldquo;The situation where you aren&rsquo;t prepared to raise revenue to meet your ongoing revenue obligations isn&rsquo;t a viable option,&rdquo; he says.<br /><br />Murphy argues that the increasingly multi-jurisdictional offshore law firms &ndash; the so-called &ldquo;offshore magic circle&rdquo; &ndash; has helped create a sympathetic regulatory regime for their clients. &ldquo;There&rsquo;s been a contagion of ideas designed to undermine the regulation of mainstream states. Tax isn&rsquo;t the primary product, secrecy is. The intention is to create legal structures hidden by secrecy which allows the user to avoid obligations in the place where they really undertake transactions.&rdquo;<br /><br />Robert Shepherd is managing partner of Ozannes, one of Guernsey&rsquo;s oldest and largest firms. He dismisses the latest episode as &ldquo;entirely politically driven&rdquo;. &ldquo;This really isn&rsquo;t about the fundamentals of economics but politics,&rdquo; he says. &ldquo;What we have is an unprecedented economic crisis on a worldwide basis and politicians onshore are looking for scapegoats &ndash; banks are one and offshore jurisdictions are another.&rdquo;<br /><br />To single out the Channel Islands or even Cayman out as having financial problems in this economic climate is &ldquo;just daft&rdquo;. &ldquo;Times are tough,&rdquo; says Shepherd. &ldquo;But that doesn&rsquo;t mean Jersey or Guernsey don&rsquo;t have the wherewithal to look after their population.&rdquo;