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,” 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 “unwise” to expect that the Islands’ prosperity “can presume on an offshore tax haven status”, the minister noted.
The Guardian newspaper, which is campaigning for a “more open and fairer tax system”, detected “palpable relish” in Bryant’s words. It predicted other low-tax offshore jurisdictions, like the Channel Islands, were also running “unsustainable business models” badly exposed by the downturn. “Hurricane Lehman”, the paper argued, represented the “perfect storm” for a cash-strapped Caribbean country with a major black-hole in its public spending.
Anthony Travers OBE, chairman at Cayman Islands Financial Services Association and former senior partner of the major offshore firm Maples & Calder, is not impressed. The Bryant letter amounts to “a lecture on the propriety of deficit spending”. “If we were asking for a lecture on how to manage a country’s finances, the last institution on earth that we’d be seeking advice from would be the Foreign and Commonwealth office – and you can quote me on that.”
Travers calls the allegations “unsubstantiated and blatant piece of propaganda, entirely erroneous”. The way the lawyer explains it is that Cayman requires British government consent as a matter of constitutional law. “They have declined to consent thus far and it’s hard to understand why,” he adds.
Maples & 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. “Ugland House” quickly became political shorthand for the perceived excesses of offshore practice. Travers points out that the companies are listed there for “precisely the same reasons that 217,000 companies are listed at one registered office in the vice-president’s state of Delaware” to “obtain the benefit of superior legal structures”.
“Cayman isn’t a tax haven,” Travers insists. “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.” The Organisation for Economic Co-operation and Development (OECD) has produced a three-tier list, featuring a “white list” for those offshore locations that have ‘substantially implemented’ information-sharing agreements. Cayman recently made it on to the white list, alongside Jersey and Guernsey.
Richard Murphy is an accountant with the Tax Justice Network and an outspoken critic of the offshore business community. “Cayman is just the first coming to terms with the fact that it is basically bust. I think others will follow,” he says. “The situation where you aren’t prepared to raise revenue to meet your ongoing revenue obligations isn’t a viable option,” he says.
Murphy argues that the increasingly multi-jurisdictional offshore law firms – the so-called “offshore magic circle” – has helped create a sympathetic regulatory regime for their clients. “There’s been a contagion of ideas designed to undermine the regulation of mainstream states. Tax isn’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.”
Robert Shepherd is managing partner of Ozannes, one of Guernsey’s oldest and largest firms. He dismisses the latest episode as “entirely politically driven”. “This really isn’t about the fundamentals of economics but politics,” he says. “What we have is an unprecedented economic crisis on a worldwide basis and politicians onshore are looking for scapegoats – banks are one and offshore jurisdictions are another.”
To single out the Channel Islands or even Cayman out as having financial problems in this economic climate is “just daft”. “Times are tough,” says Shepherd. “But that doesn’t mean Jersey or Guernsey don’t have the wherewithal to look after their population.”