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"Rumors of my death are greatly exaggerated"
So exclaimed Mark Twain when he read his obviously premature
Obituary. And similarly we can characterize the hopelessly inept
Economic article of June 1, 2021
"Twilight of the Tax Haven," similarly suggesting that
the effect of the new G7 minimum tax initiative will be doomed
the Cayman Islands and other offshore financial centers. The
Confusion shows up in The Economist & # 39; s
Analysis is completely predictable. It is the result of over two
Decades of robotic and repetitive mis-characterization of modernity
Offshore financial center in which the
Economist has consistently distinguished itself. Given the tax
Transparency in the Cayman Islands for the past 20
Years, any writer who still uses the term "tax haven"
disparagingly and describing the Cayman Islands as in
any form of EU-centered tax avoidance
aggressively but lawfully and routinely practiced by the US
Global Corporates is, by definition, clueless1.
Of course, US Treasury Secretary Janet Yellen comments
to the same effect. I should let my case rest. Most likely not either
of them read my previous articles. But in the unlikely event
for you to read this, let me try to help.
Before this happens and there are no published details yet,
should signal the laborious virtue and break through the stands
the G7 ministers and analyze the intent of the new
announced G7 initiative. It seems that there are three elements and
driven by the understandable frustration that is often reported to that US
multinational corporations pay on theirs
Sales in relation to their non-US based global and primarily EU based,
Business activity. That we all agree is nonsense in my opinion
Result, but also the newly proposed solution.
Failure of double taxation treaty networks
The first part of it, but without saying it, tries to act
with the failure of the OECD double taxation agreement networks established in
Concert, are the mediators of outrageous transfer prices and
Profit shifting strategies that are the main cause for the EU
Problem. We should remember that these are EU-based double taxation treaties
Agreement. The OECD initiative to shift profits through profit reduction was a
failed attempt2 to put a plaster over it
especially sore, but with no good effect and now instead of admitting
that OECD transfer pricing requires dismantling, and
Rebuilding from scratch, the attempt is to put in a second one
Band Aid. The intention of the first part of the G7 initiative
Put simply, make sure the tax is paid in the jurisdiction
with which the profits are achieved. The second link is to ensure that US
Corporation, and that must mean domestically in the United States
(It applies to companies in other jurisdictions, but the
Serial offenders are US companies) pay a minimum tax rate of
apparently 15 percent on those profits (possibly more) anyway
calculated and with all allowances3. The third link
which remains extremely unclear and would go far beyond that
Tasks of the G7 or even the OECD to imply that everyone
Jurisdiction in the world, regardless of whether its methodology is the
taxation is direct or indirect and independent of the tax rate
charged as a percentage of GDP, a 15 percent tax should be charged
Set of companies operating within their
Jurisdiction. This is undoubtedly a step towards the ultimate OECD
Game plan – an overarching global tax authority – but it is
currently a far-fetched excessive demand and not of immediate importance since
every jurisdiction, particularly Ireland within the EU, has one
Sovereignty over its own tax affairs.
What exactly is this for The Economist and President
Do Biden think they're talking about tax havens? in the
In fact, they are tax havens. But not the ones they are
refer. The only relevant tax havens are US tax regulations
Law that enables the deferral of income not under Part F by foreign countries
Subsidiaries of US companies that do business worldwide
and to the extent that the income is legitimate annually
Trading activities with a unrelated party. The postponement
activated was of course reduced in part by the global intangible value
Low Taxed Income (GILTI) tax regulations of Tax Cuts and Jobs
Law 20174. It is now proposed that the 10.5
The rate then imposed is believed to be increased to 15 percent
Percent above the 10 percent base threshold. It should have been
dazzlingly obvious and to the editor of The Economist
President Biden that these are US regulations, not Cayman
Tax Law of the Islands. It should have been blindingly obvious that
these provisions exist for good reason. The United States
practiced a tax regime of capital export neutrality while
The European Union jurisdictions apply capital import neutrality. If it
no US companies would be in for these tax deferrals
respect for their worldwide activities outside the US would suffer
harmful tax competition through double taxation. Indeed, this one
Provisions have been greatly beneficial to the improvement of the
US companies worldwide profitability since their inception
in the 1960s 5. That in itself was an important one
Source of resentment towards the EU authorities. Simply put, in
accept the reduction in these accruals,
President Biden affects US competitiveness
Companies worldwide when it comes to the networks of EU double taxation agreements
and some now defunct and ridiculously aggressive Irish taxes
Structuring that was the root of the problem for everyone involved6.
In addition, President Biden has yet to explain exactly how the G7
Initiative that intends to pay taxes on profits in the EU
the point of sale, will not significantly reduce the tax payable
the US from US companies to the US Treasury. Before the G7
Initiative was the prospect of this deferred tax income
in the US are taxed on the final distribution. Post this to G7
Initiative that is less clearly the result.
Tax transparency
But how concerned are we in the Cayman Islands about this?
Developments? The answer to the severe irritation of the tax
Justice Network (TJN), which does not demonstrate the ability to
Analyzing offshore financial structuring is not very. There are
may not have more than 100 US companies involved in this type of
Activity, one third of which may be in the subsidiaries
Cayman Islands out of a total number (increasing annually) of Cayman
Islands registered corporations numbering 110,000. It should too
for the editor of The Economist (and in
Fairness, he refers to the offensive doppelganger in the EU
Treaty tax states) that the zero tax states, in particular
the Cayman Islands, are in no way involved in the mechanics of
Shifting profits by applying excessive transfer
Price Practices of These US Companies. It's not the caiman
Subsidiaries on islands that are parties to the double taxation treaty
Arrangements.
If it has to be said again and it shouldn't, Cayman
The financial structure of the islands is completely tax-transparent. Not only
Is there automatic financial reporting to the home jurisdiction of
any Cayman Islands corporation's account under a U.S. overseas account
Tax Compliance Act (FATCA) and the Common Reporting Standard, however
HMRC, IRS and almost all other relevant tax authorities
has unrestricted access to the Cayman Islands under the tax
Information exchange agreements, including around 36 in
Place. The suggestions from TJN, Zucman, and Piketty that monies are
in some ways in offshore financial centers like that
Cayman Islands and are non-taxable, to be honest
it, intellectual and fiscal nonsense. Next the irony that
It should be clear that the main drivers of the Cayman Islands
Financial services industry, open and closed coverage and
Private equity funds and the structured finance vehicles that
Investments in the range of $ 4-6 trillion, do so on a basis
fully in line with Base Erosion and Profit Sharing (BEPS)
Initiative that all applicable investment taxes are paid
the jurisdiction in which the profits are made. As far as the
are statistically irrelevant mother-daughter agreements
concerned, highly developed tax jurisdictions and certainly the
United States, United Kingdom and major EU jurisdictions,
already have controlled foreign corporation laws that
for the above-mentioned deferral provisions of the US Tax Code,
the profits of the foreign operating subsidiaries with the
Parent. It is therefore open to any jurisdiction to tax a foreign country
Subsidiary of a parent company within its tax authority
Consolidate Offshore Profits for Domestic Tax Purposes. Most do
so to some extent.
If the outcome of these G7 proposals is simply that a bigger one
Percentage of profit that would have previously been accrued
so consolidated and a higher taxation applied
parents in, say, the United States, the net effect of this of
Adjustment for the Cayman Islands budget is not essential and even if
it makes the subsidiary in question dismissed.
It would have been refreshing to have seen The
Economist writing an article on the real cause of the
Problem, the failure of the OECD double taxation agreement and the
Incompetence of the OECD in general. The fact that France and the
Britain should tax gross receipts from
US corporations (instead of the net amounts after
aggressive manipulation of double taxation treaties and transfer pricing
carried out within the EU) are all necessary evidence
submitted on the failure of the OECD double taxation agreement
architecture. At some point the OECD has to become one
Competence test. Not just the transfer pricing architecture
fail at the grassroots level, but the subsequent OECD initiatives
try to avoid accountability by addressing the cause of the
Problem that persists. So much for President Biden's support
US tax revenues are likely to be affected due to the
G7 initiative as taxable profits are returned to the EU
Jurisdictions from which they were primarily relocated. But
these newly proposed machinations, even if they are cumbersome, are of
peripheral concern for Cayman Islands financial services
Industry.
Footnotes:
1. See also The Times, Tuesday June
02/08/2021 – "Overseas territories have to be left
stranded in G7 tax reforms "- which makes the same mistake
Rely on the hopelessly flawed narrative from Tax Justice Networks
Offshore financial centers.
2. Obviously yes, otherwise we wouldn't need it
new G7 initiative.
3. The current proposal that the new
At least 15 percent tax only applies above a base profit of 10
Percent that, ridiculously, enables the exact same profit shifting
Mechanisms that caused the problem in the first place.
4. A surprising introduction to a
Otherwise, the Republican president intends to cut elsewhere
Corporate taxes.
5. President Kennedy tried to repent
these deferred provisions in 1962, but common sense prevailed in the
House and Senate so far possibly.
6. See the now abolished "double"
Irish".
Published by IFC June 9, 2021
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