Cayman Islands: Mr. Moscovici And His EU Lists Of Many Colours

For those with better things to do than follow the machinations of EU tax policy, we should state that Mr. Moscovici is French. He is also amongst other things an EU Commissioner for Taxation, that the OECD is based in Paris, and that these things are not coincidental. The position that we arrive at is that the EU now issue a black and a grey list of "tax havens", a term which in the light of the transparency initiatives including FATCA and the OECD's version, the Common Reporting Standard is, in relation to signatory jurisdictions, meaningless, save in the halls of Brussels and Paris. Simply, the Cayman Government has adopted the right approach; that is to say, no more appeasement to the EU or its agent, the OECD, because a fair and balanced outcome is not within their sphere of contemplation, and from the outset, it is probably true to say, never has been. It seems that for the purposes of EU tax policy, the Cayman Islands will therefore be now be grey.

Before we analyse the EU double think let's get to the why; the importance of the role of the Cayman Islands as an offshore financial centre. As matters stand, we have some 7,500 hedge funds regulated, anecdotally some 75% of the world's total, with assets under management of US$2.4 trillion. There are over 20,000 private equity vehicles in the form of exempted limited partnerships in respect of which we have no figures of assets under management but would estimate the number to be almost as large again. Bank deposits and inter-bank bookings are in the region of US$1.4 trillion and there is a highly developed professional infrastructure of some 700 lawyers and over 1,000 accountants. If we look at just one onshore jurisdiction, we see that US$52 billion or about one third of the direct outward investment from Brazil flows through Cayman Islands vehicles. Our total estimates of aggregate investment in and through the Cayman Islands would be in the range of US$4-5 trillion which makes the Cayman Islands the largest financial centre in all Latin America and according to data from the IMF, the fifth largest financial centre in terms of foreign portfolio investment, itself worth US$2.6 trillion. This means that currently the Cayman Islands attracts more foreign portfolio investment (but see further below) than any of Germany, the Netherlands or Japan. In 2016, foreign banks had consolidated claims on Cayman counterparties for over US$1.2 trillion of which Japanese banks accounted for 40% and American banks for approximately 305.

Now contrary to the deliberate mischaracterisations of a number of high profile left wing NGO's (no doubt funded by various Treasury departments, and indeed one or two Charities like Oxfam and Christian Aid), the unanswerable fact (unless you are an EU tax commissioner) is that the Cayman Islands adheres to the highest of international standards on transparency. Tax authorities and law enforcement had access to information under the 36 Tax Information Exchange Agreements before the application of FATCA and the Common Reporting Standard. Given these transparency initiatives, references to "secrecy" are ill considered.

It is correct to say that the Cayman Islands Register of Beneficial Interests is not available to the public as is the Register in the United Kingdom but the Cayman Islands position, paradoxically, is consistent with the legitimate right to privacy established under the European Convention on Human Rights which is incorporated both into the UK law under the Human Rights Act 1998 and into the Cayman Islands Constitution (so we can observe that post Brexit, the Cayman Islands conforms to EU law and not UK law). The furor concerning the Register of Beneficial Interests ignores the fact that prior to its introduction in the UK and for nearly two decades, Cayman Islands service providers have been obliged to maintain details of all 10% direct and indirect beneficial owners of Cayman Islands entities and on directors which information has been available to tax authorities under the Tax Information Exchange Agreements and to law enforcement.

Then there is the rarely mentioned statistic which reveals the mischaracterisations of the left wing high tax campaigners to be no more than propaganda. Notwithstanding the transparency in both tax and criminal matters, the number of enquiries made annually by tax authorities and law enforcement is less than 30 and there have been no statistically significant taxes collected nor convictions obtained for any form of wrongdoing in relation to Cayman Islands entities from the inception of the transparency initiatives.

Nevertheless, the use of the pejorative term "tax haven" finds favor in Paris. But if we analyse the popularly held mischaracterisations, none are tenable. It is inappropriate in the face of the transparency initiatives established to describe the Cayman Islands as a "tax haven" implying any form of secrecy that would facilitate criminal tax evasion. Furthermore, tax avoidance is by definition a function of onshore legislation. It requires a form of abuse of the double tax treaties, notably those between the European Union jurisdictions of Ireland, Luxembourg and the Netherlands (which the EU lists ignore), to shift profit from one jurisdiction to another, a practice assisted by use of the Double Irish and the Dutch Sandwich which those EU jurisdictions have actively promoted. But the Cayman Islands and other Overseas Territories without a double tax treaty network have had no role to play in tax avoidance techniques which shift profits around the EU tax treaty network, no doubt to the irritation of Mr. Moscovici.

We are therefore obliged to conclude that the EU initiative is in fact ideological, a conclusion that was readily apparent when the OECD published its "1998 Report on Harmful Tax Competition". By way of reverse engineering and the starting assumption that tax completion was in fact "harmful", small offshore jurisdictions with low or no direct taxation were "defined" instrumental in the "harmful practice". They were defined as "tax havens" on the basis of: (a) no or nominal effective tax rate; (b) a lack of effective exchange of information; (c) a lack of administrative transparency; and (d) a novel and stunning requirement of the absence of "substantial activity", which we now see resuscitated in the BEPS initiative and notwithstanding that no one else has suggested that international financial transactions, intangible by definition, have anything whatsoever to do with anything "substantial" save in dollar amount.

Labelling the offshore financial centre in pejorative terms as a "tax haven" stands no scrutiny. Investors invest where they want to invest. Those investments when made through a Cayman Islands entity are taxed in accordance with the laws of the place where the investment is made and secondly, and unquestionably, since the introduction of tax transparency, investors will also pay tax on the ultimate return of capital gains and dividends in the jurisdiction of receipt. It is in no way meaningful to designate the activities of the offshore jurisdiction as "harmful".

This EU driven initiative on "harmful" tax competition is really concerned with two distinct issues. The first is the inevitable need, and for the reasons mentioned below, to increase tax rates within Europe, and the second, since there could be no guarantee that the rest of the world would follow suit (and indeed, it hasn't), is the need to prevent capital flows away from the high tax EU jurisdictions to jurisdictions with lower tax rates. But if the capital flow is not being invested in the Cayman Islands then the investor is simply utilising the superior legal structuring available under Cayman Islands law to conduit the capital flow to the jurisdiction in which the investors want to invest. What is irritating Mr. Moscovici plain and simple is that that jurisdiction is not an EU jurisdiction.

And yet the EU persists in its suggestions that the Cayman Islands is "non-compliant" and should now be listed. Clearly, there is no rational basis for this suggestion. "Non-compliant with what?" anyone outside of Paris may well ask. Unlike the US, we appear somewhat carelessly to have signed every piece of paper the OECD have produced to date (but really need to look at the next piece of paper more carefully). But what then drives the EU position? As with all EU doublespeak the answer is something quite different. There is wide spread panic within Europe on the subject of demographics.

Chancellor Angela Merkel is fond of quoting an alarming statistic. Europe accounts for just 7% of the world's population and 25% of its GDP and yet it accounts for a massive 50% of its welfare spending which is completely out of control and is on a scale which is lavish and unaffordable compared to the rest of the world. The problem with populist politicians in Europe who have bought their votes with unsustainable government spending and borrowing is neither Ms. Merkel nor any other of them has the will to do anything about it.

By comparison, the United States accounts for just over 18% of global welfare spending whilst Germany, around a third of size, spends 12.5% of the global total. China with 20 times the UK population, accounts for 2.4% of the total, Russia 2% and India 2.6%. As a result, total spending across the EU on infrastructure projects has dropped to 2.7% of GDP with the biggest countries in the Euro zone, Germany, France and Italy, having reduced infrastructure spending from between 15-20% over the past decade. But that is not the worst of the problem.

The long term concern is that fertility rates in Europe are decreasing as life expectancies increase. As Europe ages, the cost of health care and pensions will increase dramatically whilst tax revenues from a working population decrease and this is at a time when millions of migrants have come knocking on the borders of Western Europe and are increasing the burdens on the welfare state.

The migrant issue is an example of EU social engineering gone wildly wrong. Free movement of labor was one of the four immutable principles of the European Union and the EU motivation was therefore not merely humanitarian but that the immigrants would revitalise the European economy by providing an increased and essential younger labor force.

But it turns out that if we ignore unpaid internships and minor employment, only two years after the major influx from 2013, only 21% of asylum seekers had found employment. Amongst those that arrived at the peak of the crisis in 2015, only 5% were employed a year later and the German Commissioner for Immigration recently told the Financial Times that he believed that up to 75% of immigrants would be unemployed in five years. The OECD itself reported that less than 40% of asylum seekers had completed an upper secondary school education. German government estimates of their own cost of dealing with the asylum seekers proved inadequate. In 2016, as against an estimated cost of US$19 billion, the actual costs reported were some US$26.3 billion. And so rather than boosting German tax collections as intended, it transpires that Germany alone expects to spend an estimated US$86 billion on refugees between 2016-2020 or US$48,000 per migrant. The net result of these demographic issues is that taxes in Europe must not only increase significantly but that the European Union must move to harmonise tax rates within Europe and at the highest levels. In this context, a thriving offshore financial centre applying no tax at all represents the European Union's worst philosophical nightmare and we are targeted for that reason alone.

We see now the long term intentions of the European Commission to harmonise taxes within Europe manifested with the introduction in 2015 of the first working papers for the Common Consolidated Corporate Tax Base across EU member states. In this respect, the Commission are doing no more than playing catch up with the approach of the European Court of Justice which in its judgments from Cadburys, Schweppes to Marks and Spencer has done its judicial best to apply harmonised tax rules across the European Union notwithstanding that individual member states still and, increasingly delusionally, believe they retain sovereignty over direct taxation.

We see also in the US$14 billion fine by the European Competition Commission of Apple and the US$294 million fine of Amazon, that the EU is waking up to the understanding that tax avoidance occurs within its borders and is intent on eradicating it. Unless the EU implodes, tax rates in the EU must be harmonised and can then only go up.

The simple fact is there is no further global initiative to which the Cayman Islands can accede. It is no secret that what the European Union are actually demanding is the introduction of direct taxation in the Cayman Islands and that that simply will not happen. As to an EU blacklist, if we use the IMF figures portfolio investments in the Cayman Islands, we can conclude that only 8% comes from EU jurisdictions. And by that, I do not include the two European power houses, Switzerland and the United Kingdom. The Cayman Islands position is that it will protect the 92%.

The EU list is devoid of credibility for another reason. It excludes the EU jurisdictions where tax avoidance occurs in the range of hundreds of billions of dollars a year, it excludes China and it excludes the delightfully opaque United States of America which has sensibly ignored the OECD and signed up to absolutely no international transparency initiatives. No doubt, a certain amount of negativity must arise with regard to any black list but on any technical analysis, the indisputable fact is that the Cayman Islands complies with every international standard on transparency anti money laundering, anti-terrorism and international sanctions and has been determined to be compliant as a matter of fact.

It seems therefore that we are at an impasse. There is nothing we can do to further appease the EU which has acted in exactly the arbitrary and unjustifiable manner that its founding Fathers sought to prevent or as we might say in the context of this debate; Plus ca change. For the longer term, we are optimistic because if it is the case that Mr. Moscovici has in mind that tax rates in the EU must rise, and that we may in time see the imposition of an EU Financial Transactions Tax, then there will occur a shift in financial structuring away from Europe, in respect of which the Cayman Islands will remain well placed. No doubt in the short term transactions from the EU may diminish but they represent less than 8% of the Cayman book of business. Cayman will continue to protect the remaining 92%. We have been here before.

Originally published 5 December 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Stuarts Walker Hersant Humphries
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Stuarts Walker Hersant Humphries
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions