Cayman Islands: Government Of The Cayman Islands - Cayman Islands Recognised By The OECD As A Co

UK and OECD Applaud 'Advance Commitment' Following

OECD Council Meeting in Paris

19 June, 2000 – Grand Cayman – The Cayman Islands reinforced its position as a major international financial centre through constructive engagement with the OECD, leading to recognition of the Cayman Islands as a cooperative jurisdiction. The commitment to embrace international standards for transparency and exchange of information means that the Cayman Islands will not appear on the OECD list of 'tax havens' to be published following the next meeting of OECD Ministers on 26 June.

Following meetings which culminated in May of this year, the Cayman Islands Government entered into an 'advance commitment' with the OECD aimed at assisting in the international initiative to combat 'harmful tax practices'. The discussions took into account the OECD's Report on Access to Bank Information, which confirms the legitimate role for bank secrecy in protecting the confidentiality of financial affairs and in maintaining the soundness of banking systems.

"As a major international financial centre, we are committed to maintaining a well-regulated financial services industry which meets the highest international standards. This extends to our private sector associations, which were actively consulted on the OECD discussions and supportive of the commitment given," said Hon. George McCarthy, Financial Secretary of the Cayman Islands. "The outcome with the OECD demonstrates what can be achieved through sustained, constructive engagement."

The most important elements of the 'advance commitment' provide a time frame for effective exchange of information on tax matters, with implementation scheduled over a three to five-year period. The Cayman Islands has committed that:

• The effective exchange of information for criminal tax matters shall become effective for the first tax year after December 2003, and for civil and administrative matters for the first tax year after December 2005.
• The implementation of this commitment shall require that information be provided only pursuant to a specific request, and where such request is relevant to a tax examination or investigation conducted in accordance with the laws of the requesting state.
• Requests will be submitted by foreign tax authorities to a competent authority in the Cayman Islands who will act in a capacity similar to that in which the Cayman Islands Chief Justice has acted pursuant to other international exchange agreements.
• Confidentiality provisions will ensure that information that has been exchanged is adequately protected from unauthorized disclosure.

The 'advance commitment' also addresses transparency issues such as continued vigilance regarding 'Know Your Customer Rules' and ensuring that bearer shares, if allowed, are not abused. In addition, other actions include a policy directive to be issued by the Cayman Islands Government advising financial services providers against the use of aggressive marketing policies based primarily on confidentiality or secrecy.

"It is clearly understood and accepted by the OECD that our commitment letter relating to 'harmful tax practices' does not affect the right of the Cayman Islands to maintain its tax-neutral regime and its indirect form of taxation," said Minister Truman Bodden, the leader of the Cayman Islands Government delegation. "We believe that this commitment will enable us to achieve an effective balance between appropriate assistance to international tax authorities and protection of the rights of investors and depositors to maintain legitimate confidentiality," added Bodden.

The Cayman Islands, a United Kingdom Overseas Territory, is one of the ten largest financial centres. Forty-three of the world's top 50 banks have licensed subsidiaries or branches here. The financial services sector includes banking, mutual funds, insurance, company management, vessel registration, structured finance and the Cayman Islands Stock Exchange.

The OECD is pleased to announce that six jurisdictions have joined OECD member countries in committing to eliminate harmful tax practices. The jurisdictions are Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino. The texts of their letters of commitment are available on the OECD's website. Though they differ somewhat in form, all these letters represent a full commitment to eliminate harmful tax practices by the end of 2005, embracing international tax standards for transparency, exchange of information and fair tax competition. The OECD welcomes these commitments.

There will be a further announcement about the OECD's work on harmful tax practices next Monday 26 June. At that time the OECD will publicly release its Report on Progress in Identifying and Eliminating Harmful Tax Practices.

For further information, and to register for the news conference, please contact Nicholas Bray in the OECD's Media Relations Division

The work of OECD Forum on Harmful Tax Practices was mandated by a 1998 report, the OECD Report on Harmful Tax Competition. Its objective is to identify and eliminate tax practices, both in OECD countries and outside the OECD area, that have a distorting effect on trade and investment for geographically mobile income.

As part of this work, the Forum has engaged over the past two years in extensive factual review and dialogue with a number of jurisdictions initially identified for review as possible tax havens. The Forum has also been reviewing OECD Member country regimes to identify harmful tax practices.

Under the terms of the 1998 report, a tax haven is a jurisdiction that: (i) imposes no or only nominal taxes (generally or in special circumstances) and (ii) offers itself, or is percieved to offer itself, as a place to be used by non-residents to escape taxation in their country of residence and (iii) possesses one or more of three confirming criteria for engaging in harmful tax practices. Those confirming criteria are: 1) lack of effective exchange of information; 2) lack of transparency; and 3) attracting business with no substantial activities. These criteria are consistent with the nature of the tax poaching schemes that are the object of the OECD's work: schemes that impede the ability of home countries to enforce their own tax laws. The confirming criteria for identifying a harmful preferential tax regime are similar to these. The commitments made by the six jurisdictions would ensure that effective exchange of information and transparency are achieved in those jurisdictions, and that their regimes are not designed so as to attract business with no substantial activities.

In the next stage of its work, the Forum will publish on June 26 a list of jurisdictions that it considers to qualify, under this definition, as to tax havens, and also will report on its review of OECD member country preferential regimes. Also, on Thursday of next week, the OECD with the French Minister of Finance Mr. Fabius will launch a global dialogue on harmful tax practices. This high level Symposium will bring together the 29 Member countries and 30 other countries to discuss how to develop a global response to the challenges of harmful tax practices.

19th June, 2000

Dear Colleague

I am writing to you to draw to your attention the Press Releases of both the Cayman Islands Government and the OECD in relation to the lists that will now be published following the two year review by the OECD of offshore jurisdictions and "harmful tax competition".

Although certain aspects of the OECD position on "harmful tax competition" may be described as highly subjective, the common ground between the Cayman Islands and the OECD is now that information will be exchanged in relation to tax matters by including exchange of information in relation to criminal and, ultimately, civil tax matters within the pre-existing anti money laundering legislation. You will see from the enclosed Press Releases that information is agreed to be exchanged in relation to criminal tax matters with effect from the first tax year after December 2003 and in relation to civil tax matters with effect from the first tax year after December 2005.

The effect of this commitment is that the Cayman Islands are today on the OECD list of six jurisdictions which have committed to eliminate harmful tax practices and will not, therefore, appear on the OECD "blacklist" of tax havens to be published by the OECD on 26th June, 2000. The "blacklist" jurisdictions will, it is indicated, ultimately be subject to OECD sanctions after a twelve month period.

There are, nevertheless, distinctions between the six jurisdictions, most notably with Bermuda which has already amended its laws to include within the definition of "suspicious transaction" reporting the overseas commission of a tax offence. That is not the case in the Cayman Islands which proposes to provide information in the relevant tax year pursuant to a specific request of the appropriate tax authority under a Mutual Legal Assistance Treaty ("MLAT") disclosure mechanism. In effect, the Cayman Islands undertaking is to amend the Cayman Islands MLAT and to extend that treaty network to include tax offences within the definitions of "money laundering". This, however, will be a reactive not proactive reporting obligation.

We will be pleased to give specific advice in relation to the amendments to Cayman Islands legislation as and when these are tabled pursuant to the above mentioned commitment.

With kind regards,

Yours sincerely

28th June, 2000

Dear Colleague

I am writing to you again to clarify certain questions that may have arisen in connection with the Cayman Islands tax regime following recent press reports in Tokyo on the OECD list of approved offshore financial centres. The position with regard to Cayman Islands law and regulation is as follows:

1. There is no intention on the part of the OECD nor any agreement by the Cayman Islands Government that would change the zero tax regime in the Cayman Islands. A zero tax regime is only regarded as "harmful" by the OECD if it is coupled with other features, particularly non transparency.
2. Accordingly, the changes agreed by the Cayman Islands Government with the OECD will enable a foreign tax authority to obtain information from within the Cayman Islands on a tax enquiry on establishing a prima facie case with the relevant Cayman Islands Authority. In relation to foreign criminal tax matters this procedure is to apply with effect from the first tax year following 31st December, 2003.
3. The Cayman Islands Government raises its revenue by indirect taxation (e.g. customs duties, import duties, stamp duty on real estate transactions etc.) and remains fully committed to its zero direct tax regime. The OECD recognises that the methodology of the imposition of such taxation is a sovereign right and that no change is proposed.
4. The Cayman Islands Government will shortly announce a package of proposed legislative changes including:

1. the independence of the Cayman Islands Monetary Authority; and
2. mandatory compliance with the anti-money laundering Code of Conduct by Cayman Islands professionals,

I hope that the foregoing information will be of continued assistance.

With kind regards,

Yours sincerely