Obama provides Tax Broadside for Cayman and other Low-Tax Jurisdictions
Lately, American business groups have been critical of President Obama’s proposals to subdue tax advantages for those who invest overseas. As a result of the reforms, the low-tax jurisdictions like the Cayman Islands could suffer. Still, it is difficult to fully assess the possible effect of the reforms.
On May 4, the Treasury published a statement, according to which US multinational corporations paid about USD 16 billion of US tax on approximately USD 700 billion of foreign active earnings in 2004 for an effective tax rate of about 2.3%. (2004 is the most recent year with the available data). According to the Treasury’s statement, about 1/3 of all foreign profits reported by United States’ corporations in 2003 came from 3 small, low-tax countries – Bermuda, the Netherlands, and Ireland. The US Treasury said that “there is no higher economic priority for President Obama than creating new, well-paying jobs in the United States”, however “tax code actually provides a competitive advantage to companies that invest and create jobs overseas compared to those that invest and create those same jobs in the US.”
It is worth noting that the Cayman Islands does not expect that it could be unduly impacted by the proposed changes announced by the US Treasury because the number of US corporations that have subsidiaries in the jurisdiction and that have benefited from the deferral rule is insignificant. So, the Cayman Islands Financial Services Association (CIFSA) doubts that there will be any material adverse effect to the Cayman financial industry. According to a CIFSA representative, “Having a registered office address in the Cayman Islands is driven by commercial considerations, not by tax avoidance. It allows companies to raise capital and conduct global business”.