In response to global developments in financial services, the Cayman Islands Government today published three bills that further strengthen our compliance with international standards.
They were produced following the Ministry of Financial Services' in-depth consultation with Cayman's local financial services industry, Cayman regulators, the OECD and the European Union. The Financial Services Ministry also joined the Ministry of Commerce to consult with Cayman's commerce stakeholders.
'Since January this year, many representatives from more than 15 financial services and commerce associations, as well as Government stakeholders outside of the Ministry of Financial Services, have participated in this consultation. This breadth allowed Government to ensure that our legislation is appropriate for both financial services, and local business,' said Minister of Financial Services, the Hon. Tara Rivers.
Cayman's bills are built upon the OECD's Forum on Harmful Tax Practices (FHTP), which falls under the OECD's BEPS (Base Erosion and Profit Shifting) Inclusive Framework. Cayman became a member of the Inclusive Framework in 2017.
The BEPS Inclusive Framework sets the global tax standard regarding structures that aim to attract profits in jurisdictions in which they do not conduct real economic activity. The FHTP supports the Inclusive Framework's remit by reviewing jurisdictional regimes that give preferential tax rates to these structures, which in turn can negatively affect the collection of tax in other jurisdictions.
Because the EU also used the FHTP as its base for the EU's non-cooperative tax jurisdiction initiative, Cayman's bills therefore fulfil our commitment to the EU, to have legislation in place by 31 December 2018. The bills will be debated in the Legislative Assembly shortly.
Minister Rivers acknowledged that Government had taken some time to publish these bills, explaining that the breadth and depth of consultation was necessary in order to develop the best framework for Cayman while also fulfilling our global responsibilities as an international financial centre.
In relation to the EU initiative, Cayman, the UK Crown Dependencies and Overseas Territories, and some other countries without UK ties were asked to specifically address concerns on fair taxation.
'The EU did not place Cayman on its list of non-compliant tax jurisdictions, but this was a concern that needed to be addressed in order to correct the perception that our tax system provides an unfair tax advantage to any company operating in our jurisdiction,' Minister Rivers said.
She further noted that all of the countries that made commitments to the EU are fulfilling their commitments as well, with legislation similar to Cayman's proposed legislation.
The Companies and Local Companies (Control) amendments would allow exempt companies to do business locally; however, these companies would be required to follow the same rules as local companies.
The Economic Substance bill covers legal entities engaged in any of these nine FHTP categories of business:
- Fund management
- Distribution and service centres
- Financing or leasing business
- Holding companies
- Intellectual property
If a Cayman entity is conducting relevant business activities in one or more of these categories; and if that entity is not tax resident in another jurisdiction, the bill would require the entity to have 'economic substance' in the Cayman Islands.
'Economic substance' means that the Cayman entity must undertake substantial business activity, appropriate to the line of business that they are conducting, in the Cayman Islands. This requirement could be fulfilled by activities such as hiring staff and having physical business locations; or outsourcing these activities to a local service provider.
Minister Rivers said it's important to understand why these global developments are occurring, and why it's important for Cayman to participate in them.
'The scope of the FHTP now includes 120-plus countries, including Cayman', she said. 'This represents an evolution of the global standard in financial services, and Cayman is committed to responding to these standards'.
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