Foreword
This document has been developed by Cayman Finance to share information about the essential role of the Cayman Islands Financial Services Industry in the global economy, and particularly highlight how the Cayman Islands is an extender of value and an important partner to the European Union and its Member States at a time when the EU is in an era of evolving global trade relations and other important changes in the global economy.
The Cayman Islands is a premier global financial hub that efficiently connects law abiding users and providers of investment capital and financing around the world. The Cayman Islands has a long-standing relationship with the EU.
Global trade is an important cornerstone of the EU's economic policy and the Cayman Islands is the world's most popular global financial hub for international investment, providing a proven, trusted, stable, tax-neutral, and well regulated environment designed to support global trade.
The Cayman Islands is a 'global extender of value' for the European Union, its businesses, and its citizens to be competitive through global trade, investing and financing activities, providing the ultimate platform that is dynamic enough to support the EU currently and as it enters a new era of global trade relations.
In order for the Cayman Islands to be able to best assist the EU, and for the EU to take maximum advantage of the opportunities available in the evolving global economy, it is imperative that the European Union understands fully the beneficial role played in global financial services by the Cayman Islands.
The Cayman Islands, through its pivotal role in international investing and financing, supported by its robust and well-regulated financial services industry, can help the EU as it prepares for the evolving changes in global trade and the global economy by providing unparalleled access to:
- Foreign Direct Investment or "FDI" (essential to save or grow EU businesses and jobs)
- Inward infrastructure investing and financing
- Liquidity for EU Member State economies
- EU Member State job growth
- Increased tax base for EU Member States
- Global diversified investments for EU pensioners
- Free flow of global trade, capital, investing, financing, and services.
In 2017, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes estimated that in just one recent year, Cayman attracted at least US$4.1 trillion (EUR 3.7 trillion)* in banking assets, direct investment and portfolio investment.
Because the Cayman Islands is home to approximately 70% of global hedge, private equity, and venture capital funds, it is well positioned, just like after the 2008 global credit crisis, to provide inward investing, financing, and liquidity into economies during times of need or uncertainty, as might be expected with the evolutions in global trade relations.
The Cayman Islands investment fund provides the vehicle to facilitate trade to, from and through EU Member States bringing employment, expertise and tax receipts to EU Member States. The Cayman Islands investment fund is the global collective investment vehicle preferred by investors in North America, China, Japan, the Middle East, Latin America, as well as many other countries.
It is used by international investors in those regions to aggregate overseas investment into countries around the world, including European Union Member States; to facilitate co-investment by EU investors with others from around the globe; and to enable asset managers in the EU to provide services to international investors.
Collective investment funds are also known as "collective investment vehicles" (CIV) or "collective investment schemes" (CIS). In 2005, the OECD published a white paper on Governance of Collective Investment Schemes that explains CIS as follows, "The concept underlying CIS is simple. CIS are a form of institutional investment through which individuals pool their funds and hire professionals to manage their investments, with each investor entitled to a proportional share of the net benefits of ownership of the underlying assets.
Whatever its legal form, a CIS generally consists of:
- a pooling of resources to gain sufficient size for portfolio diversification and cost-efficient operation and
- professional portfolio management to execute an investment strategy."
For example, Cayman-based funds are used to facilitate infrastructure developments such as hospitals, schools, roads, power plants, etc. which help increase the quality of life in countries around the world. Additionally, failing businesses are purchased, loans are provided to companies in difficulty, employees are reemployed and new jobs are created, increasing the tax base in that country.
Among those investing in Cayman funds are European pensions, which then have access to global diversified investments, potentially reducing risks associated with having these invested in one geographic area where disasters and other factors could have a negative impact on the investments. In turn, these globally diversified investments contribute higher returns to European pensioners.
Additionally, many service providers to Cayman Islands funds are based in cities within EU Member States which are global centres of excellence for the alternative investment management industry. The income of such service providers, including investment managers, is dependent upon the fees generated from managing global pools of capital which are assembled in the Cayman Islands. This income creates additional jobs and taxable revenue in EU Member States and helps preserve European cities' positions as leading financial centres by giving EU-based managers the ability to manage global capital that might not otherwise be invested in Europe.
The Alternative Investment Management Association, headquartered in the UK, has noted that the money invested in offshore funds like those in the Cayman Islands is not kept in an offshore bank but invested in financial markets around the world.
It added that this activity helps to provide additional sources of financing to businesses and infrastructure projects in places like the UK, thus creating significant jobs and generating tax revenues for the government there. [*'Transparent, Sophisticated, Tax Neutral: The Truth About Offshore Funds' – AIMA Report Nov 2017.]
While Cayman adds no additional tax to financial services transactions in its jurisdiction, investors (individuals and businesses) are still subject to any taxes owed at home. This is ensured by Cayman meeting or exceeding globally-accepted standards for transparency and cross border cooperation with tax authorities and law enforcement including through the Cayman Islands being an early adopter of the OECD Common Reporting Standard framework. The importance of Cayman's tax neutral status can be illustrated by considering what would happen were Cayman to introduce direct corporate tax on profits, e.g. hedge funds.
This would reduce returns to the European investors in those funds and, consequently, reduce the taxes that those investors would in turn be liable to pay at home.
Accordingly, Cayman's efficient tax neutral platform provides the optimum outcome for investors, investees, and home tax jurisdictions.
Summary
With the Cayman Islands being a premier global hub for investment capital and financing, the European Union and its Member States stand to benefit on three important fronts:
Firstly, the European Union, its businesses, and its people being able to participate in globally diversified investment and financing opportunities resulting in benefits such as greater returns for European pensioners on pension fund investments.
Secondly, with the substantial investible assets pooled in Cayman funds from around the world, Cayman entities are uniquely positioned to provide substantial foreign direct investment, infrastructure financing and liquidity which can be used to save or grow EU businesses, jobs and tax base. Lastly, as the EU will look to opportunities around the globe
to secure its future, the Cayman Islands is well positioned to work hand in hand with European cities to connect the EU and its Member States to the efficient flow of global trade, capital, investing, financing, and services around the world.
The message in this document about the Cayman Islands is a compelling one. It highlights the great work that has been done through collaborative efforts over many years to establish the Cayman Islands as the premier global financial hub. We remain committed to continuing our work to promote and protect the Cayman Islands financial services industry and its important role in the global economy and extending value to the European Union and its Member States throughout the evolution of global trade and the global economy. We look forward to working together to ensuring this important relationship with the EU continues to be mutually beneficial.
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Originally published June 2019
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.
