Cayman Islands government to meet EU and OECD on ‘economic substance’ issue

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Cayman Islands Premier Alden McLaughlin (L) at a meeting with Valdis Dombrovskis, Vice-President of the European Commission in charge of Financial Services, in Brussels on September 28, 2017

GEORGE TOWN, Cayman Islands (CNS) — Officials from the financial services ministry have confirmed that the Cayman Islands has been invited to a meeting with the European Union and the Organisation for Economic Co-operation and Development (OECD), along with five other jurisdictions, on the latest European grey-list.

The ministry said the informal voluntary meeting was to discuss the definition of economic substance in the financial services sector there, which the Cayman Islands government has committed to address this year to stay off the threatened blacklist, even though they don’t really know what it means.

Reports at the weekend indicated that Britain’s overseas territories (BOTs) could be used as pawns in the Brexit negotiations with the EU, which is putting pressure on the UK government to reveal more about those the EU has identified as tax havens. European officials are beginning to indicate that the BOTs that escaped the blacklist may end up on it anyway, as the EU could use them as leverage in the current tangled and tricky talks.

It appears that London may not stand by its commitments to BOTs not to abandon them as Britain splits from Europe because the UK may no longer have the political will or power to protect them.

Cayman avoided the threat of being blacklisted by the EU and the possibility of sanctions, which could prevent companies based in the jurisdiction from operating in Europe, by making some as yet unexplained commitments that suggest the financial sector needs to address the lack of substance and presence in Cayman of many large European companies that are registered here.

CNS asked the government for comment on the new threat that Cayman could still be blacklisted but received no reply. However, officials said that they had confirmed their willingness to attend the meeting with European officials, which is expected to happen soon and where the question of economic substance could be more clearly defined and answered.

“The ministry of financial services emphasises that at this time the discussion is informal. All countries that are working with the EU and the OECD to more clearly define and address economic substance are to have this issue addressed by December 2018,” a spokesperson from the ministry stated.

In December, the Council of the European Union published a blacklist of 17 uncooperative nations, but more than 40 other countries were put on a ‘grey-list’, having agreed to take steps toward “abolishing harmful tax practices”. The Cayman Islands, Bermuda, Guernsey, Isle of Man, Jersey and Vanuatu were listed as “tax regimes that facilitate offshore structures which attract profits without real economic activity”.

However, so far no one has given a definitive explanation on what this means to the Cayman Islands’ offshore financial services sector.

Republished with permission of Cayman News Service

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