From IFC Review

Following the G20 summit in Brisbane last week questions remain over how much the latest talks on global tax transparency will impact Cayman and other offshore jurisdictions, reports the Cayman News Service.

Despite the bluster from international politicians in the build-up to the summit over clamping down on multinational corporate tax dodging, illicit cash flows and jurisdictions that facilitate them, the agreements reached do not require a seismic shift for the local financial sector. As discussed in the run-up to the summit, a formalized OECD plan was agreed upon for countries to share information on what companies are doing with their accounts and corporate registration across borders and financial jurisdictions.

International financial ministers agreed to support a dramatic expansion of automatic data-sharing across national borders. In Cayman “beneficial ownership” reporting requirements have existed for over a decade. Corporate service providers and registration agents have to collect and maintain those records. But the information is currently only accessible via a court process that can be lengthy and expensive.

G20 leaders affirmed the principle that “profits should be taxed where economic activities deriving the profits are performed and where value is created”. The OECD’s plan against base erosion and profit shifting (BEPS) could put an end to tax havens but would not eliminate tax competition. “If there’s no zero-tax havens left, then countries will be keen on competing with more attractive rates,” Australia’s Prime Minister Tony Abbott said.

On the sidelines of the Brisbane summit, Pascal Saint-Amans, OECD director of tax, said the organization’s proposal was already having a serious impact on how companies and countries conducted their tax affairs. “Aggressive tax planning is slowing and companies are reassessing.”

Protesters from the anti-poverty organization, Micah Challenge, had dressed up as corporate accountants posing alongside a mock tropical tax haven to highlight the issue of multinational tax dodging before the summit. The campaign claims US$160bn is robbed from developing countries annually through tax loopholes.

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters signatory countries are required to provide to the home country the name, address, and date of birth and bank account details of non-residents. With multi-national cooperation in regards to tax and cash flows becoming more the trend, the financial services minister, Wayne Panton, described Cayman’s signing onto G20’s new Standard for Automatic Exchange of Financial Information in Tax as a “logical progression in our longstanding international cooperation efforts”.

As a member of the Early Adopters Group (EAG) Cayman committed to adopt the Standard according to a timetable, which would see the first exchange of information in relation to new accounts and pre-existing individual high value accounts to take place by the end of September 2017. These arrangements come after signing of FATCA with the US and a similar agreement with the UK earlier this year.

The standard was endorsed by all the OECD and G20 countries as well as those major financial centres which were participating in the Global Forum on Transparency and Exchange of Information for Tax Purposes.

The Standard provides for an annual automatic exchange of all financial information between jurisdictions, mostly on a reciprocal basis. In order to improve the standard of exchange of information upon request, it was agreed that the Standard should include a requirement that beneficial ownership of all legal entities be available to tax authorities and exchanged with treaty partners. Having reached agreement in principle to this revision, the Global Forum will now develop and revise the detailed Terms of Reference and Methodology for AEOI on request.

While these arrangements mean tighter control on tax income and information for governments, they also have direct implications for the security of individual’s right to financial privacy in the signing jurisdictions. This global trend towards tighter and more automated control over cash flows could potentially lead to knock-on effects in jurisdictions that facilitate tax evasion and/or money laundering.

Despite the global pressure put on them, Bermuda had recently announced that they would only adopt beneficial ownership when the UK, US and Canada would as well. It remains to be seen to what extent Cayman is willing to continue along with this global trend.

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