The Cayman Islands are Becoming "Transparent" For Tax Purposes
By Ron Cohen, CPA, MST
Greenstein, Rogoff, Olsen & Co., LLP
The Cayman Islands is becoming transparent. Tax Evaders with Cayman
bank accounts and unreported income should be warned that their bank account
information may be shared with U.S. and European tax authorities.
Becoming a member of the Organization for Economic Cooperation and Development
(OECD) provides many benefits to a nation. China is pursuing the same
recognition. To become a member of the OECD, the sharing of tax information is
required. The Cayman Islands, long a haven to tax evaders, is clearly going in
that direction....see below.
GRAND CAYMAN, Cayman Islands, April 3 /PRNewswire/ -- We are
pleased to see that the decision by the Organization for Economic Cooperation
and Development (OECD) to place the Cayman Islands on a list of jurisdictions
that have committed to "internationally agreed tax standard[s]"
significant cooperation by the Cayman Islands over the years with several
governments and other organizations like the OECD. For example, the Cayman
Islands have entered into twenty tax information exchange commitments, both
bilateral and unilateral, the largest number of any offshore financial centre,
and have implemented the automatic information-sharing with all EU states under
the EU Savings Directive.
Although the OECD is still reviewing the Cayman Islands legislation introducing
the unilateral mechanism and therefore chose not to include the unilateral
arrangements in the total number of commitments that the Cayman Islands have
entered into, several OECD member states have nonetheless already recognized the
validity of the unilateral mechanism. Indeed, the German government has
announced that it is "in accordance with the standard laid down by the OECD".
The Cayman/US Tax Information Exchange Agreement
The agreement specifies that the Cayman Islands will share tax information to
help the US government trace financial criminals. Former IRS Commissioner Donald
Alexander told the US media that the treaty will enable the IRS to overcome the
secrecy surrounding the accounts of financial institutions in the Cayman Islands
to allow it to launch audits for tax evasion and money-laundering.
"Right now," said Mr Alexander, "nothing is a fair description of the
cooperation the United States is getting. It's a hotbed of tax evasion. This is
a good step in the right direction."
The agreement covers information relating to "the administration and enforcement
of the domestic laws of the parties concerning the taxes and the tax matters
covered by this Agreement, including information that may be relevant to the
determination, assessment, verification, enforcement or collection of tax claims
with respect to persons subject to such taxes, or to the investigation or
prosecution of criminal tax evasion in relation to such persons".
Information has to be provided by the Cayman government without regard to
whether the person to whom the information relates is, or whether the
information is held by, a resident or national of a party; and provided that the
information is present within the territory, or in the possession or control of
a person subject to the jurisdiction, of the requested party.
The taxes covered by the Agreement are federal income taxes, "but the types of
tax covered may be extended by agreement between the parties in the form of an
exchange of letters". That appears to mean that the Cayman government can agree
with the US to extend coverage to other taxes.
The agreement covers "criminal tax evasion", which means: "willfully, with
dishonest intent to defraud the public revenue, evading or attempting to evade
any tax liability where an affirmative act constituting an evasion or
attempted evasion has occurred. The tax liability must be of a significant or
substantial amount, either as an absolute amount or in relation to an annual tax
liability, and the conduct involved must constitute a systematic effort or
pattern of activity designed or tending to conceal pertinent facts from or
provide inaccurate facts to the tax authorities of either party."
Information must be provided even if the alleged criminal behavior was not
criminal in the Cayman Islands. The signatories agree to provide themselves with
the authority to obtain information held by banks, other financial institutions,
and any person, including nominees and trustees, acting in an agency or
fiduciary capacity; information regarding the beneficial ownership of companies,
partnerships and other persons, including in the case of collective investment
funds, information on shares, units and other interests; and in the case of
trusts, information on settlers, trustees and beneficiaries.
For the US to make a request under the agreement, it must provide:
of the taxpayer under examination or investigation;
the nature of
the information requested;
purpose for which the information is sought;
grounds for believing that the information requested is present in the
territory of the requested party or is in the possession or control of a
person subject to the jurisdiction of the requested party;
to the extent
known, the name and address of any person believed to be in possession or
control of the information requested;
that the request conforms to the law and administrative practice of the
requesting party and would be obtainable by the requesting party under its
laws in similar circumstances, both for its own tax purposes and in response
to a valid request from the requested party under the Agreement.
US officials are permitted under the agreement to "enter the
territory of the requested party in connection with a request to interview
persons and examine records with the prior written consent of the persons
concerned", or "attend a tax examination" in the Cayman Islands.
Information need not be provided if it is subject to legal privilege, or if it
would not have been obtainable by the US under its own laws, domestically.
The Agreement took effect from January 1, 2004.