Politicians in the U.S. have brought their campaigns to a new low by calling each other unpatriotic for using the Cayman Islands. The fact is very few of them remain fully insulated from the “Cayman benefits” not even those that hurry to insult the other candidates without doing their homework.
In fact, most of the followers of this pitiful fight benefit from Cayman as indeed most U.S. citizens do.
Is it unpatriotic to promote the growth in the economy?
Cayman acts as a conduit of financial activity into the U.S., including:
- Ten percent of all foreign-owned U.S. equities
- Five percent of foreign-owned U.S. corporate debt
- Ten percent of foreign-owned U.S. short-term Treasury debt
- The Cayman Islands is the leader in respect to all foreign-owned corporate asset-backed securities, and facilitates one of every hundred dollars of foreign-owned long-term U.S. Treasury purchases.
In short, the Cayman Islands is a substantial partner with respect to the U.S. securities market.
The impact of these purchases is substantial, as it adds more than $80 billion to the U.S. GDP every year.
Is it unpatriotic to create jobs?
Cayman’s facilitation of direct investment in the U.S. creates more than 50,000 direct jobs annually in the U.S. and indirectly between 100,000 and 250,000 total jobs per year.
This generates $7.2 billion in wages paid per year in the United States.
Is it unpatriotic to increase the total level of taxes collected?
To suggest that the same level of activity would happen directly from the U.S., with a worldwide income taxation system that forces non U.S. investors to pay that tax and try to recover it through double taxations agreements is simply refusing to see the truth. A properly conducted analysis estimates that Cayman adds between $6 and $16 billion in tax revenue per year.
These estimates were calculated by an extensive econometric analysis conducted by Professor Thomas Smith of Goizueta Business School faculty at Emory University.
Is it unpatriotic to get a mortgage to buy a house having the cash necessary to pay the loan invested in equities or other properties? Millions of US people do this, effectively lowering their total tax bill, in a legal transparent way.
Is it unpatriotic to lease a car instead of buying it if the person has the funds for a cash purchase?
Millions of US drivers do this every year, effectively lowering their tax bill in a legal and transparent manner.
Is it unpatriotic to turn off the lights of your house when you leave, lowering your electricity bill? Or is it unpatriotic to subscribe to automated payment of tolls – paying a lower fare and reducing the need to employ more people at the toll booths?
Taxes are a cost for a business, and whether the manager is the owner or not, it is his or her duty to maximize the value of the enterprise for its shareholders.
Maximizing the value of the enterprise does not necessarily mean using every possible route to lower taxes. It certainly does not include illegal maneuvers, nor should it include practices that while they may follow the letter of the law might be questionable as they violate its spirit.
Cayman provides a system that facilitates cross-border investment and co-investment from different jurisdictions in an efficient and effective manner using a sound legal system.
As long as the U.S. continues to tax income on a world-wide basis, as opposed to a territorial basis, the risk of offshore centers being used to avoid taxes in a sometimes questionable manner will continue to be elevated. However, a change of system will not render Cayman irrelevant as most of its business has nothing to do with the current tax system in the U.S.
Even if the U.S. were to modify their system, and the network of double tax agreements was extensive enough to ensure that when pooling investments the investors can claim back taxes to pay only those taxes legally due, the operational and financial costs involved in navigating through those claims would make most of the structures not viable and the Cayman solution still the best option.
Cayman continues to commit to assisting governments understand the value we add to the world economy in a transparent way, ensuring that enforcement of their tax laws is possible and effective. Countries should seek to simplify and clarify their systems to ensure the amount owed in taxes is a clear number and not subject to the “patriotism” of the manager or tax payer.