Chairman's Blog

Last month French bank BNP Paribas announced to the world that it will stop operating in countries that are on the ‘gray list’ published by the OECD.  This decision, the first of its kind by any major bank, puts Panama and the Bahamas directly at risk of losing business and increases pressure on all gray-listed countries to conform to the OECD mandate.

While this type of gamesmanship will not affect the Cayman Islands today, due to our OECD White List status, it does raise concerns for smaller nations such as ours that the playing field will continue to be modified by G20 nations until they achieve their ultimate goal: the “one size fits all “global tax rate .The G20 nations intend to use every opportunity to raise taxes from any source in order to deal with increasing national debts.

With all of the recent focus on Cayman’s debt, which stands at a realistic 25% of GDP, it may surprise some people to discover that UK debt, according to their own statistics office, at the end of March 2009 was equivalent to 55.5% of GDP and unofficially, if unfunded public sector pension liability is included, may amount to three times that figure. Similarly France’s public debt rose to 73.9% of GDP in the second quarter of 2009, and estimates for the US put their figure at close to 90% of GDP for 2009 and is expected to top 100% in the near future.  Little wonder then why these large economies are seeking to exercise their combined might to force smaller nations like Panama, the Bahamas, Barbados, and even the Cayman Islands to change their policies on taxation.

The belief shared by the G20 nations is that low tax regimes are ‘unfair’ and rob their governments of desperately needed tax revenue.  What this theory fails to consider is what drives the economic growth of these large economies.  The answer is not tax dollars, but investment dollars.  And without tax neutral jurisdictions, like Cayman, it would be more difficult, not less difficult, for onshore jurisdictions to attract international pools of investment capital that find their way into these economies.

So the question is:  Will the G20 nations recognize the negative impact to their economies by excluding their own financial markets from accessing offshore financial centres? By attempting to put the squeeze on offshore centres they may unwittingly be tightening the noose around the neck of their own economies.

This entry was posted on Friday, October 23rd, 2009 at 12:43 am and is filed under Agreements and Treaties, Corporate, Fiction vs. Fact, G20, OECD, Tax Issues, USA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.