Don’t cry for tax havens, Cayman Islands
The Cayman Islands are going to be fine. The offshore tax haven is in theory being swept away by global reforms that could impose a global burden on businesses, an effort by world leaders to reduce profit shifting and raise revenues after a year of government stimulus. But many of the breaks the islands give to its favorite industry of hedge funds and other investment firms may remain despite efforts to make companies pay more. And the exemptions are plentiful, suggesting the Caymans can find them as well.
Despite a population of less than 65,000, some 100,000 companies are domiciled in British territory in the Caribbean Sea off the coast of Central America. It offers significant tax benefits to businesses and individuals, including no income or earnings levies for hedge funds or corporate profits. There is also no capital gains tax for individuals.
The suggestion of an international rate at first glance threatens the big advantage of the country, which in theory should adhere to it. After years of wrangling, the G7 reached a deal, which will now be presented to G20 countries in July, that would require companies to face a 20% tax on profits exceeding a 10% margin in countries. where its products or services are consumed. . Another part of the plan would set a minimum overall corporate tax rate of at least 15%.
This is expected to raise more than $ 100 billion worldwide. The problem is that countries are already finding workarounds. Reuters reported on Wednesday that UK Finance Minister Rishi Sunak wanted financial services exempt from the pact. In the same vein, Switzerland seeks to protect its local champions like the mining company Glencore (GLEN.L). The Financial Times reported that companies based in Switzerland would receive grants and other benefits to keep tax rates lower there. Likewise, China is seeking to defend its low-levy areas.
The Caymans have a lot to lose. The lack of corporate tax has prompted companies like Facebook (FB.O) to use fictitious structures to reduce their taxes. And nearly 11,000 investment funds are registered there, representing more than 60% of the $ 3.8 trillion in assets of the hedge fund industry. They include Point72 by Steve Cohen, Bridgewater by Ray Dalio and Man Group by Noam Gottesman.
Yet if a multinational pact does not achieve its goals, and it likely will, tax havens like the Caymans will remain intact. This means that a race to the bottom in global levies will continue.
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– UK Finance Minister Rishi Sunak wants financial services excluded in a global tax deal struck by the Group of Seven economies, Reuters reported on June 9. Under the deal, countries where a company’s products or services are consumed could tax 20% profit above a 10% margin, unlike the current system based on where businesses are located. Another part of the plan would set a minimum overall corporate tax rate of at least 15%.
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