President Obama’s re-election is a vote for the status quo in Washington, with the likelihood of higher budget deficits, and more spending to reward political allies. Although the US public voted for more social services, this demand can’t be met by taxing the rich alone. US taxes will go up for individuals and for corporations to help pay for spending, and not just by allowing rates to rise as the “Bush Tax Cuts” expire. Instead, tax writers will focus on raising revenue using the issues that have arisen during the Presidential campaign, and during 2012 committee hearings. The US should examine its laws carefully, rather than trying to pass the bill along.
We hope that in President Obama’s second term the US will examine its own international tax laws, and banking and corporation statues, to strengthen compliance. We work with the Cayman Islands Government to prevent illegal tax evasion and money laundering by cooperating with US Government investigations. Our “know – your – customer” and corporate transparency statutes are stronger than their US counterparts. It’s much easier to set up a shell corporation in Delaware, the Vice President’s home state, than in Cayman. In Cayman, the beneficial owner has to be disclosed. In Delaware, beneficial owners can remain secret, and the legal fiction of a US company established regardless of US citizenship and business activity.
We’re concerned that in its hunt for revenue, the US Congress will expand its taxes beyond its borders. The US Senate’s Oversight and Investigation Subcommittee continues to assert that all off shore activity is suspect. They’ve gotten support from the media coverage of the low effective corporate income tax rates for foreign income of companies such as Apple and HP. Simple, sanctioned deferral techniques such as the use of offshore companies will be challenged, moving the US away from the international norm of territorial taxation. More complex techniques such as transferring IP offshore, and avoiding the unrelated business income tax on debt-financed income through investing in offshore funds may be attacked. Debt-financed businesses need to be concerned that interest payments to foreign parents will be treated as non-deductible dividends. Other rules could come into play too, such as those for permitting mutual funds to invest in commodities offshore.
For Cayman Finance, this will mean a continued focus on compliance with our already rigorous legal requirements and rules for our industry. It will also mean a vigorous defense of tax competition and international business transactions. We provide services to move international capital to the US, and from the US abroad, in the most efficient manner. We provide safe and sound banks, and a fair legal system to enforce the rule of law. Together, we can help the US, Cayman, and other economies grow during the next four years.