The year 2009 A.D. is probably going to be known as the year everything in the galaxy of offshore tax havens changed: Switzerland surrendered to the US tax people, Lichtenstein is going straight, even the Turks and Caicos are now under Britain’s two-year direct rule. And now, another British-administered territory is experiencing taxing troubles: the Cayman Islands, home of the off-shore business in the Caribbean, are in a pickle.
But it’s a pickle of a different kind: the FBI is not knocking on their doors yet, at least not loudly. Even if one of their big business buildings, Ugland House in George Town, which houses 19,000 companies, has been referred to by President Obama as “the biggest tax scam on record”. Nope, the Caymans find themselves in plain old budget deficit trouble. And how they deal with the problem may redefine the way Cayman Islanders, and their guest-companies, will live in future. In the recent past, they’ve lived very well indeed. The small fees from international financial transactions being driven through local accounts was a very good business model for many years. But the world-wide slump severely impacted on volumes, leaving the local government caught between a first-world spending appetite and a bitter reality. Currently, the deficit stands at $284 million and, while the local government managed to stave off the disaster by securing a $60 million loan, there isn’t much of a choice: they either plug the hole properly or face direct British rule, a la Turks and Caicos, an option that is worse than death for an off-shore haven.
Now, W McKeeva Bush, leader of the local government, is considering imposing some kind of tax on 57,000 residents, more than 9,000 hedge funds and an untold number of other companies. And that is exactly what is against the DNA of the places like this. It is just against the fibre of the place to tax any kind of earning. But reality has brought many a utopia to the ground. Precisely where, presumably, British and US tax authorities will be waiting.
So, watch this space. And if you have money in the Caymans, think carefully about not visiting it, and think quickly.
Read more: The New York Times