Captive Insight Vol I | Page 15

FOURTH QUARTER 2013 | ISSUE 1 “...he Cayman Islands has a comparable and in many t cases much stronger compliance with international standards and recommendations when compared to the major OECD countries.” In addition, unnecessary regulation can have a similar negative effect. The enactment of regulation by separate states within a country is in many cases the biggest driver promoting the provision of certain services from IFCs -- insurance being such an example of this influence. One common argument against IFCs is that such regulatory competition promotes a “race to the bottom”, forcing Governments to adopt weaker legislation to compete with the IFCs. Fortunately many economic studies have proven that tax competition creates economic benefits. At marginal tax rates that near or surpass half of gross income, many investment projects that would promote economic activity are no longer viable. Studies suggest every additional percentage point in the level of taxation as a share of GDP reduces growth in the economy by 0.15%, so the point that an oversized Government has a negative effect on economic growth, income per capita, and average living standards is not one of ideology but a factual conclusion proven repeatedly. It is also important to note that contrary to popular belief, this structuring does not reduce the tax where the investment is made nor the tax to which the investor is liable. Instead, the benefit of the structuring is it ensures that in the case of multiple investors each one has to deal with the particulars of the tax code that regulates them instead of having to navigate through multiple tax codes and double taxation treaties that would make the investment even less economically viable. T: +1 345-623-6711 E: [email protected] W: www.caymanfinance.ky 3. OECD Economic Surveys: Switzerland, 2011, p.34 But competition is not limited to the area of taxes, and certainly not to the area of effective tax rates. Even though the effective tax rate may not in itself be excessive, the sheer difficulty of dealing with double taxation treaties and tax rebates can make many projects unviable. 2. OECD Economic Surveys: Switzerland, 2011, p.43 On the contrar 䰁