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
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