As Cayman’s Leader of Government Business and Financial Secretary meet with British government officials in Brussels...

UK Flexes Its Muscles

Hon McKeeva Bush	Hon George McCarthy
Ms Dawn Primarolo	Mr James Mirrlees

Wednesday, December 3, 2003

At their meeting this week, it is reported that the UK will demand that the Cayman Islands government drop its opposition to implementing the European Union's (EU) savings directive and comply with the EU crackdown on tax evasion.

The Leader of Government Business, Hon McKeeva Bush, along with Financial Secretary George McCarthy are currently meeting in the EU's headquarters in Brussels, Belgium with UK treasury minister Dawn Primarolo and other British officials. 

The confrontation between the UK and the Cayman Islands Government is threatening the EU offensive against tax evaders because the initiative cannot start without the participation of all of Britain's overseas territories.

Ms Primarolo is expected to tell Cayman's representatives that the UK is willing to provide certain tax concessions to the Cayman Islands if they give a commitment to implement the EU directive.

But she will again warn Cayman's ministers at their meeting that UK will legislate to enforce compliance with the EU directive.

It is possible that a significant part of Cayman's financial services industry could move elsewhere because of the EU directive, which seeks to tax cross-border interest payments to EU residents from 2005. A study by Sir James Mirrlees of Cambridge University suggests the EU directive could prompt European investors to snub the Cayman Islands, leading to bank closures.

The Cayman Islands banking sector is currently the fifth largest in the world and also a leading centre for hedge funds.

The Cayman Fund Administrators Association believes one in five of the hedge funds administered from this country could be caught by the EU Directive's provisions, and also fears some may leave the territory in response.

According to the Financial Times, Singapore is expected to be a big winner from the directive and is welcoming European private banks that want to develop their wealth management operations.

The Leader of Government Business, the Hon McKeeva Bush, told the Financial Times: "We believe we could lose business. This industry employs a large proportion of our workforce and losing revenue means our people are going to be hurt."

Mr Bush condemned the UK government's threat to legislate if the Cayman government refuses to implement the EU directive voluntarily, and accused Britain of treating its dependent territory like slaves.

But Mr Bush signalled he wanted a face-saving compromise with the UK government by calling for better access for the Caymans' financial products to EU markets and an elevated status for its stock exchange.

The UK government is willing to give official recognition to the Cayman stock exchange, which would provide tax relief on shares held by UK investors, but a British official said improved access to EU markets might be difficult.

All five of the UK's dependent territories in the Caribbean are supposed to comply with the EU directive. The Cayman Islands is the only territory that has not given a commitment to do so.

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