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Following Tuesday's surprise imposition of the Directive on the
Taxation of Savings Income by the European Finance Ministers ...

Cayman Standing Up To EU

The government of the Cayman Islands is prepared to mount a legal challenge against the European Union (EU) in light of the fact that European Finance Ministers on Tuesday January 21 imposed the Directive on the Taxation of Savings Income on this country and other Caribbean Overseas Territories (COT).

Leader of Government Business, Hon. McKeeva Bush, Financial Secretary,
Hon. George McCarthy

The Directive has received the full backing of the United Kingdom.

In a press statement issued on Wednesday, January 22, Government confirmed its stance against the EU Savings Directive which officials, including Leader of Government Business the Hon. Mckeeva Bush and Financial Secretary the Hon. George McCarthy said is not in this country's best interest.

The directive on the taxation of savings income will be ratified at the March 2003 meeting of the European Council. If implemented, the directive could potentially affect the whole cost structure of entities doing business in the Cayman Islands.

The press release said Government has seen media reports regarding the EU directive on the taxation of savings income, adding that to the extent that those reports indicate any change in the position of the Cayman Islands, they are inaccurate.

"The Cayman Islands position on this directive remains unchanged," the release stressed.

"The Government has by letter to the European Commission confirmed that it questions the legitimacy of efforts to compel the Caribbean Overseas Territories to go along with the so-called Savings Directive. By that same letter we have reiterated our desire for formal discussions with the European Commission in this regard, under the designated procedure available to associated and dependent territories of EU member states."

According to the Government statement, the Cayman Islands has legitimate expectations that any process and outcome adopted by the EU in regard to the Savings Directive will comply with EU and international law.

"Any application of the Savings Directive in the Cayman Islands, but not by our competitors, is very likely to be both disproportionate in its costs to the Cayman Islands and ineffective," the press release stated.

"The United Kingdom has done a regulatory impact assessment in respect of implementation of the Savings Directive in the UK and is well aware that there would be significant costs to both private sector operators and public sectors associated with implementation of the Savings Directive.

"The same would certainly be true in the Cayman Islands as well. However, neither the UK nor the EU have been able to provide any information which would indicate that if the Cayman Islands is obliged to adopt the Savings Directive, that any additional tax revenues will be obtained by the EU Member States as a result. There is no basis in established fact for the discriminatory inclusion of the Cayman Islands in the ambit of the directive."

According to the statement, the Cayman Islands cannot subscribe to legislation or policy which is being created in Europe without any representation for its people and which is designed to cripple its ability to be self-sufficient and to take jobs from its people and give them to competitors.

"We have told the United Kingdom that the Government cannot stand by and allow the Cayman Islands to be the victim of an illegitimate process or outcome, neither can we condone the Cayman Islands assuming substantial, discriminatory and disproportionate burdens on behalf of the EU Member States without any form of consultation, consideration or compensation," the press release.

"The Government is very concerned that the displacement or "out burdening" by the EU of tax enforcement burdens to the Cayman Islands and other colonies which receive no benefit from the EU, distorts economic competition, particularly when the EU is offering much less onerous burdens tied to substantial economic benefits to other countries such as Switzerland. "Indeed the most recent proposals extend such benefits to a select grouping of EU Member States, compromising another initiative in which the UK has been a major driver, the OECD's Harmful Tax Competition Initiative, as was pointed out earlier this week by the Secretary-General of the OECD."

The Government statement added that the United Kingdom Chancellor of the Exchequer's publicly stated motivation in the context of the savings directive is the overriding desire to save the City of London's financial services industry.
The press release continued: "This is to the exclusion of any consideration of the interests of the Cayman Islands as a Caribbean Overseas Territories and the threat to its significant financial services sector. We have been left to defend our own interests in this regard.

"We have repeatedly indicated to the UK that while we understand the political and economic value of a 'satisfactory' Savings Directive to the United Kingdom, and remain willing to discuss matters related to the EU Tax Package, such discussions can only move forward in a direction and in a context which safeguards the interests of the people of the Cayman Islands.

"There can be no doubt that all EU Member States, including the UK also have obligations, both national and international, to take into consideration the interests of the Caribbean Overseas Territories. Based on those obligations, the Cayman Islands has legitimate concerns which relate to the legality and fairness of the savings directive and its practicality."

In addition to the Cayman Isalnds, the Directive on the Taxation of Savings Income will affect COT including Montseratt, Turks and Caicos, Anguilla, and the British Virgin Islands.

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