News about the Cayman Islandsfrom around the World
Quebec fights investment taxdodge
The Globe and Mail
by Richard Blackwell
The Quebec Securities Commission says it will try to blocka Swiss bank from luring Canadian investors to an on-line offshoreinvesting service "hosted" on computers at the Kahnawakereserve outside Montreal, but located in the Cayman Islands.
The bank, Geneva-based Omnicorp Trust Co., is launching theservice, called Trading Offshore.com Ltd., in Canada today. Adraft press release for the launch says the company will "offerclients real-time execution of trades in the Cayman Islands withno direct taxation."
While all investors' money will be held in offshore accounts inthe tax haven, the Canadian front-end of the on-line brokerageis an Internet service provider on the Kahnawake Mohawk Territoryjust outside Montreal.
Trading Offshore.com president Susanne Thiessen said in an interviewyesterday that the company was told by U.S. regulators that itis enough for the company to conform to [Cayman Island] bankingregulations.
The company has not requested approval from any Canadian securitiesregulators because trading takes place in the [Cayman Islands],she said.
But QSC spokesman Denis Dube said that is irrelevant. "Theyhave to be registered in Quebec," he said, because the Website is located within the province on the Kahnawake territory.
The QSC has had only an initial perusal of the TradingOffshore.comWeb site, Mr. Dube said, but "we will take any action that'spossible to stop this kind of business."
The startup was also criticized yesterday by its own Internetservice provider, Mohawk Internet Technologies, a business locatedon the Kahnawake reserve that is trying to gain a reputation asa state-of-the-art computer-service centre.
Michael Tobin, a principal at MIT, said he was upset at the languageused in the TradingOffshore.com draft press release that impliedthe location gives the company special status outside Canadianlaw, and clients will therefore have extra privacy and confidentiality.
Kahnawake territory "has a unique and special relationshipwith Canada," the release said. "The Mohawk Councilhas assured TradingOffshore.com that under no circumstances willany records of [its] client activities be disclosed to any governmentauthorities."
"I don't know why they're making that statement because itis not related to this location," he said. "They rentspace from us to host their Web site. That's it. It's like anyother good, secure location."
He said all client information will be kept in the Caymans.
Mr. Tobin said MIT was not set up to get around any laws, andit is unfortunate that the Mohawk name is associated with thatkind of activity. "Nothing will be done in Kahnawake thatwill be contravening any laws."
TradingOffshore.com also maintains that it can offer "tax-free"trading. "There is no direct taxation in the [Cayman Islands]and therefore, no capital gains tax," the company's Web sitesays. This will appeal to Canadians who have used up their RRSPcontribution limits, or who want to "protect their assets,"Ms. Thiessen said.
But offshore accounts are not a legitimate way of avoiding tax,said Collette Gentes-Hawn of the Canada Customs and Revenue Agency."There's a basic principle here that as residents of Canada,all income earned worldwide is taxable in Canada. Not to reportyour world income is to evade tax, and tax evasion is illegal."
Ottawa has nothing against putting money offshore, she said, "butour concern is that even though the money is earned in anotherjurisdiction, that it be fully reported as income in Canada."
Ms. Thiessen said the "tax-free" claim refers to thefact that investors won't have to pay withholding tax on theirinvestment returns, although she admits they will have to paytax eventually.
Ms. Thiessen said that investors will be protected, in the eventof the brokerage's insolvency, by Securities Investment ProtectionCorp., an agency that insures brokerage accounts in the UnitedStates. That's because all TradingOffshore.com transactions arecleared through a New York-based outfit, U.S. Clearing Corp.,she said.