In a letter to the GAO, Sens. Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa), Finance Committee Chairman and Ranking GOP Member, cite offshore tax evasion as a "large and growing problem" and express the Committee's concern that in Ugland House, "U.S. taxpayers are creating offshore business entities solely to evade their U.S. tax obligations, seeking to confound I.R.S. collection efforts by obscuring the true ownership of American assets or income."
In addition, say the Senators, "Offshore tax evasion contributes to the tax gap, leaves honest taxpayers to shoulder more of the tax burden, and threatens the viability of voluntary compliance with the lax laws."
When the GAO agents goes to the Caymans, Baucus and Grassley want the too find out:
- what business, if any, the 12,748 companies carry on in the Cayman Islands;
- what business reasons exist for incorporating in the Cayman Islands;
- what information is available on the companies whose registered office is Ugland House, including how many are associated with U.S. citizens, residents or organizations and what information U.S. regulatory agencies may have on these corporations;
- whether these U.S. citizens, residents or organizations are complying with U.S. tax laws with respect to their Cayman accounts or subsidiaries; and
- the extent to which the I.R.S. has looked into the U.S. tax compliance implications of this activity.
It should be an interesting day around the great-big water cooler at Ugland House when the GAO agents arrive.
The Caymans Responds
The government of the Cayman Islands, Portfolio of Finance & Economics, has issued the following statement on the U.S. Senate Finance Committee's letter to the GAO:
George Town, Grand Cayman - June 5, 2007 - The Cayman Islands financial services industry operates on the principle that the presence - not the absence - of effective laws and regulations has contributed to our growth as an institutionally-focused, specialised financial services centre over the past 40 years.
The law enforcement, regulatory and tax information exchange channels between the Cayman Islands and U.S. - some dating back more than 20 years - offer no protection for Americans who are seeking to evade their tax obligations. The Cayman Islands has solid working relationships with the Treasury (including the IRS), the SEC, and the Department of Justice; a product of extensive cooperation between our two countries.
Cayman Islands Government officials have reiterated this point on many occasions both in person and with the support of our counterparts within various areas of the U.S. administration. As part of these efforts, the Cayman Islands has developed a detailed backgrounder titled, "The Facts About Company Formation in the Cayman Islands" to further address misunderstandings about company formation in Cayman, relative to the U.S. tax regime and the global flow of capital.
Substantially all of the answers to the questions that the Senate Committee on Finance is requesting the GAO collect are fully in the public domain. The Cayman Islands (and the companies established here) provide an effective and cost efficient tax-neutral platform for international payment flows, which typically raise finance more cheaply or package financial risk so that it is more easily borne by the markets. This ultimately benefits onshore businesses, their shareholders, their consumers and their governments.