Tuesday, January 19, 2016

Paradise or Hell ?

The Cayman Islands is the most notorious tax haven on earth. Cayman is a useful punchbag, one that deflects attention away from the fact that corporations pass their profits through a complex web of subsidiaries in many different countries. Many on Cayman live in poverty. Hell is a small town at the northern end of the island that gets its name from a weird volcanic rock formation. It’s also where many of the poor live. And just as in London, some of the poorest people live directly in the shadow of the glass banks in the heart of the George Town financial district. The Cayman Islands don’t have the same level of welfare support as us – the state is about 20% of the economy; it’s closer to 40% in the UK . Emily is a retired civil servant living in a house full of damp and mould. With a £1,500-a-month mortgage – twice the UK average – she was unable to keep up payments. She was on the verge of eviction and relying on a Christian charity to find her a place to live. George Osborne has pledged an unprecedented reduction in the state over the next five years that means we could all be facing a future that looks like Cayman does now.

It’s not just big corporations that pay no tax here. No one does. So how does the island pay for itself? By taxing everything else. A packet of fish fingers costs £8.50 – which is affordable if you’re a billionaire, but if you live on a modest income, this form of indirect taxation means you’re no better off than if you lived in the UK.

In corporate terms, “offshore” means a place where companies do business. It’s how global capitalism works. Suppose a Japanese company and an American company want to do a deal. In Japan or America, they would pay tax, but if they do it in Cayman, through a holding company – no tax! But here’s the other meaning for offshore: when it comes to who has got ultimate responsibility for Cayman, that’s offshore, too. Cayman says it’s London, and London says it’s Cayman – which is quite useful when someone annoying like me comes along, asking who’s in charge.

It’s ‘not a tax haven’ according to its premier, Alden McLaughlin, but an “international finance centre”. Cayman is in fierce competition with other international finance centres: Switzerland, Hong Kong, Luxembourg, the US state of Delaware, and, of course, the City of London itself. The main work on this Caribbean island is not fishing or tourism, but financial services. Obama singled out one building on Cayman, Ugland House, which he claimed housed “12,000 corporations. Now, that’s either the biggest building or the biggest tax scam on record.” But Obama got it wrong – there are closer to 20,000 companies registered there, and 100,000 companies in Cayman as a whole. They include ones linked – or that have been linked in the past – to a bewildering array of British household names: Tesco, Sainsbury’s, BP, Manchester United – even the National Grid. In total, Cayman is home to nearly twice as many companies as people.

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