British Overseas territories and Crown Dependencies in the Caribbean that have traditionally used their low tax rates to attract investments through thousands of multinational corporations, hedge funds and rich private clients are facing pressure from London to improve their standards of tax regulation and to find new methods of raising taxes.
According to a recent report commissioned by the British Government the tax option had to be pursued urgently since several of the territories are running out of money in the face of the decline in the tourism industry and the various other effects of the global economic crisis.
Over the years British territories in the region including the Cayman Islands, Bermuda and the Turks and Caicos Islands have also attracted large numbers of migrants from independent Caribbean (Caribbean Community) territories on account of their low taxation. However, according to the report, the strain on the public treasury has been so great in some instances that the Turks and Caicos Islands have already totally exhausted their total government reserves while reserves in Anguilla are forecast to run dry by the end of the year.
The commissioning of the report by the British Government has been triggered by official concern that at a time of considerable strain on public finances valuable sources of tax revenue are being channelled into Caribbean tax havens. Earlier this year leaders of the G20 group of leading economies made several strong and repeated calls for action to curtail business in tax havens and to close loopholes.
The nine British Overseas territories reportedly comprise nearly two thirds of the offshore market and according to the report the Caymans and Bermuda also handle a considerable volume of US overnight banking and American reinsurance business.
A dramatic change in the tax laws of these territories could witness a significant flight of skills among teachers, nurses and other professionals from elsewhere in the region who have been able to take advantage of low taxes to repatriate monies to families at home.
While the territories have sovereignty over their tax affairs and are expected to defend their reputations as low-tax economies, they may, in the end have little choice but to comply or face economic collapse.
Offshore financial centres including those in the Caribbean have until March 2010 to clamp down on what the G20 countries regard as major tax evasion or face a range of economic sanctions.
Bermuda is the world’s third largest centre for reinsurance and the world’s second largest captive insurance domicile. That country is also the leading non-United States supplier of insurance to US insurers. The Cayman Islands are the world’s leading centre for hedge funds and also serves as a significant wholesale banking centre with high volumes of overnight banking business from the United States. The British Virgin Islands are the leading domicile for international business companies with much of its business originating in the Far East and the United States.