Controversy erupts over Romney's Cayman assets
23 January 2012
The US press has become greatly excited over
allegations that Republican presidential hopeful Mitt Romney is
avoiding tax on his substantial assets in the Cayman Islands.
The allegations emerged in a programme by
television network ABC. They suggest that Mr. Romney has invested
as much as $33 million, earned during his former career as a
partner in private equity firm Bain Capital, in untaxed Cayman
vehicles which enable him to pay income tax at a rate of only 15
per cent. These "tax loopholes" are "available only to the super
rich", said the ABC report.
The ABC News reporters also described the
Cayman Islands as "a notorious Caribbean tax haven, where secrecy
is the rule". There were the usual comments about shady companies
operated through anonymous mailboxes. ABC also obtained a quote
from a US lawyer apparently implying that the island's government
helps US persons evade US tax.
A statement from the Romney camp said the ABC
allegations were "flat wrong". Mr. Romney's investments in the
Cayman Island funds "are taxed in the very same way they would be
if those funds were established in the United States", it said. The
republican hopeful has also undertaken to publish his tax returns
some time this week to allay any suspicions of wrongdoing.
According to commentator Megan McArdle of The
Atlantic magazine, the ABC story seems to be based on a confusion
between US taxation of corporations and individuals. US persons
have of course to declare all overseas income and pay income tax on
it, whether it is repatriated or not. US corporations - including
investment funds, in which Mr. Romney's assets are most likely held
- only pay tax on earnings and realised capital gains when they are
repatriated. This "loophole" is very widely used by US investors of
all kinds and is not usually thought of as controversial.
The Cayman Islands' government and its
financial sector also issued statements dismissing the ABC
"Contrary to the ABC News report, the Cayman
Islands is not a secrecy jurisdiction that facilitates the
avoidance or evasion of taxes by US or other persons", said the
government statement. "Although the Cayman Island does not itself
impose income taxes, it shares financial and other confidential
information with the IRS and other US federal agencies through
various agreements with the US Government. That includes
information requested for purposes of enforcing US income tax
It also rebutted the "anonymous mailbox"
allegation, pointing out that Cayman Island does not operate a
direct home or business mail delivery system. All residents,
including companies, have to collect their mail directly from post
office box addresses. "The registration of companies in the Cayman
Islands and arrangements for receipt of mail at their registered
addresses are essentially the same as arrangements for companies
registered in Delaware and elsewhere in the US", said the
Cayman Finance chairman Richard Coles
described the ABC story as "a total misunderstanding of the role of
the Cayman Islands' tax neutral framework". The jurisdiction is, he
said, involved in a number of initiatives that encourage full tax
cooperation with US authorities on numerous levels, including the
OECD forum on tax information exchange.
"We do understand that this is election season
in the US and typically these types of reports surface as part of
that process", said Mr. Coles. Indeed, the Cayman Island story
seems to have helped Romney's rival for the Republican nomination,
Newt Gingrich, score a surprise victory in the South Carolina lap
of the nomination race last weekend.
Atlantic (Megan McArdle comment)
Cayman News Service (Dan Mitchell comment)
New York Daily News