Another day in paradise

An employee of ?Jetpack Cayman? demonstrates this new watersport, now available on the island. A 2000cc motor pumps water up through the Jetpack, propelling the client out of the sea (359 USD for a 30-minute session). Mike Thalasinos, the owner of the company, remarks, ?The Jetpack is zero gravity, the Cayman are zero taxes, we are in the right place!? Grand Cayman.

A man uses a jetpack in the Cayman Islands, where the water sport costs around US$350 for a 30-minute session. Over 100,000 companies are registered in the Cayman Islands (pop. 60,765), but the workforce is only 39,000, the majority of whom are expatriates

“The whole project of photographing tax havens started as a joke. Gabriele Galimberti, who I ended up doing the project with, came to visit me while I was living in Haiti in 2011. He’d had a good year and as a result had just been presented with a huge tax bill by the Italian government. We were speaking about new projects and I had this big map of the Caribbean on my wall. We looked at the Cayman Islands and Gabrielle joked, “We should go there, we’ll never have to pay taxes again.” We realised that we basically didn’t know anything about tax havens. Can you really just go to the Caymans, start a company and never have to worry about the taxman again? So we decided to find out. We went to the Cayman Islands, but that was just the beginning. We ended up spending years investigating tax havens, following the money across 13 countries on four continents.”

“Most tax havens aren’t in rich countries. The Caymans, for example, are beautiful tropical islands, but you don’t spend your time saying ‘oh, this is a billionaire’s paradise’, because the money is not there, that’s the whole point. The money is in the places it’s always been, it’s just been bounced via these countries in the form of ones and zeros on a computer. There are pockets of poverty in the Cayman Islands, even if the government is very wealthy. These places are not full of happy rich people, they are simply about servicing such people, many of whom will never set foot on the islands themselves.

Kandra Powery, 25, and her three children, Kayla, 9, Kaleb, 8, and Janae, 2 outside their home on Grand Cayman. Despite their country’s thriving financial sector, many Caymanians live in poverty

Jason Blick, former CEO of Cayman Enterprise City, polishes his Ducati 848, one of the fastest motorbikes on the market, while his girlfriend looks on. Grand Cayman, where the couple live, is 22 miles long and has one main road

We soon found out that there isn’t just one system of avoiding tax, there are hundreds of ways that companies and individuals manage to reduce their tax bill through havens and all of them are very baroque systems by design. They are complicated not because they have to be, but because it helps make them more opaque.

The classic system is ‘transfer pricing’. Let’s say you have a company, Fruitville Colombia, that produces bananas in Colombia. They will sell their bananas to Fruitville Cayman at below the market rate. So once Fruitville Colombia has paid all its bills it is not making any money. Since it hasn’t made any profit it doesn’t owe any taxes to the Colombian government. Fruitville Cayman will then sell those same bananas to Fruitville America at an above-the-market price. So Fruitville America is buying bananas at $1 apiece and selling them for $1.05, so when you add in transport, stocking, distribution, etc they are also not in profit. So Fruitville America are not paying any taxes in America.

The company making lots of money is Fruitville Cayman, which operates in a country that doesn’t tax revenue. But Fruitville Colombia, Fruitville Cayman and Fruitville America are all owned by the same holding company, say Fruitville Hong Kong, which could be based in Jersey. The bananas never transited through the Caymans, the money never physically went to the Caymans and Fruitville Cayman doesn’t even have an office, but it is a way for the larger group to avoid paying taxes in either Colombia or the US.”

The Cayman Islands are amongst the largest financial centres in the world, but many of its companies have little more than a post office box in the country  Richard Coles, former governor of the Cayman Islands

Pupils at the Elmore Stoutt High School in Road Town, capital of the British Virgin Islands, sit in a financial services class. From the age of 14 students are taught about the workings of the industry that provides 60 percent of the islands’ GDP.

“The main perception of tax havens is that they are some sort of mafia state with people running around with suitcases full of cash. This is not the case. Instead there are racks and racks of post office boxes in the havens and behind each one is a company. You also have individual buildings in which hundreds of companies have their registered office. There’s a single secretary in each of these buildings, who gets all the mail for all these companies. There’s nobody else there.

Each country is allowed to write its own financial laws. But the rules in tax havens are not written for the citizens of that country – they are written for citizens of other countries so they can avoid their own taxes. That legislation is very often fed down by big accountancy firms which advise tax havens on the best way to structure their laws to encourage investment in the country. We met Richard Coles, former governor of the Cayman Islands [pictured left]. He is a staunch defender of the right of the Caymans to operate as an offshore centre. He told us that ‘What we do here might not be considered moral, but it is certainly legal’.

In the British Virgin Islands (BVI) 60 percent of GDP comes from the financial industry, which has changed from a couple of decades ago when 70 percent came from tourism. Unlike tourism, the financial industry mainly employs expats. So the country is rich but unemployment is high. The BVI government realised it needed to help create a system that employs people from the islands, so it has started teaching finance to school kids. On the one hand it is great – you are going to be able to staff the country’s biggest industry with locals. But you’re also teaching them to perpetrate this idea of an economy based around tax avoidance.

Tax havens aren’t limited to minor nations – the US itself contains havens. The state of Delaware doesn’t tax intangible assets, so many companies set up a subsidiary there, give it ownership of things like their logo and name, and then essentially pay themselves for the rights to use their own logo and name: that money won’t be taxed. Delaware has more corporate entities, public and private,
than people.”

“The Paradise Papers and the Panama Papers [the 2015 leak of 11.5 million internal documents from Panamanian law firm Mossack Fonseca] really revealed the global nature of tax avoidance, and how the more the money is moved around the world, the harder it is to trace.

The names of people implicated – from politicians to pop stars – and the amount of tax revenue that was being lost stoked genuine public anger. It strengthened the feeling that there’s one rule for the rich and another for the rest of us. The Panama Papers were shocking because they highlighted an issue that gets very little attention because it’s so deeply unsexy. This is why we did this project, because we really felt we wanted to give a face to a phenomenon which is causing a lot of real world problems. I was disappointed the Paradise Papers didn’t cause a similar wave of anger.
The impact was lower, despite the fact that some huge stories were revealed about tax avoidance and dubious business practices.

Since the release of the Panama Papers some things have changed. Companies that were looking into tax avoidance schemes are being more careful because of the potential backlash. The EU seems to be reacting more than anybody else, but it needs people to continue to care about the issue if it is to help bring about meaningful reforms. It’s hard to imagine that a British person who sets up a shell company in some tropical island is actually lowering the quality of the healthcare of somebody in Brighton – but that’s exactly what’s happening. If you see somebody clubbing a baby seal, you say, ‘Oh, the truth behind fur coats is really horrible’, but it’s harder to have such a gory image of the financial world – something that reveals the ugly truth behind these loopholes.”

‘The Heavens: Annual Report’ by Paolo Woods and Gabriele Galimberti is published by Dewi Lewis Publishing

Neil M Smith, the British Virgin Islands’ finance secretary, in his office in Road Town

Panama’s Punta Pacifica district, one of the country’s most high-end areas, as seen from the Cerro Alcón forest

Posted on Friday, September 22nd, 2023 - Categories: #29 - Oct-Dec 2017, App Issues.