JUDE SCOTT

1. JUDE SCOTT Cayman Finance CEO Overseas Territories and UK Government International Trade Summit – 28 June 2019 Excellence. Innovation.Balance. www.caymanfinance.ky

2. Overview: • Taxation considerations of FinTech in global financial services • Future models for taxation of the digitised economy • How IFCs can position for success in current and future international taxation models Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

3. Taxation considerations of FinTech in global financial services • FinTech has been developed outside of financial services • 3 key barriers to FinTech in global financial services • AML • Cryptocurrency vs Fiat • Taxation Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

4. Taxation considerations of FinTech in global financial services • Taxation issue: transactions generally unregulated and anonymous • Effective digital AML frameworks need to: • Address anonymity • Provide legal recourse • Support development of effective and transparent taxation models Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

5. Future models for taxation of the digitised economy • Main area of focus for OECD BEPS Action Plan • 2015 BEPS Action 1 Report ‘Addressing the Tax Challenges of the Digital Economy’ highlights: • Important challenges for international taxation • Difficult to ‘ring-fence’ digital economy • Broader direct tax challenges • Challenges chiefly relate to taxing rights • Identified a number of proposals - none were ultimately recommended Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

6. Future models for taxation of the digitised economy • Threats to IFCs • Possible changes to G20 Tax Code • Dividing rights to tax a company where its goods or services are sold even if it does not have a physical presence in that country • Applying a global minimum tax rate [when low or zero Corporate Income Tax IFCs are used in structures] Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

7. OECD 2019 Consultation ‘Addressing the Tax Challenges of Digitalisation of the Economy’ “While the measures set out in the BEPS package have further aligned taxation with value creation and closed gaps in the international tax architecture that allowed for double non-taxation, certain members of the Inclusive Framework consider that these measures do not yet provide a comprehensive solution to the risks that continue to arise from structures that shift profit to entities subject to no or very low taxation… Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

8. OECD 2019 Consultation ‘Addressing the Tax Challenges of Digitalisation of the Economy’ …This risk is particularly acute in connection with profits relating to intangibles, prevalent in the digital economy, but also in a broader context; for instance group entities that are financed with equity capital and generate profits, from intra-group financing or similar activities, that are subject to no or low taxes in the jurisdictions where those entities are established.” Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

9. Future models for taxation of the digitised economy • Two types of abuse that exist currently: • Tax base unfairly shifting from one country to another • Tax base fairly shifted based on a moderate or high stated tax rate. Adjustments then made in the second country to reduce tax liability to unreasonably low “effective” tax rate. Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

10. Future models for taxation of the digitised economy • Current tax rules need comprehensive overhaul and redesign • Tax treaty and tax treaty network abuses • Abstract and complicated rules • Profit allocation models not suited for digitised economy • Global taxable profit and global economic profit can differ substantially Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

11. Future models for taxation of the digitised economy • Corporate Income Taxes (CIT) model no longer appropriate as sole reflection of tax burden - relies on concepts that do not work in the • digital environment. • Require complex models and rules to allocate profits between countries • Struggles to efficiently apply when product/person does not physically cross borders • Subject to potential abuse using aggressive tax minimisation adjustments Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

12. Future models for taxation of the digitised economy • Corporate Income Taxes (CIT) model no longer appropriate as sole reflection of tax burden - relies on concepts that do not work in the • digital environment. (con’t) • Challenged to provide solutions for profits generated without physical presence • Taxing “user created value” is outside of existing international framework • Unfair to jurisdictions with indirect/consumption tax models Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

13. Future models for taxation of the digitised economy • Objectives for global tax policy regarding global digital financial services economy must: • Support economic growth and efficiency • Encourage economic trade and investment between countries Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

14. Future models for taxation of the digitised economy • A new alternative taxation model that can work more effectively and efficiently for multinational and global digital financial services transactions. • Consumption based taxes • Right to base model on countries’ economic needs • Addresses double taxation • Simplicity of tax administration and compliance Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

15. How IFCs can position for success • Current models fail to recognise how taxation of global financial services transactions are not suitably addressed • Current models being stretched to apply to financial services transactions as well to FinTech and the digitised economy • Very little is globally understood about Tax Neutral jurisdictions that have low or zero stated corporate income tax rates Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

16. How IFCs can position for success • These result in: • Vilification of low and zero corporate income tax jurisdictions • Automatic designation as “tax havens” • High risk ratings and subjective targeting for blacklists, punitive measures or proposed minimum required corporate income tax penalties Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

17. How IFCs can position for success • It appears the two traditional taxation value propositions for the roles of IFCs are under attack: • Tax Minimisation • Tax Neutrality Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

18. How IFCs can position for success • Expected future of Tax Minimisation: • After conclusion of BEPS Initiative, revamp of tax treaty models to remove differential benefits that IFCs may have been able to provide • Standard setters want to remove Tax Neutral low and zero Corporate Income Tax jurisdictions (or put punitive measures in place) in an attempt to dissuade their use • Tax minimisation benefits currently provided by some IFCs will no longer be able to be provided (or will equally be able to be provided in cities like Paris and London) Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

19. How IFCs can position for success • Expected future of Tax Neutrality: • IFCs need to show they provide benefits globally, while posing no tax harm to other countries’ tax bases • Top quality IFCs need to ensure their model is aligned to providing tax neutrality benefits • Likely to be the only remaining model Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

20. How IFCs can position for success • Preserving Tax Neutrality globally: • Extensive education and awareness needed • Call to action needed to recognise importance of Tax Neutral jurisdictions and ensure this is preserved in all evolving taxation models Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

21. Positioning IFCs for success • Meeting or exceeding highest global financial standards • Operating a transparent jurisdiction • Managing a responsible, effective tax neutral regime • Balanced immigration policies • Strong industry-government collaboration Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

22. Positioning IFCs for success (con’t) • Strong, proportionate regulatory environment • Sound legislative and judicial systems • Communicating a consistent message • Collaboration across OTs Excellence. Innovation.Balance. Excellence. Innovation.Balance. www.caymanfinance.ky

23. THANK YOU Excellence. Innovation.Balance. www.caymanfinance.ky