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Caribbean Nations Squawk At US Plans To Crack Down On Tax Havens

By Martin Vaughan, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Caribbean nations say they will be the economic victims of U.S. President Barack Obama's proposals to collect more taxes on the offshore transactions of U.S. individuals and corporations.

Caribbean countries have spent decades building up a financial industry to serve companies and individuals from the U.S. and Europe, touting low tax rates, a friendly regulatory environment and proximity to the U.S. financial markets.

On Wednesday, Caribbean ambassadors at a Washington event criticized Obama's proposals as well as legislation from Sen. Carl Levin, D-Mich., aimed at making it harder for U.S. individuals to hide assets offshore.

They also criticized proposals from Obama that would tax more of companies' foreign profits. Many companies use subsidiaries in low-tax jurisdictions in the Caribbean to help manage their foreign income.

"This legislation proposes to name, shame and otherwise take punitive action towards countries that are believed to be participating in tax evasion, without regard to the level of compliance," said Cornelius Smith, ambassador to the U.S. from the Bahamas.

The Caribbean officials said their tourism sector could take a hit from legislation aimed at taxing offshore activity. U.S. executives and holders of offshore accounts make regular visits to meet with island lawyers and accountants - and play golf, dine and shop when they do.

"The offshore sector feeds the tourism sector, and the tourism sector feeds the offshore sector," said John Beale, ambassador to the U.S. from Barbados.

The diplomats spoke at an event sponsored by the Inter-American Dialogue, a Washington think tank.

Bahamian officials lodged specific objections about aspects of Levin's bill that would publish a list of tax-haven jurisdictions, introduce sanctions from the Patriot Act for tax evasion, and treat offshore corporations as U.S. entities if their managers reside in the U.S.

A common theme from opponents of Democratic proposals on tax havens is that the offshore activities of U.S. businesses aren't illegal, and in some cases were designed by Congress to help companies lower their tax burden.

In terms of tax evasion by individual U.S. taxpayers, many of the countries have information exchange agreements with the IRS and many have made efforts to comply with OECD guidelines for financial transparency.

In a separate interview, Anthony Travers, Chairman of the Cayman Islands Financial Services Association, said proposals to curb offshore activities that are now legal will drive foreign capital away from the U.S. market.

Travers defended another practice targeted by Levin's legislation and the White House budget proposal in which U.S. banks strip U.S. dividend tax from investments in U.S. equities, for the benefit of offshore hedge funds.

"It's absolutely legitimately, profitably and morally not taxable," Travers said. "The price you pay for [ending is] is that maybe there's a stock on the Shanghai exchange that the hedge fund would invest in instead."

Travers also said the portrayal by U.S. politicians of offshore structures abetting tax evasion is ill-informed and over-simplified. "Sen. Levin's approach seems to be to say, if it doesn't have heavy machinery and 5,000 employees under one roof, it must be a tax scam," he said.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@ dowjones.com

  (END) Dow Jones Newswires
  05-27-091240ET
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