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U.S. Senate Examines Cayman Islands Tax Shelters
Washington, D.C. (July 25, 2008) The U.S. Senate Finance Committee held a hearing on the use of offshore corporate tax shelters in the Cayman Islands, on the heels of hearings elsewhere in the Senate on individual tax havens in Switzerland and Liechtenstein. Investigators from the Government Accountability Office reported to the committee on their investigation of a five-story building in the Cayman Islands that serves as the address for thousands of U.S. companies. "The last time that the press and the Senate looked at the Ugland House, in 2004, it had 12,748 tenants," said committee Chairman Max Baucus, D-Mont. "We asked GAO to go and look for itself. Remarkably, in the last four years, the Ugland House has found room for 6,000 new tenants, without even adding a new floor." Up to 9,000 of the residents of the building are American entities, he noted. The committee and the GAO are probing the presence of hedge funds and other financial institutions in the Cayman Islands, the amount of assets involved, the ease with which U.S. citizens can establish a Cayman Islands company, and the challenges faced by the IRS in trying to uncover offshore tax evasion. The GAO found that the Caymans have $41 million in bank assets for every resident. "Finding these tax cheats is a bit like a game of cat and mouse," said ranking member Chuck Grassley, R-Iowa, in his opening statement. "Only the mouse is hiding its cheese offshore. The IRS needs to be able to stay ahead of the schemers who hide their income offshore. Congress needs to continue giving the IRS more tools to trap the tax cheats." Both the Senate Finance Committee and the Permanent Subcommittee on Investigations have been examining the use of offshore bank accounts and entities in recent weeks, resulting in a pledge by UBS to stop offering offshore banking in Switzerland to U.S. residents. They have also been looking at flaws in the qualified intermediary program, which is supposed to require reporting of offshore holdings. "The qualified intermediary program was introduced in 2001 with the stated purpose of allowing the IRS to get access to information about foreigners investing in the U.S. who were subject to withholding on interest and dividends," said attorney Jack Blum of Baker & Hostetler in his written testimony. "In fact, the program has become a device for concealing the identity of both Americans and foreigners who are cheating on taxes."
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