[ HTJ Podcast ] Pillar 2 and it’s Potential Impact on Caribbean Offshore Jurisdictions – 30th September 2021

 

VOICEOVER:

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DERREN JOSEPH:

So good evening, good morning, good day, depending on where you are in the world. Welcome to another live stream from us at HTJ.tax. And today we have an exciting topic Pillar 2 and to speak authoritatively on it we have Robert Kiggins and Mikhail Charles. So, Robert, why not start with you? You have the ability to share screen if you need to otherwise over to you.

ROBERT KIGGINS:

 So yeah, Derren knows me quite well, including what I'm doing. I’m muted, but my name is Robert Kiggins. Bob Kiggins is fine. I'm a tax lawyer based in New York City and do a lot of cross borders. And my particular interest of way has been both Pillar 1 and Pillar 2 I know we're not here to talk about Pillar 1 today. So let me try to address just some, high, high, high-level stuff on Pillar 2. The first thing to know is that in theory, the OECD is going to try to hammer out Pillar 1 and Pillar 2 and come to some sort of a definitive agreement next month, or basically next month starts tomorrow. So, we'll be keeping an eye on what goes on with that. In the meantime, there's a lot of still unresolved issues on Pillar 1 but Pillar 2, as you probably all know the main thing of it is that it sets a global minimum corporate tax rate of 15%. That's going to be enforced by two types of rules for each country. That's a party to the deal. One is an income inclusion rule, and this allows a company that's headquartered to levy a tax. They call it a top-up tax and that companies other related companies, low taxed income, levied income which is below the 15%. So that's the basic notion of it. The other part of it is another tax payment rule and these things all have acronyms. So, I'm not going to use UTPR okay I said it. That serves as a backdrop to the income inclusion rule, the inclusion role, which they call the IIR by the way. And that would adjust the taxation of low tax corporate income that is not subject to tax on the IIR. One that may be of a little bit more. It's kind of a third rule. There's something called the subject to tax rule, STTR they always love to give things acronyms. And what that's designed to do really, I think is to aid what is called, the term it's use is hold on, hold on, developing countries. And how does it a developing country as well? Commonly what happened in the past was they get deductions at high tax countries. There would be payments made or deductible payments made to low tax countries. That was fine. And wait for the company, making the payments to get the deduction on the high tax country. It wasn't necessarily so good to get kind of a flow of payments into a country that really didn't charge any tax for them.

 And, and you can think of many countries in the Caribbean area, which had in which there had been the case. So now this is called STTR subject to tax rule. So, in that case, there's going to be a taxing right, which will be arranged by laterally. It will be interesting to see how that works by treaty between the high tax country and the low tax country. And the notion of is that this STTR rate will be from 7.5% to 9%. So that's kind of a background on it. There are things about scoping. There are some interests, I think, especially in the Caribbean pension funds or investment funds are going to be excluded from this. So hopefully a pension fund investment, not from the STTR by the way, but from the notion of the 15% minimum. So that could be, you know, people were saying, well, our company is going to move out of the Caymans or move out of the BVI. And the answer to that may be no, depending on the final form that these rules, hey, for everybody else right now, these major rules that I introduced at the beginning, which are the income inclusion rule and the under tax payment rule that leads to the corporate minimum tax rate of 15% will only apply to larger companies that use the term multinational enterprises that meet a threshold, which is an annual turnover of 750 million euros a year or more. 

So, that's another thing to keep in mind. Those are probably the major things I don't want to go on and on about it. It's quite detailed. There is some concern as always, unfortunately, when it comes to international, the US doesn't always, you know, go along with everybody else. So, there are certainly concerns about in the rest of the world about some of what might be going on here in terms of our GILTY tax rate, which is a whole separate tax that United States imposes income of foreign subsidiaries essentially of US companies.

 And people are a little concerned if this GILTY rule is going to live peaceably or not with some of what's going on, not only with Pillar 1 but more so with Pillar 2. So, there's a lot of consideration that needs to be given to that area, I think and certainly some concerns about it. Again, speaking to the US side of it, there's a 15% global minimum, and the thinking is it might put the US in a better position than low tax peers like Ireland. Right now, they're proposing lifting the corporate, the domestic corporate rate here from 21% to 28%. That's recently come down, I think the 26.5. So, there's a lot of you know, US odd man out, which you're probably go to by now, if you've dealt with US to any extent, certainly carve-outs and exceptions are going to probably make or break anything. A Pillar 2, China is always a player that can make some noise. They're seeking to exempt some favorite sectors from the global minimum tax. I don't know what will or won't happen with that. The UK is seeking exemptions for itself for financial services, but that one's kind of a head-scratcher because I sort of thought that financial services were excluded. 

So, I don't quite know what that's all about. The other thing to keep in mind is this agreement. Let's say that the OECD does come to an agreement next month on Pillar 2. Well, that's nice, but it doesn't equal implementation. It's nowhere near, right? Because each one of these countries that's involved in what they call the inclusive framework, which something like, let’s call it 130, 440 countries. We'll have to adapt to this as well. Not just as a matter of their administrators agreeing to like treasury in the US, we know Janet Yellen is like, stop the race of the bottom. Nonetheless, there has to go through Congress. And right now, again, I'm speaking to the US. We have a very much divided Congress, as you probably all know, the house right now is more or less Democrat controlled, but even the Democrats are in fighting a little bit among themselves. And then when you get to the Senate, we have a 50-50 split. Now we can pass some legislation here on what's called revenue reconciliation with a 50-50 vote. And then the tie at that point, it gets to be made by the vice president of the United States who was opposed to Kamilla Harris. And she would probably to being a Democrat, she'd probably be expected about for the Democrats, but it doesn't take too many defections to all of a sudden, it's 48 Democrats and, you know, 50 Republicans, because I think the Republicans are going to vote as a block and maybe 52 Democrats.

I thought it would be interesting for all of you though. It is kind of, I looked at the list of the countries that had joined the statement on the t2 Pillar solution. And it is indeed most of the Caribbean. So, we got The Bahamas signing on it, you know, administratively, we've got Bermuda, we've got the BVI we've got came in, we've got tourists, we've got Dominica, we've got the Dominican Republic. We've got Grenada, we've got Haiti, we've got Jamaica, we've got St. Kitts and Nevis. We've got Saint Lucia and last but not least, of course, they're in Trinidad and Tobago. So, and that may not be the last, I don't know if I caught every single country, you know, and the lesser and Greater Antilles, but certainly early indications are that the Caribbean nations are on board with this thing. 

And I'll close with that. I certainly want to give other people a chance to make their comments.

DERREN JOSEPH:

So, before we get to Mikhail who, I guess could take a deeper dive into the whole Caribbean context, just so that we get you know, that big picture. So, Pillar 2, there are two principles, the global minimum tax, and then there's the right to tax as well, right? Yes. But just, you know, I guess this sometimes gets lost in the headlines with the global minimum tax at 15%, there is a threshold.

ROBERT KIGGINS: 

Yes, that's absolutely correct. Until they change it, which they could do. But the latest I saw on it was it 700 when I tell you 780 million euros and I can't translate that to dollars cause I'm not trader but the year I would probably all know, tends to trade to PR a premium to the dollar. And I, I don't know if you guys tend to think locally in terms of dollars in terms of euros here. Of course, we think that the dollar should, should rule the roost, but I know that that's not necessarily the way that people think and the rest of the world at all. And now I have to worry too. Sorry, I don't want to go on Derren and hopefully that answered your question,

DERREN JOSEPH: 

Right. And second one, the right to tax, could you know, shine a bit lighter on that exactly?

 ROBERT KIGGINS:

 Yeah. What it's meant to do is prevent base erosion payments out of high tax countries to related parties and low tax probably includes a lot of the Caribbean that we were talking about and the notion now, and, and it is meant to benefit countries that are considered as developing by giving them a little revenue, a little, a little absolute taxation rights on that revenue. But here's before, it was just flowing into their countries, mostly to benefit the parents, not to do a heck of a lot of good for the subsidiary, except to set up a pocketbook by which the high tax country, parent the parent in the high tax country could get a deduction.

 By the way, I do have a definition of developing countries and it's a little wonky, but developing countries are defined as those with the gross net income per capita, this is in USD of $12,535 or less. Now those were 2019 figures. They may have been adjusted for inflation but so obviously these are not wealthy countries. The design from the OEC is to give them some benefit rather than just say, hey, we're going to throw some money into your countries, but you're not going to tax the cause you don't tax these things like what will came and comes to mind right away, of course, where it's been zero. I would imagine you guys would know better than me. The BVI has been zero. I know things are changing and the Caribbean, and that I can't talk to, that’s why I'm so pleased to have, our friends from the Caribbean who are much more in touch with things that are going on down there than I am.

DERREN JOSEPH:

Okay. On that note Mikhail, over to you.

MIKHAIL CHARLES:

Thank you. Thank you, Robert. I think Robert, you covered most of the high level of things that I would have touched on, but you know, just thinking about the pillar two at its direct impact or your right to say that well, over 139 to 140 countries signed up and there were some holdouts. So, for example, my own native countries and St. Vincent and Grenadines would have sort of held out Barbados. I think Peru, Hungry and Ireland, which is an EU member state.

So, watch that space because the EU needs to have its own internal discussions before making any definitive decisions. But maybe I just wanted to put a little spin on it. So, pillar two is the combination of, well over a decade of discussion by the OECD and the G20. Similar to that, the EU Cog would have successfully implemented in the Caribbean economic substance requirements, usually across maybe six to seven areas, banking, insurance, et cetera.

 So even though there is a global minimum tax rate that's coming, I don't think it's anything that the Caribbean has not been prepared for in the sense that at least the reporting infrastructure would be in place by the time implementation takes place. And frankly, I don't see implementation happening before five to 10 years. No, this is one of the reasons why. I think the greatest reason, why is that under the common law, and when we speak about the Caribbean, we’re talking about countries that practice English common law, by virtue of our legislative history.

Now one of the rules within English, common law, and it just came to me, is that of the revenue rule whereby the courts would not enforce a foreign tax, a foreign tax penalty with within its domestic space, because that would be an affront to national sovereignty. So, you're quite right in that implementation would require a raft of amendments, a raft of new legislation and a raft of repealing of all legislation. And quite frankly, given the rate of given the rate of law reform in our respective Caribbean countries, I don’t see it happening between 5 to 10 years.

 Now, some of the practical things that we, that Derren and yourself would have identified would be the floor and that floor is Euro several hundred and 50 million, and it would apply directly to multinational enterprises. So immediately my defense attorney brain starts sticking so that, you know, by exception, I would see, okay, if I'm not a multinational enterprise, and if I'm not meeting the floor, then do these rules actually apply to me. And I'm thinking that the space is shrinking for creative structures.

 The space is definitely shrinking in respect of not only with the requirement of economic substance, but on popular onshore jurisdictions. What I've seen is that there's usually an application of their tax rules on a see-through basis. So, to my mind, at least one, the opportunities for creative structuring are being cut. Two, the infrastructure for reporting has increased in complexity and reach and scope. And three, the global minimum was introduced to combat very specific, very, very specific politically, I don't want to get overly political, but some would see politically jaundiced view promulgated by very popular non-governmental organizations that there seems to be some sort of tax evasion. And then of course, they're seeing that there's no longer difference between tax avoidance on the one hand and tax evasion on the other hand. And of course, again, the Caribbean gets slated, even though our piece of law reform in respect of reporting is usually much better than those onshore countries, but that's a topic for another time, but all in all, I think that they could be a lot of pushback litigation wise under the revenue rule.

 But of course, with any sort of litigation, it is simply with any sort of litigation. It is simply a numbers game or an argument game. So, the revenue rule broadly says that you can't enforce a foreign tax liability under your domestic law, but let's not get confused where there's international information exchange, whether on an automatic basis or requested basis, or whether rules dealing with mutual legal assistance and criminal and regulatory matters, then that sort of information can be used to help enforce. Now difficulty with the revenue rule is that as a common or rule, it could be abrogated, or it could be changed. It could be removed by statute or international treaty. So, for example, in the 2013 English court of appeal decision in the St. Nevis court of appeal decision, and that was an offshore company that sued the HM revenue and customs in England and Wales, this revenue rule was raised to prevent South African judgment of about 222 million pounds from being recognized and enforced against two BVI companies. And Robert you raise the BVI earlier.

 The BVI, I think is about the fourth or fifth largest company and corporation or company domiciled in the world. But the English courts recognized that there was a double taxation agreement between South Africa and the BVI, and because of that, they allowed the recognition and enforcement of that judgment. So even though there may be some species that space is shrinking. And as Derren say, at HTJ, we're going to watch that space and hopefully, you know, help navigate a through some pretty rough times that are coming up Caribbean ways.

 So, I think that's it for me on those points, Robert, thanks again for covering the high-level points.

DERREN JOSEPH:

 Okay. So yes, I get that it'll be a while before we see full implementation, if it ever happens, but certainly the pressures on that in key jurisdictions, it's not, you know, it one would imagine that it will soon become a reality. Well, soon, relatively speaking. Now, I and again, the threshold of 750 million euros, but given the law of unintended consequences, chances are just like we saw with FATCA and the automatic exchange of information, smaller companies will invariably be impacted. How do you see that happening if at all, Robert? You're on mute.

ROBERT KIGGINS:

 Yeah, there we go. My mouse isn't obeying me today, the mouse that roared. Anyway, I forgot that. Yeah. You know, Derren, it's so hard always to predict the future on things. So, anything I could even begin to answer that would be pretty speculative really. It's certainly not a perfect situation. There's certainly a lot of loopholes so to speak a lot of issues that need to bruise up. I mean, one of them Mikael raised, which is kind of, well, it's all nice, but I mean, are there even any dispute mechanisms for countries that do decide, hey, even though they've signed on that they went, oh no, we don't have to do IRR. We don't have to do UPR, forget the STTR rule.

 I mean, how do you work that stuff out and face it? I mean, people are going in and rightfully so, at least under our principles, no one, I don't know about international law, but a great principle of US law is that no one should have to pay more taxes than they're legally obliged to pay, which gives people quite a bit of room. And my general observation after having done for longer than I wanted to admit to, is that the more complicated the system is, the more, you know, someone very collaborate is going to figure out it's not illegal, going to figure out a way to get the best possible result for his or her client.

 And is that fair in the end? That's more of the question and it's probably not always fair in the end. So, what I like to see, and I haven't seen it yet are any dispute mechanisms. I don't know, Mikael, if you have, that are built into to pillar two, I think pillar one, which is not what we're talking about today, they had quite an elaborate number of provisions, whether they work or not designed to deal with dispute resolution. And again, what do we do with these holdout countries and Mikael, you rightfully mentioned Ireland. And I learned something from you that some of the Caribbean nations are not signed on yet.

China is still let's face it. The US is a wild card we just are, and China is a wild card. And what's the reason for that. I think if you're the dragon, you know, you're big and I'm trying to insult China because that's kind of a reference to China, you throw your weight around. And certainly, the US you know, hasn't been reluctant to do that all the time and US companies who are very well advised. And, and frankly, who were given this revenue threshold are going to be in scope if Congress passes this thing, which is a completely open question to my mind. If they will, I don’t know if game it's the right word, because again, there, you're entitled to use the tax law as long as you stay, as long as you're not invading tax, but you're allowed to avoid tax. I think if I'm not mistaken, Mikhail helped me out, is that a principle that's pretty well-respected, you know, and the country is you're used to dealing with?

MIKHAIL CHARLES: 

It is. And again, there's a famous, I think it's a US judgment that you've cited where the famous quote is that you don't have to pay more tax than your due. And I think from a very English point of view as well, they would see you do you don't or the exchequer more than that you should pay. And that it's perfectly legitimate to arrange your affairs to pay the least amount of tax. But however, what we're seeing really is more, some would say liberated mentality or liberated politics that is more or less safety of fair share. Now, what that actually looks like in practice is why I think we all have a bit, we all have a job, but I mean, going back to your earlier point there, Robert about whether or not a dispute resolution mechanism has been built in, I haven't seen one. What I think we we're or where we're at is that the inclusive framework is just that a framework and that framework it's more or less, I think the roughest analogy that I can make is simply a head of terms of agreement. So, we haven't even gotten into the nitty-gritty of the quote on quote, contractual document, but what this document represents from a public international viewpoint is simply fascinating because it's very rare to have such consensus that has been built. It's very, very rare. So, I mean, it's fascinating from a purely legal standpoint, but again, implementation, and again, that space whether that space will shrink, stay the same, or could even expand, because of course there are going to be a more creative structures that could come out. I mean. I don't have to necessarily give the game away, but I mean, usually MNEs are organized as companies would share capital. What is going to happen? What is a corporate structure without share capital?

So, for example, your LLC, how we is, I mean, what are your accounting rules way to look like? Is the pillar two going to change the nature of the format of your balance sheet? Because if we're talking about inroads into the common law, if you're talking about inroads into public international law, does it mean that accounting is going to have to change? I mean, Robert, you really helpfully outlined the two, well, really four outshoots of pillar 2, income inclusion rule, all the tax payments rule, you switch overrule and it's subject to tax rule.

 But if you really, if we'd start digging into the nitty-gritty about the switchover rule, that means that tax treaties, which would have been negotiated, we're going to have to start carving out of that. And we going to have to get rid of, well under the English system, it's dicey’s rule on where should be charged because the switchover rule sets what we're going to have to dig into your tax treaty. We've got to have to permit the residents jurisdictions to switch from an exemption to a credit method where the profits attributable to permanent establishment or derived from immovable property are subject to an effective rate below the minimum rate.

So, lots of carving, lots of carving to do and I really PTD draftsman those 142 countries inclusive of all of the Commonwealth Caribbean, or what the label us now as the, the offshore havens. So, I really, I'm looking forward to not only the litigation, but the actual mechanism by which pillar two would be implemented, but for now there's still some skills.

ROBERT KIGGINS:

Yeah, absolutely agree Mikhail. And one thing I didn't mention, and you got into it very nicely Mikhail is that

we're going to be getting into bile at least here, bilateral tax treaties.  You asked us that's never entered into the MLI, and I don't see it happening in the near future given how high bound in a way we've been about it. What I didn't say though, is that to the extent we have to start fiddling here with tax treaties, that is a really tall order because the basic rule is that changes in our tax treaties need to be approved by two thirds vote of the Senate, the Republican Senate. 

And I don't, you know, I don't want to be too political about it either, but if it comes to that being needed, especially as you kind of alluded to under the subject of tax role, I mean, is it a pipe dream that can happen here? I mean, you know, I'm asking you the question in a skeptical tone, but I mean, what do you think of that Mikhail?  It just seems, again, you're raising a great point about these treaties. I mean, geez. I mean, how does this thing get implemented in a place like US?

MIKHAIL CHARLES  

Well, I mean, I'm no US lawyer, but really with the bicameral system that you guys have, I'm seeing a lot of difficulties, a lot of practical difficulties, it might be, it might be easier in the Caribbean. So, we generally have just one house of parliament and usually the international agencies just draft a law, send it to us. So, we just pass it with some training, et cetera, but more to the point, I mean, how is this a bread-and-butter matter? You know, maybe that's me speaking from a macro level, but they agree to things with greater priority.

 And if one looks at where the monies are really headquartered, it's not the Caribbean per se. It might Cayman, it might be BVI, St. Lucia tried setting up, try amending the offshore laws to attract head offices or headquarter offices, but that hasn't really taken off. Cause that came in about 2018 or 2019, I believe. 2020 COVID, I mean, I think that's the biggest elephant in the room really would this pillar to survive post COVID. Cause if you're talking about trying to restrict or try to extract the maximum amount of tax from an MNE, using the stick, why not use a carrot. MNE’s are ultimately rely on human capital and human engagement, surely a compassionate or some other form of inducement could be made for agreeing to share of taxes to be paid in respective onshore countries, but maybe spec that that’s speculating. But again, you know, we've seen things happen in the speed, literally at the speed of light pre doing, you know, knock on wood post COVID. So, to your point, there could be some legislative impetus say, you know what, these MNE's are getting away, let's pass everything lightning speed, or they could be those of us who could encourage caution seeing listen, not because it's COVID, there could be other ways to get more back.  And that's my 2 cents on that.

ROBERT KIGGINS:

That's another great point Mikhail. And I was a little remiss, you reminded me and not mentioning something and that these global rules, which are, again, that's essentially the income inclusion rule and the other tax payment rule. They do give somewhat of a break for investment in the, and let's call it the low tax country. So, if one of these MNE’s has some serious tangible assets, which typically as we all know, they don't and seriously adding jobs to the local economy. Then there's going to be carve-out at least the way things stand now of an amount of income from these amendment tax rules, that's at least 5% year. And then after I don't really notice if we'll get there a transition period of five years of 7.5% of the carrying value. And again, this is an accounting concept of tangible assets and payroll. So that's, you know, maybe that's getting a little bit too to the point you're making about, let's say somewhat exploitative nature always say, of some of these MNEs and just kind of, you know, what Janet Yellen called the race to the bottom.

MIKHAIL CHARLES:

Again, sorry to just dash across quickly. But again, you know, I get excited because it sort of shows the joined-up thinking of the international buddies. So, they must be talking to each other because that car vote sounds eerily similar to the requirements under the economic substance for economic substance. So, you got to have assets in the country, you've got to have employees, you've got to show that those employees are paying local taxes. You've got to show substance. How do you justify a pass-through basis, hundreds of millions of dollars. What did was US, CHF, whatever you book your currency, how do you justify that? You've got to show some tangible benefit to the country. So, you know, there's some joined up thinking there, but again, overall, its impact is yet to be seen implementation.

ROBERT KIGGINS:

Yeah. And thanks for that too. Cause I'm glad you're on because I'm vaguely aware of, I guess, what you would call these substance rules, you know, certain amounts of capital and workers and so on and so forth. Is that pretty uniform throughout the Caribbean, Mikhail or does that vary much one country to another? I'm most familiar? Not that I know of any kind of detail, but just I've had discussion with BVI attorneys who were telling me that they're spending, you know, a heck of a lot of their time now with compliance with substantive economic presence rules, are they extremely detailed, extremely difficult to comply with extremely expensive, just in terms of legal costs, right?

MIKHAIL CHARLES:

You've asked one question, but you split it into three, I’ll answer it accordingly. So, the first one, yes, they're extremely uniform throughout the Caribbean. So usually find it allied. So, for example, BVI, Cayman Bermuda, they have similar, very, very similar economic substance rules. And then it deviates further on the island chain. So, you have the islands of the Eastern Caribbean. So, for example, St. Vincent, St. Lucia, Saint Kitts and Nevis, Antigua and Barbuda, Commonwealth of Dominica, Anguilla and of course, BVI, you find those islands are with the exception of Grenada because Grenada killed its offshore industry maybe two years ago, two, three years ago. So, you find those following a similar taboo of about nine areas of banking, insurance, few others that you have to report on. To your second question about the time and the cost. Yes, it's timely. And yes, it's costly because the sheer amount of people works. And we reactivate earlier these when I was a junior billable hour, but those billable always still have to come out from something. They still have to come out from a company's operating capital. So yes, it's going to hit and hood, and it has hit and hurt. And you think your third question was about complexity. Yes, it can get complex because there are various carve-outs for pure equity holding companies, and then the type of activity. If you can show that if there's a percentage of local ownership again, which then adds another layer of complexity, because the typical Tulum is aliens. So, anybody who's not a, a citizen of the particular island that could, that chews up some very interesting questions as to the percentage of, if you merely have 51% local ownership, does that satisfy the economic substance requirements that sort of thing. So, there's some interesting local complexities or local nuances to the economic substance point. And I think maybe last point, I see Derren shaking his head there because we've recently been trying to engage with some Cayman attorneys in respect of actually figuring out what applies. And that is the overall issue because as, especially in the tech space, as the tech space grows, and we see these fantastical amounts of Fiat currency being generated by crypto, that has the potential as to lift a crypto company to an MNE. It does because 750 million euros, I mean, binance crashed what three or four weeks ago, and almost 6% of major treating companies around the world that hits or not hoods.

So, you know, the sheer volume of what can happen with companies who are headquartered in the Caribbean, I think requires careful advice and careful locally tailored advice as well. And I think this is why we're here to sort of, you know, trim the bushes a little bit and sort of, you know, see through the weeds, see the part. So, every now, you know, I get excited, sorry to start elevator pitching when I get excited, when I see like different loopholes, because you've got to catch it like a Venn diagram, you know, gotta catch it like a Venn diagram. So, there was space.

ROBERT KIGGINS:

Great. I have another one for you because again, I don't get a chance to thank you, Derren, for giving me this opportunity to learn a lot more than I currently know about the Caribbean, but one thought that kind of occurs to me. And it's a little bit, I don't know which way to put my arms, but global warming and rising sea levels and, you know, wonky weather, how much of a concern is that at the government level, as far as you can proceed throughout the Caribbean, you know, how much are they like, I don't imagine I'm not going to name names, but I imagine the prior administration might not have been thought of too highly for some of it's referring to here, it's environmental policies. And then if you have a sense of it, how worried, and I know a lot of times it can be a struggle just to get through the day, if you know, you're impoverished, which I gathered sadly, you know, there's a lot of it, but how much concern, you know, at the level of the politicians and maybe not so much at the level of common man, because just getting through the day can be a challenge, but are you perceiving, you know, anything that's affecting government thinking or even thinking about among business leaders as to, you know, so to speak the, I imagine most of the Caribbean islands are fairly low lying. I mean, I do know, I know a little bit about some of the islands are volcanic, so I mentioned they can rise to pretty great heights, but anything like that, going on any influence of the global warming environmental concerns that you're seeing Mikhail?

MIKHAIL CHARLES:

Lots to unpack. So, I'll start with the last point first. So, for example the volcanic concerns. So right now, off the coast of Spain is La Palma which lasts erupted in 1972 but cast your mind back maybe six or seven months, my own islands and St. Vincent and Grenadines had explosive eruption in April of this year. And about one fifth of all population had to be evacuated from the north where the volcano is that has wiped off a ball. Let's see conservative estimate, 10 to 15% of GDP. And of course, you know, you get your grant funding, you get your donations from overseas, but rarely that's not going to cut it. You know, that combined with COVID where no tourists really are coming out, plus vaccine hesitancy, et cetera. So, your bottom line is you need feet on the ground, boots on the ground to, to, to borrow an Americanism you need, well, it won't be boot started going. You need flip-flops underground to really start the tourism dollars moving. And I link this back to pillar two shortly, and then coming back to your global warming climate change issues right now, there's cop 26, some cop 26 events happening in Italy. And, you know, we have a lot of young people going from the Caribbean into Italy to really discuss the very practical effects. So, I'm under 35, but within my lifetime, I have seen an increasing intensity of storms. So, every year, so let's see, let's invent a fictitious Caribbean country A. We make a hundred US dollars a year, guaranteed. Every year you're going to face a storm or some sort of weather event. That's going to wipe out at least $50 of those hundred US dollars that you make a year. Now, this then raises a question pillar two, basically, it's going to kill the concept of legitimate tax competition and taxation should, as we know, is it's been historic and national competency and our concerns about setting tax rates. Now, of course, you know, smaller Caribbean countries lack the economic advantages of larger ones. So, for example, the US could rely on its shale oil, its timber resources in the Midwest, it's gold in Arizona and some other, somewhat a very nice, very nice resources and industries that HTJ.tax advises on.

But when you look to try to compare that to the Caribbean, we have sun, we have sea, we have sand agriculture, but most keenly financial services and those financial services. I think since the sixties, I've been utilized as a tool of national sovereignty, because really where else are you going to be able to utilize the corporate structure to get a benefit on shore? That doesn't really happen. I mean, apart from Luxembourg and recently Ireland out of course, Switzerland, but Switzerland, Luxembourg have cave to dock six.

So, in the next five years, really going to start seeing that drift away Hong Kong is on the trip from China although I think when China really asserts itself, it's going to see the benefit of having of having a tax center within the Republic. But more to the point, I think there should be a carve out specific to those countries who can demonstrate. So those, those requirements on the economic substance, I think as well, they should add a limb to demonstrate that they're peeing in those, those companies that are benefiting from the tax break are balancing it by paying into let's say a national climate funder or some are demonstrating some sort of contribution to national resiliency. So, you know, let's see how best we can really compete and compete to the benefit of the quote unquote common man, but without seeding or sovereignty to the OECD and G20.

DERREN JOSEPH:

Sorry, and just to add to what you guys are saying, to borrow metaphors and stuff, but I don't mean to be insensitive, but it does seem to be a perfect storm to the extent that you have. It's not just pillar two, but you have economic substance. You have the principal purpose test, you know, and to, and especially principal purpose, to what extent can one going followed and then transparency as well, because some of those jurisdictions are being pushed in a direction of an open registering. So, you know, which, which for some people, or for some structures that rely on, on privacy that that kind of plays against it.

So, it just seems as if there's a confluence of factors that are putting pressure on, on that Caribbean offshore financial service sector. And that play in favor of, let's say near shore, like Singapore or onshore going back into Europe or into the United States. So, it seems as if the forces of just driving it in that direction, I been to conspiratorial or do you see that as well?

MIKHAIL CHARLES:

I see it.

ROBERT KIGGINS:

Okay, got it. I needed it myself again. I'm getting there Derren, you know, this is a tough one Mikhail, but it's like maybe a one end on and it may be an unanswerable one on balance for the Caribbean. This is, I'm like a Hannity and Colmes here. Good pillar one, pillar two good pillow too bad. If you had to say one of the other, I know that's almost a ridiculous way because things are to frame a question cause thing are very seldom binary, but more good than bad, more bad than good. Any, any sense at this point for how it works out for the Caribbean.

MIKHAIL CHARLES:

More bad than good, I think any inroads into a niche and sovereignty and a nation's ability to compete violates United nations national order, we're all supposed to be equal, equal contributed members to the international order. And you know, as humanity, as you know, from, since we crawled out to the primordial mark, we've had to compete in order to better ourselves. Cro-Magnon man became homo-sapiens by competition. And in order for evolution to continue evolution of finance evolution of just being better. And, and if it's not working, you change it, and your life is continuous change to try to impose a static system on fluid companies. I think it's trying to catch water more bad.

ROBERT KIGGINS

Derren, anything I know we're getting near time, so I don't want to, if you have something you want to add or ask or whatever for me or Mikhail, I suppose, fire away.

DERREN JOSEPH:

No, I, I think you guys have done a fantastic job and covering all the key concepts and for those who may be watching either live or in the future, I think you give everyone a lot to reflect on and lots of, you know, the questions to be answered and t is what it is. And particularly the rule of the US that, I have seen that in other quarters there's doubt as to whether the US itself it will influence it will help pilot, but as to whether they would actually pass enabling legislation in the US unlikely. But, you know, that's just the way it is. Robert, Mikhail, thank you very much for your time. It's been an amazing exchange and I look forward to doing this again and not to distance future.

MIKHAIL CHARLES:

Cheers guys.

ROBERT KIGGINS

Yes. And thanks for the opportunity, Mikhail, thank you so much for sharing. Really, I learned a lot and I got a lot more given to me that I could give back today. So, Derren, thanks for the opportunity and Mikhail, thank you for all of your insights on things that I really need to learn a lot more about that I currently know and goodbye everybody.

MIKHAIL CHARLES:

Vice-versa, bye everyone.

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