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Romney Investment Sparks Interest in Cayman Islands

Mike Krumboltz

The news that Mitt Romney has millions of dollars in Cayman Island investments has sparked an enormous amount of online interest.

The Caymans are commonly known as being a tax haven for the wealthy. However, the Romney campaign has said that their candidate is not using the islands as a tax haven. USA Today quotes Andrea Saul, Romney's campaign spokesperson: “The Romneys' investments in funds established in the Cayman Islands are taxed in the very same way they would be if those funds were established in the United States. These are not tax havens and it is false to say so.”

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The Wall Street Journal has questioned that assertion. “Tax experts said some of the offshore holdings are likely intended to help Mr. Romney avoid paying an obscure but hefty tax of as much as 35% on some of those investments, held in a tax-deferred retirement account.” According to tax experts quoted in the Journal, had Romney's money been invested in the U.S. funds, he would “likely” have been required to pay something known as the “unrelated business income tax.”

From the Wall Street Journal: “This tax, assessed for individuals at a maximum 35% rate, is meant to discourage tax-exempt entities such as an IRA or college endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it. Investing in a partnership such as a Bain Capital fund that uses debt to buy companies would trigger the tax, experts said.”

The fact that “Romney” and “Cayman Islands” are appearing in the same sentence in stories across the Web has inspired many a curious search on Yahoo!. Over the past 24 hours, searches on "romney cayman islands" have soared 900%. Related lookups on “romney caymans” and “mitt romney investments” have also spiked. Romney has said that while he follows tax laws, “if there's an opportunity to save taxes, we, like anybody else in this country, will follow that opportunity.”

We've also noticed a surge of interest on the Cayman Islands in general. Curious searchers, it seems, want to know more about the island paradise, its government, and how investments work in the country. In short, what's the advantage of investing in the Cayman Islands?

According to a buzzy article from ABC News, Romney campaign officials and officials from Bain Capital (the private equity firm that Romney used to run) said that the reason the accounts were set up in the Cayman Islands was to inspire interest and investments from foreign investors. Foreign investors who invest in Cayman Island accounts aren't required to pay U.S. taxes.

A site from the Cayman Island government puts it this way: “A major factor that routinely sets us apart is the absence of any direct taxation. The government does not impose personal or corporation income taxes and there are no taxes on profits and gains from investments. There are no property taxes or controls on foreign ownership of property either.”