Stamp Duty and Share Charges
No stamp duties or other similar taxes or charges are payable under the laws of the Cayman Islands in respect of the execution or delivery of transaction documents or the performance or enforcement of any such documents, unless they are executed in, or thereafter brought within the jurisdiction of the Cayman Islands (e.g. for the purposes of enforcement).
Although we would ordinarily try to make arrangements to ensure that any relevant mortgage or charge is executed outside the Cayman Islands to avoid any unnecessary liability to stamp duty being incurred at that stage, there is always a possibility that a liability to stamp duty may occur at a later date, for the purpose of enforcement or otherwise.
The Stamp Duty Law (2011 Revision) of the Cayman Islands (the "Law") sets out the rates at which stamp duty will be calculated. For example, a liability to stamp duty of CI$50.00 (US$60.97) will arise in the case of any power of attorney or other document executed by way of deed, and a stamp duty liability of CI$40.00 (US$48.78) will arise in relation to any declaration of trust.
A liability to stamp duty will also arise in respect of the execution or enforcement of a legal or equitable mortgage or charge over any moveable property located within the Cayman Islands, including shares in a Cayman company (where the register of members is held in the Cayman Islands) and also limited partnership interests of a Cayman Exempted limited partnership, at the rate of up to 1.5% of the sum secured.
However, the Law goes on to provide that the 1.5% stamp duty rate will be reduced to a cap of CI$500.00 (US$609.76):
"in the case of a legal or equitable mortgage or charge granted by an exempted company, an ordinary non-resident company (as defined in the Companies Law (2011 Revision)), an exempted trust (as defined in the Trusts Law (2011 Revision)) or a body corporate incorporated outside the [Cayman] Islands of moveable property situated in the Islands or over shares in such exempted company or ordinary non-resident company…"
It is a common requirement in aircraft financing transactions for the financiers to request that the shares of the Cayman Islands SPV are charged by the shareholder (normally the share trustee) by way of security for the obligations of the SPV. However, there is some ambiguity as to the circumstances in which a share charge would fall within the exception above; and thereby allow the applicable transaction parties to avail themselves of the CI$500.00 cap.
The drafting of the applicable section of the Law containing the exception referred to above is unclear. It could be read to mean that the cap will only apply where the share charge is granted by an exempted company, an ordinary non-resident company or an exempted trust and the relevant shares relate to an exempted or non-resident company. Alternatively, it could be read as applying to any mortgage or charge over shares in an exempted or non-resident company, regardless of the status of the owner of those shares.
This is an important distinction. It is the parent company of the SPV (i.e. the share trustee), and not the SPV itself, which enters into the share charge. Although it would not make any significant difference in cases where the shares in the SPV were held by a parent company that was an exempted or non-resident company, there has been a concern that, where the shares are owned by a company that is resident in the Cayman Islands, but is not an exempted company, then the share charge would not be eligible to fall under this exemption. This would be the case, for example, in those transactions where the shares in the SPV are held by a trust company such as MaplesFS Limited, which is located in the Cayman Islands.
The question, then, is how would a Cayman Islands court interpret the relevant provisions of the Law?
Where the intention of any legislation is unclear, the Cayman Islands courts will look to find a purposive construction of the relevant legislation, and "even in cases where there are obvious omissions, resulting in gaps in the express wording of the statute, the court is allowed to remedy the omission provided that the real legislative intention can be identified with an acceptable degree of certainty."1
When the Law was discussed by the Legislative Assembly, it is clear that the reference to charges over shares in exempted companies was included as an improvement to the Law, and had not been covered in previous forms of the Law. This is clearly demonstrated by the relevant extract from the Hansard Report of the proceedings, as follows:
"As noted in paragraph 2 of the Memorandum of Objects and Reasons, in addition to the reposition there are two other improvements made to the proviso. First, legal and equitable mortgages, or charges granted by an exempt trust have been added as a logical extension; and secondly, it is made clear that legal or equitable mortgages; or charges over shares in exempted companies; or ordinary non-resident companies are covered by the proviso".2 (Emphasis added)
The intention of this wording must have been to cover, for example, security granted by any entity over shares in the capital of an exempted company and not just security over shares granted by an exempted company.
It is therefore our view that the ability to take advantage of the capped rate for mortgages and charges was intended to apply either to mortgages or charges granted by exempted or non-resident companies or to mortgages and charges over shares in an exempted or non-resident company. This means that any share charges executed by MaplesFS Limited in relation to shares held in exempted or non-resident Cayman Islands companies should be able to benefit from the CI$500.00 stamp duty cap.
1R v Tibbetts 2006 CILR 308 at 311 per Smellie C.J..
2The Official Hansard Report dated 19 September 2001, p 1079.