Is this the end of the offshore tax haven?

Welcome to the Cayman Islands, the longtime getaway for many of the world's wealthiest, who look to escape to the British territory and avoid the grasp of the taxman. Or so they thought.

The region, once considered the major offshore tax haven in the Caribbean, has been rocked by the collapse of the world's financial system. Now, what was once the world's biggest hedge-fund venue and fifth-biggest bank centre is under the threat of bankruptcy as the Cayman Islands government reveal they are unable to pay their own staff salaries.

It's a sorry state of affairs, which only seems to get worse the closer you look: for one, the British government, which has ultimate responsibility for the islands, has already refused to bail out the once paradisaical location, sighting concern that the country will never have the money to pay the UK back; meanwhile more than three hundred civil servants have found that pension contributions and health insurance payments were missing from their pay slips last months, and contractors and suppliers have also found their bills have been unpaid.

So what's the answer? You guessed it: taxes. The suggestion of taxes first reared its head last week after the Cayman Islands' leader of government business, William McKeeva Bush, appealed to the British government to borrow $310m from UK banks; however, this was quickly followed by a strongly worded response from Chris Bryant, a junior Foreign Office minister, who demanded the Caymans cut their borrowing and debt. Bryant went on to suggest the tax haven introduce taxes as away of stabilising their economy.

The news is likely to send serious repercussions across the Caymans, with Bryant advising "I fear you will have no choice but to consider new taxes - perhaps payroll and property taxes. I understand, of course, that in so doing you will want to consider carefully the implications for Caymans' economy, including the financial services industry."

However, the suggestion isn't entirely surprising. Wealth on the island is already at an astonishing figure, with the nation's GDP placing it as the world's 12th richest jurisdiction, despite a tiny population of only 51,900.

Tax havens already came under strong opposition at the G20 summit in Davos, Switzerland in January, with leaders including French Prime Minister Nicolas Sarkozy pushing for an end to their presence in the financial market; while others were of the opinion that the privileges tax havens offer must have played a part in the collapse of financial markets across the globe.

So what does the future hold? Well, while noting is set in stone yet, reports suggest that Islanders are beginning to feel pessimistic about the future of the financial system; meanwhile, the British government, are left running scared, hoping the islands' problems don't ultimately become their own.

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