his summer, the British Virgin Islands endured two Category Five hurricanes (typhoons), which smashed homes and flooded streets. While the physical devastation is bad enough, it is also worth wondering what other devastation lies in wait, with the implementation of information sharing mechanisms such as FATCA and the Common Reporting Standard (CRS), which is supposed to automatically trigger exchanges of tax-related information between jurisdictions.
In this environment, can jurisdictions like the BVI continue to perform their old functions?
The answer seems to be yes, but in a reduced form, according to Jonathan Clifton, group managing director, Company Formation at Vistra, a trust, fiduciary, fund and corporate services firm. “The challenge of these jurisdictions is how do you balance transparency and privacy,” Clifton says. In fact, Clifton argues that the BVIS in particular were early adopters of CRS, as they had already seen which way the wind was blowing.
Though he admits that the overall number of BVI company registrations is down, Clifton also reckons that we are at the beginning of a much “cleaner” industry. In his view, the reasons that individuals or companies will wish to have a BVI registered company (or a company with a similar jurisdiction) will become more focused on corporate needs rather than a reduction in tax bill. For example, he cites the role that the BVI can play by letting Chinese and American business partners register in the BVI for the sake of dispute settlement mechanisms that give confidence to both sides of the JV.
In Hong Kong in particular, which has been a favored source of business for the BVI, there is also a considerable legal structure built up that favors continued use of the BVI for company registration.
“There will be less quantity, but more quality (of business) overall. The size of business may be reduced, but there’s a more corporate style environment,” Clifton says, pointing to the fact that the BVI now has a registry of companies that includes directors and shareholders, and that this information is made available
Ironically, it is the people who oppose jurisdictions such as BVI who feel the future is bright for tax havens. Raymond Baker, founder of Global Financial Integrity, a non profit organization that researches tax avoidance, particularly from emerging markets, reckons that the recent momentum towards global financial transparency is slowing, particularly in the face of the twin results of Brexit and the election of Donald Trump as US president.
“Post GFC (Global Financial Crisis), there was pressure to do something, but now the pressure to reverse the rules is significant.” With Trump, Baker says, the “agenda for greater transparency is on hold.”
With Brexit negotiations, Baker worries that the UK government, under pressure to keep flows of money going through London, may weaken its resolve to uncover financial secrecy. A number of well-known corporate registry jurisdictions are actually overseas territories of the United Kingdom, such as the BVI and Cayman Islands, or are crown dependencies, such as Jersey. The Theresa May government, injured by a poor electoral performance, has reportedly lost interest in clamping down on tax havens, with Chancellor of the Exchequer Philip Hammond at one point suggesting that the UK itself could become a tax haven, should it not get a Brexit deal it’s happy with.
With regard to the current US administration, Baker concedes that he doesn’t really know where Trump’s policies are going.
The United States, which campaigned so aggressively for other countries to share tax information, particularly with regard to Swiss banks, has itself become a focus of many campaigners’ ire. Thanks to the way in which individual states can shape their own laws about financial disclosure, some have
opted to become tax havens.
Delaware is the most obvious example (the University of Delaware offers a bachelor’s degree in wealth management). During the Obama presidency, legislation was introduced to force financial disclosure, particularly with regard to beneficial ownership, across the country. At one point, Delaware state representatives pulled out all the stops in trying to put an end to the legislation. They succeeded, even after a duo of former FBI agents went to state officials to point out the need for identifying beneficial owners to fight crime. It didn’t work – Delaware’s state budget is now largely dependent on fees earned from company registrations.
This situation is repeated in numerous such jurisdictions. The BVI, whose infrastructure is now badly damaged, has faced calls to have reconstruction aid from the UK conditioned on opening up its books even more. And yet, half of BVI government revenue comes just from incorporations.
Meanwhile, the amount of money looking for a secure place to domicile is not going away. Finews.asia reports that, according to the Bank of International Settlements, offshore wealth held by Indian high net worth individuals nearly doubled from 2007 to 2015, but much of that wealth is now held not in Swiss bank accounts, which have fallen from favor, but is now in Asian centres such as Hong Kong, Singapore and Bahrain.
So while the pressure to open up accounts may be easing, or the united front by governments in the past few years may be cracking, the pressure to keep offering discrete wealth services in select jurisdictions is not going away.
“One year ago, I would have said that they (tax havens) were on the way out. Now, I’m not so sure,” says Baker.
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