As­sets of $1.5tn wash up in Bri­tish Vir­gin Is­lands

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY FT CORRESPONDENT

Off­shore com­pa­nies in the Bri­tish Vir­gin Is­lands have as­sets of more than $1.5tn, more than twice the sum es­ti­mated in 2010.

Off­shore com­pa­nies in the Bri­tish Vir­gin Is­lands have as­sets of more than $1.5tn, more than twice the sum es­ti­mated in 2010.

Two-thirds of the off­shore com­pa­nies reg­is­tered in the BVI are used for “corporate struc­tur­ing”, and more than 140 listed busi­nesses in Lon­don, New York and Hong Kong have a unit in the BVI, ac­cord­ing to re­search car­ried out on be­half of the BVI govern­ment.

These units can be used for tax plan­ning, but can also be use­ful as a tax-neu­tral hub for in­vestors from dif­fer­ent lo­ca­tions. Com­pa­nies are also at­tracted by the BVI’s le­gal sys­tem, which mir­rors Bri­tish law.

A fur­ther quar­ter of the com­pa­nies rep­re­sent funds and in­vest­ment ve­hi­cles, while prop­erty hold­ings and fam­ily wealth each ac­count for 5 per cent of the over­all number.

The BVI, which de­rives more than three-fifths of govern­ment rev­enues from its fi­nan­cial sec­tor, has been hit by the global fi­nan­cial cri­sis and the en­su­ing back­lash against off­shore fi­nance. Nev­er­the­less, the to­tal as­sets of its com­pa­nies are now twice as high as they were when es­ti­mated at $615bn in 2010 by the In­ter­na­tional Mon­e­tary Fund.

Cap­i­tal Eco­nomics, the con­sul­tancy that car­ried out the re­search, ac­knowl­edged that “the scale of fi­nan­cial ac­tiv­ity car­ried out on the is­lands may ap­pear in­con­gru­ous in a small ju­ris­dic­tion with a pop­u­la­tion no greater than an English mar­ket town”. But it said the per­cep­tion it was a tax haven was based on a mis­un­der­stand­ing.

Mark Prag­nell, the au­thor of the re­port, said glob­al­i­sa­tion had led to a greater use of cross-border struc­tures by multi­na­tion­als, while the use of BVI com­pa­nies to con­tain pri­vate wealth was be­com­ing less prom­i­nent.

Mr Prag­nell said it was un­clear how much of the flow through BVI com­pa­nies rep­re­sented “roundtrip­ping” — send­ing money off­shore that is later brought back to its coun­try of ori­gin.

This is often seen as a way to get around reg­u­la­tions and taxes but Mr Prag­nell said the main ra­tio­nale for rout­ing money through the BVI was to take ad­van­tage of its se­cure le­gal frame­work.

Cap­i­tal Eco­nomics es­ti­mates that BVI com­pa­nies could be used to avoid up to $750m of tax, in­clud­ing stamp duty on the trans­fer of prop­er­ties and the de­fer­ral of taxes on in­ter­est in­come. The pur­chases of large com­mer­cial prop­er­ties in cen­tral Lon­don ac­count for the ma­jor­ity of the top 10 prop­erty deals by value car­ried out through BVI com­pa­nies.

The re­search also high­lighted the pop­u­lar­ity of BVI com­pa­nies in Asia. Two-fifths of BVI-held as­sets are in Hong Kong and China, which also ac­counts for a third of the own­ers of BVI com­pa­nies, by value.

Lorna Smith, in­terim ex­ec­u­tive di­rec­tor of BVI Fi­nance, said: “The BVI has never been a se­crecy ju­ris­dic­tion. We ad­here to pri­vacy for clients.”

The BVI stressed its “sub­stan­tial ef­forts”, which it said ex­ceeded many large na­tions, to strike out crim­i­nal­ity and en­sure trans­parency. But Tax Jus­tice Net­work, a cam­paign group, said al­though it had made sig­nif­i­cant im­prove­ments in trans­parency, se­crecy re­mained a salient fea­ture of its off­shore sec­tor.

Alex Cob­ham, di­rec­tor, said: “Time is up for the busi­ness model of sell­ing se­crecy to non-res­i­dents, for tax abuse and other cor­rupt pur­poses. If the BVI wants to stop be­ing known as a tax haven, it should fol­low the emerg­ing in­ter­na­tional stan­dard by es­tab­lish­ing a pub­lic reg­is­ter of the ul­ti­mate ben­e­fi­cial own­ers of all BVI com­pa­nies and trusts.”

The Bri­tish over­seas ter­ri­tory de­rives more than three-fifths of govern­ment rev­enues from its fi­nan­cial sec­tor.

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