The future of offshore corporate structuring and banking are in the global crosshairs across the world with talk of a mandatory flat tax.

July 12, 2021

By: Bobby Casey, Managing Director GWP

Offshore banking is a lucrative source of foreign investment for a lot of countries. If you randomly selected people across the developed world and asked them, “What do you think of when I say ‘offshore accounts’? What are your sentiments toward that?” you would get a litany of negativity.

Tax cheats, money launderers, criminal cartels are all ideas that get tossed about when you mention offshore accounts.

Is that element lurking in the offshore banking world? Sure. They’re everywhere. They are probably some of the most assimilated people in society. And the criminal element will always be there using the same goods and services as everyone else.

The Panama Papers, for example, contained 11.5 million leaked documents amounting to $1.36 billion in offshore assets. The Panama Papers came from one country and one particular law firm, Mossak Fonesca. One person has been convicted. The large majority of people involved did not break any laws.

The brouhaha behind the Panama Papers was to get people worked up about people not paying taxes. That only works if you are first convinced that paying taxes has some virtue attached to it.

Spoiler alert: it doesn’t.

Whether you make $1 or a $1 billion, there’s nothing noble about losing any of it to theft… even if the thief presents themselves as righteous.

If the cause is good enough, you would ostensibly voluntarily donate to it, wouldn’t you? You wouldn’t need to be compelled to give your money over or make sure you “gave the correct amount”, and yet that’s exactly what people do with taxes.

Panama isn’t even the biggest tax haven in the world. It’s more like 15th.

A British Non-Governmental Organization called the Tax Justice Network compiled a list of the top offshore tax havens in the world. This list factors in two major features: secrecy and scale. As a potential customer of offshore banking, you might be looking for privacy and accessibility.

This organization, appears to be very much against offshore tax havens. The information is nonetheless helpful in understanding who the players are and what separates one country from another in this industry.

The Secrecy Index measures how well identity is concealed by examining their transparency, regulations, and cooperation with international standards. Scale has more to do with the share of financial services the countries have in the world. The latter doesn’t speak much to any qualitative metric, but more just a quantitative proportion.

You can have a country with a high score in secrecy, but low scale. Liberia, Angola, and Algeria all have very high secrecy scores, but are very low on scale.

Obviously the size of the country itself has little bearing on its ability to scale. You’ll have the US, UK, and Japan, but you’ll also have Cayman Islands, Hong Kong, and Luxembourg.

Places like the US, UK, and Japan, have many industries running through them, though. They have energy, agriculture, construction, pharmaceuticals, as well as finance. Whereas, places like Hong Kong and Luxembourg do not have those things and rely on imports from countries that do. Consequently, in countries with minimal natural resources, you find a greater likelihood of service oriented industries such as tourism and finance.

One interesting thing to notice is: 6 of the top 20 on the list are British Overseas Territories or Crown Dependencies.

Another 5 are in Europe, but not part of Britain:

Another 5 are in Eastern Asia:

Two are in the Middle East:

The remaining two are:

It’s a strange arrangement because the nationals of each of these countries cannot enjoy the benefits extended for the foreign investors. This leads to a sort of musical chairs where Americans and Canadians look to the Caribbean or Panama, while Asians and Middle Easterners look to the US and Canada. Rich Africans looks to the Middle East for tax shelters.

Many of the smaller countries in the Caribbean you are used to seeing from me didn’t make the top 20 due to lack of scale. Anguilla, St. Kitts and Nevis, and the Cook Islands are very strong on the secrecy index, however.

Obviously, these decisions shouldn’t be made lightly or simply off a list, but I’m attaching the list of nations that were evaluated along with links to their evaluations so you can learn more about the data behind the numbers of this study.

This has been going on for decades. And you’d think with such a large portion of the global economy vested in its continued functionality, that it would be a protected industry of sorts. Not necessarily the case:

The G7 group of advanced economies has reached a “historic” deal to make multinational companies pay more tax.

Finance ministers meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business.

They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.

Large corporations around the world have strategically set up their structures to reduce tax liability or at the very least defer it by taking some of their business offshore. What happens when these benefits go away?

What happens when countries can no longer compete with their own tax regimes? Is this a global version of “Anti-Dog-Eat-Dog Law” from Atlas Shrugged?

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