Investing offshore…it may not be as sunny as investors expected but there is a significant opportunity to take action…
Monday, 2 February 2009
"There's a building in the Cayman Islands that houses supposedly 12,000 US-based corporations," said Mr Obama. "That's either the biggest building in the world or the biggest tax scam in the world, and we know which one it is."
Avoiding tax increases your return. After all it’s a cost and it’s natural for investors to keep tax payments to a minimum. But too often the tax tail wags the investment dog.
According to the FT, tax havens might be fighting losing battles…
"The political climate on the issue of tax havens has changed dramatically over the past three months," says Jeffrey Owens of the Paris-based Organisation for Economic Co-operation and Development. As the official who has driven the international crackdown on secrecy for more than a decade, he says the new climate could turn the reform promises extracted from many offshore centres into a reality. The financial crisis has intensified the attack on havens. The near-collapse of the west's banking industry has drastically increased governments' need to raise funds, brutally exposed the risks inherent in small countries with large financial sectors, and raised questions about the role of offshore centres in destabilising the system.”
… President Nicolas Sarkozy of France is among those questioning whether, at a time of taxpayer-funded bail-outs, banks should even be allowed to operate in tax havens.
So what does this mean to investors?
It is important to revisit the benefits of using an offshore centre for tax savings. In our experience, many investors think they are actually saving more money than is actually the case. Charges are often higher offshore which tend to be justified almost as an indirect share in the tax saving…if you are saving say 20% in tax what does it matter if the charges are 5%..you still win by 15%. Yet things are never quite what they seem.
If you have assets held offshore, how do you check if the benefits are still worthwhile? If you ask offshore managers or advisers their opinion it is unlikely the answer may be as impartial as you would want. Why? Let us assume if your income and livelihood was generated from an offshore centre, and investors pulling out means a loss of business, which in turn may mean a reduction in your income or even a loss of your job, is the answer you, as the investor, receive likely to be prone to bias?
In truth, this credit crisis and recession are opening up questions and issues nobody thought possible. It is therefore the responsibility of investors to carry out due diligence, especially with offshore investments.
The FT summed up their article by saying” The tiny states and protectorates that thrived in the free-wheeling second half of the 20th century are left struggling to shore up their defences against the coming storm. But as big countries try to block the leakage of much-needed tax revenues and stanch the flow of dirty money, sympathy for the tax havens is in short supply.”
What you should do now….
Investors with offshore investments should be establishing if the benefits of remaining offshore are as significant as they believed when they first made the decision to invest. Is the tax saving as great as they expected? What is their opportunity cost of the capital?
Yet there are opportunities....Remember also, when markets are low, and the tax needs to be crystallised, and this is a significant opportunity to do so. I was told a simple analogy when thinking of changing your investment portfolio…. “If you going to change planes, its better to do so when they are on the ground” In other words, lower valuations will mean lower taxes.
If tax havens are going to be targeted and squeezed perhaps taking action now might prove to be the best decision you can make.
posted by Murray Round Wealth Management @ 16:53,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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