Death of the offshore centres - a premature diagnosis

It is fashionable at the moment to predict the slow demise of the traditional offshore centres, and the migration of business from them to financial centres with extensive double tax treaty networks, or to pure onshore locations.  Many trust company businesses head-quartered in places such as Jersey, Guernsey and Cayman are opening offices in Luxembourg, Hong Kong and similar locations in a bid to ensure that whilst client structures may migrate from one jurisdiction to another, they need not be lost to the trust company group.  It is not difficult to see why the doom-merchants are nervous – every day the press is filled with “anti offshore” rhetoric and proposals to prevent people from legitimately structuring their affairs through them, such as the UK’s GAAR proposals, the US’s Stop Tax Haven Abuse Act, the closure of QROPs in many locations and the removal by the UK of Low Value Consignment Relief from shipments from the Channel Islands.  Add to this stories of the offshore centres being costly and unresponsive, and it can become difficult to be optimistic about their future.

And yet despite all of this, time and time again the traditional offshore centres, and those based close to the UK in particular (the Channel Islands and the Isle of Man) perform strongly in objective assessments of international competitiveness. 

This week has seen the release of the latest Global Financial Centres Index (“GFCI”) which provides profiles, ratings and rankings for 77 financial centres, drawing on two separate sources of data – instrumental factors (external indices) and responses to an online survey.  The GFCI looks at the relative competitiveness of all of the 77 financial centres, some of which are onshore (such as London and New York), some of which are offshore (such as Jersey and Cayman) and some of which fall into a middle ground which I shall refer to as “quasi offshore” centres – ie countries where the majority of the business conducted there is not for domestic customers but for international clients attracted by low taxes or an extensive double tax treaty network.

According to the GFCI methodology, research indicates that the key factors which combine to make a financial centre competitive can be grouped into five ‘areas of competitiveness’: People, Business Environment, Infrastructure, Market Access and General Competitiveness. In addition to using a wide range of external measures to assess 86 factors within these overarching categories, GFCI also use responses from an online questionnaire completed by 1,890 international financial services professionals.

In the latest report, Jersey has maintained its position as the number one offshore financial centre in the world in terms of its international competitiveness (coming 20^th in the overall rankings), with Guernsey safe in the second spot (28^th) some way ahead of the Isle of Man in third (40^th), Cayman (44^th), BVI (45^th) and Bermuda (46^th).  What is interesting to note is that far from being on a slow decline, most of these jurisdictions have seen their competitiveness scores rise over the last couple of years and so the trajectory is upwards rather than downwards.  This may come as a surprise to those who are predicting their rapid demise.

Another observation is that the Channel Islands also score markedly higher than their “quasi offshore” rivals in Luxembourg (which comes 24^th in the rankings), Netherlands (31^st), Dublin (49^th) and Malta (69^th). 

Although there may well be numerous initiatives in place which would tend to suggest a slow migration of some business away from traditional offshore centres to the quasi offshore centres, it seems the Channel Islands in particular are doing a good job at slowing any such movement by leading the field in terms of competitiveness.  And that is not just my opinion - it is  that of 1,890 professionals working in the field.