Keeping pace with change can be difficult sometimes, whether it
is the latest trends in fashion or mobile phone applications, and
we can now add doing business internationally to that list.
While improvements in world travel, telecommunications and
infrastructure have made doing business practically seamless across
jurisdictions, G-20 governments, struggling to balance their
budgets, have led the charge to frustrate the process through the
implementation of various rules, regulations and protocols.
In the last decade, there have been several restrictions on
business activities and increased compliance measures designed to
monitor and control foreign investments, prevent money laundering
and keep corporate profits at home and subject to domestic
taxation. The G-20 countries, either unilaterally or through
their own member organisations, like the Financial Action Task
Force and the Organisation for Economic Co-operation and
Development (OECD), have imposed a number of stringent requirements
ranging from Basel III on financial regulations, Solvency II on
insurance, the Foreign Account Tax Compliance Act, the Base Erosion
and Profit Shifting initiative, and the soon to be implemented
Common Reporting Standards. These requirements and their
heavy compliance costs have overwhelmed regulators and service
providers across all jurisdictions. Moreover, many of these
directives challenge the validity of previously signed double
taxation treaties between international jurisdictions and G-20
countries, creating both diplomatic and legal issues.
Thus, planning for cross-border transactions has become a
delicate operation, with substance and transparency becoming key
words. Governments are eager to exchange tax information and
challenge the implementation of tax minimisation strategies.
In October 2014, 54 countries signed a multilateral competent
authority agreement to exchange information automatically and at
June 2016, the total numbers of signatories' had increased to
83. This initiative is likely, eventually, to evolve into an
interconnected tax world with instant exchange of
Yet, if anything, these changes have led to a renaissance of
sorts in international financial centres (IFCs), with the
development of products outside of the normal incorporation of an
international company. Wealth protection and succession
planning are becoming an important part of the landscape, and the
planning tools have evolved to include investment funds, trusts,
foundations, protective cell companies and philanthropic
charities. These tools provide the flexibility for
sophisticated planning for multiple generations, across
jurisdictions. The actual planning vehicle used by the
prudent tax planner would depend on nationality, residency, local
laws and, indeed, the degree of wealth of the individual.
The profile of jurisdictions involved in the facilitation of
cross-jurisdictional business is now high on the agenda of the
OECD. These jurisdictions are being forced to embrace the
demands and costs of the ever-changing compliance rules, yet some
of them have seen robust growth - the British Virgin Islands,
Cayman Islands and the Seychelles, to name a few. This
resilience seems to suggest that, in most cases, IFCs are seen as
better regulated than most 'onshore' jurisdictions, and
there is a strong belief that, as long as wealth protection drives
offshore investment, then cross-jurisdictional business will
continue to provide the interface for worldwide tax systems and,
hence, global trade.
The cliché "the more things change, the more they
remain the same" is now very relevant to IFCs, most of which
have built their industry on three essential pillars:
Efficient judicial systems
Specialised knowledge and
Additional changes in this business environment are inevitable,
but one can expect that amidst the changes, those jurisdictions,
entities and service providers, who are plying their trade across
borders, will strike the right balance between risk and reward, to
ensure that substance, quality and profitability are not
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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