Offshore Jurisdictions, A Reality Check

For a long time, small islandic jurisdictions have been subject to attacks from more established countries such as the UK, USA, France and even India for being tax havens. Often linked to shady transactions and fancy structures, these jurisdictions are pictured with the clichéd triple ‘S’- Sea, Sand and Sun. And let us not forget the token multi-coloured cocktail in hand.

What defines a tax haven? To quote James R. Hines Jr. (University of Michigan Law School), “tax havens are countries and territories that offer low tax rates and favourable regulatory policies to foreign investors.” This is probably the most accurate and objective definition.  Such countries are not rogue countries that will hide and launder money through bank secrecy and corporate anonymity.

Mauritius is among those countries targeted time, and time again by WikiLeaks, Offshore Leaks and most recently: Mauritius Leaks. These articles and so-called revelations instil great anxiety amongst existing as well as potential investors and rightfully so. No one likes to see their name or the name of their company in the news for the wrong reasons.

The government and regulators of Mauritius have a keen interest to ensure compliance with standards imposed by international organisations such as the Organisation for Economic Co-operation and Development (OECD). On an almost annual basis, new rules and regulations are issued by the Mauritius Financial Services Commission (FSC) and the Bank of Mauritius (BOM) to keep up with the dynamic changes occurring in the global financial world.

When analysed, most of these islandic jurisdictions have a good scoring with the World Bank where measures of governance are concerned. These include: accountability, political and economic stability, corruption control, government effectiveness and proper legal framework.

Another measure taken by Mauritius has been to diversify the offshore services from the traditional setting up and management of special purpose vehicles and portfolio investments to a more hands on approach by encouraging investors to have more presence in Mauritius and thus justify the choice of jurisdiction.

Offshore jurisdictions exist due to agreements and treaties between countries. It is interesting to note that most direct investment flowing in offshore jurisdictions come from high-tax countries. It is almost a paradox to find the latter bullying tax havens when they happen to be the main investors.

On that note, we would love to hear your thoughts.