The offshore puzzle
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Offshore jurisdictions are "like an elephant or socialism: hard to define but you recognise it when you see it," says Maples and Calder joint managing partner Charles Jennings. Against an ever-changing regulatory backdrop with shifting jurisdictions, it is becoming increasingly difficult to define what makes a jurisdiction 'offshore'. And with some offshore firms moving steadily into traditional onshore jurisdictions, the offshore boundaries are becoming blurred.
This can be seen in Dublin, where Maples admits that some onshore firms might consider its significant presence in the city as competition. It considers the office to be a full-service onshore firm, and claims to be ahead of its peers in this move. Jennings says that as such it is a competitor in the Dublin legal market.
The move into Dublin and traditional onshore work was pre-empted, says Maples partner Alasdair Robertson, by a "number of offshore financial structures, in both the investment funds and structured finance fields, moving onshore".
Driving that migration, he adds, is the double taxation treaty that jurisdictions such as Ireland, Luxembourg and the Netherlands are able to offer.
Collas Day commercial partner Jason Romer is more reticent about such moves onshore. He warns that firms could be perceived to be competing with their clients, adding: "The wisdom of this remains to be seen."
Traditionally 'offshore' would be commonly linked with so-called 'tax havens'. As Richard Gerwat, managing partner of Channel Islands-based Bedell Group, puts it: "The common thread historically has been the lower tax-rate regime which has been made available to encourage fiduciary businesses to invest."
Against this definition, the double tax treaty available in Ireland, Luxembourg and the Netherlands could be considered a somewhat less attractive tax break compared with that available in traditional jurisdictions such as the Cayman Islands and the British Virgin Islands (BVI).
In the 1990s, offshore jurisdictions were tarnished by the legacy of the John Grisham novel The Firm. The bestselling novel, which was later turned into a Hollywood blockbuster, portrayed Cayman as a region ripe for mafia investment with the right kind of legal advice.
Jennings says the jurisdiction has since worked very hard to distance itself from this reputation, but admits: "There's a drag in terms of modern understanding of how far we've come from the so-called Grisham years."
With offshore regions coming under increasing political pressure to improve regulatory structures, many have become more sophisticated in how they compete and it is no longer just tax breaks which attract investment.
Carey Olsen partner Andrew Boyce says the definition of offshore has changed significantly over the past decade. "Gone are the days where offshore referred to some exotic far-flung location little known to anyone," he tells The Lawyer. "These days, offshore can be anywhere that offers an advantage to a fund promoter, the investor base or the particular type of investment itself."
Appleby global managing partner Peter Bubenzer reels off a list of criteria which he deems necessary to define offshore. The legal, regulatory and tax infrastructure must be flexible enough, he says, to allow businesses to operate efficiently in rapidly changing business environments.
"Generally, in my experience, such centres have simple economies, not well diversified, with a small population base and a limited ability to increase the wealth of that community based only on their own base of Peter Bubenzer, global managing partner, Applebypopulation and capital," says Bubenzer.
This issue of "dependency" on foreign economies, he adds, would automatically eliminate Ireland and Luxembourg from the ranks of elite offshore jurisdictions. "For example, Ireland, by comparison with traditional onshore centres, still operates a much more complex and traditional regulatory infrastructure, which is not driven by the same desire or need to attract and develop business as one finds in the traditional offshore centres," he says. Marc Yates, coporate partner, OgierWhile the offshore credentials of Ireland, Luxembourg and the Netherlands are still doubted by some in the profession, emerging in the East is a raft of economies which could revolutionise the sector.
"It's just wrong to be dismissive of anywhere that has that level of investment," warns Bedell Group's Gerwat, referring to the emergence of Dubai and Singapore. "The balance of influence is moving to the Far East and Middle East, and Dubai will go from strength to strength." Jason Romer, commercial partner, Collas DayDubai is keen not to be perceived in the same bracket as traditional offshore jurisdictions, despite the zero tax rate offered in the region. Nevertheless, as Tahir Jawed, managing partner of Maples' Dubai office points out, the Dubai International Financial Exchange (DIFX) has become a financial hub in the region - something that has drawn in a number of firms.
Although Dubai is keen to attract securitisation and structured finance work, it is careful about where this work comes from. As an emerging market in the offshore world, the jurisdiction comes without the reputational issues which burden well-established offshore regions, and many experts believe it will succeed where others have failed.
Like Dubai, Singapore is also emerging as an essential financial hub. Steve Georgala, managing director of Maitland Group - a company that sets up relationships between onshore and offshore firms - says the Singaporean government has acted with entrepreneurial spirit to attract outside investment, adding: "It's an agile and attentive government."
This is backed up by Jersey-headquartered Mourant du Feu & Jeune and Appleby, which have both signalled a commitment to opening offices in the region. Bubenzer says Singapore has the propensity to compete with traditional jurisdictions. However, he adds: "If there's any lack of the need and desire to operate in that market, that lack may possibly mean that a more complex regulatory and tax infrastructure will be maintained and, as a result, I doubt there would be significant competition with the traditional offshore centres." As global monies become increasingly fluid to avoid the onset of an economic slowdown in the West, offshore firms are looking to meet the demands of a challenging client base. With several jurisdictions competing for this business, these firms have an advantage in being able to offer flexibility with regulatory security. The lines between onshore and offshore may be blurring but, for the right firm, this is only going to create more opportunities. n