Correcting misconceptions about meaning of 'offshore'

IN early November, a number of high-profile individuals were named in information released by the International Consortium of Investigative Journalists. Questions relating to transparency have been raised on their use of or connection with offshore structures or investments in the latest information breach labelled as the Paradise Papers. Following the Panama Papers debacle last year, the Paradise Papers have brought the legitimacy of "offshore" into focus again. This article seeks to dispel common misconceptions that all offshore structures or investments are intended for illegal activities.

First, we should be clear what "offshore" means. It is generally accepted that the term refers to a different country from where one is residing that offers a comparatively more advantageous tax regime. In many cases, various offshore jurisdictions impose very little or no tax on income and capital gains. There are some who abuse the system, but there are many who "go offshore" for bona fide purposes.

A narrative we often see is that offshore structures are for hiding secrets. We must distinguish between privacy and secrecy. Yes, to an extent, these structures provide confidentiality. Do note that privacy is maintained within a regulatory framework, which provides for sharing of information with tax authorities and relevant parties, for instance, law enforcement, on a need-to-know basis. With the implementation of the Common Reporting Standard and the United States' Foreign Account Tax Compliance Act, financial information will be automatically reported to relevant tax authorities. Financial secrets will soon be a thing of the past.