IOFCs Largely Avoid EU’s Tax Blacklist

By Global Tax Weekly

The Isle of Man’s coat of arms, as seen on its flag, features a curious three-legged symbol clad in medieval armor, known as a triskelion. The accompanying motto, in Latin of course, roughly translates to “whichever way you throw me, I shall stand” – quite appropriate for an offshore jurisdiction. For whatever the world seems to throw at IOFCs, or tax havens – whatever you prefer to call them – seems to just bounce off.

From reputational and economic hurricanes, including the OECD’s 20-year campaign against harmful offshore tax regimes, domestic political and fiscal strife, tax avoidance scandal after tax avoidance scandal, and the deepest financial crisis since the 1930s, to actual hurricanes, some of which have devastated many a Caribbean offshore territory in recent years, IOFCs have survived something of an onslaught, yet they remain thorns in the sides of the world’s standard-setters.

Maybe that’s because most IOFCs actually meet, or in some cases even exceed, said standards. This must mean one of two things: either tax havens are cleaner and more respectable than most people think, or the standards simply aren’t strong enough. The fact that barely any traditional tax havens featured on the EU’s new tax blacklist of non-cooperative territories, the criteria for which was based on internationally-agreed standards, has the European Parliament, to name one prominent critic of the blacklist, thinking the latter must be true. However, it could be argued that if the standards were made any more stringent then you might as well name just about every country and territory you can think of on the blacklist.

But perhaps the other reason for the enduring appeal of IOFCs among international investors is that, by and large, they have stuck to what they do best. That is, they have found their own particular sectoral niche, and become a world leading expert in providing services for it. Just think Bermuda and reinsurance, the Cayman Islands (said recently to be the world’s leading IOFC) and funds, the the British Virgin Islands and corporate services.

But just as importantly, they are prepared, in these ultra-competitive and economically uncertain times to carve out new niches. The UK Crown Dependencies (the Isle of Man, Guernsey, and Jersey) have been particularly good at this, as they attempt to appeal to a growing class of wealthy people in the emerging economies in Asia and the Middle East, and cater for new and innovative business models, such as in the Fintech sector, and green finance in the case of Guernsey.

You’d think that after the combined forces of the OECD transparency and fairness campaign, the financial crisis, and international scandals like the Panama Papers affair, the world of offshore would be on its last legs. But if the Isle of Man is anything to go by, it’s still got three legs left.

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