Shifting sands will see offshore centres of excellence emerge

With the dust from the UBS and US Justice Department bust-up barely settled, the offshore world is once again in the uncomfortable position of feeling the ground shifting beneath its feet. And while the Organisation for Economic Co-operation and Development OECD continues to toll the death knell of banking secrecy, behind the scenes the offshore community is busy re-inventing itself. The most notable recent costume changes have been made by Switzerland and Liechtenstein, which have both extended their double taxation agreement networks. Switzerland has negotiated 11 double taxation agreements (DTAs) so far that conform to OECD standards including recent deals with the UK, Finland and a revised DTA with the US. However, none allow “fishing expeditions” for information on unspecified individuals, such as the 52,000 UBS clients’ names originally sought by the US. Liechtenstein is some way behind Switzerland, but it has also signed deals with the US, UK and Luxembourg and will add Germany in 2010. Changing balance What is significant about these moves is not so much that Swiss banking secrecy is dead, although much commentary has focused on this issue. Rather, the moves are evidence that international private clients and their advisers increasingly want to operate within a regulated framework and not outside of it. Indeed it seems the balance has now tipped. Switzerland has stalwartly defended its banking confidentiality laws for as long as they were good for business, but the new game in town is to offer a well-regulated framework that will attract high net worth clients who want to structure their affairs flexibly and, at the same time, operate within international law. Switzerland’s moves are therefore groundbreaking: not because it is the first, nor because it has the largest network of agreements - Luxembourg already has 16 DTAs, of which 12 have been renegotiated along OECD lines, while Jersey has 15 of the more contentious tax information exchange agreements (TIEAs) - but because it is the biggest. And, where Switzerland leads, other offshore centres will undoubtedly follow. Centres of excellence In our view, the offshore world is dividing and what will emerge are offshore centres of excellence, focused on attracting declared assets with regimes of information exchange that put in place protection for the interests of clients. These centres are likely also to attract international wealth management, legal and tax firms specialising in the affairs of global clients. Each region is likely to have one or two such centres, possibly supported by smaller offshore centres that focus on niche structuring activity. Already, Switzerland has been removed from the OECD’s so-called grey list of uncooperative tax havens, hinting that the international regulatory community is comfortable allowing Switzerland to defend client interests within a framework of tax compliance. Eyes must now turn to Asia, to see how Singapore and Hong Kong respond to the fast-changing global environment. Cath Tillotson is partner and head of research at wealth management strategy think tank, Scorpio Partnership