Five pager.....designed for “sophisticated investors”?? It’s disgusting....tax is tax and tax evasion is tax evasion in any language....
From: AIMA
The Truth About Offshore Funds
We are often asked to explain why a significant proportion of the world’s alternative investment funds, including hedge funds and private equity funds, are set up in offshore jurisdictions such as the Cayman Islands. Is it to evade tax or hide assets? This brief note seeks to provide the answers. For further information, contact us at info@aima.org
Executive Summary
Collective investment is good for investors. Investors such as pension funds, sovereign wealth funds, not-for-profit organisations, charities and other similar entities (often called “sophisticated investors”) can either make alternative investments directly or invest via a collective
investment scheme such as an alternative fund, which pools monies from a number of sophisticated investors and then manages those monies on their behalf. The use of such a collective investment scheme gives investors significant benefits including
(i) professional management with specific industry expertise,
(ii) the ability to diversify their portfolios across a broad range of alternative investment strategies,
(iii) sharing of investment expenses and
(iv) access to alternative investment types which are outside the scope of even sophisticated investors acting alone.
However, collective investment can also bring legal, regulatory and tax complications, which sophisticated investors wish to minimise in order to maximise returns to their stakeholders.
Table: Why any fund would be tax neutral – the three layers of tax .........
Offshore funds are transparent...........
Offshore funds are designed for sophisticated investors..........
FAQs
Are the identities of investors in offshore funds hidden from the authorities?
The identities of offshore fund managers and investors in over 50 major jurisdictions (including the US and EU) are being fully and automatically disclosed to tax authorities worldwide under the US FATCA legislation, which came into operation in 2014, and the OECD’s Common Reporting Standard (CRS), which is being adopted from 1 January 2016. Under both FATCA and the CRS details of individuals who are US citizens or residents of participating jurisdictions will be reported in respect of each year to the relevant jurisdiction’s tax authority by the financial institution with which they hold accounts and exchanged on an automatic basis with the individuals’ own tax authority. These reporting regimes will affect individuals who invest directly in alternative funds or indirectly via private banks, funds of funds or passive investment companies.
Why are alternative funds registered in offshore jurisdictions?..........
Are offshore funds tax-free?.........
Do onshore economies such as the US and UK miss out on tax because of offshore funds?
As stated above, it is no longer possible for investors in offshore funds to remain hidden from the authorities...........
1 - This principle has been recognised by the OECD: BEPS, section 6 - Preventing the granting of treaty benefits in inappropriate circumstances (OECD). As regards the broader question of the treaty entitlement of non-publically marketed funds, the OECD recognises the economic importance of these funds and the need to ensure that treaty benefits be granted where appropriate. The new treaty provision on transparent entities that is included in Part 2 of the Report on Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements, OECD, 2015) will be beneficial for such funds that are treated as fiscally transparent.
2 - According to a report by the US Congressional Research Service – Tax Havens: International Avoidance and Evasion (15 January 2015) - “The OECD initially examined 47 jurisdictions and identified a number as not meeting the criteria for a tax haven; it also initially excluded six countries with advance agreements to share information that includes [Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino] … The 2000 OECD blacklist included 35 countries; this list did not include the six countries eliminated due to advance agreement.”