I was really pleased to see yesterday that AIMA, the Alternative Investment Management Association, has published a paper which gives a really clear explanation as to why so many of the world’s alternative investment funds are set up in offshore jurisdictions such as the Cayman Islands and the BVI. As the paper comments “What sets offshore funds – and particularly, offshore alternative funds – apart is the combination of tax neutrality, investment flexibility and sophistication allowed by offshore alternative fund structures.”
Examining some of the same points that Phil made in this post on Monday the paper, “Transparent, Sophisticated, Tax Neutral: The Truth About Offshore Funds” highlights the deficiencies in the recent media commentary on offshore structures by explaining why collective investment is beneficial, why alternative investment funds require a tax neutral structure (dispelling the idea that alternative investment funds are designed to avoid tax) and that alternative investment funds in offshore jurisdictions such as the BVI and Cayman, far from being “secret companies”, are actually transparent; automatically exchanging tax information on investors to international tax authorities in over 50 countries around the globe under FATCA and the OECD’S Common Reporting Standard.
AIMA comments that “a wide range of international initiatives has emerged in recent years…designed to address deficiencies in the international taxation system and create a fair tax environment that encourages cross-border trade and investment. But the surrounding public discussion, often by addressing complex issues in an overly simplistic manner, has at times conflated legitimate arrangements that have wide public benefit with those that rely on evasion or aggressive tax avoidance. In this context, the charge is levelled at the fund management industry that alternative funds are designed to avoid tax, and that is why alternative funds are often registered in tax neutral jurisdictions. The charge is misconceived.”
You can read the AIMA paper here.