No refuge in tax havens?
Sarah Bullen -Weekly Mail & Guardian - SouthAfrica
The line between tax havensand offshore financial centers is fairly fuzzy, with most of thelatter operating in the former
A TAX haven is one of those emotive phrases that conjure upimages from a John Grisham novel: Lotharios in tailored suitspopping over to an island for a day, azure seas, catamarans andsultry cocktail nights.
A firm listed as something like SA Tasty Dried Fruits, Nassau,will usually inspire a bit of a wink-wink, nudge-nudge. Thereis a suggestion that it is a bit naughty and fits with the associatedlinks of tax dodging or money laundering.
But it is precisely such images that tax havens are determinedto bury. This starts by renaming themselves as "offshorefinancial centers".
The line between tax haven and financial centre is a fairly fuzzyone, with most financial centers operating within tax havens.
The offshore centers are places where institutions and funds canoffer investments that are tax-neutral and confidential.
Tax havens are absolutely tax free -- meaning those individualsinvesting through a tax haven, or companies registered in one,do not pay tax there at all. Into this category fall the OverseasBritish Territories, including Bermuda, the British Virgin Islands,Gibraltar and the Cayman Islands -- a grouping formed to lobbycollectively for rights. Also popular tax havens are the BritishCrown Dependencies -- Jersey, Guernsey and the Isle of Man, aswell as the increasingly popular haven of cyberspace.
For South African investors, investing in a fund based in a taxhaven has been made easy by access to subsidiaries of local banksand fund managers based in tax havens or tax-neutral locations.Most offshore branches of local institutions are based in thesefavourable locations, with the British Crown Dependencies provingthe most popular destinations.
South Africans resident in the country pay tax on offshore investmentincome as though it is earned in South Africa. If the investmentincome is also taxed in the country where it is earned, double-taxtreaties can mean some tax relief in South Africa. But mountainsof paperwork accompany this manouevre.
This is why tax havens, or tax neutrality, is an important issuefor investing offshore. It does not mean an investor is escapingthe South African tax net, but it ensures that the investor willnot be caught in another tax net. Of course, for a large numberof South African investors offshore meant off the record and outof the taxman's sight.