When small is beautiful, “Offshore” is not a helpful word

My own work has no geographic boundaries, but I came to live in Jersey thirty-five years ago so I have a close affinity with my chosen personal domicile. For that reason I have a keen interest in the development globally of the new economic substance regime as it applies to corporate domiciles of choice.

It is time finally to expunge the word “offshore”. Meaning, literally, “situated at sea some distance from the shore”, but in the financial services context used unfavourably in the context that “shore” somehow marks the border of respectability or legitimacy. Invariably with the implication that crossing the shore-line is done to achieve lower taxes or costs, less stringent regulation, or greater secrecy in some sort of disreputable way. In today’s world of sophisticated and reputable financial services, that distasteful label “offshore” never fails to create misunderstanding.

I am one of the many who moved my career and my life from the inappropriately labelled “onshore” world to the equally inappropriately labelled “offshore” world. In my case in 1984, from London to Jersey. I chose Jersey because even then Jersey had substance. Ironically, in 1984 London may have been the world’s biggest “offshore” location. UK incorporated but non-tax resident companies were in frequent use in tax planning work, and in the UK the favoured position of non-domiciled residents is only now being adjusted to come into line with domiciled residents, albeit cautiously because of the acknowledged benefits brought to the UK economy by that entrepreneurial category.

My career was the law. By 1984 Jersey was stuffed with academically proven and very smart lawyers, shaped by the best schools and universities and equals in any respect to their peers in London and New York (with whom, then as now, they worked on a daily basis). Accountants too, and investment managers, and bankers. And the list goes on. For me, all part of the attraction that showed me my career ambitions could be achieved in an island location rather than in the world’s major city. These were people who were either natives of Jersey who had returned home following university education, professional qualification and experience in the big wide world, or professional  immigrants who, like me, saw opportunities to exercise their minds in pursuit of their careers while living in one of the world’s most agreeable locations, a stone’s throw from London and mainland Europe, and with easy onward access to the World.

Jersey, and a few (not many) other well-stocked island jurisdictions around the world, are home to the people from whom “island-added value” is made, people with minds intellectually stimulated notwithstanding life in a small home-community, because professional life offers the window to the world and all its stimulus. These are not places that suck in “value transfer” through a hole in someone else’s dike, re-badge it, and then on-sell with nothing added. How misconceived are they who lump these added-value locations in with the “brass plate” territories that fully deserve the soubriquet “offshore” with its negative connotations.

Thirty-five years after moving to Jersey, I am still there, by choice. Still intellectually stimulated by Jersey’s people, its ambition, and the work opportunities that continue to come my way and offer a new motivation with every incoming tide.

When the OECD and the EU conceived the “economic substance”’regime they did these added-value locations a big favour. For these locations have always worked hard to leave their mark, and in so doing to distinguish themselves from the “brass plate” façade which is the stuff Panorama Papers documentaries are made of.

The economic substance regime casts a net to catch what it calls “relevant activities”. For each business domiciled in any jurisdiction, the regime requires the core income generating relevant activities to be performed in the same jurisdiction. So the brass-plate façades that cover the reality of no or little substance are going to have a hard time. Substance requires people, with the right skills. And substance requires continuity. So it needs those people to stay in perpetuity to embed and pass on their skills and knowledge. Not so easy for a tiny territory which may be an exotic vacation destination, but may not be so good as a place to live and work for 52 weeks a year, educate your children in, or be stuck in when you suffer illness or need hospital care. Substance for smaller territories requires the right people, and for them to make a success of moving their careers and lives there from financial centres like London and stay there until retirement (or beyond). Much less of a challenge, and more of a natural progression, for a territory like Jersey.

So think carefully, those who still use the “offshore” label indiscriminately. Apply it accurately or be prepared to be challenged. 

And think carefully too, these added-value island territories. Do not rest on your laurels or the world will pass you by. The OECD and the EU are not the only ones looking over your shoulders. Keep investing in growth and new opportunity. Keep your foot on the gas. The future can be golden. It’s certainly not brass plate.