Your company has agreed to form a joint venture with a foreign enterprise. The problem: Should the new vehicle be incorporated in your market or in the market where your new partner operates? This where offshore jurisdictions like the British Virgin Islands, Jersey and Cayman Islands come into their own, says Timothy Bridges, a partner and registered foreign lawyer at international law firm Ogier in Hong Kong.

 

“If you have a Japanese corporation wanting to do business with a U.S. corporation in relation to a project in Brazil, the Japanese corporation probably wouldn’t be that keen on the idea of having a joint venture vehicle [incorporated] in the U.S. because of the impact of U.S. regulations and taxation,” he says. “Conversely, the U.S. corporation would not want to see the vehicle structured in Japan. An offshore jurisdiction provides a neutral venue.”

 

Bridges spoke to CFO Innovation’s Cesar Bacani about the latest developments in going offshore, including tax and anti-money laundering issues.

I think the view out there, which is probably an accurate view, is that there has been a political desire to look for scapegoats, and the offshore industry has been a traditional scapegoat of first choice in many ways. I’ve been working in this industry for about 15 years and over that period of time, there have been periodic attacks on the offshore industry.

 

But the reality is that the offshore industry has continued to grow year-on-year. I suspect that perhaps 2008 was a year when it didn’t grow, but frankly I think that’s the only year in my experience where there’s hasn’t been growth. I think now we’re starting to see growth again.

 

I think it’s really a function of global trade and commerce. Globalisation and offshore are completely entwined in terms of their destinies. As we continue to have globalisation, there will be [continuing] need for offshore jurisdictions.

 

I think that’s more to do with certain Hollywood and other fictional [stories]. But it’s fair to say that if you were to look at the 70s and the 80s, at that time there was some truth in that. People would literally turn up at some of these jurisdictions with big cases of money. I can say quite happily that I was still in school at the time. I went offshore in the mid 90s and I can tell you throughout my entire career AML [anti-money laundering] has been a very fundamental part of offshore process. All of the clients that we work for in a corporate context are legitimate commercial enterprises, many of whom are household names. They’re not of the type that is still associated with offshore industries.

 

You have an international transaction involving parties located in different countries with different tax regimes, different roles and different complexities. When those parties look to do a transaction together, the question is, where do they base their joint venture vehicle?

 

By way of hypothetical example, if you have a Japanese corporation wanting to do business with a U.S. corporation in relation to a project in Brazil, the Japanese corporation probably wouldn’t be that keen on the idea of having a joint venture vehicle [incorporated] in the U.S. because of the impact of U.S. regulations and taxation. Conversely, the U.S. corporation would not want to see the vehicle structured in Japan.

 

An offshore jurisdiction provides a neutral venue. It allows the Japanese investor or corporation to comply with Japanese regulations and Japanese tax laws and the U.S. joint venture partner to comply with U.S. regulations and tax laws. 

 

You do see some jurisdictions, Mexico for example, where they have specifically blacklisted certain [offshore] jurisdictions and therefore you see very little offshore activity with Mexico. But despite the rhetoric, most governments in the developed world, in particular, recognise that offshore jurisdictions play a legitimate role in the facilitation of trade.

 

The reality is it’s much more difficult to set up a business in terms of hiding your identity in an offshore jurisdiction than it is in the UK or U.S. I read a news story about an individual who set out to try and form a company in as many places as he could without actually having to give information about who the beneficial owner or business entity was. I recall that he succeeded approximately 50 times -- with something like 27 of them in the U.S. and 17 in the UK.