The Panama Papers which were leaked through offshore lawyers Mossack Fonseca has forced offshore funds back in to public attention. But yet, whilst the media tracks those that are identified to be profiting by such funds, there’s been little discussion of exactly what an offshore fund really is.
True to its name, an offshore fund is an investment fund which is structured within offshore locations such as the Caymans, Jersey as well as British Virgin Islands. Whilst these funds, and offshore companies, have been put in place for a series of purposes, its key target is of course make money. Basing the fund offshore will allow all those investing in it to officially avoid paying taxes that could possibly be due if the account existed within an onshore location like the UK mainland.
The discussion regarding them is therefore one of morality. People against offshore funds debate that, whilst not illegal, it is fairly wrong for those investing to only pay negligible tax, or in some instances no tax, on returns. Fans of the practice state, the offshore location draws in global investors whilst allowing the fund to carry out its full potential.
Blairmore Holdings, the fund that David Cameron’s late father Ian was a director, works as a prime example. Created in the 80’s, it was incorporated in Panama and managed from the Bahamas until 2010, when the fund was transferred to Dublin.
Doesn’t matter exactly where it happens to be located, Blairmore Holdings is a $ based fund, that means any funds invested are held in US dollars. The point for this is to deliver a secure currency for investors, compared to a less secure currency. Blairmore Holdings still operates, using a minimum investment amount of $100k. Holding the account in a “tax haven” like the Bahamas creates a secure, inexpensive place for the money to stay until an investor decides to take their money out. Blairmore investors will pay income tax on pay-outs received and CGT on profits, over a set threshold, after they withdraw their investment.
Even so, the company pays either very little corporation tax or none whatsoever on profits made, which potentially implies bigger payments for investors. This wouldn’t be possible if the fund was based in the UK or some other onshore location. Detractors also criticise the vague nature of offshore funds in regards to other levies like the inheritance tax.