10 November 2017
This has been a week of sloppy journalism as the Paradise Papers hit the headlines. The word ‘offshore’ has become associated with the bad, the dodgy and the affluent spivs who dodge paying their share. However the nuances have been largely ignored. In this week’s FT podcast I drew the analogy with the word ‘fat’. Poor old fat gets bandied around as a bad thing but of course we have good fats in the shape of avocados and tasteless seeds, and bad fats in the shape of pies and chips. It’s a complex thing.
I think that many offshore investments are the good fats. Lots of you reading this will hold offshore funds in your pensions or private portfolios and you may not even know it. Here’s just one example – two of the ten best-selling funds on leading broker Hargreaves Lansdown in October were from the talented Lindsell Train fund management group. Both offshore funds. Based in Dublin.
Dear readers I like you too much to go into the vagaries of investment fund structures such as unit trusts and sicavs and oeics – that really would be off-brand, lurking at the bottom of the deep investment industry barrel of boring. BUT groups basically set up funds offshore in Dublin or Luxembourg because it means you can take that one neutral fund and sell it across Europe. Conversely, if you have a UK fund and you want to sell it in Germany or Italy, you can’t. And so you go through the bureaucracy and cost of setting up funds in both of these countries which is a right royal pain in the bum. But if you have a Dublin thing, you can basically sell it to whoever you can persuade to buy it.
Offshore funds aren’t just there to smooth the distribution and sales process. There’s another reason too – we pay tax in our home countries, we shouldn’t also have to pay tax in the countries we invest in. I felt marginally sorry for Her Maj this week as she was pilloried for her holding in a Cayman fund. That fund in turn invests into an American fund. If we just bought the American version directly, any investors based in the UK would pay US taxes on the money in this fund. So this offshore Cayman structure ensures tax neutrality. Importantly, Queenie will still have to declare any capital gains or income that the fund makes on her tax return, just like the rest of us. So she still pays her UK tax on this investment.
Most offshore funds are a legitimate and sensible way to invest. These collective schemes are entirely different from the bespoke and private offshore trusts and structures set up by unpleasant individuals and companies to avoid paying their way. Now that’s an entirely different argument and one worth having.
My question this week has been this. In today’s mud-slinging world, do we read the media to indulge in enjoyable self-righteous tutting or to enhance our understanding of the world? There’s been a lot of tutting this week and not many facts.
Right. That’s quite enough of that. I’m stepping off my soapbox now and looking forward to a quiet weekend of Strictly, Shiraz and maybe a spot of middle-aged gardening. Rock ‘n’roll!!!