Conduits of Capital

The OECD has reviewed over 100 jurisdictions for the
Global Forum. Some of these resulted from the earlier work
of the Financial Action Task Force (FATF), while others were
added later or as a result of requests from governments for a
peer review. The main focus is on “Exchange of Information
on Request” (EOIR) in relation to tax transparency and cooperation,
which is carried out through peer reviews. The
peer review process evaluates jurisdictions’ compliance with
the international standard of transparency and exchange of
information on request. It focuses on three components:
(i) availability of information; (ii) access to information; and
(iii) exchange of information. Phase 1 reviews examine the
legal and regulatory framework; Phase 2 reviews look into
the implementation of this framework in practice. Countries
are initially subject to a Phase I review, and those that are
found to be sufficiently compliant—after taking remedial
action to rectify any deficiencies, if necessary—can proceed
to a Phase 2. After completion of both Phases of the review
process, each jurisdiction receives an overall rating. 5
The OECD-Global Forum assessment is one of the most
important assessments for a financial centre. It is especially
relevant for investments by government-related entities,
which need to pay particular attention to governance and
public policy related issues. The lack of a Global Forum
assessment, or an adverse peer review finding, can seriously
undermine a country’s ability to attract internationally mobile
financial investments. For a country with a significant
financial services industry, or aspirations to develop one,
the commercial implications are potentially large. 6
Finally, an international research and advocacy group,
the Tax Justice Network, has assessed 82 jurisdictions in
terms of “Financial Secrecy.” The Financial Secrecy Index
is based on the degree of transparency (or not) according
to 15 “key financial secrecy indicators” and an assessment
of the country’s global importance.
The jurisdictions included in these assessments are
included as Appendix I.
3. FUND MANAGERS’
ATTITUDES TOWARDS
OFFSHORE / ONSHORE
FINANCIAL CENTRES
The attitudes of fund managers and other key financial sector
players towards FCs depends on their role, objectives and the
regulatory environment.
Discussions with fund managers who have had experience
of establishing funds in Africa indicate that a number of
criteria are taken into account when deciding upon a
jurisdiction for domicile.
These include:
Tax Arrangements and Effective Tax Rate:
– Headline tax rates
– Tax allowances
– Certainty of tax rates / arrangements
– Extent of Double Taxation Agreements (DTAs)
Legal and Regulatory Issues
– Nature of regulatory and legal framework
– Capability of regulator and speed of decision-making
– Regulatory transparency, consistency and efficiency
– Exchange controls
– Treatment by external regulators; external reputation
and perceptions
– Bilateral investment protection agreements
Support Services, Skills and Infrastructure
– Services (company secretaries, accountants,
administrators, etc.)
– Specialised skills (local availability or ease of
immigration for expatriates)
– Transport, buildings, communications
– Stock exchange
Political and Economic Environment
– Political stability
– Macroeconomic stability
– Labour relations
5
The ratings are “Compliant”; “Largely Compliant”; “Partially Compliant”; and “Non-Compliant.”
6
As at the end of 2014, the following jurisdictions were Non-Compliant following a Phase II assessment: British Virgin Islands; Cyprus; Luxembourg; The
Seychelles. The following jurisdictions were not eligible to proceed to Phase II following a Phase I assessment: Brunei; Marshall Islands; Dominica;
Micronesia; Guatemala; Lebanon; Liberia; Panama; Nauru; Switzerland; Trinidad; Vanuatu.
Conduits of Capital – Onshore Financial Centres and Their Relevance to African Private Equity
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