Inside Out | The perfectly legitimate role of offshore tax centres

Before the dust begins to settle on the now-famous “Panama Papers”, let me get something off my chest: aside from the fascinating and valuable light thrown on actual and potential criminal activity, and on the array of exotic channels by which people can disguise or hide ill-gotten gains, the reality is that offshore centres like Panama, the British Virgin Islands, Singapore, Hong Kong, Jersey, Lichtenstein or Switzerland serve a multitude of valuable roles.

The sanctimonious hyperventilation of some media commentators is hypocritical or naive or both, and clouds efforts to draw important insights, or provide reasonable policy guidance for the future.

As equity-market watchdog David Webb noted on RTHK’s Backchat last week, there is nothing abhorrent about offshore financial centres per se, but our main gripe should be about transparency.

There have been efforts since the release of the “Panama Papers” to suggest that this is all to do with the super-rich 1 per cent who we perceive to be hijacking the world’s wealth, and ducking away from tax obligations that we ordinary mortals continue dutifully to bear. Controversy has been compounded by recent outrage over Apple’s derisory tax payments in Britain, and over Pfizer’s tax-dodging attempt to become a low-tax-paying Irish company by backing itself into Allergan.

These are all legitimate matters of public concern, but please let us retain some perspective: offshore tax centres play many perfectly legitimate roles, without which much of the global trade and investment that goes on today would not be possible.

First, some perspective. When millions of Chinese fled civil-war-torn China in the late 1940s and early 1950s, seeking safe haven in Hong Kong, they did so because of a perfectly reasonable concern to protect the lives and livelihoods of themselves and their families. They chose Hong Kong as a safe haven. They saved and built their wealth here to ensure their livelihoods were not destroyed by the chaos that was at the time engulfing the mainland. Savings were kept safely out of China because of fears over how those funds would be expropriated. Hong Kong’s global standing as a stable safe haven for personal and corporate location has remained intact ever since.

Offshore financial centres have always acted as safe havens against such chaos or personal insecurity, and should be allowed to continue to do so. Is Hong Kong to be stigmatised as a tax haven because it offers a company low and simple tax arrangements compared with France, or Italy or India or wherever?