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chairman of Conyers Dill & Pearman in Bermuda, says about the group's launch. Canada and other G8 countries have a bit of an attitude problem when it comes to their citizens using offshore tax centres, says Paul LeBreux, prin- cipal of Global Tax Law Professional Corp. and past chairman of the 2,000- member STEP. "The challenge — and it is not as big a challenge as it used to be — is that they just don't have the information about these centres, what is going on there, or where the assets are," he explains. "The concern is that people are going to cheat and if we as a government can't find out about it, then these centres are bad." A 2009 STEP report contends that grown in importance, reports the IMF. "[T]he ability to reduce inheritance and other capital taxes seems to have been a prime incentive and has led to a large expansion in offshore fund manage- ment activity, in particular by the use of investment vehicles such as trusts and private companies. . . ." Andrew Rogerson, a Toronto-based lawyer specializing in onshore and offshore estate and tax planning who has practised in the Turks and Caicos Islands and the Jersey (Channel Islands), notes that OFCs have long been the target of western governments. "The CRA, the Canadian government, have always been trying to put the frighten- ers on people not to use these places. "What [Paul Martin] did was perfectly legal. [T]he bottom line is you pay 2.5-per-cent tax on your profits in Barbados and under the double-tax treaty what is left is remitted free of charge to Canada." — Andrew Rogerson contrary to popular belief, OFCs "are not the locations of choice for anonymous accounts and other vehicles for inter- national tax evasion, recent evidence instead indicating that large countries such as the United States and United Kingdom instead serve this function." OFCs proliferated during the 1960s and 1970s, which can be credited to "historic and distortionary" regula- tions such as the imposition of reserve requirements, interest rate ceilings, restrictions on the range of financial products that supervised financial insti- tutions could offer, capital controls, and high effective taxation in many OECD countries. The appeal of OFCs for con- ventional banking lessened in the 1990s as financial regulatory changes were made in developed countries and coun- tries such as the U.S. and Japan began to add incentives to win away OFC clients. While tax advantages for commercial banking waned, the tax advantages for asset management appear to have There are a lot of different things done in these places that actually assist the world economy, it is just that domes- tic politicians, when times are bad at home, like to villainize these places." The most famous Canadian example of the use of an OFC to minimize tax liabilities was that of former prime minister Paul Martin, whose shipping business was based in Barbados where it was subject to a 2.5-per-cent tax rate. "What [Martin] did was perfectly legal. The double-tax treaty with Barbados . . . the bottom line is you pay 2.5-per- cent tax on your profits in Barbados and under the double-tax treaty what is left is remitted free of charge to Canada. The Canadian government entered that tax treaty because they wanted it and Barbados is a great encouragement to Canadian trade. It is not a question of people cheating, they are just using what the government wanted them to have," says Rogerson. Although Martin's Barbados tax scheme made him a target for criticism, corporate use of OFCs has benefited the Canadian economy, argues Walid Hejazi, an associate professor of international business at the University of Toronto's Rotman School of Management. He found that Canadian corporations' use of OFCs for direct investment abroad more than doubled from 1990 to 2004, when it reached $97 billion. Barbados is the most popular conduit, account- ing for about a quarter of all Canadian investment capital sent to OFCs. Studying the OFC impact by examin- ing the links between Canada's trade and investment abroad for 40 countries over the period of 1980 to 2005, Hejazi's 2007 study discovered that when a Canadian multinational accesses a foreign mar- ket by using an OFC as a conduit, the increase in Canada's trade is larger than if that multinational had not used the conduit. Canadian firms using a low-tax jurisdiction such as Barbados offsets higher global risks, he found, a benefit even more relevant for riskier markets beyond the U.S. and Europe. Rogerson's main offshore activity for clients involves the creation of off- shore trusts and company structures as a means of asset protection. The main advantage of establishing a trust in an OFC is its "debtor-friendly regimes" which shorten the period of time in which a creditor may bring proceedings to attack the establishment of the trust/ settlement of specific assets into trust, he notes. Having OFC legal regimes bal- anced in favour of trusts over creditors serves to discourage "frivolous lawsuits and to encourage reasonable settlement offers," he says. Other pros associated with offshore trusts include freedom from probate, east of administration, and a perpetuity period from 80 years up to an unlimited period in Jersey. "The main benefit of using the off- shore tax havens [like] these is not for tax reasons but for asset-protection rea- sons," says Rogerson. A typical case is a professional such as a dentist or doctor who wants to ensure "that a big law claim doesn't wipe him out. It's a hell of a lot more difficult to get somebody's money if it is in an offshore trust than if it is sitting in a bank in Hamilton or www. C ANADIAN Law ye rmag.com JUNE 2010 33