UK offshore centres are home to 32 per cent of investment firms traded on the London Stock Exchange and they need the Treasury’s support, says the Association of Investment Companies. The body’s latest review shows that the sector has raised £16.5 billion ($27 billion), compared to £2 billion onshore, since 2004.

“The growth of the offshore investment company sector has been a real positive for the evolution of the industry as a whole, allowing the sector to adapt to meet demand for investment strategies which cannot be delivered tax efficiently in the UK. But tax efficiency should not be confused with tax avoidance,” said Daniel Godfrey, director general of the AIC. 

“Returns received by UK investors in offshore funds are taxed in the usual way, involving no tax loss to Treasury.  The use of offshore jurisdictions simply means that investors are not taxed twice - once inside the fund and then again when they receive investment returns,” he added.

The review says this is a tribute to the regulatory and professional standards of locations like the Channel Islands.  It further estimates that over £300 million is paid to the UK in management fees each year by investment companies in those islands.

Another major contribution comes from account fees related to public offerings paid to UK based investment banks and brokers. An additional £400 million has been paid since 2001, the AIC estimates.

“The popularity of the offshore sector has also been a resounding vote of confidence in offshore centres, whilst the reciprocal benefits the offshore investment company sector provides for the UK makes a compelling case against protectionism,” Mr Godfrey said.

Mr Godfrey believes that without the offshore sector, the investment company sector as a whole would not have developed in the way it has. To compound the body’s case, he cites negative repercussions like reduced choice and competition for investors and a lower volume of financial services activity in the UK, with lower potential tax revenues and employment opportunities.

The AIC is comprised of 345 members, from an industry with total assets of around £76 billion.