Irrespective of which party won the UK general election on 7 May, it was clear that the UK offshore industry was going to be hit: it was merely a matter of how hard the blow would land.

"All parties have committed to addressing tax evasion as a means of bringing in more revenue," confirms Jason Romer, managing partner at Collas Crill. "It has proved a popular, if misguided, campaign pledge for the public vote."

It may be popular with the public, but the offshore community is unsurprisingly less convinced by both Labour and Conservative proposals to generate more revenue from those using offshore centres and crown dependencies.

"Tax has never been the driver that politicians in large countries like to pretend it is," argues Peter Tarn, managing partner at Harneys. "The general UK press and NGO assumption that offshore activity primarily involves UK taxpayers or UK assets is just plain wrong – as is the idea that there is some pot of gold that can create extra revenue for the UK exchequer."

Nonetheless, change may be coming. The new Conservative government's manifesto pledged to tackle "aggressive tax avoidance and tax planning", with the Tories wanting to source £7bn in extra tax by taking on mainly large corporates deemed to "take advantage" of the system (or its flaws). Lawyers from offshore firms fear that this approach might deter people from using offshore structures to defer payment of UK tax or from placing money offshore in trust. However, the new right-wing government's pledges are likely to be an easier pill to swallow than the more socialist manifestos of both Labour and the Liberal Democrat party would have been.

Undoubtedly, in the run-up to the election Labour's proposals caused more consternation for the offshore sector. The party's plan to abolish non-dom status altogether, as opposed to the Conservative plan to increase the annual fee payable by non-doms in lieu of paying UK tax on their worldwide income, would have resulted in a lot of restructuring for many individuals and could have had an impact on some centres depending on a firm's client base and the changes ultimately implemented, say lawyers.

Another Labour suggestion – to introduce a mansion tax – could, coupled with the existing financial and administrative burden of an annual tax on enveloped dwellings (essentially, a tax on residences held by companies), have led to fewer investments in high-end UK property by overseas investors, fewer real estate financing deals offshore and fewer offshore structures for holding such property, explains Romer.

A separate Labour proposal that had caused concern was the suggested increase in tax to more than 50p in the pound for those earning more than £150,000, which could have pushed high-earners to seek an alternative low-tax environment outside the UK, such as the Channel Islands, Romer adds.

Yet it was then Labour leader Ed Miliband's announcement on 7 February that really wound up the offshore legal services sector. Miliband said a Labour government would push for UK overseas territories to be put on an international blacklist if they refused to cooperate with a drive against tax avoidance, which the party claims costs the UK economy billions of pounds in lost revenue per year.

In a letter to the leaders of the British overseas territories (Anguilla, Bermuda, the British Virgin Islands (BVI), the Cayman Islands, the Turks and Caicos Islands, Gibraltar and Montserrat) and the crown dependencies of Jersey, Guernsey and the Isle of Man, he said they would have six months to compile a public register of offshore companies. If they failed, they could be put on the Organisation for Economic Co-operation and Development's (OECD) 'tax havens' list and incur sanctions.
Despite the threats, Labour's plans may have been difficult to implement anyway.

First, the British crown dependencies and overseas territories are independent: the UK cannot force them to change their approach regarding taxation or financial regulation. Second, 'blacklisting' is decided by international agreement – the UK cannot demand it. And third, the OECD's 'list of uncooperative tax havens' has been empty since 2009, though 38 jurisdictions (including all of those Miliband contacted) are on a list of those 'committed to improving transparency and establishing effective exchange of information in tax matters'.

More open and honest
British offshore jurisdictions are keen to point out that reform is not necessary. They already collect and verify information regarding beneficial owners of registered companies through licensed and regulated service providers, and have done so for more than a decade. This information is also readily available to overseas law enforcement authorities on request.

In a letter to the Financial Times published on 10 February in response to Labour's plans, Richard Hay, partner at Stikeman Elliott and counsel to the International Financial Centre Forum, an organisation that represents the interests of offshore centres and law firms operating within them, also highlighted that from this year British offshore centres will provide beneficial ownership information to the UK, automatically and annually updated, on all companies with British owners. Next year those British finance centres will participate in the OECD Global Forum 'early adopters' group to provide beneficial ownership information to more than 90 governments. Consequently, Hay wrote that Miliband was "poorly informed".

Offshore lawyers are keen to make it clear that these systems exceed international standards in many onshore countries, including the UK. For example, Cayman already collects detailed and verified information on all investors holding more than 10% of the issued shares of a company. Conversely, the UK does not require independent verification of information submitted on behalf of registered companies, and only requires information to be submitted in respect of a shareholder owning more than 20% of the issued shares of a company. Added to that, the UK does not (unlike Bermuda, BVI or Cayman, for example) regulate corporate service providers.

A flaw in the plan
Pending UK legislation to collect beneficial ownership information will rely on self-reported data, with no provision for systematic verification. "Fraudsters are unlikely to self-report the true owners of companies established for criminal purposes so the UK plan is flawed," says Hay. He adds that, unlike the systems operating in the British offshore centres, the proposed UK approach will not comply with international obligations to verify identity data – as required by the Financial Action Task Force standards endorsed by the G20 and the G7.

"While it may represent some sort of progress for the UK to implement a self-reported register of beneficial ownership next year, it is important to remember that the major offshore jurisdictions have existing systems in place for verifying and tracking beneficial ownership, and they do so in compliance with international rules on verification and while preserving privacy," explains Harneys' Tarn.

"Neither of those vital issues are addressed in UK legislation and the idea that UK proposals are some form of gold standard would be laughable if it didn't so often go unchallenged."

Offshore law firms believe that making the information publicly available – rather than public on request – will put clients' right to privacy under threat, as ultra-high-net-worth individuals may be put at considerable personal risk of kidnap, extortion or political reprisal if their financial details are so readily available. Lawyers also say that trying to force British offshore centres to be the first worldwide to adopt publicly searchable registers of beneficial ownership places them at a commercial disadvantage unless steps are taken for other international offshore centres to put in place the same measures at the same time.

"It's the potential for the information to be used for nefarious purposes if made publicly available that worries people," points out Ingrid Pierce (pictured, right) global managing partner at Walkers. "It's that as well as the difficulty in achieving parity in other major financial centres that have no plans to set up such registers."

David Lamb, partner and co-chairman of Conyers Dill & Pearman, says the current arrangement is the right one: "In this way the legitimate right to privacy of personal information is balanced with the duty of regulatory and tax authorities to assist in law enforcement or counter money laundering and tax evasion. This is a better approach than maintaining a public register of beneficial interests, which will be available to the unscrupulous and which infringes the right to privacy."

Yet offshore lawyers expect that their activities will continue to fuel political debate and produce "hollow threats", says Pierce. "Offshore centres are concerned about the introduction of legislative/regulatory changes that are disproportionate, impractical to enforce and do not enhance the regulatory regime or do anything to further the interest of investors."

She adds: "The UK should be concerned about enforcing its own rules first – a greater focus on fraud and criminal activities including tax evasion would be more beneficial.
 
"New rules are likely to push up the cost of compliance even further and this will ultimately be borne by investors. Not surprisingly, our clients are not thrilled by this prospect."