EDITORIAL COMMENT: Australia's New Prime Minister's Offshore Exploits

Tom Burroughes

22 October 2015

There is something almost delicious about the controversy that has blown up around Australian prime minister Malcolm Turnbull, who dramatically took power of the ruling Liberal Party a month ago, deposing Tony Abbott. Turnbull is coming under fire for what local media are calling his “significant” investments in the Cayman Islands.

Turnbull, who is no slouch at defending himself – or indeed going after his political enemies – is accused of preaching the virtues of tax transparency and fairness, while it seems taking full advantage of using an offshore financial structure. Considering that Australia is a member of the Organisation for Economic Co-operation and Development, which preaches the line about the need for openness, this looks a bit embarrassing for him.

There is, it needs to be stressed right away, nothing illegal about what he has done, but that is surely the point. Far too many critics of offshore centres seem to want to give the impression that such places are havens for crooks and cheats, not honest folk. Turnbull has, media reports say, insisted that he has paid the full rate of tax in Australia on the income he earned from the investments. It is also worth pointing out that the Cayman Islands has signed a mass of international treaties for the exchange of information relating to tax issues, for example. However, a thorny issue relates to UK proposals to make the jurisdiction, which is a British Overseas Territory, produce a publicly accessible register of data about who are beneficial owners of companies. The Cayman Islands government has strongly opposed such a move unless done globally.

It is worthwhile to hear Turnbull’s explanation of what he has done: "Thousands of managed funds with investors outside of the USA are registered in the Cayman Islands with the result that the income of the fund is taxed in the hands of the investors in their own home jurisdictions. So all of my income from my investments, including funds registered in the Cayman Islands, is taxed in Australia."

Leaving aside the specifics of the case, it is worth pointing out that once any money in such an IFC is repatriated – in this case to Australia – it gets taxed at whatever rate the home country sets. There are many reasons for people to use offshore centres, such as their tax neutrality, convenience and cluster of expertise. It isn’t all about “dodging” taxes or hiding money away.

This publication takes no specific view on the rights or wrongs of Turnbull’s actions in this case – and it may have been politically unwise for him to use offshore vehicles – but this sort of case does highlight how much humbug there sometimes is around the use of offshore centres.