Wealth flows under the microscope

National and international regulation could temper global capital and investment flows


Liam Bailey, Global Head Of Research

Over the past decade, The Wealth Report has tracked a growing trend in the global movement of wealthy people and their investments. Inevitably as flows have grown, governments have started to take an ever-closer interest. There is a developing push for tax transparency, as revealed by the biannual Financial Secrecy Index from the Tax Justice Network last year, which confirmed it is becoming far harder to evade taxation.

Most countries have seen an increase in tax transparency over the previous two years – with considerable improvements in locations such as the Cayman Islands and Luxembourg.

The key reason is an increased demand for the global sharing of tax information. Encouraged initially by weaker economic performance and lower tax receipts following the global financial crisis, progress has been cemented by the OECD’s Common Reporting Standard (CRS) initiative. The CRS is attempting to ensure taxpayers are taxed appropriately in their home countries. The CRS builds on the US Foreign Account and Tax Compliance Act (FATCA) and is progressing rapidly.

Exchange of information between over 50 countries is set to start in September 2017, but due diligence to identify owners and controllers of assets began in January this year. Some concerns are being expressed. Greater data sharing provides the potential for conflicting reports and information held by different governments and the potential for misuse of sensitive data. Some suggest that greater data sharing could mean some investors reduce their exposure to cross-border investments to ensure information on their financial assets is not shared with unstable regimes.

James Butera, a lawyer with Jones Walker in Washington, says that many Latin Americans “are afraid that if their financial information is revealed, they’ll be at risk of kidnapping or extortion”. However, others point to the reality of demand pressures for overseas investments and the desire for relocation – especially from emerging markets. “People think we are seeing a wave of Chinese demand. No, what we have seen so far is the ripple before the wave has even begun to arrive,” says Stephen Muller of New- York-based Kuafu Properties.