Monday, May 27, 2024

Could OECD go after offshore centres in 2023?

Steen Jakobsen, chief investment officer at Saxo Bank.

Private equity could be targeted by a more aggressive OECD stance on offshore financial centres next year, under a scenario put forward by Denmark’s Saxo Bank.

The assault would come in tandem with a US crackdown on carried interest taxation practices, which would hit private equity hard, “shutting down much of the ecosystem and seeing publicly listed private equity firms dealt a 50% valuation haircut,” according to Saxo’s head of equity strategy, Peter Garnry.

The scenario is not a forecast but one of the bank’s ten “outlandish predictions,” which are slightly tongue in cheek — but some have proven correct, and some not outlandish enough, during the volatility of recent years.

Any such ban would mean that “corporate acquisitions in OECD countries cannot be made with capital arriving from tax haven entities” and only from other countries in the group and those that adopt OECD transparency standards on capital.

“[This] which would include automatic exchange of information, beneficial ownership registration and country-by-country reporting,” said Garnry.

The US carried interest change would see income currently taxed as capital gains shifted to ordinary income, sparking huge change in private equity compensation.

Steen Jakobsen, chief investment officer, sees concerted action among non-Western countries taking on the dominance of the US dollar as their most likely prediction for 2023.

“If I was a strategic thinker in the non-western world I would be thinking about what to do with my US dollar reserves going forward,” he said, after the US “weaponised the dollar” as part of its sanctions response to Russia’s invasion of Ukraine.

Oil-producing nations could agree with large consumers such as China and India to do deals in a new reserve asset replacing the dollar.