This might seem an oxymoron, but the point is to examine the advantages for an investment manager and for investments themselves of being based in a low-tax area.

All jurisdictions, whether they tax low or high, give some tax advantages to certain preferred types of investment, usually starting with government's own bonds, which are often tax-exempt (why else would anyone buy them?). In high-tax countries, most of these exemptions apply only for small investments, and seldom to high-return investments. Pension investment might seem to be an exception for the investor, but it isn't really because the tax is only being deferred, not escaped. Established tax exemptions for pension fund managers in high-tax areas are under attack in some countries, notably in the UK.

As a generalisation, investment managers in low-tax areas have a considerable tax advantage over their colleagues in high-tax areas, which is eventually reflected in better returns for the investor. Offshore jurisdictions which have good double-tax treaty networks (surprisingly, there are quite a few) are often able to receive investment income even from high-tax countries without the imposition of withholding tax, and usually offer tax-exempt or tax-reduced local regimes, so that the final investor has access to gains in a fund or an investment with little or no intervening taxation.

It is obvious that a fund which pays a composite rate of 10% tax on its profits will grow much more quickly that one which pays 20%, and differentials on this scale are easy to achieve just as a result of picking a low-tax base as against a high-tax base.

At a more basic level, bank interest has traditionally almost never been subject to withholding taxation in offshore jurisdictions. However, the EU Savings Tax Directive, introduced in 2005, has meant that savings interest received in any of the signatory countries is subject to a withholding tax, or to information exchange, in order to ensure that it is taxed in the EU resident's home country).

The STD notwithstanding, however, a roll-up money market fund is going to grow more quickly offshore than in a country which imposes 30% corporation tax on its gains. Of course, if you are resident in a high-tax area, the taxman will eventually catch up with the gains, but it may be at a much lower rate of Capital Gains Tax - or you may have retired and emigrated by then!

For in-depth information on the taxation regime in most offshore jurisdictions, see The Offshore Legal and Tax Regimes section of any jurisdiction in www.lowtax.net.