Abstract

Maps are not neutral representations of reality. Every projection preserves certain features while distorting others. The Mercator projection, designed around navigational needs, preserves local angles and directions but progressively enlarges areas towards the poles. Something comparable happens when global capital is viewed primarily through the political map: national borders, GDP, tax rates and country-based investment statistics all capture real phenomena, yet none of them necessarily reveals the geography within which wealth is attracted, structured, managed, protected and transferred. In that geography, small jurisdictions can acquire exceptional scale, legal distance may matter more than physical distance, and law itself becomes part of the infrastructure through which capital moves. A Legal Geography of Capital seeks to describe that different map.

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1. Every map makes a choice

A flat map can never reproduce every property of a spherical Earth simultaneously. Direction, distance, area and shape cannot all be preserved without distortion; the appropriate projection therefore depends on what the map is intended to do.

Mercator is perhaps the clearest illustration. Its conformal properties made it extraordinarily useful for navigation, because bearings could be represented consistently. Yet the same projection increasingly exaggerates area at higher latitudes. It is therefore highly effective for one purpose and potentially misleading for another.

The broader lesson extends beyond cartography.

A map may describe perfectly what it was designed to measure while providing a poor representation of another reality.

International finance raises a similar problem.

If the Mercator projection distorts the geographical size of countries, what are the distortions through which we currently represent the global geography of capital?

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2. The political map is not the capital map

Most economic representations of the world begin with sovereign states. GDP, foreign investment, external assets, public debt and taxation are calculated primarily within national boundaries. Our vocabulary follows the same pattern: US capital, Italian wealth, Swiss banking, Luxembourg funds.

The categories are indispensable. But they should not be confused with the underlying financial geography.

At the end of the first quarter of 2026, cross-border bank claims captured by the Bank for International Settlements reached approximately $47.6 trillion. The network includes the world's largest economies but also financial nodes whose role is radically disproportionate to their geographical size. In Q1 2026, for example, the Cayman Islands were among the jurisdictions receiving the largest quarterly increases in cross-border bank credit to non-bank financial institutions.

The phenomenon extends well beyond banking. The Financial Stability Board reported that non-bank financial intermediaries accounted for 51 per cent of the financial assets covered by its global monitoring exercise in 2024, representing $256.8 trillion. Investment funds, insurers, pension funds and other intermediaries increasingly form cross-border networks whose architecture is difficult to capture through a conventional political map.

Political geography remains unchanged.

Financial geography does not.

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3. Six distortions

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3.1 The territorial distortion

The first distortion is the intuitive association between the physical size of a jurisdiction and its economic significance.

For capital, square kilometres have little explanatory value.

Luxembourg provides an almost literal example. By July 2026, undertakings for collective investment supervised there held approximately €6.69 trillion in net assets. At the end of 2025, the Dubai International Financial Centre had 121 authorised firms in fund management and $176 billion in assets under management, embedded within a substantially broader wealth and financial-services ecosystem.

This does not make those jurisdictions larger economies than major industrial states. It means that their functional financial size bears little relationship to their territorial footprint.

On a map designed around capital, their surface area would expand.

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3.2 The GDP distortion

A second problem arises when economic production is treated as a proxy for financial relevance.

GDP tells us where value is produced. It does not necessarily tell us where the ownership of that value is organised, where a multinational finances its operations, where an investment fund is domiciled, where a family places its wealth or which legal system will govern the intergenerational transfer of that wealth.

The geography of production and the geography of wealth are not the same.

Even foreign direct investment statistics can produce a misleading visual impression. The OECD's latest Benchmark Definition expressly addresses special purpose entities and pass-through funds, recognising that multinational ownership structures can make conventional FDI statistics difficult to interpret. Entities with little physical activity in the jurisdiction may nevertheless serve as holding companies, financial conduits, securitisation vehicles or gateways to capital markets and sophisticated financial services.

An IMF reconstruction of the global FDI network illustrated the scale of the issue: once special purpose entities and pass-through capital were removed and investments were reassigned towards ultimate investors, aggregate inward FDI in the reconstructed network fell by roughly one third and the apparent dominance of financial centres diminished.

This is a cartographic problem in its purest form. The legal jurisdiction through which capital passes may be neither its economic origin nor its ultimate destination.

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3.3 The tax distortion

A third distortion is the tendency to interpret jurisdictional competition primarily as tax competition.

Tax unquestionably matters. It changes returns, transaction costs and the relative efficiency of structures. But capital does not simply migrate towards the lowest nominal rate.

Investment decisions also respond to institutional quality, protection of property, regulatory predictability, contract enforcement, dispute resolution and the quality of government. The World Bank's rule-of-law framework explicitly includes property rights, contract enforcement and courts, while the OECD has long treated predictability and institutional quality as central features of an effective investment environment.

The European experience reinforces the point. Even inside a single market built around the free movement of capital, the European Commission has identified cumbersome withholding-tax procedures and differences in insolvency regimes as barriers to cross-border investment.

Tax competition is therefore only one dimension of a broader phenomenon:

jurisdictional competition.

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3.4 The state-as-container distortion

It is convenient to speak of Italian law, Swiss law or Luxembourg law. Yet capital does not encounter a jurisdiction as a single, homogeneous block.

It encounters corporate law, taxation, succession law, investment-fund regulation, insolvency regimes, financial supervision, treaty networks, administrative practice, courts, banks, asset managers, fiduciaries and specialised professional services.

A jurisdiction's relevance to capital emerges from the interaction of those elements.

Together they form what may be described as the legal infrastructure of wealth: the legal architecture through which assets can be owned, financed, segregated, managed and transferred.

Tax treaties offer a simple illustration. The OECD itself describes the elimination of international double taxation as important because such taxation can obstruct movements of capital, technology, goods and services.

Law, from this perspective, does not merely constrain economic activity.

It enables it.

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3.5 The border distortion

On a conventional map, a border marks where one jurisdiction ends and another begins.

Capital experiences borders differently.

A family may reside in France, own a business through a Luxembourg holding company, keep financial assets with a Swiss bank, invest through Irish or Luxembourg funds, own real estate in Italy and have beneficiaries living in several other countries.

Where, exactly, is that wealth located?

No single residence test answers the question. What must be reconstructed is an architecture of legal relationships.

The importance of complex ownership chains is precisely why international statistical standards increasingly distinguish immediate counterparties, special purpose entities and ultimate investors.

The relevant geographical unit may therefore no longer be the sovereign state.

It may be the cross-border legal structure linking several jurisdictions.

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3.6 The static-map distortion

Traditional maps also create an impression of permanence.

Territorial borders usually move slowly. Capital jurisdictions can change their relative position far more rapidly.

A reform of dividend taxation, a new fund regime, a change in succession law, a transparency agreement, a regulatory shift affecting asset managers or a more efficient withholding-tax procedure can alter the relative cost of a jurisdiction without changing a single geographical boundary.

The EU's FASTER framework is a useful example. It is based on the recognition that complex and slow withholding-tax relief procedures can generate costs, delays and double taxation that discourage cross-border investment.

The state's shape on the map remains exactly the same.

Its position on the capital map has changed.

In the post-globalization world, regulation is no longer merely a constraint. It is a form of infrastructure.

Jurisdictions compete through tax rates, incentives and special regimes, but the real competition takes place at a deeper level: legal certainty, legislative predictability, administrative efficiency, judicial reliability, public registries, protection of private property, quality of financial supervision and the capacity to distinguish between capital attraction and risk control.

A competitive jurisdiction is not necessarily the one that taxes less. It is the one that makes the future more predictable.

Sophisticated capital does not seek tax advantages alone. It seeks a stable legal framework within which long-term decisions can be made. Favourable taxation may attract opportunistic capital; a reliable jurisdiction can attract patient capital.

This distinction is essential.

Opportunistic capital enters quickly and can leave just as quickly. Patient capital requires legal, banking, fiduciary, insurance, corporate and professional infrastructure. It requires regulatory continuity. It requires a system capable of protecting not only return, but also the governance of wealth.

From this perspective, stability becomes a form of implicit return. It reduces risk, lowers the cost of uncertainty, enables tax and succession planning, strengthens wealth structures and supports long-term investment decisions.

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4. Towards a Legal Geography of Capital

These distortions point towards a different unit of analysis.

A Legal Geography of Capital may be understood as the study of the legal and institutional forces shaping the location, mobility, protection, governance and transmission of capital.

It is not merely comparative taxation or comparative law.

Its central question is how law changes economic space.

Two jurisdictions thousands of kilometres apart may be exceptionally close for capital because of treaty connectivity, financial integration, interoperable institutions and familiar legal structures. Two neighbouring states may be much further apart if taxation, regulation, capital restrictions, administrative uncertainty or incompatible rules create significant obstacles.

Financial space is therefore not purely physical.

It has gravity, friction and distance of its own.

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5. Jurisdictional Gravity, Legal Friction and Jurisdictional Premium

Jurisdictional Gravity describes the overall capacity of a jurisdiction to attract and retain capital.

That gravitational pull is not generated by any single variable. It emerges from the interaction of taxation, legal certainty, institutional quality, market depth, financial regulation, treaty networks, banking infrastructure, professional expertise, political stability and reputation.

A geographically small jurisdiction may therefore exert gravitational force far beyond its physical mass.

Against this operates Legal Friction of Capital: the set of legal, fiscal, regulatory and institutional costs or uncertainties encountered when capital enters a jurisdiction, remains there or moves elsewhere.

Friction may come from taxation, regulation, company law, exchange controls, succession rules, procedures or litigation. Crucially, it may arise not because the rule itself is unfavourable, but because its application is unpredictable, slow or difficult to coordinate across jurisdictions.

The third concept is Jurisdictional Premium.

An investor may rationally accept higher explicit costs in a jurisdiction if those costs purchase greater predictability, stronger property protection, better market access, more effective enforcement or greater institutional stability.

The cheapest jurisdiction is not necessarily the most valuable jurisdiction.

That distinction alone is enough to show why a map based solely on tax rates cannot explain the geography of capital.

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6. Law as infrastructure

The most significant shift may concern the role assigned to law itself.

Economic discourse often treats regulation as a cost: a constraint imposed upon capital, a compliance obligation, an obstacle to activity.

But the relationship also runs in the opposite direction.

Law creates corporations and investment funds. It makes property enforceable. It establishes creditor priority. It makes asset segregation possible. It creates mechanisms for intergenerational succession. It defines procedures for dispute resolution. It enables financial instruments whose economic value ultimately depends upon a legal system capable of recognising and enforcing the rights they embody.

Law as infrastructure.

A sound legal infrastructure cannot remove market risk. What it can reduce is a different form of risk: uncertainty as to whether rights can be exercised, enforced and preserved.

OECD research has found that stronger legal institutions and rule of law can mitigate the negative investment effects associated with more burdensome regulation; more generally, predictability and protection of property are established components of a functioning investment environment.

In that sense, law can be compared to a port, a railway network or a digital infrastructure.

It changes the cost and reliability of connections.

And therefore changes geography.

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7. What would a new capital map look like?

A map designed around this reality could not simply colour sovereign states according to GDP, tax rates or FDI stocks.

Its size might represent Jurisdictional Gravity.

The distance between jurisdictions might represent Legal Friction of Capital.

The intensity of their connections might capture treaty networks, banking flows, market integration and regulatory interoperability.

And its evolution over time would matter as much as its snapshot at any particular moment, because reforms, crises and geopolitical shocks continuously change the forces shaping capital movements.

The resulting map would look very different from a political atlas.

Luxembourg, Switzerland, Singapore and certain Gulf financial centres would expand. Some large economies might contract for particular categories of capital. Most importantly, distances would change.

The same framework can be taken below the national level. Capital does not choose only countries; it also chooses cities and clusters where financial markets, universities, regulators, banks and professional expertise accumulate. London, Geneva, New York, Singapore, Dubai or Milan are not simply coordinates inside sovereign states. They are nodes within legal and financial networks.

Jurisdictional Gravity may therefore also be urban and regional.

A legal geography of capital ultimately becomes a geography of connections rather than merely a geography of borders.​

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Conclusion. The map of capital is not the political map

UNCTAD's World Investment Report 2026 provides one indication of how concentrated international investment has become: more than 80 per cent of global FDI in 2025 went to the world's twenty largest host economies. Yet even that map captures only one part of the picture. What statistics call the destination of investment may variously represent the location of productive activity, a holding structure, a financing centre or an intermediate node within a cross-border ownership chain.

Understanding global wealth therefore requires a question that goes beyond where capital is located.

We need to ask why it is located there, through which legal structures, under which rules, and towards which jurisdictions it is likely to move.

That is the question posed by a Legal Geography of Capital.

Mercator reminds us that a map is never the territory and that every representation emphasises certain features of reality at the expense of others.

Capital is no different.

GDP, borders, tax rates and national statistics remain indispensable. But used in isolation, they risk giving us the right data through the wrong projection.

The map of capital is not the political map.

To understand it, we must map not only states but also the legal forces that make certain places closer to capital, others more distant, some capable of exerting attraction and others sources of friction.

That is the different cartography proposed by a Legal Geography of Capital.

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Edoardo Tamagnone

International Tax & Wealth Advisor — Torino