STIKEMAN ELLIOTT (LONDON) LLP www.stikeman.com

The Future for International Financial Centres

Gresham SymposiumLondon27 March 2014

Richard HayStikeman Elliott (London) LLP

Presentation Overview

why IFCs exist

tax and morality

regulation

globalisation

the future for IFCs

SLIDE 2 STIKEMAN ELLIOTT (LONDON) LLP

Civil Society and International Business: Common Ground?

prosperous economies support healthy public finances, private investment, development and poverty alleviation

do we value the business contribution to trade, economic growth and jobs?

business needs infrastructure- not just roads, schools and hospitals, but also a sound legal system, trained professionals, and finance

SLIDE 3 STIKEMAN ELLIOTT (LONDON) LLP

Why IFCs Get Bad Press

IFCs conduct financial services

IFCs facilitate business, and globalisation

offshore finance is, by definition, foreign to the country where the criticism arises

IFCs seldom explain why their activity is socially or economically constructive

SLIDE 4 STIKEMAN ELLIOTT (LONDON) LLP

The Role of Financial Services

financial services conduct capital formation and transmission to support trade and economic growth

financial services are strategically important and generate good jobs in the information economy

countries compete to host this important activity

SLIDE 5 STIKEMAN ELLIOTT (LONDON) LLP

International Financial Centres: Why?

the world is politically segmented, but economically integrated

tax systems are national fiefdoms, ill suited to cross-border business

are international financial services a giant criminal enterprise?

regulation: do we need cost / benefit analysis?

SLIDE 6 STIKEMAN ELLIOTT LONDON

Who Uses IFCs?

MNCs

hedge funds

private equity

venture capital and infrastructure funds

insurance, including catastrophe bonds

ordinary people?

SLIDE 7 STIKEMAN ELLIOTT (LONDON) LLP

SLIDE 8 STIKEMAN ELLIOTT (LONDON) LLP

Pension Fund Private Investors

How a Cayman Fund WorksOther Institutional Investors

Taxable in country of residence

Governed underBritish-based Cayman law

Tax neutral so no third layer of tax

Investment Fund in Cayman

Taxable in source country

China Africa G8 Country

SLIDE 9 STIKEMAN ELLIOTT (LONDON) LLP

Why International Investors Use Offshore Companies

Infrastructure Projects in China

Cayman CompanyBank

Loan

* Investors benefit from:

British-based -law -courts-professionals

Chinese Company

Tax and Morality

morality is important in making the policy choices in tax system design

when it comes to tax compliance and enforcement, it must be done according to law- there is no other way (Michael Devereux, Oxford Centre for Business Taxation)

countries create incentives to attract international capital

politicians often condemn the use of incentives which their governments created

SLIDE 10 STIKEMAN ELLIOTT (LONDON) LLP

Tax Competition

tax and regulatory competition – US and EU differ on its benefits

is tax competition ruining EU government finances?

European states tax and spend nearly 50% of GDP

(Singapore and Hong Kong spend 22% of GDP)

SLIDE 11 STIKEMAN ELLIOTT (LONDON) LLP

SLIDE 12 STIKEMAN ELLIOTT (LONDON) LLP

Vera Troeger

Tax Competition and the Myth of the‘Race to the Bottom’

The CAGE-Chatham House Series, No. 4, February 2013

Angela Merkel

Europe has

– 7% of the world’s population

– 25% of its total GDP

– 50% of its social welfare spending

enhanced tax collection and reform alone are not enough to achieve sustainable finances in Europe

Europe also needs structural changes in government expenditure to achieve sustainable public finances

SLIDE 13 STIKEMAN ELLIOTT (LONDON) LLP

Regulatory Standards

regulation may be used as a tool to secure a competitive edge or challenge competitors

IFCs and financial data collection and exchange: do the small centres lag or lead international regulatory standards?

British offshore centres, Benelux and Switzerland have collected beneficial ownership data on companies and trusts for a decade.  Do G8 countries match this standard?

A level playing field? Bring it on…

SLIDE 14 STIKEMAN ELLIOTT (LONDON) LLP

SLIDE 15 STIKEMAN ELLIOTT (LONDON) LLP

2003 2006

SLIDE 16 STIKEMAN ELLIOTT (LONDON) LLP

Cayman IslandsJerseyIsle of ManBVI

Bermuda

UK

US

SLIDE 17 STIKEMAN ELLIOTT (LONDON) LLP

Financial Services and Globalisation: Impact on Developing Countries

China’s increasing prosperity has been symbiotic with the rapid growth of the financial centres in Hong Kong and Singapore

international finance is required for investment and development

does offshore finance curtail crony allocation of capital?

does Africa suffer from a dearth of proximate financial centres?

SLIDE 18 STIKEMAN ELLIOTT (LONDON) LLP

The Future for IFCs

upgraded regulation should take cost / benefit analysis into account (FATF, FATCA)

IFCs support the international investment and trade which supports globalisation

countries don’t have friends, they have interests

G20 countries will protect facilities for cross-border finance, in their own interests

SLIDE 19 STIKEMAN ELLIOTT (LONDON) LLP

Globalisation: Good or Bad?

is it economically or morally desirable for unskilled western workers to earn fifty times the wages of their developing country competitors?

IMF: “Globalisation has delivered extraordinary progress for people living in developing nations.”

World Bank: “Globalisation has reduced poverty and global income equality.  Income per person grew 3½ times faster in globalising developing countries than in those which have not globalised.”

SLIDE 20 STIKEMAN ELLIOTT (LONDON) LLP

SLIDE 21 STIKEMAN ELLIOTT (LONDON) LLP

SLIDE 22 STIKEMAN ELLIOTT (LONDON) LLP

UK Income Distribution, After Tax and Benefits

Regional disparities in poverty reduction1970–2000

SLIDE 23 STIKEMAN ELLIOTT (LONDON) LLP

Sala-i-Martin, X. "Falling Poverty and Income Inequality: A global phenomenon" Quarterly Journal of Economics, MIT Press: Cambridge, MA. 2006, 121: 2.

SLIDE 24 STIKEMAN ELLIOTT (LONDON) LLP