world offshore centers. how it works
TRANSCRIPT
WORLD OFFSHORE CENTERS
Abdul Ruhulla, IFF 2-2
Financial University under the Government of the Russian Federation
DEFINITION OF OFFSHORE FINANCIAL CENTERS (OFC):
OFC –center, where
The bulk of financial sector activity is offshore on both sides of the balance sheet;The transactions are initiated elsewhere;
Examples for use of OFC:• Offshore banking licenses;• Offshore corporations or
international business corporations (IBCs);
• Insurance companies;• Special purpose vehicles;• Tax planning;• Tax evasion and money
laundering;• Asset management and
protection.
The majority of the institutions involved are controlled by non-residents.
Offshore bank• located outside the country of residence of its
depositors, • most of its account holders being non-residents. • An account held in a foreign account is often
an offshore account. • an individual or company will maintain an offshore
account in a low-tax jurisdiction (or tax haven) that provides financial and legal advantages, such as:
• greater privacy • little or no taxation (i.e. tax havens)• easy access to deposits (at least in terms of
regulation)• protection against local, political, or financial
instability.
OFC MAY BE DEFINED AS A COUNTRY OR JURISDICTION:I. which does not levy any tax / levies very small tax;II. which has no controls on foreign exchange movements; III. which has a legal system that ensures secrecy; IV. which permits foreigners to open companies & other entities; andV. which makes laws specifically designed to help “financial engineering”, “creative accounting” and
“tax avoidance”.VI. Which signs Double Tax Agreement (DTA) with several countries & facilitates Treaty Shopping.
NOTE:1. ALL THE ABOVE BENEFITS ARE GRANTED ONLY TO FOREIGNERS / NON-RESIDENTS. 2. FUNCTION OF OFFSHORE:
1. to help people with black/criminal money to hide & hold the wealth safely and incognito. 2. to permit them investing the same in developed countries.
3. THE ISSUES: 1. how to transfer the funds outside their country; 2. how to hold & own the same safely;
WHICH COUNTRIES ARE CONSIDERED AS OFCS
OFFSHORE COMPANYThe term offshore company or offshore corporation is used in at least two distinct and different ways. An offshore company may be a reference to:
• a corporation or (sometimes) other type of legal entity which is incorporated or registered in an offshore financial centre or "tax haven"; or
• a company or corporate group (or sometimes a division thereof) which engages in offshoring manufacturing or business services.
Characteristics of offshore companies• They are broadly not subject to taxation in their home jurisdiction.• The corporate regime will be designed to promote business flexibility.• Regulation of corporate activities will normally be lighter than in a developed
country.Classifying offshore companies:• Companies which are exempt from taxation in their jurisdiction of registration provided that
they do not undertake business with persons resident in that jurisdiction (IBCs). • Offshore jurisdictions which simply do not impose any form of taxation on companies, and so
their companies are de facto tax exempt.
HOW IT WORKS$ $1M Pre-tax profit% 35% tax rate
$650K Profit
$ $800K to offshore
% 5% tax rate
$760K Profit
Intellectual Property
$ 200K New Pre-tax% 35% tax rate
$130K Profit
$110K in taxes instead of $350K$240K Withdrew from Economy
240K would be taxed
OFC
Offshore company
Belize
Costa Rica
Panama
Bahamas
Delaware
British Virgin IslandCayman Islands
Bermuda
OFC ZONES
IrelandSwitzerland
Luxembourg
UAE
Singapore
Malaysia
Botswana
Liberia
The CarribeanAnguilla
Antigua Aruba
Bahamas
Barbados
Belize
Bermuda
British Virgin Islands
Cayman Islands
Costa Rica
Netherlands Antilles
Panama
Saint Kitts and Nevis
Saint Lucia
St Vincent and the Gr.
Turks and Caicos Islands
EuropeAndorra
Campione
Cyprus
Gibraltar
Guernsey
Ireland (Dublin)
Isle of Man Jersey
Liechtenstein Luxembourg
Madeira Malta Monaco
Sark
Switzerland
ASIA-PACIFIC MIDDLE
EAST
Bahrain
Cook Islands
Dubai
Hong Kong SAR
Labuan
Lebanon
Macao
Marianas
Marshall Islands
Nauru
Niue
Singapore
Vanuatu
Samoa
AFRICA INDIAN OCEANIA
Liberia
Mauritius
Seychelles
Uruguay
$20.6Tr.
REQUIREMENTS IN SOME OFCS
Jurisdiction Registration
Second year
Income tax
Financial statements
Beneficiary info disclosure to
Local directors
Number of directors
Paid share capital
https://gsl.org/en/offshore/offshore-zones/
In July 2012, the Tax Justice Network published:• Offshore deposits worth at least $21 trillion,
potentially even $32 trillion • Governments suffer a lack of income taxes of up to
$280 billion.
WHICH OF THEM RUSSIAN COMPANIES USE
WHAT ARE SOME COMMON REASONS WHY COUNTRIES SEEK TO DEVELOP THEMSELVES AS OFFSHORE
FINANCIAL CENTERS?The country may have little land base and few opportunities to develop other types of economic activity because of:
– Limited energy supplies at high cost– Limited raw materials and other natural resources– Long distance from raw material and energy sources so secondary
manufacturing options are few
The country may possess natural characteristics that make it an ideal offshore financial center:
– Political stability– Close geographical proximity to wealthy countries– Well educated workforce– Some natural amenities that make it possible to develop its potential as
a tourist attraction– A political willingness to pass bank secrecy laws and at the same time be
prepared to invest in security infrastructure to assure personal safety and to address the potential to attract unsavory elements.
WHAT REASONS DO CLIENTS HAVE TO BECOME ASSOCIATED WITH AN OFFSHORE FINANCIAL CENTER?
Legitimate reasons:• Privacy for personal, family, business or
political reasons (purposes)• Try to keep funds separate in case of
inheritance battles, divorce or personal bankruptcy
• Keep funds in a secure bank in a secure country
• Illegitimate/Illegal reasons:• Launder money from criminal
activities• Evade taxes• To provide criminal activities
PROS OF OFCS Contribution to economic growth (Hong Kong,
Singapore); Reduction of transaction costs; Low or no taxes; Services are provided mainly, but not exclusively, for
nonresident clients; There are no or few foreign exchange controls; Geographical proximity to a major economy and good
communications infrastructure; A legal regime that upholds bank secrecy; A high degree of political stability is also important – no one
wants to put their money into a country that cannot guarantee personal safety or the ability to extract one’s funds.
Cons of OFCTax evasion:– Erosion of domestic tax collection– Contribution to excessive tax
competition• OFCs ≠ tax havens• Tax haven status without
significant role in attracting capital flows
• Tax havens imply benefits for high tax countries– Facilitate effective operation of
tax systems– Encourage investment in high-
tax countries
Risk for financial stability:– Weak (or lack of) regulatory frameworks– Existence of tax avoidance schemes– Lack of transparency due to secrecy rules– Encouragement of regulatory arbitrage– Supervisory gaps– Lack of information
INSTITUTIONS WHICH FIGHT WITH OFFSHORES (POLICIES)
• Promote monetary and financial stability• “Offshore financial centres” (OFCs)
• Established by the G7 countries in 1989• Advise on policies for combating money laundering
• Open up tax havens and prevent harmful taxpractices (since 1996)• Action Plan on Base Erosion and Profit Shifting
• International Money Laundering Information Network (IMOLIN)
• With the OECD the EU works to implement minimum standards across the world
• Promotes transparency in international finance and opposes secrecy
• No programme for combating the negative effects of tax havens. • Pursuing the Financial Sector Assessment Programm (FSAP)
PANAMA PAPERSThe Panama Papers are a set of 11.5 million confidential documents detailing information about more than 214,000 offshore companies compiled by the Panamanian corporate service provider Mossack Fonseca, including the identities of company shareholders and directors,current and former world leaders and high-ranking officials.
THANK YOU FOR ATTENTION!