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!