If money makes the world go around, then offshore financial centers (OFC's) are the power outlets for the energy source to keep the globe spinning. Whatever can be said about the negative effects of tax-havens, is overshadowed by the positive benefits that the Information age has had on the planet and a byproduct of the Information Age, or Digital era, as some people call it, is improved trading relationships between the countries of the world.
Globalization is a relatively new word in our lexicon and defined by www.dictionary.com as follows; The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets.
An offshore financial center is a country with a banking center where the bulk of financial sector activity is offshore on both sides of the balance sheet, where the majority of financial institutions liabilities and assets are by non-residents, where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents. More popularly, centers which provide some or all of the following services: financial services at low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.
In addition to banking activities, other services provided by offshore centers include fund management, insurance, trust business, tax planning, and IBC activity. Banking activity in OFCs is now predominantly carried out by branches and affiliates of banks incorporated elsewhere, mainly in major countries, but also in larger emerging market economies. Offshore banks engage in a wide variety of transactions: foreign currency loans (including syndicated loans) and the taking of deposits, the issue of securities, over-the counter (OTC) trading in derivatives for risk-management and speculative purposes, and the management of customers' financial assets.
Important tax advantages prevail, perhaps less for banks themselves than for corporate and individual customers. For the latter, the ability to reduce inheritance and other capital taxes seems to have been a prime incentive and has led to a large expansion in offshore fund management activity, in particular by the use of investment vehicles such as trusts and private companies. Industrial and commercial companies have also been able to reduce their tax liability through the use of foreign sales corporations to maximize the proportion of their profits that arise in lower tax jurisdictions.
In a report by the Global Policy Forum they state: Offshore tax havens, spread by new computing and telecommunications, provide an unprecedented tax shelter, enabling rich citizens and corporations to escape the national tax system. Wealthy tax evaders save millions, while public services and infrastructure in their home countries, as well as on the small island havens, remain drastically under-funded.
With regards to the statement by the Global Policy Forum; It could be argued that wealthy individuals prosper and have more money to spend, which is taxed on the sales of goods and services, plus creates more jobs and spending in the domestic economy. Currently we're witnessing an unprecedented consumer economy in the U.S. As for the small island tax havens that claim to be under-funded, what would happen if tourism, agriculture and manufacturing of arts and crafts were the only industries that these nations had to depend on? Isn't is evident that the infrastructure and work-force that is brought to the nation also helps to improve the living standards of it's citizens? I'm not entirely certain but believe there are also many other benefits of OFC's.
Offshore Financial Centers are necessary to interconnect the leading nations of the world to the foreign markets. The 60+ nations known as Tax Havens play an increasingly important role in bridging the divide between one country and culture and another. As long as money remains the energy that makes the world go around, the world will need outlets to connect the energy sources.
