 | This article has multiple issues. Please helpimprove it or discuss these issues on thetalk page.(Learn how and when to remove these messages) (Learn how and when to remove this message)
|
Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdictions are used to pay less tax in many countries by large and small-scale investors. Poorly regulated offshore domiciles have served historically as havens fortax evasion,money laundering, or to conceal or protect illegally acquired money from law enforcement in the investor's country.[1] However, the modern, well-regulated offshore centres allow legitimate investors to take advantage of higher rates of return or lower rates of tax on that return offered by operating via such domiciles. The advantage to offshore investment is that such operations are both legal and less costly than those offered in the investor's country—or "onshore".
Locations favored by investors for low rates of tax are known asoffshore financial centers or (sometimes)tax havens.
Payment of less tax is the driving force behind most 'offshore' activity. Due to the use of offshore centers, investors are able to conduct investment activities in a more profitable fashion. Often, taxes levied by an investor's home country are critical to the profitability of any given investment. Using offshore-domiciled special purpose mechanisms (or vehicles) an investor may reduce the amount of tax payable, allowing the investor to achieve greater profitability overall. Another reason why 'offshore' investment is considered superior to 'onshore' investment is because it is less regulated, and the behavior of the offshore investment provider, whether he be a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment.
Offshore investing includes investment strategies outside of an investor's home country. Investment opportunities in money-market, bond and equity assets are available through offshore companies.[2]
One may also charter an offshore corporation to provide alegal personality,limited liability,transferable shares, a centralized management, and shared ownership. In some cases the investment advantages of such a corporation are offset by legal, corporate and account registration fees imposed by the country in which the offshore account is established. Further, the officers of the corporation may be required to establish residence, own real estate, or meet an investment minimum (depending upon the country this may range up to $1 million).[2] An advantage which accrues from establishing a corporate structure is that although a citizen may be proscribed from establishing an offshore account, they can establish a corporation that can do so.[3]
Motivations forinvestment offshore include:
Reasons which have been advanced against offshore investment include:
TheOrganisation for Economic Co-operation and Development (OECD), theEuropean Union (EU) and theUnited States of America (USA) strive for exchanging tax data.[8] The OECD has established a threshold of bilateral tax-information exchange agreements, twelve, as the minimum which a country is also placed on the “white list” and recognized as having “substantially implemented” internationally agreed tax standards. The OECD “grey list” includes countries which have not achieved “white list” status and are considered as fostering tax evasion through insufficient financial openness. As a result, theCayman Islands andLiechtenstein implemented financial openness reforms to get off the list and escape the threat of sanctions,[9] whilePanama,Luxembourg,Liechtenstein,Switzerland and theBritish Virgin Islands (BVI) were still on the grey list as of late 2009.[8]
The expansion of the EU has motivated major improvements in tax-related transparency. The EU requires members to exchange tax information using automatic systems by the end of 2011, which assures thatAustria,Belgium andLuxembourg are coming into compliance. Further, since January 2007 former tax havens (noted for their banking secrecy and low tax rates for foreign investments) inBermuda, theChannel Islands (Jersey andGuernsey) and theIsle of Man have achieved “white list” status due to their EU ties.[8]
Panama is currently recognized as one of the more attractive countries for legitimate offshore investment as well as for tax evasion, and is on the OECD “grey list”. Panama'sfree-trade zone handles over $19 billion in commerce per year and construction is booming. Corporations are easily created in Panama and, although they are heavily taxed on Panama-domestic operations, they pay no taxes on foreign activities. Company ownership can be readily concealed through the use of anonymous “bearer shares”. As a result, more than of 45,000 offshore shell companies and subsidiaries companies are created in Panama each year; Panama has one of the highest concentrations of subsidiaries of any country in the world. Panama's banks are well regulated, providing stability and predictability. Panama does not yet participate in tax-information-exchange treaties; since they tax only domestic income, there is no reciprocal benefit in their sharing information with other governments. All these conditions combine to provide advantages to both legitimate business and to tax evasion.[9]
In 2009 the USA initiated increased efforts to close taxation loopholes and identify and prosecute tax evaders using offshore accounts. As an element of this effort, they have pursued amended tax treaties to offset the banking secrecy laws of nations such asSwitzerland. In 2010 the US and Switzerland agreed to a protocol increasing shared tax information to aid the prosecution of tax evasion. As with all treaties, this does not come into force until ratified by the appropriate legislative bodies (in this case theU.S. Senate and theSwiss Federal Council and Parliament).[10]
As one example of efforts to reduce illegal offshore investments made for the purpose of tax evasion, in 2010 the Swiss bankUnion Bank of Switzerland (UBS) has paid a fine of $780 million and is cooperating on identifying the estimated 19,000 wealthy U.S. tax evaders who have accounts in UBS. The USInternal Revenue Service has offered amnesty to those who come forward voluntarily.[11] Similarly the banking firmHSBC has been alleged to have aided two U.S. citizens in a multimillion-dollar tax evasion scheme that relied on various accounts held in the names of foreign shell corporations, using Swiss lawyers to act as cut-out signatories for some of these accounts. The two men were arrested and are under indictment for tax evasion.[12]
