Tax evasion hotbed image is ‘outdated caricature’ – report
THE caricature of offshore financial centres as ‘hotbeds of tax evasion’ is outdated – with ‘no evidence’ they adversely affect other countries’ revenue-raising abilities.
These conclusions are contained in a new discussion paper undertaken by the Institute of Economic Affairs think tank, with support from Jersey Finance – the body that represents and promotes the island as an international financial centre of excellence.
The report seeks to dispel the myths surrounding international finance centres amid demands by some Westminster politicians that action should be taken against Guernsey and Jersey.
It also warned that undermining the existence of such centres could actually damage investment, economic growth and international capital flows.
‘By mitigating instances of double and triple taxation, offshore centres raise aggregate investment. Their existence is also associated with better economic outcomes in the countries that surround,’ said the discussion paper.
It added that the growth in the number and size of such jurisdictions was down to an increase in the stock of investable capital, new investment opportunities outside Western Europe and North America plus the growth of tax and regulatory invention by governments.
‘As more investment capital is allocated across a diverse range of jurisdictions from investors around the world, the potential for multiple taxation increases. The role of OFCs in eliminating excessive taxation has a positive impact on investment returns which compounds over time,’ said the IEA report.
It was also untrue that international finance centres levied no taxes, with their average tax revenue as a share of national income being only 6% lower than across the Organisation for Economic Co-operation and Development.
The transparency of offshore jurisdictions with foreign tax authorities and compliance with international tax treaties were also highlighted, with the report finding that OFCs do not meet the OECD’s definition of a ‘tax haven’.
‘The popular account of offshore centres is an outdated caricature that bears little resemblance to how OFCs in fact operate. Undermining their existence would harm investment, economic growth and international capital flows, while the promised benefits from intervention are unlikely to materialise.’
Dominic Wheatley, chief executive of Guernsey Finance, which promotes the island’s finance industry, said: ‘We think it’s an excellent report. It really does reiterate in a very clear and concise way what the OFCs’ business is and how they conduct business. All the points about OFCs, I would make about Guernsey specifically.’
Highlighting how Guernsey shared the same values as the wider British community, he also said: ‘Our levels of transparency are absolutely up there with the very best in the world.’
The work of the OFCs had also helped reduce global poverty by facilitating capital flows and investment, along with globalisation and market forces, said Mr Wheatley.