Tax Havens or Offshore Financial Centre Research Proposal

Tax Havens or Offshore Financial Centre - Research Proposal Example You can have tax havens that charge virtually no tax at all or which just charge annual administrative sums of money for companies using its shores as a base for their operations, and you can have nations that simply charge a lower rate of taxation than competitor havens". (Barber, 2006) Recently some countries have emerged as evident tax havens and are attracting hefty capital inflow. Singapore, Hong-Kong, Barbdos etc are only a few to name. "In Asia, offshore interbank markets began to develop after 1968 when Singapore launched the Asian Dollar Market (ADM) and introduced the Asian Currency Units (ACUs). The ADM was an alternative to the London euro-dollar market, and the ACU rule enabled mainly foreign banks to engage in international transactions under a favorable tax and regulatory environment" (International Monetary Fund, 2000) Similarly in Europe, Luxembourg attracted investors from Germany, France and Belgium in the early 1970s (IMF, 2000) due to its low income tax rates, the lack of withholding taxes for nonresidents on interest and dividend income, and banking secrecy rules. On the same ground The Channel Islands and the Isle of Man provided very similar opportunities. Moreover Bahrain began to serve as a collection center for the region's oil surpluses during the mid 1970s, after passing banking laws and providing tax incentives to facilitate the incorporation of offshore banks. In the Western Hemisphere, the Bahamas and later the Cayman Islands provided similar facilities. Following this initial success by other countries, a number of other small countries tried to attract this business. Many had little success, because they were unable to offer any advantage over the more established centers. This did, however, lead some late arrivals to appeal to the less legitimate side of the business. "By the end of the 1990s, the attractions of offshore banking seemed to be changing for the financial institutions of industrial countries as reserve requirements, interest rate controls and capital controls diminished in importance, while tax advantages remain powerful. Also, some major industrial countries began to make similar incentives available on their home territory. For example, the U.S. established in 1981, in major U.S. cities, the so-called International Banking Facilities (IBFs). Later, Japan allowed the creation of the Japanese Offshore Market (JOM) with similar characteristics. At the same time, supervisory authorities, and to some extent tax authorities were adopting the principle of consolidation which reduced the incentives for banks to carry on business outside their principal jurisdiction. As a result, the relative advantage of OFCs for conventional banking has become less attractive to industrial countries, although the tax advantages for asset management appear to have grown in importance. In fact, reported bank intermediation on the balance sheet in IFCs has declined over the period 1992-1999, thus contributing to the overall decline in the share of bank cross-border assets intermediated through OFCs from 56 percent of total bank cross-border