Review of the off-shore business – history and moderncondition

Since the 21st century the sector with low taxation (off-shore sector)has grown as never before as a response to high tax rates in developed countries; it has been estimated that at present more than a half of the world capital is in the low-tax jurisdiction. There are more than 70 self-affirmed IOFC (International Offshore Financial Centers) and another 100countries willing to join them.

The word “off-shore” does not have aclear definition in the dictionary: it simply means that the majority of low-tax jurisdictions are islands. Roughly this word used to mean “something out ofcontrol of a state with high taxes”, although those states could have controlled the growth of low-tax jurisdiction in a tighter way if they had wanted to. It is an interesting question – why they didn’t. Can it be because of the combination of personal interests and confusion?

In the endof the 20^thcentury it seemed that big and rich countries did not have financial influence or even willingness to accept “off-shores”.The reason for it was in part due the fact that rich countries had their own tax remissions and incentives for local purposes and in part because rich countries (countries themselves and their citizens) often use “off-shores”

The Organization for Economic Cooperation and Development (OECD) criticized “harmful tax competition” and the European Union complained about the “unfair tax practices”,but in the real world of off-shore it did not affect low-tax regime. On the contrary many jurisdictions making their living from bananas, sugar and tourism decided to join this movement.

 In 1999 and 2000 world concern about money laundering and fear of a tax funds drain became the source of motivation for rich countries and gave an opportunity to attack off-shores stronger, what was emphasized by the“September 11” horror, as the world tried to start fighting the financing of terrorism.

The European Union, The Organizationfor Economic Cooperation and Development, Democratic Administration of the USA joined the fight with “offshore”

It certainly led to abetter regulation of International Offshore Financial Centers and after the initial strong opposition to the basic program on “harmonization of taxes” it led to a spreading of trust between low-tax jurisdictions which meant harmonization of local and international systems usually with the same tax rates as before. Some agencies simply abandoned corporate taxation.

Perversely, the result of the forced clearance of low-tax jurisdiction was to make them into more efficient competitors and in the first decade of the 21^st century their rates of growth were well above the rates of growth in the countries with high taxes that were tormenting them.

The only thing that rich countries can do and what they are always trying to do is to limit off-shore activity for their own nationals. As always their prohibitions have more effect on poor people than rich. Sensible rich people and corporations always managed to avoid measures directed against tax evasion.

The Internet gives taxation a new scope, as for the first time a supplier has an opportunity to offer and deliver some type of goods (such as music, games, financial services) in such ways that completely bypass traditional ways of taxation and tax collection by the government. Tax drain made governments to attack low tax collection and regions in a more intense way, but it was only partially successful. It looks like a global approach to e-commerce taxation will evolve in time. This problem cannot be solved by separate countries or even by a group of countries.

International Offshore Financial Centres are very complicated in their nature and serve different purposes for different particular people and corporations. Not all of these purposes are legal: there is no doubt that drug barons and some other illegal “businessmen” were using and are still using International Offshore Financial Centers for money laundering before recycling it legally. International governments and such economic organizations as the Organization for Economic Cooperation and Development were quite successful in preventing violations. However money laundering still remains a problem in some International Off-shore Financial Centers.

Among the legal benefits of International Off-shore Financial Centres are:

• ·tax-efficient structuringof international trade;
• ·holding and investment companies;
• ·off-shore investment funds;
• ·protection of individual wealth using trusts;
• ·internationals financial services, in particular banking and financial assets trading;
• ·subsidiary insurance companies;
  
• ·transportation registries;
• ·betting and gambling;
• ·distribution of electronic goods, including music and software.

Many International Off-shoreFinancial Centers benefit countries with high taxes, for example island of Man which is Great Britain’s offshore. Others specialize in particular business sectors. The “Jurisdiction” section of lowtax.net website describes all the characteristics and the mainbenefits of the major International Off-shore Financial Centres in detail. In “Uses of off-shores” section you can find the analysis of each sector using off-shores with the links to offices specializing in each of the sectors.

For those who have never been involved in off-shore business the word “off-shore” might be a bit mysterious. This wrongly allowed the majority of countries with high taxes to make the word “off-shore” synonymous to words “terrorism” or“money laundering”; quite often they think that being involved in off-shore business is not only dubious but also expensive. It can be dubious as well as expensive but not always. Many International Off-shore Financial Centers legally use English legal systems and the English language; there are a great number of reputable consultants that can help a novice at the early stages of using low-tax jurisdictions whether in terms of trading, investing or living there. One of the goals of lowtax.net website is to make “off-shore business” more accessible and provide the connection between the professionals and suppliers in low-tax areas.