Offshore Characteristics

Question 1

Define offshore & offshore financial centres

Answer 1

Offshore - outside national boundaries/ foreign banks / own political system

Offshore Financial Centre - jurisdiction seeking competitive advantage through its laws / primarily provides financial service business to non residents

Question 2

Define jurisdiction & non resident

Answer 2

Jurisdiction

• territory which authority is exercised by its different laws
• controlled by courts / gov different to neighbouring countries

Non resident
-set days in jurisdiction / person doesn’t live in specific area

Question 3

Define Exchange Control Regulations (ERC)

Answer 3

Gov Restrictions in info & currency allowed to be traded or purchased

Question 4

Onshore offshore jurisdictions

Answer 4

Onshore jurisdictions - large multinational financial centres (UK)

Question 5

Outline the development of offshore industry

Answer 5

Restrictive regulatory regimes blocked flow of capital between countries (70s) and imposed restrictions to provide gov with control

Therefore large multinational & financial institutions shifted activity offshore

Offshore centres seek innovation in terms of products offered & legal environments / allows to remain competitive in market

Accessibility of financial markets allow switching of business dealings between jurisdictions (redomicilliation)

International financial centres promote themselves as acceptable, cooperative, reputable & transparent

Question 6

Outline low tax jurisdictions

Answer 6

Direct taxes at set rate / relatively low compared to onshore

*JSY, GSY & Isle of Man

Direct taxes - tax on income
Indirect taxes - tax on expenditure (GST)

Question 7

Outline characteristics of tax havens

Answer 7

Jurisdictions have low tax / no IHT or no capital gains tax

• referred as zero tax jurisdictions
• pure tax havens (no direct taxes) = Bahamas
• usually higher indirect taxes to create higher revenue for government

+tax havens negative images of dishonesty of hiding money & illegally evading tax liabilities

+therefore offshore tax havens take steps to appear more transparent & cooperative

Question 8

Outline differences between tax avoidance & tax evasion

Answer 8

Avoidance
-legal tax planning, advantage, means within their law

Evasion
-illegal, misrepresentation, not paying tax due, reduce tax liability, dishonest tax reporting

Question 9

How do offshore centres seek restriction on tax avoidance

Answer 9

Tax laws (residency days)

Disclosure requirements (FACTA)