Treatment of Offshore Centers Debated in Parliament

July 23, 2010 International Tax CooperationOffshore TaxationTaxation in JerseyTaxation in UK

Point of Ayre LighthouseThe negative effect of international financial centers on the UK economy and tax revenues is dramatically overstated, and overall treatment of international financial centers in the UK has been “remarkably one-sided.”

Allegations of unfairness have been laid against the OECD and the Governments of advanced economies, in regards to their treatment of international financial centers (IFC). While holding a debate in the UK Parliament on the topic of offshore financial centers on July 21st, Mark Field, Conservative MP, said that IFCs were not responsible for the recent global financial breakdown. He went on to say that “…it is convenient to blame far off countries for causing the financial crisis, even those who work in the financial markets do not accept that small IFCs were a major cause of the crisis.”

The UK Treasury recently stated that offshore Crown Dependencies and Overseas Territories lead to an approximate GBP 25 billion in lost tax revenues every year in the UK. However, another report commissioned by the Government has estimated that the losses do not exceed GBP 2 billion annually, in a worst case scenario. Mark Field added that the latest reports on IFCs by the international Financial Action Task Force (FATF) has deemed many offshore centers compliant with all fiscal recommendation, including measures directly aimed at eliminating money laundering and international tax evasion. He went on to claim that the Organization for Economic Development and Cooperation does not operate under the same levels of transparency as it demands from offshore financial centers, unfairly discriminating against small IFCs in their assessments.

Mark Field suggested that the Government should consider improving its tax competitiveness by lowering the corporate tax rate. He made examples of Jersey and the Isle of Mann, saying that the two IFCs act as conduits for international mobile capital, the majority of which ends up being invested in London. The UK Government should embrace the widespread positive effects of IFCs on the UK economy, and develop a method of sustained cooperation and not persecution.

Mark Hoban, Financial Secretary to the UK Treasury, who also participated in the debate, agreed with Mark Fields on IFCs holding numerous unique benefits, but maintained that close attention still needs to be paid to the regulation and administration of offshore centers. Geoff Cook, Chief Executive of Jersey Finance, has commented, saying that the debate “… clearly demonstrated the importance of Jersey’s financial services industry, especially with relation to the vital role that Jersey provides to the City of London’s transaction chain.”

Photo by ahisgett