Offshore financial centres and tax havens

Based on the list provided by the Financial Stability Forum1, the IMF2 estimates that there are currently 42 offshore financial centres around the world. These centres are characterized by financial activity with non-residents that is disproportionate to the size of their economies, and they generally boast low fiscal obligations and budgetary requirements. Moreover, a number of them have a reputation for their laxism and notable absence of regulations governing the execution and control of financial flows. It is their harmful effects on the world’s financial systems that the OECD (for the tax aspects) and FATF3 (for the prevention of money laundering and the financing of terrorist activities) continually strive to prevent.
In 1998, the OECD reviewed each of the offshore financial centres designated by the IMF in order to detect any fiscal practices liable to have a negative effect on the balance of the world's financial systems. The review resulted in the organization drawing up a list of 34 jurisdictions with shortfalls in their fiscal requirements.
The OECD uses four main criteria in establishing whether or not a given country qualifies as a tax haven. These four criteria are not cumulative nor do they constitute a universal definition of a tax haven:
  • The jurisdiction imposes no or only nominal taxes, whilst nonetheless recognizing that every jurisdiction has the right to determine its own tax rate
  • The lack of transparency in the application of the law under similar circumstances
  • The lack of any local, substantial activity
  • Whether there are laws that prevent the effective exchange of information for tax purposes with other governments
In 1999, the FATF assessed the different policies applied around the world in the prevention of money laundering, drawing up a blacklist of fifteen countries whose regulations in the matter were deemed to be insufficient.
Under the pressure of these two organizations and the financial community writ large, these countries completed or enhanced their legislation and controls meaning that, today, there are only three countries4 that are classed as non-cooperative tax havens by the OECD and no longer any countries that are blacklisted by the FATF.
The notion of tax havens does, nonetheless, cover a far wider scope than that retained by the OECD in categorizing unacceptable tax practices. In France, for example, it can apply to any country whose tax system is not as strict as that applied in France (see "What is a tax haven?".
Société Générale has defined strict rules to avoid setting up in those countries considered to be tax havens by the OECD or in any country that could be on the FATF black-list.
However, the Group does not rule out working in these countries providing they already have an effective financial and banking sector that meets the economic needs of a local or international customer base, as is the case in Monaco for example.
NOTES
  1. FSF press release of March 11, 2005
  2. IMF: International Monetary Fund
  3. FATF: Financial Action Task Force, set up in 1989 by the G7 Summit in Paris to combat money laundering
  4. Andorra, Lichtenstein, Monaco
eZ Publish™ copyright © 1999-2009 eZ Systems AS