Offshore+finance+centres

=Offshore Financial Center= An //Offshore Financial Center//, according to the International Monetary Fund IMF also referred to as an //International Financial Center (IFC), International Banking Center (IBC) International Banking Facilities, Offshore Banking Center// is often used as a neutral and academic alternative to the term // tax haven //. The term //Offshore Jurisdiction// is also used by some researchers.

Most commonly, OFCs are used by corporations and wealthy individuals who set up investment vehicles in OFCs with the goal of minimizing their tax payments on the revenues from these vehicles. Usually OFC hosts are small states with very low or no taxes, most of them are Small Island Economies (SIEs) with a population of less than 1 million people. A lot of them are former British colonies, which gives them a political heritage and stability that is an advantage in the eyes of an investor. According to John Christensen (Tax Justice Network), the term "offshore" is mostly connected to the geography, as most OFCs are strongly linked to OECD countries.

**Definition**
The exact definition of an OFC varies a great deal among scholars. According to the International Monetary Fund (IMF), “//An OFC is a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy.”// Following the given definition, according to the IMF, it can be calculated whether a jurisdiction is an OFC or not. Simplified, it is the ratio between net exports of financial services in relation to domestic wealth or GDP that determines if a state is an OFC or not. Some countries fall over a certain threshold, making them OFCs, such as e.g. Luxenburg, Cayman Islands or Latvia.

The IMF lists 46 (42) OFCs in the world (2007):

1 Andorra 2 Anguilla 3 Antigua and Barbuda 4 Aruba 5 Bahamas, The 6 Bahrain 7 Barbados 8 Belize 9 Bermuda 10 British Virgin Islands 11 Cayman Islands 12 Cook Islands 13 Costa Rica 14 Cyprus 15 Gibraltar 16 Guernsey 17 Hong Kong SAR 18 Ireland 19 Isle of Man 20 Jersey 21 Lebanon 22 Liechtenstein 23 Luxembourg 24 Macao SAR 25 Malaysia (Labuan) 26 Malta 27 Marshall Islands 28 Mauritius 29 Monaco 30 Nauru 31 Netherlands Antilles 32 Niue 33 Panama 34 Samoa 35 Seychelles 36 Singapore 37 St. Kitts and Nevis 38 St. Lucia 39 St. Vincent and the Grenadines 40 Switzerland 41 Turks and Caicos Islands 42 Vanuatu 43 Dominica 44 Grenada 45 Montserrat 46 Palau

Although the list varies a little between sources, as the criteria among scholars are not always those of the IMF, the majority appears on every list. The most widely accepted OFCs are The Bahamas, Bermuda, Cayman Islands, Guernsey, Jersey, Malta, Panama, which are included on the most lists of OFCs from different sources, according to a summary by Wójcik.

As can be seen from the list by the IMF, most of the OFCs are SIEs. Due to the small size of these islands, every million invested makes a big difference to their economy, making it worthwhile to have low taxes and instead attract investors.

**Activities**
The two main users of OFCs are Transnational Corporations (TNCs) and wealthy individuals. Corporations are usually financial companies or large non-financial companies, whereas wealthy individuals are very rich persons who seek to manage their assets to avoid paying high taxes and fees in their home countries.

Some of the main operations of the OFCs are in asset management, captive insurance and trust management. The OFCs in the world are specialized in different kinds of investment vehicles. According to Wózcik, "Holding companies are commonly incorporated in the Netherlands, Belgium and Switzerland; trusts in the Channel Islands; hedge funds and SPEs in the Caribbean; collective investment funds in Luxembourg and Ireland." The level of __ secrecy __ is usually very high in these states, making the OFCs more attractive, but also complicating the collection of e.g research data.

**Background**
OFCs started to emerge in the late 1950s following the creation of the London-based Euromarket, and have been growing immensily ever since. In the early 1990s, the total value of offshore deposits was estimated at $1 trillion. In the 2000s it already passed $10 trillion. It is estimated that over 50 % of total world trade is routed on paper via OFCs.

The attractions of the OFCs to foreign companies or wealthy people is quite simple: low or no taxation, banking secrecy, minimal financial regulation and political stability. However, as there are more and more incentives to tackle some issues with the OFCs, the political stability cannot always be taken for granted anymore. The pressures are tightened, which also affects the political relationships between tax havens and the rest of the world.

**Critique & Support**
OFCs or tax havens can be either loved or hated. Studies have shown that OFCs facilitate tax evasion and money laundering, thus encouraging a questionable behavior in source countries. It is inevitable that huge losses of tax are made globally due to OFCs. Hundreds of businesses are created in OFCs, and trillions of dollars are kept there by wealthy people, evading taxes of more than $ 200 billions annually.

OFCs can, however, also have a positive impact on economy, seeing as OFCs enhances the competitiveness of the local banking sector. If a local monopoly bank is surrounded by OFCs, it is forced to stay competitive, which can increase overall welfare.