Define and discuss off-shore financial services, giving examples of their activities and the effects they have on national tax collection

Question

What will be an ideal response?

Answer 1

Answer: Developing countries specialize in two distinctive types of business services. These are offshore financial services and back office functions. Small countries, usually islands and microstates, exploit niches in the circulation of global capital by offering offshore financial services. Offshore centers provide two important functions in the global circulation of capital:

Taxes: Taxes on income, profits, and capital gains are typically low or nonexistent. Companies incorporated in an offshore center also have tax-free status regardless of the nationality of the owners.

Privacy: Bank secrecy laws help individuals and businesses evade disclosure in their home countries. People and corporations can protect their assets from lawsuits by depositing their money in offshore banks. Creditors cannot reach such assets in bankruptcy hearings. The privacy laws and low tax rates in offshore centers can also provide tax havens. Offshore centers include dependencies of the United Kingdom and other developed countries, as well as independent countries. A prominent example is the Cayman Islands, a British Crown Colony in the Caribbean Sea, near Cuba. The Caymans have only 40,000 inhabitants but also count 70,000 companies, including several hundred banks and the world's four largest legal and accounting firms. In the Caymans, it is a crime to discuss confidential business, defined as matters learned on the job, in public.

Assets placed in an offshore center by an individual or corporation in a trust are not covered by lawsuits originating in other countries. To get at those assets, additional lawsuits would have to be filed in the offshore centers, where privacy laws would shield the individual or corporation from undesired disclosures.