Tuesday, November 10, 2009

Britain advices BVI and other tax havens to implement more taxes

On October 29, 2009, an independent review commissioned by the UK Government was issued, led by Michael Foot, former managing director of the UK's Financial Services Authority. The main concern of the report is the analysis of the situation in the offshore financial centres that are British Crown dependencies. These are Guernsey, Isle of Man and Jersey (where the situation is more favorable than in remote jurisdictions), and offshore territories Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos. All these countries have suffered from the global financial downturn, because their economy was to a much extent based on international finances, and, as Mr. Foot noted in the report, they must review their taxation policy to improve the situation.

Foot argued that the Caribbean offshore centres, including the British Virgin Islands, needed a diversified tax base. By his words, there is a need for value-added taxes, as well as corporate taxes, levied on companies' profits. These new taxes may be of great impact for the Caribbean tax havens, which have attracted international businesses by their low tax rates: the report states that the BVI and other British territories comprise nearly two-thirds of the offshore market.

Some of the offshore centres refused the implementation of new taxes, but Foot said that keeping tax rates too low might be harmful in the long-term and contribute to the increase of international pressure on tax havens.

Foot also said in the report that many of the territories received lower revenues as the sectors of tourism and finance which were of main importance for their economy suffered very much because of the worldwide economic crisis.

The report received the support of Government of Great Britain, which has varying degrees of control over the territories' domestic and foreign policy. By words of Stephen Timms, the Financial Secretary to Britain's Treasury, this report “sends a strong signal to overseas financial centres that they must ensure that they have the correct regulation and supervision in place.”

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