P OSITIVE I MPACT OF T AX H AVEN

1. POSITIVE IMPACT OF TAX HAVEN Xu Xu · Li Deng · Jinghua Liu · Bing Liu · Weiqing Cui · Yachao Wang · Meiyu Zhong November 7th 2007

2. Who Says Tax Havens Are Harmful? OECD hypocrisy • “The OECD is a cartel of about 30 wealthy countries that has given itself the power and authority to tell the rest of the world how to behave.” • Many nations belonging to the OECD are tax havens according to the definition concocted by the Paris-based bureaucracy: • US, UK, Benelux, Switzerland, Ireland…

3. Positive Impact of Tax Havens For Itself • Promoting Economic Growth • Creating Highly Effective Governments • Flourishing Strong Service Sector For Others • Protecting Human Rights • Helping to Reduce Tax Rates Globally • Boosting International Trade & Investment

4. 1) Promoting Economic Growth Growth of per capita real GDP (1989~1999) Tax haven 3.3% Hong Kong 3.5% Ireland 5.1% Singapore 5.2% Luxembourg 5.2% World1.4% v.s.

5. 1) example: Ireland Corporate tax rate 12.5% Multinational companies Exportation Success of modern economy Exemption of patent income Transfer pricing accounting measures The parking profit of companies Low-income In Europe Highest living standard One example in Ireland: US multinationals (1999~2002) Ireland the rest of Europe Profit : $13.4 billion to $26.8 billion Fell

6. 2) Creating Highly Efficient Governments • “voice and accountability” (VA) • “political stability” (PS) • “government effectiveness” (GE) • “regulatory quality” (RQ) • “rule of law” (RL) • “control of corruption” (CC). Global Governance Rankings

7. 2) Creating Highly Efficient Governments

8. 3) Flourishing Strong Service Sector In tax heavens, banking, trust, investment, accounting, custodial, insurance and legal services, which are necessary to support international business, are of the highest international standard. These are supplemented by local management, financial, and corporate service companies. Market Statistics by Company Type For the Year ended 31st December, 2005 No. of Company Type Co's Gross Premiums Net Premium Total Assets Cap. and Surplus Captives Association Captive 116 5,094,078,217 4,646,534,983 16,767,152,643 4,662,297,267 Captive writing 3rd party 172 5,096,295,255 3,784,024,228 22,608,846,402 10,496,859,053 Group Captive 122 1,440,632,405 1,160,157,078 3,896,488,886 1,332,061,452 Health Care Captive 60 642,094,678 575,679,954 2,663,612,960 701,425,240 Rent-A-Captive 64 2,058,524,471 812,106,464 1,952,099,430 361,295,322 Single-Parent Captive 335 5,098,465,489 4,091,542,771 17,123,148,175 8,251,263,790 Sub-Totals: 869 19,430,090,515 15,070,045,478 65,011,348,496 25,805,202,124 Professional Ins./Reinsurers Affiliated Reinsurer 65 4,095,222,451 3,035,313,613 12,347,078,366 3,808,591,096 Class 4 Ins./Reinsurer 38 30,799,130,892 27,557,760,964 116,800,797,923 40,907,760,475 Professional Ins./Reinsurer 340 46,357,605,536 40,612,011,911 135,662,998,811 39,512,757,874 Sub-Totals: 443 81,251,958,879 71,205,086,488 264,810,875,100 84,229,109,445 Totals: 1,312 100,682,049,394 86,275,131,966 329,822,223,596 110,034,311,569 Source: Bermuda Monetary Authority

9. Banking No exchange control Company Secretary Best secrecy Strong service: Day to day banking Payments and Transfers Investment management Accounting No auditing No annual return of shareholders No disclosure of Beneficial Ownership to Authorities No special formalities need to be followed 3) example: Services in Bermuda Law The Exchange Control Act 1972 and the Companies Act 1981 set out various provisions in relation to the issue, transfer, redemption and repurchase of securities. Others • Flexibility • Timescale • The Bermuda Chamber of Commercial

10. 4) Protecting Human Rights Tax havens’ financial confidentiality provide a refuge to people who need protection. A huge share of the world’s population does not live in civilized nations that respect the rule of law and property rights. Most people are subject to discrimination if they are religious, racial, ethnic, political, or sexual minorities. Others are victimized by corruption, expropriation, or crime. Even the OECD’s Jeffrey Owens admitted that “tax havens are essential for individuals who live in unstable regimes.”

11. 5) Helping to Reduce Tax Rates Globally So-called tax havens have helped encourage high taxnations to reducecorporate income tax rates by about 20 percentage pointssince 1980.

12. 5) Helping to Reduce Tax Rates Globally And reduced personal income tax rates by about 25 percentage points since 1980.

13. 6) Boosting International Trade & Investment

14. 6) FDI Inward Side: China & US • The empirical evidence indicates that firms facing reduced costs of establishing tax haven operations respond in part by expanding their foreign activities in nearby high-tax countries. Hence it appears that careful use of tax haven affiliates permits foreign investors to avoid some of the tax burdens imposed by domestic and foreign authorities, thereby maintaining foreign investment at levels exceeding those that would persist if tax havens were more costly. Use of tax havens by foreign investors may help to explain the fact that high-tax countries are able to maintain high-tax rates while continuing to draw significant levels of foreign investment. China US

15. Canada’s Report Outward FDI is an important component of a country’s competitive strategy, increasing the market for Canadian products abroad, resulting in increased Canadian exports, capital formation and hence employment in Canada. The cost of capital falls with the tax rate (Mintz ).→The use of tax havens as a conduit reduces the cost of capital of the Canadian firms, which is called tax advantage. 6) FDI Outward Side: Canada & US US figures

16. 6) Boosting International Trade & Investment

17. Positive Impact of Tax Havens For Itself • Promoting Economic Growth • Creating Highly Effective Governments • Flourishing Strong Service Sector For Others • Protecting Human Rights • Helping to Reduce Tax Rates Globally • Boosting International Trade & Investment

18. The Problem Is High Tax Rates Experts, including those at the IMF, have discovered that tax evasion unambiguously is a function of tax rates. When tax rates are high, taxpayers find ways to avoid and evade. High tax rates, particularly on the margins, simply stall economic growth and depress tax revenues rather than boosting them, and they may drive a significant part of the economy underground (black market economy), further reducing state receipts. example: France

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