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The Future for International Financial Centres Gresham Symposium London 27 March 2014. Richard Hay Stikeman Elliott (London) LLP. Presentation Overview. why IFCs exist tax and morality regulation globalisation the future for IFCs. Civil Society and International Business: Common Ground?. - PowerPoint PPT Presentation
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STIKEMAN ELLIOTT (LONDON) LLP www.stikeman.com
The Future for International Financial Centres
Gresham SymposiumLondon27 March 2014
Richard HayStikeman Elliott (London) LLP
Presentation Overview
why IFCs exist
tax and morality
regulation
globalisation
the future for IFCs
SLIDE 2 STIKEMAN ELLIOTT (LONDON) LLP
Civil Society and International Business: Common Ground?
prosperous economies support healthy public finances, private investment, development and poverty alleviation
do we value the business contribution to trade, economic growth and jobs?
business needs infrastructure- not just roads, schools and hospitals, but also a sound legal system, trained professionals, and finance
SLIDE 3 STIKEMAN ELLIOTT (LONDON) LLP
Why IFCs Get Bad Press
IFCs conduct financial services
IFCs facilitate business, and globalisation
offshore finance is, by definition, foreign to the country where the criticism arises
IFCs seldom explain why their activity is socially or economically constructive
SLIDE 4 STIKEMAN ELLIOTT (LONDON) LLP
The Role of Financial Services
financial services conduct capital formation and transmission to support trade and economic growth
financial services are strategically important and generate good jobs in the information economy
countries compete to host this important activity
SLIDE 5 STIKEMAN ELLIOTT (LONDON) LLP
International Financial Centres: Why?
the world is politically segmented, but economically integrated
tax systems are national fiefdoms, ill suited to cross-border business
are international financial services a giant criminal enterprise?
regulation: do we need cost / benefit analysis?
SLIDE 6 STIKEMAN ELLIOTT LONDON
Who Uses IFCs?
MNCs
hedge funds
private equity
venture capital and infrastructure funds
insurance, including catastrophe bonds
ordinary people?
SLIDE 7 STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 8 STIKEMAN ELLIOTT (LONDON) LLP
Pension Fund Private Investors
How a Cayman Fund WorksOther Institutional Investors
Taxable in country of residence
Governed underBritish-based Cayman law
Tax neutral so no third layer of tax
Investment Fund in Cayman
Taxable in source country
China Africa G8 Country
SLIDE 9 STIKEMAN ELLIOTT (LONDON) LLP
Why International Investors Use Offshore Companies
Infrastructure Projects in China
Cayman CompanyBank
Loan
* Investors benefit from:
British-based -law -courts-professionals
Chinese Company
Tax and Morality
morality is important in making the policy choices in tax system design
when it comes to tax compliance and enforcement, it must be done according to law- there is no other way (Michael Devereux, Oxford Centre for Business Taxation)
countries create incentives to attract international capital
politicians often condemn the use of incentives which their governments created
SLIDE 10 STIKEMAN ELLIOTT (LONDON) LLP
Tax Competition
tax and regulatory competition – US and EU differ on its benefits
is tax competition ruining EU government finances?
European states tax and spend nearly 50% of GDP
(Singapore and Hong Kong spend 22% of GDP)
SLIDE 11 STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 12 STIKEMAN ELLIOTT (LONDON) LLP
Vera Troeger
Tax Competition and the Myth of the‘Race to the Bottom’
The CAGE-Chatham House Series, No. 4, February 2013
Angela Merkel
Europe has
– 7% of the world’s population
– 25% of its total GDP
– 50% of its social welfare spending
enhanced tax collection and reform alone are not enough to achieve sustainable finances in Europe
Europe also needs structural changes in government expenditure to achieve sustainable public finances
SLIDE 13 STIKEMAN ELLIOTT (LONDON) LLP
Regulatory Standards
regulation may be used as a tool to secure a competitive edge or challenge competitors
IFCs and financial data collection and exchange: do the small centres lag or lead international regulatory standards?
British offshore centres, Benelux and Switzerland have collected beneficial ownership data on companies and trusts for a decade. Do G8 countries match this standard?
A level playing field? Bring it on…
SLIDE 14 STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 15 STIKEMAN ELLIOTT (LONDON) LLP
2003 2006
SLIDE 16 STIKEMAN ELLIOTT (LONDON) LLP
Cayman IslandsJerseyIsle of ManBVI
Bermuda
UK
US
SLIDE 17 STIKEMAN ELLIOTT (LONDON) LLP
Financial Services and Globalisation: Impact on Developing Countries
China’s increasing prosperity has been symbiotic with the rapid growth of the financial centres in Hong Kong and Singapore
international finance is required for investment and development
does offshore finance curtail crony allocation of capital?
does Africa suffer from a dearth of proximate financial centres?
SLIDE 18 STIKEMAN ELLIOTT (LONDON) LLP
The Future for IFCs
upgraded regulation should take cost / benefit analysis into account (FATF, FATCA)
IFCs support the international investment and trade which supports globalisation
countries don’t have friends, they have interests
G20 countries will protect facilities for cross-border finance, in their own interests
SLIDE 19 STIKEMAN ELLIOTT (LONDON) LLP
Globalisation: Good or Bad?
is it economically or morally desirable for unskilled western workers to earn fifty times the wages of their developing country competitors?
IMF: “Globalisation has delivered extraordinary progress for people living in developing nations.”
World Bank: “Globalisation has reduced poverty and global income equality. Income per person grew 3½ times faster in globalising developing countries than in those which have not globalised.”
SLIDE 20 STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 21 STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 22 STIKEMAN ELLIOTT (LONDON) LLP
UK Income Distribution, After Tax and Benefits
Regional disparities in poverty reduction1970–2000
SLIDE 23 STIKEMAN ELLIOTT (LONDON) LLP
Sala-i-Martin, X. "Falling Poverty and Income Inequality: A global phenomenon" Quarterly Journal of Economics, MIT Press: Cambridge, MA. 2006, 121: 2.
SLIDE 24 STIKEMAN ELLIOTT (LONDON) LLP