Offshore Financial Centres - Treasury Contents


Memorandum from the Government of the British Virgin Islands (BVI)

EXECUTIVE SUMMARY

    —  The BVI Government understands that the focus of the Inquiry is Offshore Financial Centres (OFCs) and the role these countries play in the international financial system. One of the questions specifically references Britain's overseas territories. In light of this the BVI Government hereby submits written evidence to the Committee.

    —  In financial services, the BVI is widely regarded as operating a robust regulatory and supervisory regime, in addition to its well-established international cooperation regime. This is a fact recognized by international organisations including the Financial Action Task Force (FATF) and the International Monetary Fund (IMF).

    —  The financial services sector grew out of the 1984 passage of the International Business Company (IBC) Act. However, since then it has broadened in scope to include insurance, mutual funds, fiduciary and wider corporate services. There are also a small number of banks.

    —  The Government of the BVI follows the principle that good governance of the jurisdiction combined with sound regulation enhances our reputation and in turn brings high quality business into the financial services sector.

    —  On the foundation of good governance, the BVI has established a strong regulatory reputation. Indeed, the BVI was one of the first jurisdictions to establish a fully independent financial regulator, the Financial Services Commission (FSC), which has been critical to ensuring the effectiveness of the regulatory system and therefore of our reputation.

    —  While their roles are very separate, the BVI Government works closely with the FSC to ensure that legislation is consistently updated so that the jurisdiction operates to international standards. In 2003 the Financial Investigation Agency Act established the Financial Investigations Agency (FIA).

    —  The BVI is now of major importance in the global financial system and as with any major financial centre activity to deter the criminal element can never be static. The recent NAO report on "Managing Risk in the Overseas Territories" specifically drew attention to the FIA and commended the BVI for its establishment.

    —  The FIA is a member of the Egmont Group of 108 Financial Intelligence Units and participates in all aspects of the work of the Group. The Agency shares information relating to Suspicious Transaction Reports (SARs) with local law enforcement, regulatory and prosecutorial authorities and foreign law enforcement agencies including foreign Financial Intelligence Units.

    —  The recently concluded IPOC International Growth Fund case is a prime example of the importance of international cooperation in the fight against money laundering, terrorist financing and other financial crime. In this particular case authorities in the Virgin Islands and Bermuda conducted the probe for 17 months.

    —  It is important to note that the BVI's policies and legislation have been developed in close consultation with the private sector to ensure that they meet the needs of the financial community.

    —  Many law firms, accounting firms, trust companies and fund administrators that have a presence in the BVI also have offices in other parts of the world. This applies equally to the handful of banks with a presence in the BVI. Where such organisations apply a "group standard" typically they use the highest level of standards applicable to any member of the group.

    —  One of the key factors to the success of the BVI is the importance of the competency requirements of the individual professions within the BVI financial services sector, which is essential to maintaining the BVI's position as a leading financial centre.

    —  It is currently estimated that there are at least 110 lawyers who are admitted to practice law in the BVI and who are in private practice.

    —  Accountants are the second largest professional group in the BVI financial services sector. The major accountancy firms including KPMG, PWC, Deloitte, Ernst and Young have all established a presence in the BVI, in addition to some of the smaller international firms and boutique specialist firms.

    —  The BVI has deliberately chosen not to be a banking jurisdiction and we have only nine banks. However, all these have suitably qualified senior officers, a number of whom are accredited by and are members of the Association of Executives in Finance, Credit and International Business.

    —  The BVI has been regulating trust service providers long before there was thought of an international requirement to do so. As a result among those working in the BVI financial services sector are a number of highly qualified trust and estate practitioners, some of whom are internationally recognised for their expertise in this field.

    —  The BVI Government and the FSC recognise the pivotal role transparency and exchange of information plays in combating crime and the misuse of the financial system. Both are committed to policies which foster greater international co-operation to render assistance where necessary.

    —  The BVI does not have, and has never had, secrecy laws for financial services. It has no legislation which institutionalizes secrecy in any part of the regulatory process. The BVI subscribes to the common law principle of confidentiality while having in place avenues for accessing information for regulatory and law enforcement purposes including rendering assistance to foreign regulatory and law enforcement authorities.

    —  Contrary to many policy concerns, the ability of investors to use OFC operations does not appear to divert activity from other jurisdictions. The empirical evidence indicates that firms facing reduced costs of establishing OFC operations respond in part by expanding their foreign activities in high-tax countries. Hence it appears that careful use of OFC affiliates permits foreign investors to avoid financing costs they would otherwise incur, and some of the tax burdens imposed by domestic and foreign authorities, thereby maintaining foreign investment at levels exceeding those that would persist if the use of OFCs were more costly.

    —  The BVI has always been amenable to entering into and concluding treaties with foreign jurisdictions, including law enforcement and tax authorities, to exchange and share information on a variety of matters.

    —  In 2002 the BVI formally and unequivocally committed to the OECD principles of transparency and effective exchange of information.

    —  The new legislative regime for tax information exchange enables the Financial Secretary, as the competent authority on tax matters, to receive and fully investigate requests for mutual legal assistance in relation to persons.

    —  Finally, it should be noted that the BVI voluntarily adopted and implemented the EU Directive on the Taxation of Savings Income through the enactment of the Mutual Legal Assistance (Tax Matters) (Amendment) Act, 2005. By virtue of this enactment, the BVI is able to cooperate with and render assistance to all the EU Member States, including the UK.

INTRODUCTION

  The BVI Government understands that the focus of the Inquiry is Offshore Financial Centres (OFCs) and the role these countries play in the international financial system. One of the questions specifically references Britain's overseas territories. In light of this the BVI Government hereby submits written evidence to the Committee.

  In the preparation for this submission the BVI Government has consulted widely with the BVI financial services private sector and with academics who have looked at this issue in detail, particularly over the last ten years. In particular we have drawn on material provided by Professor James R. Hines Jr., University of Michigan and the National Bureau of Economic Research (NBER) (U.S.) who has specialised in this area of academic research. The insights of both sources are included together with details on the structure of the financial services sector in the BVI.

  It should be noted that the regulatory function of the BVI financial services sector is entirely separate from the Government. The detail on the operation of the regulatory regime of the jurisdiction is therefore contained in a separate submission from the BVI Regulator, which is the Financial Services Commission (FSC), and it is to this body that specific questions about the regulation of financial services in the BVI should be addressed.

  The Committee has asked a number of questions pertaining to the role OFCs play in the global financial system and fortunately, there is extensive recent research that offers important insights into these questions. This evidence indicates that OFCs contribute to financial development and stability in neighbouring countries, encourage foreign direct investment in high-tax countries, have salutary effects on tax competition, promote good government, and enhance economic growth elsewhere.

ABOUT THE BVI

  1.  The British Virgin Islands is located in the Caribbean, 60 miles east of Puerto Rico. The principal islands of Tortola and Virgin Gorda are where most of the Territory's 25,000 inhabitants live with the rest scattered around a number of smaller islands. Road Town is the administrative and economic capital.

  2.  Politically stable and internally self-governing the BVI maintains a fully democratic system. The Territory recently adopted a new Constitution which has allowed for significant constitutional advancement and, among other developments, clearly defines the role of the Governor and ensures a role for the locally elected BVI Government in all issues which might directly impact upon the Territory or its population. This includes the establishment of a National Security Council to advise on internal security and a degree of enabling power for the BVI Government to undertake external affairs on its own behalf. BVI Law is based on the English Legal System and English Common Law. The court system is made up of a Magistrate's Court, a High Court and an itinerant Court of Appeal of the Eastern Caribbean Supreme Court with final appeal to the Privy Council in England.

  3.  The BVI has a thriving economy with negligible unemployment. This stems from the successful management of the twin pillars of its economy: tourism and financial services. Because of traditionally close links with the US Virgin Islands, the British Virgin Islands uses the US dollar as its official currency.

  4.  In financial services, the BVI is widely regarded as operating a robust regulatory and supervisory regime, in addition to its well-established international cooperation regime. This is a fact recognized by international organisations including the Financial Action Task Force (FATF) and the International Monetary Fund (IMF). The UK has ratified on behalf of and, as necessary, extended to the BVI relevant international conventions germane to the Territory's regulatory and law enforcement regimes, such as the 1988 UN Convention on the Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) and the 1993 UN Convention against Corruption. The BVI now hopes that the UK will ratify on its behalf the UN Convention against Transnational Organised Crime (Palermo Convention) and the UN International Convention for the Supression of the Financing of Terrorism, considering that the Territory has enacted the obligations enshrined in these Conventions in domestic law.

  5.  The financial services sector grew out of the 1984 passage of the International Business Companies (IBC) Act (1984). However, since then it has broadened in scope to include insurance, mutual funds, fiduciary and wider corporate services and some banking services with the establishment of appropriate legal and administrative structures to properly and effectively regulate and supervise such service industries.

BVI FINANCIAL SERVICES SECTOR

Governance

  6.  The Government of the BVI follows the principle that good governance of the jurisdiction combined with sound regulation enhances our reputation and in turn brings high quality business into the financial services sector. Several jurisdictions have benchmarked their own offerings against ours. BVI financial services continue to be compliant with and even exceed the relevant international requirements. Indeed, new evidence (Dharmapala and Hines, 2006) shows that OFCs score very well on the World Bank's cross-country measures of governance quality that include measures of accountability, political stability, government effectiveness, rule of law, and control of corruption. In a statistical analysis that controls for other observable variables, the impact of good governance on the likelihood of becoming an OFC is both statistically significant and quantitatively very large.

  7.  The simple reason for this is that higher foreign investment flows, and the economic benefits that accompany them, are more likely to materialise for well-governed OFCs than they would for poorly-governed countries that attempt to set themselves up as financial centres. Evidence from the behaviour of American firms is consistent with this explanation, in that, among poorly governed countries, low tax rates do not prompt very much additional U.S. investment, whereas among well governed countries there is a significant investment impact of lower tax rates (Dharmapala and Hines, 2006).

Financial Services Commission

  8.  On the foundation of good governance, the BVI has established a strong regulatory reputation. Indeed, the BVI was one of the first jurisdictions to establish a fully independent financial regulator, the Financial Services Commission (FSC), which has been critical to ensuring the effectiveness of the regulatory system and therefore of our reputation.

  9.  The FSC is an autonomous institution established under the Financial Services Commission Act 2001. It is answerable to Cabinet and the House of Assembly through the Minister of Finance. The highest body of the Commission is a Board of Commissioners which comprises a Chairman and six other Commissioners, including the Managing Director. One of the Board Members is required to be selected from outside the BVI and has to be a person with a strong financial services background.

  10.  While their roles are very separate, the BVI Government works closely with the FSC to ensure that legislation is consistently updated so that the jurisdiction operates to international standards. In 1997 the BVI enacted the Proceeds of Criminal Conduct Act designed to formally counter money laundering activities. The legislation introduced a new reporting regime for all suspicious activities relating to financial transactions and established a Reporting Authority. In 2003 the Financial Investigation Agency Act transformed this Authority into the Financial Investigations Agency (FIA). Virtually every year amendments and new legislation are passed to enhance efficiency in regulation and enforcement. In 2007 the BVI Government and FSC published the Handbook on International Cooperation which details the procedures for submitting requests for mutual legal assistance in the area of financial services.

  11.  The BVI is now of major importance in the global financial system and as with any major financial centre, activity to deter the criminal element can never be static. The recent NAO report on "Managing Risk in the Overseas Territories" specifically drew attention to the FIA and commended the BVI for its establishment.

Financial Investigations Agency

  12.  The FIA is funded jointly by the FSC and the BVI Government, and inter-alia, investigates well-founded suspicious transactions. It is the therefore the body responsible for receiving, obtaining, investigating, analyzing and disseminating information relating to money laundering, the financing of terrorist activities and other financial crime. The agency is a member of the Egmont Group of 108 Financial Intelligence Units around the world, formed in 1995 to foster cooperation in combating money laundering, the financing of terrorism and other financial crime. The BVI FIA participates in all aspects of the work of the Group and is an active member of both the Outreach Working Group and the Training Working Group. The Agency shares information relating to Suspicious Transaction Reports with local law enforcement, regulatory and prosecutorial authorities and foreign law enforcement agencies including foreign Financial Intelligence Units.

  13.  The recently concluded IPOC International Growth Fund case is a prime example of the importance of international cooperation in the fight against money laundering, terrorist financing and other financial crime. In this particular case authorities in the Virgin Islands and Bermuda conducted the probe for 17 months. In April 2008, IPOC International pleaded guilty to providing false information and perverting the course of justice.

  14.  The Bermudan and British Virgin Islands Governments spent a total of US$2.3 million investigating the IPOC fraud case and the evidence in the case totalled over half a million in pages of documents. The case resulted in the confiscation of over US $40 million, the largest seizure of its kind in the Commonwealth.

FIA Statistics

Year
2007 20062005 200420032002 20012000 19991998

SARs Received
104 10210161 6514062 262718
SARs

Analysed/Investigated
104 10210161 6514062 262718
Restraint OrdersNil3 711 21NilNil Nil
Production OrdersNil2 Nil13 7341 Nil
Mutual Legal Assistance Requests36 265333 3



BVI Private Sector

  15.  It is also important to note that the BVI's policies and legislation have been developed in close consultation with the private sector to ensure that they meet the needs of the financial community. Through this, the BVI Government has established a sophisticated and efficient supervision and regulatory regime to safeguard the integrity of the jurisdiction while creating an operating environment that is attractive to business.

  16.  In addition it is worth noting that as well as the high and exacting standards required under BVI's own regulatory regime, some service providers are now obliged to apply group standards as a result of being part of a wider global organisation.

  17.  Many law firms, accounting firms, trust companies and fund administrators that have a presence in the BVI also have offices in other parts of the world. This applies equally to the handful of banks with a presence in the BVI. Where such organisations apply a "group standard" typically they use the highest level of standards applicable to any member of the group.

  18.  Furthermore a BVI service provider that operates a foreign branch is required to ensure that it operates to the standards established by or at least equivalent to those established under domestic BVI legislation. Ordinarily the foreign jurisdiction of operation will have standards consistent with and reflective of those established by the FATF. In circumstances where the established standards differ, the entity's foreign branch is required to adopt the higher standards applicable in its jurisdiction of operation.

  19.  Where global due diligence policies are in place these are very often applied through the use of a group due diligence database. This allows an office within the group to establish whether a client that is perhaps new to that particular office has already been subject to a due diligence exercise within the group and access details of the information and documentation gathered.

  20.  In addition to group standards, BVI service providers are also required to consider the standards of foreign jurisdictions in the context of relying on an introduction from a source in a foreign jurisdiction. The BVI service provider is obliged to ensure that the jurisdiction in which the introducer is based meets FATF obligations as regards anti-money laundering and countering the financing of terrorism and that supervisory agencies are in place there to monitor and regulate the activities of such introducers.

  21.  Within this framework, one of the key factors to the success of the BVI is the importance of the competency requirements of the individual professions within the BVI financial services sector, which is essential to maintaining the BVI's position as a leading financial centre.

Law

  22.  Lawyers qualified to practise BVI law comprise the largest group of professionals in the BVI financial services sector. It is currently estimated that there are at least 110 lawyers who are admitted to practice law in the BVI and who are in private practice (at least three of whom are Queens Counsel). There are also a number of qualified lawyers working at the various trust companies resident in the BVI who are not necessarily admitted to practice BVI law but rather are qualified in other jurisdictions, including lawyers qualified to practice in non-common law jurisdictions (current estimations suggest there are at least 35 lawyers that fall into this category).

  23.  The BVI continues to attract lawyers of the highest calibre and experience. These standards are maintained through statutory admission and professional conduct requirements, initiatives of the BVI Bar Association and internal policies of those law firms resident in the BVI.

  24.  The legal community of the BVI is regulated by the BVI High Court and the requirements for admission are laid down in the Eastern Caribbean Supreme Court (Virgin Islands) Act This Act also establishes the rules of professional conduct for solicitors by stipulating that the law and practice relating to solicitors in force in England shall extend to and be in force in the BVI and shall apply to all persons lawfully practising as solicitors of the High Court. Consequently, those rules of professional conduct for solicitors in England and Wales apply equally to those solicitors admitted in the BVI.

  25.  The BVI Bar Association was founded in 1976 to regulate the legal profession in the BVI. It is a voluntary organisation; however, legal practitioners are not eligible to join until they have been resident in the BVI for at least one year (unless they hold Belonger status). It is accepted that the Bar Association speaks for the profession as a whole within the jurisdiction and often addresses the Legislature on that basis. The Bar Association also takes an active role in informing its members as to key developments and initiatives involving the legal profession. Currently, there are 94 members of the BVI Bar Association that are resident in the BVI.

  26.  In June 2006, the BVI Government introduced the Legal Profession Bill, which makes provision for the fusion of the barrister and solicitor branches of the legal profession, regulates admission requirements and promotes legal education and the discipline of legal practitioners. Although the Bill was not passed before the holding of the BVI general election in 2007, the current Government is likely to review the position and present a similar Bill to the Legislature. The Bill in its current form models legislation that onshore jurisdictions have used to regulate their legal professions and is yet another example of the BVI's focus on providing unparalleled legal services.

  27.  A further recent development is that progress is being made in connection with the establishment of a specialist Commercial Court, which will be a division of the Eastern Caribbean Supreme Court. The Commercial Court will be headquartered in the BVI and will further improve the BVI's standing as one of the leading jurisdictions for the settlement of contentious commercial matters.

  28.  The BVI also regularly hosts visiting Queens Counsel and senior barristers for those hearings and appeals before the High Court and Court of Appeal. It is a requirement that these visiting barristers are also admitted to practice BVI law.

  29.  In recognition of the fact that the BVI is a leading Financial Centre with an ability to attract the highest calibre lawyers, each of the leading international offshore law firms now have substantial presence in the BVI. These larger law firms are full service firms, with an ability to advise on all aspects of BVI law, often through specialist departments advising on corporate and commercial law, banking and finance, capital markets, investment funds, private equity, litigation, insolvency, trusts, wills and estates.

  30.  The law firms resident in the BVI, through their internal policies and initiatives, ensure that the competency levels of those lawyers practising in the BVI are maintained at the highest standard. Examples of such policies and initiatives are as follows:

    (a) international offshore law firms resident in BVI typically have policies governing lawyer recruitment and consequently, have very high recruitment standards. It is common for international offshore law firms to hire only those lawyers that have been admitted in England and Wales and have at least three years post-qualification experience and who have been trained by leading City law firms (or equivalent);

    (b) many of the international law firms have comprehensive training programmes (equivalent to Articles in England) for those BVI attorneys who have qualified through the Certificate of Legal Education from the Council of Legal Education of the West Indies;

    (c) many of the law firms provide continuing legal education and training for their lawyers on an on-going basis. Some also provide regular advisory services in order to assist their lawyers in keeping abreast of international legal and economic developments, news and market trends; and

    (d) in response to the increasing trend for firms to become multi-jurisdictional, many of the international offshore law firms are hiring lawyers who are qualified in multiple jurisdictions (including other onshore and offshore jurisdictions) thereby enabling such firms to provide advice on a number of different laws (often to the same client). In addition, such multi-jurisdictional firms are also able to call on the expertise of colleagues in offices in other jurisdictions, as and when the need arises.

Accountancy

  31.  Accountants are the second largest professional group in the BVI financial services sector. The major accountancy firms including KPMG, PWC, Deloitte, Ernst and Young have all established a presence in the BVI, in addition to some of the smaller international firms and boutique specialist firms.

  32.  It is currently estimated that at least 100 qualified accountants practising in the BVI and that 40% are employed by an accountancy firm and the remaining 60% are working in-house for a trust company, bank, law firm or investment fund administrator.

  33.  Like the international offshore law firms, the accountancy firms resident in the BVI attract the highest calibre of accountants with well-recognised qualifications such as ACA, ACCA and CPA.

  34.  The growth of the BVI investment funds industry over recent years has attracted a number of internationally recognised investment fund administrators, such as Fortis Prime Funds Solutions (BVI) Limited, BISYS Hedge Fund Services (BVI) Limited, Citigroup Fund Services (BVI) Ltd and Conifer Fund Services Ltd. These organisations, in keeping with their international standards, employ highly trained and qualified staff, many of whom have formal accountancy qualifications. It is also important to note that such organisations have had to satisfy the stringent regulatory requirements in order to be granted a licence by the BVI Financial Services Commission.

Banking

  35.  The BVI has deliberately chosen not to be a banking jurisdiction and we have only nine banks. However, all these have suitably qualified senior officers, a number of whom are accredited by and are members of the Association of Executives in Finance, Credit and International Business.

  36.  Unlike the BVI, a number of other financial centres are substantial banking centres. It is therefore worth noting that primary due diligence is undertaken in those centres where the financial transactions take place, normally a banking centre. Therefore these centres will always file a far higher number of Suspicious Transaction Reports (SARs) as a matter of course even if some of them then relate to the BVI companies as part of the transaction.

Trust and Estate Practitioners

  37.  The BVI has been regulating trust service providers long before there was thought of an international requirement to do so. As a result among those working in the BVI financial services sector are a number of highly qualified trust and estate practitioners, some of whom are internationally recognised for their expertise in this field. These practitioners are particularly active in the Society of Trust and Estate Practitioners (STEP), the professional body for the trust and estate profession worldwide. STEP members come from the legal, accountancy, corporate, trust, banking, insurance and related professions, and are involved at all levels in the planning, creation and management of, and accounting for, trusts and estates, executorship, administration and related taxes.

  38.  The BVI has an active branch of STEP which has 68 full members. To gain admission to STEP it is necessary to submit three theses (if the applicant is a lawyer or an accountant) or to sit the STEP Diploma course. Local STEP records show that at present there are 36 Diploma students and 24 Foundation students. The BVI branch of STEP regularly provides educational seminars on topics of interest to the financial services sector, which is available to both members and non-members alike, thereby contributing to the continuing education of those in the BVI financial services sector.

Fiduciary Services

  39.  Many of those working in the BVI financial services sector, particularly in the area of fiduciary services, have attained or are working towards attaining an ICSA qualification from the UK-based Institute of Chartered Secretaries and Administrators (ICSA). It is currently estimated that there are ten fully qualified chartered secretaries in the BVI (five holding the FCIS qualification and five holding the ACIS qualification). It is also estimated that there are up to 200 students involved in undertaking modules of the various ICSA certificates and diplomas. The H. Lavity Stout Community College in the BVI offers the ICSA course as part of the college curriculum.

Compliance

  40.  Under the provisions of the Financial Services Commission Act, 2001, a regulated person (not otherwise exempt) must appoint a Compliance Officer who shall be subject to the approval of the FSC. Accordingly, those appointed as Compliance Officers in the BVI are appropriately qualified and have met the requirements of the Commission's "fit and proper" test.

  41.  It is currently estimated that there are three fellows of the International Compliance Association resident in the BVI together with eight members of the International Compliance Association and 13 associate members of the International Compliance Association (many of whom are working towards full membership).

ADDRESSING THE COMMITTEE'S SPECIFIC QUESTIONS

To what extent, and why, are Offshore Financial Centres important to worldwide financial markets?

  42.  Offshore financial centres play increasingly important roles in global financial markets and the world economy. There are at least five ways in which OFCs contribute to the operation of economies worldwide. The first is that OFCs discipline financial markets in other parts of the world, limiting the degree to which banks and other large institutions can exploit local monopolies to the disadvantage of individuals and businesses. The ability of investors to channel financial transactions through OFCs reduces interest rate spreads, arbitrary credit allocation, and other problems associated with excessive market power on the part of local financial intermediaries. As a result, OFCs enhance the stability of the world financial architecture.

  43.  The second important role of OFCs is their place in stimulating foreign direct investment in high-tax parts of the world. Investors are often better able to structure their capital commitments to high-tax countries by using OFCs, and it appears that levels of foreign direct investment in high-tax countries are sensitive to the availability of financing structures that use OFCs. Evidence of foreign direct investment patterns indicates that firms that are more likely to establish finance affiliates in OFCs exhibit more rapid growth rates of investment and sales in nearby high-tax countries.

  44.  The third role of OFCs is their impact on tax collections and tax competition among large countries. The evidence of the last 30 years is that there has been relatively little tax competition among OECD countries, as tax bases have broadened at the same time, and to the same degree, that statutory tax rates have fallen. Recent economic research suggests that the availability of targeted low-tax opportunities, such as financing structures that use OFCs, permits governments to maintain healthy domestic tax bases. Hence far from ushering an era of unbridled tax competition, there is good reason to believe that OFCs permit governments of large countries to implement the domestic tax policies they want and need in the face of international economic pressures.

  45.  The fourth role of OFCs is to promote good governance and the benefits that flow from democratic accountability. Countries and territories without good governance institutions are much less likely to become OFCs than are otherwise similar countries and territories without high quality governance institutions. As a result, OFCs display the economic benefits available from democratic reforms, hopefully indirectly encouraging such reforms. Moreover, the unwillingness of market actors to devote extensive resources to OFCs without high quality governance institutions means that the OFC market is dominated by countries and territories with institutions established by transparent and accountable governments.

  46.  The fifth role of OFCs is their place in the world economy. OFCs as a group have enjoyed rapid economic growth in the last 25 years, reflecting in part the growing importance of financial sectors of modern economies, and in part the special roles played by OFCs. Greater affluence in this part of the world contributes to economic performance elsewhere, as part of the usual process of economic spill over. Far from drawing down or somehow reducing economic activity elsewhere in the world, the ability of OFCs to contribute to finance and other sectors adds value to economic activity everywhere.

To what extent does the use of Offshore Financial Centres threaten financial stability?

  47.  This question pre-supposes a clear distinction between OFCs and other types of financial centre. For example, most OFCs tend to be low tax countries, but not all. France offers certain special concessions on tax and can be used as a channel for tax planning through its tax treaty networks. Yet few would claim that France is a low tax country. Furthermore, some so-called OFCs are not even offshore or even individual countries. The US states of Delaware and Nevada which have passed legislation in the area of trusts and compete with OFCs in a number of other areas are good examples.

  48.  It is therefore not so simple to extract a group of jurisdictions and suggest that as a group they threaten financial stability anymore than major centres such as New York or London could. Indeed, as a key player in the financial services world, the BVI recognises the obligations that relate to such a role in ensuring global financial stability. Thus all of the Territory's financial services legislation is benchmarked against internationally established standards of prudential regulation as enunciated from time to time by standard setting institutions such as the Financial Action Task Force (FATF), the Caribbean Financial Action Task Force (CFATF), the International Organisation of Securities Commissions (IOSCO), the Offshore Group of Banking Supervisors (OGBS) and the International Association of Insurance Supervisors (IAIS). Current legislation is constantly reviewed and new legislation enacted as becomes necessary to ensure that the Territory is attuned to emerging standards of regulation.

  49.  An important function of OFCs is to discipline financial markets elsewhere in the world. The financial sectors of economies in much of the world are tightly controlled by small numbers of firms and by governments, either through monopolies that are sanctioned by regulation or, most commonly, through state ownership of banks (La Porta et al., 2002). This is particularly true in low-income countries and countries that lack strong democratic institutions, where government ownership of the banking sector is the norm, and where there is pervasive cronyism in the allocation of credit. The resulting absence of competition in credit markets raises interest rates charged to consumers and businesses, and encourages credit rationing in which certain borrowers are effectively unable to obtain credit at any feasible price. To make matters worse, absence of competition in banking appears to influence the whole financial sector, which is underdeveloped as a result.

  50.  In modern economies there is a considerable cost associated with financial underdevelopment, whatever its underlying causes. As La Porta et al. (2002) document, the financial sectors of economies with uncompetitive banking sectors are less active than are the financial sectors of other economies and countries with monopolized and therefore underdeveloped financial sectors exhibit slower rates of productivity growth and lower levels of per capita income.

  51.  OFCs have the potential to address some of the problems associated with uncompetitive financial sectors, in essence by providing a needed source of competition for banks and other financial intermediaries.

  52.  OFCs also contribute to financial sector depth in nearby countries, and it is logical that they should do so, since international finance facilitates domestic finance. Do countries benefit from greater financial sector development? The evidence is that economies with more competitive financial sectors have higher per capita income levels and display faster rates of GDP growth than do other economies, which is not surprising, given the importance of financial arrangements to modern economies. Another way to express this question is to ask what the alternative is to competition in financial markets. The alternative is a monopolized or quasi-monopolized sector that charges above-market prices to consumers and businesses, that rations capital on the basis of personal relationships, and that serves as a drag on local economies.

  53.  By acting as a counterpoint to this, OFCs enhance the stability of the global financial architecture.

How transparent are Offshore Financial Centres and the transactions that pass through them to the United Kingdom's tax authorities and financial regulators?

  54.  The Government of the British Virgin Islands and the Financial Services Commission recognise the pivotal role transparency and exchange of information play in combating crime and the misuse of the financial system. Both are committed to policies which foster greater international co-operation to render assistance where necessary.

  55.  The BVI does not have, and has never had, secrecy laws for financial services. It has no legislation which institutionalizes secrecy in any part of the regulatory process. The BVI subscribes to the common law principle of confidentiality while having in place avenues for accessing information for regulatory and law enforcement purposes including rendering assistance to foreign regulatory and law enforcement authorities.

  56.  The Financial Services Act 2001 vests the Commission with broad powers of enforcement which include the exercise of powers to respond to requests for mutual assistance. Section 33(d) of the Act specifically provides the mechanism for giving assistance to foreign regulatory authorities. The Commission operates a transparent system of regulation of licensed entities engaged in business within, and from within, the British Virgin Islands.

  57.  In terms of enforcement, the Criminal Justice (International Co-operation) Act 1993 is used to render assistance in criminal law matters including fiscal matters such as tax evasion. The BVI also has a Mutual Legal Assistance Treaty with the United States which includes criminal taxation matters.

  58.  The BVI is a participating partner in the OECD's Global Forum on Taxation and Co-Chaired the Joint Ad Hoc Group on Accounts. In April 2002, the BVI committed to the OECD's principles for effective exchange of information and transparency. Following this commitment, the BVI concluded a Tax Information Exchange Agreement (TIEA) with the United States on 3 April 2002. The BVI has a number of on-going negotiations on TIEAs with OECD Member States, including the United Kingdom.

  59.  The Mutual Legal Assistance (Tax Matters) Act 2003 provides the legal framework for the British Virgin Islands to render exchange of information with regard to tax matters through Tax Information Exchange Agreements.

  60.  The Act provides mutual legal assistance through the exchange of information relating to the administration and enforcement of the domestic laws of the parties concerning the tax matters covered by an Agreement signed with a specified country, including information that may be relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons.

  61.  The Mutual Legal Assistance (Tax Matters) Act 2003 was amended in 2005 to embody the requirements of the EU Savings Directive on the Taxation of Savings Income and thus implement the bilateral agreements entered into between the BVI and the EU Member States.

How important have the levels of transparency and taxation in Offshore Financial Centres been in explaining their current position in worldwide financial markets and how do the taxation policies of Offshore Financial Centres impact on UK tax revenue and policy?

  62.  As stated previously confidentiality is always important for those requiring financial services it is worth noting that this can be for any number of reasons including personal security and data protection.

  63.  The BVI Government recognises the difference between confidentiality and secrecy designed to evade taxes and engage in other nefarious activity. As a result while our practitioners provide their clients with the confidentiality they require, they do so within a robust regulatory framework which is designed to ensure that those intending to abuse the services of the BVI financial services sector are discovered and dealt with appropriately.

  64.  In addition to the issue of transparency the BVI Government is aware that it has been claimed that low-tax jurisdictions, either OFCs or other countries where investment is facilitated by OFCs, impose fiscal costs on other countries in attracting investment that would otherwise locate in high-tax areas. These concerns persist despite the absence of any reliable estimates of the magnitude or even the sign of such diversion from any Treasury, including the UK.

  65.  Recent quantitative evidence (Desai, Foley and Hines, 2006a, b) implies that, in fact, the opposite process takes place ie the availability of OFCs that reduce the costs of using of low-tax jurisdictions facilitates foreign investment and economic activity in high-tax jurisdictions. There are multiple channels through which OFCs have this effect, all of them stemming ultimately from the ability of investors to use OFC financing structures to rationalize their finances and their tax situations. Tax-efficient financing structures in OFCs permit taxpayers to avoid costly tax situations in high-tax areas, thereby increasing rates of return and making investment in high-tax places more attractive. For investors located in countries that tax active business income earned elsewhere, the use of OFCs can facilitate deferral of home-country taxation of foreign income, which increases returns to foreign investments in countries with tax rates below home country rates. Finally, financial services and other intermediate goods and services obtained at low after-tax cost in OFCs increase the productivity and competitiveness of economic operations in high-tax countries, thereby increasing demand for production in those locations.

  66.  Desai, Foley and Hines (2006b) offer evidence of the use of OFCs by American multinational firms. Large multinationals, and those that are most active abroad, are the most likely to have affiliates in OFCs, suggesting that the benefits offered by OFCs increase with the scale of financial operations. Additionally, multinational parent companies in industries in which firms typically face low foreign tax rates, those that are technology-intensive, and those in industries characterized by extensive intrafirm trade are more likely than others to have operations in OFCs. This evidence is inconsistent with the common view that multinational firms use OFCs solely to reallocate taxable income from high-tax to low-tax jurisdictions through intrafirm trade and transfers of intangible property, since if that were the case then one would expect investors with OFC operations to be those with the highest tax rates. The fact that multinationals in industries with low foreign tax rates are more likely to operate in tax OFCs indicates that OFC affiliates do not merely serve to relocate profits away from high-tax locations.

  67.  Evidence for American multinational firms, reported by Desai, Foley and Hines (2006b), indicates that greater activity outside of OFCs is associated with greater demand for OFC affiliates. Firms whose initial investments were concentrated in economies that subsequently grew rapidly are the most likely to establish new OFC affiliates. Economic theory (Desai, Foley and Hines, 2006a) implies that the reverse must, therefore, also hold: firms that establish operations in OFCs are likely than others to expand their economic activities in high-tax countries.

  68.  Contrary to many policy concerns, the ability of investors to use OFC operations does not appear to divert activity from other jurisdictions. The empirical evidence indicates that firms facing reduced costs of establishing OFC operations respond in part by expanding their foreign activities in high-tax countries. Hence it appears that careful use of OFC affiliates permits foreign investors to avoid financing costs they would otherwise incur, and some of the tax burdens imposed by domestic and foreign authorities, thereby maintaining foreign investment at levels exceeding those that would persist if the use of OFCs were more costly.

  69.  There is an entirely separate question about the impact of foreign direct investment on economic activity in home countries. If OFCs encourage foreign direct investment in even high-tax foreign countries, might that not deplete economic resources that would otherwise be devoted to producing jobs and activity at home? Put differently, how should the government of a capital exporting country view institutions that contribute to international investment?

  70.  Both capital exporting countries and capital importing countries have at times expressed concern over the consequences of international capital flows. Capital exporting countries worry that too much of their capital goes abroad while capital importing countries fear foreign control of domestic assets and the possible macroeconomic instability associated with rapid changes in foreign investment levels.

  71.  The concerns of capital exporting countries, while diffuse, often are based on conceptions of outbound foreign direct investment as diverting economic activity.

  72.  In fact, it is far from clear that greater levels of outbound foreign direct investment come at the cost of economic activity at home. There are, instead, two possibilities. The first possibility is that a multinational firm's total worldwide production level is approximately fixed, being determined by resource limits, capacity constraints, or market competition. Given that output can be produced either at home or abroad, any additional foreign production then necessarily reduces domestic production, and foreign investment comes at the cost of domestic investment. The second, and more likely, possibility is that the level of total production is not fixed, but it is instead responsive to profit opportunities. If this is the case, then increases in foreign investment have the potential to raise the return to domestic production, stimulating demand for domestic activity and domestic output. Firms might, for example, find that foreign operations provide valuable intermediate inputs at low cost, or that foreign affiliates serve as ready buyers of tangible and intangible property produced at home.

  73.  The most recent evidence from the United States indicates that greater levels of foreign investment by American multinational firms are associated with expansions in domestic production activities by the same firms. Desai, Foley and Hines (2005a) analyse annual evidence for American firms since the early 1980s, finding that an additional dollar of foreign investment is associated with $3.5 of greater domestic investment. More detailed firm-level evidence tells a similar story. Exploiting differences in foreign economic growth rates to predict foreign activity levels, Desai, Foley and Hines (2005b) find that 10% greater foreign investment is associated with 2.6% greater domestic investment, and that 10% greater foreign employment is associated with 3.7% greater domestic employment. Hence this evidence offers no support for the simple, and common, perception that foreign investment diverts resources from domestic investment.

  74.  It has been natural to assume that foreign investment comes at the expense of domestic investment. New evidence from analyses of American multinational firms suggests instead that greater foreign investment is associated with higher levels of domestic investment. This estimated relationship implies that firms combine home production with foreign production to generate final output at lower cost than would be possible with production in just one country, making each stage of the production process more profitable, and therefore, in a market economy, more abundant. It is clear that the simple story, in which the world has a fixed stock of investment capital that can either go to one place or another, cannot quite be right. As a result, OFCs that facilitate foreign investment thereby indirectly also stimulate economic activity in capital exporting countries.

  75.  It stands to reason that countries eager to attract foreign investment might compete with each other by reducing tax rates, as a result of which taxes, and therefore government expenditures, are driven to inefficiently low levels. To the extent that OFCs contribute to this tax competition, either by offering investors low tax rates themselves, or by facilitating investment in other low-tax countries, then OFCs might be responsible for some of the problems associated with excessive tax competition. The likelihood of such an outcome depends on the tax policies available to governments and the nature of the competitive environment. In order to evaluate this prospect it is helpful to consider the incentives that countries face.

  76.  Modern analysis of the corporate tax rate implications of international capital mobility dates to Diamond and Mirrlees (1971), who demonstrated that efficient taxation in a small open economy, entails zero taxation of income earned by foreign investors. The explanation for their result is that any positive taxation distorts the economy more than would other tax alternatives, without shifting any of the tax burden to foreign investors (Gordon and Hines, 2002). If international capital flows are increasingly sensitive to tax rate differences, then incentives to reduce tax rates are presumably rising as well. The analysis also implies that countries that nevertheless persist in heavily taxing income earned by foreign investors will have lower incomes than those that do not.

  77.  It is noteworthy that international tax competition may also produce outcomes in which capital taxes are higher than they would be in the absence of competition. This can happen when there is foreign ownership of productive factors, when competing countries differ greatly in size, or when multiple governments attempt to tax the same income sources (Hines, 2006).

  78.  OFCs figure prominently in debates over the scope and consequences of tax competition. OFCs are widely believed to accelerate the process of tax competition between governments. A separate, and more likely, possibility, however, is that the tax management opportunities presented by OFCs allow other countries to maintain high capital tax rates without suffering dramatic reductions in foreign direct investment. Hence the widespread use of OFCs may retard what would otherwise be aggressive competition between other countries to reduce taxes in order to attract and maintain investment. It is not even necessary that high-tax countries are aware of the importance of OFCs in preserving their ability to attract foreign investment. In effect, what OFCs do is to permit governments to distinguish investments, subjecting relatively immobile domestic investment to higher tax rates than the highly mobile international investment. Keen (2001) identifies the wide set of conditions in which countries benefit from differentiating tax systems in this way, and its impact in improving the outcomes of tax competition.

  79.  The evidence is that, despite whatever incentives there may be to compete over tax rates, the tax burden on corporate income in OECD countries has fallen little, if at all, over the past 25 years (see Griffith and Klemm, 2004, and Hines, 2006). Corporate tax rates have fallen, but these declines have been at least matched by expansions in corporate tax bases. Corporate tax collections are the product of tax rates and tax bases; governments choose tax rates, and governments also choose definitions of tax bases. The rules determining depreciation allowances, inventory valuation, the taxation of capital gains, the deductibility of interest payments, pension and option compensation, and a host of other considerations all affect the tax burden on corporations just as strongly as do statutory corporate tax rates. Over the same period that statutory corporate tax rates have fallen, governments have broadened tax bases, so that the ratio of national corporate tax revenues to GDP among OECD countries has not declined since 1990. The ratio of corporate tax revenues to total tax collections offers a separate measure of the extent to which governments rely on corporate taxes, and here too it is clear that corporate tax revenue as a share of total taxes among OECD countries has not fallen over time, and in fact, reached new highs in 2003 and 2004. The use of OFCs by foreign investors helps to explain this evidence, as high-tax countries are able to maintain high tax rates on domestic investment while continuing to draw significant levels of foreign investment (Hines, 2006).

  80.  The analysis of tax competition addresses in large part the concerns that the use of financing structures in OFCs may erode tax bases in high-tax countries. The point of the analysis is that it is important to think about the alternatives, since it is a mistake to contemplate a world in which all tax provisions are unchanged but OFCs are somehow no longer available to taxpayers. If OFCs were unavailable, then tax competition elsewhere in the world would take on a very different character, most likely resulting in an outcome in which tax rates on business income were significantly reduced relative to what they are today. In addition, there is the separate issue that any foreign tax savings attributable to activities in OFCs ultimately enhance tax collections in countries such as the United Kingdom, the United States and Japan that tax foreign incomes while providing credits for foreign taxes paid (Hines and Rice, 1994).

  81.  In evaluating the evidence, it is important to recognize the significance of something that has not happened: corporate taxes have not disappeared. To the contrary, corporate tax systems are raising revenue now at roughly the same clip that they have for the past 30 years. If the reality were different, if corporate tax collections had instead fallen rapidly over the past 30 years, then it would be natural to point to such a development as confirmation of the impact of tax competition, fuelled in part by the presence of OFCs, and forecast continued declines in corporate tax revenue. The persistence of corporate tax collections does not imply that there is no tax competition, but instead that, in the modern financial world, competition takes a form that does not entail reduced corporate taxation.

Are British Overseas Territories and Crown Dependencies well-regarded as Offshore Financial Centres, both in comparison to their peers and international standards?

  82.  The BVI Government can only speak on its own behalf in this case. As a key player in the global financial services sector, the BVI recognises the importance and value of associating with regional and international standard-setting institutions for regulatory, enforcement and international cooperation purposes. The lead role in this regard is played by the Financial Services Commission, the BVI's independent regulator.

  83.  The BVI is an active member of the bodies in which it participates. It is a member of the Caribbean Financial Action Task Force (CFATF) and Egmont, both respectively dealing with matters relating to money laundering and terrorist financing and intelligence gathering and dissemination. In March 2007 the BVI was admitted to IOSCO after scrutiny of its international cooperation regime. The Commission is a member of IAIS and OGBS. The BVI participated in the OECD/Commonwealth Working Group on Tax Competition and recently served on the Working Group set up to review the FATF's 40+9 recommendations on combating money laundering and terrorist financing. It was also a member of the OGBS Working Group which developed the Statement of Best Practice on Trust and Corporate Service Providers.

  84.  As a member of the CFATF, the BVI has been undergoing periodic reviews to establish the Territory's compliance, with internationally established standards in the areas of financial regulation, legislative reform, law enforcement and international cooperation, including compliance with current Anti-Money Laundering/Counter-Terrorism Financing standards and recommendations of the CFATF. The BVI has recently undergone its third round of CFAT mutual evaluation (first quarter of 2008) and later in 2008; the IMF will undertake its second assessment of the territory. These assessments seek to determine the level of compliance with standards established by various standard setting bodies like the OGBS, IAIS, FATF and CFAT.

To what extent have Offshore Financial Centres ensured that they cannot be used in terrorist financing?

  85.  The existence of a robust regulatory and compliance regime is critical to ensuring that any financial centres, from the largest to the smallest, are limited as much as possible in the extent to which they can be used for illicit means, including terrorist financing. As stated previously the BVI's establishment of a Financial Intelligence Agency was commended by the UK National Audit Office. The FIA is a member of the Egmont Group which is responsible for following the money trail, to counter money laundering and terrorism financing. The May 2008 meeting was attended by the incoming President of the FATF who committed to closer cooperation between the Egmont Group, the FATF and the regional bodies to better address the issues of money laundering and terrorist financing.

  86.  In addition, the original Financial Services Commission Act 2001vests the FSC with broad powers of enforcement which include the exercise of powers to respond to requests for mutual assistance. The Act empowers the Commission to take appropriate steps to cooperate with foreign regulatory authorities and other persons or organisations which have functions relative to the prevention or detection of financial crime, including money laundering, terrorist financing, misconduct in or misuse of information relating to financial markets as well as offences involving fraud or dishonesty.

  87.  The Territory's CFT regime is essentially comprised in the Terrorism (United Nations Measures) (Overseas Territories) Order 2001 and the Anti-Terrorism (Financial and Other Measures) (Overseas Territories) Order 2002. Both enactments are Orders in Council. The FSC adheres to the compliance and prohibition measures outlined in both enactments. The FSC also takes notice of the UN and EU lists of persons suspected of having links with terrorism or terrorist organisations to ensure that they or the groups they are associated with are not licensed in the BVI.

What are the implications for the policies of HM Treasury arising from Offshore Financial Centres?

  88.  It is perhaps for the UK Government to comment on this issue rather than the BVI but we would take this opportunity to note that while individual country experiences differ, OFCs as a group have enjoyed very rapid economic growth in the past two decades. Evidence reported by Hines (2005) indicates that the real per capita incomes of OFCs grew by 3.3% a year since 1982, whereas the comparable figure for the world as a whole is 1.4%. As a result, by 1999 the largest OFCs held 0.8% of world population (not counting the United States), whereas their economies contributed 2.3% of total world product (again excluding that of the United States), so per capita economic product in OFCs is more than double the world average.

  89.  This sometimes leads to the question of whether the affluence of some OFCs comes at the expense of the rest of the world. There is no reason to think it does. Indeed, standard economic theory suggests the opposite: greater income earned by one part of the economy redounds ultimately to the benefit of all other parts of the economy (Bhagwati, Panagariya and Srinivasan, 2004). Financial and other contributions of OFC economies add value to the world in the same way that industries in other countries do, and individuals and businesses who earn returns in OFCs ultimately spend and distribute their returns in ways that stimulate demand for output everywhere. Consequently, the high rates of OFC economic growth have the effect of buoying the world economy just as slow growth elsewhere tends to depress rates of economic activity in OFC economies.

What has been and is the extent and effect of double taxation treaty abuse within Offshore Financial Centres?

  90.  The BVI maintains no double taxation agreements.

To what extent do Offshore Financial Centres investigate businesses and individuals that appear to be evading UK taxation?

  91.  The BVI has always been amenable to entering into and concluding treaties with foreign jurisdictions, including law enforcement and tax authorities, to exchange and share information on a variety of matters. Indeed the BVI entered into a mutual legal assistance treaty with the USA in 1989 to render assistance to each other on matters pertaining to criminal matters, including criminal tax evasion. This treaty is given domestic legal force by the Mutual Legal Assistance Treaty (USA) Act, 1990.

  92.  In 2002 the BVI formally and unequivocally committed to the OECD principles of transparency and effective exchange of information. Pursuant to that commitment, the BVI entered into and concluded in the same year a tax information exchange agreement which led to the enactment of the Mutual Legal Assistance (Tax Matters) Act 2003. This enactment provides the legislative framework for the exchange of information on tax matters with the USA and other countries which conclude a bi-lateral agreement with the BVI on tax information exchange. Currently the BVI is negotiating with several EU (including the UK) and one non-EU country to conclude tax information exchange agreements.

  93.  The new legislative regime for tax information exchange enables the Financial Secretary, as the competent authority on tax matters, to receive and fully investigate requests for mutual legal assistance in relation to persons. He has the aid of officials of the Inland Revenue Department and the Financial Investigation Agency, in addition to fully collaborating with the Attorney General's Chambers to facilitate the processing of requests for mutual legal assistance in tax matters.

  94.  By virtue of the Criminal Justice (International Cooperation) Act, 1993, the BVI has the authority to provide assistance in relation to requests pertaining to fiscal offences, including tax evasion (section 5 (3)).

  95.  Finally, it should be noted that the BVI voluntarily adopted and implemented the EU Directive on the Taxation of Savings Income through the enactment of the Mutual Legal Assistance (Tax Matters) (Amendment) Act, 2005. By virtue of this enactment, the BVI is able to cooperate with render assistance to all the EU Member States, including the UK.

CONCLUSION

  The BVI is a well regulated jurisdiction, a fact recognised by the relevant international standard setting institutions. More generally, the ability of investors to use OFC operations does not appear to divert activity from other jurisdictions. In addition, as the Financial Stability Forum (FSF) Working Group on Offshore Centres reported in 2000, OFCs do not appear to contribute to systemic financial problems.

  In terms of transparency the right channels are in place in the BVI for effective co-operation with international regulatory and law enforcement authorities. We therefore believe that while continuing efforts, such as the joint BVI/FSC Handbook on International Cooperation which details the procedures for submitting requests for mutual legal assistance in the area of financial services, must be made to ensure the jurisdiction's services are not abused or mis-used, we have the systems in place to ensure that this is the case.

REFERENCES

Bhagwati, Jagdish, Arvind Panagariya, and T.N. Srinivasan, The Muddles Over Outsourcing, Journal of Economic Perspectives, Fall 2004, 18 (4), 93-114.

Desai, Mihir A., C. Fritz Foley, and James R. Hines Jr., Foreign direct investment and the domestic capital stock, American Economic Review, Papers and Proceedings, May 2005a, 95 (2), 33-38.

Desai, Mihir A., C. Fritz Foley and James R. Hines Jr., Foreign direct investment and domestic economic activity, National Bureau of Economic Research Working Paper No. 11717, October 2005b.

Desai, Mihir A., C. Fritz Foley, and James R. Hines Jr., Do tax havens divert economic activity?" Economics Letters, February 2006a, 90 (2), 219-224.

Desai, Mihir A., C. Fritz Foley, and James R. Hines Jr., The demand for tax haven operations," Journal of Public Economics, March 2006b, 90 (3), 513-531.

Dharmapala, Dhammika and James R. Hines Jr., Which countries become tax havens? National Bureau of Economic Research Working Paper No. 12802, December 2006.

Diamond, Peter A. and James Mirrlees, Optimal taxation and public production, I: Production efficiency; II: Tax rules, American Economic Review, March and June 1971, 61 (1, 2), 8-27, 261-278.

Gordon, Roger H. and James R. Hines Jr., International taxation, in Alan J. Auerbach and Martin Feldstein, eds. Handbook of Public Economics, Volume 4 (Amsterdam: North-Holland, 2002), 1935-1995.

Griffith, Rachel and Alexander Klemm, What has been the tax competition experience of the last 20 years?, Tax Notes International, 28 June 2004, 34 (13), 1299-1315.

Hines, James R., Jr., Do tax havens flourish?" in James M. Poterba, ed. Tax Policy and the Economy, Volume 19 (Cambridge, MA: MIT Press, 2005), 65-99.

Hines, James R., Jr., Will social welfare expenditures survive tax competition?" Oxford Review of Economic Policy, Fall 2006, 22 (3), 330-348.

Hines, James R., Jr. and Eric M. Rice, Fiscal paradise: Foreign tax havens and American business, Quarterly Journal of Economics, February 1994, 109 (1), 149-182.

Keen, Michael, Preferential regimes can make tax competition less harmful, National Tax Journal, December 2001, 54 (4), 757-762.

La Porta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer, Government ownership of banks, Journal of Finance, February 2002, 57 (1), 265-301.

Rose, Andrew K. and Mark M. Spiegel, Offshore financial centres: Parasites or symbionts? Economic Journal, October 2007, 117, 1310-1335.

June 2008





 
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