The Tax Times: 2015 Posts the Deepest Decline in Offshore Investments in 10 years!

Thursday, May 5, 2016

2015 Posts the Deepest Decline in Offshore Investments in 10 years!

Companies invested $221 billion into shell companies last year and investment flows to offshore tax havens such as the Cayman Islands and the British Virgin Islands fell somewhat, to $72 billion, according to the United Nations Conference on Trade and Development reported on May 3, 2016.

The first three quarters of 2015 showed a rise in investment flows to so-called special purpose entities in low-tax jurisdictions, which have little connection to local economies and are often used by international businesses to raise capital, according to this new data from UNCTAD. This could be due to shifting investments to avoid the Common Reporting Standard (CRS) obligation, by re-domicile foreign trusts and entities to countries that do not participate in CRS?

But a massive funds exodus from such companies in the final three months of the year, which is also the biggest quarterly withdrawal in the past 10 years, resulted in the annual total investment to be down from its 2014 level. This report stated that new rules adopted by Luxembourg and the Netherlands regarding transfer pricing, the economic substance of transaction and information exchange may have played a role.
The role of overseas shell companies to defer corporate earnings for U.S. businesses has grown in recent years,. Foreign investment by the U.S. to holding companies in Bermuda, Ireland, Luxembourg, the Netherlands, the U.K. and British islands rose to 59 percent of the US's outbound foreign direct investment last year, compared to about 40 percent a 10 years ago, according to the report.

The $72 billion that flowed into Caribbean financial centers, mostly the Caymans and British Virgin Islands, dropped 8 percent from 2014 levels but was close to the annual figures reported between 2008 and 2012. Countries outside of the U.S. and Europe are an increasingly large source of those dollars, with China and Hong Kong accounting for about 43 percent of the inflows from 2010 to 2014, the data shows.

The report comes during the heightened scrutiny from policymakers around the globe regarding as a result of the Huge Leak From the Panamanian Law Firm Mossack Fonseca! also known as the Panama papers which consists of 11.5 million confidential documents publicized earlier this year that highlight how the Panamanian law firm Mossack Fonseca helped thousands of clients set up shell companies over a period of 40 years, ultimately helping to keep assets out of the reach of government scrutiny for tax purposes.

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