The News Minute| October 25, 2014| 7.00 pm IST
Wake up and smell the porridge – London is the world’s newest tax haven. Switzerland may still offer one of the world’s best banking and financial services with bankers who speak at least two languages in addition to English, but the top spots for evading taxes today are taken by London, Miami, Hong Kong, Port Louis (Mauritius) and to a lesser extent, Zürich.
Before you rush to healthy conclusions, tarry - this has nothing to do with human conscience taking over unscrupulous bankers. It has everything to do with attracting investments, creating jobs and expanding businesses. . The United Kingdom’s (UK) new status has got to do with a uniform corporation tax of 20 percent from next year for all sizes of companies. This means UK-based multinationals will pay not tax on dividends they get from their businesses overseas. This is expected to spur employment and the economy, but bankers say it a bank handed volley to bring in cash any which way.
That may be an exaggeration but it is not without smoke. While the G-20 bludgeon countries like Switzerland and Singapore to clean their vaults and produce account numbers, they are silent on other famous money-hiding places like British Virgin Islands (BVi) and the Cayman Islands which are part of the UK or Miami in the United States of America (USA).
Foreigners can open a bank account in Miami without a passport, a feat which even the oldest hands in Swiss banks cannot do. Miami attracts cash not just from the under-world, but also from the above-world and all other worlds and hemispheres. Its location on a coastline is only one of its benefits – the other is language which includes English and Spanish two of the world’s most spoken languages. Its banking services may not be the world’s best but that is a detail in the age of the mouse.
For the decade 2001 to 2011, 40 percent of Foreign Direct Investment (FDI) to India came from Mauritius. India and Mauritius are signatories to the Double Taxation Avoidance Treaty (DTAA) but there have been many reports in the Indian media suggesting the treaty is being misused to avoid paying taxes in both countries through creative accounting. In fact, it is called the “Mauritius route,” according to bankers.
Singapore’s loss after it signed on to a host of G-20 laws has been Hong Kong’s gain which enjoys the status of being Chinese without being truly so. For example, most of China’s billionaires prefer taking their money to London than next door for the same reasons that India’s rich now prefer the queen’s city to nearby Port Louis.
As for Switzerland, the Alpine nation still manages 30 percent of global assets under management (AUM). The Swiss banking secrecy died for foreigners earlier this year and a Swiss banker who agrees to open a numbered or a fictitious account today is far more cautious than a decade ago. The main reason for this is the USA, in particular its Internal Revenue Service (IRS) which played a key role in demolishing banking secrecy in Switzerland.
As for Liechtenstein which reportedly has more lawyers, fiduciary companies and name plates than people, the good news is that the Indian envoy to Switzerland also represents India’s interests in that country.
While we point fingers at others, it may be time to look at the three pointing back at us in India also a tax heaven (that is not a spelling mistake).
Read about the UK’s new tax haven status