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The Future for International
Financial Centres
Gresham Symposium
London
27 March 2014
Richard Hay
Stikeman Elliott (London) LLP
STIKEMAN ELLIOTT (LONDON) LLP
www.stikeman.com
Presentation Overview
 why IFCs exist
 tax and morality
 regulation
 globalisation
 the future for IFCs
SLIDE 1
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 2
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 3
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 4
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 5
STIKEMAN ELLIOTT LONDON
Who Uses IFCs?
 MNCs
 hedge funds
 private equity
 venture capital and infrastructure funds
 insurance, including catastrophe bonds
 ordinary people?
SLIDE 6
STIKEMAN ELLIOTT (LONDON) LLP
How a Cayman Fund Works
Pension Fund
Private Investors
Other Institutional Investors
Taxable in country
of residence
Tax neutral so no
third layer of tax
Governed under
British-based Cayman law
Investment Fund in Cayman
Taxable in
source country
China
SLIDE 7
Africa
G8 Country
STIKEMAN ELLIOTT (LONDON) LLP
Why International Investors Use Offshore Companies
* Investors benefit from:
British-based
- law
- courts
- professionals
Loan
Chinese Company
Bank
Cayman Company
Infrastructure
Projects in China
SLIDE 8
STIKEMAN ELLIOTT (LONDON) LLP
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 9
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 10
STIKEMAN ELLIOTT (LONDON) LLP
The CAGE-Chatham House Series, No. 4, February 2013
Tax Competition and the Myth of the
‘Race to the Bottom’
Vera Troeger
SLIDE 11
STIKEMAN ELLIOTT (LONDON) LLP
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 12
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 13
STIKEMAN ELLIOTT (LONDON) LLP
2003
SLIDE 14
2006
STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 15
STIKEMAN ELLIOTT (LONDON) LLP
Cayman Islands
Jersey
Isle of Man
BVI
Bermuda
UK
US
SLIDE 16
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 17
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 18
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 19
STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 20
STIKEMAN ELLIOTT (LONDON) LLP
UK Income Distribution, After Tax and Benefits
SLIDE 21
STIKEMAN ELLIOTT (LONDON) LLP
Regional disparities in poverty reduction1970–2000
Sala-i-Martin, X. "Falling Poverty and Income Inequality: A global phenomenon" Quarterly Journal of Economics, MIT Press: Cambridge, MA. 2006, 121: 2.
SLIDE 22
STIKEMAN ELLIOTT (LONDON) LLP
SLIDE 23
STIKEMAN ELLIOTT (LONDON) LLP