The Offshore Conspiracy

Tsahi Rosenbluth,

לבן ריק
לבן ריק
צילום: ערוץ 7
Tsahi Rosenbluth

Post courtesy of Kate Brooks, Financial Guardian.

Some years ago, the governments of the Western world including those of Europe and the United States, took a decision to wage war against private and business offshore operations. The war is fought, primarily, using regulatory and legal means with legislators passing laws and implementing new regulations designed to combat black, unreported and untaxed money.

So far, this would seem to be a reasonable course of action. But, we need to ask ourselves: how and to what extent does the fight against unreported and untaxed revenues effect globalization and global growth, especially when suspicions of a conspiracy directed against the offshore world abound.

To what extent do offshore activities drive the global economy?

Offshore business activities are just one of the reasons behind the move to globalization. The scoop of activities within those areas of jurisdiction defined as “offshore” has risen sharply since 1970 with economic activity in “offshore nations” around the globe now standing at some 35% of the world’s total economic operations. A conservative figure places this at anywhere between 10 to 25 trillion dollars in international trade, carried out through the world’s various “offshore nations”.

One of the clear results of international commercial growth and globalization is the Internet. The internet has and continues to grow steadily for a number of reasons, one of which is the fact that it allows for the fast establishment of economic structures and activities thanks, in no small way, to the existence of offshore economic frameworks and infrastructure.

Tens of thousands of internet companies have been set up over the past few years. Their flexibility in business and economic activities has made it possible to establish new enterprises quickly and efficiently with a relatively low expenditure on the development and implementation of operational and legal structures in comparison to the costs in involved in business development.

Globalization thanks to the Internet

Additionally, the increased and rapid expansion of globalization we have been and continue to experience over the past 10 years can be attributed to a combination of offshore resources and the internet. Thus, in many ways, globalization can been seen as a combination of technological developments and advances with the global network created by the internet and the spread of financial serves that are defined, by the G7 group of nations, as offshore services.

Taking all things into account, it is safe to say that, without offshore banking and financial services and offshore companies, control of the business world would have remained in the hands of the huge multi-national companies. Furthermore, it is clear that the bodies that pushed for the development of global offshore resources are the powerful regulatory bodies in the developed nations – the G7 group.

Internet, conspiracy and offshore = globalization

If, as previously stated, the G7 nations were responsible for encouraging the growth of offshore enterprises, why then has the United States declared an all-out war against offshore companies and services?

The main reason would seem to be the aggressive use made of tax optimization procedures by major US corporations, led by Google. Google, Amazon and similar huge corporations have established many financial structures for the express purpose of facilitating aggressive tax evasion procedures designed to reduce tax payments in those countries where they operate and make a profit. All of these procedures are completely legal in terms of the requirements of local regulatory bodies and would appear, therefore, to present no problem. However, the use of such aggressive tax evasion procedures and instruments has incurred the wrath of many countries around the world.

A closer, in-depth examination of this issue would seem to suggest a massive conspiracy between huge, multi-national conglomerates and local and governmental legislators. On the face of it, regulators in Europe and the United States should have, long ago, legislated laws and regulations to combat large corporations who do not pay taxes. However, in practice, there has been no significant progress in this direction over the past years.

In the United Kingdom, an effort is being made to combat this phenomena with a number of proposals being made to tax profits generated in the United Kingdom by corporations registered outside (offshore) of the United Kingdom. These proposals are aimed at the practice of transferring revenues and profits to a corporation subsidiary registered outside of the UK in an effort to avoid local tax requirements and payments.

The OCED is also attempting to pass laws whose primary purpose is to coordinate and share information between member states, to align taxation rates and to promote significantly increased transparency.

Ireland has already taken steps in this direction by approving an amendment to its Corporation Law that will forbid Irish companies from establishing subsidiaries in tax havens. This amendment will come into force at the start of 2015.

What is the connection between globalization, conspiracy and the offshore arena?

So, where is the conspiracy? Companies such as Google make a substantial contribution to the Irish economy and those of other countries where the company operates. As a result, the state has opposing interests, on the one hand it seeks to increase tax collections and tax equality. But on the other hand, it wants to promote and develop the local economy by making it relevant and attractive to international companies.

In short, this is a struggle between local interests and global interests with the balance shifting according to the global mood.

Restriction on offshore enterprises are the “hidden” engine of the world economy and, as stated, constitute a significant percentage of total growth, allow for millions of entrepreneurs and employees to set up international businesses quickly and also simplify international commerce. However, over aggressive use by huge conglomerates has led to the current war against offshore companies and services.

Today, there is a global trend towards increased transparency and information. In the long run, offshore companies will be open for financial reports and taxation just as are their onshore counterparts. But, for now, mitigated regulations will continue draw millions of businesses to the offshore arena.