6 The scale of tax havens and
6.2 The economies of tax havens
7.5.5 Mauritius – principal features
According to the figures presented in section 6.2.3, Mauritius does not have especially large di
rect investments or a particularly big proportion of its labour force employed in the financial sector.
The financial sector’s share of GDP is unusually
high, to be sure, but figures for this industry in the national accounts must always be treated with caution because of major methodological prob
lems.
Statistics for the balance of payments from the Bank of Mauritius show that its international as
sets totalled MUR 359 billion as of 31 December 2007, while its liabilities were MUR 291 billion.
These figures include direct investments to and from Mauritius, and represent 164 and 133 per
cent of GDP respectively. The assets and liabilities cannot be described as extraordinarily large in re
lation to the size of the economy.
The IMF conducts an annual coordinated port
folio investment survey (CPIS) covering a number of countries broken down by debtor na
tion. Mauritius participated in 2007 along with 76 other countries and jurisdictions. Important coun
tries which did not participate were China and Saudi Arabia. All the other largest economies and international financial centres took part, including the tax havens. According to this survey, portfolio investments in Mauritius as of 31 December 2007 totalled USD 155 billion. This is far above the fig
ure from the Bank of Mauritius, which was just over USD 13 billion at the exchange rate prevail
ing at 31 December 2007. The difference can probably be explained by the fact that the central bank’s figures do not embrace all the assets in the GBC1 and GBC2 companies mentioned above.
Since GBC1 companies placing assets abroad must use a bank in Mauritius as an intermediary, its assets will be included in the figures for the bank’s assets. This does not apply for a GBC2 company, and the assets of such companies are accordingly excluded from the central bank’s sta
tistics.
In its annual report for fiscal 2006-2007, the Bank of Mauritius refers to the CPIS for 2005. The bank notes that the percentage of response from non-banks and GBCs to the data-gathering proc
ess has improved. This explains part of the strong growth in the overall portfolio and the fact that the percentage of the portfolio held by GBCs rose from 98.1 percent in 2004 to 98.5 percent in 2005.
The CPIS otherwise shows that Mauritius has a clear majority of its activities directed at Asia. Al
most 72 percent of the Mauritian portfolio is placed in India. Singapore, Hong Kong and China, and South Africa occupy the next places (with two-six percent respectively) in the list of the larg
est investment recipients.
The IMF also presents estimates for capital inflows to different nations and jurisdictions, bro
ken down by country. This division is based on registrations in the creditor country. It is striking that Mauritius has total identifiable claims of only USD 6 billion. Since the central bank has reported that more than 98 percent of the portfolio is linked to GBCs, the ownership of this portfolio should ei
ther have emerged in the CPIS (assuming that the portfolio was financed by loans) or in the stock of inward direct investments to Mauritius. However, this is not the case. According to UNCTAD, the stock of direct investments to Mauritius was about USD 1.3 billion as of 31 December 2007. It is thereby unclear how the extensive assets placed from Mauritius are financed.
According to UNCTAD, direct investments made from Mauritius in other countries totalled USD 0.3 billion as of 31 December 2007. However, India’s balance of payments showed that the flow of direct investment from Mauritius to India amounted to just over USD 11 billion during 2007 alone.5 The Indian data show that net direct in
vestment from Mauritius totalled USD 29 billion in the 1991-2007 period. This figure accords poor
ly with the UNCTAD statistics for direct Mauri
tian investment. The explanation could be that UNCTAD’s figures do not include investment by the GBCs, and that the great bulk of investment from Mauritius to India is pure pass-through from third countries. Mauritian regulations prohibit round-tripping with India (Indian assets placed in Mauritius and then returned to India).
The methods used for the CPIS and direct in
vestment statistics mean that no overlap should exist between the two statistics with regard to which positions and assets they include. One may thus add the Indian figure for direct investment from Mauritius to the overall Mauritian portfolio of investments as recorded in CPIS, making the total portfolio USD 184 billion. In addition, there are direct investments in other countries, but we have no figures for these.
Statistics from Mauritius provide no data con
cerning the return on investment by the GBCs. If these are assumed to yield an annual return of 10 percent, the figure should be USD 18 billion in 2007-08. The Mauritian GDP for 2007 was just un
der USD 7 billion.
The data presented here show that the role played by Mauritius as a pass-through country for capital is very extensive, particularly by compari
son to the size of its economy. The tax regulations
5 See the website for the department of industrial policy and promotion, Ministry of Commerce and Industry.
in Mauritius mean that this pass-through gener- on other activities. It is striking that the bulk of ates little tax revenue for the country. Data pre- the financing of the pass-through business in sented in section 6.2.4 indicate that this activity Mauritius does not appear to be recorded in the contributes to a relatively extensive financial sec- statistics of other countries.
tor, but the Mauritian economy is primarily based
Chapter 8
International work on tax havens
8.1 Introduction
A number of international organisations work on issues related to the harmful effects of tax havens and similar damaging structures in other coun
tries. None of these organisations have a mandate directed specifically at tax havens, which is one of the reasons why they view such jurisdictions from different perspectives. International collaboration in this area is aimed primarily at money launder
ing and at establishing tax treaties that include the right to obtain information from other states on specific tax matters.
From the perspective of developing countries, the Commission takes the view that work at the international level suffers from the following fun
damental weaknesses:
– Developing countries are excluded from a number of the initiatives. For example, the work of the OECD and FATF.
– None of the initiatives are suited to overcoming the principal problems related to illicit financial flows – the lack of registration, automatic exchange of information on ownership, and insight into transfer pricing within companies.
– Full participation in the various fora and initia
tives often calls for a level of expertise and
Box 8.1 Tax treaties and efforts to combat tax evasion
Norway, and many other countries, have recent- Information will be of limited value if the ly entered into treaties on double taxation or on owner of the assets is a company in another ju
information exchange with tax havens. Whether risdiction which practices secrecy.
such treaties make a substantial contribution to The authorities will in many cases lack ac
the fight against tax evasion is a contentious is- cess to relevant information from financial insti
sue. In any event, opportunities for concealing tutions and providers of money transfer servic
the true ownership of companies, trusts and es.
similar entities undoubtedly continue to exist, It can take considerable time in many juris-which makes it difficult to expose tax evasion. dictions to secure access to information, and, in The value of information exchange pursuant to the meantime, the owners of the assets about the tax treaties is, accordingly, controversial, which information is sought can transfer the as-and securing appropriate data under such agree- sets without leaving records or historical docu
ments in all relevant cases raises a number of ments which provide a basis for legal action.
problems. This can be illustrated by the follow- Many jurisdictions do not make it obligatory ing examples: to hold data about the real owner of any form of
A number of jurisdictions refuse to release asset.
data about matters that relate “only” to tax eva- These weaknesses mean that great opportu
sion and not to fraud (falsification of docu- nities exist for concealing taxable income from
ments). the authorities in home countries by using the
Many jurisdictions only provide access to structures offered by tax havens. This also ap
very limited data, and only if strong grounds ex- plies to many jurisdictions which have entered ist for specific and well-documented suspicions into tax treaties or agreements on tax-related in-related to the relevant data. Adequate documen- formation exchange.
tation of suspicions can be very difficult to ob
tain.
capacity which many developing countries do not possess.
The declaration from the G20 meeting in April 2009 stated that proposals will be developed by the end of 2009 “to make it easier for developing countries to secure the benefits of a new coopera
tive tax environment”. While it is important per se that account was taken of the requirements that developing country have in this area, practical ac
tion to ensure that the goal of information access is met has yet to be seen.
Moreover, work at the international level de
pends on the voluntary participation of tax ha
vens. By and large, the only pressure from other countries has involved categorising and criticising the tax havens. Such pressure has yielded certain results, including the establishment of rules and systems by the tax havens to regulate financial stability and money laundering and the establish
ment of treaties which provide for access to tax-re
lated information. Additionally, some jurisdictions have chosen to levy taxes or to provide other countries with information through the work on the EU’s savings directive.
Nevertheless, this does nothing to alter the ba
sic harmful structures in tax havens: the lack of registries where governments and beneficial own
ers can identify the owners of different forms of assets, and the lack of corporate accounting records which can be automatically accessed by the tax authorities of other countries. One can hardly claim that the progress achieved thus far has made it significantly more difficult to use tax havens to conceal funds or evade tax than has been the case in the past.
8.2 The IMF
The goal of the IMF is to promote monetary and financial stability through, in part, international cooperation. This has been the starting point for the organisation’s work in relation to tax havens.
The IMF uses the term “offshore financial centres” (OFCs). Its current work related to OFCs is primarily a continuation of a programme launched in 2000. At that time, the IMF’s execu
tive board resolved that the organisation would in
vite the OFCs to an individual assessment of their rules and systems for financial regulation and sta
bility, and for reporting statistics. This initiative was named the Offshore Financial Centre Assess
ment Programme. All 42 jurisdictions invited to
participate accepted. Seventeen were not mem
bers of the IMF. A 2001 note to the IMF’s execu
tive board1 stated that the programme had con
tributed to many of the jurisdictions launching ex
tensive work to upgrade their rules and systems since they had been invited to join the pro
gramme. These were the rules and systems which would be assessed later in the programme.
Measures against money laundering were also in
cluded in the assessment in 2003. The assessment of systems in the jurisdictions was based on inter
national standards developed by BIS2 (banking in
spection), IOSCO (securities trading), the IAIS (insurance regulation) and FATF (money launder
ing and financing of terrorism).
The OFC programme was incorporated in 2008 into the Financial Sector Assessment Pro
gramme (FSAP), which involves all IMF member countries. In that sense, it can be said that the IMF no longer has a programme directed specifi
cally at tax havens. However, many OFCs are not members of the IMF, and it is unusual for the or
ganisation to have programmes which includes non-members. Evaluations of the countries’ regu
latory systems, measures to counter money laun
dering, etc., will continue to be made through the FSAP.
The IMF recently established the AML/CFT Trust Fund as a project to combat money launder
ing and the financing of terrorism, which includes reform efforts, training, support for implementa
tion and research.
8.3 The World Bank
The World Bank has no special programme for combating the negative effects of tax havens.
However, it is pursuing the FSAP in partner
ship with the IMF. This programme is directed at all member countries plus OFCs.
The World Bank conducts the StAR initiative3 together with the UNODC. See section 8.7 below.
Through the World Bank, Norway finances a research programme which will produce 15-20 special studies on various aspects of illicit finan
cial flight flows.
1 Confer http://www.imf.org/external/np/mae/oshore/
2001/eng/062901.htm
2 BIS stands for the Bank for International Settlements, IOSCO for the International Organisation of Securities Com
missions, IAIS for the International Association of Insurance Supervisors and FATF for the Financial Action Task Force.
3 StAR stands for stolen asset recovery.
8.4 The Financial Action Task Force (FATF)
FATF is an international organisation that was es
tablished by the G7 countries in 1989 to advise on policies for combating money laundering. It has produced the “40+9” recommendations for such action, which have become an international stand
ard in the area. The recommendations have been revised over time. Nine related to financing ter
rorism were added to the original 40 in 2001. Thir
ty-two countries and two organisations (the Euro
pean Commission and the Gulf Cooperation Coun
cil) are members. In addition, two countries have observer status.
As the name indicates, FATF is not intended to be a permanent organisation. Its present mandate expires in 2012.
FATF evaluates the implementation of its rec
ommendations through its members. Reports from these assessments are publicly available pro
viding the country concerned does not object. No country has fulfilled all 40+9 recommendations.
An initiative was launched by FATF in 1998 to identify countries which represented problem are
as in the fight against money laundering. During 2000-01, 23 countries and jurisdictions were de
fined as “non-cooperative”. These countries were notified that certain measures would be taken against those which did not begin to cooperate by taking specified actions against money launder
ing. The proposed punitive measures involved in
tensified monitoring and reporting of transactions related to countries that continued to be non-coop
erative. The countries categorised as non-cooper
ative have all strengthened their efforts against money laundering, and the last of them was re
moved from the list in 2006.
A particular problem is that FATF – because of opposition from tax havens and others – does not regard tax evasion as an illicit act which could form the basis for criminal charges of money laun
dering.
In its declaration after the London meeting in April 2009, the G20 stated that FATF should re
vise and strengthen its process for evaluating im
plementation of the recommendations by the ju
risdictions, and report back to the G20 whether each country accepts and is implementing the recommendations.
8.5 The Financial Stability Forum (FSF)
The FSF was established by the G7 countries in 1999 to strengthen financial stability through in
ternational collaboration on information exchange and the regulation of financial markets. Australia, Hong Kong, the Netherlands, Singapore and Swit
zerland are also members. FSF meetings are at
tended by the finance ministries, central banks and regulators in the member countries. In addi
tion, a number of international institutions and or
ganisations working on financial stability partici
pate.
The FSF uses the same OFC term as the IMF.
Its attention has focused on weak information ex
change and regulatory functions in the OFCs. In this context, the FSF has concentrated largely on work performed by the OECD, the IMF and IO
SCO. At its meeting of September 2007, the FSF described the status of international collaboration related to OFCs and financial stability. It noted that big strides had been made, but that problems related to information exchange remained.
A meeting was held by the FSF in November 2008 on the international financial crisis. The dec
laration from this meeting emphasized the lack of transparency in the markets as one cause of the crisis, and an increase in transparency as a coun
termeasure. In that context, the declaration also contained formulations which can be interpreted as a demand that the tax havens must become more transparent.4 The declaration from the G20 meeting in London during April 2009 stated that the FSF is to be replaced by a new institution, the FSB (see section 8.9).
8.6 The OECD
The OECD has worked since 1996 to improve transparency in tax havens and to prevent harmful tax practices. It published a report in 1998 entitled Harmful Tax Competition: an Emerging Global Is
sue. This defined the problem and what was re
garded as harmful tax competition. The Towards
4 “Promoting integrity in financial markets: We commit to protect the integrity of the world’s financial markets by bol
stering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudu
lent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to juris
dictions that have yet to commit to international standards with respect to bank secrecy and transparency.”
Box 8.2 Efforts to combat money laundering – participation by tax havens International collaboration against money laun
dering is pursued through a number of different bodies, including FATF, the IMF and The Eg
mont Group. A number of tax havens participate in some or all of these fora. In many cases, they have also implemented recommendations from FATF and others on regulations and systems to combat money laundering. The Commission takes the view that tax havens nevertheless rep
resent one of the principle obstacles to combat
ing money laundering.
When criminals receive the proceeds of a crime, they will eventually want to use this mon
ey for consumption or investment. Perhaps the most crucial stage in the fight against money laundering is the first persons to receive such funds, either as payment for a product, a service or a capital object, or in the form of a manage
ment assignment on behalf of the owners. One of the key elements in fighting money launder
ing is an obligation to report suspicious transac
tions. This obligation rests in most countries on bank staff as well as on employees in the rest of the financial industry and in a number of other sectors.
In practice, reporting a transaction which
In practice, reporting a transaction which