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UNCTAD Makes Offshore Recommendations


The number of countries offering favorable tax conditions for special purpose entities (SPEs) is increasing, the United Nations Conference on Trade and Development (UNCTAD) has said, urging that global efforts to tackle tax evasion be refocused.

According to a new UNCTAD report, "Global Value Chains: Investment and Trade for Development," the so-called "tax haven" economies now account for a growing share of global foreign direct investment (FDI) flows. It calculates that this figure now stands at around 6 percent.

While investment in offshore financial centers (OFCs) remains at record levels, SPEs now act as a channel for more than USD600bn of investment flows. As the report explains, "the decision to locate investments in economies that host SPEs is driven by the tax treatment of SPEs and also by double-taxation treaties."

Yet, as the UNCTAD points out, international efforts to combat tax evasion have concentrated largely on OFCs. SPEs, on the other hand, "are a far larger phenomenon." Cracking down on OFCs alone "is clearly not enough," and the report recommends that a closed list of "benign" uses of SPEs and OFCs be created as the starting point for a wider strategy rethink. Data on SPE transactions is nonetheless thin on the ground, and further research will be needed to improve transparency on the issue.

Looking at the still broader picture, the UNCTAD is clear that cracking down on tax avoidance through OFCs and SPEs "must go hand in hand with a discussion of corporate tax rate differentials between countries, the application of extraterritorial regimes, and the utility of triggering tax liabilities upon repatriation of earnings." Parallel action on these fronts is required, if governments hope to avoid "swimming against the tide."