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Blacklisted offshore countries and alternative solutions

Today’s international business leaders register IBCs mainly because this legal structure provides a way to run a business on a global scale while legally avoiding wealth taxes and excess paperwork — in addition to having offshore bank accounts or purchasing non-reportable assets, such as offshore gold and foreign real estate or productive, high yield farmlands in less politically and economically influential countries, using cryptocurrencies. Some think that low tax rates are the wave of the future.

At the same time, the jurisdictions which offer such opportunities for company owners are often referred to as tax havens or offshores. Offshore jurisdictions are often blacklisted, because IBC beneficiaries are typically forbidden to engage in local business — meaning that they are not legally able to do business in the country where their company is established. IBC owners can use transfer pricing to bounce intellectual property and sales around in order to achieve very low tax rates; however, this may have certain consequences, as their home country will likely require them to report their involvement in offshore business operations. Offshore jurisdictions may aim to make a profit by allowing company owners to conceal their names while supporting illegal and harmful business operations, including warfare, the drug trade and other damaging activities.

Depending on the jurisdiction concerned, the owners of offshore companies may use the opportunity to follow laws that are more client- or business- friendly than creditor-friendly. Some countries provide protection from all claims except where the transfer is deemed fraudulent. There are several types of offshore entities, called shell corporations and shelf corporations, that are purposefully established to carry out illegal activities. The former exist only on paper, producing nothing and facilitating tax avoidance while masking the identity of fraudsters. The latter are fully-formed entities with no activity, created in order to bypass the registration process while engaging in quick trading agreements with established businesses.

At the moment, there are thirty countries on the EU offshore blacklist created by the European Commission. It includes countries such as Anguilla, Andorra, Antigua and Barbuda, the Bahamas, Belize, Barbados, Bermuda, Brunei, the British Virgin Islands, the Cook Islands, the Cayman Islands, Grenada, Guernsey, Hong Kong, Liechtenstein, Liberia, the Maldives, the Marshall Islands, Mauritius, Montserrat, Monaco, Nauru, Niue, Panama, Saint Vincent and the Grenadines, Saint Kitts and Nevis, the Seychelles, the American Virgin Islands, the Turks and Caicos Islands and Vanuatu.

The consequences of having a company in or making and receiving payments from blacklisted offshore jurisdictions can be rather harsh, because those involved might unknowingly trigger or support such inimical and questionable activities as terrorism, warfare and the quest for weapons of mass destruction (nuclear programmes), and enter into partnerships with socially and politically dangerous terrorist organisations, human traffickers and drug cartels. Involvement in such activities can lead to increased corruption in addition to legal charges, sanctions and a criminal record after due diligence checks have been carried out.

There are also certain grey-listed countries which are considered to be insufficiently cooperative as they only partially meet and follow the regulations and standards of information transparency of the European Union (EU) and the Organisation for Economic Cooperation and Development (OECD), which aim to harmonise corporation tax laws and equalise taxation systems throughout the EU member countries.

Such jurisdictions support greater transparency by increasing social security and committing to the internationally agreed tax standard, but have not substantially implemented this standard. They are considered to be alternatives to blacklisted offshores which have not committed to the internationally agreed tax standard nor taken any steps towards cooperation with the OECD.