Thu, Jan 30, 2014 page14

• British Virgin Islands rakes in FDI

  TAX HAVEN: Most of the money is transferred out, or is moved through the accounts of transnational firms from their affiliates in countries with higher tax rates

  • Reuters, GENEVA, Switzerland
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  The British Virgin Islands got more foreign direct investment last year than the major emerging economies of India and Brazil combined, a UN survey said on Tuesday.

  The Caribbean archipelago, a tax haven otherwise dependent on tourism, has jumped up the league table of top investment destinations in the past five years.

  It welcomed US$92 billion of foreign cash last year, according to preliminary figures compiled by the Geneva-based UN Conference on Trade and Development (UNCTAD) think tank.

  That was the fourth-biggest haul of investment globally. The world’s biggest economy, the US, attracted US$159 billion.

  The world’s second-biggest economy, China, got US$127 billion, while major oil and metals producer Russia took in just US$2 billion more than the British Virgin Islands.

  Brazil and India were further down the ranking, with US$63 billion and US$28 billion respectively.

  For most countries, foreign direct investment mainly consists of companies spending on crossborder corporate acquisitions and new overseas projects.

  However, for the British Virgin Islands, most of the money is transferred quickly in and out of the country or cash moved through the treasury accounts of large firms, which UNCTAD terms “transnational corporations” (TNCs).

  “In the British Virgin Islands there are some financial companies that perform the role of treasuries of the TNCs, as a kind of profit unit or profit center,” UNCTAD investment and enterprise division director James Zhan said.

  “The TNCs’ revenues basically flow from their foreign affiliates in countries with higher tax rates to there,” he told a news briefing.

  The islands’ annual inflow of foreign investment was up 40 percent from a year ago and continues a trend that took off after the economic crisis struck and governments began cracking down on tax avoidance.

  Zhan said the British Virgin Islands’ boom in investment would be unlikely to continue at the same pace because regulators were determined to stop such flows.

  “In the medium or longer term we see that the role in this respect may reduce,” he said.

  “Governments are looking into the situation and trying to tighten up their regulatory framework both at the national and international level,” he said.

  The main casualty of such regulation was likely to be big companies’ treasury flows, he said, adding that UNCTAD was working on a study to show how big the impact would be.

  The continued flows to the islands, which UNCTAD has previously referred to as a tax haven, is likely to keep it under the microscope of the G20 leading economies, which has said it wants to put pressure on “non-cooperative jurisdictions.”

  The G20 has asked the Organisation for Economic Co-operation and Development (OECD) to lead efforts on curbing international tax evasion and avoidance, and the organization’s tax transparency forum has named the British Virgin Islands as one of five countries that failed to meet international standards on tax transparency.

  Each of the five either failed to share taxpayer information with other countries or to gather information on beneficial ownership of corporate entities registered on their territory, or both.

  The OECD has said big international companies, banks and agencies may think twice about investing through these jurisdictions.

  UNCTAD said the total global flow of foreign direct investment rose by 11 percent to US$1.46 trillion last year and could reach US$1.6 trillion this year and US$1.8 trillion next year.
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