INTERNATIONAL FINANCIAL

CENTRES AND OFFSHORE

BANKING UNITS

SUBMITTED TO – ASS. PROF. NAVEEN KUMAR

SUBMITTED BY – NEHA (21067)
 INTRODUCTION
 An International Financial Centre or IFC is defined as a country or jurisdiction that
provides financial services to nonresidents on a scale that is not equivalent with the size
and the financing of its domestic economy.
 An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal
with flows of finance, financial products and services across borders. London, New York and
Singapore can be counted as global financial centres.
CHARACTERISTICS OF INTERNATIONAL
FINANCIAL CENTRES
 Large foreign currency market
 Large net supplier of funds
 Intermediary for international loan funds
 Market offers tax-breaks
 Effective and efficient movement of capital
TYPES OF INTERNATIONAL FINANCIAL CENTRES

FUNCTIONAL CENTRES : These are those where actual deals are struck
with customers in respect of obtaining deposits and negotiating loans. Markets exist for banks to
borrow and lend deposits to other banks and to issue certificates of deposits. Among the
functional or fully operational centres a distinction exists between international and regional
financial centres.
Paper Centres – Paper centres - also known as
‘booking’, ‘shell’ or ‘suitcase’ centres – are
locations where transactions are legally
booked but they are really a set of ledgers
maintained by an agent, the intermediation
occurs elsewhere.
Base Havens

 Base havens are offshore financial centres with nil or very low corporate taxes, no withholding
taxes, and no or, at best, a few tax treaties. Often, they charge a “fee in lieu of taxes” or a
flat rate tax, irrespective of the actual turnover or profits.
 There are generally no exchange controls or currency restrictions, and a high level of
banking and commercial secrecy is provided. The lack of tax treaties reduces the possibilities
of exchange of information under the treaty provisions. Their primary use is to collect and
accumulate income in a tax-free or low-tax environment.
 Many base havens are colonies or ex-colonies of onshore jurisdictions (Examples:
Netherlands, United Kingdom) and enjoy their political and economic protection.
Treaty Havens

 Treaty havens are offshore financial centres that permit nonresidents to use their tax treaties
for resident intermediary entities, e.g. treaty shopping. The tax treaties with source
countries provide for reduced or nil withholding tax on inbound income.
 It helps to minimize the total tax through the use of third-country treaties. For example, the
treaty with an intermediary jurisdiction may provide more favourable treaty benefits, or grant
them if there is no treaty between the host and home States.
 The use of a treaty country as an intermediary may prevent the exposure to source taxes if
the activities are not significant and do not form a permanent establishment.
Special Concession Havens

 Many high-tax “onshore” countries act as tax havens and provide special tax regimes with
exemptions or reliefs to attract businesses with certain types of international business
activities. They also allow the use of their treaty network for treaty shopping.
 Some countries provide companies set up by nonresidents for offshore use with full or
partial confidentiality on details of their ownership and transactions.
 Many countries encourage multinationals to set up service companies that pay a tax on
income based on an agreed percentage of the expenses incurred by them in the country.