Offshore financial centers

An offshore financial centre (OFC) is a jurisdiction specializing in providing corporate and commercial services, such as offshore banking licenses (international banking license) or the incorporation of offshore companies (international business companies). Often due to territorial taxation, OFCs also levy little or not taxes on corporate and/or personal foreign income. Offshore companies incorporated in those jurisdictions are usually less regulated, but prohibited from engaging in local business activities. The term was first coined in the 1980s and the International Monetary Fund (IMF) defines an offshore financial centre as "a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy."

Although information is still limited, there is strong evidence that OFCs captured a significant amount of global financial flows and functions both as back doors and partners of leading financial centre especially since the 1970s.

Whether a financial centre is to be characterized as "offshore" is a question of degree. Indeed, the IMF Working Paper cited above notes that its definition of an offshore centre would include the United Kingdom and the United States, which are ordinarily counted as "onshore" because of their large populations and inclusion in international organisations such as the G20 and OECD.

The more nebulous term "tax haven" is often applied to offshore centres, leading to confusion between the two concepts. In Tolley's International Initiatives Affecting Financial Havens the author in the Glossary of Terms defines an "offshore financial centre" in forthright terms as "a politically correct term for what used to be called a tax haven." However, he then qualifies this by adding, "The use of this term makes the important point that a jurisdiction may provide specific facilities for offshore financial centres without being in any general sense a tax haven." A 1981 report by the United States Internal Revenue Service concluded: "a country is a tax haven if it looks like one and if it is considered to be one by those who care."

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