Offshore tax haven

An offshore financial centre (OFC) is a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds. The term was coined in the 1980s. 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."

With its connotations of financial secrecy and tax avoidance, "tax haven" is not always an appropriate term for offshore financial centres, many of which have no statutory banking secrecy, and most of which have adopted tax information exchange protocols to allow foreign countries to investigate suspected tax evasion.

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