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From Multilateral to Unilateral Lines of Attack: The Sustainability of Offshore Tax Havens and Financial Centres in the International Legal Order

Chiu, Iris H-Y; (2016) From Multilateral to Unilateral Lines of Attack: The Sustainability of Offshore Tax Havens and Financial Centres in the International Legal Order. Connecticut Journal of International Law , 31 (2) pp. 163-185. Green open access

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Abstract

Many micro-states have an economic model that attracts global corporations and international financial activities, because plugging into the global economy is important for states that have small domestic economies. To attract businesses, micro-states often offer low business and corporation taxes or lax regulatory regimes to compete in the fiercely competitive global market. Therefore, micro-states are criticised as offering havens, engaging in harmful tax competition and leading a race to the bottom. Although international efforts—such as those led by the Organisation for Economic Co-Operation and Development (“OECD”) and Financial Action Task Force (“FATF”)—have secured some co-operation from such micro-states, the micro-states’ position remains an uneasy one in the international legal order, as they engage in regulatory competition with onshore jurisdictions and with each other. Following the global financial crisis from 2007 to 2009, a slew of aggressive extra-territorial legislation in the area of taxation and finance has been introduced by a number of powerful jurisdictions to bring a new onslaught onto the micro-states’ economic models. This article argues that the US, EU and UK are leading such a move from the traditional multilateral approaches to governing micro-states’ role in regulatory competition to unilateral approaches that are more overtly antagonistic to micro-states’ economic models in offshore tax and finance. This article examines why such a move has occurred, and the confluence of driving factors for such a move. This article also examines the key unilateral measures, i.e. the rise of automatic information reporting regimes such as the US FATCA, the more modest EU equivalent, the UK’s new corporate reporting and tax enforcement regimes, and the EU’s reforms in financial regulation. We also see a trend in these unilateral strategies giving rise to more coordinated multilateral adoption of such strategies. Based on a consultancy project the author led in 2015, we have gained first-hand insights into policy-making in a micro-state which is facing the challenges described above. Micro-states offering the old models of tax and financial services are at the cusp of change. However, they have little choice but to continue to try and thrive in global economic competition. We provide some reflections on micro-states’ continuing role in regulatory competition in the changing international legal order.

Type: Article
Title: From Multilateral to Unilateral Lines of Attack: The Sustainability of Offshore Tax Havens and Financial Centres in the International Legal Order
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.cjil.org/
Language: English
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of Laws
URI: https://discovery.ucl.ac.uk/id/eprint/1522638
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