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USA Paraiso Fiscal

USA Paraiso Fiscal

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Mapping Financial SecrecyUSA
 
1
 
Published on October 4, 2011 © Tax Justice Network
Report on USA
USA is ranked at fifth position on the 2011 Financial Secrecy Index. This ranking is based ona combination of its secrecy score and a scale weighting based on its share of the globalmarket for offshore financial services.USA has been assessed with 58 secrecy points out of a potential 100, which places themwhich places them in the mid range of the secrecy scale (see chart 1 below).USA accounts for slightly over 21 per cent of the global market for offshore financialservices, making it a huge player compared with other secrecy jurisdictions (see chart 2below).
Part 1: Telling the story
The United States offshore financial centre: history and overviewOverview
T
he United States is the world’s largest economy and its main financial centre in Wall Streetis, on some measures, the world’s biggest. It provides secrecy for non
-residents, both at aFederal level and at the level of individual U.S. states. Taken as a whole, the United Statesprovides a very wide range of offshore services. To a large extent, the government hasencouraged many of these developments to attract capital for balance of payments reasons.
ModeratelysecretiveExceptionally secretive
31-4041-5051-6061-7071-8081-9091-100
Chart 1 - How Secretive?Chart 2 - How Big?
tinylarge
huge
small
 
Mapping Financial SecrecyUSA
 
2
 
Published on October 4, 2011 © Tax Justice NetworkIn terms of size, the U
.S.’ main rival as a financial centre is the City of Lon
don. However,unlike the City, which historically built its strength on overseas empire and has always beena heavily outward-focused (hence offshore) financial centre, the financial markets of theUnited States were significantly more domestically focused, and diluted in a relatively muchlarger economy. As a consequence, offshore finance
 –
both in terms of U.S. persons usingforeign secrecy jurisdictions, as well as foreigners using the U.S. itself as a secrecy jurisdiction - has always been more politically contested in the United States than it has beenin the UK. In general, the United States has played a pioneering role in devising ways todefend itself against foreign tax havens, but has largely failed to address its own role inattracting illicit financial flows and supporting tax evasion.The United States is a major tax haven because it provides tax free treatment and variousforms of secrecy for nonresident individuals, corporations and other entities. On the taxside, it charges a zero rate on some categories of income, including interest paid by banksand savings institutions to non-resident individuals or foreign corporations; interest ongovernment debt and interest on some types of corporate debt. On the secrecy side, theU.S. also has weak and relatively few treaty requirements to exchange relevant informationwith other jurisdictions
 –
which need that information so that they can tax their own citizensproperly. The U.S. government also does not require income earned locally by nonresidentsto be reported to the U.S. government
 –
which means that even where it may be required to
exchange the information under international agreements, it doesn’t have it available to
exchange.Furthermore, U.S. money laundering laws allow U.S. financial institutions to handle theproceeds of a long list of crimes, as long as those crimes are committed outside the U.S. If the crimes are commmitted inside the U.S., handling these proceeds would fall foul of money laundering laws.(p186-9)A significant share of U.S. residential and commercial property is owned by offshore shell companies, under secrecy arrangements that can helpnon-resident foreigners earn income that can be kept secret from the tax and criminalauthorities of their home country.These factors, which help the United States attract foreign dirty money, are significantly theresult of deliberate lawmaking rather than of mere omission: they represent the classicbehaviour of a secrecy jurisdiction. Financial secrecy provided by the U.S. has caused untolddamage to the ordinary citizens of foreign countries, whose elites have used the UnitedStates as a bolt-hole for looted wealth.
Federal-level secrecy: from before globalisation to the present day
The United States has long been something of a secrecy jurisdiction or tax haven. Around thetime of the 1921 Revenue Act, the U.S. House Ways & Means Committee, in a clearstatement of tax-haven intent, stated that "the exemption of 
interest from taxation wouldbe in keeping with the action of other countries and would encourage nonresident alien
 
Mapping Financial SecrecyUSA
 
3
 
Published on October 4, 2011 © Tax Justice Networkindividuals and foreign corporations to transact financial business through institutionslocated in the United States." Later, in 1966, the tax-exemption stance was officiallyreconsidered but nothing was done, on the grounds that it might, as one Senate report putit:
“have a substantial adverse effect on our balance of payments.”
On the secrecy side, information-sharing arrangements were extremely rudimentary in theearly decades of the last Century. After the Second World War John Maynard Keynes andHarry Dexter White, the main architects of the Bretton Woods agreements, fought to boosttransparency by requiring the United States to inform European governments about theassets and income of their respective citizens, to help those war-ravaged countries raisesufficient tax revenues. These proposals, driven primarily by concerns that economic crisiscould deliver European countries into Soviet hands, were eviscerated by the American
Bankers’ Association
in the IMF’s Articles of Association,
co-operation on flight
capital would no longer be ‘required’ as Keynes and White wanted, but merely ‘permitted.’The United States’ of 
fshore status really took off during the period of rapid financialglobalisation from the Reagan era onwards.Several factors spurred the changes. New Deal regulations (which had kept financialinterests in check following the Great Depression) began to unravel; and financialderegulation and advances in communications technology accelerated cross-border financialflows, spurring offshore banking generally. Meanwhile, foreign tax havens increasinglybegan to serve as near-frictionless conduits for financial inflows into and out of Wall Street,making them one of the biggest reasons for the growth in the power and reach of WallStreet. The lure of Tax Haven USA as a magnet for illicit inflows further spurred the growthof the financial sector.In 1970s the U.S., hitherto a country with external surpluses, began to face growing deficits,exacerbated by the Vietnam War. It increasingly needed foreign financing to finance thesedeficits and it did so, in significant part, by attracting tax-evading and other illicit foreignmoney. Foreigners invested in the U.S. for many reasons, not least the fact of the U.S. dollarbeing the global reserve currency - but secrecy and tax-free treatment was always amongthe top reasons. Had the U.S. implemented full transparency and taxed interest and otherincome earned by foreign investors, the financial inflows (and U.S. external deficits) wouldhave been very substantially smaller.In 1981, the U.S. introduced a new mechanism in the field of financial regulation: theInternational Banking Facility. This allowed banks in the U.S., which had previously needed togo offshore to get around domestic financial regulations, to keep a separate set of booksthat effectively allowed them to obtain these exemptions while remaining at home. Thisattracted significant funds out of foreign tax havens and back to the US. In ongoing efforts to fill the deficits, the U.S. authorities began to let foreigners who lent toU.S. corporations and to the U.S. government a tax exemption on
the U.S.’ 30 percent
witholding taxes when they received their interest payments. Initially they did this by

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