Vinnikova L.V., Tsipan I.M.

The East-Ukrainian National University named after Volodymyr Dahl, Lugansk , Ukraine

TAX HARBORS

Most transnational firms have foreign branch offices, which are situated in the countries called “tax harbors”. These branch offices are the accumulated funds of corporation, which call for reinvestment or repatriation. The establishment of such branch offices is connected with tax prolongation availabilities on foreign earnings, allowed in some countries where the parent companies are located.

“Tax harbors” means the countries with low-tax legislation and liberal tax incentive given to the transnational firms as an ability to reduce or to postpone taxation of income, which passes through these countries.

The branches offices situated in such “tax harbors” are known as international offshore financial centre Transnational Corporation (TNC).Location of such financial centers has always to meet the following conditions:

-     low income tax for the residents of corporations from foreign investment or sales, a low tax collection on dividends which are paid to a parent company;

-   stable currency that helps to convert funds in the local currency and vice versa;

-   developed infrastructure for providing financial service(communications, skilled personnel, banks with good reputation);

-   stable government, which supports the development of the financial branch offices TNC within the country.

International offshore financial centers TNC can have different forms of organization. It is necessary to decide how to create the branch office or to register in the “tax harbor” the local corporation. There are many factors affecting, such as:

1)    expected profitability or non-profitability. If the strategy expects unprofitableness for a long time after establishment than such branch of the transnational company almost always takes the form of a branch. It can give ability to consolidate the losses in the income statement of the parent company within the country TNC;

2)    reputation of the parent company and funds repatriation. Free funds can be a very important factor to use the working capital. But if the financial income of the centre won’t be transferred to the parent company, but will be accumulated in the “tax harbor”, then TNC will not register a branch and will register a subsidiary enterprise. The parent company will not pay tax for this accumulated income until transferred “home”;

3)    the possibility of alterative offshore funds branch. If TNC realizes an active international expansion and needs new investments in opening new enterprises every year, offshore centers accumulate resources from the foreign branch offices to finance other branch offices. The status of a subsidiary enterprise, but not the branch office will be profitable for TNC.

The whole transfers from all branches of transnational corporation’s network can run through international financial offshore centre. It concerns both dividends and investments. Therefore, the tax payment to the parent company country coming from the income from the foreign sources, which are usually paid in case of dividends,may be deferred until the offshore financial center pays no dividends to a parent company. Dividends may be delayed if the offshore center finances the widening of foreign operations . To accumulate such corporation resources, TNC does not need transfer them to a parent company where they will be under tax. This part with a minimal negative profit makes international offshore financial centre TNC.

There are four types of “tax harbors”. They are the following:

1)    “ tax harbors” where there is no income taxes, capital growth, and others taxes (on presents, property etc.);

2)    “tax harbors” with low-tax legislation;

3)    “tax harbors” where there are income taxes from domestic sources, but no profit from foreign sources;

4)    countries which offer special tax privilege and are “tax harbors” for special aims [1].

To the first type of the “tax harbors”one can add some offshore zones in the Caribbean Basin . Bahamas , for example, collect 100$ a year from the local corporations. Cayman   Islands   guarantee  the foreign companies  to be free from tax for t wenty years period. Bermuda Islands have very low tax rates. All those “harbors” have no tax agreement with other countries concerned .

The representatives of the second group are British Islands , Antilles . For instance, Antilles offer very low tax income and special tax privileges for holdings, aviation, shipping firms.

The third type of offshore centers is the countries and territories, like Panama , Hong Kong . However, Hong Kong has set up a 15% tax on the profit from the local sources, foreign taxes are completely out of taxes. There is no any capital tax or dividends, transferred by foreign shareholders. Similar tax situation and very liberal procedures incorporations act in Panama .

The fourth group is the countries, which try to stimulate development in some regions or encourage industrialization of the country. For example, Ireland derives export income of the corporations from taxation, which have organized plant facilities in the separate regions. Puerto Rico does not have tax for enterprises situated in some less developed regions [2].

Currently, the offshore financial centers and the related methods of household economic activities have firmly allocated in the global economy. Offshore business has acquired the global scale. Naturally, the main reason that launched a complex financing mechanism is not a contradictionof the government and entrepreneurs.It is clear that the government wants to control the business income and a guaranteed interest in the form of taxes. Entrepreneurs, respectively, are not beneficial to share the earned money with someone else. For all these reasons, we may see that the offshore business is an important question to bring about [3].
To sum up, we should say that the "tax harbor" is a country in which laws and regulations facilitate business activities by means of international agreements. Thanks to a substantial reduction of the tax burden on registered corporations and other offshore financial institutions. Anyway, over the years, various governments establish an external communication in order to attract foreign investors in different ways. One of them isto create comfortable tax conditions in the country.

The list of references:

1. Рогач О.І. Міжнародні фінанси: підручник / О . І . Рогач , А . С . Філіпенко , Т . С . Шемет та ін .; за ред. О.І. Рогача. – К.: Либідь, 2003. – 784 с.

2. Шевцова С . Ветер перемен дует в налоговые гавани [Электронный ресурс ] / С . Шевцова // Материалы информационного сайта Amond   &  Smith Ltd . – Режим доступа: http :// www . amondsmith . ua / press - dp -2005.11.15

3. Материалы информационного сайта Offshorehavens . net . Налоговый рай   [Э лектронний ресурс ] . – Режим доступа: http :// www . offshorehavens . net / ru