"Unfair tax competition"

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Unfair (harmful) tax competition (tax dumping) is a legal term used by national and international regulatory authorities to characterize the tax policies of states belonging to offshore jurisdictions. It was with the accusation of “harmful tax policy” that the Organization for Economic Cooperation and Development (OECD) launched its campaign against offshore jurisdictions in the fight against tax evasion.

The substance of the charges

The globalization of the economy has led to a radical increase in the influence of the tax system of each country on the tax systems of other countries. Modern financial capital has acquired unprecedented mobility and is able to easily move from one country to another, heading to where the most favorable conditions are created for it. As a result, one of the most important factors of competition between countries for attracting capital was the size of the average tax rate and the volume of tax benefits, giving rise to such a phenomenon as tax competition.

Accusations of unfair tax competition against offshore countries are that offshore jurisdictions, by setting too preferential tax treatment for international (offshore) companies created in them, thereby “luring” financial resources from onshore countries. The outflow of financial resources, in turn, leads to a sharp narrowing of the tax base, tax evasion and ultimately to a significant decrease in tax revenues to the state budgets of onshore states. Therefore, offshore countries are accused of “theft of the tax base” from onshore states. The size of these “thefts” is estimated in different ways: the value of assets held in offshore accounts around the world is estimated at between 1.7 trillion and 11.5 trillion dollars, while the United States estimates its tax losses from the activities of offshore jurisdictions at 100 billion dollars annually.

On the other hand, all this leads to the fact that the structure of economic incentives of onshore economies is distorted, and tax policy loses its regulatory potential. For this reason, from the point of view of opponents of offshore modeling, offshore zones are a kind of “dependents” of the world economy, unreasonably using the public goods created by neo-offshore states.

Essence of objections to charges
However, the offshore countries themselves have a slightly different position on this matter. Since most of these countries are former colonies of European states or the United States, are at a rather low level of economic development and do not have sufficient natural or other economic resources, the possibility of attracting international capital through the establishment of ultra-attractive legal (primarily tax) regimes for the activities of commercial companies seems almost the only way to revive the local economy. The transfer of financial flows to offshore jurisdictions seems to them the same law