Tuesday, November 16, 2010

Round-tripping via Mauritius

Somehow we missed this excellent story which came out in May this year in Africa-Asia Confidential, a sister publication to the highly respected insider newsletter Africa Confidential.

It is all about Mauritius, a very dirty Indian Ocean secrecy jurisdiction. The article explores its tax treaty with India, looks at reforms now underway to the Indian tax system which we hope will mitigate some of the harm caused by the Mauritius loophole, and discusses high-profile scandals involving Indian round-tripping via Mauritius.

Round-tripping, as it happens, gives the lie to one of the great claims made for tax havens by apologists such as James Hines of Michigan Law: that they stimulate foreign investment (FDI) in onshore jurisdictions nearby. You see, that extra "FDI" is not really FDI, but LDI (local direct investment): it is local investors taking their money out to a place like Mauritius, dressing it up in offshore secrecy, then returning the capital home, gaining the special exemptions (such as zero tax rates) put in place to entice foreign investors -- then laughing as their fellow citizens toil to pay the taxes that they have escaped, or suffer from the reduced public services. And of course the secrecy provides cover for all kinds of crime and market abuse.

Round-tripping is a thoroughly, thoroughly corrupt and corrupting business.

For those who want to see some real examples about why tax havens cause poverty, undermine and distort markets, and foster large-scale crime, read the full article here.


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