The pressure on international private banks from tax authorities is making offshore banking much less profitable. Yet another consequence of the global financial crisis has been an unprecedented crackdown on offshore bank accounts by domestic tax authorities. Tax-collecting agencies are desperate to claw back money that has, up to now, remained beyond their reach.
Orange County tax attorneys note that the pressure on banks to hold assets declared to the tax authorities are squeezing margins on offshore accounts by removing the key attraction over holdings kept onshore.
If the trend continues, there will be much less profitability for offshore banking, making the returns similar to onshore banking rates.
Cash-strapped governments have forced most of the world’s offshore banking centers to sign up to new international tax rules and relax bank secrecy.
If putting money out of the reach of the IRS is no longer a realistic option, offshore banks will have to compete head-to-head with onshore banks. Depositors may still be attracted to traditional offshore havens like Switzerland because of political and regulatory stability, and because of banking expertise, but even these are not as attractive as the former secrecy was.
Banks offering offshore services will in future have to provide foreign tax authorities with more proof that their clients’ accounts are compliant with tax laws, increasing costs and squeezing margins.
One expert said, “Onshore markets are priced lower, as the models converge they are going to become very similar…We are going to see a convergence of the margins of onshore and offshore.”
Source: Reuters “Tax scrutiny squeezes offshore private banking” 10/6/2010