Table of Contents
What is International Banking?
International Banking, also called Cross-Border Banking, is the name acquired by financial institutions that promote or encourage the use of their products by foreign clients.
In other words, International Banking allows foreign customers, both companies and individuals or individuals, to use its services with exceptional and flexibility in requirements, taxes, fees. Flexibility that also applies to the regulatory and supervisory framework.
The International Banking traditionally located in Switzerland, but other countries in recent decades, have developed advanced structures of international Banking as attractive to foreign investment and its implications for local economies.
Many corporations, transnational companies and eminently wealthy people make use of the services of International Banking attracted by the exceptional in terms of returns, exemptions and flexibility, especially in tax matters. Strategy that involves potential risks.
In recent years, especially after the financial crisis between 2007 and 2009, international organizations have made great efforts to improve the supervision of Cross-Border Banking and curb the use of international banks as tax havens.
What does an international bank do?
International Bank, is governed primarily by financial services laws of their countries of origin. Depending on the locality, in most cases they are empowered to:
- Encourage the capture of foreign funds.
- Acceptance of funds in foreign currency, at sight or after a fixed term.
- Purchase, sale and placement of foreign bonds, denominated in foreign currency or in their local currencies.
- Make loans to non-residents, companies or individuals
- Accept resources in trust and
- “Promote any activity that attracts foreign currency or foreign securities”
Regarding cross-border banking, not everything is a tax-saving tactic and gray from a supervisory point of view. Research Director at the World Bank, recently stated that among the benefits of international banking for emerging economies are:
“Greater competitiveness helps mitigate local economic crises and allows greater access to the scarce capital necessary to promote growth.”
Where does International banking operate?
The countries where international banks are based have similar characteristics. In most cases they are rich countries or “emerging economies”, some show the figure of ” tax havens.”
All the localities considered as tax havens have an extensive Cross-Border Banking platform.
Almost all international banking establishments are located in small island countries, where the term “offshore” banking arises. These countries generally offer low taxes and in some cases full exemption to international customers.
They generally keep their clients information secret from tax authorities in other countries.
Specific Countries
According to the US National Bureau of Economic Research, about 15 percent of the world’s countries function as tax havens.
The tax havens include, among others: Aruba, Bahamas, Belize, Bermuda, United Arab Emirates, Cayman Islands, Cyprus, Hong Kong (China), the Isle of Man, Macao (China), Panama, Samoa, San Marino, Switzerland and the US Virgin Islands.
Some Advantages of International Banking
In general, wealthy people, large corporations and companies are the preferred market for International Banking.
There are many benefits of cross-border banking, particularly the exemption or low taxes and fees. Other attractions of these financial devices are:
- The foreign direct investment.
- The protection of claims and confidentiality of information.
- The promotion of international trade.
- Protection against fluctuations in domestic interest rates.
- There is no tax withholding on dividends, interest and others.
- They do not apply direct or indirect taxes to profits
- Exemption from duties or taxes on the transfer of assets.
- Exemption from exchange control restrictions.
Some disadvantages and risks of International Banking
Despite the benefits of international banking, there are some drawbacks.
First, if the country in which the funds are placed becomes economically or politically unstable, such financial risks could be transferred to the assets and investments placed there, one of those risks is the nationalization or expropriation of the assets.
Second, although “offshore banking” represents a gray area of US law, if they are found to be harboring money illegally, the US Internal Revenue Service can impose severe penalties.
Exchange rates can fluctuate, which could devalue monetary assets if they are not denominated in foreign currency.
Efforts in legal and regulatory matters
Since 2000, the Organization for Economic Cooperation and Development ( OECD ) issued a report that included a black list of countries that did not commit to the principles of transparency and the exchange of information, they were called ” tax havens not cooperatives “, there are seven towns in total.
At the G20 summit in 2009, a blacklist of countries that function as non-cooperative tax havens was created. They disclosed a four-tier system to score countries and to what extent they comply or not with international tax standards.
The European Union has lobbied several international financial centers to sign the European Union Withholding Tax and an information exchange directive, which requires banks to deduct 15 percent tax and disclose complete information about their clients to their clients. countries of origin.
Just in December 2017, the ministers of Economy and Finance of the European Union updated the “black list” that includes 17 countries that act as “non-cooperative tax havens“, according to the EU definition.
In addition, a “gray list” has been drawn up, made up of 47 other countries that have committed to modifying their laws in this area of international banking.