Nick Shaxson ■ Taiwan – the un-noticed Asian tax haven?
A (slightly tidied-up) conversation we’ve just had went along these lines:
“You’ll never guess what is the new Switzerland for Asia. And I mean big time. The Asian money is heading there. Banks set up there as its a financial centre that doesn’t tax foreigners. And its perceived as safe, and not a signatory to the CRS [The OECD’s Common Reporting Standard.] TAIWAN.”
Now, what to make of this?
Put “Taiwan tax haven” into a search engine, and you won’t find much to back this up, on a cursory search. (Even if you try craven formulations such as “Chinese Taipei” instead of Taiwan, it still doesn’t bring up much.)
Our own Financial Secrecy Index gives some support to the thesis. You’ll find Taiwan right down at the bottom of our list, but in the ‘unranked’ category, because the available data wasn’t good enough for our purposes. However, based on the rough data range we provide for the secrecy score, and a sizeable global scale weight of roughly 0.5, it is suggestive that if good data had been available, Taiwan might well have been in the top 10, and most likely in the top 20. (But remember: this is rather speculative.)
Taiwan meets the criterion of being a stable, relatively well-governed state: another tick in the box for tax havenry.
Its geographical position in Asia, and particularly its proximity to China, is another big marker – as is the fact that it has a rather hostile relationship with China. That last point might seem strange at first glance but one of the whole points of offshore banking is to remove your assets out of your own country’s orbit — and the more distant (or hostile) the relationship, the less likely there’s going to be co-operation on pesky things like exchange of information about your hidden assets. Hong Kong, historically the first destination of choice for Chinese secret money, makes many Chinese wealthyfolk jittery because of the many subtle controls China exerts over the territory: a fear that has ramped up savagely of late. Traditionally, Chinese élite secrecy-seekers have got over this Hong Kong objection by combining a Hong Kong structure with another more remote one, typically via the British Virgin Islands. But Taiwan could perhaps do the trick too – and of course unlike with the BVI, the language is just right. And it’s a whole lot closer.
Here’s another pointer. Take a look at the OECD’s list of Tax Information Exchange Agreements (TIEAs) – bilateral protocols providing for exchange of information on each others’ taxpayers’ income – and Taiwan doesn’t come up. That’s not so uncommon – China doesn’t have very many, either, and many recognised tax havens like Cayman have loads of them. But still.
More importantly, Taiwan is also absent from the list of countries (97 at the last count) that have committed in one way or another to participating in the global transparency standard, the OECD’s Common Reporting Standard (CRS.) That alone gives it strong secrecy credentials.
There is also Article 48 of the Taiwan Banking law, which requires confidentiality of all information unless otherwise provided in law, and TJN’s FSI database for Taiwan contains a number of other red flags.
And there’s more.
Taiwan has recently been one of a small number of players – along with Hong Kong, London and a couple of others – to get involved in what is known as the Offshore Renminbi market: a development that began in 2009 to begin the process of internationalisation of China’s currency. From Chatham House:
“The first channel between mainland China and Taiwan was opened in August 2011, allowing Taiwanese banks to absorb RMB deposits in their Overseas Banking Units (OBUs) business. After a strong growth in the first three months, RMB deposits in Taipei grew at an average rate of 15% every month from December 2011 to the end of 2012 (Figure 5) – a stronger growth rate than Hong Kong experienced when local banks were first allowed to hold RMB offshore in 2004.”
Now: what are these Offshore Banking Units?
Well, in fact OBUs are an old facility first set up in 1983, not long after the U.S. set up its International Banking Facilities (IBFs) to compete with the explosively-growing Eurodollar markets created by Britain and its own offshore satellites. The idea is to allow trading in foreign-currency instruments only, with minimal regulation: the only thing that is forbidden is trading in local currency instruments (so as to prevent international hot money creating wild swings in the value of the local currency). As one account puts it:
“OBUs are not permitted to denominate accounts in the domestic currency. However, any other currency is permitted. OBUs are exempt from reserve requirements, corporate tax, withholding tax on account holders, and stamp duties.
. . .
OBUs are a very important aspect of Taiwan’s banking sector and economy. . .OBUs are often used for CNY/RMB (renmibi) banking outside of China.”
Or, as one Taiwanese bank is currently advertising:
Now this is all sounding very offshore-like. The data looks like this, from December 2015:
That $187bn total is large, and it has risen from $160bn two years earlier: a significant (though not earth-shattering) eight percent annual rise.
And there are a whole lot of big foreign banks operating in Taiwan: just take a look at those wealth management experts.
- Bank of China
- The Hongkong and Shanghai Banking Corporation
- ABN AMRO
- American Express Bank
- Australia and New Zealand Banking Group Limited
- Banco Bilbao Vizcaya Argentaria
- Bangkok Bank
- Barclays Bank
- BNP Paribas
- Bank of America
- The Bank of East Asia
- The Bank of New York
- The Bank of Tokyo-Mitsubishi UFJ
- DBS Bank
- Deutsche Bank
- Fortis Bank
- JPMorgan Chase
- KBC Bank
- Metropolitan Bank and Trust Company
- Mizuho Corporate Bank
- Oversea-Chinese Banking Corporation
- Société Générale
- Standard Bank of South Africa
- Standard Chartered Bank
- State Street Bank and Trust Company
- Sumitomo Mitsui Banking Corporation
- UBS AG
- United China Overseas Bank
- Wachovia Bank
- Wells Fargo Bank
Most of the usual suspects, and a few more to boot.
We now have a couple of questions for the OECD, the global body that has taken most responsibility for creating international financial transparency.
With all these red flags, why is Taiwan not on the 131-member list for its Global Forum, the body that carries out peer reviews and puts pressure on countries to shape up, transparency-wise?
This may well be China’s influence, seeking to keep Taiwan out of all international fora, as it has done for this “splittist” state for many years, in many different ways. This state of affairs may also suit powerful people in the Chinese leadership, for more personal financial reasons.
Can we look forward to seeing Taiwan subjected to the Global Forum’s Peer Review Process? And if not, could we please have an explanation for why not?
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