Comparative analysis of tax regimes of international financial centres

Размещено на http://www.allbest.ru/

FEDERAL STATE AUTONOMOUS EDUCATIONAL INSTITUTION

FOR HIGHER PROFESSIONAL EDUCATION

NATIONAL RESEARCH UNIVERSITY

HIGHER SCHOOL OF ECONOMICS

Faculty of Social Sciences

Bachelor Thesis

«Comparative analysis of tax regimes of international financial centres»

Karavaeva Alina

Supervisor: C.Sc., Ph.D.

Vladimir Tiutiuriukov

Moscow 2020



Contents

international financial regime tax

Introduction

1. Components of an International Financial Centre Regime

1.1 Notion of an International Financial Centre

1.2 Classifications of International Financial Centres

1.3 Features of an International Financial Centre

1.4 Onshore vs. Offshore Financial Centres

2. Practices of International Financial Centres

2.1 London

2.2 Luxembourg

2.3 Singapore

2.4 Hong Kong

3. Tax Policy Significance and its Implications for Russia

3.1 Analysis of a Relationship between a Tax Regime and FDI

3.2 Macroeconomic Stability Analysis

3.3 Cross-country Analysis Inference

Conclusion

Reference List

Appendix



Introduction

Attracting investment and encouraging business activities is one of the priorities for a government in the economic sector. One of the ways to achieve that is through special tax regimes that benefit specific types of activities or firms that comply with certain rules. It is usually attained through an establishment of an effective international financial centre which is a geographically concentrated set of financial activities, however, sometimes it may also be executed on a scale of the whole country. In the latter case, although, companies may enjoy the introduced tax benefits regardless of their location in the country, infrastructure, economic development, and labour force specialisation may lead to a concentration of those activities in the corresponding region. While those other factors, such as administrative costs or availability of highly qualified or relatively inexpensive workforce, are also being considered when launching a business in a specific area, tax benefits available for IFC residents or on a state-level may be the deal-breaker.

Plans for the creation of an IFC in Moscow have first been announced by the President of Russia, Dmitry Medvedev, in the summer of 2008 at the international economic forum in St. Petersburg. Following the statement, decree of the Russian Government on the action plan "Creating an international financial centre and improving the investment climate in the Russian Federation" was enacted in June, 2013 which enables the formation of the Russian financial market as a regional IFC, one of the leading centres in the Eurasia.

However, developing an international financial centre is not a one-day and not even a three-year project and there is still a significant gap between Moscow and leading foreign IFCs, which evokes the relevance of this paper. According to the Ease of Business Index, published by the World Bank, Russia in 2020 was ranked 28^th ranked out of 190 (31^st in 2019), behind Central and Eastern Europe and regions of China. In the world ranking on the convenience of paying taxes (Ease of Paying Taxes), determined by the World Bank and the audit company PriceWaterhouseCoopers, Russia ranks 58^th out of 189 in 2020.

The object of this research is a tax regime of an international financial centre, while its subject lies within efficiency of an IFC tax regime and its main advantages in terms of practices for attracting investment in each country of the study.

This paper aims at examining main tactics for attracting business employed by the top-ranked countries and their territories, specifically focusing on the tax regimes, and uses cross-cultural analysis to determine whether country's choice of a taxing system may be an influence on foreign investment and to what extent.

In order to achieve the aim of the paper, the following objectives have been determined:

Study the origins of international financial centres, its categorizations, main attributes, and prerequisites for an effective operation;

Research current trends of locating businesses abroad and foreign investments, and identify factors with the greatest effects on the process;

Explore the benefits of a flexible tax regime and the extent, to which it has impacted FDI in various IFCs and countries of their location;

Apply the results of the cross-cultural analysis to recognise opportunities and constraints in regard to developing an IFC in the Russian environment.

When asking how tax change affects the economy, the difference between the level of investment, that would be in the case of absence of a tax reform, and the level of investment, that would be achieved if conditions for making tax changes were met, needs to be assessed. A neoclassical model of an investment equation employed by Vergara (2010) and supported by the studies of Cardoso (1993), Rama (1993), Caballero (1999), and others, is included in the paper as a proxy for the impact of tax policies on FDI. A Cobb-Douglas production function applied by such researchers as Vasylieva (2018), Pedraza (2012), Ali and Rehman (2015), and others, is used for the analysis of macroeconomic stability with its further implication for an economic growth. Implementing these methods to assess performance of the top IFCs with its further analysis within the Russian environment produces the scientific novelty of the study.

Within the process of completing of the above-mentioned objectives, the following research questions are expected to be answered:

1) Are low tax rates efficient in attracting investments into the domestic economy?

2) What further features are crucial for a successful operation of an IFC?

3) What policy improvements does Moscow need to become an IFC?

A discussion of the findings concludes the study. The paper may possibly result into positively answering the first of the abovementioned questions and, therefore, providing evidence on the strength of the relationship between the taxing strategy of a country and its attractiveness among businesses. Moreover, some recommendations regarding methods to increase investment and economic activity in a region with a specification to the Russian environment are proposed at the end of the study.



1. Components of an International Financial Centre Regime

1.1 Notion of an International Financial Centre

In order to spur financial activity at a given location, a government may establish a financial centre, which can be defined as an assemblage, concentrated at a certain, most likely urban, area, of a specific number of financial services. If it was to be defined from a more functional viewpoint, a financial centre is a place where intermediate parties can organize their financial operations and coordinate for the payment settlement. The efficiency of this grouping can mainly be contributed to the external economies. In other words, unlike the usual cost savings in the internal work organisation, for example, economies of scale produced by the growing production quantities, financial centres benefit their residents by the proximity and size of the place or the sector they are developing in as well as its competition. In the modern world, the main attributes of a successful financial centre are the liquidity and efficiency of its markets, the variety and complementarity of financial operations, the availability of professional services (out of which legal and accounting are of primary importance), access to the technological expertise and general workforce, and, last but not least, high-quality information [Cassis, 2016].

1.2 Classifications of International Financial Centres

In accordance with the size of the geographical area that is served by a financial centre, these groupings can be identifies at a national, regional (that is a concentration in one part of the world of several nations), and world level. Therefore, financial centres can be classified based on their functions or levels of importance and, hence, be given hierarchical order, which is what most literature on this subject is devoted to. For example, initial ranking was proposed by the American economist Howard C. Reed in 1981. The ranking included a set of quantitative criteria, such as the relative amount of banking deposits from non-residents or the number of foreign and multinational banks operating in a centre. As of 1980, 80 financial centres were divided into host international centres (40 locations), international financial centres (29 locations), supranational financial centres (8 locations, including Hong Kong, Frankfurt, and Paris [Reed, 1981, p. 294]), supranational centres of the first order (New York and Tokyo), and supranational centre par excellence - London.

However, the proposed indicators have their limits of measuring the true nature of the centres, despite allowing for the comparison of a large number of centres. The Global Financial Centre Index [GFCI, 2019], biannually produced by the Long Finance and Financial Centre Futures, rates world financial centres based on the five criteria: business environment (political stability, tax competitiveness, etc.), human capital (availability of personnel, quality of life, etc.), infrastructure (built infrastructure, sustainable development, etc.), and financial sector development (availability of capital, market liquidity, etc.).

1.3 Features of an International Financial Centre

What are the reasons behind the rise and decline of international financial centres? Most of the contemporary financial literature identifies the following conditions as required, if not sufficient, for the development of a centre: the stability of political system; the currency strength; light tax burden; appropriate savings level that are ready to be invested abroad; powerful financial institutions; solid, yet not meddling, state supervision; professional workforce; efficient methods of communication; and reliable and accessible information [Roberts, 1994]. Other conditions can also contribute to the success of a financial centre, including economic development of a country hosting the financial centre; the effect of major military events (for example, setback of the financial centre in Paris after the Franco-Prussian War); or the migration policy that enables the inflow of new talents (for instance, investment banks in New York in the 19^th century) [Cassis, 2006].

While the benefits of establishing and developing financial centres may be obvious, there are some issues that might arise with it. Firstly, an oversized financial sector may cause an economic capture, in other words, it may crowd out other industries by either raising local prices and, thus, making it harder to compete for the other alternative tradable sectors in world markets, the so-called Dutch Disease; or by sucking the most skilled and educated workforce from both government and other non-finance sectors with lower salaries, the Brain Drain; or by financialization, or rising role for financial causes, markets, institutions, and actors in the economy [Shaxson, Christensen, 2013].

Secondly, it is widely researched and reported that in case of a well-developed financial centre the political caption of jurisdictions takes place, which generally involves a rather sophisticated consensus of the politics and society formed by a usually differential media [Johnson, 2009]. Both captures reinforce each other in a way of feedback loops. For instance, political capture makes sure the state resources are allocated towards the `easy' dominant industry at the expense of a more `difficult' alternative, hence, supporting economic capture.

Finally, one of the core elements of financial centres - tax benefits - may present certain issues to the host countries. It is their right as a sovereignty to impose taxation, however, it is usually done without any consideration for the other states [Niesiobкdzka, Koіodziej, 2019]. When taxes are imposed by an onshore jurisdiction, they can be avoided or (evaded) by shifting either the residence or the income source to an offshore jurisdiction that imposes low- or no-income tax.

Naturally, when it comes to individuals' tax, changing residence of an income-recipient may be challenging. For example, in the Maldives, the official state religion is Islam, and state regulations are based on Shari'a (Islamic) law. Foreigners that wish to practice non-Muslim religions cannot do it publicly, nor promote it among local citizens [International Religious Freedom Report, Maldives, 2018], which imposes limitations for the incoming workers. Therefore, it is much more common to shift assets that produce passive income to offshore banks and trust funds in order to avoid their taxation. Some countries, for instance, the United States, impose citizenship taxation, thus, ensuring it is paid by all the citizens regardless of their location [Mason, 2016], which forces individuals to rely on complex layering schemes and banking secrecy laws to disguise their income from offshore jurisdictions.

In contrast, it is much easier for corporations to benefit from tax opportunities of an IFC because their residence definition is based on the jurisdiction in which the firm was established or from which it is managed and controlled, despite the location of company's assets and activities. This residence-test is true for countries like the US, the UK, and Sweden; the Commonwealth countries generally identify residence regarding the place of corporate management and control; while Germany and the Netherlands take into consideration the area of incorporation [Morris, 2010].

In case of a residence-based taxation, a firm may simply establish a new organization in a jurisdiction from an outset or move there its management and control functions. As for a source-based taxation, one of the ways to change its residence is by moving its branch activities, such as sales and provision of services, to a subsidiary that is organized and located in an IFC or similarly the generating income assets (such as copyrights, trademark, and cash) can be moved to the offshore subsidiary, features of which are further discussed.

These paper analyses tax systems, offered incentives, and their importance for the development of financial centres in developed regions. Therefore, it should be mentioned that for a developing country, launching a financial centre is usually considered as a tool to boost economic growth and enhance the financial sector, that is a prerequisite for the development of other industries [U4 BRIEF, 2014]. Nevertheless, some of its key features can prevent from achieving the crucial goal of, in particular, increasing tax income, generating domestic revenue, and promoting transparency and integrity. However, it has been shown that engaging in both tax and institutional competition mitigates the harmful effect of concentrating only on tax infrastructure as it creates better protection for investors savings [Hauptmeier et al., 2012].

The issue of transparency is not common only among the developing countries. In order to adhere to the international standards many countries have recently undergone some changes in their systems. For example, almost all Swiss banks have entered the “qualified intermediary agreement” with the US tax authorities [Kapalle, Gubler, 2015]. At the same time some IFC's, such as Hong Kong, have recently enacted new tax legislation in order to attract more companies with lighter tax burden [Ho, 2016]. These alterations cause tax evasion concerns among international entities, including the European Union, that, in their turns, seek to persuade the regulatory compliance of Asian financial markets.

1.4 Onshore vs. Offshore Financial Centres

In order to attract onshore capital, OFCs engage in tax competition, or reduce their income tax rates to the sufficient level compared to other countries or do not impose them at all. This strategy leads to tax evasion for the onshore jurisdictions which have made an aggressive response through such proxies as the OECD and the EU, which has been mentioned above.

As it has been previously discussed, reputation plays one of the key roles for the success of an IFC as affluent investors need to be confident that their assets will not get confiscated, that banking institutions are solvent and will execute their fiduciary responsibilities. Therefore, it simplifies the coercion of regulatory development in compliance with world's standards [Vogt, 2019]. Moreover, what makes it easier to influence offshore financial centres (OFC) is their display of political homogeneity that is predetermined by their small sizes, in terms of both population and capital endowment. This attribute of many OFC's allows them to minimize time necessary to adjust the existing laws and rules in accordance with the new environment and opportunities with the minimal political resistance [Alesina, Spolaore, 1997].

In a report on harmful tax competition [OECD, 1998], the OECD has identified three types of tax competition, out of which the following two were described as the harmful ones:

Tax haven: a jurisdiction in which only nominal or no tax rates are imposed on mobile capital. It is usually accompanied by lack of banking and legal transparency;

Harmful preferential tax regime: a jurisdiction in which an income tax is effectively imposed, however, is subject to preferential features that ultimately allow no or nominal tax rates for geographically mobile income. It is usually accompanied with “ring-fencing”, in other words, it either excludes domestic corporations from the tax opportunities available to foreign investors, or it insulates the domestic economy from the results of the preferential tax regime by not allowing foreign investors to participate in local markets.

Given these definitions of a harmful tax regime, onshore jurisdictions made a decision to regulate such competition via the OECD and EU which was based on several arguments [Morris, 2010]. Firstly, it is economically inefficient. From a perspective of global welfare, in case of two countries X and Y where X produces $1000 of annual income and Y - $100 and both imposed tax rates of 30%, annually $330 of taxes are being collected. However, if country Y lowers its rate to 10%, hence, attracting $500 of income from the country X, only $210 will be paid; and, vice versa, if country X lowers its tax rates, together they will collect $120 which is $210 less than what could have been if they both stuck to the strategy of global welfare. Naturally, this argument holds true if efficiency is viewed from the global perspective, however, this is rarely the case and politicians supporting of this argument are most likely to be voted out as it will not bring the most amount of taxes to his or her country.

Secondly, it creates diversion of capital and investment. Money and assets that could otherwise be allocated towards substantial activities are likely to be hold as passive investments in low or no tax jurisdictions. Indeed, lack or requirement for a following activity to be carried out is another identifying factor for a “tax haven” by the OECD [OECD, 1998]. This argument may be incorrect when an offshore jurisdiction is located in proximity to the onshore one which may increase net capital investment in the latter by facilitating the process and it has been empirically proven that tax evasion and investment diversion are complementary in case of countries with weak investor protections [Atwood, Lewellen, 2019]. Moreover, OFCs may attract more substantial investment by offering not only competitive tax benefits, but also cheaper labour force and/or less strict government regulations.

Thirdly, it produces tax base erosion. It is estimated that in the Unites States multinational corporations utilize offshore jurisdictions to evade $100 billion on state income taxes annually [Offshore Shell Games, 2016]. In order to fill in the arising gap in budget income, the government has to impose higher tax rates on either the remaining capital or other, less mobile, factors, for example, labour or consumption. However, at some point it will stop being politically feasible leaving government with two options of increasing public borrowings to finance public goods or cancel some of the social programs. Ultimately, it forces policy makers to create a fiscal environment that relies on few revenue sources.

Also, it evokes the “free rider” problem. When multinational corporations move their taxable capital to offshore jurisdictions, they do not stop consuming public goods produced be their home country, however, without making adequate contribution to their financing [Raymond, et al., 2017]. In addition, there is a secondary effect of increasing tax administration costs as when some members are able to significantly lessen their tax burden, it undermines the overall tax compliance, thus, increasing costs for the authorities to collect the same amount of taxes.

Nevertheless, for each of these arguments that support control over tax competition, OFCs presented countervailing arguments as a response for accusations of harmful tax competition, one of which is violation of national tax sovereignty as the OECD basically bullies OFCs to conform with their tax and economic policy standards which infringes their rights to implement their own.

Thus, along with trust in abilities and the overall stability of a financial centre, central banking and monetary policy system of the host nation are one of the most important attributes [Church, 2018], and tax system is one of its key elements that represent a significant aspect for the management decision; offered by the centre fiscal opportunities can be a competitive advantage for a company.

The abovementioned GFCI rankings included 6 locations in the 14^th issue as one of the top 50 financial centres that were also classified by the Organisation for Economic Cooperation and Development (OECD) as tax havens in 2013. The criteria for being identified as a tax haven include low tax rates and a number of opportunities for tax avoidance through the lack of transparency and information exchange for tax purposes [OECD, 2009]. However, as reputation plays a key role in attracting companies to a financial centre, those 6 countries made some regulation alterations in order to adhere to the OECD's standards and are no longer included in the blacklist of tax havens [Geamгnu, 2014].

The effectiveness of this so-called “Stigma Effect”, or the soft regulations proposed as solution to the banking secrecy of tax havens is a heated debate. Its existence is not proven by the empirical evidence which shows that the worldwide supply and demand for the banking secrecy will stay relevant for some more time, thus, making blacklisting an ineffective policy solution for the structural issue [Balakina et al., 2017].

Even though as of 2020 there is no tax havens included in the list of the global financial centres, these areas can still be and are used for illegal or illicit purposes, for example, money laundering or tax evasion. Lower tax rates and levels of transparency facilitate such activities. The Tax Justice Network, which was launched in the British Houses of Parliament in 2003, publishes the Financial Secrecy Index every 2 years that provides a snapshot of how different financial centres perform in this respect (with the Cayman Islands, the US, Switzerland, and Hong Kong currently at the top of the list, or with the most contribution to global financial secrecy [FCI, 2020]).

Concern has been pointed out by the UK Parliaments Committee of Public Accountants regarding multinational entities (MNEs) tax evasion and role of tax advisors in the process [CPA report, 2015]. In particular, it identifies a publishes series of documents that showed PwC negotiations for advanced tax regulations for several hundreds of companies with the tax authorities of Luxembourg. At a committee hearing, the Head of Tax of PwC was adamant that the company does not engage in tax avoidance schemes but rather creates schemes tailored to individual clients. Positive correlation has later been established between using auditing services of one of the Big 4 accounting firms and the extent to which MNEs create, maintain and direct tax haven networks [Jones et al., 2018].

At the present stage, the activities of the IFC are becoming more complex. They do not only focus on the redistribution of savings and investments, but also carry out a wide range of international monetary and financial operations, as well as insurance, auditing and other services. However, as an inevitable consequence of competition, there is a tendency to the specialization among financial centres. For example, London has the global markets for Eurocurrency transactions, stock values, and gold at its location, while Singapore acts as the region's stock accumulator. New York headquarters most major investment banks. A number of financial centres specialize in certain areas, for example, Chicago leads on the market of futures and options operations, although, in recent years, Frankfurt-Maine has bypassed it. Features, including tax regimes, and main advantages and disadvantages of the top-ranked financial centres are discussed in the next chapter.



2. Practices of International Financial Centres

2.1 London

The London international financial centre is currently ranked 2^nd among 108 IFCs presented in the GFCI 27. London is also one of the historical world financial centres, which ahead of many European cities became a centre for the world trade and moved to the active development of the service sector. It happened in early 1950s, in connection with the following factors:

1. the position of the former capital of the British Empire allowed to maintain close relations with the USA and Asian countries (central geographic location contributes to the fact that London is considered as a "bridge" between these regions);

2. the British legal system is the benchmark for international transactions;

3. English has become the main language of international business communication;

4. relatively low taxes and a favourable business environment.

Today, the United Kingdom has all the necessary factors for successful work: an open economy, a developed financial and transport infrastructure, a stable tax system, geographical location, transparent government policy, a diversity of investors, multiculturalism, reputation, and transparent business environment and openness to external cultures and countries. The London Stock Exchange (LSE) is one of the largest stock exchanges in the world with a market capitalization of $3.76 trillion [World Federation of Exchanges, 2019]. It was founded more than 200 years ago, and since then many tools used in stock trading business have appeared here.

Tax regime

After the 2008-2009 global recession, along with the collapse of the financial sector, a new trend emerged that is stimulating production industries that combine new technologies and aimed at solving global issues. This requires the development of new approaches to the economic policy in a number of different directions. This fact is recognized by the leaders of the G20 countries at the Summit in Hangzhou (CNR), which was in September 2016, and the result of which was the G20 New Industrial Revolution Action Plan [G20, 2016]. In the communiquй, signed by the G20 leaders on the summit results, the important role of fiscal policy in structural reform and the need for flexible use of tax policy to stimulate growth were emphasized.

Since 2010, a large-scale tax reform has been carried out in the UK in order to increase competitiveness of the national corporate tax regime among G20 countries and providing the necessary conditions for growing investment and innovation. It is based on five principles: lower rates while maintaining the tax base; maintaining stability; maintaining equal conditions for taxpayers; compliance with modern business practice; not complicating tax system. Among the key activities implemented in the tax sphere since 2010, the following should be noted:

corporate income tax rate reduction from 30% in 2000 to 19% 2017 and a planned cut to 17% in 2020, which was put on hold at the moment of writing this paper. The reduction allowed the business, according to calculations for 2016-2017 FYs, annually receive savings of 10 billion pounds;

implementation of a special tax regime for the intellectual property income at a reduced rate of 10%, rather than 20% (the Patent Box);

introduction of the Annual Investment Allowance (AIA) - a deduction from the taxable profit in the amount of actual costs for the purchase of machinery and equipment for a specific list and the correction of its value from 50,000 pounds from 2008 to 1,000,000 pounds in January 2019 [UK Government, 2018];

tax reform of foreign controlled entities;

increase in the potential of tax credit and other preferences regarding R&D;

tax incentives for employment by providing discounts to employers from the amount of National Insurance contributions (NIC) since April 2014 in total of 2,000 pounds and up to 4,000 pounds as of 2020 [UK Government, 2020]. According to the data of 2016, more than 1 million employers took advantage of this preference, which allowed them not to pay insurance premiums with a minimum wage of four employees. Within 2014-2015 years number of small enterprises, which employ labour, increased by 100,000 units.

According to the authorities, these reforms stimulated the growth of investments and employment, and helped to strengthen the financial stability of the budget system. Within the period from the 1^st quarter of 2010 to the 1^st quarter of 2016, the number of employees increased by 2.3 million people, and investment in business - by 26%. In 2014-2015 The UK has attracted a record number of investment projects, which created nearly 85,000 jobs.

Particular attention was paid to the equality of taxpayers in terms of their execution of tax liabilities, which implies active opposition to tax evasion of the largest taxpayers. In particular, measures were taken to deal with undeclared (`envelope') wages; unreasonable tax compensation for losses incurred by other members of the corporate group; the unfair tax benefits of distributing company profits through partnerships; false self-employment and offshore employment intermediaries, which allow to avoid payment of insurance premiums (NIC); erosion of corporate income tax base. According to the HM Treasury data, the budget tax revenues rose from 454 billion pounds in 2010 to 623 billion - by 2020 (over 37% increase) [Statista, 2018].

Personal income tax, by definition, is paid from the income of individuals, including from many types of state allowances. Income tax in the UK is progressive, so it depends on the amount of income. Not all types of income are subject to income tax. The following are the main types of taxable income: salary and any benefits received from an employer, including income benefits, if a taxpayer is an entrepreneur, state pension and all other types of pensions, unemployment benefits (Jobseeker's Allowance), unemployment benefits (Carer's Allowance), allowance (Employment and Support Allowance, contribution based), interest on deposits in the bank, income from housing renting, dividends. Personal income tax rates vary from 20% (from Ј11,851 to Ј46,350) to 40% (above Ј150,000) [PWC, 2020].

In March 2016, a new business tax roadmap until 2020 and beyond was published that continued the roadmap from 2010 [HM Treasury, 2016]. It was designed to ensure transparency of tax relations with a business planning long-term investment projects that have vital importance for economic growth and increase of productivity in the UK. Document secures implementation of the following activities:

decrease in corporate tax rates;

tax reform in the energy business;

fair taxation of multinational companies in the framework of international fight against erosion of the tax base and the shifting of profits (the BEPS action plan) [OECD, 2013].

Further will be discussed the main tax innovations in the UK that aim at developing industrial production. Revaluation of commercial real estate from April 1, 2017 using reduced coefficients (factors from 49.1 to 50.4p. for the 2019-2020 FY [UK Government, 2019]) will reduce the burden on local commercial property tax, primarily for small business. 600,000 enterprises with the value of commercial real estate less than the limit (12,000 pounds sterling) will not pay this tax. The burden on most taxpayers all over the country, owning commercial real estate will either decline or remain the same. For other taxpayers the expected increase in tax payments is no more than 5% in the first year. During the transition period, load-relief schemes are provided, which cost the budget 3.6 billion pounds sterling. At the same time, it is planned to improve the administration of the local tax on commercial real estate and introduce revaluation of property values ??to three times a year and switch to digital tax accounts.

For the corporate income tax, it was initially planned within the budget of 2016 to reduce the tax rate to 19% in 2017 and to 18% in 2020 [PWC, 2020]. Business tax Roadmap reinforces even lower levels rates by April 1^st, 2020 - 17%, which will allow the UK to take the 1^st place among the G20 countries with the lowest income tax rates business, however, this reduction is currently put on hold. The UK Government initiated analysis of the long-term economic impact of reducing corporate tax rates to 17% indicates possible GDP growth from 0.6 to 1.1% and if taking into account the positive effect of the expansion of domestic investment - from 0.8 to 1.3% (15-24 billion pounds in 2016 prices [UK Government, 2016]). It should be noted that back in 2006, the tax rate on UK corporate income was 30%.

Along with the reduction in the CIT rates for the main categories of payers, special taxation regimes remain for organizations of the oil and gas, insurance, banking sectors and shipping business. Surcharge was imposed on taxpayers from the banking sector from January 1^st, 2016 to 8% on profits over 25 million pounds. In addition, banks have limited rights in respect to loss utilisation: trading losses that are being carried forward can be set against only against 50% of profits for the corresponding period (since 2017 -- against 25%) [PWC, 2020].

Tax rate reduction on the capital gain for most chargeable assets from 28 to 20% and the base rate from 18 to 10% is aimed at stimulating business growth. For real estate 8% premium is implemented in order to stimulate investment in a business instead of acquiring real estate for its further rental.

An important function of the London Stock Exchange is the determination of the FTSE (Financial Times Stock Exchange Index), held in conjunction with Financial Times. The most famous index traded on the LSE is the FTSE 100 - the main stock exchange index, international British stock market symbol, an indicator of the success of the UK economy. FTSE 100 Stock is based on 100 companies with the most capitalization. These companies in sum account for about 70% of the total capitalization of the LSE. The five largest companies by the capitalization and liquidity include two oil & gas companies (Royal Dutch Shell and BP), a consumer-industry company (Unilever), a financial corporation (HSBC), and a healthcare firm (AstraZeneca).

London, as of 2019, has more than 80% corresponding to the five main GFCI competitiveness criteria. London achieved this success thanks to multiculturalism (about 40% of Londoners are foreigners and speak 300 languages). The highest scores received are within workforce qualifications, flexibility labour market and the quality of education. The GFCI 27 also noted a high level of development business environment. But there were some negative comments on corporate tax rates, transportation infrastructure, and operating expenses.

The UK banking system includes traditional retail and commercial activities, international and wholesale finance, private banking and asset management. Among financial services, they together constitute the greatest contribution to the UK economy: they make up about half of the income, labour, gross added cost and annual taxes of financial sectors. About 22% of all banking proceeds come from international and wholesale activities related to the European Union [Statista, 2019].

UK has enough strong position in asset management around the world and within the European union. London is the second largest global hedge fund centre after New York. The UK is the largest centre in the EU with a market share of 36.5% assets in management [Statista, 2017]. From the point of view of the direct employment [EFAMA, 2019], 110,000 people are directly employed in asset management throughout the EU, including 31,800 in the UK.

Speaking of the UK as a global financial centre, it is worth mentioning about the developed insurance market. According to the statistics provided by the Association of British Insurers [ABI, 2014]:

1. UK insurance market is the largest in Europe and the third largest in the world;

2. UK insurers own Ј1.9 trillion of the invested assets.

An important factor in financial leadership is the fact that the UK uses four main payment systems, including CHAPS, real-time gross settlement system, infrastructure which is provided by the Bank of England.

So, London still remains one of the most significant financial centres in the world, although, concerns of substantial loss of investors and capital due to Brexit are worth consideration. In the future, we can also expect a reduction in the level of taxes, which, in its in turn, will make London more attractive to investors.

2.2 Luxembourg

In contrast to the London financial centre, Luxembourg IFC encompasses country of its origin as a whole, therefore structural features of the host economy should be taken into account as well. Luxembourg is one of the most economically developed countries: it ranks 3^rd place in the world in terms of GDP per capita population on PPP valuation (after Qatar and Macao) with an indicator of 108.95 billion US dollars [World Bank, 2020] and 2^nd place in European Union in terms of median net income per household (after Switzerland) with a value of 40,270 euros [Eurostat, 2020]. Luxembourg demonstrates leading economic growth rates among European countries. In 1991-2018 national GDP increased by more than two times, and from 2018 to 2020 it is expected to increase by another 19% [Trading Economics, 2020].

The Global Competitiveness Report 2019 Luxembourg was ranked as the 18^th place among 141 countries, significantly ahead average values of reporting indicators in OECD countries for indicators such as technological readiness, development of institutions and infrastructure, macroeconomic environment and market efficiency.

Luxembourg's economic growth began with the discovery of large iron ore deposit and the development of ferrous metallurgy. These industries laid the foundation for rapid economic growth (goods metallurgy industry accounted for 90% of exports in 1955; 30% of GDP - in 1970). Therefore, it is no coincidence that Luxembourg was selected as the headquarters location for the European Coal and Steel Community (ECSC) in July 1952, which was an institutional predecessor for the regional European integration, the European Union. The headquarters of other important European institutions are also located in Luxembourg (the European Court of Auditors, the European Investment Bank (EIB), the European Stability Mechanism (ESM), the secretariat of the European Parliament), as well as the largest in the world metallurgical company, Arcelor Mittal, serving as one of the main employers on the labour market of the country (3810 employees as of January 1^st 2019 [Statec, 2019]).

The basis of the modern economy of Luxembourg consists of the service sector (mainly financial), which accounts for about 78.6% of the country's GDP in 2018 [Statista, 2020]. Currently Luxembourg is a major international financial centre. Luxembourg financial sector, which employs approximately 47 thousand people, makes up about 35% of the country's GDP due to the growth of the sector of investment funds by launching and developing cross-border funds (ICITS) [The Economist, 2014]. In addition to the financial services, there also such developed industries as transport, telecommunication, information technology as well as other high-tech, including financial (so-called fintechs), services in Luxembourg. Over the past five years share Luxembourg in the global export of services amounted to about 1.94%, and in world imports services - about 1.55% [World Bank, 2018].

Luxembourg invests 2.6% of GDP in research and development. University of Luxembourg is one of the most international universities of Europe, where 6,300 students from more than 110 study countries of the world. According to the European Innovation Scoreboard 2019 Luxembourg as ranked 5^th in EU on the performance of the innovation systems [European Commission, 2019]. Innovative financial decisions are of importance in the field of pension funds, hedge funds, real estate and securitization.

Besides such a factor as high enough level of national economy development, which is now focused on providing innovative financial and other services, development of a financial centre in Luxembourg from a regional to the world level was also contributed by a favourable investment policy [Dorry, 2015].

Luxembourg investment policy includes a developed system of various measures to help to investors.

Special industrial zones. There are several special national, regional, or municipal industrial areas where land can be provided at preferential conditions. Moreover, such zones have all necessary infrastructure, including access to transport and telecommunication networks.

Business-incubators. Special innovative business centres offer contemporary informational and technological platforms for entrepreneurs or enterprises working in the field of innovation. Numerous business incubators offer various help and conduct consulting for new innovative projects, which contributes to their development and further growth.

Financial help. There is a funding possibility from the state for a number of projects in addition to their own investor funds and banking financing. Most of this assistance is provided to small and medium business. It may be provided in order to support a research work, creation of new types of goods and services. Businesses can ask government bodies and the National Society of Credit and Investment (SNCI) to grant them a long-term loan.

Tax regime

Favourable investment climate in Luxembourg is supported by features the national tax policy. The formation and development of Luxembourg as an international financial centre was facilitated vastly by the tax regime and efforts of the country's authorities to its further development. Luxembourg implemented the lowest in the European Union value added tax rate and one of the lower tax rates on corporate income. Investors may also take advantage of tax credits.

Income tax. Luxembourg applies taxes to its corporate residents based on their worldwide income, while to its non-residents only based on the income generated from a Luxembourg source. Companies with a taxable income below 175,000 euros are taxed at a rate of 15%. Enterprises with a taxable income from EUR 175,000 to EUR 200,001 are subject to income tax calculated as follows: EUR 26,250 plus 31% of the tax base over EUR 175,000 (for financial years (FY) 2019 and 2020). The CIT rate is 17% for firms with taxable income above EUR 200,001, which leads to a total tax rate of 24.94% in Luxembourg for the years 2019 and 2020 (taking into account the solidarity surtax of 7% in addition to the CIT rate, and including 6.75% of the municipal business tax rate).

The corporate income tax does not apply to organizations transparent from the point of view of taxation (for example, general or limited partnerships or European Economic Interest Groupings).

Although there used to be a minimum income tax for resident companies in Luxembourg, such a minimum income tax has not been applied since 2016. It has been replaced by a minimum net wealth tax [PWC, 2020].

Value Added Tax (VAT). In Luxembourg, as in the other countries of the European Union, rules of calculating taxes and its payment are enacted under European Directive 2006/112 и Directive 2008/8d. The standard Luxembourg VAT rate is 15%. Application of reduced rates (14%, 8% and 3%) is possible with respect to such industries as wines, gas supplies and electricity, advertising services, books and print media, food and medicine. Since 2015, an increased rate of 17% has been established, while 0% rate applies for international and intra-community transport.

Banking, financial, insurance and reinsurance operations, as a rule, are exempted from this tax liability. The VAT accrued on expenses that have a direct connection with these transactions cannot be refunded, with the exception of instances related to services provided to entities established outside the EU. Other tax-free transactions, such as export and related shipments, allow the supplier to recover the input VAT on the appropriate cost.

Taxation of personal income. Luxembourg laws provide progressive tax calculation scale with detailed division (23 brackets) and one of the three granted tax classes based on individual's family status. The tax ranges from 0 (for income below 20,000 euros per year) up to 76,642 (for income over 205,000 euros in year). The tax rate also includes contributions.

In 2020, Luxembourg was ranked 6^th in the Financial Secrecy Index published by the non-governmental organization, Tax Justice Network. Due to its increased secrecy and therefore attractiveness for tax evasion Luxembourg was involved in many financial scandals. In particular, Bank of Credit was registered there, as well as the Commerce International (headquarters of which was located in London), the resonant elimination of which occurred in 1998 after being charged with money laundering and other financial crimes. In November 2014, the Luxleaks scandal broke out, at the centre of which was the PricewaterhouseCoopers company (PwC) that was accused of carrying through Luxembourg tax bill cuts in favour of the largest global transnational corporations (IKEA, AIG, Deutsche Bank, Walt Disney Co., Pepsi et al.). Despite Luxembourg utilising non-sharing policy as its competitive edge over non-EU financial centres, such as Switzerland and Liechtenstein, after being branded as non-complaint by the OECD in 2013 and the LuxLeaks scandal, the country implemented a tax reform, which ushered in penalties for fraud and made “aggravated tax evasion” a criminal offence. In other words, it was forced to end the banking secrecy to later be removed from the blacklist [Financial Times, 2017].

2.3 Singapore

Similarly to the case of the Luxembourg IFC, the centre in Singapore encompasses the whole area of the host country. As a sovereignty, Singapore gained complete independence from the economic subordination of Great Britain in August 1965 and is currently at the same level of development as countries with high-tech industry and services. The formation of a diversified economy began in the 60s of the 20^th century [World Scientific, 2001]. It should also be noted that conducting accelerated structural and technical restructuring of the economy was dictated in Singapore at that period due to the urge to survive in the paucity or even absence of resources.

The modernization process in Singapore has passed several stages. The first one is from 1959, when Great Britain granted the country the right to internal self-government, until 1965, when Singapore left the Malaysian Federation and became a completely independent state. It was a period of early industrialization and extensive labour-intensive production. The country started at a very adverse condition. In the country's economy, there was a dangerous structural bias in the direction of intermediary trade: in the late 1950s it accounted for 70% of GDP, 82% of foreign trade turnover, 93% of export [Cheng, 1979]. That was the economic background when in 1959, Singapore became a separate British colony with the proclamation of autonomy as part of the Commonwealth and the country began to address the two most acute problems - the dependence on the intermediary trade and unemployment.

It was the period of leadership of Lee Kuan Yew - the outstanding Prime Minister of Singapore and the period of solving the most difficult dilemma in his history. To avoid the proclamation of communist power, the Singapore government entered into an agreement with Malaysia and in 1963 established the Malay Federation. As one would expect, a lot of controversy arose in government matters and on August 9^th, 1965, Singapore became independent. Since that time, it began to form as an international financial centre. It is distinguished by its advantageous geographical position (this city-state, consisting of a number of islands, is successfully located on the border of two oceans - the Pacific and Indian, at the routes between Europe, Asia and Australia, which certainly contributed to the Singapore's transformation into one of the largest transit hubs in the world, a leading world trade centre), good communication with London and other cities, and most importantly - a preferential tax regime.

...