The media gained access to the huge archive of the Panamanian law firm Mossack Fonseca, which has been registering offshore companies for decades. The documents talk about companies associated with world leaders, businessmen and celebrities who moved their capital to offshore zones. What is this, offshore?
Out of bounds. What is offshore
The word Offshore comes from the English offshore - “offshore”. This financial centers, attracting foreign capital through special tax and administrative benefits. Such countries and zones are called “financial paradise” for business.
An offshore company is a company registered by foreign citizens in a state with a favorable tax climate.
There are about fifty offshore zones in the world.
According to rough estimates, about ten percent of all funds on the planet are concentrated there. total amount, stored in offshore zones, according to some estimates, can reach $32 trillion - this is more than the GDP of the United States and Japan combined.
From antiquity to the present day
The concept of “offshore” first came into practice in the mid-twentieth century - one resourceful company evaded the American tax office by registering in another country with lower taxes. But in fact, it all started much earlier. Even the ancient Greeks avoided paying taxes by making a detour around Athens and transporting goods to numerous duty-free islands.
And in the 15th century, Flanders had very low trade restrictions and taxes, because of this it was more profitable for English merchants to transport and sell wool here.
Offshores are different
Offshore zones are usually divided into two groups: with full and with tax offshorization.
Full is an exemption from any reporting, and entrepreneurs pay a very low percentage in the form of taxes or fixed amount. In some zones, an entrepreneur can even receive complete liberation from paying taxes.
The zones in this group include: Dominica; Cyprus; British Virgin Islands; Belize; Seychelles; Federation of Saint Kitts and Nevis.
An offshore tax zone means lower rates, but without exempting companies from accounting and reporting. This group includes Hong Kong; Scotland; Panama.
There are also so-called “tax oases” - offshore companies located within the state.
The most popular offshore zone among entrepreneurs around the world is the Virgin Islands. This is due to the ease of registering and doing business on their territory, the absence of tax fees, as well as ensuring complete confidentiality of all information relating to financial transactions, income received and the identity of the entrepreneur.
What's legal and what's not
Offshore companies themselves are not a crime. But they are often used for crimes - laundering criminal money and various fraudulent schemes and money laundering.
It is a violation when offshore companies are started by government officials who are prohibited by law from owning a business. The scandals surrounding the Panama Papers are largely due to the fact that the names of many politicians and government officials from various countries are mentioned in connection with offshore companies.
International organizations - OECD, FATF and others, issue recommendations for states on how to build policy and legislation in the field of offshore companies.
What is offshore? People who have encountered our domestic taxation at least once inevitably come to mind about its complexity. Understanding the rules of doing business and coming across different approaches to collecting taxes, entrepreneurs are painfully looking for a way to make their lives easier. So that you can receive income and comply with tax laws. Offshore is one of the options for simplifying commercial activities.
Offshore history
The sore tax avoidance immediately comes to mind, and this is how offshore business is perceived. Well, this phenomenon has very deep roots. Even in the ancient world, merchants sought a way to organize sales outside the border walls of those city-states where trade duties were too high. The term offshore itself is translated as “outside the border”.
Medieval merchants sold wool in Flanders rather than in neighboring England, where taxes reduced profits from sales to zero. New story He also knows examples of the massive “moving” of business abroad. Thus, entrepreneurs who lived in North America in the 18th century, they preferred to enter into purchase and sale transactions in Latin American states so as not to fall under the fiscal power of the English crown.
The concept of offshore in its modern meaning first surfaced in 1723 during an unremarkable court hearing in England. And the second birth of this term occurred in the mid-twentieth century. Then one of the newspapers published in the eastern United States dubbed this word the tax optimization of a company that had transferred its commercial activity outside the country. Having moved away from its native tax structures, the company continued its activities in areas where fiscal duties are not so high.
Russian companies received open access to fabulous tax-free or low-tax territories in 1991. At this time, the first sign of offshore business appeared in the country in the person of a Swiss company. The European approach to moving commerce offshore has experienced unprecedented popularity in Russia, which has received a legal opportunity to reduce taxes.
Offshore zones
The rational desire of each owner to make a profit is the basis for the popularity of offshore zones. These are usually the territories of developing states or individual regions into which it has been decided to attract foreign capital. Offshore zones provide reliable, albeit not so large, income from taxes or duties to their budget, as well as some permanent employment for the local population.
Offshore zones create islands of transparent requirements for entrepreneurs tax reporting. As a rule, it is not available at all, or it is provided in an extremely reduced form. Indeed, if the main type of fees here is a fixed duty, then reporting turns out to be unnecessary. The amount of the duty or fee does not depend on the actual achievements of the company, which makes it possible to organize a profit center for holding structures offshore.
Among the well-known offshore zones, third world countries are often mentioned, for example, Dominican Republic or Belize. The main tax-free jurisdictions are in the Caribbean. Low-tax regions include Gibraltar, Uruguay, Hong Kong and many others. Even in large states with powerful economies you can find offshore zones. In Russia, such a territory with preferential taxation is the Kaliningrad region.
Of course, the presence of tax havens is not encouraging powerful of the world this. Under pressure from other countries, fiscal relief in Europe is disappearing. The Principality of Liechtenstein has lost its former attractiveness. In 2015, the deferment of VAT benefits for Luxembourg ends. But companies that are accustomed to making profit from offshore zones are in no hurry to switch to “fair” competition and register in the remaining offshore zones.
Offshore companies
In order to organize profitable business Taking into account tax-free jurisdictions, it is necessary to use offshore companies. You can understand what offshore companies are and what their value is using the example of a simple tax purchase and sale scheme. By organizing import deliveries, you can pay for the goods through a controlled offshore company. Then, regardless of the actual cost of imports, you can specify any input price. This will make it possible to reduce income tax and at the same time withdraw funds to a safe and stable zone.
This scheme has its pitfalls related to customs legislation. In addition to the list of reasonable prices, many countries have restrictions on the acceptance of expenses for tax purposes for goods and services received from companies registered in offshore zones. But you can always find the optimal entry price that will fit into the customs corridor and be large enough to provide real savings on taxes.
An offshore company allows you to create expenses for enterprises in countries where profit and income taxes are high. At the same time, it is not necessary to use offshore structures in pure commerce. Construction, investment, and consulting schemes are widespread, in which offshore companies have a significant place.
Offshore blacklists
Offshore zones are not hidden; they are popular centers of international commerce. All offshores are conventionally divided into completely closed to external control, partially open, and offshores with minor tax and currency benefits. The absence of a unified list of offshore zones indicates in different ways members of the world community to this phenomenon.
Similar lists in different countries created for their own needs. For example, Russian “blacklists” aim to tighten financial control over currency movements by forcing banks that cooperate with offshore companies to create significant reserves for the funds they move. Another similar list removes offshore companies from the scope of the clause on zero taxation of dividends received Russian organization from a foreign company.
Ukrainian legislators have compiled lists of offshore companies in order to indicate to their residents which company's expenses cannot be accepted in full when calculating income tax. According to Ukrainian legislation, if expenses are confirmed by documents of a company that is registered offshore, then no more than 85% of the presented amount can be attributed to expenses.
Rules for registering offshore companies
Unlike Russian laws you can register a company offshore for a very a short time. The proven technology allows you to organize an offshore enterprise with a great name and unlimited possibilities in a matter of moments. A significant role here is played by the legal distinction between such concepts as the founder and the owner of his own business. If a property owner in Russia cannot remain in the shadows when registering his business, then in offshore areas his right to confidentiality is sacredly respected.
Special secretarial bureaus act as founders of companies, without having any relation to the true owners of the companies.
In order to obtain a ready-made offshore company, it is enough to fulfill a number of conditions:
- organize a secretarial bureau;
- pay the fee for initial registration and subsequent annual (if necessary) re-registration;
- rent premises for a permanent establishment offshore company(secretary office) in the registration area;
- or instead of all of the above, contact a company specializing in the sale of offshore companies.
The cost of an offer to create or sell a ready-made offshore company can reach 10 thousand US dollars, depending on the range of services that such specialists provide.
Among the restrictions for offshore companies there is often a ban on conducting activities in the country of registration. Thus, offshore territories are freed from the risk of being “captured” by international companies.
It should be noted that the registration of offshore companies is carried out by well-to-do large and medium-sized businessmen. In this case, the costs of maintaining such a structure are justified and bring real tax savings.
Benefits of offshore business
Tax consultants in the late nineties of the last century often suggested offshore companies for tax optimization purposes. At the same time, they created interesting schemes interactions between partners that made it possible to use offshore companies in literally any type of activity. Today, the massive excitement about offshore companies has subsided somewhat, which is associated with global trends of tightening currency controls and transparency of capital movements.
However, offshore business does not lose its attractiveness. Today this is the easiest way to withdraw money abroad. A bank account of an offshore company allows you to “link” corporate client cards to it, the owners of which are the real owners of the business and members of their families. This financial support very popular in international travel.
Offshore companies mean reduced taxation of income individuals, reduced income tax rates or the complete absence of such tax, absence of import duties on the import of equipment for a representative office, complete confidentiality of information about business owners.
The law on the elimination of double taxation also applies to offshore business. If the company's activities can be equally tied to the jurisdiction of the state whose tax regime more gentle, then why not do it? In practice, lawyers carefully study the legislation of countries with which an agreement eliminating double taxation has been signed and select the most favorable schemes for conducting transactions.
Thus, conducting business offshore coincides with the time of the first appearance of trade restrictions and duties. The lack of a uniform approach to taxation in different countries is the basis for the existence of offshore companies and the basis for their prosperity for many years to come.
Useful video about what someone who plans to open an offshore company needs to know
An offshore is a company registered by foreign citizens in a state with a favorable tax climate, which does not conduct active activities in this country. From a legal point of view, there is nothing illegal in this, so they are actively used all over the world: according to rough estimates, about ten percent of all funds on the planet are concentrated there.
Background
How it works
Offshore - what is it, speaking in simple words? Some countries deliberately do not tax companies that are founded by foreigners. This allows you to attract cash flow into the country and employ the local population. Business owners register companies in these countries and pay only small fixed fees, which replenish the budget. And the main activity is carried out in their homeland.
This is possible only because, according to international law, a company is an independent entity and can only be taxed in the state in which it is registered.
Advantages
Limits and controls
Of course, different states are trying to control the movements of funds floating abroad, trying to make these operations more transparent. For example, .
In Russia, this list serves to track currency movements and control the activities of banks. Ukraine has its own list with which companies’ expenses are checked. If funds for an expense item are transferred to an offshore location, the amount is not fully exempt from taxes, but only partially.
As long as there is a difference between tax conditions in different countries, there will be an outflow of capital to the zone of least pressure from fiscal structures.
So offshore in this sense is quite a natural phenomenon, which will be used by people who are well versed in the laws of business.
What are offshore companies and how to work with them: Video
Fundamental analysis is based on an assessment of the issuer: its income, market position, mainly through indicators of sales volume, assets and liabilities of the company. In this case, the rate of profit is calculated for equity and other indicators characterizing the efficiency of the company. The basis of the analysis is the study of balance sheets, profit and loss statements, and other materials published by the company.
In addition, the practice of company management and the composition of the governing bodies (board of directors) are studied. Data on the state of affairs in the industry is analyzed based on the use of industry classifiers by level of business activity and by stages of development, as well as a qualitative analysis of the development of the industry, the markets into which the company enters as a seller or buyer.
These numerous and time-consuming studies allow us to conclude whether the value of a given corporation's security is overvalued or undervalued compared to the real value of its assets, future profits, and the like. Thus, with the help of fundamental analysis, a forecast of earnings is made, which determines the future value of the stock and therefore can influence the price. Based on this, recommendations are made on the advisability of purchases and sales.
The return on a security that has been determined by fundamental analysts must be assessed through the mechanism of the stock market. There, under the influence of supply and demand, the price is set, and in it, in each specific situation an “ideal income model” assessment based on fundamental analysis may be reflected. But this may not happen.
The price on the stock market reacts to various rumors, fears, changes in the political situation, rational and irrational ideas of hundreds of buyers and sellers. But it is also based on the fundamental assessment of the stock as a whole - the market also reflects the buyer’s need for a security of precisely this quality.
Disadvantages of Fundamental Analysis
Let's say a fundamental analyst is determining whether the market value of a given company's shares is overvalued or undervalued compared to their "intrinsic" or "true" value. The purpose of this analysis is to identify securities that are “undervalued” by the market. Based on this, investment decisions are made - buy, sell or hold.
However, if the market “underestimated” a stock now, then it is quite possible that it will not do so in the future, as a result, the costs (analysis costs) will not pay off, i.e. there is no guarantee that the market will confirm analysts' fundamental estimates.
In addition, fundamental analysis is hard, time-consuming work that requires both the creation of a database and adequate funding. Moreover, the income from transactions with securities of each individual operator may be insufficient to finance the costs of the fundamental analysis it conducts. In countries with developed market economies, the methodology for rating corporations in various sectors of the economy is widely used, used by specialists within a firm, company, agency, bureau, and so on.
The results of fundamental analysis become a commodity on the stock market, and are sold to market participants in the form of bulletins and reports.
Main directions of fundamental analysis
If we characterize the main directions of fundamental analysis, we can distinguish its following stages.
General economic, or macroeconomic, analysis. The economic situation is assessed taking into account the following factors: GNP, employment, inflation, interest rates, exchange rate and the like. The government's fiscal and monetarist policies and their impact on the stock market are taken into account. Thus, the socio-political and economic climate of investment activity is determined.
Industrial analysis involves studying the business cycle in the economy, its indicators, classifying industries in relation to the level of business activity and by stages of development, as well as qualitative analysis industry development.
Analysis of a specific enterprise(firms, corporations). The assessment of the corporation includes: analysis of the state and prospects for the development of management, organizational and commercial working conditions; analysis of the financial position of the company (enterprise); ratios, solvency assessment; grade financial stability- determining the price of the company.
Simulation of securities prices. Macroeconomic analysis in a market economy is the study of a market that lives according to the laws of supply and demand. The price on the stock market depends primarily on the totality of capital invested in securities (demand) and on the volume of securities offered for sale (supply), that is, their ratio determines the stock market situation.
General economic, or macroeconomic, analysis
In progress high market conditions There is an increase in the money supply directed to the stock sector of the financial market, which requires an increase in exchange rates to balance prices. External demand allows the stock market to function steadily, and rates move up easily.
In progress low market conditions, when the volume of securities intended for sale exceeds effective demand and there is an outflow of capital from sectors of the stock market, holders of securities can sell them only if there is a loss in price. As a result, rates go down; such a market is called “heavy”.
Consequently, market conditions are influenced by demand - the influx of capital into the stock market and its outflow. Fundamental macroeconomic analysis studies the influence of factors on this process. The main source of capital is the gross national product. The financial market does not create it, but only redistributes it. Therefore, the higher the GNP produced, the greater the volume of investments you can count on in the stock market.
However, it is quite possible that the money will not enter the stock market, since it could be used for consumption. The bulk of investments in the stock market comes from the population if it has incomes that exceed consumption expenses. Increased employment, growth wages, tax cuts contribute to the influx of capital into the market, although high level inflation can lead to the fact that almost all the population’s money will be used for consumption.
Analysts involved fundamental research at the macro level, note:
- efficient system social security, in which expenses previously covered by the formation of reserves are provided by social payments, reduces the flow of capital into the stock market
- investors may prefer either securities or other uses of their money. Competition exists not only between real investment and financial investments, but also within sectors of the financial market, for example, investing money in foreign currency, bank deposits or stock values. Therefore, fundamental analysis studies the movement of interest rates, the dynamics of the exchange rate in comparison with stock market indicators.
- income can be invested abroad. In this regard, the subject of the macroeconomic part of the fundamental analysis is the socio-political and economic climate in the country, the fiscal and monetary policy of its government, and the influence of the stock market.
Industrial analysis
To prioritize investments great importance has a sectoral, or industrial, analysis.
The prices of most shares change in accordance with the main market trend (the trend of market conditions), but it should be borne in mind that when prices fall, the share price of the least stable companies decreases first.
Moreover, at different times priority development will receive any industry or group of industries that has a monopoly position in the market, for example, extractive industries or innovations that ensure the opening of a new sales sector.
Industrial analysis allows us to identify and predict industry deviations from the trend of market conditions. This part of fundamental analysis allows you to classify industries in relation to the level of business activity and stages of development.
The third stage of fundamental analysis involves studying the company’s activities, evaluating it financial condition and market position. Most analysts believe that the most important information is to obtain information on the following issues:
- What does the company do?
- What is the return on the company's shares?
- What dividend does the company pay?
- What is the current market price of its stock and how does it compare to the highs and lows of the last cycle?
- How does the market rate compare with the estimated value of shares (based on the value of the company's assets and the profitability of their use)?
- What reserves does the company have?
- What does the company's current and future market look like?
- Who runs the company, how much trust is there in the company’s management (quality of management)?
The analysis of these issues lies in the sphere of “interests” of the school of fundamental analysis.
Simulation of securities prices
Regarding the fourth stage of fundamental analysis, the task of which is to predict the price of a product, one should consider the main elements of the assessment - the volume of reserves, financial transactions, the structure of the market for a given security and, finally, the profitability of the security, which, taking into account all the above factors, is the basis for determining the price .
Volume of reserves
The volume of the company's reserves serves as a guarantee of the stability of dividend payments and allows the joint-stock company to increase capital by adding reserves. In addition, they increase the liquid value of shares. Thus, an increase in reserves affects the share price, although not as directly as a dividend, and is therefore taken into account by fundamental analysts when modeling the share price.
Financial operations
The financial transactions carried out by the joint stock company themselves may not have had an impact on the stock prices, but the market expectations of shareholders or investors lead to the fact that the security price begins to move. So, for example, if a joint stock company increases its capital at the expense of reserves, then investors perceive this as a sign of the company’s prosperity and the expansion of the stock market.
An increase in capital through the acquisition of another company is perceived similarly. An increase in stock prices may also follow the issue of bonds. Investors believe that efficient use borrowed money, attracted by a bond loan, will increase profitability joint stock company, and investor expectations are reflected in rising stock prices.
Security market structure
An important element price modeling is the market structure of a given security.
A “narrow” market, where transactions with a small number of securities are carried out daily, reacts sensitively to a small number of them. The price in such a market is manageable. It only takes a few trades to achieve the desired increase or decrease in the rate.
The “broad” market, on the contrary, will not be changed even by large transactions, since such transactions are carried out every day.
Security yield
The main element of assessment is the profitability of a security, its ability to generate profit from investments.
The price of fixed income securities is adjusted almost automatically depending on the degree of capitalization of income at a rate equal to interest. A fall in market interest against the rate established for a given debt obligation increases it market price; growth - decreases. In this case, the conditions for issuing the security are taken into account - the period for which it is issued and the terms of repayment.
In an efficient market, the stock price depends on the size of the dividend. However, by purchasing a share, the owner acquires not only today's income, but also future dividends. Therefore, with a stable, constantly paid dividend, which tends to grow, the stock price increases.
The method of determining the price of a share based on a dividend is a special case of valuing a share as a derivative of the value of the company's future income, adjusted for the degree of risk that the investor associates with the realization of projected income. In such situations, the analyst evaluates the income stream, and not the real and intangible assets, the use of which ensures its receipt. This method is widely used in the practice of fundamental analysis, but it is not easy to apply.
Income capitalization assessment
The method of assessing the capitalization of income involves two stages: the first - it is necessary to estimate future income and the second - it is necessary to select the capitalization rate to use in the assessment.
Estimation of future income
Typically, an analyst will base his estimate of a company's future earnings on its average earnings over the past few years, adjusted for his expectations of the company's future prospects over the next five years or more. Instead of trying to predict earnings for each year from a future period, the analyst takes the average of earnings for that period or forecasts a smooth trend.
Adjustments to the previously established income structure may be associated with expected changes in the national economy, the emergence of new products, potential mergers, conversion into common shares of major convertible securities and other factors identified in the process of macroeconomic and industrial analysis that affect the amount of earnings per share. .
Capitalization rate
The capitalization rate is the inverse of price to earnings expressed as a percentage. It reflects the rate at which the market capitalizes the value of current earnings. For example, multiplication average size income at a capitalization rate of 10% is equivalent to calculating the present value of a stream of equal annual income over a long period of time, reduced by 10%. Also, a capitalization rate of 20% is equivalent to a price-to-earnings ratio of five, which, when multiplied by average projected earnings, will give the present value of the value of the same earnings stream reduced by 20%. It is clear that income streams are not constant over time. However, because there is a high degree of uncertainty about what actual earnings will be in any given year, it is more convenient for the analyst to simplify the problem by using the calculation of average projected earnings.
In most cases, the more confident the analyst is that projected earnings will be realized, the lower the capitalization rate applied to those earnings. For example, in a business with very stable earnings, an analyst might use a capitalization rate of 7%. If projected earnings were 5 rubles per share, this norm assumes market value about 70 rubles (5/0.07 = 71.43). Also an analyst who evaluates a business with high degree risk, may use either a conservative earnings forecast or a high capitalization rate. Companies with high potential growth sometimes apply very low capitalization rates to current earnings. In these cases it can reach 1%.
Choosing the appropriate capitalization rate is very subjective. It is a derivative of the calculated risk associated with the realization of the projected income stream and the investor's willingness to take on this risk and determined by the investor's financial situation and his attitude to risk. For example, based on projected earnings, an analyst might assume a capitalization rate of 15%. However, the investor believes that it is too low because if the company fails to achieve projected earnings, any losses from investing in the stock will wipe out most of his savings. Therefore, the investor has the right to demand that the capitalization rate be set at 30% before starting investments.
One of the indicators for adopting acceptable capitalization rates is a system of price-to-income ratios determined by the market for the current income of specific industries or companies with characteristics close to those of the company being valued.
A certain policy is associated with the role of dividends paid in assessing reliability. The income capitalization method assumes that 1 ruble of income is equally valuable to the investor, whether it is paid out as a dividend or retained for reinvestment in the company. In contrast, some investors argue that the safety score reflects the expected cash flow outside the property, i.e., dividend payments. This approach to determining value involves capitalizing the projected stream of dividend payments rather than earnings. Ultimately, a particular investor will depend on the issuer's financial needs and resources, as well as the company's earnings growth prospects relative to the investor's potential dividend rate of return.
Coefficient method
The tools of fundamental analysis also include the applied coefficient method, which deals with quantitative data. Therefore, using only ratios without carrying out all stages of fundamental analysis can lead to unreliable information.
The most commonly used coefficients are:
- p/e ratio (the ratio of the market value of a share to the amount of net profit per one ordinary share)
- coefficient d/p (ratio of dividend on an ordinary share to its market value)
- beta coefficient
- R-squared
The third coefficient determines the influence general situation in the market as a whole on the fate of a particular security. If the beta coefficient is positive, then the security's performance is similar to that of the market. With a negative beta, the performance of a given security will decline as market performance increases.
The fourth coefficient characterizes the share of risk of investing in a given security in relation to the risk as a whole: the closer the R-square is to zero, the more independent the behavior of the stock is in relation to the general market trend.
Analysis results financial ratios are of undoubted importance when compared with standards, the choice of which is always difficult. Comparisons can be made with similar indicators of Western companies or the ratios of other issuers in this market sector.
Techniques for using the p/e ratio
A high p/e ratio may indicate, for example, that investors buying the security expect the company's earnings to grow. At the same time, it is quite possible that the potential for growth in the market value of this security has been exhausted and the price may begin to fall.
The classic methods of p/e analysis are:
- comparison of today's p/e ratio with the historical average of 5 to 10 years. In this case, it is necessary to take into account inflation, and, therefore, the key question is whether future income and dividend payments will compensate for the increase in market interest caused by inflationary processes. This, naturally, depends on the possibility of selling manufactured products at higher prices and increasing profitability in a proportion that exceeds or corresponds to the rate of inflation.
- comparison of today's p/e to the p/e of other companies, according to the main assessment conditions: profitability, reinvestment opportunities, non-diversified operational characteristics and financial risk
Outsmarting the market is not an easy task that a fundamental analyst tries to solve. Even if he, while searching for a security undervalued by the market and having information not available to the general public, identified it, then where is the guarantee that the security will still be valued by the market in accordance with fundamental analysis.
Therefore, you should take a closer look at the tools that technical analysts use.