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VOLUME 8
ANNEX18
FROM THE SECRETARY OF STATE FOR FOREIGN AND COMMONWEALTH AFFAIRS
CIRCULAR NO. 78/69 MF 23/7
CIRCULAR DESPATCH (see para 15.6)
12 September 1969
Agreements with Developers and Other Commercial Organisations Guidance on General Principles
In recent years a number of Governments of dependent territories have concluded agreements with property developers and other commercial organisations who have been offered tax and other concessions in return for their undertaking to carry out certain developments in the territory. Experience has shown that any small territory which hopes to attract investment is bound to offer some financial inducements at least to match those offered by its competitors. This is reflected in the pioneer industries tax legislation which has been introduced in most territories. The provisions of such legislation vary from territory to territory but mostly confer exemption from certain taxes and duties for periods of five to ten years. However, some agreements which have been concluded recently have granted concessions going considerably beyond the normal pioneer legislation. They have in some cases contained features which were not in the best interests of the people of the territories and have not provided an adequate financial return to governments in relation to the concessions granted.
2.
Some commercial organisations which approach Governments offering to undertake development projects are primarily interested in acquiring facilities for "brass plate" companies which would be set up to enable tax to be avoided in other countries. There are of course a number of dependent territories which for historical reasons have no system of income or company tax. The absence of such taxation has undoubtedly attracted to, for example, Bahamas and Cayman Islands the registration of an increasing number of companies in recent years, many of which are brass plate companies. In general, it can be said that brass plate activities in themselves do not bring much useful visible development to a territory. These activities are, by their essential nature, offshore: little employment is provided in the territory in running such companies and little or none of the companies' finance will actually pass through or remain in the territory. The connections of the brass plate company with the territory in which it is situated are very tenuous and the company will probably be removed elsewhere if its operations become expensive- that is, once it starts to bring any significant benefit to the territory. Governments would be well advised to avoid giving special concessions to attract brass plate companies and to concentrate their attention on companies which intend to carry on genuine business activity in the territory, whether in industry, agriculture or tourist development; in other words, enterprises which will bring real and visible economic benefit and employment. Brass plate companies can of course sometimes help to promote local development since they bring to the territory entrepreneurs and financiers who may assist with the provision of finance when a worthwhile local project comes along.
3.
The recent spate of enquiries from prospective developers in some of the smaller dependencies, particularly in the Caribbean, has posed difficult problems for the Governments concerned. Development propositions are frequently put forward in an atmosphere of implied generosity and overwhelming urgency. They are usually backed by glossy layouts and propounded by teams of businessmen,
October 1978
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