Owen, Christopher: Offshore Survey – January 2007 Supplement

The Principality of Andorra has proposed the introduction of corporate tax as part of plans to diversify the economy, which is currently dependent on tourism and banking. Legislation to apply corporate tax at a rate of 12%, and establish a requirement that registered firms must file regular accounts to international standards, has been tabled in parliament. Under current legislation, Andorran companies and individuals are not subject to tax other than annual registration fees, municipal rates and property transaction taxes.

16 August 2006, a Trust Law to govern trustees and trust administration in Bahrain was enacted. Bahrain is one of the first countries in the Middle East to put in place such a legal framework. The Dubai International Financial Centre enacted a trust law last year. The new trust law provides for trusts to be created for a maximum duration of 100 years. It requires a trust, to be registered with the BMA. The trust property may comprise any form of property, moveable or immoveable, tangible or intangible. A trust may have one or more trustees and the trust law sets out the obligations of the trustee, in order to provide adequate protection to the beneficiaries and ensure that the trust is managed in accordance with the terms and conditions of the settlor. The law provides for high levels of confidentiality for the execution and administration of the trust fund. It also provides for the establishment of a register of financial trusts by the BMA and obliges the BMA to maintain complete confidentiality of all information recorded in the Register. Trusts are a relatively recent structure in the Middle East but the potential for growth is great. The region boasts the world’s highest concentration of high net worth individuals, whose collective wealth is estimated at over $1.3 trillion.

18 September 2006, the Dutch Council of State advised that the transition process for dismantling the Netherlands Antilles could start in July 2007. But it warned that completing the process could take considerable time. All five islands that make up the Federation of the Netherlands Antilles have now held referendums on their preferred future constitutional status, and the overall conclusion is that the federation should cease to exist in its current form. Achieving country status for Curaçao and St Maarten, and direct ties for the other islands, would be a ?considerable, complicated and lengthy operation?, said the Council. Its advice concentrated principally on the position of the smaller islands Bonaire, Saba and St Eustatius, which are seeking direct ties with the Netherlands. The Council proposes the immediate establishment of a ?legislation bank? for the Netherlands Antilles and the five island territories, which would facilitate a complete overview of all laws that are applicable on 1 July 2007. As of that date, a start could be made to implement the Dutch laws for the three smaller islands.

12 October 2006, the Bulgarian parliament agreed to reduce the corporate tax rate on profits made by Bulgarian and foreign companies operating within the Bulgarian state, from 15% to 10%. Having joined the EU on 1 January 2007, it now has one of the lowest rates of corporate income tax, along with Cyprus. Deputy Finance Minister Georgi Kadiev said that the tax reduction would reduce budget proceeds in 2007 by approximately 290 million leva (US$187 million), but would also make tax evasion futile.

The BVI Financial Services Commission has published an expanded list of countries and jurisdictions recognised for the purposes of the 1996 Mutual Funds Act. These jurisdictions are deemed to have sufficiently robust regulatory systems to enable the BVI?s Registrar of Mutual Funds to approve applications for recognition and registration by BVI mutual funds that are managed from these jurisdictions. The new countries included on the expanded list are Australia, Canada, Germany, Italy, Japan, Sweden, the Bahamas and the Cayman Islands. They join Bermuda, Gibraltar, Hong Kong, France, Luxembourg, the Isle of Man, Belgium, Spain, Ireland, Malta, Singapore, Guernsey, Jersey, Switzerland, the UK and the US. More than 3,000 mutual funds are registered in the BVI, with more than US$100 billion under management.

7 November 2006, the European Council adopted a regulation to lay down new rules on the traceability of information regarding the payer that accompanies fund transfers and payments, for the purposes of prevention, investigation and detection of money laundering and terrorist financing. The decision was taken by qualified majority, with the German and French delegations abstaining, at a meeting of the Economic & Financial Affairs Council. The regulation transposes into EU legislation a special recommendation issued by the FATF in 2001, following the 11 September terrorist attacks in the US. It imposes identification requirements on payers and verification requirements on payment service providers. The regulation will be applicable in the member states as of 1 January 2007.

12 September 2006, the European Court of Justice (ECJ) issued its long-awaited ruling in the ?Cadbury Schweppes? case. It found, confirming the earlier Opinion issued by the Advocate-General, that the UK controlled foreign companies (CFC) rules restrict the EU principle of freedom of establishment and are only justified to the extent that they are applied to counter ?wholly artificial arrangements?. The case concerned existing UK CFC rules which permit the UK Revenue & Customs to tax profits earned by UK companies? subsidiaries in lower tax European jurisdictions. The ECJ decision is likely to prompt a change in both the UK CFC rules and in similar rules in a number of other member states. Cadbury Schweppes plc, the drinks and confectionery producer, set up two subsidiaries in the International Financial Services Centre (IFSC) in Dublin, Ireland ? Cadbury Schweppes Treasury Services (CSTS) and Cadbury Schweppes Treasury International (CSTI) ?in 1996. The tax rate was 10%. The two companies were responsible for raising finance and providing that finance to the group. In the view of the UK courts, CSTS and CSTI were established in Dublin solely to take advantage of the favourable tax regime of the ISFC and in order not to fall within the UK tax regime. In 2000 the Commissioners of Inland Revenue, taking the view that the CFC legislation applied to the two Irish companies, claimed corporation tax from Cadbury Schweppes of £8.6m on the profits made by CSTI in 1996. Cadbury Schweppes appealed before the Special Commissioners of Income Tax, maintaining that the CFC legislation was contrary to Community law, in particular in the light of freedom of establishment. The Special Commissioners asked the Court of Justice whether Community law precluded rules such as the CFC legislation. The ECJ found that the UK CFC rules were only applicable in circumstances that it described as ?wholly artificial situations?. Although there are no formal guidelines for what constitutes genuine substance, the Court referred to demonstrating physical existence in terms of ?premises, staff and equipment?. The ECJ held: ?The Court recalls that companies or persons cannot improperly or fraudulently take advantage of provisions of Community law. However, the fact that a company was established in a Member State for the purpose of benefiting from more favourable legislation does not in itself suffice to constitute an abuse of the freedom of establishment. Therefore the fact that Cadbury Schweppes decided to establish CSTS and CSTI in Dublin for the avowed purpose of benefiting from a favourable tax regime does not in itself constitute abuse and does not prevent Cadbury Schweppes from relying on Community law. ?The Court notes that the CFC legislation involves a difference in the treatment of resident companies on the basis of the level of taxation imposed on the company in which they have a controlling holding. That difference in treatment creates a tax disadvantage for the resident company to which the CFC legislation is applicable. The CFC legislation therefore constitutes a restriction on freedom of establishment within the meaning of Community law. ?As regards the possible justifications for such legislation, the Court points out that a national measure restricting freedom of establishment may be justified where it specifically relates to wholly artificial arrangements aimed solely at escaping national tax normally due and where it does not go beyond what is necessary to achieve that purpose. Certain exceptions in the UK legislation exempt a company in situations in which the existence of a wholly artificial arrangement solely for tax purposes appears to be excluded (for example distribution of 90% of a subsidiary?s profits to its parent company or performance by the SEC of trading activities). ?As regards the application of the ?motive test?, the Court notes that the fact that the intention to obtain tax relief prompted the incorporation of the CFC and the conclusion of transactions between the CFC and the resident company does not suffice to conclude that there is a wholly artificial arrangement. In order to find that there is such an arrangement there must be, in addition to a subjective element, objective and ascertainable circumstances produced by the resident company with regard, in particular, to the extent to which the CFC physically exists in terms of premises, staff and equipment, showing that the incorporation of a CFC does not reflect economic reality, that is to say it is not an actual establishment intended to carry on genuine economic activities in the host Member State. ?It is for the Special Commissioners to determine whether the motive test lends itself to an interpretation which takes account of such objective criteria. In that case, the legislation on CFCs should be regarded as being compatible with Community law. On the other hand, if the criteria on which that test is based mean that a resident company comes within the scope of application of that legislation, despite the absence of objective evidence such as to indicate the existence of a wholly artificial arrangement, the legislation would be contrary to Community law,? it said.Cadbury Schweppes is the first of many cases waiting to be heard in the ECJ. The most significant is Vodafone, which has set aside £2bn should its challenge to the British rules fail, it said in its annual report.

In a landmark judgment, the European Court of Justice (ECJ) ruled that it was illegal for EU member states to charge withholding tax on dividends paid to foreign companies if the countries? own companies receive the same payments tax-free. The ruling, handed down on 14 December 2006, paves the way for European pension funds to claim back taxes charged illegally by many EU states on foreign dividends. Claims by UK funds alone could be worth ?hundreds of millions of pounds?. The case concerned Denkavit, a Dutch company that successfully sued the French government for charging withholding tax on dividends paid from its French subsidiary back to the Dutch parent. The ECJ agreed with Denkavit that this was illegal under EU law because France did not levy the same tax on payments from French subsidiaries to French parent companies. As a result Denkavit, and a host of other European companies, will now be able to reclaim the illegal taxes. Last year, PricewaterhouseCoopers launched a series of claims with the European Commission against various EU member states on the same issue. The Commission has not yet ruled but the Denkavit judgment should give a significant boost to the existing cases.

The European Court of Justice (ECJ) handed down, on 12 December 2006, a decision in Test Claimants in the FII Group Litigation (C-446/04) dealing with the compatibility with European Community law of current and past tax systems in the UK regarding the tax treatment of inbound and outbound dividends. The case involved two main issues:
the legality of payments made under the UK?s Advanced Corporation Tax (ACT) prior to its abolition in 1999; and
the tax treatment of foreign sourced dividend income emanating from the EU and paid to UK taxpayers.
As indicated previously in the Advocate General?s Opinion, the ECJ found that the ACT rules operating between 1973, when the UK first joined the EU, and their abolition in 1999 were in breach of Community Law. This decision gives rise to the prospect of substantial rebates to companies that have paid this tax or suffered surplus ACT situations or delays on refunds in the past. The UK government moved to block the extent to which taxpayers can claim rebates in its November 2006 Pre-Budget Report. This legislation is already subject to legal challenge as a breach of Community Law. Proceedings are underway and companies seeking refunds are unlikely to receive anything until these are concluded. On the tax treatment of foreign sourced dividends, the ECJ confirmed the principle that foreign sourced dividends should not suffer more UK tax than UK sourced dividends. But it went on to state that the various methods by which this was to be achieved were acceptable. The UK operates a credit system to relieve double taxation on foreign sourced dividends, while UK-sourced dividend payments to a UK taxpayer are exempted entirely. This is regardless of the actual tax suffered at the level of the subsidiary from whose profits the dividends derive. The ECJ?s view was that parity of treatment could be achieved through a credit or exemption system, but declined to go further and referred the matter back to the UK courts to determine whether the UK rules operate to achieve this parity. The ECJ did rule that the discrimination against portfolio investments, which did not provide for relief for overseas taxes, was however illegal. Far from achieving certainty, these decisions together with the Pre-Budget Report?s narrow interpretation of the ECJ’s Cadbury Schweppes ruling, means that the UK tax system is becoming yet more complex and uncertain.

EU Tax Commissioner Laszlo Kovacs said proposals for a pan-European corporate tax system are to proceed despite opposition from seven Member States. He said the project was well supported by 10 other EU countries and had the cautious backing of the remaining eight. The common tax base, like the euro, could be used by a limited number of Member States, said Kovacs. ?If it does not reach a consensus in 2008, we can go for a second round under enhanced cooperation with 18 countries, which would be a great step forward.? The Commissioner said he was focused on creating the common consolidated corporate tax base out of the EU’s 25 corporate tax systems in spite of political and technical hurdles. There was no question, however, of harmonising tax rates.

9 October 2006, the Financial Action Task Force (FATF) removed Myanmar from the list of countries and territories not cooperating in the international fight against money laundering at its meeting in Vancouver. The FATF said it has determined that Myanmar has made good progress in implementing its anti-money laundering system, but it will continue to monitor Myanmar. In particular, it advised Myanmar to enhance regulation of the financial sector, including the securities industry, and to ensure that dealers in precious metals and precious stones follow anti-money laundering requirements. Myanmar?s delisting means that all 23 jurisdictions that were listed as NCCTs in 2000 and 2001 have made sufficient progress in strengthening their anti-money laundering and counter-terrorist financing systems to ensure they are no longer regarded as non-cooperative. The FATF also issued two reports on money laundering methods and vulnerabilities in specific sectors. A report on new payment technologies (prepaid cards, Internet payment systems, mobile payments, and digital precious metals) found that, while there was a legitimate market demand for these payment methods, money laundering and terrorist financing vulnerabilities exist. Specifically, cross-border providers of new payment methods may pose more risk than providers operating within a jurisdiction. The report recommended continued vigilance to further assess the impact of evolving technologies on cross-border and domestic regulatory frameworks. The study of corporate vehicles found evidence of their misuse for money laundering and terrorist financing. The report identified a number of risk factors and concluded that this misuse could be significantly reduced if governments had access to information about the beneficial owner, the source of assets, and the business objective of the company or trust. Additional typologies studies on money laundering and terrorist financing are underway on various areas including real estate, terrorist financing, value-added-tax fraud and drug trafficking.

2 November 2006, Germany’s coalition government agreed a package of measures to reduce corporate tax rates significantly as from January 2008 to assist German companies facing competition from firms in EU member states with lower tax rates. It includes a reduction in the federal corporate tax rate from 25% to 15% and the introduction of an earnings stripping limitation rule. Company taxes in Germany are comprised of national corporate taxes, state-level business taxes and a solidarity tax. Finance Minister Peer Steinbrueck said the proposals would lower the nominal rate for companies from 38.65% to just under 30%. The cuts are to be balanced by broadening the tax base. Measures are likely to include limitations on the deductibility of interest expenses and depreciation, from 2008, and reform of the capital gains tax system, from 2009.

GlaxoSmithKline (GSK), the pharmaceutical company, agreed to pay US$3.1billion in tax and interest to settle a transfer pricing dispute with the US Internal Revenue Service (IRS). The largest such settlement in history, GSK was open to a potential liability of US$11.5 billion for 16 years of accounts between 1989 and 2005 that were disputed by the IRS. At the core of the dispute was an argument between the IRS and the UK Revenue over on the price at which Zantac, the ulcer treatment manufactured in the UK, was transferred to the group?s US marketing subsidiaries. GSK, which faces further unrelated transfer-pricing litigation in the UK, Japan and Canada, said it was pleased that the case had been settled within the scope of its provision and with no significant impact on earnings.

5 December 2006, the government abandoned a proposal to introduce a 5% goods and services tax (GST), citing heavy political and public opposition. It was six months into a nine-month consultation period. Finance Minister Henry Tang told an Executive Council meeting: “The public understands that there is a need to widen the territory’s tax base, but we have failed to convince them of the benefits of a goods and services tax.” Tang said. He did not say whether the GST proposal would be resurrected at a later date. Tang urged Hong Kong’s citizens to suggest alternative means of broadening the tax base and said the government would submit a final report in March, when the GST consultation period originally was scheduled to end.

25 October 2006, the House of Lords reversed the Court of Appeal?s decision and found in favour of the taxpayer in the Deutsche Morgan Grenfell (DMG) case. The landmark ruling considered whether a claim to recover tax paid more than six years ago could be based on a mistake of law -? in this case, when UK rules are in breach of European law. The decision enables DMG to recover tax paid more than six years ago ? the six-year time limit for claiming running not from the date on which the tax was wrongly paid but when the mistake was, or could reasonably have been, discovered. The ruling has wide implications. It will not only impact upon claims under European legislation, such as taxpayers currently challenging the UK?s group relief rules, CFC rules or taxation of overseas dividends rules, it also applies generally to claims for repayment of tax brought against HM Revenue & Customs (HMRC). The level of concern shown by the UK government as to the implications of this case is clear from the fact that it introduced blocking legislation in the Finance Act 2004 to remove a taxpayers? right to reclaim from HMRC tax paid under a mistake of law. The effect of the law change is to restrict claim time limits for claims brought after the introduction of the blocking legislation, which took effect retrospectively from September 2003, to six years. The legality of the blocking legislation is itself currently subject to a judicial challenge.

2 October 2006, the Privy Council approved amendments to Jersey’s Trusts Law that were designed to respond to developments in other jurisdictions and maintain Jersey?s international competitiveness. They followed la comprehensive review of the Trusts (Jersey) Law 1984. The amendments include the introduction of powers to provide greater statutory certainty as to the level of control and influence a settlor may exercise, in appropriate circumstances, over the ongoing administration of assets placed into trust. The powers that may be reserved by the settlor will include the power to appoint and remove trustees, to amend or revoke the terms of the trust and to appoint or remove an investment manager or investment adviser The amendments also permit a trustee to delegate any of his or her trusts or powers if permitted by the terms of the trust. Other amendments include conflict of law provisions which will mean that the validity of a trust governed by Jersey law will not be affected by any rights conferred on anyone under a foreign law, and a proposal that will remove the existing automatic ?personal guarantor? provisions for directors of corporate trustees, making it more attractive to establish private trust companies in Jersey.

The Jersey Financial Services Commission is proposing closed ended investment funds which are listed on European and other leading stock exchanges, including the Channel Islands Stock Exchange, should enjoy a streamlined 72-hour approval procedure. The Commission says it intends to make the new regime available to private equity and property funds, as well as other alternative investments such as hedge funds and funds of hedge funds.

The Finance Act 2006, approved in July, is to introduce a 15% flat tax regime on personal and corporate income as of 1 July 2009. The flat tax will replace the current personal income tax of two rates, 15% on taxable income to 25,000 rupees and 25% on the rest. It will also replace the existing 25% rate on corporate income. Together with the Business Facilitation (Miscellaneous Provisions) Act 2006, Deputy Prime Minister and Minister of Finance & Economic Development Rama Sithanen said the new legislation would make Mauritius one of the most competitive jurisdictions in the world in terms of tax and regulation.

The Qatar Financial Centre Regulatory Authority (QFCRA) released a consultation paper and accompanying draft rules on the regulation of collective investment funds operating in or from the Qatar Financial Centre (QFC) on 18 December 2006. The draft rules provide for the establishment and regulation of funds in the QFC for qualified investors. Under the proposed regime QFC authorised firms will be able to advise on and market units in recognised foreign funds. A regime for retail funds is also being separately developed in conjunction with the development of the wider retail regime in the QFC. In addition, under the proposed regime QFC authorised firms will be able to advise on and market units in recognised foreign funds.

18 September 2006, the UK, Spain and Gibraltar signed a range of “historic” agreements following ministerial talks in the southern Spanish city of Cordoba. Areas covered by the agreements include the expanded use of Gibraltar Airport, the full inclusion of Gibraltar in EU air liberalisation measures, recognition by Spain of Gibraltar’s international dialling code and unblocking by Spain of Gibraltar mobile telephone roaming in Spain. The signing by Spanish Foreign Minister Miguel Angel Moratinos, UK Minister for Europe Geoff Hoon and Gibraltar’s Chief Minister Peter Caruana completed 20 months of talks, under the terms of the Joint Communiqué of 16 December 2004, aimed at bringing to an end years of deadlock over the status of the “Rock” and its 27,000 inhabitants. A joint statement said: ?These agreements show our commitment to the solution of specific problems but have no implications whatsoever regarding sovereignty and jurisdiction, or regarding any issues thereby affected, and any activity or measure undertaken in applying them, or as a consequence of them, is understood to be adopted without prejudice to the respective positions on sovereignty and jurisdiction. The Government of Gibraltar understands and accepts that references to sovereignty in this Communiqué are bilateral to the UK and Spain.?

HM Revenue & Customs is to tighten rules for hedge fund managers by requiring those based in the UK to be paid a “reasonable” sum for the services that they claim to provide their offshore employers. The Revenue will look at the total sum paid to the UK-based entity to determine the figure. The move follows a two-year review by the tax authorities into concerns that hedge funds may not be paying sufficient tax on their activities in the UK. At present, management and performance fees are paid into an offshore entity and a percentage of the sum is then channelled into the UK manager. The perceived problem is that hedge fund managers have been improperly splitting their profits between the UK and the offshore entity. GLG Partners, an £8.55 billion hedge fund with a Cayman Islands-based distributor, recently reached a settlement with the Revenue following an investigation into its tax payments from 2001 to 2006.

The richest 2% of adults in the world own more than half of global household wealth according to a study released on 6 December 2006 by the United Nations? Helsinki-based World Institute for Development Economics Research (UNU-WIDER). The study also reports that the richest 1% of adults together owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. In contrast, the bottom half of the world adult population owned barely 1% of global wealth. The research found that assets of US$2,200 per adult placed a household in the top half of the world wealth distribution in the year 2000. To be among the richest 10% of adults in the world required US$61,000 in assets, and more than US$500,000 was needed to belong to the richest 1%, a group that ? with 37 million members worldwide ? is far from an exclusive club. The UNU-WIDER study is the first of its kind to cover all countries in the world and all major components of household wealth, including financial assets and debts, land, buildings and other tangible property. The report?s co-authors said: ?We use the term in its long-established sense of net worth: the value of physical and financial assets less debts. In this respect, wealth represents the ownership of capital. Although capital is only one part of personal resources, it is widely believed to have a disproportionate impact on household wellbeing and economic success, and more broadly on economic development and growth.? Using currency exchange rates, global household wealth amounted to US$125 trillion in the year 2000, equivalent to roughly three times the value of total global production (GDP) or to US$20,500 per person. Adjusting for differences in the cost-of-living across nations raises the value of wealth to US$26,000 per capita when measured in terms of purchasing power parity dollars (PPPUSD). Average wealth amounted to US$144,000 per person in the USA in year 2000, and US$181,000 in Japan. Lower down among countries with wealth data are India, with per capita assets of US$1,100, and Indonesia with US$1,400 per capita. Per capita wealth levels vary widely across countries. Even within the group of high-income OECD nations the range includes US$37,000 for New Zealand and US$70,000 for Denmark and US$127,000 for the UK. Wealth is heavily concentrated in North America, Europe, and high-income Asia-Pacific countries. People in these countries collectively hold almost 90% of total world wealth. Although North America has only 6% of the world adult population, it accounts for 34% of household wealth. Europe and high-income Asia-Pacific countries also own disproportionate amounts of wealth. In contrast, the overall share of wealth owned by people in Africa, China, India, and other lower income countries in Asia is considerably less than their population share, sometimes by a factor of more than ten. The study found wealth to be more unequally distributed than income across countries. High-income countries tend to have a bigger share of world wealth than of world GDP. The reverse is true of middle- and low-income nations. But there are exceptions to this rule, for example the Nordic region and transition countries like the Czech Republic and Poland. Private wealth is on the rise in Eastern European countries but has still not reached very high levels. Relatively few households hold assets like private pensions and life insurance. In the Nordic countries, the social security system provides generous public pensions that may depress wealth accumulation.’ The concentration of wealth within countries varies significantly but is generally high. The share of the top 10% ranges from around 40% in China to 70% in the US, and is higher still in other countries. The Gini value, which measures inequality on a scale from zero to one, gives numbers in the range from 35% to 45% for income inequality in most countries. In contrast, Gini values for wealth inequality are usually between 65% and 75%, and sometimes exceed 80%. Two high wealth economies, Japan and the US, show very different patterns of wealth inequality, with Japan having a wealth Gini of 55% and the USA a wealth Gini of around 80%. Wealth inequality for the world as a whole is higher still. The study estimates that the global wealth Gini for adults is 89%. The same degree of inequality would be obtained if one person in a group of ten takes 99% of the total and the other nine share the remaining 1%. According to the study, almost all of the world’s richest individuals live in North America, Europe, and rich Asia-Pacific countries. Each of these groups of countries contribute about one third of the members of the world’s wealthiest 10%. China occupies much of the middle third of the global wealth distribution, while India, Africa, and low-income Asian countries dominate the bottom third. For all developing regions of the world, the share of population exceeds the share of global wealth, which in turn exceeds the share of members of the wealthiest groups. A small number of countries account for most of the wealthiest 10% in the world. One quarter are Americans and another 20% are Japanese. These two countries feature even more strongly among the richest 1% of individuals in the world, with 37% residing in the USA and 27% in Japan. According to UNU-WIDER director Anthony Shorrocks, a country’s representation in the rich person’s club depends on three factors: the size of the population, average wealth, and wealth inequality. ?The USA and Japan stand out,? he says, ?because they have large populations and high average wealth. Although Switzerland and Luxembourg have high average wealth, their populations are small. China on the other hand fails to feature strongly among the super-rich because average wealth is modest and wealth is evenly spread by international standards. ?However, China is already likely to have more wealthy residents than our data reveals for the year 2000, and membership of the super-rich seems set to rise fast in the next decade.? The UNU-WIDER study shows major international differences in the composition of assets, resulting from different influences on household behaviour such as market structure, regulation, and cultural preferences. Real property, particularly land and farm assets, are more important in less developed countries. This reflects not only the greater importance of agriculture, but also immature financial institutions. The study also reveals striking differences in the types of financial assets owned. Savings accounts feature strongly in transition economies and in some rich Asian countries, while share-holdings and other types of financial assets are more evident in rich countries in the West. Savings accounts tend to be favoured in Asian countries, said the report, because ?there appears to be a strong preference for liquidity and a lack of confidence in financial markets. Other types of financial assets are more prominent in countries like the UK and USA which have well developed financial sectors and which rely heavily on private pensions.? Surprisingly, household debt is relatively unimportant in poor countries. As the authors of the study point out: “While many poor people in poor countries are in debt, their debts are relatively small in total. This is mainly due to the absence of financial institutions that allow households to incur large mortgage and consumer debts, as is increasingly the situation in rich countries.? The authors go on to note ?many people in high-income countries have negative net worth and?somewhat paradoxically?are among the poorest people in the world in terms of household wealth.?