Investments through offshore financial centres (OFCs) and special-purpose entities (SPEs) are at historically high levels. Financial flows to OFCs are still close to the peak reached in 2007, according to a UN report.
According to the annual World Investment Report, published by economic thinktank UNCTAD, although most international efforts to combat tax evasion have focused on OFCs, financial flows through SPEs were almost seven times larger in 2011.
The number of countries offering favourable tax conditions for SPEs is increasing, the report warned.
The report revealed that foreign direct investment (FDI) flows to the 29 small island developing States (SIDS) increased by 10%, to US$6.2 billion, mainly as a result of strong increases registered by two countries rich in natural resources.
The first was Trinidad and Tobago, which accounted for 41% of the total in 2012, and where FDI inflows increased by 38%. The second was Papua New Guinea, where FDI inflows swung back into positive territory, reaching a modest value of US$29 million, shifting away from a steep decline (down by US$309 million) in 2011.
The wide variation in FDI figures suggests the highly uneven rates of FDI among this group of countries, the report notes. FDI flows to the 11 Caribbean SIDS increased by 5% in 2012, to US$4.8 billion.
The report said that British Virgin Islands is now the fifth biggest recipient of FDI in the world while the investment continues to sink in many economies.
However, the global FDI inflows fell by 18% to US$1.35 trillion in 2012, the report revealed.
The UNCTAD report forecasts global flows of US$1.6 trillion in 2014 and US$1.8 trillion in 2015.