On Fri, 10 Jun 1994, Eric Hughes wrote:
One of the reasons eurodollars got created was that at that time a London bank could offer higher interest rates on dollars than an American bank could. They offered better service than the competition. They could do so, in part, because neither the USA nor UK governments put reserve requirements on dollar deposits held in England banks.
Another reason was the tax consequences. If you were a US bank with money to lend and you lent it from the US, you owed taxes on the earnings. If you formed a Netherlands Antilles subsidiary and lent money the earnings on those loans could be accumulated tax free "forever." If the parent bank in the US could use some of this dough, no need to repatriate it, just lend it to the parent -- then the tax-deductible interest payments flow from the high-tax parent to the zero-tax subsidiary getting more money forever out of the hands of the tax man. The next time you go to the cinema, read *all* the credits. Chances are you will see a line towards the end like: "Financing provided by SomeBank, NV" indicating a Netherlands Antilles corporation. The NA became popular because they were covered by the US-Netherlands Tax Treaty and thus no tax withholding applied to payments made to the NA. DCF