A tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all.
Individuals and/or corporate entities can find it attractive to establish shell subsidiaries or move themselves to areas with reduced or nil taxation levels relative to typical international taxation.. This creates a situation of tax competition among governments. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and/or companies. States that are sovereign or self-governing under international law have theoretically unlimited powers to enact tax laws affecting their territories, unless limited by previous international treaties. There are several definitions of tax havens. The Economist has tentatively adopted the description by Geoffrey Colin Powell (former economic adviser to Jersey): "What ... identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." The Economist points out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens. Similarly, others have suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven.
According to other definitions, the central feature of a haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. In its December 2008 report on the use of tax havens by American corporations, the U.S. Government Accountability Office was unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of it: nil or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.
A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3% annually and such capital gains were taxed at 30%, it would generate between $190 billion and $280 billion in tax revenues, more than any other tax shelters. If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures. A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, sheltering over 40% of their profits from U.S. taxes.
Definitions
The Organisation for Economic Co-operation and Development (OECD) identifies three key factors in considering whether a jurisdiction is a tax haven:
In deciding whether or not a jurisdiction is a tax haven, the first factor to look at is whether there are no or nominal taxes. If this is the case, the other two factors – whether or not there is an exchange of information and transparency – must be analyzed. Having no or nominal taxes is not sufficient, by itself, to characterize a jurisdiction as a tax haven. The OECD recognizes that every jurisdiction has a right to determine whether to impose direct taxes and, if so, to determine the appropriate tax rate.
Extent
While incomplete, and with the limitations discussed below, the available statistics nonetheless indicate that offshore banking is a very sizeable activity. In 2007 the OECD estimated that capital held offshore amounted to between US$5 trillion and US$7 trillion, making up approximately 6–8% of total global investments under management. A recent report (2012) by Tax Justice Network (an anti-tax haven pressure group) places the estimate considerably higher: between US$21 trillion and US$32 trillion (between 24-32% of total global investments). A report by the IMF in 2000 based upon interbank settlement figures estimated the crossborder cash held on-balance sheet at US$4.6 billion, although this included major U.S. and European financial centres.
A Wall Street Journal study of 60 large US companies found that they deposited $166 billion in offshore accounts in 2012, sheltering over 40% of their profits from U.S. taxes.
A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3% annually and such capital gains were taxed at 30%, it would generate between $190 billion and $280 billion in tax revenues, more than any other tax shelters. If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures. If true, those sums would amount to approximately 5 to 8 times the total amount of currency presently in circulation in the world. Daniel J. Mitchell of the Cato Institute says that the report also assumes, when considering notional lost tax revenue, that 100% money deposited offshore is evading payment of tax.
The International Monetary Fund produced calculations based on Bank for International Settlements data suggest that for selected offshore financial centres, on-balance sheet cross-border assets held in offshore financial centres reached a level of US$4.6 trillion at end-June 1999 (about 50 percent of total cross-border assets). Of that US$4.6 trillion, US$0.9 trillion was held in the Caribbean, US$1 trillion in Asia, and most of the remaining US$2.7 trillion accounted for by the major International Finance Centres (IFCs), namely London, the U.S. IBFs, and the Japanese offshore market.
A 2006 academic paper indicated that: "in 1999, 59% of U.S. firms with significant foreign operations had affiliates in tax haven countries", although they did not define "significant" for this purpose.
A January 2009 U.S. Government Accountability Office (GAO) report said that the GAO had determined that 83 of the 100 largest U.S. publicly traded corporations and 63 of the 100 largest contractors for the
U.S. federal government were maintaining subsidiaries in countries generally considered havens for avoiding taxes. The GAO did not review the companies' transactions to independently verify that the subsidiaries helped the companies reduce their tax burden, but said only that historically the purpose of such subsidiaries is to cut tax costs.
In 2011, the Caribbean Banking Centers which include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama held almost two trillion dollars in United States debt.
A 2012 study by the Tax Justice Network gave an indication of the amount of money that is sheltered by wealthy individuals in tax havens. Conservatively, it estimated that a fortune of $21 trillion is stashed away in off-shore accounts, $9.8 trillion alone by the top tier, - less than 100,000 people who each own financial assets of $30 million or more. The report indicated that this hidden money results in a "huge" lost tax revenue - a "black hole" in the economy -, and many countries would become creditors instead of being debtors if the money of their tax evaders would be taxed.
Further, this system of tax evasion is "basically designed and operated" by a group of highly paid specialists from the world’s largest private banks (led by UBS, Credit Suisse and Goldman Sachs), law offices, and accounting firms and tolerated by international organizations such as Bank for International Settlements, the International Monetary Fund, the World Bank, the OECD and the G20. The amount of money hidden away has significantly increased since 2005, sharpening the divide between the superrich and the rest of the world.
Lost Tax Revenues
The Tax Justice Network in its 2012 report said global tax revenue lost to tax havens is between USD $190 billion and $255 billion per year, assuming a 3% rate and a 30% rate. Citizens for Tax Justice said that countries reporting 43% of the $940 billion of overseas profits declared by U.S. multinational corporations only made 7% of their investments overseas.
2007 estimates by the OECD suggested that capital held offshore amounted to somewhere between US$5 trillion and US$7 trillion, making up approximately 6–8% of total global investments under management. Of this, approximately US$1.4 trillion is estimated to be held in the Cayman Islands alone. In October 2009, research commissioned from Deloitte for the Foot Review of British Offshore Financial Centres (London is a tax haven for much of Europe, Asia, and South America, it should be noted) said that much less tax had been lost to tax havens than previously had been thought. The report indicated "We estimate the total UK corporation tax potentially lost to avoidance activities to be up to £2 billion per annum, although it could be much lower." An earlier report by the U.K. Trades Union Congress, concluded that tax avoidance by the 50 largest companies in the FTSE 100 was depriving the UK Treasury of approximately £11.8 billion.
The report also stressed that British Crown Dependencies make a "significant contribution to the liquidity of the UK market". In the second quarter of 2009, they provided net funds to banks in the UK totalling $323 billion (£195 billion), of which $218 billion came from Jersey, $74 billion from Guernsey and $40 billion from the Isle of Man.
Examples
The U.S. National Bureau of Economic Research has suggested that roughly 15% of countries in the world are tax havens, that these countries tend to be small and affluent, and that better governed and regulated countries are more likely to become tax havens, and are more likely to be successful if they become tax havens.
No two commentators can generally agree on a "list of tax havens", but the following countries are commonly cited as falling within the "classic" perception of a sovereign tax haven.
British Crown Dependency
British Overseas Territory
Incentives for Nations to Become Tax Havens
There are several reasons for a nation to become a tax haven. Some nations may find they do not need to charge as much as some industrialized countries in order for them to be earning sufficient income for their annual budgets. Some may offer a lower tax rate to larger corporations, in exchange for the companies locating a division of their parent company in the host country and employing some of the local population.
Other domiciles find this is a way to encourage conglomerates from industrialized nations to transfer needed skills to the local population. Still yet, some countries simply find it costly to compete in many other sectors with industrialized nations and have found a low tax rate mixed with a little self-promotion can go a long way to attracting foreign companies.
Many industrialized countries claim that tax havens act unfairly by reducing tax revenue which would otherwise be theirs. Various pressure groups also claim that money launderers also use tax havens extensively, although extensive financial and know your customer regulations in tax havens can actually make money laundering more difficult than in large onshore financial centers with significantly higher volumes of transactions, such as New York City or London.
In 2000, the Financial Action Task Force published what came to be known as the "FATF Blacklist" of countries which were perceived to be uncooperative in relation to money laundering; although several tax havens have appeared on the list from time to time (including key jurisdictions such as the Cayman Islands, Bahamas and Liechtenstein), no offshore jurisdictions appear on the list at this time.
http://en.wikipedia.org/wiki/Tax_haven
Individuals and/or corporate entities can find it attractive to establish shell subsidiaries or move themselves to areas with reduced or nil taxation levels relative to typical international taxation.. This creates a situation of tax competition among governments. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and/or companies. States that are sovereign or self-governing under international law have theoretically unlimited powers to enact tax laws affecting their territories, unless limited by previous international treaties. There are several definitions of tax havens. The Economist has tentatively adopted the description by Geoffrey Colin Powell (former economic adviser to Jersey): "What ... identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." The Economist points out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens. Similarly, others have suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven.
According to other definitions, the central feature of a haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. In its December 2008 report on the use of tax havens by American corporations, the U.S. Government Accountability Office was unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of it: nil or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.
A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3% annually and such capital gains were taxed at 30%, it would generate between $190 billion and $280 billion in tax revenues, more than any other tax shelters. If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures. A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, sheltering over 40% of their profits from U.S. taxes.
Definitions
The Organisation for Economic Co-operation and Development (OECD) identifies three key factors in considering whether a jurisdiction is a tax haven:
- Nil or only nominal taxes. Tax havens impose nil or only nominal taxes (generally or in special circumstances) and offer themselves, or are perceived to offer themselves, as a place to be used by non-residents to escape high taxes in their country of residence.
- Protection of personal financial information. Tax havens typically have laws or administrative practices under which businesses and individuals can benefit from strict rules and other protections against scrutiny by foreign tax authorities. This prevents the transmittance of information about taxpayers who are benefiting from the low tax jurisdiction.
- Lack of transparency. A lack of transparency in the operation of the legislative, legal or administrative provisions is another factor used to identify tax havens. The OECD is concerned that laws should be applied openly and consistently, and that information needed by foreign tax authorities to determine a taxpayer’s situation is available. Lack of transparency in one country can make it difficult, if not impossible, for other tax authorities to apply their laws effectively. ‘Secret rulings’, negotiated tax rates, or other practices that fail to apply the law openly and consistently are examples of a lack of transparency. Limited regulatory supervision or a government’s lack of legal access to financial records are contributing factors.
In deciding whether or not a jurisdiction is a tax haven, the first factor to look at is whether there are no or nominal taxes. If this is the case, the other two factors – whether or not there is an exchange of information and transparency – must be analyzed. Having no or nominal taxes is not sufficient, by itself, to characterize a jurisdiction as a tax haven. The OECD recognizes that every jurisdiction has a right to determine whether to impose direct taxes and, if so, to determine the appropriate tax rate.
Extent
While incomplete, and with the limitations discussed below, the available statistics nonetheless indicate that offshore banking is a very sizeable activity. In 2007 the OECD estimated that capital held offshore amounted to between US$5 trillion and US$7 trillion, making up approximately 6–8% of total global investments under management. A recent report (2012) by Tax Justice Network (an anti-tax haven pressure group) places the estimate considerably higher: between US$21 trillion and US$32 trillion (between 24-32% of total global investments). A report by the IMF in 2000 based upon interbank settlement figures estimated the crossborder cash held on-balance sheet at US$4.6 billion, although this included major U.S. and European financial centres.
A Wall Street Journal study of 60 large US companies found that they deposited $166 billion in offshore accounts in 2012, sheltering over 40% of their profits from U.S. taxes.
A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3% annually and such capital gains were taxed at 30%, it would generate between $190 billion and $280 billion in tax revenues, more than any other tax shelters. If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures. If true, those sums would amount to approximately 5 to 8 times the total amount of currency presently in circulation in the world. Daniel J. Mitchell of the Cato Institute says that the report also assumes, when considering notional lost tax revenue, that 100% money deposited offshore is evading payment of tax.
The International Monetary Fund produced calculations based on Bank for International Settlements data suggest that for selected offshore financial centres, on-balance sheet cross-border assets held in offshore financial centres reached a level of US$4.6 trillion at end-June 1999 (about 50 percent of total cross-border assets). Of that US$4.6 trillion, US$0.9 trillion was held in the Caribbean, US$1 trillion in Asia, and most of the remaining US$2.7 trillion accounted for by the major International Finance Centres (IFCs), namely London, the U.S. IBFs, and the Japanese offshore market.
A 2006 academic paper indicated that: "in 1999, 59% of U.S. firms with significant foreign operations had affiliates in tax haven countries", although they did not define "significant" for this purpose.
A January 2009 U.S. Government Accountability Office (GAO) report said that the GAO had determined that 83 of the 100 largest U.S. publicly traded corporations and 63 of the 100 largest contractors for the
U.S. federal government were maintaining subsidiaries in countries generally considered havens for avoiding taxes. The GAO did not review the companies' transactions to independently verify that the subsidiaries helped the companies reduce their tax burden, but said only that historically the purpose of such subsidiaries is to cut tax costs.
In 2011, the Caribbean Banking Centers which include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama held almost two trillion dollars in United States debt.
A 2012 study by the Tax Justice Network gave an indication of the amount of money that is sheltered by wealthy individuals in tax havens. Conservatively, it estimated that a fortune of $21 trillion is stashed away in off-shore accounts, $9.8 trillion alone by the top tier, - less than 100,000 people who each own financial assets of $30 million or more. The report indicated that this hidden money results in a "huge" lost tax revenue - a "black hole" in the economy -, and many countries would become creditors instead of being debtors if the money of their tax evaders would be taxed.
Further, this system of tax evasion is "basically designed and operated" by a group of highly paid specialists from the world’s largest private banks (led by UBS, Credit Suisse and Goldman Sachs), law offices, and accounting firms and tolerated by international organizations such as Bank for International Settlements, the International Monetary Fund, the World Bank, the OECD and the G20. The amount of money hidden away has significantly increased since 2005, sharpening the divide between the superrich and the rest of the world.
Lost Tax Revenues
The Tax Justice Network in its 2012 report said global tax revenue lost to tax havens is between USD $190 billion and $255 billion per year, assuming a 3% rate and a 30% rate. Citizens for Tax Justice said that countries reporting 43% of the $940 billion of overseas profits declared by U.S. multinational corporations only made 7% of their investments overseas.
2007 estimates by the OECD suggested that capital held offshore amounted to somewhere between US$5 trillion and US$7 trillion, making up approximately 6–8% of total global investments under management. Of this, approximately US$1.4 trillion is estimated to be held in the Cayman Islands alone. In October 2009, research commissioned from Deloitte for the Foot Review of British Offshore Financial Centres (London is a tax haven for much of Europe, Asia, and South America, it should be noted) said that much less tax had been lost to tax havens than previously had been thought. The report indicated "We estimate the total UK corporation tax potentially lost to avoidance activities to be up to £2 billion per annum, although it could be much lower." An earlier report by the U.K. Trades Union Congress, concluded that tax avoidance by the 50 largest companies in the FTSE 100 was depriving the UK Treasury of approximately £11.8 billion.
The report also stressed that British Crown Dependencies make a "significant contribution to the liquidity of the UK market". In the second quarter of 2009, they provided net funds to banks in the UK totalling $323 billion (£195 billion), of which $218 billion came from Jersey, $74 billion from Guernsey and $40 billion from the Isle of Man.
Examples
The U.S. National Bureau of Economic Research has suggested that roughly 15% of countries in the world are tax havens, that these countries tend to be small and affluent, and that better governed and regulated countries are more likely to become tax havens, and are more likely to be successful if they become tax havens.
No two commentators can generally agree on a "list of tax havens", but the following countries are commonly cited as falling within the "classic" perception of a sovereign tax haven.
- Andorra
- Bahamas
- Cyprus
- Liechtenstein
- Luxembourg
- Monaco
- Panama
- Samoa
- San Marino
- Seychelles
- Ireland
- Netherlands
- Switzerland
British Crown Dependency
- Guernsey
- Jersey
- Isle of Man
- Bermuda
- British Virgin Islands
- Cayman Islands, British Overseas Territory
- Turks and Caicos Islands
- Campione d’Italia, Italy
- Kurdistan, Iraq
- Cuacao (Netherlands)
- Labuan, Malaysia
- Jebel Ali Free Zone, United Arab Emirates
- Alaska, United States
- Delaware, United States
- Florida, United States
- Nevada, United States
- Texas, United States
- South Dakota, United States
- United States Virgin Islands (United States)
- Washington, United States
- Wyoming, United States
Incentives for Nations to Become Tax Havens
There are several reasons for a nation to become a tax haven. Some nations may find they do not need to charge as much as some industrialized countries in order for them to be earning sufficient income for their annual budgets. Some may offer a lower tax rate to larger corporations, in exchange for the companies locating a division of their parent company in the host country and employing some of the local population.
Other domiciles find this is a way to encourage conglomerates from industrialized nations to transfer needed skills to the local population. Still yet, some countries simply find it costly to compete in many other sectors with industrialized nations and have found a low tax rate mixed with a little self-promotion can go a long way to attracting foreign companies.
Many industrialized countries claim that tax havens act unfairly by reducing tax revenue which would otherwise be theirs. Various pressure groups also claim that money launderers also use tax havens extensively, although extensive financial and know your customer regulations in tax havens can actually make money laundering more difficult than in large onshore financial centers with significantly higher volumes of transactions, such as New York City or London.
In 2000, the Financial Action Task Force published what came to be known as the "FATF Blacklist" of countries which were perceived to be uncooperative in relation to money laundering; although several tax havens have appeared on the list from time to time (including key jurisdictions such as the Cayman Islands, Bahamas and Liechtenstein), no offshore jurisdictions appear on the list at this time.
http://en.wikipedia.org/wiki/Tax_haven
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