Tax haven From Wikipedia, the free encyclopedia

President Barack Obama speaks on tax havens an...

President Barack Obama speaks on tax havens and unfair tax breaks at the White House. (Photo credit: Wikipedia)

English: Map of tax havens, using the 2007 pro...

English: Map of tax havens, using the 2007 proposed “Stop Tax Haven Abuse Act”, US Congress, list of tax havens (Photo credit: Wikipedia)

Tax haven

From Wikipedia, the free encyclopedia

Map of tax havens, using the 2007 proposed “Stop Tax Haven Abuse Act“, US Congress, list of tax havens

The ratio of German assets in tax havens in relation to the total German GDP.[1] The “Big 7” shown are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland.

tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all.[2] 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 typicalinternational 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.[3] States that are sovereign or self-governing underinternational 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 Economistpoints out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens.[4] Similarly, others have suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven.[5]

According to other definitions,[6] 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,[7] 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 anoffshore 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.[8] If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations.[9] However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures.[10] 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.[11]


An aspect of fiscal policy

The Organisation for Economic Co-operation and Development (OECD) identifies three key factors in considering whether a jurisdiction is a tax haven:[12]

  1. 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.
  2. 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.
  3. 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.

However the OECD found that its definition caught certain aspects of its members’ tax systems (some countries have low or zero taxes for certain favored groups). Its later work has therefore focused on the single aspect of information exchange. This is generally thought to be an inadequate definition of a tax haven, but is politically expedient because it includes the small tax havens (with little power in the international political arena) but exempts the powerful countries with tax haven aspects such as the USA and UK.[13]

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.


Global distribution
of net financial assets[14]
Individuals with
financial assets
Total liquid net
worth ($Tr.)
Amount of which
offshore ($Tr.)
> $30MM $16.7 $9.8
$5 – $30MM $10.7 $5.1
$1 – $5MM $17.4 $4.7
All > $1MM $44.8 $19.6
Rest < $1MM $10.3 $1.0
Total $55.1 $20.6

While incomplete, and with the limitations discussed below, the available statistics nonetheless indicate that offshore banking is a very sizeable activity. In 2007 theOECD 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.

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.[11]

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.[8] If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations.[9] However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures.[10] 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.[15]

The International Monetary Fund produced calculations based on Bank for International Settlements data suggest that for selectedoffshore 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.[16]

A 2006 academic paper indicated that: “in 1999, 59% of U.S. firms with significant foreign operations had affiliates in tax haven countries”,[17] 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.[18]

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.[19]

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.[20][21][22] 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.[20][21][22]

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 UBSCredit 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.[20][21][22]

Lost tax revenue[edit]

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% capital gains rate and a 30% capital gains tax rate.[8] 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.[23]

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.[24] 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.[25]

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.[25]


This section needs additional citations for verification. Please help improve this articleby adding citations to reliable sources. Unsourced material may be challenged and removed.(March 2013)

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.[26]

No two commentators can generally agree on a “list of tax havens”, but the following countries are commonly cited[by whom?] as falling within the “classic” perception of a sovereign tax haven.

Other sovereign countries that have such low tax rates and lax regulation that they can be considered semi-tax havens[27] are :

Non-sovereign jurisdictions commonly labelled as tax havens include:

Some tax havens including some of the ones listed above do charge income tax as well as other taxes such as capital gains, inheritance tax, and so forth. Criteria distinguishing a taxpayer from a non-taxpayer can include citizenship and residency and source of income. For example, in the United States foreign nonresidents are not charged various taxes[29] including income tax on interest on U.S. bank deposits by income tax; since the Clinton administration the IRS has proposed collecting information on these depositors to share with their home countries as a regulation; these regulations were eventually finalized in April 17, 2012.[30]

On 10 September 2013 British Prime Minister David Cameron said “I do not think it is fair any longer to refer to any of the Overseas Territories or Crown Dependencies as tax havens. They have taken action to make sure that they have fair and open tax systems. It is very important that our focus should now shift to those territories and countries that really are tax havens.”[31] Mr Cameron’s comments were interpreted as a direct reference to Jersey, Guernsey, Isle of Man, the British Virgin Islands and the Cayman Islands, and followed a period of negotiations with those (and other) British territories during which those jurisdictions had made a number of concessions relating to tax transparency and sharing of information.[32] Anti-tax haven pressure groups immediately accused the Prime Minister of taking leave of his senses, and commenting sarcastically “It was Cameron’s father’s tax haven activities that are repotted [sic] to have paid for his Eton education. Was it ever realistic to think he’d change his spots?”.[33]

Former tax havens[edit]

  • BeirutLebanon formerly had a reputation as the only tax haven in the Middle East. However, this changed after the Intra Bankcrash of 1966,[34] and the subsequent political and military deterioration of Lebanon dissuaded foreign use as a tax haven.
  • Liberia had a prosperous ship registration industry. The series of violent and bloody civil wars in the 1990s and early 2000s severely damaged confidence in the jurisdiction. The fact that the ship registration business still continues is partly a testament to its early success, and partly a testament to moving the national Shipping Registry to New York, United States.
  • Tangier had a brief but colorful existence as a tax haven in the period between the end of effective control by the Spanish in 1945 until it was formally reunited with Morocco in 1956.
  • A number of Pacific based tax havens have ceased to operate as tax havens in response to OECD demands for better regulation and transparency in the late 1990s. Vanuatu‘s Financial Services commissioner announced in May 2008 that his country would reform its laws so as to cease being a tax haven. “We’ve been associated with this stigma for a long time and we now aim to get away from being a tax haven.”[35]
  • As of March 2013, major Cyprus banks have sustained severe damage from Greek bond defaults and (at least temporarily) closed their doors in an attempt to stem a flight of capital from the island. Depositors are expected to incur heavy losses.[36]


At the risk of gross oversimplification, it can be said that the advantages of tax havens are viewed in the following four principal contexts:[37]

Personal residency[edit]

Since the early 20th century, wealthy individuals from high-tax jurisdictions have sought to relocate themselves in low-tax jurisdictions. In most countries in the world, residence is the primary basis of taxation – see Tax residence. In some cases the low-tax jurisdictions levy no, or only very low, income tax. But almost no tax haven assesses any kind of capital gains tax, or inheritance tax. Individuals who are unable to return to a higher-tax country in which they used to reside for more than a few days a year are sometimes referred to as tax exiles.

Asset holding[edit]

Asset holding involves utilizing a trust or a company, or a trust owning a company. The company or trust will be formed in one tax haven, and will usually be administered and resident in another. The function is to hold assets, which may consist of a portfolio of investments under management, trading companies or groups, physical assets such as real estate or valuable chattels. The essence of such arrangements is that by changing the ownership of the assets into an entity which is not resident in the high-tax jurisdiction, they cease to be taxable in that jurisdiction. Often the mechanism is employed to avoid a specific tax. For example, a wealthy testator could transfer his house into an offshore company; he can then settle the shares of the company on trust (with himself being a trustee with another trustee, whilst holding the beneficial life estate) for himself for life, and then to his daughter. On his death, the shares will automatically vest in the daughter, who thereby acquires the house, without the house having to go through probate and being assessed with inheritance tax.[38] (Most countries assess inheritance tax (and all other taxes) on real estate within their jurisdiction, regardless of the nationality of the owner, so this would not work with a house in most countries. It is more likely to be done with intangible assets.)

Trading and other business activity[edit]

Many businesses which do not require a specific geographical location or extensive labor are set up in tax havens, to minimize tax exposure. Perhaps the best illustration of this is the number of reinsurance companies which have migrated to Bermuda over the years. Other examples include internet based services and group finance companies. In the 1970s and 1980s corporate groups were known to form offshore entities for the purposes of “reinvoicing”. These reinvoicing companies simply made a margin without performing any economic function, but as the margin arose in a tax free jurisdiction, it allowed the group to “skim” profits from the high-tax jurisdiction. Most sophisticated tax codes now prevent transfer pricing schemes of this nature.

Financial intermediaries[edit]

Much of the economic activity in tax havens today consists of professional financial services such as mutual funds, banking, life insurance and pensions. Generally the funds are deposited with the intermediary in the low-tax jurisdiction, and the intermediary then on-lends or invests the money (often back into a high-tax jurisdiction). Although such systems do not normally avoid tax in the principal customer’s jurisdiction, it enables financial service providers to provide multi-jurisdictional products without adding an additional layer of taxation. This has proved particularly successful in the area of offshore funds.[39] This type of methodology has been used by Google and came to light in the year 2010 when it was reported that Google uses techniques called the “Double Irish” and “Dutch Sandwich” to reduce its corporate income tax to 2.4%, by funnelling its corporate income through Ireland and from there to a shell in the Netherlands where it can be transferred to Bermuda, which has no corporate income tax. The search engine is using Ireland as a conduit for revenues that end up being costed to another country where its intellectual property (the brand and technology such as Google’s algorithms) is registered. In Google’s case this country is Bermuda. In the year 2009, the internet giant made a gross profit of €5.5bn, but reported an operating profit of €45m after “administrative expenses” of €5.467bn were stripped out. Administrative expenses largely refer to royalties (or a licence fee) Google pays it Bermuda HQ for the right to operate. Google has uncovered a highly efficient tax structure across six territories that meant Google paid just 2.4% tax on operations outside the US.[40]

Anonymity and bearer shares[edit]

Bearer shares allow for anonymous ownership, and thus have been criticized for facilitating money laundering and tax evasion; these shares are also available in some OECD countries, such as in the U.S. state of Wyoming.[41]:7 In 2010, a study in which the researcher attempted to set-up anonymous corporations found that 13 of the 17 attempts were in OECD countries such as the United States and the United Kingdom while 4 of 28 attempts were successful in countries typically labeled tax havens.[42] In 2011, an OECD peer review recommended that the United Kingdom improve its bearer share laws.[43]

Money and exchange control[edit]

Most tax havens have a double monetary control system which distinguish residents from non-resident as well as foreign currency from the domestic one. In general, residents are subject to monetary controls but not non-residents. A company, belonging to a non-resident, when trading overseas is seen as non-resident in terms of exchange control.

It is possible for a foreigner to create a company in a tax haven to trade internationally; the company’s operations will not be subject to exchange controls as long as it uses foreign currency to trade outside the tax haven.

Tax havens usually have currency easily convertible or linked to an easily convertible currency. Most are convertible to US dollarseuroor to pounds sterling.

Incentives for nations to become tax havens[edit]

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. Variouspressure groups also claim that money launderers also use tax havens extensively,[44] 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.[45]

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.

Regulation measures[edit]

To avoid tax competition, many high tax jurisdictions have enacted legislation to counter the tax sheltering potential of tax havens. Generally, such legislation tends to operate in one of five ways:

  1. attributing the income and gains of the company or trust in the tax haven to a taxpayer in the high-tax jurisdiction on an arising basis. Controlled Foreign Corporation legislation is an example of this.
  2. transfer pricing rules, standardization of which has been greatly helped by the promulgation of OECD guidelines.
  3. restrictions on deductibility, or imposition of a withholding tax when payments are made to offshore recipients.
  4. taxation of receipts from the entity in the tax haven, sometimes enhanced by notional interest to reflect the element of deferred payment. The EU withholding tax is probably the best example of this.
  5. exit charges, or taxing of unrealized capital gains when an individual, trust or company emigrates.

However, many jurisdictions employ blunter rules. For example, in France securities regulations are such that it is not possible to have a public bond issue through a company incorporated in a tax haven.[46]

Also becoming increasingly popular is “forced disclosure” of tax mitigation schemes. Broadly, these involve the revenue authorities compelling tax advisors to reveal details of the scheme, so that the loopholes can be closed during the following tax year, usually by one of the five methods indicated above.[47] Although not specifically aimed at tax havens, given that so many tax mitigation schemes involve the use of offshore structures, the effect is much the same.

Anti-avoidance came to prominence in 2010/2011 as NGOs and politicians in the leading economies looked for ways of reducing tax avoidance, which plays a role in forcing unpopular cuts to social and military programs.[citation needed] The International Financial Centres Forum (IFC Forum) has asked for a balanced debate on the issue of tax avoidance and an understanding of the role that the tax neutrality of small international financial centres plays in the global economy.[48]

Modern developments[edit]

2013 data leak[edit]

In April 2013 details of thousands of owners of offshore companies were published in a joint collaboration between The Guardian and theInternational Consortium of Investigative Journalists.[49] The data was later published on a publicly accessible website in an attempt to “crowd-source” the data.[50] The publication of the list appeared to be timed to coincide with the 2013 G8 summit chaired by David Cameron which emphasised tax evasion and transparency.

Proposed U.S. legislation[edit]

The Foreign Account Tax Compliance Act (FATCA) was initially introduced to target those who evade paying U.S. taxes by hiding assets in undisclosed foreign bank accounts. With the strong backing of the Obama Administration, Congress drafted the FATCA legislation and added it into the Hiring Incentives to Restore Employment Act (HIRE) signed into law by President Obama in March 2010.

An unintended but serious problem with FATCA is that compliance is so expensive for non-US banks that they are refusing to serve American investors.[51] Concerns have also been expressed that, because FATCA operates by imposing withholding taxes on US investments, this will drive foreign financial institutions (particularly hedge funds) away from investing in the US and thereby reduce liquidity and capital inflows into the US.[52]

Key provisions of FATCA[edit]

FATCA requires foreign financial institutions (FFI) of broad scope – banks, stock brokers, hedge funds, pension funds, insurance companies, trusts – to report directly to the IRS all clients who are U.S. Persons. Starting January 1, 2013 (later delayed to 2014), FATCA will require FFIs to provide annual reports to the Internal Revenue Service (IRS) on the name and address of each U.S. client, as well as the largest account balance in the year and total debits and credits of any account owned by a U.S. person.[53] If an institution does not comply, the U.S. will impose a 30% withholding tax on all its transactions concerning U.S. securities, including the proceeds of sale of securities.

In addition, FATCA requires any foreign company not listed on a stock exchange or any foreign partnership which has 10% U.S. ownership to report to the IRS the names and tax I.D. number (TIN) of any U.S. owner.

FATCA also requires U.S. citizens and green card holders who have foreign financial assets in excess of $50,000 to complete a new Form 8938 to be filed with the 1040 tax return, starting with fiscal year 2010.[54] The delay is indicative of a controversy over the feasibility of implementing the legislation as evidenced in this paper from the Peterson Institute for International Economics.[55]

Proposed German legislation[edit]

In January 2009, Peer Steinbrück, the former German financial minister, announced a plan to amend fiscal laws. New regulations would disallow that payments to companies in certain countries that shield money from disclosure rules be declared as operative expenses. The effect of this would make banking in such states unattractive and expensive.[56]

Liechtenstein banking scandal[edit]

In February 2008, Germany announced that it had paid €4.2 million to Heinrich Kieber,[57] a former data archivist of LGT Treuhand, a Liechtenstein bank, for a list of 1,250 customers of the bank and their accounts’ details. Investigations and arrests followed relating to charges of illegal tax evasion. The German authorities shared the data with U.S. tax authorities, but the British government paid a further £100,000 for the same data.[58] Other governments, notably Denmark and Sweden, refused to pay for the information regarding it as stolen property.[59] The Liechtenstein authorities subsequently accused the German authorities of espionage.[60]

However, regardless of whether unlawful tax evasion was being engaged in, the incident has fuelled the perception amongst European governments and press that tax havens provide facilities shrouded in secrecy designed to facilitate unlawful tax evasion, rather than legitimate tax planning and legal tax mitigation schemes. This in turn has led to a call for “crackdowns” on tax havens.[61] Whether the calls for such a crackdown are mere posturing or lead to more definitive activity by mainstream economies to restrict access to tax havens is yet to be seen. No definitive announcements or proposals have yet been made by the European Union or governments of the member states.

G20 tax havens blacklist[edit]

At the London G20 summit on 2 April 2009, G20 countries agreed to define a blacklist for tax havens, to be segmented according to a four-tier system, based on compliance with an “internationally agreed tax standard.”[62] The list as per April 2 of 2009 could be viewed on the OECD Data,[63] but it was removed by 2012. The four tiers were:

  1. Those that have substantially implemented the standard (includes most countries but China still excludes Hong Kong andMacau).
  2. Tax havens that have committed to – but not yet fully implemented – the standard (includes MontserratNauruNiuePanama, and Vanuatu)
  3. Financial centres that have committed to – but not yet fully implemented – the standard (includes GuatemalaCosta Rica andUruguay).
  4. Those that have not committed to the standard (an empty category)

Those countries in the bottom tier were initially classified as being ‘non-cooperative tax havens’. Uruguay was initially classified as being uncooperative. However, upon appeal the OECD stated that it did meet tax transparency rules and thus moved it up. The Philippines took steps to remove itself from the blacklist and Malaysian Prime Minister Najib Razak had suggested earlier that Malaysia should not be in the bottom tier.[64] On April 7, 2009, the OECD, through its chief Angel Gurria, announced that Costa Rica, Malaysia, the Philippines and Uruguay have been removed from the blacklist after they had made “a full commitment to exchange information to the OECD standards.”[65]

Despite calls from the former French President Nicolas Sarkozy for Hong Kong and Macau to be included separately from China on the list, they are as yet not included independently, although it is expected that they will be added at a later date.[62]

Government response to the crackdown has been broadly supportive, although not universal.[66] Luxembourg Prime Minister Jean-Claude Juncker has criticised the list, stating that it has “no credibility”, for failing to include various states of the U.S.A. which provide incorporation infrastructure which are indistinguishable from the aspects of pure tax havens to which the G20 object.[67] As of 2012, 89 countries have implemented reforms sufficient to be listed on the OECD’s white list.[68]

According to Transparency International half of the least corrupted countries were tax havens.[69]

Foot report[edit]

In November 2009 Michael Foot delivered a report on the British Crown Dependencies and Overseas Territories for HM Treasury.[70] The report indicated that whilst many of the territories “had a good story to tell”, others needed to improve in detection and prevention of financial crime. It also stressed the view that narrow tax bases presented long term strategic risks, and that the economies should seek to diversify and broaden their own tax bases. The report also indicated that tax revenue lost by the United Kingdom government appeared to be much smaller than had previously estimated (see above under Lost tax revenue), and also stressed the importance of the liquidity provided by the territories to the United Kingdom. The Crown Dependencies and Overseas Territories broadly welcomed the report,.[71]


Tax havens have been criticized because they often result in the accumulation of idle cash[72] which is expensive and inefficient for companies to repatriate.[73] The tax shelter benefits result in a tax incidence disadvantaging the poor.[74] Many tax havens are thought to have connections to “fraud, money laundering and terrorism.”[75] While investigations of illegal tax haven abuse have been ongoing, there have been few convictions.[76][77] Lobbying pertaining to tax havens and associated transfer pricing has also been criticized.[78]

Some politicians, such as magistrate Eva Joly, have begun to stand up against the use of tax havens by large companies. She describes the act of avoiding tax as a threat to democracy.[79]

Accountants‘ opinions on the propriety of tax havens have been evolving,[80] as have the opinions of their corporate users,[81]governments,[82][83] and politicians,[84][85] although their use by Fortune 500 companies[86] and others remains widespread.[87] Reform proposals centering on the Big Four accountancy firms have been advanced.[88] Some governments appear to be using computerspyware to scrutinize some corporations’ finances.[89]


The use of differing tax laws between two or more countries to try to mitigate tax liability is probably as old as taxation itself. In Ancient Greece, some of the Greek Islands were used as depositories by the sea traders of the era to place their foreign goods to thus avoid the two-percent tax imposed by the city-state of Athens on imported goods. It is sometimes suggested that the practice first reached prominence through the avoidance of the Cinque ports and later the staple ports in the twelfth and fourteenth centuries respectively. In 1721, American colonies traded from Latin America to avoid British taxes.

Various countries claim to be the oldest tax haven in the world. For example, the Channel Islands claim their tax independence dating as far back as Norman Conquest, while the Isle of Man claims to trace its fiscal independence to even earlier times. Nonetheless, the modern concept of a tax haven is generally accepted to have emerged at an uncertain point in the immediate aftermath of World War I.[90] Bermuda sometimes optimistically claims to have been the first tax haven based upon the creation of the first offshore companieslegislation in 1935 by the newly created law firm of Conyers Dill & Pearman.[91] However, the Bermudian claim is debatable when compared against the enactment of a Trust Law by Liechtenstein in 1926 to attract offshore capital.[92]

Most economic commentators suggest that the first “true” tax haven was Switzerland, followed closely by Liechtenstein.[93] Swiss banks had long been a capital haven for people fleeing social upheaval in Russia, Germany, South America and elsewhere. However, in the early part of the twentieth century, in the years immediately following World War I, many European governments raised taxes sharply to help pay for reconstruction efforts following the devastation of World War I. By and large, Switzerland, having remained neutral during the Great War, avoided these additional infrastructure costs and was consequently able to maintain a low level of taxes. As a result, there was a considerable influx of capital into the country for tax related reasons. It is difficult, nonetheless, to pinpoint a single event or precise date which clearly identifies the emergence of the modern tax haven.

Until the 1950s, tax havens were used to avoid personal taxation,[citation needed] but since then jurisdictions have come to focus on attracting companies with low or no corporate tax. Centres which focus on providing financial services to corporations rather than private wealth management are more often known as offshore financial centres.

This strategy generally relied on double taxation treaties between large jurisdictions and the tax haven, allowing corporations to structure group ownership through the smaller jurisdiction to reduce tax liability. However, some of these double-tax treaties survive, for example a double-taxation treaty still exists between Barbados and Japan, as well as another between Cyprus and Russia.

In the early to mid-1980s, most tax havens changed the focus of their legislation to create corporate vehicles which were “ring-fenced” and exempt from local taxation (although they usually could not trade locally either). These vehicles were usually called “exempt companies” or “international business corporations“. However, in the late 1990s and early 2000s, the OECD began a series of initiatives aimed at tax havens to curb the abuse of what the OECD referred to as “unfair tax competition“. Under pressure from the OECD, most major tax havens repealed their laws permitting these ring-fenced vehicles to be incorporated, but concurrently they amended their tax laws so that a company which did not actually trade within the jurisdiction would not accrue any local tax liability.[94]

See also[edit]


  1. Jump up^ Shafik Hebous (2011) “Money at the Docks of Tax Havens: A Guide”, CESifo Working Paper Series No. 3587, p. 9
  2. Jump up^ Dharmapala, Dhammika und Hines Jr., James R. (2006)Which Countries Become Tax Havens?
  3. Jump up^ Moran Harari, Markus Meinzer and Richard Murphy (October 2012) “Financial Secrecy, Banks and the Big 4 Firms of Accountants” Tax Justice Network
  4. Jump up^ Doggart, Caroline. 2002. Tax Havens and Their Uses(originally published 1970), Economist Intelligence Unit, ISBN 0-86218-163-1
  5. Jump up^ Davidson, Sinclair (2007-10-15). “The Truth About Tax Havens – retrieved 28 December 2007”. Melbourne: Retrieved 2011-03-22.
  6. Jump up^ “The Truth About Tax Havens – retrieved 28 December 2007” (PDF). Retrieved 2011-03-22.
  7. Jump up^ International Taxation: Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions GAO:GAO-09-157″.Government Accountability Office. December 18, 2008. Retrieved 2009-01-21.
  8. Jump up to:a b c Tax Justice Network (July 22, 2012) “Revealed: Global super-rich has at least $21 trillion hidden in secret tax havens”
  9. Jump up to:a b Canadian Broadcasting Co. (July 22, 2012) “Wealthy hiding $21 trillion in tax havens, report says”
  10. Jump up to:a b John Whiting, tax policy director at the Chartered Institute of Taxation commented “There clearly are some significant amounts hidden away, but if it really is that size what is being done with it all?” and “If the suggestion is that such amounts are actively hidden and never accessed, that seems odd – not least in terms of what the tax authorities are doing. In fact, the US, UK and German authorities are doing a lot”, and noting that if the figures were accurate “you would expect the havens to be more conspicuously wealthy than they are”. However, he also admitted that “I cannot disprove the figures at all, but they do seem staggering” “Tax havens: Super-rich ‘hiding’ at least $21tn”. 2012-07-22. Retrieved 2012-10-03.
  11. Jump up to:a b Scott Thurm; Kate Linebaugh (March 10, 2013). “More U.S. Profits Parked Abroad, Saving on Taxes”Wall Street Journals. Retrieved 19 March 2013.
  12. Jump up^ “Tax Haven Criteria – retrieved 26 February 2008 Tax Haven Criteria”. Retrieved 2011-03-22.
  13. Jump up^ Hay, Towards a level playing field – regulating corporate vehicles in cross border transactions[1]
  14. Jump up^
  15. Jump up^ “Fighting Anti-Tax Haven Demagoguery on CNN”. 2012-07-30. Retrieved 2012-10-03.
  16. Jump up^ “Offshore Financial Centers”, International Monetary Fund background paper, June 23, 2000
  17. Jump up^ Desai, Foley and Hines, “The demand for tax haven operations”, Journal of Public Economics 90 (2006), page 514.
  18. Jump up^ Carol D. Leonnig (January 16, 2009). “Report Finds Major U.S. Companies Have Offshore Tax Havens”Washington Post.
  19. Jump up^ “U.S. Banking Liabilities to Foreigners.”. Retrieved 2011-03-22.
  20. Jump up to:a b c “13 trillion pounds in offshore tax havens: Report”. The Times of India. July 22, 2012. Retrieved July 22, 2012.
  21. Jump up to:a b c “Super rich hold $32 trillion in offshore havens”. Reuters. July 22, 2012. Retrieved July 22, 2012.
  22. Jump up to:a b c “Tax havens: Super-rich ‘hiding’ at least $21tn”. BBC. July 22, 2012. Retrieved July 22, 2012.
  23. Jump up^ “US Firms Stash Tens of Billions in Tax Havens, Government Says” Nation of Change, February 1, 2013
  24. Jump up^ “Places in the sun”The Economist, February 22, 2007. This may be a slight underestimate: according to the Cayman Islands Monetary Authority, Caymanian licensed banks held US$1.725 trillion in deposits as of September 2011“Banking statistics”. Retrieved 2013-02-14.
  25. Jump up to:a b The Times (2009-10-30). “Tax haven report lays emphasis on vital role of Crown Dependencies”. London. Retrieved 2009-11-02.
  26. Jump up^ Working paper 12802, [2]. The paper implicitly adopts the “smaller” tax haven approach, i.e., disregarding larger countries which have either low taxes rates (for example, Russia), or systems of taxation which permit them to be used to structure tax avoidance schemes (for example, the United Kingdom). It also excludes non-sovereign tax havens (for example,Delaware or Labuan).
  27. Jump up^ “Unite’s Notes On The Front: Tax Haven Dictionary”. 2013-05-27. Retrieved 2013-07-03.
  28. Jump up^ “Treasure Ireland | Robert Nielsen”. Retrieved 2013-07-03.
  29. Jump up^ “Nonresident Aliens – Exclusions From Income”.
  30. Jump up^ “Daily Tax Update – April 17, 2012: Final Regs Requiring Reporting of Bank Deposit Interest Paid to Non-Resident Aliens Issued”. Steptoe & Johnson LLP.
  31. Jump up^ International Adviser (12 September 2013). “Jersey, Guernsey, IoM revel in Cameron’s ‘not tax havens’ comments”.BBC News (10 September 2013). “David Cameron: Crown dependency tax haven banner ‘not fair'”.
  32. Jump up^ BBC News (15 June 2013). “‘Tax havens’ agree to clampdown on tax avoidance and evasion”.
  33. Jump up^ Tax Reseach UK (10 September 2013). “David Cameron takes leave of his senses as he declares the UK has no tax havens left”.
  34. Jump up^ “Election Under Fire”. Time Magazine. 1976-05-17. Retrieved 2006-12-23.
  35. Jump up^ “Vanuatu to ditch tax haven”, Anthony Klan, The Australian, May 6, 2008
  36. Jump up^ Kambas, Michele. “Cyprus closes in on EU bailout, U-turn on levy”. Reuters. Retrieved 2013-07-03.
  37. Jump up^ Tolley’s Offshore Service (2006), ISBN 1-4057-1568-5
  38. Jump up^ This is a simplistic example; in most sophisticated tax codes there are extensive provisions for catching “gifts” (such as adeclaration of trust) made for a specified time preceding death.
  39. Jump up^ It has been estimated over 75% of the world’s hedge funds(probably the riskiest form of collective investment vehicle) are domiciled in the Cayman Islands, with nearly $1.1 trillion USAUM – Institutional Investor, 15 May 2006, although statistics in the hedge fund industry are notoriously speculative.
  40. Jump up^ Drucker J. (2010). The Tax Haven That’s Saving Google BillionsBusiness Week.
  41. Jump up^ Gravelle JG. (2013). Tax Havens: International Tax Avoidance and Evasion. CRS.
  42. Jump up^ Sharman JC. (2010). Shopping for Anonymous Shell Companies: An Audit Study of Anonymity and Crime in the International Financial SystemJournal of Economic Perspectives.
  43. Jump up^ Bearer shares and delays blot UK record on information exchangeTax Journal.
  44. Jump up^ Such as ATTAC and the Tax Justice Network. See for example: Offshore watch
  45. Jump up^ See for example the views expressed in The Guardian in 2001.
  46. Jump up^ Companies incorporated in tax havens are often used as bond issuing vehicles in securitisations for tax reasons.
  47. Jump up^ “The United Kingdom is one country that has strict forced disclosure rules”. 2011-06-28. Retrieved 2013-07-03.
  48. Jump up^ “Statement on tax avoidance debate. IFC Forum”. Retrieved 18 March 2011.
  49. Jump up^ Yahoo! News (2013-04-05). “Tax haven data leak names names, raises questions”.
  50. Jump up^ The Guardian (2013-06-15). “Offshore Leaks app puts secret users of tax havens in the public eye”.
  51. Jump up^ Spiegel Online (2011-12-14). “European banks stop serving American customers”. Retrieved 2011-21-31.
  52. Jump up^ “Another approach would involve some global funds avoiding American assets entirely. That can hardly be what Congress had in mind.” The Economist (2011-11-26). “Scratched by the FATCA”. Retrieved 2012-07-16.
  53. Jump up^ U.S. Internal Revenue Service (2011-07-14). “Treasury and IRS Issue Guidance Outlining Phased Implementation of FATCA Beginning in 2013”. Retrieved 2011-08-25.
  54. Jump up^ “For most individual taxpayers, this means they will start filing Form 8938 with their 2011 income tax return to be filed this coming tax filing season.”U.S. Internal Revenue Service (2012-01-25). “Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets”?”. Retrieved 2012-07-03.
  55. Jump up^ “Gary Clyde Hufbauer: The Foreign Account Tax Compliance Act: Imperial Overreach”. 2011-07-22. Retrieved 2011-08-25.
  56. Jump up^ Der Spiegel (2009-01-17). “Steinbrück forciert Kampf gegen Steuerparadiese” (in German). Retrieved 2009-01-17.
  57. Jump up^ Mr Kieber seems to be an unlikely hero for law enforcement authorities. A convicted fraudster, reports indicate that after initially stealing the information, he blackmailed the Liechtenstein authorities into reducing and dropping criminal charges against him relating to property fraud in Spain. However, before returning the disks he made copies which he later sold to foreign governments after he left the country. Further reports indicate that he now lives under a new name in Australia.[3]
  58. Jump up^ The Guardian, 2 March 2008The Daily Telegraph, 27 February 2008Der Spiegel, 25 February 2008
  59. Jump up^ Denmark‘s tax minister, Kristian Jensen, said: “I think it’s a moral problem to reward a criminal for some information that he stole… I don’t like this and I don’t think this ethic is the best way to ensure that taxes are paid correctly.”
  60. Jump up^ By Harry de Quetteville 12:01AM GMT 20 Feb 2008 (2008-02-20). “”The Daily Telegraph”, 26 February 2008″. London: Retrieved 2011-03-22.
  61. Jump up^ Accountancy Age, 3 March 2008The Times, 9 March 2008The Guardian, 5 March 2008
  62. Jump up to:a b G20 declares door shut on tax havensThe Guardian, April 2, 2009
  63. Jump up^ “OECD List as per 2009-04-02” (PDF). Retrieved 2011-03-22.
  64. Jump up^ “OECD names and shames tax havens”. BBC News. 2009-04-03. Retrieved 2009-04-04.
  65. Jump up^ BBC (2009-04-07). “OECD removes tax havens from list”. BBC News. Retrieved 2009-04-07.
  66. Jump up^ Butler, Eamonn (2009-04-12). “Save the tax havens – we need them”. London: The Times. Retrieved 2009-04-14.
  67. Jump up^ Clark, Andrew (2009-04-10). “Welcome to tax-dodge city, USA”. London: The Guardian. Retrieved 2009-04-14.
  68. Jump up^ “Tax haven clampdown yields cash but secrecy still thrives.”Reuters, 26 July 2012.
  69. Jump up^ Transparency – Hyvät veljet kahvilla Voima April 2013
  70. Jump up^ “Michael Foot publishes final report”HM Treasury. 2009-10-29. Retrieved 2009-11-05.
  71. Jump up^ “Governor and Premier Welcome Michael Foot Review Conclusions”. 2009-10-30. Retrieved 2009-11-05.[dead link]
  72. Jump up^ “Idle cash piles up: David Cay Johnston” Reuters, July 16, 2013
  73. Jump up^ “Repatriating Offshore Funds” U.S. Senate Committee on Homeland Security and Governmental Affairs, Permanent Subcommittee on Investigations, October 11, 2011
  74. Jump up^ “Picking Up the Tab” U.S. Public Interest Research Group, April 2012
  75. Jump up^ “These Islands Aren’t Just a Shelter From Taxes” New York Times, May 5, 2012
  76. Jump up^ “Super Rich Tax Cheats” American News Project, January 8, 2009
  77. Jump up^ “‘A green light to tax evasion’: Super-rich tax dodgers given immunity from prosecution” Daily Mirror, November 3, 2012
  78. Jump up^ “If you want to know who’s really keeping billions in poverty, then the answer is the partners in the Big 4 firms of accountants” Tax Justice Network, April 5, 2012
  79. Jump up^ “Tax Free documentary by Marije Meerman”. 2009-10-25. Retrieved 2013-07-03.
  80. Jump up^ “Tax avoidance: fair or foul?” Accountancy Age Debates, January 14, 2013
  81. Jump up^ “Google will not oppose clampdown on tax avoidance, chairman says” Guardian, January 28, 2013
  82. Jump up^ “Tax avoidance isn’t a left or right issue, it’s a cancer eating our democracy” New Statesman, June 21, 2012
  83. Jump up^ “Helsinki Boycotts Tax Havens”Inter Press Service, October 6, 2012
  84. Jump up^ “David Cameron: Tax avoiding foreign firms like Starbucks and Amazon lack ‘moral scruples'” The Telegraph, January 4, 2013
  85. Jump up^ “Germany’s Merkel calls for G8 fight against tax havens”Reuters, February 13, 2013
  86. Jump up^ “Which Fortune 500 Companies Are Sheltering Income in Overseas Tax Havens?” Citizens for Tax Justice, October 17, 2012
  87. Jump up^ “Speaker Biographies” Networking Seminars, February 2013
  88. Jump up^ “Britain could end these tax scams by hitting the big four”The Guardian, December 10, 2012
  89. Jump up^ “Did the Bounds of Cyber War Just Expand to Banks and Neutral States?” The Atlantic, August 17, 2012
  90. Jump up^ “[T]he tax haven is a creature of the twentieth century, and began to be used extensively because of the high levels of tax which prevailed after the First World War” at para 26.1, Tolley’s International Tax Planning (2002), ISBN 0-7545-1339-4
  91. Jump up^ See generally Introduction to Tolley’s International Initiatives Affecting Financial Havens (2001), ISBN 0-406-94264-1
  92. Jump up^ The Personen- und Gesellschaftsrecht of 20 January 1926
  93. Jump up^ Tolley’s Tax Havens (2000), ISBN 0-7545-0471-9
  94. Jump up^ For example, the British Virgin Islands repealed theInternational Business Companies Act (Cap 291) (which had prohibited such companies from trading locally) and enacted the BVI Business Companies Act 2004 (which permitted this) in its place. Contemporaneously it varied its tax laws by amending the Income Tax Act (Cap 206), which amended the rate of income tax for individuals and corporations to zero, along with the Payroll Taxes Act 2004 which imposed a (new) payroll tax on person employed by businesses within the British Virgin Islands.

Further reading[edit]

  • Baker, Raymond W. (August 2005). Capitalism’s Achilles’ Heel: Dirty Money, and How to Renew the Free-Market System. Hoboken, New Jersey: John Wiley & Sons. ISBN 978-0-471-64488-0.
  • Henry, James S. (October 2003). The Blood Bankers: Tales from the Global Underground Economy. New York, NY: Four Walls Eight Windows. ISBN 978-1-56858-254-2.
  • Morriss, Andrew P. (2010). Offshore Financial Centers and Regulatory Competition. Washington: The AEI Press. ISBN 978-0-8447-4324-0.
  • Scevola, Carlo; Sneiderova, Karina (January 2010). Offshore Jurisdictions Guide. Geneva, Switzerland: CS&P Fiduciaire. ISBN 978-1-60594-433-3.
  • Shaxson, Nicholas (April 2011). Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens. New York, NY: Palgrave Macmillan. ISBN 978-0-230-10501-0.

External links[edit]

Look up tax haven in Wiktionary, the free dictionary.

One thought on “Tax haven From Wikipedia, the free encyclopedia

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