Tax haven

British Overseas Territories (at the same geographic scale)

List of sink-OFCs, ordered by sink centrality value

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HMRC offshore evasion poster February 2014

Paul Krugman at the German National Library in Frankfurt

Where do U.S. multinationals book their profits (2016 BEA)

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U.S. corporate profits booked in tax havens

Tax haven is a jurisdiction or country that offers foreign individuals and businesses little to no tax liability in a politically and economically stable environment. Tax havens do not require businesses to operate out of their country or the individuals to reside there to benefit from their tax policies. This makes them attractive destinations for tax avoidance and tax evasion, although the former is legal and the latter is not.

Characteristics

Tax havens share several characteristics, although not all havens have all characteristics. They typically have:

• No or low income tax, corporate tax, capital gains tax, and wealth tax.
• Strict bank secrecy laws, making it difficult for foreign tax authorities to obtain account information.
• A lack of transparency in the operation of legislative, legal, or administrative provisions.
• No requirement for a substantial presence of the business in the jurisdiction.
• The use of shell companies, trusts, and other types of legal entities to obscure ownership and financial dealings.

Types of Tax Havens

Tax havens can be categorized into several types, including:

• Corporate Tax Havens: These are attractive to companies looking to incorporate their operations in a jurisdiction with low or zero corporate tax rates.
• Individual Tax Havens: These cater to individuals seeking to reduce their tax liabilities on personal income, inheritance, or investments.
• Banking Tax Havens: Known for their strict bank secrecy laws, these havens are used to hide assets or income from tax authorities.

Criticism and Controversy

Tax havens are subject to criticism and controversy for several reasons:

• They are seen as undermining the fairness of the global tax system by allowing wealthy individuals and corporations to avoid paying their fair share of taxes.
• They contribute to global inequality by facilitating the accumulation of wealth in the hands of a few.
• They can encourage illegal activities such as money laundering and tax evasion.
• They can put pressure on governments to reduce their tax rates in a "race to the bottom," potentially reducing the funds available for public services.

Global Response

In response to the challenges posed by tax havens, international organizations such as the Organisation for Economic Co-operation and Development (OECD) and the European Union (EU) have taken steps to increase transparency and cooperation among tax jurisdictions. Initiatives include the Common Reporting Standard (CRS) for the automatic exchange of information and the EU's list of non-cooperative jurisdictions for tax purposes.

Conclusion

While tax havens offer opportunities for tax reduction, they also pose significant ethical and legal challenges. The global community continues to seek a balance between financial privacy and transparency to ensure a fair and equitable tax system worldwide.