Mr. Sagar Kumar, B.Sc, M.Sc, LL.B, Practicing Lawyer
Where Are Tax Havens?
A tax haven is a country that offers foreign individuals and businesses a minimal tax liability in a politically and economically stable environment, with little or no financial information shared with foreign tax authorities. Tax havens do not require individuals to reside in or businesses to operate out of their countries to benefit from local tax policies. Due to the globalization of business operations, an increasing number of U.S. corporations, including Microsoft, Apple and Alphabet, are keeping cash in offshore tax havens to minimize corporate taxes.
Tax haven status benefits the host country as well as the companies and individuals maintaining accounts in them. Tax haven countries benefit by drawing capital to their banks and financial institutions, which can form the foundation of a thriving financial sector. Individuals and corporations benefit through tax savings resulting from tax rates ranging from zero to the low single digits versus relatively high taxes in their countries of citizenship or domicile.
There is no generally agreed definition of what a tax haven is. The term is a bit of a misnomer, because these places offer facilities that go far beyond tax. Loosely speaking, a tax haven provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool. Those rules include tax – but also criminal laws, disclosure rules (transparency,) financial regulation, inheritance rules, and more.
There is no precise definition of a tax haven. The OECD initially defined the following features of tax havens: no or low taxes, lack of effective exchange of information, lack of transparency, and no requirement of substantial activity. Other lists have been developed in legislative proposals and by researchers. Also, a number of other jurisdictions have been identified as having tax haven characteristics.
The actual magnitude of illegal use of offshore tax havens is uncertain because estimates of the amount of American money flowing through offshore tax havens and serving illegal purposes, such as the laundering of narcotics money, are unreliable. Authorities even disagree on whether most illegal money is laundered offshore or within the United States. Estimates indicate that the amount of illegal money exported to the Caribbean tax havens alone runs in excess of fifty billion dollars annually.
