Tax Havens

• What is a tax haven?

  Country or territory offering low or 0 tax rates, financial secrecy, and minimal regulatory oversight, enabling individuals or corporations to avoid or evade taxes
• What are the main characteristics of a tax haven?

  • Low or no taxes on foreign income
  • Strict banking secrecy laws
  • No requirement for local economic activity
  • Politically and economically stable
  • Legal frameworks that protect foreign assets
• Name 3 tax havens and their type

  • Cayman Islands - British Overseas Territory
  • Luxembourg - Independent State
  • Delaware, USA - domestic tax haven within a federal system
• How much wealth is estimated to be held in tax havens globally?

  • Estimated $7-10 trn or ~10% of global GDP
  • Causes $500 - 600 bn in lost global tax revenue annually
  • Developing countries lose ~ $200 bn/year
• What role do tax havens play in globalisation?

  • Support TNC strategies to minimise tax e.g Apple, Amazon
  • Facilitate the global movement of capital
  • Exacerbate power imbalance between TNCs and nation-states
  • Part of financial globalisation and the liberalisation of capital markets
• How can tax havens benefit host countries?

  • Generate income through legal, accounting, and banking services
  • Attract investment and foreign capital
  • High GDP per capital e.g Cayman Islands > $85,000 GDP/capita
  • Low unemployment and well-developed financial sectors
• Why are tax havens criticized?

  • Undermines tax justice and national revenues
  • Increase global inequality
  • Allow legal tax avoidance and sometimes illegal tax evasion
  • Reduce funds available for public services in both rich and poor countries
• What were the Panama Papers and their impacts?

  • Leak of 11.5 mn documents from law firm Mossack Fonseca
  • Revealed how politicians, celebrities and corporations used offshore companies to hide wealth and evade taxes
  • Sparked global outrage, led to resignations e.g Iceland's PM and strengthened calls for transparency
  • Highlighted scale and secrecy of offshore finance
  • Triggered OECD and EU tax blacklists and tighter regulations
• What was the LuxLeaks scandal?

  • Whistleblower exposed secret tax rulings between Luxembourg and major TNCs e.g Pepsi, Ikea, Amazon
  • Luxembourg allowed companies to pay <1% tax on profits shifted through the country
  • Legally permitted but ethically questionable
  • Shows how legal loopholes are exploited
  • Increased pressure on OECD BEPS project to stop base erosion and profit shifting
• What is OECD's BEPS initiative?

  Base Erosion and Profit Shifting is an OECD initiative aiming to:

  • Curb corporate tax avoidance
  • Close loopholes allowing TNCs to shift profits to low/no-tax countries
  • Increase transparency and international cooperation
  • E.G country-by-country reporting for TNCs