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Tax haven

Tax haven

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A tax haven is a state or a country or territory where certain tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

es are levied at a low rate or not at all while offering due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...

, good governance
Good governance
Good governance is an indeterminate term used in development literature to describe how public institutions conduct public affairs and manage public resources in order to guarantee the realization of human rights. Governance describes "the process of decision-making and the process by which...

 and a low corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...

 rate.

Individuals and/or corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition
Tax competition
Tax competition, a form of regulatory competition, exists when governments are encouraged to lower fiscal burdens to either encourage the inflow of productive resources or discourage the exodus of those resources...

 among governments. Different jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...

s tend to be havens for different types of taxes, and for different categories of people and/or companies.

States that are sovereign
Sovereignty
Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided...

 or self-governing under international law
International law
Public international law concerns the structure and conduct of sovereign states; analogous entities, such as the Holy See; and intergovernmental organizations. To a lesser degree, international law also may affect multinational corporations and individuals, an impact increasingly evolving beyond...

 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
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...

has tentatively adopted the description by Geoffrey Colin Powell (former economic adviser to Jersey
Jersey
Jersey, officially the Bailiwick of Jersey is a British Crown Dependency off the coast of Normandy, France. As well as the island of Jersey itself, the bailiwick includes two groups of small islands that are no longer permanently inhabited, the Minquiers and Écréhous, and the Pierres de Lecq and...

): "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
Tax avoidance
Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax...

." 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
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

 was unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of a tax haven:
  1. nil or nominal taxes;
  2. lack of effective exchange of tax information with foreign tax authorities;
  3. lack of transparency in the operation of legislative, legal or administrative provisions;
  4. no requirement for a substantive local presence; and
  5. self-promotion as an offshore financial center
    Offshore financial centre
    An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....

    .

History


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
Ancient Greece
Ancient Greece is a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Included in Ancient Greece is the...

, 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
City-state
A city-state is an independent or autonomous entity whose territory consists of a city which is not administered as a part of another local government.-Historical city-states:...

 of Athens
Athens
Athens , is the capital and largest city of Greece. Athens dominates the Attica region and is one of the world's oldest cities, as its recorded history spans around 3,400 years. Classical Athens was a powerful city-state...

 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
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 colonies traded from Latin America
Latin America
Latin America is a region of the Americas where Romance languages  – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...

 to avoid British
British Empire
The British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...

 taxes.

Various countries claim to be the oldest tax haven in the world. For example, the Channel Islands
Channel Islands
The Channel Islands are an archipelago of British Crown Dependencies in the English Channel, off the French coast of Normandy. They include two separate bailiwicks: the Bailiwick of Guernsey and the Bailiwick of Jersey...

 claim their tax independence dating as far back as Norman Conquest, while the Isle of Man
Isle of Man
The Isle of Man , otherwise known simply as Mann , is a self-governing British Crown Dependency, located in the Irish Sea between the islands of Great Britain and Ireland, within the British Isles. The head of state is Queen Elizabeth II, who holds the title of Lord of Mann. The Lord of Mann is...

 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
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...

. Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...

 sometimes optimistically claims to have been the first tax haven based upon the creation of the first offshore companies
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...

 legislation in 1935 by the newly created law firm of Conyers Dill & Pearman
Conyers Dill & Pearman
Conyers Dill & Pearman is an offshore law firm. Founded in Bermuda in 1928 , the firm has subsequently opened legal practices in a number of other offshore financial centres, including the British Virgin Islands, the Cayman Islands and Mauritius...

. However, the Bermudian claim is debatable when compared against the enactment of a Trust Law
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

 by Liechtenstein
Liechtenstein
The Principality of Liechtenstein is a doubly landlocked alpine country in Central Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over , and it has an estimated population of 35,000. Its capital is Vaduz. The biggest town is Schaan...

 in 1926 to attract offshore capital.

Most economic commentators suggest that the first "true" tax haven was Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

, followed closely by Liechtenstein. Swiss banks
Banking in Switzerland
All banks in Switzerland are regulated by Swiss Financial Market Supervisory Authority , which derives its authority from a series of federal statutes...

 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
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...

. By and large, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

, 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 but since then jurisdictions have come to focus on attracting companies with low or no corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...

. 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
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...

 treaties
Tax treaty
Many countries have agreed with other countries in treaties to mitigate the effects of double taxation . Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes...

 between large jurisdictions and the tax haven, allowing corporations to structure group ownership through the smaller jurisdiction to reduce tax liability. Although some of these double tax treaties survive, in the 1970s, most major countries began repealing their double taxation treaties with micro-states
Microstate
A microstate or ministate is a sovereign state having a very small population or very small land area, but usually both. Some examples include Liechtenstein, Malta, Monaco, Nauru, Singapore, and Vatican City....

 to prevent corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...

 leakage in this manner.

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.

Money and exchange control


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 dollars, euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

 or to pounds sterling.

Methodology


At the risk of gross oversimplification, it can be said that the advantages of tax havens are viewed in four principal contexts:
  • Personal residency. 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
    Tax residence
    Definitions of residence for tax purposes vary considerably from state to state. For individuals, physical presence in a state is an important factor. Some states also determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability...

    . 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
    Capital gains tax
    A capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...

    , or inheritance tax. Individuals who are unable to return to a high-tax country in which they used to reside for more than a few days a year are sometimes referred to as tax exile
    Tax exile
    A tax exile is one who chooses to leave a country with a high tax burden and instead to reside in a foreign nation or jurisdiction which takes a lower portion of earnings. Going into tax exile is a means of tax mitigation or avoidance.-Legal status:...

    s.
  • Asset holding. Asset holding involves utilizing a trust
    Offshore trust
    An offshore trust is simply a conventional trust that is formed under the laws of an offshore jurisdiction.Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring assets on the trustees to manage for the benefit of a person or...

     or a company
    Offshore company
    The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...

    , 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
    Real estate
    In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

     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. (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. 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
    Reinsurance
    Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

     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
    Transfer pricing
    Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property . Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other...

     scams of this nature.
  • Financial intermediaries. Much of the economic activity in tax havens today consists of professional financial services such as mutual fund
    Mutual fund
    A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...

    s, banking, life insurance
    Life insurance
    Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...

     and pension
    Pension
    In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...

    s. 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 fund
    Offshore fund
    An offshore fund is a collective investment scheme domiciled in an Offshore Financial Centre such as the British Virgin Islands, Luxembourg, or the Cayman Islands; it is typically sold exclusively to 'foreign' investors...

    s. In 2010 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 OECD and tax havens


The Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...

 (OECD) identifies three key factors in considering whether a jurisdiction is a tax haven:
  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.

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 tax
Direct tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.-General meaning:In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed...

es and, if so, to determine the appropriate tax rate.

Anti-avoidance


To avoid tax competition
Tax competition
Tax competition, a form of regulatory competition, exists when governments are encouraged to lower fiscal burdens to either encourage the inflow of productive resources or discourage the exodus of those resources...

, 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
    Controlled Foreign Corporation
    Controlled foreign corporation rules are features of an income tax system designed to limit artificial deferral of tax by using offshore low taxed entities. The rules are needed only with respect to income of entities that is not currently taxed to the owners of the entity. The basic mechanism and...

     legislation is an example of this.
  2. transfer pricing
    Transfer pricing
    Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property . Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other...

     rules, standardization of which has been greatly helped by the promulgation of OECD guidelines.
  3. restrictions on deductibility, or imposition of a withholding tax
    Withholding tax
    Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...

     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
    European Union withholding tax
    The so-called European Union withholding tax is a withholding tax which is deducted from interest earned by European Union residents on their investments made in another member state, by the state in which the investment is held....

     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
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 securities regulations are such that it is not possible to have a public bond
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...

 issue through a company incorporated in a tax haven.

Also becoming increasingly popular is "forced disclosure" of tax mitigation schemes. Broadly, these involve the revenue authorities compelling tax advisor
Tax advisor
A tax advisor is a financial expert specially trained in tax law. Some countries require tax advisors to verify the balance sheets of companies above a certain size...

s 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. 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 convenient scapegoats for their governments' spending cuts.
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.

Incentives


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
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...

 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
Tax revenue
Tax revenue is the income that is gained by governments through taxation.Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government, but may be an alternative third-party...

 which would otherwise be theirs. Various pressure groups also claim that money launderers
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...

 also use tax havens extensively, although extensive financial and KYC
Know your customer
Know Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...

 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
FATF Blacklist
The FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...

" 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.

A very interesting incentive was Inland Revenue
Inland Revenue
The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty...

 and HM Customs and Excise agreeing to sell more than 600 of their building stock to a firm in a tax haven. The sell-off, was made to Bermuda based Mapeley Steps Ltd in 2001.

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
    Andorra
    Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...

  • The Bahamas
  • Cyprus
    Cyprus
    Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...

  • Ireland
    Ireland
    Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

  • Liechtenstein
    Liechtenstein
    The Principality of Liechtenstein is a doubly landlocked alpine country in Central Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over , and it has an estimated population of 35,000. Its capital is Vaduz. The biggest town is Schaan...

  • Luxembourg
    Luxembourg
    Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

  • Mauritius
    Mauritius
    Mauritius , officially the Republic of Mauritius is an island nation off the southeast coast of the African continent in the southwest Indian Ocean, about east of Madagascar...

  • Monaco
    Monaco
    Monaco , officially the Principality of Monaco , is a sovereign city state on the French Riviera. It is bordered on three sides by its neighbour, France, and its centre is about from Italy. Its area is with a population of 35,986 as of 2011 and is the most densely populated country in the...

  • Panama
    Panama
    Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...

  • San Marino
    San Marino
    San Marino, officially the Republic of San Marino , is a state situated on the Italian Peninsula on the eastern side of the Apennine Mountains. It is an enclave surrounded by Italy. Its size is just over with an estimated population of over 30,000. Its capital is the City of San Marino...

  • Seychelles
    Seychelles
    Seychelles , officially the Republic of Seychelles , is an island country spanning an archipelago of 115 islands in the Indian Ocean, some east of mainland Africa, northeast of the island of Madagascar....

  • Switzerland
    Switzerland
    Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....



Non-sovereign jurisdictions commonly labelled as tax havens include:
  • Bermuda
    Bermuda
    Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • British Virgin Islands
    British Virgin Islands
    The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • Campione d'Italia
    Campione d'Italia
    Campione d'Italia is an Italian comune of the Province of Como in the Lombardy region, occupying an enclave within the Swiss canton of Ticino, separated from the rest of Italy by Lake Lugano and mountains...

     an Italian enclave within Switzerland
    Switzerland
    Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

  • Cayman Islands
    Cayman Islands
    The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • The Channel Islands
    Channel Islands
    The Channel Islands are an archipelago of British Crown Dependencies in the English Channel, off the French coast of Normandy. They include two separate bailiwicks: the Bailiwick of Guernsey and the Bailiwick of Jersey...

     of Jersey
    Jersey
    Jersey, officially the Bailiwick of Jersey is a British Crown Dependency off the coast of Normandy, France. As well as the island of Jersey itself, the bailiwick includes two groups of small islands that are no longer permanently inhabited, the Minquiers and Écréhous, and the Pierres de Lecq and...

     and Guernsey
    Guernsey
    Guernsey, officially the Bailiwick of Guernsey is a British Crown dependency in the English Channel off the coast of Normandy.The Bailiwick, as a governing entity, embraces not only all 10 parishes on the Island of Guernsey, but also the islands of Herm, Jethou, Burhou, and Lihou and their islet...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • Delaware
    Delaware
    Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...

     (United States
    United States
    The United States of America is a federal constitutional republic comprising fifty states and a federal district...

    )
  • City of London
    City of London
    The City of London is a small area within Greater London, England. It is the historic core of London around which the modern conurbation grew and has held city status since time immemorial. The City’s boundaries have remained almost unchanged since the Middle Ages, and it is now only a tiny part of...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • The Isle of Man
    Isle of Man
    The Isle of Man , otherwise known simply as Mann , is a self-governing British Crown Dependency, located in the Irish Sea between the islands of Great Britain and Ireland, within the British Isles. The head of state is Queen Elizabeth II, who holds the title of Lord of Mann. The Lord of Mann is...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • Jebel Ali Free Zone
    Jebel Ali Free Zone
    Jebel Ali Free Zone is a free economic zone located in the Jebel Ali area at the far western end of Dubai, United Arab Emirates, near Abu Dhabi...

     in the United Arab Emirates
    United Arab Emirates
    The United Arab Emirates, abbreviated as the UAE, or shortened to "the Emirates", is a state situated in the southeast of the Arabian Peninsula in Western Asia on the Persian Gulf, bordering Oman, and Saudi Arabia, and sharing sea borders with Iraq, Kuwait, Bahrain, Qatar, and Iran.The UAE is a...

  • Labuan
    Labuan
    Labuan is a federal territory in East Malaysia. It is an island off the coast of the state of Sabah. Labuan's capital is Victoria and is best known as an offshore financial centre offering international financial and business services via Labuan IBFC since 1990 as well as being an offshore support...

    , a Malaysian island off Borneo
    Borneo
    Borneo is the third largest island in the world and is located north of Java Island, Indonesia, at the geographic centre of Maritime Southeast Asia....

  • Netherlands Antilles
    Netherlands Antilles
    The Netherlands Antilles , also referred to informally as the Dutch Antilles, was an autonomous Caribbean country within the Kingdom of the Netherlands, consisting of two groups of islands in the Lesser Antilles: Aruba, Bonaire and Curaçao , in Leeward Antilles just off the Venezuelan coast; and Sint...

     (Netherlands
    Netherlands
    The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

    )
  • Turks and Caicos Islands
    Turks and Caicos Islands
    The Turks and Caicos Islands are a British Overseas Territory and overseas territory of the European Union consisting of two groups of tropical islands in the Caribbean, the larger Caicos Islands and the smaller Turks Islands, known for tourism and as an offshore financial centre.The Turks and...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • Texas
    Texas
    Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...

     (United States
    United States
    The United States of America is a federal constitutional republic comprising fifty states and a federal district...

    )


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.

Former tax havens

  • Beirut
    Beirut
    Beirut is the capital and largest city of Lebanon, with a population ranging from 1 million to more than 2 million . Located on a peninsula at the midpoint of Lebanon's Mediterranean coastline, it serves as the country's largest and main seaport, and also forms the Beirut Metropolitan...

     formerly had a reputation as the only tax haven in the Middle East. However, this changed after the Intra Bank
    Intra Bank
    Intra Bank was a Lebanese bank, and the largest financial institution in the Middle East until its collapse in 1966.-Foundation and Rise of the Bank:...

     crash of 1966, and the subsequent political and military deterioration of Lebanon dissuaded foreign use as a tax haven.
  • Liberia
    Liberia
    Liberia , officially the Republic of Liberia, is a country in West Africa. It is bordered by Sierra Leone on the west, Guinea on the north and Côte d'Ivoire on the east. Liberia's coastline is composed of mostly mangrove forests while the more sparsely populated inland consists of forests that open...

     had a prosperous ship registration industry
    Flag of convenience
    The term flag of convenience describes the business practice of registering a merchant ship in a sovereign state different from that of the ship's owners, and flying that state's civil ensign on the ship. Ships are registered under flags of convenience to reduce operating costs or avoid the...

    . The series of violent and bloody civil war
    Civil war
    A civil war is a war between organized groups within the same nation state or republic, or, less commonly, between two countries created from a formerly-united nation state....

    s 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 City.
  • Tangier
    Tangier
    Tangier, also Tangiers is a city in northern Morocco with a population of about 700,000 . It lies on the North African coast at the western entrance to the Strait of Gibraltar where the Mediterranean meets the Atlantic Ocean off Cape Spartel...

     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
    Morocco
    Morocco , officially the Kingdom of Morocco , is a country located in North Africa. It has a population of more than 32 million and an area of 710,850 km², and also primarily administers the disputed region of the Western Sahara...

     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
    Vanuatu
    Vanuatu , officially the Republic of Vanuatu , is an island nation located in the South Pacific Ocean. The archipelago, which is of volcanic origin, is some east of northern Australia, northeast of New Caledonia, west of Fiji, and southeast of the Solomon Islands, near New Guinea.Vanuatu was...

    '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."

Extent


While incomplete, and with the limitations discussed below, the available statistics nonetheless indicate that offshore banking is a very sizeable activity. IMF
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

 calculations based on BIS
Bank for International Settlements
The Bank for International Settlements is an intergovernmental organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks." It is not accountable to any national government...

 data suggest that for selected OFCs (Offshore Financial Centre
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....

s), on balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...

 OFC cross-border assets reached a level of US$4.6 trillion at end-June 1999 (about 50 percent of total cross-border assets), of which US$0.9 trillion in the Caribbean, US$1 trillion in Asia, and most of the remaining US$2.7 trillion accounted for by the IFCs (International Financial Centers), namely London, the U.S. IBFs, and the JOM (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 Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

 (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.

Currently the "Caribbean Banking Centers" which include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama hold almost two trillion dollars in United States debt.

Lost tax revenue


In October 2009 research commissioned from Deloitte
Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu Limited , commonly referred to as Deloitte, is one of the Big Four accountancy firms along with PricewaterhouseCoopers , Ernst & Young, and KPMG....

 for the Foot Review of British Offshore Financial Centres indicated 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." The report also dissected an earlier report by the TUC
Trades Union Congress
The Trades Union Congress is a national trade union centre, a federation of trade unions in the United Kingdom, representing the majority of trade unions...

, which had concluded that tax avoidance by the 50 largest companies in the FTSE 100
FTSE 100 Index
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....

 was depriving the UK Treasury of approximately £11.8 billion. The TUC's analysis had looked at the reported profits of the companies and the amount of tax paid, which created a gap in tax revenues which was mostly due to differences in the accounting treatment of profit for taxation purposes, which were intended under the UK's tax rules. 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.

Tax Justice Network
Tax Justice Network
The Tax Justice Network is a coalition of researchers and activists with a shared concern about what they argue are the harmful impacts of tax avoidance, tax competition and tax havens, which "corrupt national tax regimes and onshore regulation, and distort markets by rewarding economic...

, an anti-tax haven pressure group, suggests that global tax revenue lost to tax havens exceeds US$255 billion per year, although those figures are not widely accepted. Estimates by the OECD suggest that by 2007 capital held offshore amounts 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 estimate to be held in the Cayman Islands alone.

The Center for Freedom and Prosperity
Center for Freedom and Prosperity
The Center for Freedom and Prosperity is a lobbying organization advocating flat tax and territorial taxation systems. The organization and its subsidiary Center for Freedom and Prosperity Foundation claims to publish studies and conduct seminars analysing the benefits of jurisdictional tax...

 disputes claims about forgone tax revenue. Academic researchers also have found that tax havens actually boost prosperity in neighboring jurisdictions by creating tax-efficient platforms for economic activity – much of which would not occur if subject to onerous taxes if controlled by a domestic entity. Some support for this is found in academic studies which suggest that the tax elasticity
Elasticity (economics)
In economics, elasticity is the measurement of how changing one economic variable affects others. For example:* "If I lower the price of my product, how much more will I sell?"* "If I raise the price, how much less will I sell?"...

 of investment is approximately −0.6.

Proposed U.S. legislation


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 quickly drafted the FATCA legislation and slipped it into the vaguely related Hiring Incentives to Restore Employment Act (HIRE) signed into law by President Obama in March 2010.

Key provisions of FATCA


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. 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 2011 (later delayed to 2012).

The delay is indicative of a controversy over the feasibility of implementing the legislation as evidenced in this paper from the renowned Peterson Institute for International Economics.

Proposed German legislation


In January 2009, Peer Steinbrück
Peer Steinbrück
Peer Steinbrück is a German social democratic politician. From 2005 to 2009 he served as German Federal Minister of Finance in the cabinet of Angela Merkel.- Early political career, Minister President :...

, the 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.

Liechtenstein banking scandal


In February 2008 Germany announced that it had paid €4.2 million to Heinrich Kieber, 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. Other governments, notably Denmark and Sweden, refused to pay for the information regarding it as stolen property. The Liechtenstein authorities subsequently accused the German authorities of espionage.

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. 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
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 or governments of the member states.

G20 tax havens blacklist


At the London G20 summit
2009 G-20 London summit
The 2009 G-20 London Summit is the second meeting of the G-20 heads of state in discussion of financial markets and the world economy, which was held in London on 2 April 2009 at the ExCeL Exhibition Centre. It followed the first G-20 Leaders Summit on Financial Markets and the World Economy, which...

 on 2 April 2009, G20 countries agreed to define a blacklist
Blacklist
A blacklist is a list or register of entities who, for one reason or another, are being denied a particular privilege, service, mobility, access or recognition. As a verb, to blacklist can mean to deny someone work in a particular field, or to ostracize a person from a certain social circle...

 for tax havens, to be segmented according to a four-tier system, based on compliance with an "internationally agreed tax standard." The list as per April 2nd of 2009 can be viewed on the OECD Data After a great progress the four tiers are now:
  1. Those that have substantially implemented the standard (includes most countries but China
    China
    Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

     still excludes Hongkong and Macao
    Mação
    Mação is a municipality in Portugal with a total area of 400.0 km² and a total population of 7,763 inhabitants.The municipality is composed of eight parishes, and is located in the Santarém District....

    ).
  2. Tax havens that have committed to – but not yet fully implemented – the standard (includes Montserrat
    Montserrat
    Montserrat is a British overseas territory located in the Leeward Islands, part of the chain of islands called the Lesser Antilles in the West Indies. This island measures approximately long and wide, giving of coastline...

    , Nauru
    Nauru
    Nauru , officially the Republic of Nauru and formerly known as Pleasant Island, is an island country in Micronesia in the South Pacific. Its nearest neighbour is Banaba Island in Kiribati, to the east. Nauru is the world's smallest republic, covering just...

    , Niue
    Niue
    Niue , is an island country in the South Pacific Ocean. It is commonly known as the "Rock of Polynesia", and inhabitants of the island call it "the Rock" for short. Niue is northeast of New Zealand in a triangle between Tonga to the southwest, the Samoas to the northwest, and the Cook Islands to...

    , Panama
    Panama
    Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...

    , and Vanuatu
    Vanuatu
    Vanuatu , officially the Republic of Vanuatu , is an island nation located in the South Pacific Ocean. The archipelago, which is of volcanic origin, is some east of northern Australia, northeast of New Caledonia, west of Fiji, and southeast of the Solomon Islands, near New Guinea.Vanuatu was...

    )
  3. Financial centres that have committed to – but not yet fully implemented – the standard (includes Guatemala
    Guatemala
    Guatemala is a country in Central America bordered by Mexico to the north and west, the Pacific Ocean to the southwest, Belize to the northeast, the Caribbean to the east, and Honduras and El Salvador to the southeast...

    , Costa Rica
    Costa Rica
    Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....

     and Uruguay
    Uruguay
    Uruguay ,officially the Oriental Republic of Uruguay,sometimes the Eastern Republic of Uruguay; ) is a country in the southeastern part of South America. It is home to some 3.5 million people, of whom 1.8 million live in the capital Montevideo and its metropolitan area...

    ).
  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. 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."

Despite calls from French President Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....

 for Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...

 and Macau
Macau
Macau , also spelled Macao , is, along with Hong Kong, one of the two special administrative regions of the People's Republic of China...

 to be included separately from China on the list, they are as of yet not included independently, although it is expected that they will be added at a later date.

Government response to the crackdown has been broadly supportive, although not universal. Luxembourg Prime Minister Jean-Claude Juncker
Jean-Claude Juncker
Jean-Claude Juncker is a Luxembourg politician, 23rd and current Prime Minister of Luxembourg, since 20 January 1995. He is the longest standing head of government of any European Union state...

 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.

Foot report


In November 2009 Sir Michael Foot delivered a report on the British Crown Dependencies and Overseas Territories for HM Treasury. 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, but the pressure group Tax Justice Network, unhappy with the findings, commented "[a] weak man, born to be an apologist, has delivered a weak report."

See also

  • Asset protection
    Asset protection
    Asset protection is a set of legal techniques and a body of statutory and common law dealing with protecting assets of individuals and business entities from civil money judgments...

  • Association for the Taxation of Financial Transactions and for Citizens' Action
  • Corporate haven
    Corporate haven
    A corporate haven is a jurisdiction with laws friendly to corporationsthereby encouraging them to choose that jurisdiction as a legal domicile.- History :...

  • Corporate inversion
    Corporate inversion
    When a corporation moves its headquarters to a low-tax nation or corporate haven while retaining its material operations in its higher-tax country of origin, this is termed to be a corporate inversion.Corporate inversion is a form of tax avoidance....

  • Free port
    Free port
    A free port or free zone , sometimes also called a bonded area is a port, port area or other area with relaxed jurisdiction with respect to the country of location...

  • Free economic zone
    Free economic zone
    Many countries have, or have had at some time, designated areas where companies are taxed very lightly or not at all to encourage development or for some other reason...

  • International business company
    International business company
    An international business company or international business corporation is an offshore company formed under the laws of some jurisdictions as untaxed company which is not permitted to engage in business within the jurisdiction in which it is incorporated...

  • Money laundering
    Money laundering
    Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...

  • Offshore bank
    Offshore bank
    An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages. These advantages typically include:...

  • Offshore company
    Offshore company
    The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...

  • Offshore financial centre
    Offshore financial centre
    An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....

  • Offshore trust
    Offshore trust
    An offshore trust is simply a conventional trust that is formed under the laws of an offshore jurisdiction.Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring assets on the trustees to manage for the benefit of a person or...

  • Tax avoidance and tax evasion
    Tax avoidance and tax evasion
    Tax noncompliance describes a range of activities that are unfavorable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities....

  • Tax exile
    Tax exile
    A tax exile is one who chooses to leave a country with a high tax burden and instead to reside in a foreign nation or jurisdiction which takes a lower portion of earnings. Going into tax exile is a means of tax mitigation or avoidance.-Legal status:...

  • Tax exporting
    Tax exporting
    Tax exporting occurs when a country indirectly encourages economic activity to move to another country with a lower tax burden. This is more likely if the economic activity is more mobile....

  • Tax shelter
    Tax shelter
    Tax shelters are any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments...


Further reading

  • Baker, Raymond W.
    Raymond W. Baker
    Raymond Baker is the director of Global Financial Integrity, a research and advocacy organization in Washington, DC, and director of the Task Force on Financial Integrity and Economic Development, an international private-public coalition of civil society groups and governments working on the issue...

    (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.

External links