Tax Havens: Current State, Pros and Cons
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Transcript Tax Havens: Current State, Pros and Cons
Tax Havens:
Current State, Pros and Cons
April 12, 2011
By: Maria Gabriela Calderon , Arnaldo Busutil and Anturuan Stallworth
Tax Havens Overview
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Tax Havens Defined:
Countries that levy low taxes or no taxes at all.
Governments of tax haven countries compete with
one another to gain customers.
Tax Havens: Current State, Pros and Cons
April 12, 2011
Tax Havens Overview cont.
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Characteristics:
1) No taxes / nominal taxes
2) Defective transfer of communication with foreign
authorities.
3) Lack of transparency
4) No requirement for a substantive local presence
5) Self-promotion as an offshore financial center – states that
provide financial services to corporations are known as
offshore financial centers.
Tax Havens: Current State, Pros and Cons
April 13, 2015
Tax Haven Strategies
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1) Change official domicile location to offshore jurisdiction
Lower rate of taxation.
However, offshore companies often cannot do business
within the domiciled location.
2) Offshore jurisdiction can offer a zero tax rate to the
company or individual.
3) A ‘tax holiday’ is offered for a period of time.
After relocation the company is given favorable
introductory tax rates.
Tax Havens: Current State, Pros and Cons
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Benefits of Tax Havens
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4 Frameworks:
1) Personal Residency - Relocation to low-tax jurisdictions.
In most countries residence is the primary basis of taxation.
Almost no tax haven assesses capital gains tax or inheritance tax.
2) Asset Holding - Utilizing a trust, company or a trust owning
a company to shelter assets.
Company or trust is formed in 1 tax haven, and administered and
resident in another.
Function is to hold assets for investments, trading companies or
physical assets such as real estate.
Employed to avoid a specific tax.
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Benefits of Tax Havens cont.
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3) Trading and Ordinary Business Activities - Businesses
which don’t req. specific geographical location or extensive
labor able to minimize tax exposure.
4) Financial Intermediaries – Funds are deposited with the
intermediary and the intermediary lends /invests the money,
often back into a high-tax jurisdiction.
Professional financial services i.e. mutual funds, banks and
life insurance companies.
Enables providers to provide multi-jurisdictional products
without adding an additional layer of taxation.
Tax Havens: Current State, Pros and Cons
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Modern Tax Havens
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Although modern tax havens have both real and perceived benefits,
doing business with such entities carries its own difficulties.
Creates competition among countries that seek greater investment,
trade, and international recognition.
In April of 2009, The European G-20 Union enacted a crackdown
on activities of tax havens because of perceived problems.
Occurred after many countries pledged some $7 trillion to shore up
international banking markets.
Tax Havens: Current State, Pros and Cons
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Modern Tax Havens (cont.)
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Overview of modern Tax Havens
Pros and cons
Tax Havens: Current State, Pros and Cons
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OECD and Regulations
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OECD Defined
Standards of Transparency and Exchange of Information
Global Forum
Tax Information Exchange
Tax Havens: Current State, Pros and Cons
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Current State
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Richer economies
Money away from “real economies”
Business supervision
How to discourage tax havens?
The global financial storm
Tax Havens: Current State, Pros and Cons
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Sources
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International Accounting, Sixth Edition, 20008 Choi, Frederick and Meek, Gary
Business Ideas Source. (2008, July 27). Offshore Banks: Offering Low Tax Services with Confidentiality. Retrieved July 14, 2010, from Complete
Guarantee: http://completeguarantee.net/
Henry, J. S. (2010). Corralling the Pirate Banks. Forbes , 18.
Offshore - Company. (2010). Offshore Services : Offshore Tax Havens : Tax Competition . Retrieved from Offshore Company:
http://www.offshorecompany.co.uk/taxhavens/competition.htm
Wikipedia. (2010, July 7). Tax Haven: Methodology. Retrieved July 17, 2010, from Wikipedia, The Free Encyclopedia :
http://en.wikipedia.org/wiki/Tax_haven
BBC News. (2009). Switzerland eases banking secrecy. Retrieved June 29, 2010, from http://news.bbc.co.uk/2/hi/business/7941717.stm
Crawford, A. & Donahue, P. (2009). European G-20 nations seek crackdown on tax havens (Update1). Bloomberg.com. Retrieved July 2, 2010, from
http://www.bloomberg.com/apps/news?pid=newsarchive&refer=home&sid=arqqvejukth
Singh, M. (2010). Taking a look at tax havens. Investopedia.com. Retrieved June 29, 2010, from http://www.investopedia.com/articles/tax/09/taxhavens.asp
Organization for Economic Cooperation and Development, Tax Haven Criteria, retrieved from
http://www.oecd.org/document/63/0,3343,en_2649_33745_30575447_1_1_1_37427,00.html
The Economist (February 22, 2007), A survey of offshore finance: Places in the sun retrieved from
http://www.economist.com/node/8695139?story_id=8695139
The Economist (February 28, 2009) Tax havens under pressure: Whiter than white retrieved on July 10 th from
The Economist (June 18th, 2009), Britain’s Offshore Financial Centers Race for Respectability, retrieved from
http://www.economist.com/node/13863399
The Economist (February 27th, 2009), Off-shore financial centers: Secret piggy-banks, retrieved on July 10th, 2010 from
The Economist (February 22nd, 2009), The less obvious uses of tax havens, retrieved from http://www.economist.com/node/8695233
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Thank You
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Tax Havens: Current State, Pros and Cons
April 13, 2015