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
April 13, 2015
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.
Tax Havens: Current State, Pros and Cons
April 13, 2015
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
April 13, 2015
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
April 13, 2015
Modern Tax Havens (cont.)
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
Overview of modern Tax Havens
 Pros and cons
Tax Havens: Current State, Pros and Cons
April 13, 2015
OECD and Regulations
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


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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
April 13, 2015
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
April 13, 2015
Sources
11

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
Tax Havens: Current State, Pros and Cons
April 13, 2015
Thank You
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Tax Havens: Current State, Pros and Cons
April 13, 2015