BEA3016 International Taxation – Tutorial 5 – Tax Havens and Tax Administration
1. PSC Report
o Can tax evasion, tax avoidance, crime and corruption be differentiated?
 All require secrecy, hiding the truth from the law with the end result of illegality,
apart from some tax avoidance.
 Can be argued that all are morally wrong.
 Fundamentally different – how can crimes such as murder be likened with tax
avoidance.
o Recommendations to tackle ‘problem’ of tax havens
 Direct approach – tackle havens head on
 Push for as many Tax Information Exchange Agreements as possible
 Push the OECD into creating better international standards
 Domestic approach – tackling domestic consequences
 Demand reform of the UK’s domicile rule
 Demand reform of UK Corporate Law
 Increase resources available to HMRC
 General Anti-Avoidance Principle
 Demand that companies file tax returns with country by country data
 UK dependencies approach – what the UK does about locations it has
responsibility for
 EU approach – how the most effective opponent of TH’s takes initiatives forward
 ‘Work round’ approach – regulatory and other approaches that can have some
impact on TH’s
 Demand country by country reporting by MNC’s
 Demand that credit card companies be held to account for their
offshore activities
 Put pressure on the tax profession – what is their attitude?
 Promote codes of conduct for taxation management
 Promote unitary taxation
 Promote measures by which offshore banks and other major financial
services might be regulated from onshore.
2. Miller and Oats – Chapter 12 and 13
o Different types of tax haven?
 Production havens
 Actual production is moved to the TH (e.g. Ireland’s 12.5% CT)
 Base havens
 No/very low taxes on all business income
 Colonies or former colonies usually, most of the Caribbean/Pacific
TH’s come under this title
 Linked with secrecy havens
 Not suitable for intermediate holding companies, as a lack of DTA’s
means withholding tax is likely.


Treaty havens
 Countries (e.g. Netherlands) with favourable DTA networks.
 Intermediate holding companies – low WHT, often no tax whilst
money stays in country and no WHT when money leaves country.
Concession havens
 Countries offering particular tax incentives.
o
What is the connection between TH’S and tax evasion?
 TH’s have often been used legally to facilitate tax planning and avoidance, in
order to minimise worldwide tax liabilities.
 Regulation for avoidance is only required when domestic legislation is
exploited in an unacceptable way (examples being controlled foreign
company rules and transfer pricing regulations)
 TH’s are linked with evasion when fraudulent activity is present, and
criminal sanctions are required.
 Taxation Information Exchange Agreements are used to determine whether
there are investments in a TH.
 Blacklists are created in some jurisdictions to identify and target tax havens.
o
What are the CFC rules and how are they used as ‘anti-haven’ measures by
governments?
 In most cases, income from foreign sources only becomes taxable when it is
remitted to the country of the taxpayer’s residence.
 Anti-haven legislation (Controlled foreign company legislation) seeks to
combat companies’ strategy of not bringing profits back to the parent.
 Usually, the income and profits of the tax haven subsidiary are deemed to
have been earned by the resident parent company.
 Most countries only target portfolio income (e.g. interest, dividends) as
these types are easiest to move to TH’s.
 Can use a transactional or locational approach to decide on taxable income.
 Usually a combination of the above, looking at low-tax countries and receipt
of passive income.
o
What are captive insurance companies and how are they used in international tax
planning?
 Used for tax planning to shifts profits from high to low tax areas.
 Part of a multinational group, usually a subsidiary which acts as direct
insurance company to the group or as a reinsurance company between
parent and other subsidiaries.
 Functions include assuming risk from the insured parties and establishing a
reinsurance policy.


Used to avoid prices and terms of commercial insurance companies,
reduced admin costs.
Premium paid can be invested by the captive, adding to group profits.
Tutorial 5
Question 1 – PWC Report
o
Initiatives to improve transparency
 Extractive Industries Transparency Initiative (EITI)
 Coalition of governments, companies, investors etc.
 Provides reporting framework as guidance for individual companies (nonmandatory)
 Aims to improve transparency in resource rich countries by improving
transparency in extractive industries.
 Dodd-Frank Act
 Includes provisions requiring extractive industry companies (up and
downstream) to report all payments made to US and foreign governments.
 Requires and annual SEC report from SEC registered companies disclosing
payments by company, subsidiaries etc.
 Payments include taxes on income, profit, production, royalties, bonuses,
dividends etc.
 EU Directives on Transparency and Accounting
 Companies shall disclose payments made to governments in each country
and for each project.
 Give local communities insight into what governments are being paid for
local resources.
 Publish What You Pay (PWYP)
 Coalition of civil society organisations helping citizens in developed
countries with rich resources make governments more accountable for
revenues earned through a global campaign.
 Companies to publish what they pay and governments to publish what they
earn.
 Country-by-country for all MNC’s
 Would require MNC’s to report key business and financial information for
each country in which it operates.
 Would be of considerable benefit to developing countries as it will show
what MNC’s do, how they perform the trade, and what profits and taxes are
declared.
 Be able to compare the MNC’s activities between countries.
 Result would be MNC’s generally paying more tax in developing countries,
reducing the wellbeing of people and dependence on aid.
o
What are the advantages and disadvantages of ‘country by country reporting’
 Added compliance costs for companies
 Added complication for financial reporting, auditing etc.
 Closer to fact – group accounts portray a fictional entity which isn’t legally distinct.
 Increased comparability
 CSR will be easier to identify
 Accountability for actions in the country
 Highlight trade, including intra-group trade.
 Provide information on employees in each country (salary information to highlight
labour conditions)
 Reduce profit shifting to minimise tax bill.
Question 2 – Tax Rules in Australia
o
o
o
o
Information Exchange arrangements
 Australian Taxation Office (ATO) describes TIEA’s as an important tool in efforts to
combat offshore tax evasion.
 33 current TIEA’s, including Monaco, Isle of Man, Jersey and British Virgin Islands
etc.
 ATO say TIEA’s will protect their revenue base by providing access to necessary
offshore information and improving the integrity of the tax system. Protect
compliant businesses/individuals from unfair competition against those who evade
obligations. Provide deterrent to entering into offshore arrangements to avoid or
evade tax.
Transfer Pricing rules and Advance Pricing Agreements
 Arm’s length principle is used.
 Tough new Transfer Pricing rules drafted on 22 Nov 2012, to ensure that Australia’s
TP rules are interpreted as consistently as possible with OECD guidance.
 The ATO maintains an extensive transfer pricing program that involves a mixture of
education and enforcement activities.
 Operated an APA programme since early 90’s, filed 39 in 09/10 FY.
 Wide range of dealings, including tangible goods, business and management
services, it soft/hardware, mineral exports, intangibles, financial services etc.
 Undertaken by agents, distributors, marketers, service providers etc.
 Process consists of pre-filing conferences, formal APA request, evaluation and
negotiation, APA annual report.
Provisions to rule on taxpayers treatment/affairs

Relationships with the tax authority
