Memoire Final

The Future of Tax Havens

As financial regulations tend to be more and more restricted,
What is the future of tax havens?

Mémoire de fin d’études
1

Table of Contents
Introduction........................................................................................................................5
I. What is a tax haven?.....................................................................................................7
A. Some history.....................................................................................................7
B. Definition..........................................................................................................9
C. Criteria to recognize a tax haven......................................................................9
1. Ten general criteria...............................................................................9
2. The OECD criteria................................................................................11
D. Where are the tax havens...............................................................................12
1. Tax havens seeking niche strategies...................................................12
2. Different offshore entities that can be found in tax havens…………….14
II. How do tax havens impact finance globally?..............................................................15

A. Difference between tax compliance, tax evasion and tax avoidance…………..15
1. Tax compliance...................................................................................15
2. Tax avoidance......................................................................................15
3. Tax evasion..........................................................................................15
B. Users of tax havens.........................................................................................16
1. Wealthy people...................................................................................16
2. Corporations.......................................................................................17
a. Why multinational corporations use tax havens?.............17
b. Tax avoidance methods.....................................................18
c. Transfer pricing more in depth..........................................19
3. Banks and consulting firms.................................................................20
4. Governments......................................................................................21
5. Criminals.............................................................................................21
III. Tax havens: good or bad?...........................................................................................22

A. Tax havens and the developed world.............................................................22
1. Global tax competition........................................................................22
a. Tax havens are symbiotic..................................................23
b. Tax havens are parasitic....................................................23
2. Tax havens and financial stability........................................................24
B. Tax havens and the developing world............................................................25
a. Capital flight........................................................................................25
b. Illicit capital flows................................................................................26
C. The world’s money in tax havens....................................................................27
a. Money sheltered in tax havens...........................................................27
b. Money lost because of tax havens......................................................28
IV. How are tax havens regulated?..................................................................................29

A. The OECD……………………..................................................................................29
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1. The lists published right after the G-‐20 summit in London in April
2009....................................................................................................29
a. The white list........................................................................29
b. The grey list….......................................................................30
c. The black list.........................................................................31
2. The current lists..................................................................................31
a. The white list........................................................................31
b. The grey list..........................................................................32
c. The black list no longer exists...............................................33
3. The tax treaties...................................................................................33
B. The Financial Stability Forum (FSF).................................................................34
C. The Financial Action Task Force on Money Laundering (FATF)……….……………35
1. The forty recommendations on money laundering………………………….35
2. The nine special recommendations on terrorist financing……………….36
D. The governments............................................................................................37
1. France..................................................................................................37
a. Tracfin……………………………………………………………………………37
b. The regularization unit at the Ministry of Budget……..……37
c. France’s blacklist of tax havens………………………………………38
2. Italy.....................................................................................................39
3. The United States................................................................................40
a. The IRS voluntary disclosure…………………………………………..40
b. Bills from the US Senate………………………………….……………..40
V. What will be the future of tax havens?.......................................................................43

A. Current context...............................................................................................43
B. Could the world live without tax havens?.......................................................43
C. Taking down offshore finance……………………………………………………………………..44
D. What is left for tax havens after they collapse?..............................................45
E. Conclusion on the future of tax havens……………………………………………………….45
Conclusion…………………………………………..…………………………………………..………………..…………46
Exhibits
• Number of offshore entities in tax havens………………………………………………………..48
• Tax Information Exchange Agreements: list of bilateral agreements signed by
individual jurisdiction (February 2nd 2010)………………………………………………………..50
Glossary…………………………………………..…………………………………………………………………………..53
Bibliography…………………………………………..…………………………………………………………………….54
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Introduction
The rapid rise of offshore-‐related issues such as global tax competition, corporate
scandals, money laundering and terrorist financing has increased the demand for a close
study of the offshore world, and never the international community had been so
determined on the tax havens issue. The recent interest about the subject was born
from two tax evasion scandals and an unprecedented financial crisis since WWII. Mid-‐
February 2008 was revealed that a computer scientist who was working at the
Liechtenstein Global Trust (LCT) – the major bank in Vaduz, Liechtenstein – had sold
confidential information to the German secret services about 1,400 foundations opened
by the bank for the count of hundreds of foreign individuals whose money was
sheltered in the trust. At the very same moment, Switzerland was being trapped
because the revelations of a former UBS wealth manager; Bradley Birkenfield, who
declared that UBS deliberately kept the existence of thousands of offshore accounts
held by American residents from the US Internal Revenue Service (IRS). Maybe both
cases could have been covered up if the timing had not been so bad; if they had not
coincided with the beginning of the 2007-‐10 financial downturn. Following those events,
debates on tax havens’ responsibility in terms of financial stability were revived, and
since then countries have been trying to recover the income tax losses due to tax
evasion.
The recent financial crisis emphasized the noxiousness of too opaque financial markets,
and increased concerns about tax evasion, money laundering, and – even more after
September 2001 – the financing of terrorism have created an unprecedented pressure
on tax havens to give up their traditional selling points such as bank secrecy.
As governments loose both individual and corporate income tax revenue from the
shifting of profits and income into low-‐tax or no-‐tax jurisdictions – more commonly
known as tax havens – during the G-‐20 summit in London in April 2009, developed
countries, in cooperation with international institutions such as the Organization for
Economic Cooperation and Development (OECD) decided to launch a crackdown on tax
4

havens, and since then, they have been multiplying the issuance of new regulations
regarding global offshore finance.
Tax havens are not only conduits for tax avoidance and tax evasion anymore, but are
today completely integrated in the international financial system. They have become a
very powerful instrument of today’s globalized financial system, and also one of the
prime causes of financial instability. Tax havens are places where taxes can be avoided
or evaded; therefore, they leave a gaping hole in most state finances and they are in the
center of a globalization that tends to widen the gap between the extremely rich and
everyone else.1 That is why, undoubtedly, the regulation of tax havens is the key to any
future plan to stabilize financial markets.
After all those regulations are finally implemented, we can ask ourselves what will be
the future of tax havens? To address this question, we will first try to define what a tax
haven is and where they can be found. Second, we will assess how offshore finance
impacts global finance and whether tax havens are good or bad. Then we will review the
regulatory institutions and the means implemented to control tax havens. Finally, I will
give my personal assessment about the future of tax havens.

1
Chavagneux, Christian, Richard Murphy, and Ronen Palan. 2010. Tax Havens: How Globalization Really Works.
Cornell University Press.
5

I. What is a tax haven?
A. Some history2
The concept of tax haven emerged as an economic response to the principle of taxation
as developed in the book entitled Tax Havens: How Globalization Really Works. Indeed,
ever since the existed, men have been looking for means, legal or illegal, to evade taxes.
The origin and the development of modern tax havens took place during two main
periods of the development of economic globalization; in the end of the nineteenth
century, and in the end of the twentieth century.
The rise of tax havens in the US and in Europe
The earliest examples of modern tax havens emerged in the United States in the 1880s,
in the states of New Jersey and Delaware, and then Vermont, Rhode Island and Nevada.
The reason why tax havens came out there is the more permissive tax environment for
corporations. As capitalism was reaching out to Europe, so was the concept of tax
havens. In the aftermath of World War I, when many European governments sharply
raised their taxes to help pay for reconstruction efforts, when Switzerland – which was
neutral during WWI – could avoid reconstruction costs and therefore, keep its taxes low.
Moreover, as Switzerland was the European country that had the closest model of
governance to the US – federal – it arose as the first offshore center in Europe, closely
followed by Liechtenstein and Luxembourg.
The British Empire

Starting in the early 1930s, the British Empire was starting to emerge, which played an
extremely important role in the development of tax havens. Indeed, until World War II,
a significant part of the world’s economy was handled by the British Empire. First,
Bermuda arose as a tax haven, then The Bahamas, The Channel Islands (Jersey,
Guernsey), and Gibraltar.

2
Ibid.
Chavagneux, Christian, and Ronen Palan. 2006. Les Paradis Fiscaux. La Découverte.
6

The appearance of the Euromarket (aka the “offshore financial market”) and the
Eurodollars3 highly contributed to the City of London becoming the world’s premier
financial center and to the discovery of other offshore financial centers (OFCs) such as
the Isle of Man, the Cayman Islands, Panama etc.
“The Golden Years”, 1960s-‐1990s

This period sets the appearance of new tax havens thanks to the tremendous advances
made in terms of communication and transportation, and to the decolonization. Indeed,
the breakdowns of the British, Dutch, and French empires had a huge impact on the
economic world map and the freshly sovereign states were ready to do whatever it took
to survive on their own.
At that time, the Caribbean, the Pacific atolls, Singapore, Hong Kong, Brunei, Bahrain,
Dubai, the Netherland Antilles, Ireland etc. developed as tax havens.
Tax havens today

Nowadays, tax havens serve all the major financial and commercial centers around the
world and are divided into three groups:
Group
UK-‐based tax havens European tax havens Disparate groups
Centered on the City Specializing in Emulators
of London and fed by headquarter centers, New havens from
Characteristics
the Euromarket financial affiliates, and transition economies
private banking. and Africa
Crown Dependencies Switzerland Panama
Overseas Territories Luxembourg Uruguay
Locations Pacific atolls Ireland Dubai…
Singapore The Netherlands…
Hong Kong…
Source: Chavagneux, Christian, and Ronen Palan. 2006. Les Paradis Fiscaux. La Découverte.

3
Deposits denominated in US Dollars at banks outside of the US, and thus, not under the jurisdiction of the Federal
Reserve. Therefore, such deposits are subject to much less regulations than similar deposits within the US, allowing
for higher margins.
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B. Definition
There is no definitive or unquestionable definition of the notion of a tax haven.
A broad definition of tax haven would be: any country that has low or non-‐existent taxes
on capital income.
To be more specific, we can say that tax havens are countries or entities that, in addition
to having low or non-‐existent tax rates on some types of income are also characterized
by a lack of transparency and information sharing, allow for bank secrecy, and require
little or no economic activity for an entity to obtain legal status.4 That is why individuals
and corporations find it attractive to move to areas with reduced or nil taxation levels,
which can create a situation of tax competition among governments.
The IRS definition of a tax haven:

“A tax haven is a country which provides a no-‐tax or a low-‐tax environment. In some
offshore jurisdictions the reduced tax regime is aimed towards entities organized in the
country with all operations occurring outside the country. These countries seek to
encourage investment and make up revenue losses by charging a variety of fees for the
start up of the entity and on an annual basis.”5
C. How to recognize a tax haven
1. Ten general criteria
Generally, tax havens can be identified according to the ten following criteria6:
No-‐tax or low-‐tax for the non-‐residents

Only very few tax havens have no income tax or corporate tax; they essentially get
revenues from commissions. Most of them have a very complex fiscal system that
principally aims to minimize taxation on the non-‐residents’ international fiscal activities.

4
The Organization for Economic Cooperation and Development (OECD) definition of a tax haven
5
Abusive Offshore Tax Avoidance Schemes -‐ Glossary of Offshore Terms. www.irs.gov
6
Chavagneux, Christian, and Ronen Palan. 2006. Les Paradis Fiscaux. La Découverte.
8

A very strong bank secrecy

Confidentiality about financial operations is common implied everywhere, but in tax
havens it is a very special matter specified by the laws. Indeed, their financial
institutions cannot reveal their clients’ origin, nature or name to their own
governments. This characteristic obviously attracts tax evaders and criminal money
laundering.
Professional secrecy
Lawyers, accountants etc… must respect the confidentiality agreements concerning
their clients and their operations, even if they are illegal regarding foreign laws.
A loose registration procedure

To register a company on those territories you do not need very much information.
Open market
Offers a total liberty towards the flows of international funds.
A quick settlement procedure

A company can be implanted in a tax haven promptly. In some territories, companies
can be bought and become active in less than twenty-‐four hours.
The support of a big financial center

Money generally does not stay in tax havens; it is in transit. That is why tax havens need
to be constantly related to the main financial centers.
Economic and political stability are essential for the kind of activities tax havens do
The name of the tax haven should not be (too) associated with corruption or money
laundering operations.
A strong network of bilateral exchange arrangements

Tax havens have generally signed agreements with bigger countries in order to avoid a
double taxation for the companies’ subsidiaries.
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2. The OECD criteria
More specifically, the OECD focuses on four criteria to determine whether a jurisdiction
is a tax haven7:
Whether a jurisdiction imposes no or only nominal taxes

The no or nominal tax criterion is not sufficient by itself to result in characterization as a
tax haven. Indeed, the OECD recognizes that every jurisdiction has a right to determine
if they want to impose direct taxes, and if so, they are free to determine the appropriate
tax rate.
Whether there is a lack of transparency

Transparency ensures that there is an open and consistent application of tax laws
among similarly situated taxpayers and that information needed by tax authorities to
determine a taxpayer’s correct tax liability is available.
Whether there are laws or administrative practice that prevent the effective exchange
of information for tax purposes with other governments on taxpayers benefiting from
the no or nominal taxation
The OECD encourages countries to adopt information exchange on an “upon request”
basis, which describes a situation where a competent authority of one country asks the
competent authority of another country for specific information in connection with a
specific tax inquiry, generally under the authority of a bilateral information exchange
agreement between the two countries. One essential element of exchange of
information is the implementation of appropriate safeguards to ensure adequate
protection of taxpayers’ rights and the confidentiality of their tax affairs.
Whether there is an absence of a requirement that the activity be substantial
This criterion was included because the lack of substantial activities would suggest that
a jurisdiction might be attempting to attract investment and transactions that are purely

7
The Organization for Economic Cooperation and Development website
http://www.oecd.org/document/23/0,3343,en_2649_33745_30575447_1_1_1_1,00.html

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tax driven. Although, this criterion is not relevant determining whether a tax haven is
co-‐operative or not.
We can also talk about offshore territories to mention tax havens. This generally refers
to a territory whose financial center is used by the non-‐residents as a investment or
savings platform. From this side, a tax haven can be considered an offshore place,
whereas an offshore territory is not necessarily defined as a tax haven.
D. Where are the tax havens
According to estimations, there are currently between forty-‐six and sixty active tax
havens in the world, which is a lot compared to the one hundred and ninety-‐two nations
registered at the United Nations. Those tax havens shelter an estimated two million
international business companies (IBCs). About 50% of all international banking lending
and 30% of the world’s stock of foreign direct investment are registered in these
jurisdictions.8
1. Tax havens are seeking niche strategies
All the territories do not offer the same services. Along the way, they specialized
themselves, looking to develop niches offering specific privileges to their clients
(individuals as well as corporations). These offshore financial centers can be classified
into seven categories9:
Territories specialized in shell corporations

Montserrat and Anguilla are good examples of this kind of jurisdictions. These financial
centers are used to register offshore companies or carry out transactions registered in
other tax havens. We can recognize them thanks to their weak regulation and
transparency.

8
9
Ibid.
Harel, Xavier. 2010. La Grande Evasion – Le Vrai Scandale des Paradis Fiscaux. LLL.
11

The “secret” territories

Such as Liechtenstein, Turks and Caicos, Singapore or Dubai. Secrecy is their main asset
and is considered absolutely paramount and is heavily protected.
Territories offering services related to their geographic location

The British Virgin Islands (BVI) for example, are very appreciated by China, whose many
offshore companies are associated to round-‐tripping10. Americans uses Panama, the
British use Jersey, Australians use Vanuatu…
Territories specialized in any specific financial service

Bermuda or Guernsey are specialized in reassurance, whereas the Cayman Islands are
the most famous destination for hedge funds, and the Isle of Man has set out to secure
a market in companies floating on the United Kingdom’s Alternative Investment Market
(AIM).
Territories used as market entry conduits

Those tax havens seek to earn a margin by attracting transactions thanks to their low
taxes and from the routing of transactions through their domain. Most of those
jurisdictions are not considered as full-‐fledged tax havens. For example, developing
countries use Malta and Cyprus to make their assets enter the European Union.
Mauritius works with India. The Netherlands, Belgium, and Luxembourg act as a location
for holding companies for investment throughout Europe.
Territories specialized in wealth management

Switzerland, London, or New York possess the necessary financial stability and
infrastructures (banks) to attract the wealthiest people, to manage their funds, and to
ensure that those people can interact with their fund manager relatively easily.

10
When an investor will use an offshore company to invest in his country instead of directly investing himself from his
own country.
12

Territories specialized in relocation for tax purposes
Ireland and Delaware are the best examples. Theses countries seek the relocation of
profits to their domains. Indeed, there, profits would be taxes at a lower rate than
elsewhere, but where a high level of financial security and limited risk are offered.
2. Different offshore entities that can be found in tax havens
See Exhibit #1
• International Business Corporations (IBCs): most of these entities are found in the
British Virgin Islands which are the largest supplier of IBCs, reaching 800,000 in 2007.
• Banks
• Trusts
• Insurance Companies
• Mutual Funds
• Hedge Funds: the size of this industry was believed to be approximately %1.5 trillion
in 200611.
• Internet gaming companies

11
13

II. How do tax havens impact finance globally
A. Difference between tax compliance, tax avoidance and tax evasion
Dennis Healey, former UK chancellor of the exchequer, once described the difference
between tax avoidance and tax evasion as being «the thickness of a prison wall».
The main purpose of using tax havens is to avoid and evade taxes. It is important to note
the difference between tax optimization and tax evasion.
1. Tax compliance
Tax compliance occurs when an individual or a company seeks to comply with tax laws
in the countries in which they operate, and thus, pay the right amount of tax required
by the law, when and where it is due.
2. Tax avoidance
Tax avoidance or tax optimization is between tax compliance and tax evasion. Tax
optimization results from the taxpayer’s ability to manage its fiscal affairs in his best
interest but in a legal way. That is to say that individuals or companies will pay taxes, but
less than they should, they will seek to pay taxes on profits declared in a country other
than the one they were really earned in, and finally, they will manage to pay those taxes
later than when the profits were earned.
3. Tax evasion
Tax evasion, on the other hand, goes beyond simple optimization, covers real
dishonesty, and is generally a problem of lack of information. Tax evasion occurs when
an individual or a company seek to consequently reduce its tax bill and thus, fail to
declare all or part of their income. Tax evasion is considered a crime in most countries
14

but in countries such as Liechtenstein or Switzerland it is only considered a civil

offence12.
To combat it, several measures such as resources for enforcement, increased

information sharing, and withholding can be put in place. Whereas avoidance is more
likely to be taken care of by changes in tax codes13. Unfortunately, tax fraud and even
more tax evasion are very difficult to estimate. Indeed, it is complicated to determine
the share of money passing through tax havens in a world that has no international tax
regulations.
B. Users of tax havens
1. Wealthy people
In 2007, the “global rich” held around $12 trillion of their wealth in tax haven
jurisdictions14. In the first place these people seek to avoid taxation, but they also seek
to avoid regulations such as the financial and business rules and norms that states
introduced to maintain order and stability. The global tax competition led to a
significant decrease on the income tax rate over the past 25 years, in order for countries
to be able to compete with tax havens in terms of attracting or keeping their residents’
assets onshore.
Evolution of the income tax rate (percentages)
1986 2008
United States 50 35
United Kingdom 60 40
Germany 56 42
Italy 50 43
France 57 40
Netherlands 72 52
Source: French Ministry of Economic Affaires, 2008.

12
13
Gravelle, Jane G. 2009. Tax Havens: International Tax Avoidance and Evasion. National Tax Journal Vol. 62 Issue 4.
Chavagneux, Christian, Richard Murphy, and Ronen Palan. Op. cit.
14
15

2. Corporations
If a firm is able to shift its profits to a low-‐tax jurisdiction from a high-‐tax one, its taxes
will be reduced without affecting the company’s economic activity.
In 2007, the head of the OECD offshore unit, Jeffrey Owens, declared, “between five and
seven trillion US dollars are located in tax havens”.
a. Why multinational corporations (MNCs) use tax havens
It is obvious that MNCs use tax havens because they offer lower nominal corporate tax
rates. As for tax on income for individuals, we can see in the following table that
wherever it is in the world, the global tax competition led to a significant cut in nominal
tax corporate tax rates over the past 25 years, in order for onshore territories to be able
to compete with tax havens in terms of attracting or keeping MNCs implanted in their
jurisdictions.
Evolution of the nominal tax rates of corporate tax (percentages)
1986 2006 Gap

Germany 56 26,37 -‐29.63

Austria 50 25 -‐25

Belgium 45 33,99 -‐11.01

Denmark 50 28 -‐22
Spain 35 35 0
Finland 33 26 -‐7
France 45 33,3** -‐9.6
Greece 49 29 -‐20
Ireland 50 12.5 -‐37.5
* The tax rate depends on
Italy 36 33 -‐3
the profits being reinvested
Luxembourg 40 22 -‐28 or not
Netherlands 42 25.5/29.6*** -‐7.5
Portugal 42/47* 27.5 -‐14.5/-‐19.5 ** The rate is of 15% for the
UK 35 0/30*** -‐5 small and medium-‐sized
Sweden 52 28 -‐24 enterprises (SMEs)
European Union 44.3 29.8 -‐14.5
*** Progressive scale
USA 46 15/38*** -‐31/-‐8
Japan 50 30 -‐20

Source: ATTAC Report. September 2009.
16

b. Tax Avoidance Methods
The multinational corporations can lower their taxes completely legally by15:
Deferring the payment of its taxes

For example, in the US, as long as the profits generated abroad are not repatriated on
the US territory, they are not subject to taxation.
Allocating debt
One of the commons profit-‐shifting practices is to borrow more in high-‐tax jurisdictions
and less in low-‐tax ones. For example, a subsidiary located in a tax haven, lends money
to the parent company that will deduct the interests from borrowing off its taxes.
Locating the intellectual property (patents, brands, licenses…) in an offshore

jurisdiction
A subsidiary located in an offshore jurisdiction will earn the royalties generated by the
use of the patents, brands or licenses by the parent company or by the other
subsidiaries of the group.
Manipulating transfer pricing between multinational corporations’ related affiliates

Around 60% of the world trade consists of transfers internal to multinational
corporations16 who determine transfer prices to their goods and services, theoretically
according to the market price. Indeed, prices of goods and services sold by related
companies should normally be the same as prices that unrelated parties would pay, in
order to reflect income properly. Though, as the choice of the transfer price will affect
the allocation of the total profit among the parts of the company, those prices can
obviously be manipulated in order to locate the profits in low-‐tax environment countries
and the costs in countries where taxes are high.
Relocating the headquarters in tax haven territories

15
Harel, Xavier. 2010. La Grande Evasion – Le Vrai Scandale des Paradis Fiscaux. LLL.
16
17

c. Transfer pricing more in depth
Transfer pricing is the price charged by corporations for intra-‐group cross-‐border sales
of goods and services. Transfer pricing is not just used to shift profitable business to
low-‐tax jurisdictions, but also to generate costs in countries that offer financial support.
As mentioned above, more than 60% of all international trade is made intra-‐company,
which makes abusive transfer pricing very popular. Those 60-‐65% represent an annual
flow of between $600 and $1 trillion17. Transfer pricing is a legitimate practice when
using an “arm’s length principle” which consists in companies charging for their goods
and services at prices equivalent to those that unrelated entities would charge in an
open market18. Though, the techniques used to manipulate them are abusive. The
manipulation of transfer pricing happens during transactions made between
multinational corporations related affiliates. Those techniques basically consist in “mis-‐
invoicing” for trade transactions and can be done in four ways by19:
Under-‐invoicing the value of exports to a tax haven from the country from which cash
is to be expatriated
Then, the goods are sold from the tax haven at full value, the excess earned on onward
sale being the value of the flight capital.

17
Estimate made by Raymond Baker in Capitalism’s Achilles Heel. 2005.
18
OECD, 2001.
19
18

Over-‐invoicing the value of imports into the country from which cash is to be
expatriated
The excess part constitutes capital flight and is generally deposited in the importer’s
offshore bank account.
Misreporting the quality of imported products in order to justify the value of the over-‐
or under-‐statement
Misreporting quantities in order to justify the value of the over-‐ or under-‐statement
Creating fictitious transactions for which payment is made

For example, paying for imported goods or services that never materialize.
3. Banks and consulting firms
Banks are significantly implanted in tax haven territories and often help their wealthy
clients to escape from their tax duties.
Consulting firms also play a major role in the use of tax havens by multinational
corporations. Those financial packages (generally illegal) offered by big consulting firms
to their clients allow them to transfer their money to offshore locations.
Michigan Senator Carl Levin has been investigating on the consulting firms’ role for a
long time, regarding individuals’ and corporations’ tax evasion in the United States, and
more particularly on KPMG. In February 2004, during an interview he gave to the
newspaper Front Line, he stated «We know [the IRS] KPMG did telemarketing, where
they would have lists of people who made a lot of money the previous year, and they are
getting cold calls from telemarketing people saying ‘We know you made a lot of income.
Do you want to pay less tax on that income?’ And the people who are supposed to pay
taxes would say ‘Well, is it legal? Is it proper?’ And KPMG people would say ‘Yes, we got
19

a legal opinion saying it is proper’.»20.
More recently -‐ at the end of the year 2007 -‐ four partners from Ernst&Young were
judged guilty for offering illegal financial plans to their clients in order for them to evade
taxes21. This case took place four years after they promised they would not do it again,
following a similar case that occurred in 200322.
Senator Carl Levin estimated that so far approximately $15 billion have been transferred
to offshore centers thanks to consulting firms. Therefore, the IRS made consulting firms
pay several high fines for tax evasion cooperation. At the end of February 2005, about
ten KPMG partners and associates were charged for a several billion dollars tax evasion.
In order to stop the prosecution, KPMG agreed to pay $456 million23.
4. Governments
Besides corrupted country leaders who betray their countries in order to make
themselves richer, like former President of Gabon, Omar Bongo, who held an important
amount of assets offshore, governments often use tax havens in order to finance their
extraterritorial operations.
5. Criminals
Criminals use tax havens to launder their money, to finance terrorism or to hide
corruption because of the anonymity and the bank secrecy tax havens offer. Indeed, tax
havens have never paid much attention to the origin of the money they were sheltering
even since the appearance of the Financial Action Task Force on Money.

20
Frontline: Tax Me If You Can. Interview of Senator Carl Levin. 2004.
http://www.pbs.org/wgbh/pages/frontline/shows/tax/interviews/levin.html
21
Chasan, Emily. 03.30.2007. Ernst&Young partners charged in tax fraud case. Reuters.
http://www.reuters.com/article/idUSN3041538520070530
22
Kansas City Business Journal. 06.02.2003. Ernst&Young IRS tax shelter issue for $15 million.
http://kansascity.bizjournals.com/kansascity/stories/2003/06/30/daily28.html
23
IRS website. 08.29.2005. KPMG to Pay $456 Million for Criminal Violations.
http://www.irs.gov/newsroom/article/0,,id=146999,00.html
20

IV. Tax havens: good or bad?
Tax havens developed in a context of financial globalization, of which one of the main
characteristics is the existence of a strong tax competition among countries; countries
that implement policies in order to strengthen their fiscal attractiveness.
A. Tax havens and the developed world
1. Global tax competition
As tax havens offer low or zero tax rates to nonresident corporations and residents, they
obviously encourage tax competition between states. Indeed, in order to attract
economic activity and businesses implantations, states have been developing strategies
such as targeted industrial policies, the provision of cheap R&D funds, infrastructural
support, state subsidies etc. (Palan, 1998). In addition to that, tax havens have been
emerging with their low or nil taxes, and therefore governments have been pressured to
lower their proper taxes in order to stay competitive. That is why the rate for corporate
taxation has been declining world widely. For example, in the European Union the
average nominal corporate taxation dropped from 35% in 1995 to 25% in 2007. Not only
the tax competition developed among states, but also within states in countries with
federal systems, such as Switzerland or the United States24.
There are two different points of view about tax havens and global tax competition.
Those who support international tax competition tend to consider tax havens as adding
a competitive edge, and those who are not in favor of international tax competition
tend to consider tax havens as harmful and parasitic for the global economy25.

24
25
Ibid.
21

a. Tax havens are symbiotic
From the states points of view, especially very small states, implanting an offshore
financial center promoting the easy establishment of a corporation on their territories is
a way to diversify and boost the local economy. Indeed, profits they might earn are
numerous, in terms of tourism for example. In addition to that it allows those
jurisdictions to benefit from a real financial expertise.
From another point of view, people who think that global tax competition is positive
support the neoclassical idea that tax competition increases efficiency. Indeed,
according to Hong and Smart (2006)26, “While income transfer to tax havens may reduce
revenues of high-‐tax jurisdictions, it tends to make the location of real investment less
responsive to tax rate disparities. Therefore, in principle, the presence of international
tax planning opportunities allows countries to maintain and even raise high corporate
tax rates, while preventing an outflow of FDI”. Their conclusion here is that tax havens
are nothing more than “pipes” for capital flows.
b. Tax havens are parasitic
Being used by only a small amount of economic agents – the wealthy and the
multinational corporations – global tax competition contributes to a distributional shift.
Indeed, since corporations and wealthy people are sending their money offshore, the
governments have to raise the tax rates in order to fill in the gap, therefore, the people
who do not belong to those categories have to bear the costs27. In the past ten years,
the tax to GDP ratio in most of the OECD countries rose by an average 1.3%28.
The full or partial elimination of tax havens would improve welfare in non-‐haven
countries. Indeed, tax heavens’ activities lead to a wasteful expenditure of resources,

26
Hong, Qing and Smart, Michael. 2006. In Praise of Tax Havens. University of Toronto.
http://repec.economics.utoronto.ca/files/tecipa-‐265-‐1.pdf
27
28
Tax Burdens Falling in OECD Economies as Crisis Takes its Toll. OECD website:
22

both by firms (in their participation in havens), and by governments (in their attempts to
enforce their tax codes). Additionally, tax havens worsen tax competition problems by
causing countries to reduce their tax rates further below levels that are efficient from
the viewpoint of all countries combined. Either full or partial elimination of havens is
found to be welfare improving and countries would be better off if they agreed to
increase their tax rates and lower enforcement. Doing so would raise the demand for
the services provided by tax havens, which would raise the effective price of these
services and thereby discourage their use.29
2. Tax havens and global financial stability
The question of the involvement of tax havens in financial crises was not raised until the
late 1990s, in the aftermath of the Asia financial crisis and the collapse of the hedge
fund LTCM – i.e. when the Financial Stability Forum was created. Before that, tax havens
were seen as a minor problem of tax avoidance and evasion. Even though economists
share the thought that offshore finance strengthens the global financial system, the
most common thought is about how little tax havens contribute to the health and the
strength of the global financial system. The best judge on this issue is the Financial
Stability Forum and it assesses that tax havens raise two fundamental issues:
supervision and systemic risk. Indeed, offshore centers add a more opacity to an already
pretty opaque financial system.30
As major actors in the globalization of finance, tax havens have heavily contributed to
widening the gap between the rich and the poor and as most developing countries lack
sophisticated and well rounded tax systems, tax havens might play an important role in
shaping the economies of the South.

29
Slemrod, Joel, John D. Wilson. 2009. Tax Competition with Parasitic Tax Havens. Journal of Public Economics.
30
23

B. Tax havens and the developing world
Developing countries lack of sophisticated tax systems and in addition to that, tax
havens offer multinational corporations a huge competitive advantage compared to
what they offer to local small and medium-‐sized companies; i.e. MNCs find tax havens
way more attractive to shelter their money than local financial institutions.
1. Capital flight
Raymond Baker, an expert on international capital flight, describes illicit capital flight as
“money illegally earned, illegally transferred, or illegally utilized if it breaks the laws in
its origin, movement, or use”31. It results from voluntary misreporting, and in
combination with opacity and bank secrecy provided by tax havens, it has become very
hard for regulatory institutions to identify the flows of capital flight. When people or
MNCs send their money offshore, the money that is supposed to go to the states such
as income taxes, don’t, therefore the tax burden is transferred on poor people. In the
case of an economic downturn, tax havens draw people’s assets and contribute to
destabilize the monetary equilibrium and then lead to currency devaluations.
50% of the international financial flows – illicit or not – pass through tax havens, causing
a real financial outflow for the developing countries’ economies. This phenomenon is
not new; according to the United Nations Conference of Trade And Development
(UNCTAD)32, the capital drain in African countries between the sixties and the nineties
would represent $400 billion, i.e. almost twice as much as their debt, which at that time
amounted for $215 billion. The same study evaluates that the capital drain amounts for
$13 billion per year on average, between 1991 and 2004, i.e. around 7% of the
continent’s annual GDP33.

31
Baker, Raymond. 2005. Capitalism’s Achilles Heel: Dirty Money and How to renew the free-‐market system. John
Wiley and Sons, Inc.
32
World Investment Report: Transnational Corporations, Extractive Industries and Development. UNCTAD, 2007.
www.unctad.org/en/docs/wir2007_en.pdf
33
Gross Domestic Product.
24

2. Illicit capital flows
Because of the flows of illicit money transfers, tax havens have had a very significant
impact on development countries. As we can see on this map, and according to a study
conducted by the Global Financial Integrity in 200834, illicit money transfers coming from
developing countries to developed countries amount to between $850 and $1,000
billion annually, and many of those transfers are made possible by tax havens. As shown
on the map, we can also see that the amount of illicit financial outflows going from
countries in the South to countries in the North represent eight to ten times the current
development aid flow. Oxfam International estimates that an additional $100 billion of
annual aid for development are necessary in order to reach the Millennium
development goals in order to reduce poverty by half35. On top of that, a very
considerable portion of the Third-‐World debt was placed in Swiss and other key offshore
financial centers’ banks, whereas international institutions such as the International
Monetary Fund (IMF) insisted on the fact that Third-‐World countries had to take on the
burden of their debt payments36.

34
Dev, Kar, and Devon Cartwright-‐Smith. 2008. Illicit Financial Flows From Developing Countries: 2002-‐2006. Global
Financial Integrity: www.financialtaskforce.org/wp-‐content/uploads/2009/04/illicit-‐financial-‐flows-‐executive-‐
report.pdf
35
Oxfam International Report. 2008. Credibility Crunch. Food, poverty and climate change: an agenda for rich-‐country
leaders. http://www.oxfam.org/policy/credibility-‐crunch
36
25

Baker’s most recent estimates of cross-‐border illicit money flows oscillate between $500
and $800 billion per year37.
The money lost by developing countries because of financial outflows is really important
and those billions of dollars lost could provide the Third-‐World’s economies with a vital
boost and could be spent on fighting poverty. Reliable tax systems have to be
established in developing countries in order to prevent money from being siphoned
offshore.
C. The world’s money in tax havens
1. Money sheltered in tax havens
The World Bank estimates the global money flows at $1 to $1.6 trillion annually, and as
mentioned above, 50% of the world’s financial flows pass through tax havens. According
the International Monetary Fund (IMF), those jurisdictions shelter 4,000 banks, two
thirds of the world’s hedge funds, and two millions of shell corporations.
As stated in a report on tax haven banks and US tax compliance from the US Senate38,
the total amount of assets sheltered offshore by wealthy non-‐resident individuals
represents more than $11 trillion, resulting in $255 billion in annual lost tax revenues

37
Ibid.
38
US Senate Permanent Subcommittee on Investigations. 07.17.2008. Report on Tax Haven Banks and US Tax
Compliance. http://hsgac.senate.gov/public/_files/071708PSIReport.pdf
26

worldwide. The same study shows that among those $11 trillion, $1.5 trillion are
sheltered in the four following tax havens: Isle of Man: $150 billion, Guernsey: $293
billion, Jersey: $491 billion, and Switzerland: $807 billion, and that in early 2008, the
Cayman Islands only were holding $2 trillion in the 10,000 UCITS39 such as hedge funds.
Estimation of the assets held offshore

Source Amount Type of assets Cited documents
Tax Justice Network $11,500 billion Assets held offshore by The Price of
(2005) individuals Offshore, 2005.
Oliver Wyman Group $8,000 billion Assets held offshore by The Future of
(2008) High-‐Net Worth Private Banking,
Individuals (HNWI) March 2008.
Boston Consulting $7,300 billion Assets held offshore in Global Wealth
Group (2008) general Report, 2008.
Source: OCDE, 2008.
2. Money lost because of tax havens
The worldwide tax fraud is estimated at $350 to $500 billion according to a study
conducted by the World Bank and the UNCTAD. The European Committee believes that
it corresponds to 2 to 2.5% of the total European GDP.
Recently, the US Treasury announced that it lost $100 billion in tax revenue due to the
existence of tax havens40. In Germany, the money lost because of tax havens is
evaluated at $30 to $40 billion. In Belgium, neighbor of one of the most famous tax
haven – Luxembourg – the amount of money put away in Luxembourg by Belgians is
close to $250 billion. In Italy, the sum of illicit exported capital reaches $800 billion, of
which $430 billion are in Switzerland. Finally in France, the total amount lost in tax
revenue is evaluated at $20 to $30 billion41.

39
Undertaking for Collective Investment in Transferable Securities (equivalent of OPCVM in French)
40
US Senate Permanent Subcommittee on Investigations. 07.17.2008. Report on Tax Haven Banks and US Tax
Compliance. http://hsgac.senate.gov/public/_files/071708PSIReport.pdf
41
France. Rapport d’Information l’Assemblée Nationale sur les Paradis Fiscaux. 09.10.2009. http://www.assemblee-‐
nationale.fr/13/rap-‐info/i1902.asp
27

IV. How are tax havens regulated?
The current war against tax havens started at the end of the 1990s when international
organizations and governments coordinately started to address harmful tax
competition. In 1998 the OECD developed its campaign against harmful tax competition
following a request from the G742, the Financial Stability Forum (FSF) tackled financial
stability, and the Financial Action on Tax Force (FATF) money laundering.
A. The Organization for Economic Cooperation and Development (OECD)
During the G20 summit that took place in London at the beginning of April 2009, the
G20 leaders launched the most important crackdown on tax havens and asked the OECD
to issue a list of countries that are failing to comply with its guidelines concerning tax
compliance. Following this request, the OECD updated its former list published in 2000
and published a new one on April 2nd 2009. The OECD actually divided the tax havens
into three lists: the white list, the grey list, and the black list, according to its four key
criteria used to determine whether a jurisdiction is a tax haven (mentioned above).
1. The lists published right after the G20 summit in London in April 2009
a. The white list
The white list compiles the jurisdictions that have substantially implemented the
internationally agreed tax standard on April 2nd 2009.

42
At the time: Canada, France, Germany, Italy, Japan, United Kingdom, United States
28

White list on April 2nd 2009
Argentina Germany Korea Seychelles

Australia Greece Malta Slovak Republic
Barbados Guernsey Mauritius South Africa
Canada Hungary Mexico Spain
China43 Iceland Netherlands Sweden
Cyprus Ireland New Zealand Turkey
Czech Republic Isle of Man Norway United Arab Emirates
Denmark Italy Poland United Kingdom
Finland Japan Portugal United States
France Jersey Russian Federation US Virgin Islands
Source: OECD, 2009.
b. The grey list
The grey list compiles the jurisdictions that have committed to the internationally
agreed tax standards, but have not yet substantially implemented on April 2nd 2009.
Grey list on April 2nd 2009
Jurisdiction Year of Number of Jurisdiction Year of Number of
Commitment Agreements Commitment Agreements
Tax Havens44
Andorra 2009 0 Marshall 2007 1
Anguilla 2002 0 Islands
Antigua & 2002 7 Monaco 2009 1
Barbuda Montserrat 2002 0
Aruba 2002 4 Nauru 2003 0
Bahamas 2002 1 Neth. Antilles 2000 7
Bahrain 2001 6 Niue 2002 0
Belize 2002 0 Panama 2002 0
Bermuda 2000 3 St Kitts and 2002 0
BVI 2002 3 Nevis
Cayman 2000 8 St Lucia 2002 0
Islands St Vincent & 2002 0
Cook Islands 2002 0 Grenadines
Dominica 2002 1 Samoa 2002 0

43
Excluding the Special Administrative Regions, which have committed to implement the internationally agreed tax
standard.
These jurisdictions were identified in 2000 as meeting tax haven criteria as described in the 1998 OECD report.
44
29

Gibraltar 2002 1 San Marino 2000 0

Grenada 2002 1 Turks & 2002 0
Liberia 2007 0 Caicos Islands
Liechtenstein 2009 1 Vanuatu 2003 0
Other Financial Centers
Austria 2009 0 Guatemala 2009 0
Belgium 2009 1 Luxembourg 2009 0
Brunei 2009 5 Singapore 2009 0
Chile 2009 0 Switzerland 2009 0
Source: OECD, 2009.
c. The black list
The black list compiles the jurisdictions that had not committed to the internationally
agreed tax standard on April 2nd 2009.
Black list on April 2nd 2009
Jurisdiction Number of Jurisdiction Number of

Agreements Agreements
Costa Rica 0 Philippines 0
Malaysia (Labuan) 0 Uruguay 0
Source: OECD, 2009.
2. The current lists
On February 18th 2010, the OECD published a progress report on the jurisdictions
surveyed by the OECD Global Forum in implementing the internationally agreed tax
standard.
a. The white list
The white list compiles the jurisdictions that have substantially implemented the
internationally agreed tax standard on February 18th 2010.
30

White list on February 18th 2010
Antigua & Barbuda Denmark Jersey Samoa

Argentina Estonia Korea San Marino
Aruba Finland Liechtenstein Seychelles
Australia France Luxembourg Singapore
Austria Germany Malaysia Slovak Republic
Bahrain Gibraltar Malta Slovenia
Barbados Greece Mauritius South Africa
Belgium Guernsey Mexico Spain
Bermuda Hungary Monaco Sweden
BVI Iceland Netherlands Turkey
Canada India Netherlands Antilles Turks & Caicos Islands
Cayman Islands Ireland New Zealand United Arab Emirates
Chile Isle of Man Norway United Kingdom
China45 Israel Poland United States
Cyprus Italy Portugal US Virgin Islands
Czech Republic Japan Russian Federation
Source: OECD, 2010.
b. The grey list
The grey list compiles the jurisdictions that have committed to the internationally
agreed tax standards, but have not yet substantially implemented on February 18th
2010.
Grey list on February 18th 2010
Jurisdiction Year of Number of Jurisdiction Year of Number of
Commitment Agreements Commitment Agreements
Tax Havens46
Andorra 2009 10 Montserrat 2002 2
Anguilla 2002 11 Nauru 2003 0
Bahamas47 2002 10 Niue 2002 0
Belize 2002 2 Panama 2002 0
Cook Islands 2002 11 St Kitts and 2002 9
Dominica 2002 1 Nevis
Grenada 2002 1 St Lucia 2002 5

45
Excluding the Special Administrative Regions, which have committed to implement the internationally agreed tax
standard.
46
These jurisdictions were identified in 2000 as meeting tax haven criteria as described in the 1998 OECD report.
31

Liberia 2007 0 St Vincent & 2002 8

Marshall 2007 1 Grenadines
Islands Vanuatu 2003 1
Other Financial Centers
Brunei 2009 8 Philippines 2009 0
Costa Rica 2009 1 Uruguay 2009 4
Guatemala 2009 0
Source: OECD, 2010.
c. The black list no longer exists
On February 18th 2010, all jurisdictions surveyed by the Global Forum have committed
to the internationally agreed tax standard so the black list disappeared.
3. The Tax treaties
Tax treaties exist between many countries on a bilateral basis in order to prevent double
taxation. Double taxation can mean that taxes would be levied twice on the same
income, profit, capital gain, inheritance, or some other item, by both the country of
residence of a person or a corporation and the country where the person or the
corporation is settled. Those tax treaties can be known as Tax Information Exchange
Agreements (TIEAs)48.
The TIEA was developed in response to the OECD Report “Harmful Tax Competition: An
Emerging Global Issue” which identified “the lack of effective exchange of information”
as one of the main criteria in determining harmful tax practices.
The purpose of this Agreement is to address harmful tax practices by promoting
international co-‐operation in tax matters through exchange of information. It was
developed by the OECD Global Forum Working Group on Effective Exchange of
Information (also known as “the Working Group”). The Agreement is presented as both

47 th
The Bahamas signed tax information exchange agreements (TIEAs) on March 10 2010 with seven Nordic countries,
which now brings its bilateral accords signed to 18. Thus, it has passed the required 12 agreements to be removed
from the OECD "grey list". (Reuters, 03.10.2010).
48
OECD website. Tax Information Exchange Agreements.
32

a multilateral instrument and a model for bilateral treaties or agreements49.
B. The Financial Stability Forum (FSF)
It was established in 1999 to contribute to the building of a “new financial architecture”
after the crisis of the Asian financial crisis. The FSF is not initially directly related to tax
havens. The FSF is composed of large and rich countries that define universal standards
and rate how nonmember jurisdictions measure up.
In 2000, the FSF adopted the “name and shame” method and listed forty-‐two countries
as non-‐cooperative, which were divided into three groups according to their estimated
level of risk50:
(1) Co-‐operative jurisdictions with a high quality of supervision
(2) Jurisdictions having procedures for supervision and co-‐operation where actual
performance falls below international standards
(3) Jurisdictions with a low quality of supervision and non-‐co-‐operation
(1) (2) (3)

Hong Kong SAR Andorra Anguilla Seychelles
Luxembourg Bahrain Antigua and Barbuda St. Kitts and Nevis
Singapore Barbados Aruba St. Lucia
Switzerland Bermuda Bahamas St. Vincent and the
Ireland Gibraltar Belize Grenadines
Guernsey Labuan (Malaysia) BVI Turks and Caicos
Isle of Man Macau SAR Cayman Islands Vanuatu
Jersey Malta Cook Islands
Monaco Costa Rica
Cyprus
Lebanon
Liechtenstein
Marshall Islands
Mauritius
Nauru
Netherlands Antilles
Niue
Panama
Samoa
Source: Financial Stability Forum, 2000.

49
Agreement on exchange of information on tax matters. OECD. www.oecd.org/dataoecd/15/43/2082215.pdf
50
Financial Stability Forum, 2000.
33

C. The Financial Action Task Force on Money Laundering (FATF)
The FATF is an intergovernmental organization established in 1989 by the G7. Its

purpose is to develop policies and make recommendations on legislative and regulatory
measures in order to combat money laundering and terrorist financing at international
and national levels.
The role of the Task Force is to monitor the members’ ability to apply necessary
measures, to examine money laundering and terrorist financing techniques and
counter-‐measures, and finally to encourage the adoption and implementation of
appropriate measures both nationally and globally To do so, the FATF joins forces with
other international organizations specialized in combating money laundering and
terrorist financing. The FATF is composed of thirty-‐five members and reviews its mission
every five years. The Task force has standards that are comprised of forty
recommendations on money laundering and nine special recommendations on terrorist
financing51.
In 2000 the FATF published the first list of Non-‐Cooperative Countries and Territories,
recording the jurisdictions accused of failing to meet minimum standards. By showing
that it has initiated and is implementing legislations on money laundering, a jurisdiction
can be removed from the list52.
1. The forty recommendations on money laundering53
Those recommendations emphasize the role of national laws in combating money

laundering. They have been adopted by many international organizations. The forty
recommendations were initially developed in 1990 but were revised several times since
and a lot of countries have used them in order to fight against money laundering.

51
The FAFT website: http://www.fatf-‐gafi.org
52
53
The FAFT website. The Forty Recommendations. http://www.fatf-‐
gafi.org/document/28/0,3343,en_32250379_32236920_33658140_1_1_1_1,00.html
34

After the issuance of those forty recommendations, most tax havens announced that
they were ready to cooperate with the FATF. Indeed, Switzerland, Jersey, and the
Cayman Islands passed the recommendations into laws very quickly. Let’s take the
example of Switzerland who started penalizing insider trading in 1988, money
laundering in 1990, stock-‐market manipulation in 1997, and bribery of foreign officials in
200054.
2. The nine special recommendations on terrorist financing55
Following the terrorist attacks of September 2001, the United States realized that they
should be worrying more about terrorist financing through tax havens; that is why the
FATF then published those nine special recommendations on terrorist financing.
The nine special recommendations to combat the financing of terrorism are the
following:
I. Ratification and implementation of UN instruments
II. Criminalizing the financing of terrorism and associated money laundering
III. Freezing and confiscating terrorist assets
IV. Reporting suspicious transactions related to terrorism
V. International co-‐operation
VI. Alternative remittance
VII. Wire transfers
VIII. Non-‐profit organizations
IX. Cash couriers

54
Ibid.
55
The FATF website. 9 Special Recommendations (SR) on Terrorist Financing (TF). http://www.fatf-‐
35

D. The governments
Still in order to keep up the tax competition and to bring (or bring back) wealth on their
territories, countries adopt measures such as fiscal amnesty, like in Italy or in the US. In
France, on the other hand, a regularization unit based on voluntarism was implemented
during eight months.
1. France
a. Tracfin
Tracfin, created in 1990, is composed of seventy agents working in cooperation with the
French customs and contributes to the protection of the national economy by fighting
against illicit financial flows, money laundering, and terrorist financing56. Its mission is to
gather, process, and diffuse information. Tracfin has become one of the most powerful
departments of the French administration and its database is one of the most secured in
the country. In 2009, Tracfin handed 384 cases to the Court57.
b. The regularization unit at the Ministry of budget
The French Ministry of budget implemented this office in order to encourage French tax
evaders to regularize their situation. This unit was opened during eight months (from
April 1st, 2009 to December 31st, 2009), attracted 3,500 taxpayers, helped repatriate
around €6 billion ($8.5 billion) and generated €700 million ($1 billion) revenues58.
The modalities of regularization are the following59:

• Immediate payment of the taxes due (tax income, wealth tax, inheritance tax) in the
limit of legal prescription

56
Tracfin website: www.tracfin.gouv.fr
57 Delahousse, Matthieu. 02.16.2010. Comment l’Etat traque l’argent sale. Le Figaro.
58
AFP. 01.12.2010. Evades Fiscaux: Woerth, la cellule de Bercy a rapporte 700 millions d’euros. Le Point.
http://www.lepoint.fr/actualites-‐economie/2010-‐01-‐12/comptes-‐suspects-‐evades-‐fiscaux-‐woerth-‐la-‐cellule-‐de-‐bercy-‐
a-‐rapporte-‐700-‐millions/916/0/412767
59
French government tax website:
http://www.impots.gouv.fr/portal/dgi/public?paf_dm=popup&paf_gm=content&pageId=particuliers&espId=1&typeP
age=cpr02&paf_gear_id=500018&docOid=documentstandard_5735&temNvlPopUp=true
36

• Late payment interests and penalties
Following this regularization unit, an electronic file, “Evafisc”, will be created soon in
order to keep a record of French taxpayers holding offshore bank accounts, registered
or not. This system will be used by the French tax department to launch investigations
accordingly.
c. France’s blacklist of tax havens
On February 14th 2010, referring to the finance law for 2009 (“loi de finances
rectificative pour 2009”), French Secretary of Budget, Eric Woerth, and Secretary of
Economic Affaires, Christine Lagarde have published a black list of eighteen countries
considered as fiscally uncooperative60. This list will remain valid until January 1st 2011. If
by then jurisdictions listed have improved their transparency and are ready to
cooperate and exchange information with France, the list will then be edited.
Following the OECD criteria, the French government considers uncooperative non
European Union member jurisdictions since common law forbids assimilating a country
member of the EU as a tax haven. This is the reason why Luxembourg or Ireland are not
on the list. The territories listed have to be on the OECD grey list, i.e. they still have not
signed tax information exchange agreements with at least twelve countries, and if they
have signed tax information exchange agreements it cannot be with France. This is the
reason why countries such as Malaysia or Andorra are on the OECD grey list but not on
the French one61.
Concretely, the French corporations that are established in the territories listed will be
heavily taxed. For example, as long as they will be paid in a subsidiary located on an
uncooperative territory, the passive income (dividends, interests etc.) will be taxed at

60
Lachevre, Cyril. 02.14.2010. Bercy a bouclé sa liste des paradis fiscaux. Le Figaro.
http://www.lefigaro.fr/impots/2010/02/15/05003-‐20100215ARTFIG00021-‐bercy-‐a-‐boucle-‐sa-‐liste-‐des-‐paradis-‐
fiscaux-‐.php
61
Robequain, Lucie. 02.15.2010. La France publie sa liste noire des paradis fiscaux. Les Echos.
http://www.lesechos.fr/patrimoine/impots/300410508-‐la-‐france-‐publie-‐sa-‐liste-‐noire-‐des-‐paradis-‐fiscaux.htm
37

50%. The law also modified some aspects of the relationship between the parent
company and the subsidiary. Before, the dividends paid by a subsidiary to its parent
company could be tax exempt at 95%. That rule is no longer applicable if the
subsidiaries are established in a jurisdiction that is on the black list62.
The French blacklist
Anguilla Grenada Niue

Belize Guatemala Panama
Brunei Liberia Philippines
Cooks Islands Marshall Islands St Kitts and Nevis
Costa Rica Montserrat St Lucia
Dominican Republic Nauru St Vincent and the Grenadines
Source: Le Figaro, 2010.
2. Italy
In mid-‐July 2009, at the initiative of Giulio Tremonti, the Italian Secretary of Economic
Affairs, Italy launched a fiscal amnesty in order to recover between €3 and €5 billion
(between $4 and $7 billion) of tax revenues63. Indeed, according to estimations, the
black economy accounts for about 19% in Italy and a lot of taxpayers declare inferior
incomes compared to what they really earn. The amount of unpaid taxes in Italy reaches
€250 billion per year, what represents more than the size of the Portuguese
economy!64.
Under the initial conditions of the amnesty, which was supposed to last until December
15th, 2009, Italian tax evaders could declare offshore funds and pay a 5% fee. This
amnesty was a huge success and Italy was able to recover €95 billion ($130 billion) from

62
France. Budget: loi de finances rectificative 2009. Rapport de l’Assemblée Nationale. http://www.assemblee-‐
nationale.fr/13/dossiers/troisieme_collectif_2009.asp
63
Heuze, Richard. 07.16.2009. L’Italie lance une amnistie fiscale assortie de 5% de penalités. Le Figaro.
http://www.lefigaro.fr/impots/2009/07/16/05003-‐20090716ARTFIG00255-‐l-‐italie-‐lance-‐une-‐amnistie-‐fiscale-‐assortie-‐
de-‐5-‐de-‐penalites-‐.php
64
Italy recovers record EU9.1 billion from tax-‐evasion crackdown. 03.02.2010. Bloomberg.
http://www.bloomberg.com/apps/news?pid=20601092&sid=aEzKfGHortOw
38

the crackdown on tax dodgers, therefore the Italian government decided to extend it
until April 30th, 2010 and raise the fee65.
3. The United States
a. The IRS voluntary disclosure
On March 24th, 2009, the Internal Revenue Service (IRS) announced it would launch a
voluntary disclosure program to allow US tax evaders with offshore accounts to come
clean. In most cases, the IRS mentioned it would demand 20% of the account’s highest
single balance in the past six years, and 5% if the account was inherited and contained
funds that were initially taxed properly. Also, taxpayers participating in the program
would have to pay any new taxes resulting from filing amended income tax returns for
the six previous years, in addition to accuracy or delinquency penalties66. The program
ended on October 15th, 2009 and gathered about seven thousands taxpayers67.
b. Bills from the US Senate
For several years the US Senators have been proposing bills whose goal were to combat
the use tax shelters for tax evasion, money laundering or terrorist financing.
In March 2009, Michigan Senator Carl Levin introduced the Stop Tax Haven Abuse Act, S
506. The bill creates a blacklist of thirty-‐four offshore entities and establishes several
actions such as68:
-‐ The taxation of foreign publicly traded corporations that are managed or controlled in
the United States as US corporations

65
AFP. Italie: hausse des résultats de la lutte contre l’évasion fiscale en 2009. 03.02.2010. Les Echos.
http://www.lesechos.fr/info/france/afp_00234565-‐italie-‐hausse-‐des-‐resultats-‐de-‐la-‐lutte-‐contre-‐l-‐evasion-‐fiscale-‐en-‐
2009.htm
66
Barret, William P. 03.26.2009. IRS Offers Deal to Offshore Evaders. Forbes.com.
http://www.forbes.com/2009/03/26/irs-‐amnesty-‐ubs-‐personal-‐finance-‐taxes-‐offshore-‐accounts.html
67
Wingfield, Brian. 11.17.2009. IRS Sees Success in Anti-‐Evasion Campaign. Forbes.com.
http://www.forbes.com/2009/11/17/irs-‐amnesty-‐offshore-‐business-‐washington-‐tax.html
68
Tanenbaum, Edward. (2009). Stop Tax Haven Abuse Act Has Broad Implications. International Tax Review Vol. 20
Issue 5, pp63-‐64.
39

-‐ The imposition of a withholding tax on dividend-‐equivalent payments and substitute

dividend payments to non-‐US persons that hold certain types of equity derivatives
The US blacklist in the Stop Tax Haven Abuse Act
Anguilla Dominica Nauru

Antigua and Barbuda Gibraltar Netherlands Antilles
Aruba Grenada Panama
The Bahamas Guernsey/Sark/Alderney Samoa
Barbados Hong Kong St. Kitts and Nevis
Belize Isle of Man St. Lucia
Bermuda Jersey St. Vincent and the Grenadines
British Virgin Islands Latvia Singapore
Cayman Islands Liechtenstein Switzerland
Cook Islands Luxembourg Turks and Caicos
Costa Rica Malta Vanuatu
Cyprus
69
Source: Stop Tax Haven Abuse Act, 03.02.09 .
More recently, House Ways and Means Committee chairman Charles Rangel and Senate
Finance Committee chairman Max Baucus have introduced legislation to provide the IRS
with larger ability to “detect, deter and discourage offshore tax abuses” on the issue of
US tax evaders. Thanks to this Act and according to the Joint Committee on Taxation’s
analysis, the IRS can expect to raise $8.5 billion over ten years70.
President’s Obama recent tax proposal on US-‐based multinational corporations (MNCs)
includes the limitation of the ability of US MNCs with foreign subsidiaries to defer US tax
liabilities until they repatriate dividend profits on the US territory.

69
Senator Levin, Carl. Stop Tax Haven Abuse Act. 2009.
http://levin.senate.gov/supporting/2009/PSI.StopTaxHavenAbuseAct.030209.pdf
70
Snowdon, Catherine. Dec. 2009/Jan. 2010. US Proposes New Offshore Tax Compliance Legislation. International Tax
Review, Vol. 20 Issue 10.
40

V. What will be the future of tax havens?
A. Current context
Offshore financial industry has become unmanageable due to its high complexity. Its
activities are opaque, thus, the regulations have to be drastic in order to combat this
lack of transparency. As mentioned in the course of this paper, as tax evasion is a crime,
jurisdictions that do not commit to changing their bank secrecy laws to comply with the
internationally agreed standard of information exchange for tax purposes could be
subject to sanctions, that is why governments have the right to pursue those who
commit tax evasion. In addition to that, the insistence on transparency and information
disclosure will help them pursue tax evaders and will eventually keep others from
evading taxes. The instauration of rules on transparency and the obligation for tax
havens to sign tax exchange information agreements with other nations will also reduce
“legitimate” tax avoidance. But what lacks to completely regulate tax havens and their
opacity is a common political will to implement global tax compliance regulations. The
emergence of international bodies such as the OECD is not enough. To tackle the change
in the global tax environment, pursuing a common goal towards global tax compliance is
unquestionable. An international set of regulations is necessary to protect national
financial systems from illicit practices, to put an end to global tax competition, and to
allow the automatic exchange of information between financial authorities that will
restrain tax evasion. But such thing is not easy as globalization implies the existence of a
very liberal economy and the existence of a free-‐market.
B. Could the world live without tax havens?
More than half of the world’s capital flows, i.e. $8,000 billion, pass through tax havens.
That raises the following question: could the world live without tax havens? I would say
probably not, and at least not without some precautions. Tax havens drain a large part
of the economy; therefore, their sudden disappearance would cause heavy damage on
the whole economic activity and its actors. In addition to draining funds from the black
41

economy (among those $8,000 billion it is estimated that around 10% represent the
black economy), tax havens are today completely integrated in the global financial
system and their collapse would completely disrupt the financial circuits that became
dependent on them and would impact the real economy.
C. Taking down offshore finance
Following the recent economic downturn, governments have suffered from the loss of
tax revenues and as the economic situation is damaged everywhere, states all need
public resources. Furthermore, countries engage themselves in the fight against tax
havens in order to maintain financial stability. If enough countries decide they want
more transparency laws implemented in tax havens and want to take bank secrecy
down, offshore centers will have no choice but to apply those rules. Since the beginning
of the century, a considerable number of international organizations have begun to
examine offshore centers aiming to crackdown tax evasion, the spread of financial
crises, money laundering, and terrorist financing. Those international institutions
generally make regulatory requests that tend to weaken the long-‐established
advantages of offshore. First and foremost the demands are related to transparency and
exchange of information. Those requirements obviously go straight against one of the
key attractions of offshore centers: secrecy. That being said, the collection and the
exchange of information will tend to reduce the attractiveness of tax havens. Indeed,
potential clients to offshore financial centers will feel threatened and will either reduce
their investment in those centers or simply take their money back onshore. Moreover,
the lists published by both international and national bodies have contributed to
damage the popularity and the reputation of the tax havens so listed. All these
situations will have a bad impact on offshore centers’ economies. According to this
view, we can think that tax havens will have to face the investments’ return onshore,
which would mean a collapse in their business. The shift towards transparency global
regulatory institutions such as OECD are trying to implement is undeniably far from
being auspicious for services provided by tax havens.
42

D. What is left for tax havens after they collapse?
As many offshore territories are currently struggling with the effects of the new
regulations, we can think that only a few of them will be able to survive to this
crackdown: the strongest, i.e. those who belong to very powerful countries, such as the
US states of Delaware or New Jersey, the City of London, or Ireland, and that have other
alternatives than only offshore financial services to sustain. Many tax havens will try to
survive to international regulations because otherwise what is their best option despite
offshore finance? Many of them are very small countries or even islands, and offshore
finance is their principal – if not only – activity. This sector provides them with economic
viability and development. Indeed, before they could reach the world’s highest GDP per
capita, a lot of tax havens such as the Cayman Islands or Bermuda were among the
smallest and poorest economies in the world, and they still are very exposed because of
their dependence on the offshore activity. That is why it is important to envision exit
scenarios for those territories in case of the collapse of the offshore financial activity.
Moreover, tax havens might offer a very flexible tax regime to non-‐resident individuals
or corporations, but the rules are completely different for their residents. Indeed, due to
the high cost of life and the difficulty to find a job in another sector than financial
services, an important part of the population of territories considered as tax havens live
a pretty miserable life.
E. Conclusion on the future of tax havens
With the disappearance of tax havens, systemic risk would be considerately lowered –
so would the risks of economic downturns – and the fights against terrorist financing
and money laundering would be facilitated. On the other hand, the disappearance of
Caribbean or Central American tax havens might imply the emergence of new tax
havens in zones where the political instability is dominant, such as the Middle East for
example.
43

Conclusion
Unlike what French President Nicolas Sarkozy was announcing last September, tax
havens and bank secrecy are far from being over. One thing is certain: tax havens are
not only conduits for tax avoidance and tax evasion, but definitely belong to the global
financial system and play a significant role in the “neoliberal globalization”71. Global
institutions and individual governments are joining forces to take them down and it is
starting to work. Indeed, in the battle to tackle bank secrecy, efforts are starting to pay
as Switzerland’s sacrosanct bank secrecy was recently endangered. Under international
pressure, coming especially from France and the United States, Switzerland is currently
preparing a regulatory system for undeclared foreign assets and is going to adjust its
bank secrecy72. Maybe the disappearance of bank secrecy will help taking tax havens
down once and for all because without bank secrecy, tax havens users would stop
putting their money offshore, and those using tax haves for the purpose of tax and
regulatory avoidance would be easily identifiable.
Global tax competition is not good for the world community. Indeed, if a company goes
bankrupt, another one, more efficient, will replace it. On the other hand if a state fails, it
is the international community that is called to rescue it. And in no ways tax havens
should not be deciding what the right tax rates are for foreign countries, and therefore,
should neither be encouraging global tax competition, nor tax evasion. The decision
about right tax rates should be made globally and democratically, and the world is
currently lacking a common political will to implement global tax compliance
regulations. The emergence of international bodies such as the OECD is a good start but
it is not enough. To tackle the change in the global tax environment, pursuing a common
goal towards global tax compliance is unquestionable because capital flight from
onshore to offshore entities is bad for populations since they deprive states from
income tax revenues that they could use for public purposes.

71
72
Massonnaud, Robin. 02.26.2010. Suisse: La Fin d’un Paradis Fiscal? L’Express.fr.
http://www.votreargent.fr/fiscalite/suisse-‐la-‐fin-‐d-‐un-‐paradis-‐fiscal_123907.html
44

With the elimination of tax havens, systemic risk would obviously drop, as would the
risks of economic turmoil, and it would ease the combat against money laundering and
terrorist financing. But the desire to eradicate currently existing tax havens might imply
the emergence of new tax havens in politically unstable zones such as the Middle East
or Asia.
45

Exhibit 1: Number of Offshore Entities in Tax Havens. Source: INCSR 2008.

46

47

Exhibit 2: Tax Information Exchange Agreements: list of bilateral agreements signed by
Andorra Argentina, Austria, Belgium, France, Liechtenstein, Monaco, Netherlands,
Portugal, San Marino, Spain
Anguilla Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland,
Netherlands, New Zealand, Norway, Sweden, United Kingdom
Antigua and Barbuda Australia, Belgium, Denmark, Ireland, Liechtenstein, Netherlands,
Netherlands Antilles, United Kingdom, United States
Argentina Andorra, Bahamas, Costa Rica, Monaco, San Marino
Aruba Australia, Bermuda, British Virgin Islands, Denmark, Faroe Islands,
Finland, Greenland, Iceland, Netherlands Antilles, Norway, Spain, St. Kitts
and Nevis, St. Vincent and the Grenadines, Sweden, United States
Australia Antigua and Barbuda, Aruba, Bermuda, British Virgin Islands, Cook
Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Netherlands Antilles,
Samoa
Austria Andorra, Gibraltar, Monaco, St. Vincent and the Grenadines
Bahamas Argentina, Belgium, China, France, Monaco, Netherlands, New Zealand,
San Marino, United Kingdom, United States
Belgium Andorra, Antigua and Barbuda, Bahamas, Belize, Gibraltar, Liechtenstein,
St. Lucia, St. Vincent and the Grenadines, St. Kitts and Nevis
Belize Belgium
Bermuda Aruba, Australia, Denmark, Faroe Islands, Finland, Germany, France,
Greenland, Iceland, Ireland, Japan, Mexico, Netherlands, Netherlands
Antilles, New Zealand, Norway, Sweden, United Kingdom
British Virgin Islands Aruba, Australia, China, Denmark, Faroe Islands, Finland, France,
Greenland, Iceland, Ireland, Japan, Mexico, Netherlands, Netherlands
Antilles, New Zealand, Norway, Sweden, United Kingdom, United States
Canada Netherlands Antilles
Cayman Islands Denmark, Faroe Islands, Finland, France, Greenland, Iceland, Ireland,
Netherlands, Netherlands Antilles, New Zealand, Norway, Sweden,
United States
China Bahamas, British Virgin Islands
Cook Islands Australia, Denmark, Faroe Islands, Finland, Greenland, Netherlands,
Iceland, Ireland, New Zealand, Norway, Sweden
Costa Rica Argentina
Denmark Anguilla, Antigua and Barbuda, Aruba, Bermuda, British Virgin Islands,
Cayman Islands, Cook Islands, Gibraltar, Guernsey, Isle of Man, Jersey,
Netherlands Antilles, San Marino, St. Kitts and Nevis, St. Lucia, St. Vincent
and the Grenadines, Samoa, Turks and Caicos
Faroe Islands Anguilla, Aruba, Bermuda, British Virgin Islands, Cayman Islands, Cook
Islands, Gibraltar, Isle of Man, Netherlands Antilles, San Marino, Samoa,
Turks and Caicos
Finland Anguilla, Aruba, Bermuda, British Virgin Islands, Cayman Islands, Cook
Samoa, Turks and Caicos
France Andorra, Bahamas, Bermuda, British Virgin Islands, Cayman Islands,
Gibraltar, Guernsey, Isle of Man, Liechtenstein, San Marino, Turks and
Caicos, Uruguay, Vanuatu
48

individual jurisdiction (February 2nd 2010)

Germany Bermuda, Gibraltar, Guernsey, Isle of Man, Jersey, Liechtenstein
Gibraltar Australia, Austria, Belgium, Denmark, Faroe Islands, Finland, France,
Germany, Greenland, Iceland, New Zealand, Norway, Portugal, Sweden,
United Kingdom, United States
Greenland Anguilla, Aruba, Bermuda, British Virgin Islands, Cayman Islands, Cook
Samoa, San Marino, Turks and Caicos
Guernsey Australia, Denmark, Finland, France, Germany, Greenland, Iceland,
Ireland, New Zealand, Norway, Sweden, The Faroe Islands, Netherlands,
Iceland Anguilla, Aruba, Bermuda, British Virgin Islands, Cayman Islands, Cook
Ireland Anguilla, Antigua and Barbuda, Bermuda, British Virgin Islands, Cayman
Islands, Gibraltar, Cook Islands, Guernsey, Isle of Man, Jersey,
Liechtenstein, Samoa, St. Vincent and the Grenadines, Turks and Caicos
Isle of Man Australia, Denmark, Faroe Islands, Finland, France, Germany, Greenland,
Iceland, Ireland, New Zealand, Norway, Sweden, Netherlands, United
Kingdom, United States
Japan Bermuda
Jersey Australia, Denmark, Finland, France, Germany, Greenland, Iceland,
Ireland, New Zealand, Norway, Sweden, The Faroe Islands, Netherlands,
Liechtenstein Andorra, Antigua and Barbuda, Belgium, France, Germany, Ireland,
Monaco, Netherlands, St. Kitts and Nevis, St. Vincent and the Grenadines,
Mexico Bermuda, Netherlands Antilles
Monaco Andorra, Argentina, Austria, Bahamas, Belgium, Liechtenstein,
Netherlands, Samoa, San Marino, United States
Montserrat Netherlands
Netherlands Andorra, Anguilla, Antigua and Barbuda, Bahamas, Bermuda, British
Virgin Islands, Cayman Islands, Cook Islands, Guernsey, Isle of Man,
Jersey, Liechtenstein, Monaco, Montserrat, Samoa, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines, Turks and Caicos
Netherlands Antilles Antigua and Barbuda, Aruba, Australia, British Virgin Island, Bermuda,
Canada, Cayman Islands, Denmark, Faroe Islands, Finland, Greenland,
Iceland, Mexico, New Zealand, Spain, St. Lucia, St. Kitts and Nevis, San
Marino, Sweden, United States
New Zealand Anguilla, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Cook
Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Netherlands, Antilles, St.
Kitts and Nevis, Turks and Caicos

49

Norway Anguilla, Aruba, Bermuda, British Virgin Islands, Cayman Islands, Cook
Samoa, Turks and Caicos
Portugal Andorra, Gibraltar
Samoa Australia, Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland,
Monaco, Netherlands, Norway, San Marino, Sweden
San Marino Andorra, Argentina, Bahamas, Denmark, Faroe Islands, Finland, France,
Greenland, Iceland, Monaco, Netherlands, Norway, Samoa, Sweden
Spain Andorra, Aruba, Netherlands Antilles
St. Kitts and Nevis Aruba, Belgium, Denmark, Netherlands, Liechtenstein, Netherlands
Antilles, New Zealand, United Kingdom
St. Lucia Belgium, Denmark, Netherlands, Netherlands Antilles, United Kingdom
St. Vincent and the Aruba, Austria, Belgium, Denmark, Ireland, Liechtenstein, Netherlands,
Grenadines United Kingdom
Sweden Anguilla, Aruba, Bermuda, British Virgin Islands, Cayman Islands, Cook
The Faroe Islands Guernsey, Jersey
Turks and Caicos Denmark, Faroe Islands, Finland, France, Greenland, Iceland, Ireland,
Netherlands, New Zealand, Norway, Sweden, United Kingdom
United Kingdom Antigua and Barbuda, Anguilla, Bahamas, Bermuda, British Virgin Islands,
Gibraltar, Guernsey, Isle of Man, Jersey, Liechtenstein, St. Kitts and Nevis,
St. Lucia, St. Vincent and the Grenadines, Turks and Caicos
United States Antigua and Barbuda, Aruba, Bahamas, British Virgin Islands, Cayman
Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco,
Netherlands Antilles
Uruguay France
Vanuatu France
Source: OECD, 2010.

50

Glossary
BVI: British Virgin Islands.
Hedge fund: great variety of investors employing a diverse set of generally aggressive
and risky investment strategies. They are generally either unregistered or registered in
offshore financial centers to minimize both regulatory supervision and tax.
Internal Revenue Service (IRS): the US government agency responsible for tax collection
and tax law enforcement.
International Business Corporation (IBC): limited liability companies that are set up
either as subsidiaries of onshore companies or as independent companies in tax havens
and OFCs. They are used for a variety of purposes; the principal among them is to shift
the profitable portion of a business to a low tax countries.
Offshore Financial Center (OFC): financial center located in any country and offering
financial services to non-‐resident clients with an aim to avoid regulation.
Round-‐tripping: locally owned money being invested in its country of origin via an
offshore location to benefit from a preferential tax regime.
Shell corporations: companies that serve as vehicles for business transactions without
itself having any significant assets or operations. Also known as “mailbox companies”.
Tax Information Exchange Agreement (TIEA): Tax treaties that exist between many
countries on a bilateral basis in order to prevent double taxation.
Transfer pricing: prices companies charge for intra-‐group cross-‐border sales of goods
and services.
51

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55

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II. How do tax havens impact finance globally?..............................................................15

III. Tax havens: good or bad?...........................................................................................22

IV. How are tax havens regulated?..................................................................................29

V. What will be the future of tax havens?.......................................................................43

I. What is a tax haven?

The British Empire

“The Golden Years”, 1960s-­‐1990s

Tax havens today

The IRS definition of a tax haven:

C. How to recognize a tax haven

1. Ten general criteria

No-­‐tax or low-­‐tax for the non-­‐residents

A very strong bank secrecy

A loose registration procedure

A quick settlement procedure

The support of a big financial center

A strong network of bilateral exchange arrangements

2. The OECD criteria

Whether a jurisdiction imposes no or only nominal taxes

Whether there is a lack of transparency

D. Where are the tax havens

1. Tax havens are seeking niche strategies

Territories specialized in shell corporations

The “secret” territories

Territories offering services related to their geographic location

Territories specialized in any specific financial service

Territories used as market entry conduits

Territories specialized in wealth management

Territories specialized in relocation for tax purposes

See Exhibit #1

II. How do tax havens impact finance globally

A. Difference between tax compliance, tax avoidance and tax evasion

but in countries such as Liechtenstein or Switzerland it is only considered a civil

To combat it, several measures such as resources for enforcement, increased

B. Users of tax havens

Evolution of the income tax rate (percentages)

a. Why multinational corporations (MNCs) use tax havens

1986 2006 Gap

b. Tax Avoidance Methods

Deferring the payment of its taxes

Locating the intellectual property (patents, brands, licenses…) in an offshore

Manipulating transfer pricing between multinational corporations’ related affiliates

Relocating the headquarters in tax haven territories

c. Transfer pricing more in depth

Creating fictitious transactions for which payment is made

3. Banks and consulting firms

a legal opinion saying it is proper’.»20.

IV. Tax havens: good or bad?

A. Tax havens and the developed world

1. Global tax competition

a. Tax havens are symbiotic

b. Tax havens are parasitic

2. Tax havens and global financial stability

B. Tax havens and the developing world

2. Illicit capital flows

C. The world’s money in tax havens

1. Money sheltered in tax havens

Estimation of the assets held offshore

2. Money lost because of tax havens

IV. How are tax havens regulated?

A. The Organization for Economic Cooperation and Development (OECD)

a. The white list

“The Golden Years”, 1960s-‐1990s

No-‐tax or low-‐tax for the non-‐residents

VIII. Non-‐profit organizations

-‐ The imposition of a withholding tax on dividend-‐equivalent payments and substitute