TAX HAVENS ON THE MODERN ECONOMY

Juan Carlos Meza Aguirre

English Composition II

Juan Carlos Meza Aguirre

English Composition II

One hot topic being under discussion these days are tax havens, it is possible that many
people do not know what are them or may have a vague idea of what they represent, but we
cannot ignore that they really are a serious problem. Tax havens are considered jurisdictions
in which non-residents of a country have some benefits such as very low tax rates or even
no tax paying, also this jurisdictions have systems that keep information of the account
holders as a secret, which makes it even more difficult for the governments to search and
reach these tax evaders, things are starting to change and new policies are being created to
change the easiness with which big corporations around the globe adopt evading strategies,
some for the most famous tax havens around the world are disappearing and becoming
regulated banking jurisdictions, even though analysists have developed a new theses that
describes tax haves as an extension of a large and complex global financial system that is
inherently secretive (Matthews, C., 2012). The problem of tax evasion has always existed,
but nowadays it is more noticeable because of the globalization and the new technologies,
the government and financial institutions have to track all operations, the battle against tax
evasion is a global fight, developing countries should not be the only ones trying to fight
this practices, because as a war, this affects all the economies. Tax havens cause lot of
problems to the global economy but it may be possible that the most affected countries are
the developing ones, of course the deviation of greats amount of money is detrimental for
any government, because take the example of an old and a young, who would be more
affected with a punch the young or the old?, the old being a developing country, that is what
experts claim, strongest economies can support deficits longer that other countries, as they
say that violence cannot be eradicated with more violence, tax evasion cannot be eradicated
with more policies and laws, because there will always be a new way evaders will find to

Juan Carlos Meza Aguirre

English Composition II

cheat the system, the best way to end this practices is the implementation of transparency in
the whole system.
The first data about tax evasion was published in 1982 when the bank of international
settlements, there they stated that half of the worlds money passes through tax havens, a
more updated report from 2012 made by James Henry, Professor of International Political
Economy at City University, London, for the Tax Justice Network, estimated that
somewhere between $21 to $32 trillion in wealth is unreported and shielded from taxation
from various governments, and argued that this money could be used to shore up balances
of debt-ridden sovereigns, people took notice. (Matthews, C., 2012), this is one of the
most reliable studies so far , it used data from the World Bank, United Nations and the
International Monetary Fund.
Of course this giant amount of money is causing great problems among governments,
taking into account that the United States represents 25% of the global wealth, around $7.3
to $9.3 trillion dollars come from a group of 139 low to middle income countries, but it is
highly probable that the money proceeding from them belong to governments and not from
private accounts or investments, the tax revenues sourcing from all the money from tax
evasion represents only a small portion of the United States budget, but in developing
countries that money could be given a very good use like the development of infrastructure
or welfare programs, example exercises about the worlds tax evaded money have been
developed, with a very conservative tax rate of 3%, the revenues would have been of 189
billion dollars per year.
As mentioned in the introduction one issue that must be resolved to end with tax evasion
through tax havens is the easiness of it, in the past corporations managers or criminals had
to flight overseas with a bag of money, maybe to Caribbean island to open an account in a

Juan Carlos Meza Aguirre

English Composition II

bank where no personal or sensible information was asked, but nowadays it is not just about
a place, people with power have developed very complex systems to try to avoid tax
paying, in fact popular places been known as tax havens for many years, like Swiss are now
changing their policies not allowing foreigners to allow tax evasion on their territory, but
that does not matter because tax havens are now a network of entities around the world
always protecting and benefitting the accountholders, this new methods allow big
corporations, rich people and criminals to avoid money in very fast and effective way never
seen before, with all the technologies available it is now possible to send great amounts of
money through the internet, and maybe the people behind the system is not working alone,
it is possible that renown financial institutions may be working with them, but that is just a
theory experts state, another reason to end with tax evasion systems is that criminal groups
can hide suspicion source money or laundry it, this is out of the topic of tax evasions, but
this could give governments from developing countries that have problems with criminal
groups an incentive to fight against this problem.
Experts point of view is that regulation and laws that force companies to follow
determined instructions to operate will only cause more problems than it will solve, because
of this transparency is the best option, one example of this and the first step countries are
taking to implement it, is FATCA (Foreign Account Tax Compliance Act) which was
published in March of 2010, this requires all the tax payers that have accounts in the US or
any company or person that has businesses on the country to report to the IRS what is the
value of their income and assets, this way transparency is implemented and everyone that
does not want to fulfill this measures will not be able to do businesses within the country, of
course many companies will argue, but this measure put into action by the government that
seems so simple would definitely end with tax evasion, FATCA does not intend to mess

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English Composition II

with laws from other countries to change them, it is just a measure to enforce transparency,
representatives from around the world are suggesting to implement this measures in every
part of the world, but finally it is up to each jurisdictions leaders to accept or decline this
position, as before mentioned tax havens fight is a global fight and this is the way countries
united would won against this practice hurting every governments coffers.
On the other hand The Tax Justice Network recently published a report in which it stated
that the United States is asking information from the other countries, but not cooperating
with them, the US preaches to share information but they are hiding information to other
financial jurisdictions around the world, the report rank the US as one of the worst tax
havens around the world, even worse than the Cayman Islands, the US have put pressure
over other countries like Switzerland to change their financial system and close banks,
FATCA is indeed a very efficient measure governments around the world could use to stop
tax evasion, but everyone should cooperate with it, The Tax Justice Network says The IRS
is stingy with data. Of course, with FATCA, America has more data than anyone else.
(Wood, R., 2015).
To sum up tax havens are a trending topic among governments and financial experts, they
represent a very serious problem not everyone has seen, and even worse few have taken
into consideration all their globally effects, technologies and tendencies are changing so
regulations should do to, as mentioned before transparency needs to be enforced among all
jurisdictions, instead of more rules and policies, FATCA is good starting point for this, but
this situation represents a problem for every country so the fight needs to be global and
governments need to be united.

Juan Carlos Meza Aguirre

English Composition II

Referencies
Cardamone, T. (2013, August 11). The Problem With Tax Havens. Retrieved from
http://www.huffingtonpost.ca/tom-cardamone/the-bad-side-of-tax-shelters_b_3417328.html
This source talks about the problems tax havens are causing around the world, its main idea
is that it is better to create transparency rather than create more regulations that companies
can find ways to evade.

Matthews, C. (2012, July 26). The Real Problem With Offshore Tax Havens. Retrieved
from http://business.time.com/2012/07/26/the-real-problem-with-offshore-tax-havens/
In this articles is mentioned how much money goes into tax haven and how it affects
developing countries which are the most affected, it also gives a new description of tax
havens explaining that it is more a system than a place.

Palan, R. (2013, Jun). Tax havens under attack. The World Today, 69, 62. Retrieved from
http://search.proquest.com/docview/1420267086?accountid=1230
This article gives the description of tax havens, what are their characteristics and how they
work, after that it names the major tax haven around the world, there is also mentioned a
tactic the US government is using to combat the tax havens.

Wood, R. (2015, November 3). U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data
Despite FATCA. Retrieved from http://www.forbes.com/sites/robertwood/2015/11/03/u-sranks-as-top-tax-haven-refusing-to-share-tax-data-despite-fatca/
The article from this source explains how the FATCA proposition is being carried out by
the United States after some years of its presentation, it also talks about the new rank of tax
havens around the world and how the US appears on that list.