What is a 'Tax Haven'

● A tax haven is a country that offers foreign individuals and businesses a minimal tax liability in a politically and
economically stable environment, with little or no financial information shared with foreign tax authorities.

● Tax havens do not require individuals to reside in or businesses to operate out of their countries to benefit from local
tax policies.

● Due to the globalization of business operations, an increasing number of U.S. corporations, including Microsoft,
Apple and Alphabet, are keeping cash in offshore tax havens to minimize corporate taxes.

Eg. A multinational firm that constructs a factory in a low-tax jurisdiction rather than in the United States to take
advantage of low foreign corporate tax rates is engaged in avoidance,

Benefits

no or low taxes, lack of effective exchange of information, lack of transparency, and no requirement of substantial
activity

BREAKING DOWN 'Tax Haven'

Tax haven status benefits the host country as well as the companies and individuals maintaining accounts in them. Tax
haven countries benefit by drawing capital to their banks and financial institutions, which can form the foundation
of a thriving financial sector.

Individuals and corporations benefit through tax savings resulting from tax rates ranging from zero to the low single digits
versus relatively high taxes in their countries of citizenship or domicile.
The list of tax haven countries

includes Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the
Cook Islands, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, and St. Kitts and Nevis.

U.S. Corporations and Tax Havens

Rather than repatriating revenues and earnings from offshore operations at a corporate tax rate of 35%, companies
including Apple, Microsoft, Alphabet, Cisco and Oracle maintain billions of dollars in tax haven accounts with tax
rates in the low single digits. The circumstances of this paradigm make it less expensive for U.S.-based companies to
borrow funds for share buy-backs, special dividends and acquisitions than to repatriate and utilize the cash on their balance
sheets.

According to a 2016 report by Citizens for Tax Justice, 367 companies in the Fortune 500 operate subsidiaries in tax-haven
nations around the globe.

Pressuring Tax Havens

To maximize their tax receipts, foreign governments maintain relatively constant pressure on tax havens to release
information regarding their citizens’ offshore accounts. For the efforts to succeed, however, countries trying to get
tax havens to change their ways usually need financial leverage in some form (as the advantages of capital inflows
seeking tax relief typically outweigh the benefits that might be received due to tax compliance.)

For example, when the Cyprus’ financial sector built on the country’s tax haven status collapsed in 2013, the
European Commission, European Central Bank and International Monetary Fund predicated the $11.8 billion
bailout on the country’s agreement for compliance in tax reporting. In addition to increasing its corporate tax rate,
Cyprus agreed to join the Automatic Exchange of Financial Information in Tax Matters program by 2017.
Participating countries automatically transmit tax-related banking information of noncitizen depositors to their countries of
citizenship to facilitate taxation of income, including earnings, interest, dividends and royalties.
Casestudies

Bermuda
Bermuda earned the dubious distinction of ranking No. 1 on Oxfam’s 2016 list of the world’s worst corporate tax havens.
Bermuda features a zero percent corporate tax rate, as well as no personal income tax rate. Due to the lack of corporate
taxes, U.S. multinational companies have raked in huge amounts of money in Bermuda, notably recording profits of $80
billion in 2012. That amount exceeded their profits reported in Japan, China, France and Germany combined.

Isle of Man
The Isle of Man has no capital gains tax, turnover tax or capital transfer tax. The island situated between England and
Ireland also carries a low income tax, with the highest rates at 20 percent.The Isle of Man also offers great benefits for
pensions. “Many international companies have their employee pension plans held in accounts in this small country due to
asset protection and the ability to take benefits from the age of 50 onwards,

Cayman Islands.

Where taxes are low or nonexistent

In 2012, American multinational companies reported $46 billion in profits from subsidiaries based in the Cayman Islands,
according to a report by Citizens for Tax Justice. That compared to a gross domestic product of just $3 billion for the
territory

Netherlands

The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune
500reporting at least one subsidiary there. Oxfam’s list of the worst corporate tax havens placed this Benelux country
at No. 3.
National governments often use tax incentives to lure businesses to invest in their country. However, far too often tax
incentives have been found to be ineffective, inefficient and costly, according to Oxfam. In the Netherlands, one such tax
incentive costs an estimated 1.2 billion euros in 2016. That is equivalent to 7.6 percent of what the Netherlands receives in
total income from corporation tax.

Singapore
This tiny sovereign city-state was once a British colony, and now is a hub for multinational corporate subsidiaries. Like the
Netherlands and Luxembourg, Singapore actually has “reasonable” nominal corporate tax rates, according to Oxfam.
Yet, like those nations, Singapore still finds a way to be one of the top tax havens in the world.
Singapore circumvents its “reasonable” corporate tax rates through tax incentives, lack of withholding taxes and what
appears to be substantial profit shifting, according to the Oxfam report.

Channel Islands

Located between England and France, the Channel Islands host hundreds of international corporate subsidiaries.
For example, Morgan Stanley alone has 33 tax haven subsidiaries in the Channel Islands, according to a report by
the Citizens for Tax Justice.

Monaco

its is less than 1 square mile and has just under 38,000 residents. Those who can claim Monaco as their primary nation of
residence will keep all the money they earn.This has drawn some of the world’s wealthiest people to the tiny country, as one
in three residents is a millionaire,
Panama paper scandal

Why in news?
The Supreme Court will hear the plea seeking a Central Bureau Investigation (CBI) investigation into the Panama leak
papers, in which many Indian industrialists and celebrities have been named.
What are Panama papers?
The Panama papers are files that are related to the documents and other details about illegal activities of wealthy off-shore
account holders were leaked.
They were leaked from one of the world's most secretive companies, a Panamanian law firm called Mossack Fonseca. The
files show how Mossack Fonseca clients were able to launder money, dodge sanctions and avoid tax.

In one case, the company offered an American millionaire fake ownership records to hide money from the authorities. This
is in direct breach of international regulations designed to stop money laundering and tax evasion.

It is the biggest leak in history, dwarfing the data released by the Wikileaks organisation in 2010. There are links to 12
current or former heads of state and government in the data, including dictators accused of looting their own countries.
More than 60 relatives and associates of heads of state and other politicians are also implicated.