A Seminar on Tax Haven: Problems and

SolutionsPresented By

Bismay Mishra

Meaning of Tax Haven

A country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment.

Tax havens also provide little or no financial information to foreign tax authorities.

Individuals and businesses that do not reside a tax haven can take advantage of these countries' tax regimes to avoid paying taxes in their home countries.

Tax havens do not require that an individual reside in or a business operate out of that country in order to benefit from its tax policies.

Introduction

• 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, Switzerland and St. Kitts and Nevis are all considered tax havens.

• However, pressure from foreign governments that want to collect all the tax revenue they believe they are entitled to has caused some tax haven countries to sign Tax Information Exchange Agreements (TIEAs) and Mutual Legal Assistance Treaties (MLAT) that provide foreign governments with formerly secret information about investors' offshore accounts.

What is Tax Haven?

Tax havens – also known as ‘secrecy jurisdictions’ or ‘offshore’ – provide any of the following:

• Escape from tax (of course)

• Secrecy, in various forms

• Avoidance of financial regulations

• Avoidance of criminal laws

• Escape from other rules of society, such as inheritance or corporate governance rules

Tax havens can be whole countries, dependencies of bigger countries, or even areas within countries.

Financial Secrecy Index:- Factors Considered

• Banking Secrecy

• Trusts and Foundations Register

• Recorded Company Ownership

• Published Company Ownership

• Published Company Accounts

• Country by Country Reporting

• Fit for Information Exchange

• Efficiency of Tax Administration

• Avoids Promoting Tax Evasion

• Harmful legal vehicles

• Anti Money Laundering

• Automatic Information Exchange

• Bilateral Treaties

• International Transparency Commitments

• International Judicial Co-operation

FSI Ranking

RANK Jurisdiction FSI-Value4 Secrecy Score5

Global Scale Weight6

1 Switzerland2

1,765.3 78 4.916

2 Luxembourg2

1,454.5 67 12.049

3 Hong Kong2

1,283.4 72 4.206

4 Cayman Islands1,2

1,233.6 70 4.694

5 Singapore2

1,216.9 70 4.280

6 USA2

1,213.0 58 22.586

7 Lebanon2

747.9 79 0.354

8 Germany2

738.3 59 4.326

9 Jersey1,2

591.7 75 0.263

10 Japan2

513.1 61 1.185

32 India 254.6 46 1.800

Problems

Tax havens help rich people hide money that should be spent on schools, hospitals, roads and other public services:- Switzerland is not only one of the world’s biggest financial centres but also one of the world’s largest tax havens; find out why the country took first place on the 2011 Financial Secrecy Index.

• Tax havens force poor people to pay the taxes of the rich:- Learn about SAB Miller, the brewing multinational whose transfer pricing techniques are depriving countries of much needed tax revenue.

• Tax havens help criminals hide their loot:- This multi-billion dollar Ponzi scheme orchestrated by infamous Wall Street financier Bernie Madoff could not have happened without tax havens.

Problems (Contd.)

• Tax havens help dictators and their cronies plunder the resources of developing countries:- Teodoro Nguema Obiang used tax havens to exploit Equatorial Guinea’s natural resources. Not a very nice man.

• Tax havens allow banks to dodge financial rules and regulations:- Dublin – a magical city of “light touch regulation”, which draws in money from far and wide and channels it directly into the shadow banking system.

• Tax havens corrupt markets, concealing insider dealing and supporting aggressive tax dodging by multinational companies:- the epic corruption which destroyed Enron – and hundreds of livelihoods – could not have happened without tax havens.

Problems (Contd.)

• Tax havens create a private world of secrecy, impunity and power for rich elites:- The Alpine ‘offshore’ microstate of Liechtenstein hit the headlines in early 2008 for harbouring the corrupt funds of hundreds of tax evaders.

• Tax havens widen the gap between rich and poor people:- Find out why the rich-poor gap is greater in the United States than almost any other developed nation.

• Tax havens make laws in secret which affect us all:- Following on from point 8, find out why Delaware, “The First State”, is the best place to escape tax in the world.

• Tax havens degrade our faith in democracy:- The City of London Corporation. Local-government authority and massive offshore lobbying body.

Solutions

• Country by country reporting:- Under country by country reporting, the multinationals would have to break their information down by country of operation – including in each tax haven – so that citizens and authorities can see what the corporations are doing in their countries.

• Unitary tax:- This would involve taxing multinational corporations according to the real economic substance of where they actually do business.

Solutions (Contd.)

• Automatic information exchange:- Developing countries – and rich ones – must get the information they need to tax their wealthiest citizens properly.

• Disclosure of the real life, proper, final, ultimate, ACTUAL owners of companies:- Ensuring that every human who has a stake in a corporate structure – a 'true beneficial’ owner – has his or her identify available on a searchable, low-cost public register. And we should slap severe sanctions on those havens that don’t shape up.

Solution (Contd.)

• Making ‘wilful blindness’ a criminal offence:- We can bring hard penalties against the pinstripe intermediaries who help the tax evaders. The IMF and other bodies dealing with money-laundering must officially make tax evasion a money-laundering offence.

THANK YOU