TAX HAVENS
DEFINING
Tax Havens
• Def 1:A tax haven is a country or territory where certain taxes are levied at a low rate or not at all. • Def 2: Tax haven or fiscal paradise are terms used to refer to a jurisdiction which enables its foreign residents or companies to reduce their tax liabilities from their homelands.
• Def 3: "What ... identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." (The Economist - description by Geoffrey Colin Powell )
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Def 4: US Government Accountability Office was unable to find a satisfactory definition of a tax haven but regarded the
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Such companies, often called rotary, are used for providing services, purchase transactions or particular joint stock companies sales.
• offshore company allows for income to accumulate in a low tax jurisdiction. and is used mainly by corporations and rich people from the world of art. • treaty shopping helps tax payers avoid barriers imposed on them by a double tax agreement, which aim is to prevent people from seeking tax benefits in third countries.
• Personal residency • Asset holding • Trading and other business activity • Financial intermediaries
DISADVANTAGES of Tax Havens
• Some people worry about the inaccessibility of their money as it is located in a far away offshore tax haven. However, in this day and technological age this is not an issue. With the advent of online banking, it is now possible and, indeed, expected in many offshore financial centres that their clients will conduct their transactions online.
• The main disadvantage for offshore companies located in tax havens is that many government and governmental agencies will not accept tenders from these types of offshore entities. These contracts would include defence, civil engineering, education, health authority and other such civil contracts.
EXAMPLES of tax havens
• The U.S. National Bureau of Economic Research has suggested that roughly 15% of countries in the world are tax havens, that these countries tend to be small and affluent, and that better
countries such as Tiajuana, and Brazil, and apply to them a flat rate tax. In exchange,
However, the companies only have to pay the U.S. tax for foreign revenues once they bring the profits back to the United States. As a result of these current tax laws, U.S. companies that seek to avoid high corporate tax rates hold their foreign earned profits overseas. “It just makes no sense to pay a substantial tax on it,” said Joseph Kennedy, a senior fellow at the Information Technology and Innovation Foundation (Rubin, R.). It is far too easy for an IT corporation to create a patent in a foreign country and direct revenue to a corporation within that country, thus avoiding the much higher U.S. tax rates. According to Joint Committee on Taxation estimates, the lost revenue is increasing over time as corporations find even more creative ways to make their U.S. profits look like offshore income (Richards, K., & Craig, J.). As result, multinational American corporations have as much as $2 trillion held in overseas subsidiaries and if brought into the United States with the current tax laws, the federal government could benefit by nearly $50 billion per year.
The main objective of many companies is to minimize their tax obligations. Jeffers (2014) discussed the reason of why companies adopt tax inversion strategies. The researcher indicated that the income maximization is a major reason of companies attempting to reduce their tax liability (pp. 100-101). Tax inversion strategies provide companies an advantage to lower income tax rate. Today, U.S. corporations renounce its U.S. citizenship and move to low-tax countries. Companies that reincorporate oversees are not obligated to pay U.S. taxes on earning income (p. 99). Many countries implement tax competition strategies to attract and retain businesses. Well-known companies, such as Exxon Mobil, Hewlett Packard, Tyco, General Electric, PepsiCo, etc. take benefits of tax shelter opportunities overseas (p. 102). Other benefits of the jurisdiction abroad are flexible banking laws and simplified litigation processes.
“The United States has the highest corporate tax rate of the 34 developed, free-market nations that make up the Organization for Economic Cooperation and Development (OECD). The marginal corporate tax rate in the United States is 35% at the federal level… according to the 2013 OECD Tax Database. The global average is much lower, at 25%” (Fontinelle, 2014). Even though there are ways for businesses to decrease or even avoid these payments, this high figure deters foreign investors from considering the United States for business and sends them looking in more favorable countries like Canada or Ireland. Adding to pushing away potential foreign investors, U.S. firms flee to those tax favorable places to avoid it. “When these companies move their headquarters or create foreign subsidiaries, jobs and profits move overseas” (Fontinelle,
In order for the reader to fully comprehend what the tax evasion argument is and how alternative possibility are not required for responsibility, it is
However, the introduction of such a law becomes increasingly difficult when the companies being questioned are some of the largest and wealthiest in the world. In order to truly understand the stature of these companies, one would need to look into some of the statistics regarding them. Remarkably, according to Al Jazeera America “the largest 500 U.S. companies would owe an estimated $620 billion in U.S. taxes” if they had to declare all their overseas stockpiles, of around $2.1 trillion (“Al Jazeera America”). In addition, it found that “three-quarters of the 500 biggest companies utilize tax havens”. The top three offenders included Apple, General Electric and Microsoft. In many cases according to the report, the money is not being utilized to improve foreign economies. By this they mean to say that, U.S. businesses were not using their overseas profit to build factories and employ individuals. Instead, the overseas profit was a result of accounting tricks purposely implemented to benefit the business alone. To put all of this in perspective, the United States is losing billions of dollars to foreign economies. These taxes are being introduced into countries such as Ireland and Luxembourg. In other words the money that should be invested in the United States of America on public services, is being
A Tax Inversion is a business transaction in which a company, typically residing in the U.S., merges with a foreign company and moves its corporate headquarters overseas while maintaining its main operations in the U.S. for strategic purposes; specifically to take advantage of the lower tax rules in the foreign country. Even though, this practice has progressively increased in the last two decades, Congress is not so enthusiastic with the idea of corporations trying to avoid a
Tax inversion can be commonly found to be used in America. Tax inversion is when a corporation or business relocates their operation overseas to reduce how much taxes they have to pay. When companies are picking a country to relocate to they are mostly looking for one that has lower tax rates and little to no corporate requirements. I can see in way why corporations take this route when it comes to high tax rates, but looking at it from a bigger picture I believe that corporation should not be allowed to relocate to avoid tax rates. Taxes are vital to the economy as they play a big role in our life every day. Taxes pay for public schools, police department, roadwork, public transportation, and much more. I have personally used many of the services
“Panama Papers: The Real Scandal Is What’s Legal” by Brooke Harrington was written on April 6th, 2016 and published in ‘The Atlantic’. In this article, Harrington stresses the idea that tax avoidance and offshore finances are entangled with the acts of many governments seeing that it is what stabilizes the economic growth of a country. The author discusses the link between the Panamanian wealth management firm Mossack Fonesca, to a numerous amount of financial crimes. The “Panama Papers” are documents that consist of firms who are allegedly involved in fraud, money laundering, and theft. No country would even think to create strict laws towards ending tax evasion because it would hurt several economies and firms like Mossack Fonesca whose
The reason tax havens exist, is for the same reason why they existed 50 years ago; to attract money and investments from around the world. When multibillion dollar corporations put billions of dollars in the banking system, it gives the local economy of that country a little boost. That stored in the banks can now be lent out to people to buy homes, cars, or even start a
As for the huge corporations that sometimes use elaborate and sophisticated tax avoidance techniques, there are two sides to this
It may be argued that many US corporations moves their business to overseas in inversion deals as US has highest corporate tax rate in the world. By lowering US corporate tax rate, these companies will bring back their profits to US;
The importance of the revenue to a country is well known in the world. The global financial system has more interconnections now than at any other time in history. (Simser.J, 2008, p.131). Tax evasion is one of most common crimes that damage the order of revenue. This is closely affecting the market economy and daily lives. Normally, most commentators consider tax evasion profoundly unethical. There are some ambiguities regarding the meaning of the very word “taxation” that must be addressed. It is maintained that the meaning of taxation depends neither on the agents who collect it, nor on their objectives. (Bagus, Block, Eabrasu,
A tax haven is a country that offers foreign corporations and individuals relatively low corporate and income tax rates, with a politically and economically stable environment. Some tax havens are Switzerland, Hong Kong, Bermuda, Ireland, and the Cayman Islands. Although the businesses have moved across seas, the United States forces them to pay the corporate tax. Fortunately for the businesses, it they keep their income and money across seas they do not have to the pay the American corporate tax, Unfortunately this is ghastly for the United States Government businesses keep their products and profits over seas.
The actions of multinational corporations (MNCs), which derive from their morally dubious goals, may be completely legitimate within a capitalist society. One of these actions that will be examined in this essay is the use of tax havens, as a way of avoiding higher tax liability. This paper will utilise the case study of Apple’s tax avoidance, in examining the legitimation of a company’s goal of profit maximisation, a goal that is against the moral/social consensus