Tax haven
A tax haven is any country or territory whose laws may be used to avoid or evade taxes which may be due in another country under that country’s laws.
OECD definition
The Organisation for Economic Cooperation and Development defines tax havens as jurisdictions where:
- Non-residents undertaking activities pay little or no tax;
- There is no effective exchange of taxation information with other countries;
- A lack of transparency is legally guaranteed to the organisations based there;
- There is no requirement that local corporations owned by non-residents carry out any substantial domestic (local) activity.
Indeed, such corporations may be prohibited from doing business in the jurisdiction in which they are incorporated. Not all of these criteria need to apply for a territory to be a haven, but a majority must.
Quotes
The Economist magazine uses a definition of a tax haven based on that offered by Colin Powell, a senior Jersey civil servant, who said
“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 US Internal Revenue Service has said:
“These jurisdictions are commonly referred to as "tax havens" because, in addition to the financial secrecy they provide, they impose little or no tax on income from sources outside their jurisdiction.”
In so doing they reflect the order of importance of the available characteristics.
The US Government Accountability Office has said it is unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of a tax haven [1]: no or nominal taxes;· lack of effective exchange of tax information with foreign tax authorities;· lack of transparency in the operation of legislative, legal or administrative provisions;· no requirement for a substantive local presence; and· self-promotion as an offshore financial center.
This reflects the OECD view.
Senator Carl Levin said, when introducing the Stop Tax haven Abuse Act, that:
“A tax haven is a foreign jurisdiction that maintains corporate, bank, and tax secrecy laws and industry practices that make it very difficult for other countries to find out whether their citizens are using the tax haven to cheat on their taxes. In effect, tax havens sell secrecy to attract clients to their shores. They peddle secrecy the way other countries advertise high quality services. That secrecy is used to cloak tax evasion and other misconduct, and it is that offshore secrecy that is targeted in our bill.” [2]
See also Secrecy juridiction.
Secrecy juridiction
This is the preferred term for a tax haven. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. [3]
