Tax Havens: Current State, Pros and Cons By: Maria Gabriela Calderon, Arnaldo Busutil and Anturuan Stallworth April 12, 2011

Tax Havens Overview Tax Havens Defined:  Countries that levy low taxes or no taxes at all.  Governments of tax haven countries compete with one another to gain customers. April 12, Tax Havens: Current State, Pros and Cons

Tax Havens Overview cont. Characteristics: 1)No taxes / nominal taxes 2)Defective transfer of communication with foreign authorities. 3)Lack of transparency 4)No requirement for a substantive local presence 5)Self-promotion as an offshore financial center – states that provide financial services to corporations are known as offshore financial centers. May 11, Tax Havens: Current State, Pros and Cons

Tax Haven Strategies May 11, 2015Tax Havens: Current State, Pros and Cons 4 1)Change official domicile location to offshore jurisdiction  Lower rate of taxation.  However, offshore companies often cannot do business within the domiciled location. 2)Offshore jurisdiction can offer a zero tax rate to the company or individual. 3)A ‘tax holiday’ is offered for a period of time.  After relocation the company is given favorable introductory tax rates.

Benefits of Tax Havens May 11, 2015Tax Havens: Current State, Pros and Cons 5 4 Frameworks: 1)Personal Residency - Relocation to low-tax jurisdictions.  In most countries residence is the primary basis of taxation.  Almost no tax haven assesses capital gains tax or inheritance tax. 2)Asset Holding - Utilizing a trust, company or a trust owning a company to shelter assets.  Company or trust is formed in 1 tax haven, and administered and resident in another.  Function is to hold assets for investments, trading companies or physical assets such as real estate.  Employed to avoid a specific tax.

Benefits of Tax Havens cont. May 11, 2015Tax Havens: Current State, Pros and Cons 6 3)Trading and Ordinary Business Activities - Businesses which don’t req. specific geographical location or extensive labor able to minimize tax exposure. 4)Financial Intermediaries – Funds are deposited with the intermediary and the intermediary lends /invests the money, often back into a high-tax jurisdiction.  Professional financial services i.e. mutual funds, banks and life insurance companies.  Enables providers to provide multi-jurisdictional products without adding an additional layer of taxation.

Modern Tax Havens May 11, 2015Tax Havens: Current State, Pros and Cons 7  Although modern tax havens have both real and perceived benefits, doing business with such entities carries its own difficulties.  Creates competition among countries that seek greater investment, trade, and international recognition.  In April of 2009, The European G-20 Union enacted a crackdown on activities of tax havens because of perceived problems.  Occurred after many countries pledged some $7 trillion to shore up international banking markets.

Modern Tax Havens (cont.) May 11, 2015Tax Havens: Current State, Pros and Cons 8  Overview of modern Tax Havens Overview of modern Tax Havens  Pros and cons

OECD and Regulations May 11, 2015Tax Havens: Current State, Pros and Cons 9  OECD Defined OECD Defined  Standards of Transparency and Exchange of Information  Global Forum  Tax Information Exchange

Current State May 11, 2015Tax Havens: Current State, Pros and Cons 10  Richer economies  Money away from “real economies”  Business supervision  How to discourage tax havens?  The global financial storm

Sources May 11, 2015Tax Havens: Current State, Pros and Cons 11  International Accounting, Sixth Edition, Choi, Frederick and Meek, Gary  Business Ideas Source. (2008, July 27). Offshore Banks: Offering Low Tax Services with Confidentiality. Retrieved July 14, 2010, from Complete Guarantee:  Henry, J. S. (2010). Corralling the Pirate Banks. Forbes, 18.  Offshore - Company. (2010). Offshore Services : Offshore Tax Havens : Tax Competition. Retrieved from Offshore Company:  Wikipedia. (2010, July 7). Tax Haven: Methodology. Retrieved July 17, 2010, from Wikipedia, The Free Encyclopedia :  BBC News. (2009). Switzerland eases banking secrecy. Retrieved June 29, 2010, from  Crawford, A. & Donahue, P. (2009). European G-20 nations seek crackdown on tax havens (Update1). Bloomberg.com. Retrieved July 2, 2010, from  Singh, M. (2010). Taking a look at tax havens. Investopedia.com. Retrieved June 29, 2010, from havens.asp  Organization for Economic Cooperation and Development, Tax Haven Criteria, retrieved from  The Economist (February 22, 2007), A survey of offshore finance: Places in the sun retrieved from  The Economist (February 28, 2009) Tax havens under pressure: Whiter than white retrieved on July 10 th from  The Economist (June 18 th, 2009), Britain’s Offshore Financial Centers Race for Respectability, retrieved from  The Economist (February 27 th, 2009), Off-shore financial centers: Secret piggy-banks, retrieved on July 10 th, 2010 from  The Economist (February 22nd, 2009), The less obvious uses of tax havens, retrieved from

Thank You May 11, 2015Tax Havens: Current State, Pros and Cons 12