What is a tax haven? Tax haven review

type

The choice of tax haven type depends on the country or region's political, economic, social, resource, geographical location and other factors. It is usually divided into three types:

① Tax havens: No personal income tax, corporate income tax, capital gains tax and property tax, such as Bermuda, Bahamas, Vanuatu, Cayman Islands, etc.

② Low-tax havens: Individual income tax, corporate income tax, capital gains tax, property tax and other taxes are levied at rates lower than the general international level, such as Liechtenstein, the British Virgin Islands, the Netherlands Antilles, Hong Kong, and Macau.

③ Preferential tax havens: Special tax incentives are adopted on the basis of domestic tax laws, such as Shannon in Ireland, Bataan in the Philippines, and Jurong in Singapore.

Whether a multinational taxpayer goes to a tax haven or which type of tax haven to go to, under the same objective conditions, often depends on whether the "tax avoidance channel" reduces taxes to the lowest point.

The "tax avoidance channels" commonly used by multinational taxpayers mainly include: holding companies, controlled insurance companies, banking finance, transfer pricing, license trade, etc. With the rise of tax havens, countries have different opinions on this. Developing countries actively encourage their development in order to drive economic development. Some developed countries have taken more preventive measures to prevent the loss of tax revenue.

Non-tax features

Tax havens are so attractive to multinational investors because, in addition to no tax (direct tax such as income tax) or low tax, they also have some other favorable conditions. For example, there are strict bank confidentiality laws, developed banking industry, stable political situation, convenient communication and transportation, etc. These favorable conditions of tax havens are actually some non-tax characteristics of tax havens. Only with these characteristics can tax havens truly become a tax haven for multinational investors.

1. Political and social stability

As a tax haven, political and social stability are prerequisites, otherwise it will not attract multinational companies to invest here. At present, some of the world's famous tax havens are mostly small countries or semi-autonomous regions, their political situation is relatively stable, and many of these countries and regions do not have an army, which is generally believed to have laid the foundation for the political stability of these countries and regions (the possibility of a coup and civil war is extremely small). On the contrary, Lebanon, a famous tax haven in Asia in the past (Lebanon implements a single territorial jurisdiction and is tax-free for holding companies and offshore companies; Beirut once became a banking and financial center for multinational companies operating in the Middle East), lost its status as a tax haven due to the continuous wars and many multinational companies withdrew from Lebanon.

2. Convenient transportation and communication

Convenient transportation and communication are one of the "hardware" that tax havens should have. At present, most countries and regions that have successfully implemented tax haven policies attach importance to this condition. It is not difficult to see from the global distribution of tax havens that some important or famous tax havens are geographically close to major capital exporting countries, which creates convenient conditions for tax havens to attract multinational companies to invest.

In addition, the transportation between the tax haven and the main investment country is generally well developed. For example, the Bermuda Islands are only 1,247 kilometers away from New York, USA. There is a flight from Bermuda Islands to New York every 2 hours, and the flight time is less than 2 hours; the flight time from the Cayman Islands to Miami, USA is only 1 hour, and there are several flights every day; the flight time from Jersey and Guernsey to London is only 1 hour. In addition, the communication in the tax haven is also very developed, and international direct dial calls can basically be made everywhere. There are many examples of inconvenient transportation that prevent a country from becoming a tax haven. For example, Andorra in Europe is located between France and Spain. From the perspective of taxation, there is no income tax, capital gains tax, property tax and inheritance tax here, which obviously has the tax conditions of a tax haven. However, the transportation in Andorra is very inconvenient. There are no flights to Andorra. You can only take a car from Barcelona, ​​Spain, and it takes 240 kilometers. The inconvenient transportation has greatly restricted investors from European countries from taking advantage of Andorra's tax-free advantage to avoid taxes, and has also seriously affected Andorra's status as an international tax haven.

3. Strict bank confidentiality system

The main reason why multinational corporations use tax havens to avoid taxes is to artificially transfer the profits of the corporate group from the affiliated companies in the high-tax countries to the base companies in the tax havens. This will undoubtedly damage the tax interests of the high-tax countries, so the high-tax countries will pay close attention to the problem of their companies transferring profits overseas. In this case, if there are no laws or systems in the tax havens that strictly keep the deposits of customers confidential, the behavior of multinational corporations transferring funds to the tax havens will be exposed in broad daylight, and the anti-tax avoidance measures of the high-tax countries will be more effective. In order to attract tax havens, tax haven countries or regions generally attach great importance to the confidentiality of banks. Some have formulated bank confidentiality laws, and bank employees who leak information will be severely punished.

Although some tax havens (such as the Netherlands Antilles, Bermuda, and Hong Kong, China) do not have bank secrecy laws, according to other local laws, the banking industry cannot disclose customer information to others unless there is a court order. Since some pure tax havens with no or low taxes generally do not have international tax agreements, the tax authorities of developed countries cannot obtain relevant information about tax havens through the channel of tax information exchange. However, under great pressure from developed countries, some tax havens have begun to sign tax information exchange agreements with developed countries. For example, on November 27, 2001, the Cayman Islands signed a tax information exchange agreement with the United States and the United States, which came into effect in January 2004.

4. No restrictions on outbound remittances

When multinational corporations use tax havens to evade taxes internationally, they often transfer funds between the base companies in the tax havens. This requires that the governments of the tax havens cannot restrict the transfer of funds by multinational corporations. At present, most of the major tax havens in the world belong to this situation. For example, the Cayman Islands, the Turks and Caicos Islands, the British Virgin Islands, Panama, Switzerland, Luxembourg, the Channel Islands, the Isle of Man, Liechtenstein, Hong Kong, China, Nauru, Vanuatu, etc. Some of these tax havens do not have local currencies, and some use the currencies of developed countries as their own circulating currencies. For example, the Turks and Caicos Islands and the British Virgin Islands use the US dollar as their circulating currency; Liechtenstein uses the Swiss franc as its circulating currency; and Nauru uses the Australian dollar as its circulating currency. Second, although foreign exchange controls are implemented, such foreign exchange controls do not apply to companies established by non-local residents. Bermuda Islands, the Netherlands Antilles, the Bahamas, etc. belong to this type of tax havens.