Tax havens are countries that allow businesses and individuals to avoid paying taxes in the nations they mainly operate out of by offering bank accounts with little or no tax liability. Tax havens also provide little or no financial information to nations where entities are based. And it’s mostly legal even though these individuals or multi-national companies rarely operate out of a tax haven country.
Major Tax Haven Countries
There are more than forty nations that offer tax havens. Here’s some of the big ones:
[threecol_one]Panama
British & US Virgin Islands
St. Kitts & Nevis
Monaco[/threecol_one]
[threecol_one]Jersey
Bermuda
Hong Kong
Bahamas[/threecol_one]
[threecol_one_last]Andorra
The Isle of Man
Mauritius
Lichtenstein
Cayman Islands[/threecol_one_last]
With about 8% of the world’s financial wealth being held offshore , this costs governments at least $200 billion dollars annually. European countries top the list with $2.6 trillion held in offshore accounts while the US comes in second with $1.2 trillion held in tax havens. This means that Europe is losing out on $75 billion and the US $36 billion in tax revenue annually. To put things in perspective $36 billion is about half the Education budget for the US.
A Case for a World Financial Register
Essentially there are three obstacles to finding or implementing solutions. There are simply too many incentives for offshore bankers, financial opacity and too many incentives for tax havens.
One solution that has been presented is the creation of a world financial register. With a world financial register – tax authorities could verify that taxpayers declare all the financial securities included in the all-inclusive register.
Of course there are other solutions and ways to curb the use of tax havens like what the EU has accomplished with Cyprus.
Cyprus – Offshore Tax Haven No More
Cyprus is a reliable EU and Eurozone jurisdiction for conducting professional services and investment activities. Indeed, Cyprus maintains a superb international reputation for doing business. With just a 12.5% corporate tax, Cyprus is one of the lowest tax jurisdiction in the EU that is not offshore and has the lowest non-offshore jurisdiction corporate tax rates on Earth along with Ireland (12.5%).
Cyprus now offers a spectrum of financial advantages to companies and individuals. Cyprus maintains a stable economy that heavily focuses on professional services and the financial sector in particular. Which leads us to ask – what happened in Cyprus?
Cyprus has changed significantly because of EU accession and as a result of agreements with the Organization for Economic Cooperation and Development (OECD). Cyprus has completely transformed itself from being considered an offshore tax haven with a 4.25% corporate tax rate for shady businesses to a unique EU jurisdiction with a standardized tax rate of 12.5% – currently the lowest tax rate in the EU.
Cyprus has effectively reformed its financial sector laws in accordance with international best practice and has applied a simplified and transparent tax system. Ultimately, Cyprus was excluded from the OECD’s damaging tax haven blacklist and was placed on the OECD white list which all have extensively implemented internationally agreed standards for tax transparency.
Today, Cyprus has taken other measures to reform like adopting international financial reporting standards and passing anti money laundering legislation.
Cyprus still offers companies incentives to base operations there (or at least base them there on paper) in addition to offering low taxes. Many forex and binary option companies, for instance, are based in Cyprus and regulated by the Cyprus Securities and Exchange Commission (CySEC).
In fact, it was in 2012 that CySEC announced a policy change regarding the classification of binary options as financial instruments. The effect was that binary options platforms operating in Cyprus (where most of the platforms are now based) had to be regulated. This made CySEC the first financial regulator to internationally regulate binary options as legitimate financial instruments.
Naturally, Cyprus is continuing to establish laws that limit fraud and increase transparency in all sectors now that they have gone down the path towards European integration.
Conclusion – Citizens Don’t Know or Care Enough
Clearly, there’s a number of benefits for host countries, companies and individuals to keep tax havens while citizens and national coffers suffer from the lack of taxes collected in their home countries. A financial register seems to be the ideal mechanism for controlling entities wishing to avoid paying taxes but doesn’t have the wide-ranging international political momentum to establish it despite public news like the recent Panama tax haven publications.
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