tax haven

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Related to Tax-haven: Tax Haven Countries

Tax haven

A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific activities such as exporting or investing.

Tax Haven

A country that has a low tax liability compared to other countries or no taxes at all. Some countries deliberately set themselves up as tax havens in order to encourage international corporations to register themselves there. Some countries that are not tax havens have loopholes in their tax codes in order to allow certain persons and companies to place some of their assets in an account in a tax haven.

tax haven

A country or other political entity that offers outside businesses and individuals a climate of minimal or nonexistent taxation. In some cases, the low taxes apply not only to those levied by the tax haven itself but also to the possibility of reducing or avoiding taxes levied in the investor's home country.

tax haven

a country which imposes low rates of personal and corporate TAXES, and which as a consequence tends to attract wealthy individuals, MULTINATIONAL ENTERPRISES and FINANCIAL INSTITUTIONS seeking to minimize their taxation liabilities. At the present time, countries operating low-taxation systems include Bermuda, Jersey and the Cayman Islands. An OECD report published in 2000 listed 35 ‘offshore financial centres’ which it classed as ‘tax havens that harm trade and investment’. The OECD defined harmful jurisdictions as those that offered zero or low tax rates but fell short in legal and administrative transparency. The latter factor makes it difficult for other countries ‘tax authorities’ to detect and observe the complex financial transactions undertaken by criminals and MNEs (MULTINATIONAL ENTERPRISES) to ‘hide’ their tax liabilities.

There are two main types of tax haven arrangements:

  1. tax exempt companies beneficially owned by non-residents of a country which pay a small annual administration fee (under £2000) in return for being exempt from income and withholding taxes; there are no capital gains or inheritance taxes. Tax haven countries themselves ‘gain’ from the creation of local employment and the extra income this creates, often in an impoverished country or a country lacking other resources (e.g. the Channel Islands and the Isle of Man);
  2. international business companies that are ‘accommodated’ by ‘designer’ taxation, whereby tax havens ‘tailor’ rates of tax to help individual MNEs to minimize their ‘onshore’ tax liability. MNEs negotiate low tax rates which in turn allows them to meet thresholds for tax exemptions in onshore jurisdictions. See also TRANSFER PRICE, MIXER COMPANY, MONEY LAUNDERING.

tax haven

a country that imposes low rates of personal and corporate TAXES, and as a consequence tends to attract wealthy individuals and MULTINATIONAL COMPANIES seeking to minimize their taxation liabilities. See MIXER COMPANY. See also TRANSFER PRICE.
References in periodicals archive ?
(127) The OECD members determined the Recommendations for the OECD-deemed tax havens, and the expected result was to motivate tax-haven compliance through the unfulfilling reward of non-retaliatory OECD actions.
(142) The jurisdictions on the OECD tax-haven list are economically weaker than and more dependent on OECD member countries as trading partners.
(147) In fact, no effective consultations with tax-haven jurisdictions occurred during the drafting of the 1998 OECD Report, which contained the Recommendations.
Additionally, the tax-haven criterion of no substantial activities lacks determinative guidelines and allows a subjective interpretation of what is substantial.
(164) Thus, when it appears that OECD member countries seek to impose certain standards on OECD-deemed tax-haven jurisdictions that they do not impose on themselves, it is difficult to justify constructive efforts to harmonize tax practices.
(169) Some tax-haven countries fear the OECD initiative could cause as much as a twenty-five percent drop in their Gross Domestic Product because their economies are so dependent on the financial industry.
(175) Therefore, the 1998 OECD Report will merely cause entities and capital to shift away from OECD member countries to tax-haven jurisdictions where books and records remain inaccessible to outside authorities.