I am sure most of you have heard the word “Tax Haven” for the first time in your life during the leak of Panama Papers. In this articles, you are going to learn about things you should know about Tax Havens and the list of important countries that act as Tax Havens. Let’s get into it.
What is Tax Haven?
A tax haven or “uncooperative state or territory” is a place of escape that avoids taxes but also financial regulation, allowing illegal operations such as money laundering.
The OECD (Organization for Economic Co-operation and Development) determines tax havens according to four criteria:
- a zero or near zero tax;
- lack of transparency;
- legislation opposed to the exchange of information;
- an absolute tolerance to screen companies without real activity.
Where are they? Biggest Tax haven Countries List:
There are 72 tax havens in the world among which the biggest are:
- City of London
- the Netherlands
- Hong Kong
- British Virgin Islands
- Cayman Islands, etc.
Some of these territories, however modest in size and resources, have become high-ranking international financial institutions.
Good to know: these tax loopholes are not designed to attract the money of the locals but rather that of foreigners.
Is an individual prohibited from saving abroad?
Any individual has the right to open an account abroad, provided that he declares the account and the funds that support it to the tax authorities.
Thus, each individual who carries more than the certain amount of money out of their country, they must fill out a form for customs. Let’s say a person from France wants to go to tour to the USA. If he wants to take more than 10 000 € with him out of French territory must fill out a form for customs. Otherwise, he may face sanctions up to and including confiscation of the unreported amount.
For transfers of more than € 50 000 to or from a Member State of the European Union, additional documents must be provided to prove the source of the funds. This voucher can be a sales contract, proof of winnings, a document from the bank attesting to the execution of cash transactions, etc. (Decree of 5 December 2016).
However, since each French citizen is taxable on his or her world income, there is little interest in saving abroad except to escape the ISF or conceal money.
How does it work?
Opening an account is a delicate operation. It is therefore always possible to do so via a screen company (a fictitious company to cover transactions) or by creating a legal entity or a foundation managed by an agent on behalf of an unknown beneficiary.
Alternatively, there is a suitcase full of tickets! But be careful the banker could laugh you in the nose if this suitcase contains only 100 000 €!
Who are the beneficiaries?
- the banks ;
- large companies (Google would own a company in Bermuda);
- hedge funds;
- corrupt political elites;
- the well-to-do social classes;
- and sometimes “ordinary people” (ex: Greek villagers from the middle classes in 2011).
But it is also the case of criminals who, thanks to the guarantee of bank secrecy, can launder corrupt money in all quietude.
Good to know: the champions of tax optimization remain the multinational companies.
How to fight effectively?
Tax evasion is a major economic scourge because of all states, whether rich or poor, suffer.
The idea of the G20 was to force tax havens to sign treaties for the exchange of tax information with countries around the world but concretely that has not changed anything. Why? Perhaps because most G20 members have one or more tax havens on their territory!
For the time being, the OECD, mandated by the G20, is working on an action plan designed to tighten state tax laws and should be implemented by 2015. What to do.