Tax Haven Concept

The expression Tax Haven refers to a country or territory with a specific and more favorable tax regime for entities and foreign individuals and whose main goal is the capture of foreign capitals. In practice, tax havens have emerged as offshore financial centers, with low or even inexistent taxes, a very strict banking secrecy and a minimum control of the financial market.

For the entities that use them, the main functions of the tax havens are to avoid (or at least delay) tax payment, avoid control over certain transactions and act against eventual nationalizations and expropriation in their country of origin.

Types of Tax Havens

Generally are considered as tax havens three specific classes of tax jurisdictions:

. those that practice null or very low taxes referent to the values practiced on an international level;

. those that charge taxes only on international transaction subject to few or none taxes over the income of foreign origin;

. those that grant special privileges to some kind of companies and/or some kind of operations.

Examples of Tax Havens

Some examples of countries and territories usually considered as tax havens are the following: Andorra, Netherland Antilles, Aruba, Bahamas, Bermuda Islands, Cayman Islands, Costa Rica, Hong Kong, Macau, Madeira, Marshall Islands, Mauritius Islands, Monaco, Panama, Tonga, Vanuatu, U.S. Virgin Islands e British Virgin Islands, among others.

Tax Havens contestation

Due to the fact that tax havens can be used for fraud and tax evasion and for the performance of non controllable/auditable operations, including money laundry and parking of values destined to illicit activities, have increased the contestation to this kind of tax jurisdiction. This contestation still assumed more relevance as a result of the international financial crisis initiated in 2008 which led some countries and international institutions to adopt regulatory measures. One of those measures was the disclosure of a list of tax havens by the OECE, which classified the several countries and territories with special tax jurisdiction in three distinct classes: one “white” list, one “grey” and one “black”, with the classification of the countries according to the implementation level of the OECE patterns referent to direct tax (this is, referent to taxes over income and over heritage). Before the threat of commercial and economical penalties, almost all countries listed ended up compromising to implement the international rules of tax scope.

 

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.