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A tax haven is actually a territory either in the form of a state or a country with relative political and economic stable environment where some forms of taxes are levied at nil rates or at very low rates and or measures are in place to help opportunists evade or avoid taxes when compared to other jurisdictions. It provides some form of financial secrecy which allows corporations and individuals avoid paying taxes in their home or host economies.
Characteristics of a Tax Haven
Favorable tax regimes for foreign investors
Information protection
Little or no regulation
Identity anonymity for offshore companies
Self-promotion as an offshore financial center
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How do individuals and corporations take advantage of Tax Havens?
- Creation of shell companies in a tax haven
- Renounce their citizenship to acquire new citizenship in a tax haven
- Relocate to a tax haven
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Benefits to the Tax Haven.
- Inflow of foreign capital
- Job creation
- it promotes internal political and economic stability
- Efficient corporate laws’ enactment
- Sustained infrastructural development
- Efficient financial services systems
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Effects of Tax havens on other economies
- Loss of tax revenue
- Promotes corruption and serves as shield to looters
- Inability to trace stolen funds
- Encourages laundering of stolen funds
- Promotes illegal transfer pricing
- Increases tax burden on the low income few to make up for lost revenue
- Promotes poverty and underdevelopment
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Steps taken so far to minimize the effect of Tax Havens
- Tax treaties
- Transfer pricing legislation
- Enactment of foreign financial information request legislations
- Asset declaration by political office holders
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Tax havens are in place for many legitimate reasons and are not illegal structures but their existence, rather than discourage can promote illegal transactions in other economies. They are exploited for their financial benefits but at the end of the day, they are about aiding and abating corruption, looting, shielding inhumane practices and many untold miseries caused on humans.
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