[/caption]Whereas most of the countries have been suffering the biggest economic crisis since the 1930s' Great Depression and some of them have carried out bail-out plans to rescue their big banks and they need every cent of taxation revenue to pay for the bailouts, some other ones are just saving the hot money coming in as a flow of tax from all over the world. They are considered as tax havens, where certain taxes are levied at a low rate or not at all.
Some strong economies such as Switzerland, Singapore, Hong Kong, Belgium, Luxembourg and Australia are widely recognised as tax havens or, more theoretically, secretive offshore finance centres although they have well-regulated and relatively transparent banking system. As being considered as tax havens by OECD, some of them have certain tax rates which are not high enough or have protection of personal financial information rules such as Switzerland preventing the taxpayers from scrutiny of foreign tax authorities.
Other tax havens recognised by OECD are smaller territories that have low tax rates and poor regulation and most of them are or were British territories. Most of the world's hedge funds were registered in the Caymans island, an overseas territory of Britain and many shadow banking system, many of the most debt instruments and big banks that got into trouble are managed offshore or did much of their business through offshore subsidiaries. Ignoring the European calls for greater regulation, Britain seems to help many of them, like Bermuda and the Caymans, to become tax havens as an aim to support its own financial industry. For example, every single law passed in those places has to be signed by the Queen, meaning it is actually signed by British ministry of constitutional affairs. As being said by Murphy, a British tax accountant and anti-haven campaigner, "London is the biggest tax haven in the world because all these other places are just branches of London".
However, in current situation tax havens is likely a problem rather than a solution. First, even though financial crisis was caused largely by the collapse of the US subprime mortgage market rather than tax evasion, "havens also play an important role in amplifying the crisis because they are regulatory havens as well as tax havens," said Murphy. Secondly, seemingly supporters of tax havens such as Gordon Brown now need the revenue from tax than ever before to pay for his government's bail-out plans. So, during planning for the G20 summit in next week, the tax haven issue has generated the strongest consensus, which is about the deal with the problems of offshore tax heavens and the cross-border supervision to prevent them.
These action has created a threat to Switzerland, the first "true" tax haven. After the World War I, whereas many other countries increased the tax paid to raise revenue for reconstruction, Switzerland still maintained a lower tax rate and therefore, Swiss banks had become capital havens for the foreigners. But now when the governments need tax revenue, such places as Switzerland are no longer on protection. It is leading a rush of offers to exchange tax information to other governments. These actions is unlikely to take enough action on havens because the governments would need to provide proof of tax fraud (which is somehow and sometimes not considered as a fraud in Switzerland) and the list of the accounts and people involved. During some years the Swiss needs to take to negotiate and legislate for the agreements, its bank can reform with new structures and even new bases.
Whatever difficulties they face, these actions show that the current economic crisis are producing a heavy pressure on tax havens. Obviously, the benefits from tax havens are now outweighed by the need for taxation dollars to pay for the government's deficits. In the near future, there will be few tax havens that can survive and the winner is the one who are better regulated, more transparency and more willing to exchange personal financial information of tax payers to other governments. Hong Kong, Singapore, Dubai, Jersey and Bermuda will likely be the survivors. At that time, perhaps Switzerland will be a transformed place.
Reference:
Wilson, p 2009, 'Pirates of the Caribbean', The Australian, 27 March, p. 11.
Well said
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