With this as a background, we can see how tax havens pose a threat to (welfare) states in at least two ways:
- Tax havens create opportunities- legally and illegally – for taxpayers in a country to evade the tax claims of their home states. If many take advantage of the opportunities offered by tax havens , central government revenues will fall . This will make it difficult to finance a high level of welfare schemes or other government tasks.
- There are big differences in what opportunities people have to use tax havens to avoid taxes. If you work at the cash register at KIWI, it will be difficult for you to use a tax haven to avoid paying tax on your salary. If you have large amounts of financial capital, it will be easier to avoid tax on the income from these by moving the values to a tax haven. The tax havens thus disrupt a fair distribution of tax payments in society, by some escaping. No one likes to be the one left with the bill, if they feel that others do not contribute. Tax havens thus threaten tax morale in society.
4: What is a tax haven?
Tax havens are states (Switzerland) or jurisdictions ( Jomfruøyen e, geographical areas that are not independent states, but which can still determine laws and regulations in certain areas). They try to attract companies, private wealth and financial investments from other countries by, among other things, offering low taxes.
Tax havens have particularly favorable tax systems to attract foreign investment . While foreigners receive very favorable conditions, more “normal” tax rules often apply to the tax haven’s own residents . Such a division is often called the fencing of the tax system. Furthermore, tax havens offer foreigners simple, fast and flexible rules , with little bureaucracy (little supervision, or control), usually in combination with low or no tax.
According to BAGLIB, most tax havens specialize in limited markets – such as hedge funds in the Cayman Islands, holding companies in the Netherlands, banking in Switzerland or ship registration in Liberia. Many tax havens can also offer anonymity and secrecy . Thus, it can be difficult to trace values and companies back to those who actually own or control them.
This is possible because most tax havens allow companies to be registered in the country without reporting either the company’s business, financial condition or details of ownership. In cases where information about shareholders and management must be reported to the authorities, the information is very rarely made publicly available by the tax haven, for example in a searchable register.
Furthermore, most tax havens allow companies to be registered in the names of so-called straw men . A straw man is a person who is paid to be the listed owner, director or manager of a company, even if he or she is not involved in the company in practice . So even if the information provided in the tax haven is disclosed to another country’s police authorities, this will not necessarily provide any useful information about who is actually behind the company. Because of the many ways tax havens help to hide important information , they are sometimes called confidential jurisdictions (see FSI index above).
In practice, tax havens make it possible for individuals and companies to circumvent the legislation in their own home countries. This applies not only to taxes, but also laws related to inheritance, bankruptcy, divorce, creditors, financial regulations and a number of other areas.
Tax havens are largely dependent on a global finance and advisory industry . They are the ones who mediate the services made possible by the tax havens’ legislation. These intermediaries can often be large, reputable banks, consultants and auditing firms, as has become clear through the leaks of recent years.
5: The secrecy cracks
However, the secrecy in tax havens is not as tight as it once was . In early April 2016, stories from a huge data leak were rolled out in a coordinated manner on the front pages of over a hundred newspapers and media houses around the world, among them Aftenposten in Norway . The so-called Panama Papers gave the world a unique insight into how financial advisers, tax planners and lawyers use tax haven companies to help some of the world’s richest and most powerful people escape tax. They revealed how state leaders, royalty, sports stars and business leaders had used tax havens to carry out large-scale corruption, insider trading and widespread tax evasion.
The Panama papers were a leak from a law firm in Panama – Mossack Fonseca . This company had created over 200,000 secret accounts in tax havens worldwide, for customers from over 200 countries . Norwegians were also involved. The banks Nordea and DNB had collaborated here with the law firm, among other things to establish anonymous tax haven companies in the Seychelles. The tax administration, which has obtained information about these Norwegians, has stated that about half of the approximately two hundred Norwegians on Mossack Fonseca’s customer list were apparently involved in tax evasion.