Tax Planning Strategy 182 | The Advantages of Tax Havens

Tax planning strategy 182

The central feature of a tax haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. Although there is no universally accepted definition of tax havens the following characteristics are indicative of it:

• No or nominal taxes.
•  Lack of effective exchange of tax information with foreign tax authorities.
• Lack of transparency in the operation of legislative, legal or administrative provisions.
• No requirement for a substantive local presence.
• Self-promotion as an offshore financial center.

  A 2012 report by the British Tax Justice Network estimated that between US$21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, sheltering over 40% of their profits from U.S. taxes.

  The main advantages of tax havens are:

1. Personal residency – enables wealthy individuals from high-tax jurisdictions to relocate themselves to low-tax jurisdictions.
2. Corporate residency – enables companies to own subsidiary companies in countries that allow them to take advantage of the variety of laws, regulations, and conventions in multiple countries, without overtly engaging in any questionable activities.
3. Asset holding – involves utilising an offshore trust or offshore company to hold assets (i.e. shares, real estate, trading or investment companies).
4. Anonymity and bearer shares – allows for anonymous ownership of investments.
5. Locating holding companies – useful when the holding company has investors from various countries who are investing in businesses that are in turn operating in numerous countries.

Taxpayers considering using tax havens require specialist tax advice.