What is a Tax Haven?

What is a Tax Haven?

tax haven

There is no generally accepted definition of what renders a country or jurisdiction a tax haven. The Cambridge Dictionary defines a tax haven as ‘a place where people pay less tax than they would pay if they lived in their own country’. The term most commonly refers to those countries or jurisdictions that have a low-tax or no-tax regime or which offer generous tax incentives. 

Even the U.S. Government has been unable to find a satisfactory definition of a tax haven. Instead they have come up with a list of characteristics that 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; and 
  • Self-promotion as an offshore financial center.

    The Organisation for Economic Co-operation and Development (OECD) has identified three key factors in considering whether a jurisdiction is a tax haven:

  • No or only nominal taxes. 
  • Protection of personal financial information. 
  • Lack of transparency.

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