What is a Tax Haven? It Depends.


Asking what is a tax haven is like asking how to lose stubborn belly fat; because the answer depends on what the person you are asking, is selling.

If you watch what I call ‘Fat/Fit’ TV on your local cable network, you’ll know that if you want to lose your gut there dozens of ways you can try. Fat/Fit ‘experts’ are happy to regale you with the ‘tried and tested’, ‘one time offers’; and ‘before and after’ testimonies in support of their claim that one exercise contraption or another, is exactly what you need to get the 6-pack abs which is the standard fare of every Fat/Fit infomercial.

Of course, if you don’t much fancy sweating, there’s always a pill to pop or a shake to make. In these plans too, can be found the answer to washboard abs. If however, eating less or even differently doesn’t appeal to you either, then there is the ‘knife’. Fat/Fit TV’s ‘white coats’ are happy to sell you medical consultations and operating time to remove ‘resistant’ pockets of fat with only the minor inconvenience of a slightly painful convalescence which, these days can be done ‘for cheap’ in spa like surroundings.

So the answer to question about belly fat depends on whether you ask someone selling an exercise video, a meal replacement or a surgical procedure.

If you ask a national legislator to define a ‘tax haven’, he might simply refer to his country’s domestic law which creates a ‘blacklist. Populated exclusively by tax havens, he might rightly respond by pointing to the criteria in the domestic law which determines whether a country or jurisdiction is included in the blacklist. Generally speaking national legislators will often describe tax havens as having a rate of income tax that is some percentage of the rate than obtains in their own country; and with whom they are unable to exchange tax information; even if they have never tried or had cause to request such information. This makes perfect sense if as a legislator, you are ‘selling’ or justifying a domestic law which is discriminatory; a fetter on business; and likely contrary to international trade rules.

You might get the same answer from someone at the OECD, whose early work spawned a great many of these national tax haven blacklists. The only difference might be that what the OECD ‘sells’ reflects the interests of the members of this ‘closed club’. For example, in the late ’90s, if you asked the OECD to define a tax haven, they would immediately distinguish it from a ‘preferred jurisdiction’. This despite the fact that their own characterisation of tax haven provided no substantive basis for differentiation; except that ‘preferred jurisdictions’ were located in Europe.

At that time both tax havens and ‘preferred jurisdictions’ featured competitive tax rates, the availability of bearer shares, the absence of an inclination or legal basis to share confidential tax payer information; and the presence of a ‘dual’ economy with the special tax incentives unavailable to locals.

This definition, later abandoned, was fashionable when the OECD was ‘selling’ its Harmful Tax Competition Initiative. This agenda was premised on the idea that ‘tax havens’ were pursuing a developmental model that was harmful to the global economy, largely because they were attracting investors away from OECD member countries at an alarming rate. Worse still, the service provided by these ‘tax havens’ was such that their retention rates were equally impressive.

Today if you ask the OECD to define a ‘tax haven’ you are far more likely to hear about the absence in that country of a legal basis for and the practical application of the current global rules on information exchange; and less about domestic tax rates. Indeed, if you are lucky you may even hear an OECD spokesman affirm that the fixing of domestic tax rates is part of  a state’s sovereign right.

This year the answer to the question may be even more straightforward. Based on the  OECD’s 2013 report to the G8, a ‘tax haven’ looks set to be classified as a jurisdiction that does not sign or express an interest in signing, the OED Multilateral Convention on Mutual Administrative Assistance in Tax Matters before the G20 meets in September. In short, a jurisdiction that does not adopt the new information exchange standard, that is, automatic exchange of information, will satisfy the definition of a tax haven.

The last ‘seller’ who might suggest a definition of a ‘tax haven’ is the ‘fair tax’ lobby. For them a tax haven is a jurisdiction where the rate of tax is substantially lower than the rate found in their home country. For them there are no rules or standards that will suffice to contain the ‘blight’ of the tax haven. The only remedy is to render them extinct. They have little time for information sharing protocols or cooperation mechanisms in matters of tax. For them a tax haven is a jurisdiction that does not impose a ‘fair tax’ on their residents and as a result this unfair ‘tax rate’ competition deprives other countries of their ‘fair share of taxes’.

For this lobby the simple definition of a tax haven is that it is ‘unfair’.

In the end, just like questions about weight loss, the answer to the question “What is a tax haven?” depends on who you talk to and what is driving their agenda.


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