Tax haven

"Tax heaven" redirects here. For the dating simulator, see Tax Heaven 3000.

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A tax haven is a term, often used pejoratively, to describe a place with very low tax rates for non-domiciled investors, even if the official rates may be higher.[a][1][2][3][4][5]

In some older definitions, a tax haven also offers financial secrecy.[b][6] However, while countries with high levels of secrecy but also high rates of taxation, most notably the United States and Germany in the Financial Secrecy Index (FSI) rankings,[c] can be featured in some tax haven lists, they are often omitted from lists for political reasons or through lack of subject matter knowledge. In contrast, countries with lower levels of secrecy but also low "effective" rates of taxation, most notably Ireland in the FSI rankings, appear in most § Tax haven lists.[9] The consensus on effective tax rates has led academics to note that the term "tax haven" and "offshore financial centre" are almost synonymous.[10] In reality, many offshore financial centers do not have harmful tax practices and are at the forefront among financial centers regarding AML practices and international tax reporting.

Developments over the past decade have substantially reduced the ability for individuals or corporations to use tax havens for tax evasion (illegal non-payment of taxes owed). These include the end of banking secrecy in many jurisdictions including Switzerland following the passing of the US Foreign Account Tax Compliance Act and the adoption of the CRS by most countries, including typical tax havens, a multilateral automatic taxpayer data exchange agreement, initiative of the OCDE.[11][12] CRS countries require banks and other entities to identify the residence of account holders, beneficial owners of corporate entities[13][14][15][16] and record yearly account balances and communicate such information to local tax agencies, which will report back to tax agencies where account holders or beneficial owners of corporations reside.[17] CRS intends to end offshore financial secrecy and tax evasion giving tax agencies knowledge to tax offshore income and assets. However very large and complex corporations, like multinationals, can still shift profits to corporate tax havens using intricate schemes.

Traditional tax havens, like Jersey, are open about zero rates of taxation – as a consequence they have few bilateral tax treaties. Modern corporate tax havens have non-zero "headline" rates of taxation and high levels of OECD compliance, and thus have large networks of bilateral tax treaties. However, their base erosion and profit shifting ("BEPS") tools enable corporates to achieve "effective" tax rates closer to zero, not just in the haven but in all countries with which the haven has tax treaties; putting them on tax haven lists. According to modern studies, the § Top 10 tax havens include corporate-focused havens like the Netherlands, Singapore, Ireland, and the U.K., while Luxembourg, Hong Kong, the Cayman Islands, Bermuda, the British Virgin Islands, and Switzerland feature as both major traditional tax havens and major corporate tax havens. Corporate tax havens often serve as "conduits" to traditional tax havens.[18][19][20]

Use of tax havens results in a loss of tax revenues to countries which are not tax havens. Estimates of the § Financial scale of taxes avoided vary, but the most credible have a range of US$100–250 billion per annum.[21][22][23][24] In addition, capital held in tax havens can permanently leave the tax base (base erosion). Estimates of capital held in tax havens also vary: the most credible estimates are between US$7–10 trillion (up to 10% of global assets).[25] The harm of traditional and corporate tax havens has been particularly noted in developing nations, where the tax revenues are needed to build infrastructure.[26][27][28]

Over 15%[d] of countries are sometimes labelled tax havens.[4][9] Tax havens are mostly successful and well-governed economies, and being a haven has brought prosperity.[31][32] The top 10–15 GDP-per-capita countries, excluding oil and gas exporters, are tax havens. Because of § Inflated GDP-per-capita (due to accounting BEPS flows), havens are prone to over-leverage (international capital misprice the artificial debt-to-GDP). This can lead to severe credit cycles and/or property/banking crises when international capital flows are repriced. Ireland's Celtic Tiger, and the subsequent financial crisis in 2009–13, is an example.[33] Jersey is another.[34] Research shows § U.S. as the largest beneficiary, and use of tax havens by U.S corporates maximised U.S. exchequer receipts.[35]

Historical focus on combating tax havens (e.g. OECD–IMF projects) had been on common standards, transparency and data sharing.[36] The rise of OECD-compliant corporate tax havens, whose BEPS tools were responsible for most of the lost taxes,[37][26][23] led to criticism of this approach, versus actual taxes paid.[38][39] Higher-tax jurisdictions, such as the United States and many member states of the European Union, departed from the OECD BEPS Project in 2017–18 to introduce anti-BEPS tax regimes, targeted raising net taxes paid by corporations in corporate tax havens (e.g. the U.S. Tax Cuts and Jobs Act of 2017 ("TCJA") GILTI–BEAT–FDII tax regimes and move to a hybrid "territorial" tax system, and proposed EU Digital Services Tax regime, and EU Common Consolidated Corporate Tax Base).[38]


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  1. ^ "Financial Times Lexicon: Definition of tax haven". Financial Times. June 2018. Archived from the original on 17 June 2018. Retrieved 17 June 2018. A country with little or no taxation that offers foreign individuals or corporations residency so that they can avoid tax at home.
  2. ^ "Tax haven definition and meaning". Collins English Dictionary. Archived from the original on 28 December 2017. Retrieved 27 December 2017. A tax haven is a country or place which has a low rate of tax so that people choose to live there or register companies there in order to avoid paying higher tax in their own countries.
  3. ^ "Tax haven definition and meaning". Cambridge English Dictionary. 2018. Archived from the original on 17 June 2018. Retrieved 17 June 2018. a place where people pay less tax than they would pay if they lived in their own country
  4. ^ a b Dhammika Dharmapala; James R. Hines Jr. (2009). "Which countries become tax havens?" (PDF). Journal of Public Economics. 93 (9–10): 1058–1068. doi:10.1016/j.jpubeco.2009.07.005. S2CID 16653726. Archived (PDF) from the original on 8 August 2017. Retrieved 16 August 2018. The 'tax havens' are locations with very low tax rates and other tax attributes designed to appeal to foreign investors.
  5. ^ James R. Hines Jr.; Anna Gumpert; Monika Schnitzer (2016). "Multinational Firms and Tax Havens". The Review of Economics and Statistics. 98 (4): 713–727. doi:10.1162/REST_a_00591. S2CID 54649623. Archived from the original on 17 April 2019. Retrieved 16 August 2018. Tax havens are typically small, well-governed states that impose low or zero tax rates on foreign investors.
  6. ^ Shaxson, Nicholas (9 January 2011). "Explainer: what is a tax haven?". The Guardian. Retrieved 27 December 2017.
  7. ^ "New report: is Apple paying less than 1% tax in the EU?". Tax Justice Network. 28 June 2018. Archived from the original on 2 July 2018. Retrieved 1 September 2018. The use of private 'unlimited liability company' (ULC) status, which exempts companies from filing financial reports publicly. The fact that Apple, Google and many others continue to keep their Irish financial information secret is due to a failure by the Irish government to implement the 2013 EU Accounting Directive, which would require full public financial statements, until 2017, and even then retaining an exemption from financial reporting for certain holding companies until 2022
  8. ^ "Ireland's playing games in the last chance saloon of tax justice". Richard Murphy. 4 July 2018. Archived from the original on 8 July 2018. Retrieved 1 September 2018. Local subsidiaries of multinationals must always be required to file their accounts on public record, which is not the case at present. Ireland is not just a tax haven at present, it is also a corporate secrecy jurisdiction.
  9. ^ a b Laurens Booijink; Francis Weyzig (July 2007). "Identifying Tax Havens and Offshore Finance Centres" (PDF). Tax Justice Network and Centre for Research on Multinational Corporations. Archived (PDF) from the original on 7 December 2017. Retrieved 17 June 2018. Various attempts have been made to identify and list tax havens and offshore finance centres (OFCs). This Briefing Paper aims to compare these lists and clarify the criteria used in preparing them.
  10. ^ Gabriel Zucman (August 2013). "The Missing Wealth of Nations: Are Europe and The U.S. Net Debtors or Net Creditors?" (PDF). The Quarterly Journal of Economics. 128 (3): 1321–1364. CiteSeerX 10.1.1.371.3828. doi:10.1093/qje/qjt012. Archived (PDF) from the original on 9 August 2017. Retrieved 28 August 2018. Tax havens are low-tax jurisdictions that offer businesses and individuals opportunities for tax avoidance' (Hines, 2008). In this paper, I will use the expression 'tax haven' and 'offshore financial center' interchangeably (the list of tax havens considered by Dharmapala and Hines (2009) is identical to the list of offshore financial centers considered by the Financial Stability Forum (IMF, 2000), barring minor exceptions)
  11. ^ "Standard for Automatic Exchange of Financial Account Information in Tax Matters | READ online". oecd-ilibrary.org. Retrieved 27 October 2023.
  12. ^ "CRS by jurisdiction". www.oecd.org.
  13. ^ "Standard for Automatic Exchange of Financial Account Information in Tax Matters | READ online". oecd-ilibrary.org. Retrieved 27 October 2023.
  14. ^ "Standard for Automatic Exchange of Financial Account Information in Tax Matters | READ online". oecd-ilibrary.org. Retrieved 27 October 2023.
  15. ^ "Standard for Automatic Exchange of Financial Account Information in Tax Matters | READ online". oecd-ilibrary.org. Retrieved 27 October 2023.
  16. ^ "Standard for Automatic Exchange of Financial Account Information in Tax Matters | READ online". oecd-ilibrary.org. Retrieved 27 October 2023.
  17. ^ "Standard for Automatic Exchange of Financial Account Information in Tax Matters | READ online". oecd-ilibrary.org. Retrieved 27 October 2023.
  18. ^ "Netherlands and UK are biggest channels for corporate tax avoidance". The Guardian. 25 July 2017. Archived from the original on 24 May 2018. Retrieved 23 May 2018.
  19. ^ "Is the U.K. Already the Kind of Tax Haven It Claims It Won't Be?". Bloomberg News. 31 July 2017. Archived from the original on 13 June 2018. Retrieved 23 May 2018.
  20. ^ "Tax Havens Can Be Surprisingly Close to Home". Bloomberg View. 11 April 2017. Archived from the original on 17 June 2018. Retrieved 23 May 2018.
  21. ^ "Zucman:Corporations Push Profits Into Corporate Tax Havens as Countries Struggle in Pursuit, Gabrial Zucman Study Says". Wall Street Journal. 10 June 2018. Archived from the original on 4 April 2019. Retrieved 13 June 2018. Such profit shifting leads to a total annual revenue loss of $250 billion globally
  22. ^ Cite error: The named reference gzuc was invoked but never defined (see the help page).
  23. ^ a b "BEPS Project Background Brief" (PDF). OECD. January 2017. p. 9. Archived (PDF) from the original on 22 July 2017. Retrieved 1 June 2018. With a conservatively estimated annual revenue loss of USD 100 to 240 billion, the stakes are high for governments around the world. The impact of BEPS on developing countries, as a percentage of tax revenues, is estimated to be even higher than in developed countries.
  24. ^ "Tax havens cost governments $200 billion a year. It's time to change the way global tax works". World Economic Forum. 27 February 2020. Retrieved 26 March 2020.
  25. ^ Cite error: The named reference Zucman was invoked but never defined (see the help page).
  26. ^ a b Cite error: The named reference IMF5 was invoked but never defined (see the help page).
  27. ^ Cite error: The named reference zucc was invoked but never defined (see the help page).
  28. ^ "Every cent lost to tax havens could be used to strengthen our health and social systems". openDemocracy. Retrieved 26 March 2020.
  29. ^ Cite error: The named reference OECDh was invoked but never defined (see the help page).
  30. ^ Cite error: The named reference h1 was invoked but never defined (see the help page).
  31. ^ James R. Hines Jr. (2007). "Tax Havens" (PDF). The New Palgrave Dictionary of Economics. Archived (PDF) from the original on 24 September 2016. Retrieved 16 August 2018. Tax havens are low-tax jurisdictions that offer businesses and individuals opportunities for tax avoidance. They attract disproportionate shares of world foreign direct investment, and, largely as a consequence, their economies have grown much more rapidly than the world as a whole over the past 25 years.
  32. ^ Cite error: The named reference mich was invoked but never defined (see the help page).
  33. ^ Cite error: The named reference ber was invoked but never defined (see the help page).
  34. ^ Oliver Bullough (8 December 2015). "The fall of Jersey: how a tax haven goes bust". The Guardian. Jersey bet its future on finance but since 2007 it has fallen on hard times and is heading for bankruptcy. Is the island's perilous present Britain's bleak future?
  35. ^ Cite error: The named reference dryng was invoked but never defined (see the help page).
  36. ^ Cite error: The named reference crs2 was invoked but never defined (see the help page).
  37. ^ Cite error: The named reference imfx was invoked but never defined (see the help page).
  38. ^ a b Nicholas Shaxson (September 2019). "Tackling Tax Havens". Finance & Development IMF Quarterly. 56 (3).
  39. ^ Alex Cobham (11 September 2017). "New UN tax handbook: Lower-income countries vs OECD BEPS failure". Tax Justice Network. Archived from the original on 29 May 2018. Retrieved 1 June 2018.