What’s a tax haven?


Tax havens – also known as ‘secrecy jurisdictions’ or ‘offshore’ – provide any of the following:

  • Escape from tax (of course)
  • Secrecy, in various forms
  • Avoidance of financial regulations
  • Avoidance of criminal laws
  • Escape from other rules of society, such as inheritance or corporate governance rules

Tax havens can be whole countries, dependencies of bigger countries, or even areas within countries.

The City of London is a whopping tax haven, for example.

Who knew?*

Grab the Prezi here.

Drill down into what tax havens provide, and two core elements stand out: escape, and elsewhere.

Escape

Secrecy jurisdictions offer the chance to avoid scrutiny, tax, financial regulations, criminal laws and more.

The ‘escape’ feature helps powerful individuals and organisations avoid the responsibilities and costs associated with the things that made them rich in the first place. You know, things like educated and healthy workforces, smooth roads, police protection and the courts of law that uphold their contracts.

They leave the riff-raff to actually pay for all of that stuff.

This burden takes the form of higher taxes that make the daily shop more expensive for those to whom every penny counts, and it means degraded public services.

Sound familiar?

Elsewhere

Secrecy jurisdictions change their laws for individuals and organisations who are actually located somewhere else! Hence the term ‘offshore’. See, it makes sense now, doesn’t it?

But the citizens who live within tax havens and are affected by these laws are not consulted. In fact, that is the whole point of offshore.

This is about insiders talking to other insiders, in secret.

The exclusion of local populations in favour of wealthy foreign interests represents a pretty big smack down of democracy.

We’re flexible!

Tax havens like to boast about their ‘flexibility.’

Take the rather creepy Luxembourg Bankers’ Association for example, who proudly state that a key attraction is the “easy access to decision-makers” and “limited red tape”.

What ever happened to theme parks and castles?

We’re even more flexible!

As more and more capital flows into one tax haven, lining the pockets of local movers and shakers, other countries look on in envy.

So they deregulate their economies ever further and cut their taxes on the rich even more. It’s a ‘race to the bottom’! Except the race is against other countries, and their citizens are going down too, whether they like it or not.

So who wins?

The biggest users of secrecy jurisdictions are, contrary to long-held popular views, not celebrity tax exiles or mafiosi, but big corporations and wealthy individuals.

In multiple surveys, the biggest corporate user in every jurisdiction surveyed was a bank. Their ability to operate in zones of extreme secrecy has proved to be profoundly dangerous.

Indeed, a whopping 98% of the companies listed on the London Stock Exchange are using tax havens.

To find out who else wins, see our What’s the problem section.

*The Tax Justice Network knew.