A tax haven is a location which is used as a haven for avoiding tax, which has nothing to do with genuine economic activity.

As a normative economist I don’t believe objectiv tests exist. Thereafter I’m 100% in agreement with you -and think that the test you suggest is possible.

Richard

There is growing support for the view that the ‘typical’ havens (generally small islands in the sun with little political power) have been harshly treated compared to the richer ones like Switzerland and new centres like Ireland and the Netherlands. (Note that deployment of this argument also allows those in between, like the Channel Islands more wriggle room - rightly or wrongly, so dealing with it is important for this reason also.)

To ensure fair treatment by international financial regulation would require, it seems to me, an objective definition that could be applied without bias to all jurisdictions. The IMF attempt is far from perfect - but it is an interesting attempt nevertheless. I think that what’s needed is a definition that allows an objective measurement of observable characteristics (including legislation, regulation and financial flow data).

I agree with your initial approach, insofar as I would be inclined to start not with a definition of a haven, but the behaviour that characterises one. A haven is after all not a place, but a pattern of behaviour - Jersey could choose not to be a haven, it’s not a historical inevitability like being an island. That behaviour could be defined as

‘behaviour that deliberately reduces the transparency of international financial flows to the detriment of other jurisdictions’

where such detriment would include the harm done by tax evasion, money laundering and terrorist financing, and the impact on international financial stability. This seems to me fairly pithy and clear, and encapsulates the damage that havens do.

The definition of abusive behaviour implied by this would currently, I agree, look more or less identical to your definition. It would have to be updated periodically as different patterns of abuse emerged - in response both to the desire of havens to escape naming, as you say, and also to financial innovation. In the same way that short-term capital controls have to be updated something like every 18 months (according to a Chilean regulator) to remain effective, it wouldn’t be out of the question to update the scope of abusive behaviour.

What would remain constant at the core would be the definition of abuse that defines a haven. A researcher could then at a given point apply a transparent methodology to create a measurement (and then a ranking) of how far each jurisdiction is from being ‘perfectly’ non-abusive. With the evolution of new abuses the behaviour in question would change to some extent, but that core, capturing the damage havens do, would remain the defining factor. Some subjectivity would enter the step of moving from this core to defining abusive behaviour at any given moment, but this does at least offer a transparent basis for this.