I have been asked, often, of late why people and companies use tax havens.
I could give a long answer, or a short one. This is the short one.
There are four reasons why people and companies use tax havens:
1) To avoid or evade tax in their home jurisdiction;
2) To avoid or evade some other regulation in their home jurisdiction;
3) To hide something, which may well be (1) or (2);
4) Any combination of (1), (2) and (3).
That's it.
If anyone can find anything moral in that, please let me know.
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You forgot the key reason:
– Extortionary levels of governmental taxation in their home jusrisdiction
That’s (1)
Also to legitimately remove money from within a certain countries jurisdiction and to protect what you have worked for.
Argentina is an extreme but legitimate example of what can happen.
No argument that taxing people and corporations is correct.
People (and corporations) – who have wealth – also try to protect money that has already been taxed.
One way is to remove it from the jurisdiction from the government where it was earned.
That fits into my model
That’s (2)
I do not think everyone should get behind every government in a tub-thumping exercise of support, regardless.
Using Argentina as an example – the government in a crisis will steal your money.
So if you can think of anything moral in that,let me know.
I do not think,at heart,any government is a ‘moral agent’ In a crisis – depending on the size of it – any government will become Henry VIII and take what it needs.
In some circumstances number 2 I would say is moral. Moving money that has already been taxed to somewhere ‘safer’ – from the viewpoint of the owner of the money in order to support his family by protecting his money.
So I do think that money can be moved to a regime outside where it was earned – after it has been taxed – for legitimate reasons.
In the UK perhaps we are more secure – our money is stolen slowly through inflation.
In Africa, if they are to achieve investment, the people with capital will not provide it unless it can be protected.
It’s not as if certain political leaders are beyond stealing money.
Argentina did not steal anyone’s money
Capital flight forced it to reschedule its debt
I blame those who too part in the capital flight
Society needs to change how it reveres people. It should not be by how much flash and cash a person has – but by how much tax they pay back into the society that provided their wealth in the first place.
Only then will we be abe to see tax havens for the grubby work they do to facilitate greed.
Why is tax avoidance not illegal? If a properly elected government has gone through all proper processes to raise finance to do what it was elected to do then why is it legitimate (even praiseworthy in some views) for the tax to be avoided? I understand that most companies work on the premise that it is their duty to their shareholders to minimise their tax burden but I don’t buy this.
There is no duty to avoid tax – something we will publish on soon
I saw a comment on the Guardian site which seemed like a good reason why tax haves are used by one type of business. The comment was that investment funds that have investor from multiple jurisdications and invest in multiple countries, benefit by having a neutral tax position which avoids massive amounts of administration arounds the tax positions of the various investors and shifts the responsibility for tax to the investor.
Of course the individual investor may then evade tax, but the fund itself is basing in the tax haven for a commercial reason.
No, I do not accept that argument for a moment
The aim is to avoid tax
Tax treaties prevent double tax in the vast majority of cases
And you hint anyway that this is really about regulatory avoidance too – which is my case (2)
Regulation is there to prevent abuse
Tax treaties avoid double taxation in theory, but can be hard to apply in practice.
I speak only from my personal experience, of course.
Richard I think the Argentina thing is more complicated than your reply alludes.
Everyone’s personal circumstances are different but do you trust the government 100% to look after your money?
People invest in the uk for numerous reasons. Property rights,strong historical currency and consistency of government are perhaps some.
Other countries do not have that advantage. So anyone with capital to invest outside of that will want to make sure it is secure. Which, I think, is one of the major reasons that companies are set up offshore. Not just tax. To make sure the profit of any enterprise is not seized by government interference.
More likely to happen,perhaps, in Argentina or Africa, less likely over here.
The problem is that these methods are now standard practice and have been applied to NHS trusts etc in the UK.
To understand the reasons why the system of capital investments are financed is an important step towards
The greater this process is understood and the reasons why it is done – apart from tax avoidance – is of greater benefit, in the long run. As it will provide a foundation from which tax laws can be changed without destroying the investment base. Also providing a safe means for capital to invest in countries where the risk may be higher.
To rally against organisations paying tax without understanding the legitimate way international investments are set up is to risk the baby being thrown out with the bathwater. ie the chance of capital invesment in riskier projects could drastically be reduced.
Don’t you realise anything can fail?
That’s exactly my point.
You see nothing wrong then in ‘investing’ ‘capital’ earned (i.e. appropriated) from a poor country outside that country. Perhaps you don’t get this: wealth is created by workers – ‘capital’ does not breathe and does not perform any work – moving ‘capital’ offshore to earn a good return is not ‘investment’.
The benefit derived from ‘capital’ is a bargain between the investor and the worker.
All things being fair, everyone should benefit to a degree.
If the owners of ‘capital’ are concerned that their money may be appropriated by some other government they won’t invest.
There is also the problem of ‘skill’ If someone has earned a lot of money one could attribute some level of skill to them.
Contrast that with some workers who don’t have any jobs or money.
That person who has the skill and money wants to bring that to a new country. The people suddenly have a new opportunity…
So do you still say wealth is created completely by ‘workers’?
Maybe you should ask Bono or Bob Geldof who have invested capital in africa about their position on international finance and creating opportunity for people whilst at the same time protecting their capital.
I’m not sure Bono or Geldof are an example of anything I’d want to promote