Tax Havens

Tax havens

There is no generally agreed definition of what a tax haven is. The term itself is troublesome, because these places offer facilities that go far beyond tax. Loosely speaking, a tax haven provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool. Those rules include tax – but also criminal laws, disclosure rules (transparency,) financial regulation, inheritance rules, and more.

Further Reading

Treasure Islands, Nicholas Shaxson’s definitive book on tax havens

Financial Secrecy Index, the world’s only bona fide tax haven ranking based on objective criteria

We don’t offer a formal definition of tax haven either, but we think that those two words in bold text are the keys to understanding the phenomenon. Language is important: the word ‘escape’ points to the word ‘haven’ in ‘tax haven;’ and the word ‘elsewhere’ points to the word ‘offshore’, which is another term that we sometimes use when we want to emphasise the ‘elsewhere’ nature of the phenomenon.

What is a secrecy jurisdiction?

We also sometimes use the term ‘secrecy jurisdiction’ instead of tax haven. We take this term to mean a similar thing as ‘tax haven’; we use it when we want to emphasise the secrecy aspect. (We do not offer our own strict definition of a secrecy jurisdiction either, though there are useful definitions out there, such as this one.) See a more detailed discussion of this question here.

Different jurisdictions make different offshore offerings. The British Virgin Islands, for example, specialises in incorporating offshore companies. Ireland is a corporate tax haven and a haven for laxity in financial regulation but not really a secrecy jurisdiction; Switzerland and Luxembourg offer secret banking, corporate tax avoidance and a wide range of other offshore services. The United Kingdom does not itself offer secret banking but it sells an even wider range of offshore services, including lax financial regulation. And so on.

 

How Big?

It is impossible to get accurate estimates for the size of financial assets held in tax havens, because of secrecy, and because nobody agrees on a tax haven is. Here are two of the best-known estimates.

– [The Price of Offshore, Revisited](http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf). In a 2012 report for the Tax Justice Network, James Henry used three separate methods to estimate between $21-32 trillion worth of financial assets in tax havens. Henry in 2016 produced a [preliminary update](https://www.foreignaffairs.com/articles/panama/2016-04-12/taxing-tax-havens) raising the estimate to $24-36 trillion.
– **Gabriel Zucman**. Using a very different, narrower method, [Gabriel Zucman estimated](http://gabriel-zucman.eu/hidden-wealth/) in 2015 that about 8 percent of the world’s wealth, or $7.6 trillion, is held in tax havens.

Where are the tax havens?

Just as there’s no agreed definition of tax havens, there’s no definitive list either. We prefer to talk of a continuum, where there are degrees of tax haven-ness, across the different dimensions that they offer: secrecy, tax escape and so on.

Several international bodies have their own lists of tax havens, which are frequently skewed by political expediency. These lists tend to exclude or downplay large, powerful nations like Tax Haven USA and highlight small, weaker ones.

Our own list, the product of years of exhaustive research into financial secrecy, makes no such concessions: it is the Financial Secrecy Index. (Click on an individual country to read a history of how it became a secrecy jurisdiction; each country also comes with an in-depth database report) Although Switzerland tops our index (as of 2016), we argue that Britain is the single most important player in the offshore system of tax havens, because of its control and support of a wide network of part-British territories (such as the Cayman Islands or Jersey) which are major players in the system. Read more about Britain’s role here.

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