Definition and characteristics of Tax Haven
Tax Haven Criteria
Particularities of some tax havens
Evolution of the Spanish Tax Law
1. Definition and characteristics of Tax Haven
Probably most people have heart about tax havens, but maybe there are confusions about the exact meaning of this concept. So on, we consider important to define a tax haven in order to have a clear idea. What identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance. It’s also suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven as well. According to other definitions, the central feature of a haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. Another definition of tax haven is a country or territory where certain taxes are levied at a low rate or not at all. On this sense, individuals or corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. On consequence, this creates a situation of tax competition among governments. Now it seems we can have a clearly idea of what a tax haven is, but in US, particularly the Government Accountability Office was unable to find a satisfactory definition of a tax haven in 2008, but regarded the following characteristics as indicative of a tax haven: 1. nil or nominal taxes;
2. lack of effective exchange of tax information with foreign tax authorities; 3. lack of transparency in the operation of legislative, legal or administrative provisions; 4. no requirement for a substantive local presence; and
5. self-promotion as an offshore financial centre.
Difference with Offshore Financial Centers
The last point of the US Government Accountability Office talks about an offshore financial as a tax haven, but we believe that there are substantial differences with these two terms. The Offshore Financial Center (OFC) is a place which offers little or no government interference in legitimate business and financial activities. In many cases, OFCs also offer very low or zero tax rates, and provide excellent communications facilities. Some places are Anguilla, Antigua, Bahamas, Bahrain, Cayman Islands, Hong Kong, Isle of Man, Jersey, Lebanon, Luxembourg, Netherlands Antilles, Panama, Singapore, and United Arab Emirates. In other terms, the OFC are usually located on the tax havens, but are not the same.
2.Tax Haven criteria
The OECD (Organization for Economic Co-operation and Development) identifies four key factors that are used to determine whether a jurisdiction is a tax haven. The first one is that the jurisdiction imposes no or only nominal taxes. The no or nominal tax criterion is not sufficient, by itself, to result in characterization as a tax haven, because the OECD recognizes that every jurisdiction has a right to determine whether to impose direct taxes and, if so, to determine the appropriate tax rate. So, an analysis of the other key factors is needed for a jurisdiction to be considered a tax haven. The three other factors to be considered are: 1).Whether there is a lack of transparency: Transparency ensures that there is an open and consistent application of tax laws among similarly situated taxpayers and that information needed by tax authorities to determine a taxpayer’s correct tax liability is available. 2).Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers, benefiting from the no or nominal taxation: The OECD encourages countries to adopt information exchange on an “upon request” basis. Exchange of information upon request describes a situation where a competent authority of one...
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