Corporations, celebrities and politicians are likely fully aware, but many average taxpayers might not know exactly what tax havens are.
Tax havens, also known as offshore financial centers, are a country or jurisdiction that has minimal tax liabilities to foreign individuals or businesses.
Those havens don’t require business to operate out of, or individuals to reside in, that particular country.
In other words, to save lots of money that would normally go toward taxes, individuals and corporations can try and “hide” their money in tax havens, whether it’s in property bought, businesses created, or other endeavors.
Tax havens can often be legal transactions if reported and disclosed properly, but they can’t be created to evade tax obligations, according to hg.org.
For some countries, they see a benefit because a tax haven can attract businesses, jobs and development to their territory.
The subject of tax havens really came under scrutiny last October, when the “Pandora Papers” revealed offshore accounts, shell companies and investments for hundreds of celebrities, politicians and con artists around the world, according to Investopedia.
For example, it was revealed that former Beatle Ringo Starr created two companies in the Bahamas that were used to buy real estate, and he bought five trusts in Panama.
Below are answers to three common questions regarding tax havens.
1. What are the most popular countries for tax havens?
Based on low-to-zero income, property or corporate taxes, the following countries are the 10 best tax havens, according to the Financial Secrecy Index in 2020.
1. Cayman Islands
2. United States
4. Hong Kong
9. British Virgin Islands
10. United Arab Emirates
2. What do tax havens cost the global economy?
Tax havens collectively cost governments between $500 billion and $600 billion in lost corporate tax revenue, according to the International Monetary Fund.
Lost tax revenue from individual taxes are estimated at around $200 billion a year, according to the International Monetary Fund.
Last fall, the Organisation for Economic Co-operation and Development spearheaded a deal that was signed by 136 countries and will force companies to pay a minimum tax rate of 15%.
The deal is supposed to take effect in 2023.
3. Which corporations most utilize tax havens?
As one would expect, large companies such as Apple, Google, Nike, Goldman Sachs, IBM and Walmart use tax havens, according to corporatefinancialinstitute.com.
Apple, Google and Facebook, as well as other US pharmaceutical companies, had their European headquarters in Ireland for that country’s generous tax rate.
However, in October, Ireland agreed to join the OPEC’s new deal.