Tax Havens Everything you need to know about tax havens

Everything you need to know about tax havens

At its peak, there were more than sixty locations around the world, and half of the loans that were signed on the planet passed through remote places like the Cayman Islands. Although tax havens have never enjoyed great popularity among the population and politicians, because they are considered little less than bloodsuckers, the truth is that the leaders of the great powers did not begin to take important steps towards their regulation until the 1990s. say, when it was discovered that the tax evasion they protected was gigantic.

Tax havens are countries or regions that depend economically on a complex financial structure with a privileged tax regime for companies and foreign capital, which allows them to investigate only superficially the origin and destination of their clients’ money, a strict confidentiality on the transactions and deposits guaranteed by law and a solid economic and political stability.

Probably, the first countries that met all the requirements to become a tax haven were Switzerland, Liechtenstein, and Luxembourg. It was in the twenties of the last century, although there were also more modest projects in the Bahamas, Bermuda, Jersey, and Panama.

Swiss bankers used the opacity of their financial structures and tax privileges to attract corporations and millionaires who wanted to settle in the country. Liechtenstein, seeing the opportunity, passed a law that guaranteed the confidentiality of accounts and transactions even more stringent than that of Zurich. Meanwhile, Luxembourg, which had for years allowed the then-new commercial formula of holdings (for which a company is constituted that administers participations in others), decided that it would exempt them from paying taxes in 1929. After a slight braking with the crash of In 1929 and World War II, tax havens would gain momentum with the Bretton Woods regime in 1944.

Among the five major historical engines that have led to the emergence of these tax shelters as we know them today stand out, to begin with, the dramatic increase in fiscal pressure and the collection power of the States, especially since the 1960s, as well as the response of some companies and prosperous families that decided to send their money there.

The other three historical motors are the incompetence, inability or inaction of the political leaders of many great powers for years to establish common international rules against tax evasion, the ability of the rulers of the paradises (among which are leaders such as those of United States, which manages the paradise of Delaware, or United Kingdom, which manages the Cayman Islands) and, finally, the increasing globalization of financial flows.

What allowed its expansion throughout the world?

In 1957, the Bank of England made the decision that the transactions in which the British banks acted on behalf of foreign clients and not domiciled in the United Kingdom would not be regulated by the Bank of England or by any other institution so that In practice, nobody would control their operations. This meant that a considerable portion of the capitals went to British territories such as Jersey, Guernsey or the Isle of Man. In 1966, the Caribbean and also the British Cayman Islands, which adopted all the necessary regulations, joined the list of tax havens. to become a tax haven, from a privileged tax regime to the absolute confidentiality of the accounts and their movements.

Why did they spread throughout the world?

The success of the Cayman Islands helped to unleash the passions of many regions that aspired to make the leap from poverty to wealth in the shortest possible time. For example, Singapore, in the late 1960s, launched a round of tax incentives for major international banks, especially the United States, to open offices there. In addition, the Vietnam War was to become an immense business opportunity for some American multinationals. The result was that the Asian country became a great tax haven.

The resounding success of Singapore and after the island of Norfolk, belonging to Australia, ignited the envy of many territories, which were transformed during the following decades into tax havens. The new facilities provided by information technologies and the liberalization of the financial sector since the 1980s further simplified the arrival of large amounts of money to hidden refuges such as Nauru or Vanuatu.

When did you start fighting against tax havens?

From the nineties began to take the first steps to stop its expansion. However, the most important turning point against tax shelters would not come until the financial crisis that erupted globally in 2008. From the following year, the G-20 began to move forward with regulations that, among other things, forced Most of the shelters, including Switzerland and with the exception of Vanuatu, Bahrain, Nauru and the United States, will automatically share their tax information with third countries as of 2017.