simpleshow explains tax havens


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simpleshow explains: tax havens.

This is Peter. Injustice drives him nuts! It annoys him that international companies and wealthy individuals are able to use tax havens to hide their money from the state.
How does that happen?
Every company is liable for tax according to where it is based. However, tax rates in home countries tend to be extremely high. The alternative? Tax havens!

That’s countries with very low or no tax rates at all. When a company establishes a subsidiary their income in the tax haven is virtually tax-free. Therefore the company doesn’t want revenue to arise from HQ but from the subsidiary, allowing them to save a great deal of money.
To achieve this, the company transfers its trademark rights to the subsidiary. The parent company pays licensing fees for this, which helps reduce its own earnings and in turn also the tax burden.

At the same time, revenue is generated in the tax haven for which the company does not need to pay barely any tax!
These subsidiaries generally only exist on paper. They are so-called letter box companies. There are neither any people working in these locations, nor are there any offices. Indeed, several hundred companies may even be registered in some buildings. They are all bogus companies created to help save taxes. Private individuals also use tax havens. They make a tax haven their place of residence, for example – entirely legal as long as people actually live there. Those at home can open a bank account and do business abroad as well. All they have to do is report the revenue in their home country. Otherwise this is evasion and a crime.
But what about the millions of euros which aren’t accounted for each year in the EU? Surely somebody has to notice that! Peter is furious as society needs this money for schools, hospitals and infrastructure! This is possible because of the stringent banking confidentiality that prevails in many tax havens.

This guarantees companies and investors complete anonymity, and the home country rarely catches wind of the revenue. What’s more, no country is allowed to get involved in the legislation of another or to determine this in any way. This legislation allows a different loophole to be found in each country. For Peter, one thing is clear: to bring tax haven tourism to an end, not only international agreements but also willingness on the part of companies to assume social responsibility is required. For many of their activities are not illegal, but morally questionable.

Published in: Economy & Finance
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