Tax havens have become the new commerce for many countries globally, with a diminutive concentration on the impact of deprived nation states. This speech contends the increasing growth of tax havens and demonstrates the negative impact on the world’s economy.
Although no precise definition is given for tax havens the OECD (1998, cited in Tobin et al., 2013) lists key indicators to classify a tax haven. Primarily, “no or nominal taxes, lack of transparency, unwillingness to exchange information with the tax administrations of OECD member countries”…to name a few, e.g. USA, UK, Switzerland and India.
They are a major cause of increasing world poverty due to the reduction of tax revenue for nations. Henry (2012, cited in Actionaid, 2013) reveals “…the concealment in tax havens of financial assets alone may constitute a loss to developing countries’ public revenues of some US$120-160 billion a year.” This is greater than annual aid required by developing nations.
The US and some European governments had to bailout several banks, albeit these banks’ operations were very successful in tax haven markets. The Tax Justice Network - TJN (2012) argues “that secret bank accounts and offshore trusts in tax havens provide wealthy elites and companies with the means to escape their tax obligations.” The effect is depriving poorer nations are robbed of their revenue and multinationals are allowed to re-route their income to tax havens.
Tax competition, to encourage increased FDIs to a country, has led to the loss of sovereignty in many states. Nations have lost control over their taxation policies as they “race to the bottom”. Evidently in the Republic of Congo who loss billions due to agreements signed with mining companies incorporated in the British Virgin Islands.
Supporters of tax havens claim that lower taxation can be linked to economic growth demonstrated in Hong Kong or Ireland which “features a very low corporate tax rate (currently 12.5 percent) designed to...