Can regulators catch up with offshore shelters?
Multinational corporations and super-rich individuals routinely move large sums around the world to take advantage of tax havens that allow them to legally avoid paying billions in taxes to their home countries. The devices employed to park funds in these havens include multiple subsidiaries, shell corporations and corporate “inversions” – a maneuver in which a corporation merges with a company in a lower-tax jurisdiction and moves the corporate headquarters to that country. Current tax laws are ill-equipped to cope with a globalized, digital economy in which valuable assets such as intellectual property are easy to transfer on paper, some experts say. The U.S. tax law enacted in late 2017 will require U.S. corporations to bring home money held overseas – but at a substantially reduced tax rate.
Among the key takeaways:
Nearly three-quarters of Fortune 500 companies maintained subsidiaries in offshore tax havens in 2016, at a total cost of $752 billion in lost U.S. taxes. The Netherlands was the most popular tax haven.
Companies and individuals will take advantage of tax havens as long as some countries are willing to offer them, and curbing the practice requires international cooperation, experts say.
Tax havens can play a beneficial role, say some analysts, especially in protecting companies or wealthy individuals in countries ruled by corrupt or oppressive governments.
Resources for Further Study
Murphy, Richard, “Dirty Secrets: How Tax Havens Destroy the Economy,” Verso, 2017. An accountant from the United Kingdom offers ways to regulate tax havens in response to the disclosure of the Panama Papers, a trove of more than 11.5 documents with secret records of offshore companies.
Obermayer, Bastian, and Frederik Obermaier, “The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money,” Oneworld, 2017. German investigative journalists detail how an anonymous whistleblower led them to the Panama Papers.
Rostain, Tanina, and Milton C. Regan Jr., “Confidence Games: Lawyers, Accountants, and the Tax Shelter Industry,” MIT Press, 2016. Two professors at Georgetown University Law School explain how some of the most prominent U.S. law and accounting firms created and marketed products to help the very rich avoid paying their share of taxes by claiming benefits not recognized by law.
Zucman, Gabriel, “The Hidden Wealth of Nations: The Scourge of Tax Havens,” University of Chicago Press, 2015. An assistant professor of economics at the University of California, Berkeley, argues tax havens are a growing danger to the global economy.
Campbell Fernàndez, Alexia, “The Cost of Corporate Tax Avoidance,” The Atlantic, April 14, 2016, http://tinyurl.com/
Drucker, Jesse, and Simon Bowers, “After a Tax Crackdown, Apple Found a New Shelter for Its Profits,” The New York Times, Nov. 6, 2017, http://tinyurl.com/
Schnurer, Eric, “A Hard Exit for the Rich,” U.S. News & World Report, Nov. 21, 2017, https://tinyurl.com/
Zucman, Gabriel, “How Corporations and the Wealthy Avoid Taxes (and How to Stop Them),” The New York Times, Nov. 10, 2017, https://tinyurl.com/
Reports and Studies
“Broken at the Top: How America’s dysfunctional tax system costs billion in corporate tax dodging,” Oxfam America, April 14, 2016, https://tinyurl.com/
Alstadsæter, Annette, Niels Johannesen and Gabriel Zucman, “Tax Evasion and Inequality,” National Bureau of Economic Research, Dec. 29, 2017, https://tinyurl.com/
Gravelle, Jane G., “Tax Havens: International Tax Avoidance and Evasion,” Congressional Research Service, Jan. 15, 2015, https://tinyurl.com/
Phillips, Richard, et al., “Offshore Shell Games 2017: The Use of Offshore Tax Havens by Fortune 500 Companies,” Institute on Taxation and Economic Policy and U.S. PIRG Education Fund, Oct. 2017, https://tinyurl.com/
Toder, Eric, and Alan D. Viard, “A Proposal to Reform the Taxation of Corporate Income,” Tax Policy Center, June 2016, https://tinyurl.com/
The Next Step
“HMRC ‘Hit by Brexit and Paradise Papers,’” BBC News, Jan. 11, 2018, https://tinyurl.com/
Forsythe, Michael, “Paradise Papers Shine Light on Where the Elite Keep Their Money,” The New York Times, Nov. 5, 2017, https://tinyurl.com/
Pegg, David, “Paradise Papers firm worked for bank linked to terrorist financing and organized crime,” The Guardian, Jan. 23, 2018, http://tinyurl.com/
“The U.S. Is Becoming the World’s New Tax Haven,” Bloomberg View, Dec. 28, 2017, https://tinyurl.com/
Scharfenberg, David, “Trillions of dollars have sloshed into offshore tax havens. Here’s how to get it back,” The Boston Globe, Jan. 20, 2018, https://tinyurl.com/
Smith-Meyer, Bjarke, “8 countries removed from EU tax haven blacklist, sparking criticism,” Politico, Jan. 23, 2018, https://tinyurl.com/
Americans for Tax Fairness
1101 17th St., N.W., Suite 301, Washington, DC 20036
Advocacy group that supports progressive tax reform.
1000 Massachusetts Ave., N.W., Washington, DC 20001
Research and advocacy group that favors limited government and free markets.
European Commission Taxation and Customs Union
+32 2 299 96 96
The European Commission agency that released a blacklist of 17 tax-haven countries.
Institute on Taxation and Economic Policy
1616 P St., N.W., Suite 200, Washington, DC 20036
Nonpartisan research group that analyzes federal, state and local tax policies.
Internal Revenue Service
1111 Constitution Ave., N.W., Washington, DC 20224
Federal agency responsible for collecting U.S. taxes.
Organisation for Economic Co-operation and Development
2, rue André Pascal, 75775 Paris Cedex 16, France
+33 1 45 24 82 00
Intergovernmental economic organization with 35 member countries tackling offshore tax evasion.
Tax Justice Network
38 Stanley Ave., Chesham, Bucks, HP5 2JG, United Kingdom
Advocacy group that researches and analyzes international taxes and the effects of tax havens, evasion and avoidance.
U.S. Department of the Treasury
1500 Pennsylvania Ave., N.W., Washington, DC 20220
Federal department responsible for enforcing U.S. tax laws.