Understanding the rationale for compiling 'tax haven' lists

08-12-2017

With taxation constantly in the headlines as one tax leak follows another, the question of which tax jurisdictions are regularly associated with the schemes revealed has gained in importance. Broadly speaking, tax havens provide taxpayers, both legal and natural persons, with opportunities for tax avoidance, while their secrecy and opacity also serves to hide the origin of the proceeds of illegal and criminal activities. One may ask why establishing a list of tax havens is useful. Drawing up such a list started with the actions to stop harmful tax practices arising from the discrepancy between the global reach of financial flows and the geographically limited scope of jurisdictions, matching or inside national borders. This difference is central to the inter-connected issues of tax avoidance, tax evasion and fraud, and money laundering. Whatever name is used (tax haven, offshore centre, non-cooperative jurisdiction) they all have in common that they make it possible to escape taxation: low or zero taxation, a fictitious residence (with no bearing on reality) and tax secrecy. The last two are key for hiding the ultimate beneficial owner, and consequently for money laundering. In short, the tax-haven issue reveals the discrepancy between real economic activity and the form and appearance given to it, through complex and global schemes. In the EU, the process of adopting a common list of non-cooperative tax jurisdictions was initiated as part of efforts towards good governance in tax, and the external dimension thereof. On 5 December 2017, the Council adopted a first common list.

With taxation constantly in the headlines as one tax leak follows another, the question of which tax jurisdictions are regularly associated with the schemes revealed has gained in importance. Broadly speaking, tax havens provide taxpayers, both legal and natural persons, with opportunities for tax avoidance, while their secrecy and opacity also serves to hide the origin of the proceeds of illegal and criminal activities. One may ask why establishing a list of tax havens is useful. Drawing up such a list started with the actions to stop harmful tax practices arising from the discrepancy between the global reach of financial flows and the geographically limited scope of jurisdictions, matching or inside national borders. This difference is central to the inter-connected issues of tax avoidance, tax evasion and fraud, and money laundering. Whatever name is used (tax haven, offshore centre, non-cooperative jurisdiction) they all have in common that they make it possible to escape taxation: low or zero taxation, a fictitious residence (with no bearing on reality) and tax secrecy. The last two are key for hiding the ultimate beneficial owner, and consequently for money laundering. In short, the tax-haven issue reveals the discrepancy between real economic activity and the form and appearance given to it, through complex and global schemes. In the EU, the process of adopting a common list of non-cooperative tax jurisdictions was initiated as part of efforts towards good governance in tax, and the external dimension thereof. On 5 December 2017, the Council adopted a first common list.