Tax Havens Are Not All Villains, Claims Study

Offshore finance centres are not the hotbeds of tax evasion everyone seems to believe, according to a new study.

Debunking myths about tax havens, think tank the Institute of Economic Affairs argues tax havens have a key economic function helping the wealthy and businesses with tax planning.

And although this is seen as controversial by governments, cracking down on tax haven users would not raise more taxes.

Many offshore financial centres levy taxes at nearly the same rate as other countries, are transparent with foreign tax authorities and comply with international treaties, says the IEA.

Jamie Whyte, director of research at the IEA, said: “Offshore financial centres are a vital part of the modern global economy.

Debunking tax haven myths

“Clamping down on them would not raise tax revenue, but see investment flows being shaped less by investment opportunities and more by political factors. Too often the debate around tax havens generates more heat than light. It’s time for a rational debate around tax policies.”

The report Offshore Bet -The Benefits of Capital Mobility is a detailed analysis of how tax havens work.

The IEA says offshore financial centres offer benefits to companies and the wealthy as part of the global financial system.

Recent growth in the number of offshore centres is explained by an increase in the amount of money to invest worldwide, a rising number of opportunities to invest outside North America and Western Europe and the growth of government tax and regulatory interventions.

No evidence

“As more investment capital is allocated across a diverse range of jurisdictions from investors around the world, the potential for multiple taxation increases. The role of offshore financial centres in eliminating excessive taxation has a positive impact on investment returns which compounds over time,” says the report.

“Undermining the existence of offshore financial centres would harm investment, economic growth and international capital flows, while the promised benefits from intervention are unlikely to materialise.

“There is no evidence that the rise of offshore financial centres has adversely affected the revenue-raising ability of other countries. For example, corporate tax revenue as a share of all taxes collected has grown slightly in the average Organisation of Economic Co-Operation and Development country since 1980.”