When you hear of a ‘tax haven’ the picture that comes to mind is of a tiny with superb year-round weather and obliging tax and banking systems. In many cases this picture may not be entirely wrong, but then you would only be seeing part of the picture. According to the International Monetary Fund there are more than 60 ‘offshore financial centers’ around the world, some of them quite far removed from the sun drenched beaches that you imagine.
Countries, states or territories that have a system of financial secrecy in place or where certain taxes are not levied or levied at a very low rate are generally referred to as tax havens. Havens providing financial secrecy allow foreign individuals to park their funds in these areas to circumvent certain taxes in their home countries.
Aside from avoiding taxes, shell companies in tax havens are routinely used by terrorist organizations to hide assets, by political donors to sidestep campaign finance laws and by criminals to launder money.
A 2012 report from the Tax Justice Network estimated that between US$21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3 percent annually and such capital gains were taxed at 30 percent, it would generate between $190 billion and $280 billion in tax revenues, more than any other tax shelter.
If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, sheltering over 40 percent of their profits from US taxes.
The US is a magnet for offshore wealth, notably South Dakota, which has guaranteed secrecy for family trusts. Among the more than 80 family trusts that have chosen South Dakota to park their funds are the heirs to the William Wrigley chewing gum fortune, the Carlson family, owners of the Radisson hotel chain and the family of John Nash, the late hedge fund giant. Assets held in South Dakota are believed to have jumped from around $32 billion in 2006 to $226 billion in 2014.But South Dakota is not the only state providing such services, Nevada, Wyoming and Delaware have similar lenient corporate tax laws that make them attractive tax havens.
After years of having accused and brought litigation against banks in Switzerland for helping Americans hide their wealth and sanctimoniously introducing Foreign Account Tax Compliance Act (FATCA), it is nothing less of ludicrous that the US should provide similar service to the rest of the world. Undisclosed foreign sources who wish to park their billions in select US states are exempt from taxes and reporting.