The fiscal control exercised by a government apparatus intrigues the citizens. In fact, we frequently see news about famous millionaires whose problems are related to their finances, more specifically, their taxes.
Riches do not always come from the most expected places. The exchange of cryptocurrencies, the control of NFTs, places such as an online casino in Chile, the creation of alternative web content, among others, are ways that could eventually generate a lot of money and that, despite not being “everyday”, are not are classified as illicit processes that interfere with the economy of a country.
And, when they make a lot of money, they could also cause very high amounts to be paid in taxes.
That is why many people and companies seek protection under the laws of different countries, where other types of tax measures are applied; would be what is known as Tax Havens.
Understanding the concept of tax haven
A tax haven, in simple terms, is a jurisdiction whose taxes are notoriously lower than the vast majority of countries. In addition, it enjoys legal certainty that triggers extreme protection for the security and privacy of its resident citizens together with their assets.
In physical terms, they are usually islands or small countries, even in demographic aspects, that use as an attraction mechanism the notorious reduction of the economic contribution that must be paid to the State (without the need to reside in it) and in this way generate income based on jobs in large industries.
Not every country with a low tax contribution rate can be classified as a Tax Haven, the essential aspects for it to be can be reduced to three:
- Flexibility: They offer low-tax benefits even when citizens are not physically within the national territory, do not have residence or carry out economic activities in it.
- Confidentiality: Total discretion against the monitoring of third parties or other governments towards their nationals.
- lack of transparency: Therefore, there is no economic documentation in the public domain that facilitates control.
How do Tax Havens work?
A person who has a fortune and works to increase it, can open a company in a tax haven, which will be under the anonymity laws of that country. In this way the well-known “ghost companies” or “offshore” companies are born. Another option available in these cases is to place a figurehead.
These companies do not carry out economic activities in these countries, therefore, they are only registered under paper, which allows them to enjoy the benefits of bank accounts with a negligible margin of tax loss.
The benefits for those who carry out these activities are:
- have no obligation to declare the origin of the money.
- Maximum confidentiality.
- Do not declare in audits income received as net profit.
In order to further secure their money, individuals or companies seek to create subsidiaries of their companies in as many tax havens as possible, in order to more easily dissipate information about the main source of income.
Where is the discussion?
The largest organizations in the world such as the UN, the EU, parliaments, among others, are in disagreement with the processes that are applied in these “paradises”. It is a debate that falls on moral and ethical issues.
The situation with Tax Havens is that they end up complicating the search for the veracity and legitimacy of the wealth of certain companies, and can be used as the perfect mechanism for the execution of acts outside any constitutional framework, such as tax evasion, money laundering, mass money and even drug trafficking.
In addition, there is the injustice that it represents for the bulk of society to pay taxes legitimately, while a small part of the population not only pays little but also practices tax evasion.