The use of low tax jurisdictions (more commonly referred to as ‘tax havens’) has been an area of high concern for civil society, institutional investors and the public in general for many years.
The growth of tax havens and unethical corporate tax conduct have become prominent concerns across the world. Aggressive avoidance negatively distorts national economies and undermines the ability of business to compete fairly, both domestically and internationally.
Sometimes a business will use a combination of tax havens to shuffle money around the globe and exploit loopholes in the bilateral tax treaties between particular countries. So, for example, Google has, in the past, combined a ‘Double Irish’ and a ‘Dutch Sandwich’, with a zero-tax haven such as Bermuda as the final destination. There have even been instances of corporate profits becoming ‘stateless’ from a tax perspective, as was revealed in the Paradise Papers and with Apple’s income flowing through Ireland.
On the other hand, business should not be condemned for their presence in a tax haven if there is evidential economic substance in that jurisdiction (demonstrable via public Country-by-Country Reporting). Economic substance might be indicated by the presence of a significant number of staff or substantial third party sales.
So, for example, the Fair Tax Foundation’s Global Multinational Business Standard includes the following question:
“Does the business utilise tax havens as locations for either registration, subsidiaries or operations?”
Four points are awarded if the business does not utilise tax havens as locations for either registration, subsidiaries or operations.
Alternatively, four points are awarded if it is clear (from public Country-by-Country Reporting) that the use of tax havens reflects the economic substance of transactions located in the territories, and that these transactions are taxed where value is added.
The Fair Tax Foundation’s identification of tax havens is informed by the work of the Tax Justice Network and their Corporate Tax Haven and Financial Secrecy Indexes.[i] The determination of tax havens is periodically reviewed and a current listing is provided to businesses as they begin assessment and accreditation (see below).
The Fair Tax Foundation’s current listing of tax havens is available online.
[i] For example, see Tax Justice Network’s Corporate Tax Haven Index 2021.