What are Tax Havens? Part III

By | October 21, 2021

8: Different specialties

The British-based tax havens benefit from the political stability of the mother country and from English law. These centers seem to specialize in modern financial instruments such as futures and derivatives, groups of mortgages converted into securities and the like. Here we also find most of the hedge funds in the world. Together, these UK-based financial centers account for around a third of all international financial transactions (in volume).

In addition to Switzerland – still the leading tax haven in the world, although this dubious honor may soon go to Singapore – we find a group of lesser-known European tax havens such as the Benelux countries and Ireland . Together, these account for around one-fifth of international financial transactions (in volume) – about twice as much as US international financial centers. These (continental) European centers specialize in “wealth protection” for both individuals and companies, rather than the risk-oriented financial trader that the British serve.

According to electronicsmatter, Switzerland is still the world’s largest when it comes to private banking; the country specializes in “wealth protection” for the world empire. But Switzerland has been hard pressed by the EU to ease its banking secrecy – to ease secrecy. Signals thus indicate that Singapore is aiming to take over for Switzerland.

Ireland and the Benelux countries have developed a Dutch business idea with holding companies (a kind of flow-through company ). By creating such, transnational companies are offered low costs and lower fees on their financial operations. The companies park revenues from international operations in these centers. Then they use the centers as a platform or stopover for further international investment. This explains why Ireland and the Benelux countries are always listed among the countries in the world with the largest foreign investment.

9: Well-paid helpers

There are no reliable figures for how much professional service providers such as international law firms and auditing firms earn from helping companies and others use tax havens. This business probably accounts for at least 50 percent of their turnover. It is therefore not surprising that they have launched a well-oiled lobbying campaign against politicians and authorities in support of tax havens.

In it, the argument about market efficiency is central, as it sounds from some economists. These believe that “offshore” financial centers (eg tax havens) put a welcome competitive pressure on the financial centers “onshore” and therefore increase the general efficiency in the financial markets. The argument is questionable even in good times. The ongoing financial crisis may have meant the end of that argument.

The moral argument in support of tax havens is weak. But as shown above, tax havens have become part of business today. An ordinary employee of an international company, a finance company or a consulting firm is probably in daily contact with people in finance companies offshore. Companies that do not make use of tax havens are often seen as rarities, or as if they are failing the interests of the owners.


What is a jurisdiction?

A limited entity (state, state, city ..) can have jurisdiction – judicial and coercive authority in a geographical area. And they can have it completely – as states – or only partially. Tax havens are in some cases established in small geographical areas without full independence. For example, British overseas territories are not part of the United Kingdom and are largely independent. Nevertheless, a British envoy has some power in these territories. These are mainly small island states, each with a few thousand inhabitants.

Financial Center London

City of London is a small district of about 3.2 km 2 in central London. For many hundreds of years, the district has enjoyed great benefits and freedoms from the British authorities. The district is governed by a kind of city council, the City of London corporation , which also acts as a lobbying organization for the financial industry. In many ways, this advice was an important driving force for the deregulation of the financial markets that has taken place since the early 1980s. Much of the world’s financial activity is conducted from here, partly flowing through the “British” island paradises, which are by far only satellites and staging points for the financial activity conducted in London.

Financial Center London and recent financial crisis

“The City of London offers American financial institutions an endless series of loopholes, and many banking disasters in the United States can largely be traced to the London branches of these financial companies. … So in the run-up to the recent crisis, only Wall Street investment banks relocated business to London. From there, they could work without restrictions. ”
Nicholas Shaxson, Treasure islands, Palgrave Macmillan, 2011, p. 67

Huge numbers in small units

«As many as 830,000 companies are, for example, registered in the British Virgin Islands, which has only approx. 19,000 inhabitants. In addition, there is an unknown number of trusts, banks and funds. The extent of such registrations is well illustrated by the fact that more than 18,000 companies have been registered in a smaller office building – Ugland House – in the Cayman Islands. ”

What are Tax Havens 3