Are Tax Havens Necessary?


by Wendy Stenberg-Tendys - Date: 2008-09-17 - Word Count: 660 Share This!

The German Chancellor, Angela Merkel, was voted the most powerful woman in the world, by Forbes Magazine. She is now hell bent on a crusade to rid the world of tax havens, through the governments of the world uniting in a Tax Cartel. Bureaucratic opponents to tax havens, from across the  world, are conceitedly confident their cause is virtuous and are demanding a hard fisted crackdown in what could be called a 'Holy Tax War'.

Tax havens develop because of the need to attract foreign investment to an economy. In particular, third world countries who are willing to vary their tax laws. Countries which able to benefit from the universal requirement for opportunities to engage in avoidance of punitive tax laws and regulations of other jurisdictions.

If you are residing in a developed country, your taxes are most likely lower than they were 30 years ago. In 1980 OECD quoted personal income tax as averaging 67%. Top personal taxes now average only 40%. Corporate taxes have gone from 50% in 1980 to a mere 27%. This is thanks partly to the existence of tax havens. They help pressure high-taxed countries to cut down their tax rates. It is this tax competition which drives tax policy in the right direction, creating a liberalizing process.

Wealthy people are threatened by oppressive governments. Personal freedom can often only be sustained when personal information is secreted from the government, particularly when it comes to persecution of an ethnic, racial, political, or religious nature. These potential sufferers have an escape route because of the existence of tax havens.

Tax havens have been with us since the Vatican City evaded tax in 756. Ancient Greece, around 1100 BC, used some of the Greek islands to avoid a 2% tax imposed by the city-state of Athens. Since the early 1700's American colonies traded from Latin America, so as to avoid paying English taxes.

Taxes rose harshly at the end of World War I, in order to reconstruct the war damaged countries. Switzerland, having remained neutral, didn't face the same infrastructure rebuilding problems. The twentieth century screamed for new markets, cheap labour and low tax, as the majority of the world's colonies gained independence. Developing their own tax and trade regimes, they produced universal economic disparities. Between World War 1 and World War 11, tax havens were mainly used to get around personal taxation. From the 1950's onward, there was a phenomenal growth in the use of tax havens, as corporate giants attempted to reduce their global tax burden.

While many claim that tax havens are an open avenue for money laundering, the extensive international regulations in tax havens actually makes money laundering virtually impossible. The surprise is that America could be considered as one of the largest tax havens, in that there is no tax on interest and capital gains for foreigners who invest in America. It is estimated that there is more than $12 trillion of foreign investment in the United States alone.

Vanuatu, a tropical island archipelago in the South Pacific, has long been seen as a safe economical and political tax haven. However, the financial status has been a controversial subject during the recent general elections. Many claimed that the high handed tactics of Australia violated the sovereignty of Vanuatu, during the raids on legitimate companies, banks and private homes. Mail boxes were broken into and private letters opened. Well known identities were arrested, claiming they were masterminds of massive tax evasion schemes.

All this in the name of a classic movie type sting, in an attempt to catch unsuspecting Vanuatu citizens and residents. People who were law abiding in the framework of Vanuatu, but according to the Australian Tax Office, they were breaking Australian law.

Does the constitutional law of the land take precedence in a country, or should a country bow to the laws of a neighbouring country? Finally, when all opposition or completion is demolished, an unhealthy situation arises. There are no checks and balances.


Related Tags: foreign investment, south pacific, tax haven, tropical islands, tax havens, vanuatu, forbes magazine, angela merkel, strongest woman on earth, post world war tax havens

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