TAX HAVENS

WHAT IS A TAX HAVEN?

A Tax Haven, or “offshore financial centre,” is a country (or state) in which foreign investors pay taxes at an abnormally low rate, possibly even zero (rare).

By shifting their funds into or through tax havens, businesses and other investors can avoid paying taxes in high-tax countries.

MAJOR TAX HAVENS OF THE WORLD

THE CAYMAN ISLANDS:

Perhaps the most efficient tax haven in the world, the Cayman Islands have a solid international reputation for providing a comprehensive range of financial services to a wide spectrum of clientele.

BERMUDA:

Bermuda has a 0% tax rate and no income tax whatsoever for investors and those looking off-shore. This makes it another perfect prospect for the world's wealth. 

THE BRITISH VIRGIN ISLANDS:

The British Virgin Islands is known as one of the world's top tax-havens. It is being said that island holds more than 5,000 times the value of what its economy should hold. 

IS TAX HAVEN CONCEPT TAX EVASION / AVOIDANCE ?

Tax Haven is a legal method of TAX AVOIDANCE, ethical/not would be upon you to decide.

TAX LOSS

India looses approximately $10.3 billion or Rs.70000 crore every year due to TAX HAVENS. 

This amount could have been collected and used for economic as well as social development but it can’t be questioned since it is LEGAL.

There is approximately a tax loss of $427 billion globally every year.

PERQUISSITUES OF TAX HAVENS

• These TAX HAVENS provide either 0 or very low tax rates. Countries like MAURITIUS have 0 local taxes on income which makes it a creamy tax haven.
• They have laws which provide you financial confidentiality.

WHY DID TAX HAVEN CONCEPT COME ?

The Double Taxation Avoidance Agreement or DTAA is a tax treaty signed between India and another country ( or any two/multiple countries) so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.

CASE STUDY 01

THE PANAMA PAPERS CASE

The Panama Papers scandal involved a leak of 11.5 million confidential documents from Panamanian law firm Mossack Fonseca. German newspaper Süddeutsche Zeitung (SZ) reported the leak, which exposed more than 214,000 tax havens involving high-profile people, government officials, and entities from 200 different nations.

Some of the big names included Amitabh Bachchan, Aishwarya Rai Bachchan, Ajay Devgan and a lot more.

CASE STUDY 02

VODAFONE VS COMMISSIONER OF INCOME TAX (CIT)

• Vodafone paid the said amount to Hutchison (HK) without deducting any TDS. 
• By simply selling the Cayman Island shares (a co. having no value in itself without 67% interest in Indian co.) Hutchison has indirectly transferred shares of Hutchison Essar (Indian Co.) As a result of this indirect transfer Hutchinson had saved Capital gain tax in India.

PROGRESS OF THE CASE: HISTORICAL JUDGEMENT

SEPTEMBER 2007: Tax department issued notice to Vodafone (UK) for failure in withholding the tax on the payments made to Hutchinson (HK).

OCTOBER 2007: Vodafone (UK) filled a Writ petition in Bombay HC contending that the sale was between two Non Residents so non taxable in India.

SEPTEMBER 2010: Bombay HC–Transaction taxable in India, Vodafone filled petition to Supreme Court.

20TH JANUARY, 2012: Justice Kapadia :- "The government has no jurisdiction over Vodafone's purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone." 

HOW DO TAX HAVEN COUNTRIES MANAGE DEVELOPMENT WITH EITHER NO / LESS TAXES ?

Tax Havens charge lesser amount of local taxes and direct taxes on Income but they charge a fairly good sum of indirect taxes, import-export duties etc. It also collects fees, charges, fines etc which forms a major source of revenue.

With so many giant companies entering their countries, development becomes a part and parcel of the process and it is just a matter of years when growth and development start showcasing evidently.

CONCLUSION

Tax Havens are LEGAL and some giant companies like Apple, Nike & Flipkart have been legally using it for their their tax benefits. The laws that were once drafted for the convenience of the people are now being misused by the people. Everything is infant of us but we can't do anything because our hands are legally tied.

At last, I would like to leave you with a thought:

ARE TAX HAVENS "ETHICAL"?