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Vocabulary for business students Learn with flashcards, games, and more - for free.

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Liechtenstein and Andorra are among three states designated as " non-cooperative tax havens" by the Paris-based Organisation for Economic Co-operation and Development. Monaco is the other one. They've all come under intense pressure to abandon longstanding bank secrecy rules ahead of next month's G20 summit of major economies in London. The meeting will debate plans to toughen the international response to banking centres seen as harbouring tax evaders.

Liechtenstein has been in the spotlight since German investigators purchased financial records from a Liechtenstein bank employee. Those records revealed incriminating information about how thousands of Germans, including the former head of the German postal service, hid assets from the tax authorities at home.

Liechtenstein has now agreed to support OECD guidelines on transparency and financial information exchange with foreign governments. It will start negotiations on bilateral tax information deals with Germany and Britain next month. Meanwhile, Andorra has agreed to abandon bank secrecy by next November in the hope of being removed from international blacklists.

All this will increase the pressure on Switzerland, the most prominent nation with strict bank secrecy rules, to change its ways.

Mark Gregory, BBC News

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liechtenstein and andorra have agreed to ease their strict bank secrecy rules.

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Liechtenstein and Andorra are among three states designated as " non-cooperative tax havens" by the Paris-based Organisation for Economic Co-operation and Development. Monaco is the other one. They've all come under intense pressure to abandon longstanding bank secrecy rules ahead of next month's G20 summit of major economies in London.

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This page has been archived and is no longer updated. Find out more about page archiving.

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1. Tax havens help rich people hide money that should be spent on schools, hospitals, roads and other public services

Switzerland is not only one of the world's biggest financial centres but also one of the world's largest tax havens; find out why the country took first place on the 2011 Financial Secrecy Index.

2. Tax havens force poor people to pay the taxes of the rich

Learn about SAB Miller, the brewing multinational whose transfer pricing techniques are depriving countries of much needed tax revenue.

3. Tax havens help criminals hide their loot

This multi-billion dollar Ponzi scheme orchestrated by infamous Wall Street financier Bernie Madoff could not have happened without tax havens.

4. Tax havens help dictators and their cronies plunder the resources of developing countries

Teodoro Nguema Obiang used tax havens to exploit Equatorial Guinea's natural resources. Not a very nice man.

5. Tax havens allow banks to dodge financial rules and regulations

Dublin - a magical city of "light touch regulation", which draws in money from far and wide and channels it directly into the shadow banking system.

6. Tax havens corrupt markets, concealing insider dealing and supporting aggressive tax dodging by multinational companies

The epic corruption which destroyed Enron - and hundreds of livelihoods - could not have happened without tax havens.

7. Tax havens create a private world of secrecy, impunity and power for rich elites

The Alpine 'offshore' microstate of Liechtenstein hit the headlines in early 2008 for harbouring the corrupt funds of hundreds of tax evaders.

8. Tax havens widen the gap between rich and poor people

Find out why the rich-poor gap is greater in the United States than almost any other developed nation.

9. Tax havens make laws in secret which affect us all

Following on from point 8, find out why Delaware, "The First State", is the best place to escape tax in the world.

10. Tax havens degrade our faith in democracy

The City of London Corporation. Local-government authority and massive offshore lobbying body.

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Switzerland is not only one of the world's biggest financial centres but also one of the world's largest tax havens; find out why the country took first place on the 2011 Financial Secrecy Index. Learn about SAB Miller, the brewing multinational whose transfer pricing techniques are depriving countries of much needed tax revenue.

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What problems and opportunities are created by tax havens? | Oxford Review of Economic Policy | Oxford Academic

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Tax havens have attracted increasing attention from policy-makers in recent years. This paper provides an overview of a growing body of research that analyses the consequences and determinants of the existence of tax-haven countries. For instance, recent evidence suggests that tax havens tend to have stronger governance institutions than comparable non-haven countries.

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5- The real problem with offshore tax havens

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5- The real problem with offshore tax havens

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Gary Hershorn / Reuters

Offshore tax havens are a hot topic these days - due in no small part to the Obama campaign's attacks on Mitt Romney's foreign holdings. But beyond that, governments across the globe are hard up for cash, as the global economic slump has eaten into tax revenues, and they would like nothing more than to get their hands on all that offshore wealth.

So when the left-leaning Tax Justice Network issued a report this week which estimated that somewhere between $21 to $32 trillion in wealth is unreported and shielded from taxation from various governments, and argued that this money could be used to shore up balances of debt-ridden sovereigns, people took notice.

According to the report:

"Assuming conservatively that global offshore financial wealth of $21 trillion earns a total return of just 3 percent a year, and would have faced an average marginal tax rate of 30 percent in the home country, the unrecorded wealth might have generated tax revenues of $189 billion per year - more than twice the $86 billion that OECD countries as a whole are now spending on all overseas development assistance."

( MORE: Romney's Tax Plan Would Save Him Millions - But Not As Much As Gingrich's Would)

The study is one of the most comprehensive to date, using data from the World Bank, United Nations, International Monetary Fund and central banks around the world to measure how much wealth is sheltered from the taxman globally.

That the global elite are using whatever means at their disposal to hide their money from governments isn't exactly surprising. But the term "offshore" - which brings to many minds sun-drenched islands ruled by corrupt governments in cahoots with felonious plutocrats - is misleading, according to the report.

In fact, efforts by developed nation governments to crack down on efforts to impede their own tax collections have forced many governments, like the Swiss, to move away from their traditional banking protections that allow foreigners to evade taxation. So a tax haven these days is less a function of one country with laws that allow for low taxation and secretive banking policies, and more an extension of a large and complex global financial system that is inherently secretive. According to the report:

"The term "offshore" refers not so much to the actual physical location of private assets or liabilities, but to nominal, hyper-portable, multi-jurisdictional, often quite temporary locations of networks of legal and quasi legal entities and arrangements that manage and control private wealth - always in the interests of those who manage it, supposedly in the interest of beneficial owners, and often in indifference or outright defiance of the interests and laws of multiple nation states."

( MORE: Why U.S. Tax Evaders Can No Longer Count on Swiss Secrecy)

In other words, one doesn't necessarily have to fly to the Channel Islands with a bag of cash to stash ill-gotten gains or evade the taxman anymore. The past 30 years have seen the evolution of a mainstream financial system that is global in scope and that through secrecy and complexity has enabled itself to profit handsomely off of the tax evasion of the world's richest citizens. Evidence of this sort of behavior was illustrated earlier this month, when London-based HSBC was sanctioned for aiding terrorists, drug cartels and other criminals in money laundering schemes.

The other aspect of the report that Americans might find surprising - given all the talk of Mitt Romney's finances - is that this tax evasion is disproportionately a problem for developing countries. According to the report, somewhere between $7.3 trillion and $9.3 trillion in offshore wealth comes from a subgroup of 139 low to middle income source countries. Given that the U.S. alone accounts for 25% of the world's total wealth, the idea that poor countries account for somewhere between one third and one half of the total offshore wealth is somewhat unexpected.

This last fact is perhaps the most unsettling in the report for two reasons. First, because it's hard not to suspect that much of the shielded money sourced from developing countries rightfully belongs in public coffers and not in private bank accounts. And second: Because even though $189 billion in new tax revenue would chip away only about a sixth of the U.S. government's annual budget deficit, that money could certainly improve lives if it were used by developing governments for infrastructure or welfare programs.

MORE: How Lower Corporate Taxes and Infrastructure Can Save the Economy

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The Real Problem With Offshore Tax Havens

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Offshore tax havens are a hot topic these days - due in no small part to the Obama campaign's attacks on Mitt Romney's foreign holdings. But beyond that, governments across the globe are hard up for cash, as the global economic slump has eaten into tax revenues, and they would like nothing more than to get their hands on all that offshore wealth.

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What is a 'Tax Haven'

A tax haven is a country that offers foreign individuals and businesses a minimal tax liability in a politically and economically stable environment, with little or no financial information shared with foreign tax authorities. Tax havens do not require individuals to reside in or businesses to operate out of their countries to benefit from local tax policies. Due to the globalization of business operations, an increasing number of U.S. corporations, including Microsoft, Apple and Alphabet, are keeping cash in offshore tax havens to minimize corporate taxes.

BREAKING DOWN 'Tax Haven'

Tax haven status benefits the host country as well as the companies and individuals maintaining accounts in them. Tax haven countries benefit by drawing capital to their banks and financial institutions, which can form the foundation of a thriving financial sector. Individuals and corporations benefit through tax savings resulting from tax rates ranging from zero to the low single digits versus relatively high taxes in their countries of citizenship or domicile.

The list of tax haven countries includes Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, and St. Kitts and Nevis.

U.S. Corporations and Tax Havens

Rather than repatriating revenues and earnings from offshore operations at a corporate tax rate of 35%, companies including Apple, Microsoft, Alphabet, Cisco and Oracle maintain billions of dollars in tax haven accounts with tax rates in the low single digits. The circumstances of this paradigm make it less expensive for U.S.-based companies to borrow funds for share buy-backs, special dividends and acquisitions than to repatriate and utilize the cash on their balance sheets. For example, rather than use its $100 billion in cash holdings and pay $9 billion in corporate taxes for repatriation, Microsoft opted for debt financing to fund its all-cash acquisition of LinkedIn for $26.2 billion in June 2016.

Pressuring Tax Havens

To maximize their tax receipts, foreign governments maintain relatively constant pressure on tax havens to release information regarding their citizens' offshore accounts. For the efforts to succeed, however, countries trying to get tax havens to change their ways usually need financial leverage in some form as the advantages of capital inflows seeking tax relief typically outweigh the benefits that might be received due to tax compliance.

For example, when the Cyprus' financial sector built on the country's tax haven status collapsed in 2013, the European Commission, European Central Bank and International Monetary Fund predicated the $11.8 billion bailout on the country's agreement for compliance in tax reporting. In addition to increasing its corporate tax rate, Cyprus agreed to join the Automatic Exchange of Financial Information in Tax Matters program by 2017. Participating countries automatically transmit tax-related banking information of noncitizen depositors to their countries of citizenship to facilitate taxation of income, including earnings, interest, dividends and royalties.

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A country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries' tax regimes to avoid paying taxes in their home countries.

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Stashing their cash: How offshore havens attract the wealthy

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An interactive explainer that reveals how the wealthy take cash offshore and bring it back.

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Half the world's trade passes through them. Right now they're hiding trillions of dollars on behalf of criminals, dictators, wealthy individuals and multinationals. Find out what tax havens are, why they're so damaging and what we can do about it.