A Corporate haven, corporate tax haven, or multinational tax haven, is a jurisdiction that multinational corporations find attractive for establishing subsidiaries or headquarters. This appeal is due to favourable tax regimes (beyond just the headline rate), favourable secrecy laws (such as relaxed disclosure requirements), and/or favourable regulatory regimes (such as weak data-protection or employment laws).
Unlike traditional tax havens, modern corporate tax havens reject that they have anything to do with near-zero effective tax rates, due to their need to encourage jurisdictions to enter into bilateral tax treaties that accept the haven's base erosion and profit shifting (BEPS) tools. CORPNET show each corporate tax haven is strongly connected with specific traditional tax havens (via additional BEPS tool "backdoors" like the double Irish, the Dutch sandwich, and single malt). Corporate tax havens promote themselves as "knowledge economies", and intellectual property (IP) as a "new economy" asset, rather than a tax management tool, which is encoded into their statute books as their primary BEPS tool. This perceived respectability encourages corporations to use these International Financial Centres (IFCs) as regional headquarters (i.e. Google, Apple, and Facebook use Ireland in EMEA over Luxembourg, and Singapore in APAC over Hong Kong/Taiwan).
While the "headline" corporate tax rate in jurisdictions most often implicated in BEPS is always above zero (e.g. Netherlands at 25%, U.K. at 19%, Singapore at 17%, and Ireland at 12.5%), the "effective" tax rate (ETR) of multinational corporations, net of the BEPS tools, is closer to zero. To increase respectability, and access to tax treaties, some jurisdictions like Singapore and Ireland require corporates to have a "substantive presence", equating to an "employment tax" of approximately 2–3% of profits shielded and if these are real jobs, the tax is mitigated.
In corporate tax haven lists, CORPNET's "Orbis connections", ranks the Netherlands, U.K., Switzerland, Ireland, and Singapore as the world's key corporate tax havens, while Zucman's "quantum of funds" ranks Ireland as the largest global corporate tax haven. In proxy tests, Ireland is the largest recipient of U.S. tax inversions (the U.K. is third, the Netherlands is fifth). Ireland's double Irish BEPS tool is credited with the largest build-up of untaxed corporate offshore cash in history. Luxembourg and Hong Kong and the Caribbean "triad" (BVI-Cayman-Bermuda), have elements of corporate tax havens, but also of traditional tax havens.
Economic Substance legislation introduced in recent years has identified that BEPS is not a material part of the financial services business for Cayman, BVI and Bermuda. While the legislation was originally resisted on extraterritoriality, human rights, privacy, international justice, jurisprudence and colonialism grounds, the introduction of these regulations has had the effect of putting these jurisdictions far ahead of onshore regulatory regimes.
Global BEPS hubs
Modern corporate tax havens, such as Ireland, Singapore, the Netherlands and the U.K., are different from traditional "offshore" financial centres like Bermuda, the Cayman Islands or Jersey. Corporate havens offer the ability to reroute untaxed profits from higher-tax jurisdictions back to the haven; This makes modern corporate tax havens more potent than more traditional tax havens, who have more limited tax treaties, due to their acknowledged status.
The Cayman Islands, BVI, Bermuda, Jersey and Guernsey are more properly now known as IFCs or Offshore Financial Centres (OFCs).
Tools
Tax academics identify that extracting untaxed profits from higher-tax jurisdictions requires several components:
Once the untaxed funds are rerouted back to the corporate tax haven, additional BEPS tools shield against paying taxes in the haven. It is important these BEPS tools are complex and obtuse so that the higher-tax jurisdictions do not feel the corporate haven is a traditional tax haven (or they will suspend the bilateral tax treaties). These complex BEPS tools often have interesting labels:
Execution
Building the tools requires advanced legal and accounting skills that can create the BEPS tools in a manner that is acceptable to major global jurisdictions and that can be encoded into bilateral tax treaties, and does not look like a "tax haven" type activity. Most modern corporate tax havens therefore come from established financial centres where advanced skills are in-situ for financial structuring.
|OECD compliance and endorsement. Most corporate tax structures in modern corporate tax havens are OECD–whitelisted. The OECD has been a long-term supporter of IP–based BEPS tools and cross-border intergroup IP charging. All the corporate tax havens signed the 2017 OECD MLI and marketed their compliance, however, they all opted out of the key article 12 section;
Aspects
Misnomer
While jurisdictions traditionally labelled as tax havens have often marketed themselves as such, modern Offshore Financial Centres reject the tax haven label. This is to ensure that other higher-tax jurisdictions, from which the corporate's main income and profits often originate, will sign bilateral tax-treaties with the haven,
This issue has caused debate on what constitutes a tax haven, but others focused on outcomes such as total effective corporate taxes paid. It is common to see the media, and elected representatives, of a modern corporate tax haven ask the question, "Are we a tax haven ?"
For example, when it was shown in 2014, prompted by an October 2013 Bloomberg piece, it led to denials by the Irish Government and the production of studies claiming Ireland's effective tax rate was 12.5%. However, when the EU fined Apple in 2016, Ireland's largest company, €13 billion in Irish back taxes (the largest tax fine in corporate history), the EU stated that Apple's effective tax rate in Ireland was approximately 0.005% for the 2004-2014 period. The EU's position was found, on appeal in the EU's court, to be unsupported by the facts. However, the G7 leaders in the wake of reporting about a Microsoft subsidiary's level of taxation in 2020, have proposed an agreement on a global minimum corporate tax rate of 15%.
Financial impact
It is difficult to calculate the financial effect of tax havens in general due to the obfuscation of financial data. Most estimates have wide ranges (see financial effect of tax havens). By focusing on "headline" vs. "effective" corporate tax rates, researchers have been able to more accurately estimate the annual financial tax losses (or "profits shifted"), due to corporate tax havens specifically. This is not easy, however. As discussed above, havens are sensitive to discussions on "effective" corporate tax rates and obfuscate data that does not show the "headline" tax rate mirroring the "effective" tax rate.
Two academic groups have estimated the "effective" tax rates of corporate tax havens using very different approaches: