Can you defend the tax haven?

Alex Hawkes, Accountancy Age 18 Sep 2008

Trying to come up with justifications for offering rock bottom tax rates to lure business away from where it is really based is an interesting parlour game.

Richard Teather, a tax academic, has said in the past that he thinks tax havens are good because persecuted minorities can put cash in them which would otherwise be expropriated by their persecutor governments ­ a clever argument, but not a compelling one.

When I visited one ‘financial centre’ recently, it did get me thinking: perhaps more economic activity happens because of tax havens that wouldn’t happen otherwise.

If, to use a not entirely fictitious example, a large retailer were to set up a financing arm in a Swiss canton, surely the low tax rate means they can do more, invest more, and create more jobs?

I’m sure such companies can achieve more, but the point is rather that it’s something of an uneven field. Large multi-nationals end up with artificial advantages over their smaller, and possibly more efficient, competitors, driving out the best in favour of the largest.

When you go to tax havens, there is always an easy calm about the place, too. They would be calm, I suppose; being a small, low tax jurisdiction is easy money. And it is important to acknowledge that such places have largely moved on from the dirtier practice of tax evasion, hiding people’s money.

The tax profession as a whole has a fairly businesslike approach to tax havens: they work with them, so they keep their mouths shut. But I bet most advisers are, privately at least, ethically doubtful about what is going on. I bet they play the same parlour game themselves.