Are Tax Havens Created For Good?

Forbes Magazine voted the most powerful woman in the world, as the German Chancellor, Angela Merkel. Merkel is now hell bent on a crusade to rid the world of tax havens. 'Iron Lady', wants all governments to join together in a Tax Cartel.  The global bureaucratic enemies of tax havens are self-righteously certain their grounds for complaint are righteous and are demanding a clean-up in what could be seen as a 'Holy Tax War'.

Tax havens are a result of the necessity to attract foreign money to an economy.  In particular, third world countries who are willing to amend their tax laws.  Countries which take advantage of a global demand for opportunities to engage in avoidance of crushing tax laws and regulations of other jurisdictions.

It is most likely your taxes are lower than they were 30 years ago, if you are living in a developed country. OECD quoted personal income tax as averaging 67%, in 1980. Top personal taxes now average only 40%. Corporate taxes have been driven from 50% in 1980 to a meager 27%. This is due in part to the existence of tax havens. They serve to help pressure high-taxed countries to decrease their tax rates, forcing tax policy down the right path, evolving into a liberalizing process.

Asset rich people are often targeted by oppressive governments. Freedom can frequently only be protected when personal information is hidden from the government, particularly when it comes to religious, political, racial or ethnic persecution. These likely victims have an escape route through tax havens.

Some argue that an early tax haven was instituted by the Vatican City in 756. Around 1100 BC, a few of the Greek islands were used as haven against the 2% tax imposed by the city-state of Athens. Trade between the American colonies and Latin America in the early 1700's, avoid paying English taxes.

Taxes hiked sharply at the end of the World War I. War torn countries needed to reconstruct their devastated countries. Switzerland, having remained neutral, did not face the same costs. Low tax, new markets and cheap labour became the scream of the twentieth century, as the majority of the world's colonies attained independence. Quickly they developed their own tax and trade regimes, creating global economic disparities. Between World War1 and World War11, tax havens were primarily used to steer clear personal taxes. From the 1950's onward, the use of tax havens by corporate giants to reduce their global tax burden grew phenomenally.

Tax havens have so many international banking regulations imposed on them it makes money laundering almost an impossibility, though many try to disprove this. 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.

Vanuatu, a tropical island archipelago in the South Pacific, has long been considered politically stable and an economical tax haven. The financial status of Vanuatu, however, has been a 'hot potato' during the run up to the recent elections. Many claim that Australia violated the sovereignty of Vanuatu in its recent raids on legitimate companies, banks and private homes. Well known identities were arrested as it was claimed they were masterminds of massive tax evasion schemes. Mail boxes were broken into and private letters opened. All this was in the name of a movie style sting, in order to catch unsuspecting law abiding Vanuatu.