Where does the concept of tax havens come from and why does it seem impossible to eliminate tax evasion?
Rene Masson
First, although the two concepts are closely related, they are not entirely synonymous. Tax havens are one of the most widely used means of tax evasion, like undeclared work or the illicit sale of products. Tax evasion is an offence, at least in Canada, where it is defined as “an individual or company failing to comply with the tax laws of Canada through such actions as falsifying documents and applications, hiding income or inflating expenses”.
Resorting to a tax haven is not always a crime. In fact, most uses of tax havens are legal. We are entering a gray area here in which countries and international institutions do not even agree on a common definition.
This is the heart of the problem.
“The first modern tax haven was Switzerland,” said Brigitte Alepin, tax expert and tax policy specialist, in an interview. It was not destroyed by the First World War and, unlike its neighbours, it did not need to impose taxes to support the war effort. Other countries realized that the sequel was becoming interesting. They borrowed the recipe. »
No consensus
The first criterion, almost universally accepted, is that a tax haven is a state or territory where tax rates are extremely low, or even non-existent. Account is also taken of the lack of transparency in the banking system. Finally, the places identified as tax havens generally have one thing in common: it is not necessary for a company or an individual to carry out activities there to take advantage of its tax practices.
With these three criteria, it should be fairly easy to determine the countries and territories that can be qualified as tax havens. This is not the case. The European Union, for example, has published since 2017 an extremely changing list of “uncooperative” administrations.1. The latest, released on February 14, 2023, features 16 states and territories. There are notably Russia, the Bahamas, Panama, Trinidad and Tobago, the Marshall Islands, but no European country.
The International Monetary Fund (IMF) identified from 2002 around twenty “offshore financial centres”. Among them were Switzerland, Luxembourg, the United Kingdom and Ireland. The IMF stopped publishing this list in 2008.
Finally, from 2000, the Organization for Economic Co-operation and Development (OECD) identified around twenty “uncooperative tax havens”2. Monaco, Liechtenstein, Vanuatu and Liberia were pointed out in particular. There were only three left in 2009. In 2023, no administration is officially identified by the OECD as an “uncooperative tax haven”.
Finally, Oxfam has for years produced its own, much larger list, which now includes 58 states and territories.3. These include Delaware in the United States, the Netherlands, Cyprus, Jordan and Belgium.
5.3 billion US in Canada
As we can see, faced with so much vagueness, it would be extremely difficult for a country like Canada to decide on its own to define tax havens and tackle the problem, in a context of globalization and very fluid capital flows. After all, a State can legitimately decide to apply very low tax rates, all the international bodies have agreed on this. Should the US, UK, Switzerland and Singapore be included? Choose the incomplete list of the European Union or the very broad one of Oxfam and other non-governmental organizations?
It is true that Canada has signed, since 2007, agreements with many tax havens allowing Canadian companies to repatriate their profits here without seeing them taxed. Canadians have even been at the origin of the creation of many tax havens, demonstrated the author Alain Deneault in 2014.
This global phenomenon would have caused tax revenue losses of US$483 billion to states in 2021, including US$5.3 billion in Canada, according to the Tax Justice Network (TJN).
If international institutions have gradually abandoned the idea of drawing up lists of tax havens, an initiative seems to be on the way to success. The G20 countries and the OECD agreed in 2021, under a project called BEPS (English acronym for “Base Erosion and Profit Shifting”), to impose a minimum tax of 15 % to large companies with a turnover of at least 1.1 billion. This measure, initially planned for 2023 and now postponed to “early 2024”, would make the use of tax havens much less advantageous. Approved by 136 countries and territories representing more than 90% of the world’s gross domestic product (GDP), this agreement should make it possible to reallocate more than 125 billion US dollars.
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