Tax haven

Overview While areas of low taxation are recorded in Ancient Greece, tax academics identify what we know as tax havens as being a modern phenomenon, and note the following phases in their development: • 19th century New Jersey and Delaware Corporations. In the 1880s, New Jersey was in financial difficulty and the governor, Leon Abbett, backed a plan by a New York lawyer, Mr. Dill, to create a more liberal regime for establishing corporate structures, including the availability of "off-the-shelf companies" (but not non-resident companies). Delaware followed with the General Incorporation Act in 1898, on the basis of lobbying from other New York lawyers. Because of the restrictive incorporation regime in the Anglo-Saxon world as a result of the South Sea Bubble, New Jersey and Delaware were successful, and though not explicitly tax havens (e.g. US federal and state taxes applied), many future tax havens would copy their "liberal" incorporation regimes. • Post World War I. The modern concept of a tax haven is generally accepted to have emerged at an uncertain point in the immediate aftermath of World War I. Bermuda sometimes claims to have been the first tax haven based upon the creation of the first offshore companies legislation in 1935 by the newly created law firm of Conyers Dill & Pearman. However, most tax academics identify the Zurich-Zug-Liechtenstein triangle as the first "tax haven hub" created during the mid-1920s. Liechtenstein's 1924 Civil Code created the infamous Anstalt corporate vehicle, while Zurich and Zug developed the Aktiengesellschaft/Societé Anonyme and other brass plate companies. London's position as a global financial centre for these OFCs was secured when the Bank of England ruled in 1957 that transactions executed by British banks on behalf of a lender and borrower who were not located in the UK, were not to be officially viewed as having taken place in the UK for regulatory or tax purposes, even though the transaction was only ever recorded as taking place in London. The rise of OFCs would continue so that by 2008, the Cayman Islands would be the 4th largest financial centre in the world, while Singapore and Hong Kong had become major Regional Financial Centres (RFCs). • Corporate-focused tax havens. In 1981, the US IRS published the Gordon Report on the use of tax havens by US taxpayers, which highlighted the use of tax havens by US corporations. When in 2004, the US Congress stopped "naked tax inversions" by US corporations to Caribbean tax havens with the introduction of IRS Regulation 7874, a much larger wave of US corporate "merger inversions" started that involved moving to OECD tax havens. • 1983: The first officially recognized US corporate tax inversion as McDermott International moves from Texas to a tax haven, Panama. however, as with the previous 2010 OECD list, none of the jurisdictions are OECD or EU–28 countries, nor are they in the list of . ==Definitions==

Context There is no established consensus regarding a specific definition of what constitutes a tax haven. This is the conclusion from non-governmental organisations, such as the Tax Justice Network in 2018, from the 2008 investigation by the U.S. Government Accountability Office, from the 2015 investigation by the U.S. Congressional Research Service, from the 2017 investigation by the European Parliament, and from leading academic researchers of tax havens. The issue, however, is material, as being labelled a "tax haven" has consequences for a country seeking to develop and trade under bilateral tax treaties. When Ireland was "blacklisted" by G20 member Brazil in 2016, bilateral trade declined. Academic non-quantitative (1994–2016) One of the first , was the 1994 Hines–Rice paper by James R. Hines Jr. and Hines is the most cited author on tax haven research. As well as offering insights into tax havens, it took the view that the diversity of countries that become tax havens was so great that detailed definitions were inappropriate. Hines merely noted that tax havens were: "a group of countries with unusually low tax rates". Hines reaffirmed this approach in a 2009 paper with Dhammika Dharmapala. OECD–IMF (1998–2018) In April 1998, the OECD produced a definition of a tax haven, as meeting "three of four" criteria. It was produced as part of their "Harmful Tax Competition: An Emerging Global Issue" initiative. By 2000, when the OECD published their first list of tax havens, it included no OECD member countries as they were now all considered to have engaged in the OECD's new Global Forum on Transparency and Exchange of Information for Tax Purposes, and therefore would not meet Criteria ii and Criteria iii. As the OECD has never listed any of its 35 members as tax havens, Ireland, Luxembourg, the Netherlands, and Switzerland are sometimes defined as "OECD tax havens". In 2017, only Trinidad & Tobago met the 1998 OECD definition; that definition thus fell into disrepute. (†) The 4th criterion was withdrawn after objections from the new U.S. Bush Administration in 2001, and in the OECD's 2002 report the definition became "two of three criteria". However, that definition (as noted above) lost credibility when, in 2017, under its parameters, only Trinidad & Tobago qualified as a tax haven and has since been largely discounted by tax haven academics, including the 2015 U.S. Congressional Research Service investigation into tax havens, as being restrictive, and enabling Hines' low-tax havens (i.e. to which the first criterion applies), to avoid the OECD definition by improving OECD cooperation (so the second and third criteria do not apply). which the IMF adopted in June 2000, producing a list of 46 OFCs. The FSF–IMF definition focused on the BEPS tools havens offer, and on Hines' observation that the accounting flows from BEPS tools are "out-of-proportion" and thus distort the economic statistics of the haven. The FSF–IMF list captured new corporate tax havens, such as the Netherlands, which Hines considered too small in 1994. and in 2018 listed the eight major OFCs that handle 85% of all flows. Academic quantitative (2010–2018) In October 2010, Hines published a list of 52 tax havens, which he had scaled quantitatively by analysing corporate investment flows. Hines' largest havens were dominated by corporate tax havens, which Dharmapala noted in 2014 accounted for the bulk of global tax haven activity from BEPS tools. The Hines 2010 list was the first to estimate the ten largest global tax havens, only two of which, Jersey and the British Virgin Islands, were on the OECD's 2000 list. In July 2017, the University of Amsterdam's CORPNET group ignored any definition of a tax haven and focused on a purely quantitive approach, analysing 98 million global corporate connections on the Orbis database. CORPNET's lists of top five Conduit OFCs, and top five Sink OFCs, matched 9 of the top 10 havens in Hines' 2010 list, only differing in the United Kingdom, which only transformed their tax code in 2009–12. • 24 Sink OFCs: jurisdictions in which a disproportionate amount of value disappears from the economic system (i.e. the traditional tax havens). • 5 Conduit OFCs: jurisdictions through which a disproportionate amount of value moves toward sink OFCs (i.e. the modern corporate tax havens). In June 2018, tax academic Gabriel Zucman (et alia) published research that also ignored any definition of a tax haven, but estimated the corporate "profit shifting" (i.e. BEPS), and "enhanced corporate profitability" that Hines and Dharmapala had noted. Zucman pointed out that the CORPNET research under-represented havens associated with US technology firms, like Ireland and the Cayman Islands, as Google, Facebook and Apple do not appear on Orbis. Even so, Zucman's 2018 list of top 10 havens also matched 9 of the top 10 havens in Hines' 2010 list, but with Ireland as the largest global haven. These lists (Hines 2010, CORPNET 2017 and Zucman 2018), and others, which followed a purely quantitive approach, showed a firm consensus around the largest corporate tax havens. Related definitions In October 2009, the Tax Justice Network introduced the Financial Secrecy Index ("FSI") and the term "secrecy jurisdiction", However, many types of tax havens also rank as secrecy jurisdictions. ==Groupings==

While tax havens are diverse and varied, tax academics sometimes recognise three major "groupings" of tax havens when discussing the history of their development: Two of the five major global Conduit OFCs are from this grouping (i.e. the U.K. and Singapore). Emerging market-related tax havens As discussed in , most of these tax havens date from the late 1960s and effectively copied the structures and services of the above groups. Most of these tax havens are not OECD members, or in the case of British Empire–related tax havens, do not have a senior OECD member at their core. Some have suffered setbacks during various OECD initiatives to curb tax havens (e.g. Vanuatu and Samoa). However, others such as Taiwan (for AsiaPAC), and Mauritius (for Africa), have grown materially in the past decades. Taiwan has been described as the "Switzerland of Asia", with a focus on secrecy. Although no Emerging market-related tax haven ranks in the five major global Conduit OFCs or any lists, both Taiwan and Mauritius rank in the top ten global Sink OFCs. == Lists ==

Types of lists Three main types of tax haven lists have been produced to date: In Q1 2015, Apple completed the largest BEPS action in history, when it shifted US$300 billion of IP to Ireland, which Nobel-prize economist Paul Krugman called "leprechaun economics". In September 2018, using TCJA repatriation tax data, the NBER listed the key tax havens as: "Ireland, Luxembourg, Netherlands, Switzerland, Singapore, Bermuda and [the] Caribbean havens". leader in IP–based BEPS tools (e.g. double Irish), but also Debt-based BEPS tools. • *♣Singapore – the major corporate tax haven for Asia (APAC headquarters for most US technology firms), and key conduit to core Asian Sink OFCs, Hong Kong and Taiwan. • *♣Netherlands – a major corporate tax haven, • United Kingdom – rising corporate tax haven after restructuring tax code in 2009–12; 17 of the 24 Sink OFCs are current or former dependencies of the UK (see Sink OFC table). • *♣Hong Kong – the "Luxembourg of Asia", and almost as large a Sink OFC as Luxembourg; tied to APAC's largest corporate tax haven, Singapore. ordered by value Sovereign (including de facto) states that feature mainly as traditional tax havens (but have non-zero tax rates): • Taiwan – major traditional tax haven for APAC, and described by the Tax Justice Network as the "Switzerland of Asia". • ♣Malta – an emerging tax haven inside the EU, which has been a target of wider media scrutiny. Sovereign or sub-national states that are very traditional tax havens (i.e. explicit 0% rate of tax) include (fuller list in table opposite): • ♣ΔJersey (United Kingdom dependency), still a major traditional tax haven; the CORPNET research identifies a very strong connection with Conduit OFC Switzerland (i.e. Switzerland is increasingly relying on Jersey as a traditional tax haven); issues of financial stability. not in the CORPNET study (discussed here), but included for completeness.) • Current British Overseas Territories, see table opposite, where 17 of the 24 Sink OFCs are current, or past, U.K. dependencies: • *♣ΔBritish Virgin Islands, the largest Sink OFC in the world and regularly appears alongside the Caymans and Bermuda (the Caribbean "triad") as a group. • *♣Bermuda, does feature as a U.S. corporate tax haven; only 2nd to Ireland as a destination for U.S. tax inversions. also features as a major U.S. corporate tax haven; 6th most popular destination for U.S. corporate tax inversions. • ♣Mauritius – has become a major tax haven for both Asian (especially India) and African economies, and now ranking 8th overall. • Curaçao – the Dutch dependency ranked 8th on Oxfam's tax haven list, and the 12th largest Sink OFC, and recently made the EU's greylist. • ♣ΔLiechtenstein – long-established very traditional European tax haven and just outside of the top 10 global Sink OFCs. • ♣ΔBahamas – acts as both a traditional tax haven (ranked 12th Sink OFC), and ranks 8th on the ITEP profits list (figure 4, page 16) Historic broad lists of tax havens Post–2010 research on tax havens is focused on quantitative analysis (which can be ranked), and tends to ignore very small tax havens where data is limited as the haven is used for individual tax avoidance rather than corporate tax avoidance. The last credible broad unranked list of global tax havens is the James Hines 2010 list of 52 tax havens. It is shown below but expanded to 55 to include havens identified in the July 2017 Conduit and Sink OFCs study that were not considered havens in 2010, namely the United Kingdom, Taiwan, and Curaçao. The James Hines 2010 list contains 34 of the original 35 OECD tax havens; • Puerto Rico (United States), almost a corporate tax haven "concession" by the U.S., but which the Tax Cuts and Jobs Act of 2017 mostly removed. Major sovereign States that feature on financial secrecy lists (e.g. the Financial Secrecy Index), but not on corporate tax haven or traditional tax haven lists, are: • United States – noted for secrecy, per the Financial Secrecy Index (see United States as a tax haven); makes a "controversial" appearance on some lists. • Germany – similar to the U.S., Germany can be included on lists for its tax secrecy, per the Financial Secrecy Index. Neither the U.S. nor Germany have appeared on any tax haven lists by the main academic leaders in tax haven research, namely James R. Hines Jr., Dhammika Dharmapala, or Gabriel Zucman. There are no known cases of foreign firms executing tax inversions to the U.S. or Germany for tax purposes, a basic characteristic of a corporate tax haven. and the subsequent political and military deterioration of Lebanon dissuaded foreign use of the country as a tax haven. • Liberia had a prosperous ship registration industry. The series of bloody civil wars in the 1990s and early 2000s severely damaged confidence in the country. The fact that the ship registration business still continues is partly a testament to its early success, and partly a testament to moving the national shipping registry to New York, United States. • The Tangier International Zone had a short existence as a tax haven in the period between the end of effective control by the Spanish in 1945 until it was formally reunited with Morocco in 1956. • Some Pacific islands were tax havens but were curtailed by OECD demands for regulation and transparency in the late 1990s, on the threat of blacklisting. Vanuatu's Financial Services commissioner said in May 2008 that his country would reform laws and cease being a tax haven. "We've been associated with this stigma for a long time and we now aim to get away from being a tax haven." == Scale ==

Estimating the financial scale of tax havens is complicated by their inherent lack of transparency. Additionally, there is sometimes confusion between figures that focus on the amount of annual taxes lost due to tax havens (estimated to be in the hundreds of billions of USD), and figures that focus on the amount of capital residing in tax havens (estimated to be many trillions of USD). Price of Offshore: Revisited (2012–2014) A notable study on the financial effect was Price of Offshore: Revisited in 2012–2014, by former McKinsey & Company chief economist James S. Henry. Henry did the study for the Tax Justice Network (TJN), and as part of his analysis, chronicled the history of past financial estimates by various organisations. The TJN supplemented his report with another report on the consequences of the analysis in terms of global inequality and lost revenues to developing economies. The report was criticised by a 2013 report funded by Jersey Finance (a lobby group for the financial services sector in Jersey), and written by two U.S. academics, Richard Morriss and Andrew Gordon. In 2014, the TJN issued a report responding to these criticisms. The Hidden Wealth of Nations (2015) In 2015, French tax economist Gabriel Zucman published The Hidden Wealth of Nations which used global national accounts data to calculate the quantum of net foreign asset positions of rich countries which are unreported because they are located in tax havens. Zucman estimated that circa 8–10% of the global financial wealth of households, or over US$7.6 trillion, was held in tax havens. If the profits had been reallocated to their domestic source, "domestic profits would increase by about 20% in high-tax European Union countries, 10% in the United States, and 5% in developing countries, while they would fall by 55% in tax havens." In 2017, as part of the OECD BEPS Project, it estimated that between US$100 to 240 billion in corporate profits were being shielded from taxation via BEPS activities carried out through tax haven-type jurisdictions. The research singled out Ireland, and estimated that over two-thirds of Ireland's FDI was "phantom". == Incentives ==

Prosperity In several research papers, James R. Hines Jr. showed that tax havens were typically small but well-governed nations and that being a tax haven had brought significant prosperity. GDP-per-capita Tax havens have high GDP-per-capita rankings, as their "headline" economic statistics are artificially inflated by the BEPS flows that add to the haven's GDP, but are not taxable in the haven. As the largest facilitators of BEPS flows, corporate-focused tax havens, in particular, make up most of the top 10-15 GDP-per-capita tables, excluding oil and gas nations (see table below). Research into tax havens suggests a high GDP-per-capita score, in the absence of material natural resources, as an important proxy indicator of a tax haven. However, the increased leverage leads to more severe credit cycles, particularly where the artificial nature of the GDP is exposed to foreign investors. called the 2015 restatement of Ireland's national accounts, as a result of the Q1 2015 restructuring of Apple's BEPS tools, "leprechaun economics". Notes: Acceptance In 2018, noted tax haven economist, Gabriel Zucman, showed that most corporate tax disputes are between high-tax jurisdictions, and not between high-tax and low-tax jurisdictions. Zucman (et alia) research showed that disputes with major havens such as Ireland, Luxembourg and the Netherlands, are actually quite rare. == Benefits ==

Promoters of growth A controversial area of research into tax havens is the suggestion that tax havens actually promote global economic growth by solving perceived issues in the tax regimes of higher-taxed nations (e.g. the above discussion on the U.S. "worldwide" tax system). Important academic leaders in tax haven research, such as Hines, Dharmapala, a closely related term to tax havens, noted the positive and negative aspects of OFCs on neighbouring high-tax, or source, economies, and marginally came out in favour of OFCs. However, other notable tax academics strongly dispute these views, such as work by Slemrod and Wilson, who in their , label tax havens as parasitic to jurisdictions with normal tax regimes, which can damage their economies. In addition, tax justice campaign groups have been equally critical of Hines, and others, in these views. The boundaries with wider contested economic theories on the effects of corporate taxation on economic growth, and whether there should be corporate taxes, are easy to blur. Other researchers that have examined tax havens, such as Zucman, highlight the injustice of tax havens and see the effects as lost income for the development of society. It remains a controversial area with advocates on both sides. U.S. tax receipts A finding of the 1994 Hines-Rice paper, re-affirmed by others, was that: low foreign tax rates [from tax havens] ultimately enhance U.S. tax collections. Hines's observations would influence U.S. policy towards tax havens, including the 1996 "check-the-box" rules, and U.S. hostility to OECD attempts in curbing Ireland's BEPS tools, ("CEA") in drafting the TCJA legislation in 2017, and advocating for moving to a hybrid "territorial" tax system framework. ==Concepts==

There are a number of notable concepts in relation to how individuals and corporates engage with tax havens: Captured state Some authors on tax havens describe them as "captured states" by their offshore finance industry, suggesting the legal, taxation and other requirements of the professional service firms operating from the tax haven are given higher priority to any conflicting State needs. The term has been particularly used for smaller tax havens, with examples being Delaware, the Seychelles, and Jersey. However, the term "captured state" has also been used for larger and more established OECD and EU offshore financial centres or tax havens. Ronen Palan has noted that even where tax havens started out as "trading centres", they can eventually become "captured" by "powerful foreign finance and legal firms who write the laws of these countries which they then exploit". Tangible examples include the public disclosure in 2016 of Amazon Inc's Project Goldcrest tax structure, which showed how closely the State of Luxembourg worked with Amazon for over two years to help it avoid global taxes. Other examples include how the Dutch Government removed provisions to prevent corporate tax avoidance by creating the Dutch Sandwich BEPS tool, which Dutch law firms then marketed to US corporations: Preferential tax ruling Preferential tax rulings (PTR) can be used by a jurisdiction for benign reasons, for example, tax incentives to encourage urban renewal. However, PTRs can also be used to provide aspects of tax regimes normally found in traditional tax havens. Some tax academics say that PTRs make the distinction with traditional tax havens "matter of degree more than anything else". The OECD has made the investigation of PTRs a key part of its long-term project of combatting Harmful Tax Practices, started in 1998; by 2019, the OECD had investigated over 255 PTRs. The 2014 Lux Leaks disclosure revealed 548 PTRs issued by the Luxembourg authorities to corporate clients of PriceWaterhouseCoopers. When the EU Commission fined Apple US$13 billion in 2016, the largest tax fine in history, they claimed Apple had received "preferential tax rulings" in 1991 and 2007. Tax inversion Corporations can move their legal headquarters from a higher-tax home jurisdiction to a tax haven by executing a tax inversion. A "naked tax inversion" is where the corporate had little prior business activities in the new location. The first tax inversion was the "naked inversion" of McDermott International to Panama in 1983. The US Congress effectively banned "naked inversions" for US corporates by introducing IRS regulation 7874 in the American Jobs Creation Act of 2004. As discussed in , in 2017, the OECD estimated that BEPS tools shielded US$100 to US$200 billion in annual corporate profits from tax; while in 2018, Zucman estimated that the figure was closer to US$250 billion per annum. This was despite the 2012–2016 OECD BEPS Project. In 2015, Apple executed the largest recorded BEPS transaction in history when it moved US$300 billion of its IP to Ireland, in what was called a hybrid-tax inversion. The largest BEPS tools are the ones that use intellectual property (IP) accounting to shift profits between jurisdictions. The concept of a corporation charging its costs from one jurisdiction against its profits in another jurisdiction (i.e. transfer pricing) is well understood and accepted. However, IP enables a corporation to "revalue" its costs dramatically. For example, a major piece of software might have cost US$1 billion to develop in salaries and overheads. IP accounting enables the legal ownership of the software to be relocated to a tax haven where it can be revalued to being worth US$100 billion, which becomes the new price at which it is charged out against global profits. This creates a shifting of all global profits back to the tax haven. IP has been described as "the leading corporate tax avoidance vehicle". Corporate tax haven (GIPC) Legal Systems League Table: Patents Sub-Category Traditional OFCs, such as Cayman, BVI, Guernsey or Jersey are clear about their corporate tax neutrality. Because of this, they tend not to sign full bilateral tax treaties with other higher-tax jurisdictions. Instead, the receipts from investment structures in those jurisdictions are subject to full withholding tax set by the relevant onshore jurisdiction. The British Overseas Territories and Crown Dependencies all provide full tax transparency and automatic tax reporting to onshore tax authorities via CRS, FACTA. Other tax havens, for example in Europe or Asia, maintain higher non-zero "headline" rates of corporate taxation, but instead provide complex and confidential BEPS tools and PTRs that bring the "effective" corporate tax rate closer to zero; they all feature prominently in the leading jurisdictions for IP law (see graphic). These "corporate tax havens" (or Conduit OFCs), further increase respectability by requiring the corporate using their BEPS tools/PTRs to maintain a "substantial presence" in the haven; this is called an employment tax, and can cost the corporate circa 2–3% of revenues. However, these initiatives enable the corporate tax haven to maintain large networks of full bilateral tax treaties, that allow corporates based in the haven to shift global untaxed profits back to the haven (and on to Sink OFCs, as shown above). These "corporate tax havens" strongly deny any association with being a tax haven and maintain high levels of compliance and transparency, with many being OECD-whitelisted (and are OECD or EU members). Many of the are "corporate tax havens". Conduits and Sinks In 2017, the University of Amsterdam's CORPNET research group published the results of their multi-year big data analysis of over 98 million global corporate connections. CORPNET ignored any prior definition of a tax haven or any legal or tax structuring concepts, to instead follow a purely quantitative approach. CORPNET's results split the understanding of tax havens into Sink OFCs, which are traditional tax havens to which corporates route untaxed funds, and Conduit OFCs, which are the jurisdictions that create the OECD-compliant tax structures that enable the untaxed funds to be routed from the higher-tax jurisdictions to the Sink OFCs. Despite following a purely quantitative approach, CORPNET's top 5 Conduit OFCs and top 5 Sink OFCs closely match the other academic . CORPNET's Conduit OFCs contained several major jurisdictions considered OECD and/or EU tax havens, including the Netherlands, the United Kingdom, Switzerland, and Ireland. This SPV offers features including orphan structures, which is facilitated to support requirements for bankruptcy remoteness, which would not be appropriate in larger financial centres, as it could damage the local tax base, but are needed by banks in securitizations. The Cayman Islands SPC is a structure used by asset managers as it can accommodate asset classes such as intellectual property ("IP") assets, cryptocurrency assets, and carbon credit assets; competitor products include the Irish QIAIF and Luxembourg's SICAV. ==Data leaks==

Some businesses in tax havens have been subject to the illegal obtaining and either public or non-public disclosures of client account data, the most notable being: Liechtenstein tax affair (2008) In 2008, the German Federal Intelligence Service paid €4.2 million to Heinrich Kieber, a former IT data archivist of LGT Treuhand, a Liechtenstein bank, for a list of 1,250 customer account details of the bank. Investigations and arrests followed relating to charges of illegal tax evasion. The German authorities shared the data with US IRS, and the British HMRC paid GBP£100,000 for the same data. The authorities in several other European countries, Australia and Canada also received the data. Liechtenstein's authorities strongly protested the case and issued an arrest order against the man suspected of having leaked the data. British Virgin Islands offshore leaks (2013) In April 2013, the International Consortium of Investigative Journalists (ICIJ) released a searchable 260-gigabyte database of 2.5 million tax haven client files anonymously leaked to the ICIJ and analyzed by 112 journalists in 58 countries. The majority of clients came from mainland China, Hong Kong, Taiwan, the Russian Federation, and former Soviet republics; with the British Virgin Islands identified as the most important tax haven for Chinese clients, and Cyprus an important tax haven location for Russian clients. Various prominent names were contained in the leaks including François Hollande's campaign manager, Jean-Jacques Augier; Mongolia's finance minister, Bayartsogt Sangajav; the president of Azerbaijan; the wife of Russia's Deputy Prime Minister; and Canadian politician Anthony Merchant. Luxembourg leaks (2014) In November 2014, the International Consortium of Investigative Journalists (ICIJ) released 28,000 documents totalling 4.4 gigabytes of confidential information about Luxembourg's confidential private tax rulings given to PricewaterhouseCoopers from 2002 to 2010 to the benefit of its clients in Luxembourg. This ICIJ investigation disclosed 548 tax rulings for over 340 multinational companies based in Luxembourg. The LuxLeaks' disclosures attracted international attention and comment about corporate tax avoidance schemes in Luxembourg and elsewhere. This scandal contributed to the implementation of measures aiming at reducing tax dumping and regulating tax avoidance schemes beneficial to multinational companies. Swiss leaks (2015) In February 2015, French newspaper , was given over 3.3 gigabytes of confidential client data relating to a tax evasion scheme allegedly operated with the knowledge and encouragement of the British multinational bank HSBC via its Swiss subsidiary, HSBC Private Bank (Suisse). The source was French computer analyst Hervé Falciani who provided data on accounts held by over 100,000 clients and 20,000 offshore companies with HSBC in Geneva; the disclosure has been called "the biggest leak in Swiss banking history". Le Monde called upon 154 journalists affiliated with 47 different media outlets to process the data, including The Guardian, Süddeutsche Zeitung, and the ICIJ. Panama papers (2015) In 2015, 11.5 million documents totalling 2.6 terabytes, detailing financial and attorney-client information for more than 214,488 offshore entities, some dating back to the 1970s, that were taken from the Panamanian law firm Mossack Fonseca, were anomalously leaked to German journalist Bastian Obermayer in Süddeutsche Zeitung (SZ). Given the unprecedented scale of the data, SZ worked with the ICIJ, as well as journalists from 107 media organizations in 80 countries who analyzed the documents. After more than a year of analysis, the first news stories were published on 3 April 2016. The documents named prominent public figures from around the globe including British Prime Minister David Cameron and the Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson. Paradise papers (2017) In 2017, 13.4 million documents totalling 1.4 terabytes, detailing both personal and major corporate client activities of the offshore magic circle law firm Appleby, covering 19 tax havens, were leaked to the German reporters Frederik Obermaier and Bastian Obermayer in Süddeutsche Zeitung (SZ). As with the Panama Papers in 2015, SZ worked with the ICIJ and over 100 media organizations to process the documents. They contain the names of more than 120,000 people and companies including Apple, AIG, Prince Charles, Queen Elizabeth II, the President of Colombia Juan Manuel Santos, and then-U.S. Secretary of Commerce Wilbur Ross. At 1.4 terabytes in size, this is second only to the Panama Papers of 2016 as the biggest data leak in history. Pandora Papers (2021) In October 2021, 11.9 million leaked documents with 2.9 terabytes of data were leaked by the International Consortium of Investigative Journalists (ICIJ). The leak exposed the secret offshore accounts of 35 world leaders, including current and former presidents, prime ministers, and heads of state as well as more than 100 billionaires, celebrities, and business leaders. In a report dated 15 June 2023, certain chilling admissions were made by the Parliament of the European Union regarding the conduct and publicity surrounding the Pandora Papers data breach: [The Parliament] Stresses the importance of defending the freedom of journalists to report on issues of public interest without facing the threat of costly legal action, including when they receive confidential, secret or restricted documents, datasets or other materials, regardless of their origin. (§2) [The Parliament] Regrets the lack of democratic accountability in the process of drawing up the "EU list of non-cooperative jurisdictions for tax purposes"; recalls that the Council seems sometimes to be guided by diplomatic or political motives rather than objective assessments when deciding to move countries from the "grey list" to the "black list" and vice-versa; stresses that this undermines the credibility, predictability and usefulness of the lists; calls for Parliament to be consulted in the preparation of the list and for an extensive revision of the screening criteria (§78) [The Parliament] notes that despite the implementation of European and national legislation on beneficial ownership transparency, as reported by non-governmental organisations, the quality of data in some EU public registers requires improvement (§60) ==Countermeasures==

The various countermeasures that higher-tax jurisdictions have taken against tax havens can be grouped into the following types: • Transparency. Actions that promote visibility into the entities operating within the tax haven, including data and information sharing. • Blacklists. A coercive tool used by both the OECD and the EU to encourage cooperation by tax havens with their transparency initiatives. • Specific. Sets of legislative and/or regulatory actions targeted at specifically identified issues regarding tax havens. • Fundamental. Where the higher-tax jurisdictions conduct a reform of their taxation systems to remove the incentives to use tax havens. • International. Where multiple countries decide to change the basis of fair taxation. Transparency US FATCA In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions (FFI) of broad scope – banks, stock brokers, hedge funds, pension funds, insurance companies, trusts – to report directly to the US Internal Revenue Service (IRS) all clients who are U.S. persons. Starting January 2014, FATCA requires FFIs to provide annual reports to the IRS on the name and address of each U.S. client, as well as the largest account balance in the year and total debits and credits of any account owned by a U.S. person. In addition, FATCA requires any foreign company not listed on a stock exchange or any foreign partnership that has 10% U.S. ownership to report to the IRS the names and tax identification number (TIN) of any U.S. owner. FATCA also requires U.S. citizens and green card holders who have foreign financial assets in excess of $50,000 to complete a new Form 8938 to be filed with the 1040 tax return, starting with fiscal year 2010. OECD CRS In 2014, the OECD followed FATCA with the Common Reporting Standard, an information standard for the automatic exchange of tax and financial information on a global level (which would already be needed by FATCA to process data). Participating in the CRS from 2017 onwards are Australia, the Bahamas, Bahrain, Bermuda, Brazil, British Virgin Islands, Brunei Darussalam, Canada, Cayman Islands, Chile, China, the Cook Islands, Guernsey, Hong Kong, Indonesia, Israel, Japan, Jersey, Kuwait, Lebanon, Macau, Malaysia, Mauritius, Monaco, New Zealand, Panama, Qatar, Russia, Saudi Arabia, Singapore, Switzerland, Turkey, the United Arab Emirates, and Uruguay. Blacklists OECD At the London G20 summit on 2 April 2009, G20 countries agreed to define a blacklist for tax havens, to be segmented according to a four-tier system, based on compliance with an "internationally agreed tax standard". The list as per 2 April 2009 can be viewed on the OECD website. The four tiers were: • Those that have substantially implemented the standard (includes most countries but China still excludes Hong Kong and Macau). • Tax havens that have committed to – but not yet fully implemented – the standard (includes Montserrat, Nauru, Niue, Panama, and Vanuatu) • Financial centres that have committed to – but not yet fully implemented – the standard (includes Guatemala, Costa Rica and Uruguay). • Those who have not committed to the standard (an empty category) Those countries in the bottom tier were initially classified as being 'non-cooperative tax havens'. Uruguay was initially classified as being uncooperative. However, upon appeal the OECD stated that it did meet tax transparency rules and thus moved it up. The Philippines took steps to remove itself from the blacklist and Malaysian Prime Minister Najib Razak had suggested earlier that Malaysia should not be in the bottom tier. In April 2009 the OECD announced through its chief Angel Gurria that Costa Rica, Malaysia, the Philippines and Uruguay have been removed from the blacklist after they had made "a full commitment to exchange information to the OECD standards." Despite calls from former French President Nicolas Sarkozy for Hong Kong and Macau to be included on the list separately from China, they are as yet not included independently, although it is expected that they will be added at a later date. Luxembourg Prime Minister Jean-Claude Juncker has criticised the list, stating that it has "no credibility", for failing to include various states of the USA which provide incorporation infrastructure that are indistinguishable from the aspects of pure tax havens to which the G20 object. As of 2012, 89 countries have implemented reforms sufficient to be listed on the OECD's white list. European Union In December 2017, EU Commission adopted a "blacklist" of territories to encourage compliance and cooperation: American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, the Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia, United Arab Emirates. Only one of the EU's 17 blacklisted tax havens, namely Samoa, was in above. The EU lists did not include any OECD or EU jurisdictions, or any of the . A few weeks later in January 2018, EU Taxation Commissioner Pierre Moscovici, called Ireland and the Netherlands, "tax black holes". After only a few months the EU reduced the blacklist further, and by November 2018, it contained only five jurisdictions: American Samoa, Guam, Samoa, Trinidad & Tobago, and the US Virgin Islands. However, by March 2019, the EU blacklist was expanded to 15 jurisdictions including Bermuda, a Top 10 tax haven and the 5th largest Sink OFC. On 27 March 2019, the European Parliament voted 505 in favour to 63 against accepting a new report that likened Luxembourg, Malta, Ireland and the Netherlands, and Cyprus to "display[ing] traits of a tax haven and facilitate aggressive tax planning". However, despite this vote, the EU Commission is not obliged to include these EU jurisdictions on the blacklist. Portugal Since the early 2000s Portugal has adopted a specific list of jurisdictions deemed as tax havens by the Government, associated to the said list is a set of tax penalties on Portuguese resident taxpayers. Nevertheless, the list has been critiqued for not being objective nor rational from an economic standpoint. Specific Anti-inversion To prevent naked tax inversions of US corporations to mostly Caribbean-type tax havens (e.g. Bermuda and the Cayman Islands), the US Congress added Regulation 7874 to the IRS code with the passing of the American Jobs Creation Act of 2004. Although the legislation was effective, further US Treasury regulations were required in 2014–2016 to prevent the much larger merger tax inversions, which culminated with the effective block of the proposed 2016 US$160 billion of Pfizer-Allergan in Ireland. Since these changes, there have been no further material US tax inversions. Anti-BEPS At the 2012 G20 Los Cabos summit, it was agreed that the OECD undertake a project to combat base erosion and profit shifting (BEPS) activities by corporates. An OECD BEPS Multilateral Instrument, consisting of "15 Actions" designed to be implemented domestically and through bilateral tax treaty provisions, was agreed upon at the 2015 G20 Antalya summit. The OECD BEPS Multilateral Instrument ("MLI"), was adopted on 24 November 2016 and has since been signed by over 78 jurisdictions; it came into force in July 2018. The MLI has been criticised for "watering down" several of its proposed initiatives, including country–by–country–reporting ("CbCr"), and for providing several opt-outs which several OECD and EU tax havens availed of. The US did not sign the MLI. Anti-Double Irish The Double Irish was the largest BEPS tool in history which by 2015, was shielding over US$100 billion in mostly US corporate profits from US taxation. When the EU Commission fined Apple €13 billion for using an illegal hybrid-Double Irish structure, their report noted that Apple had been using the structure from at least as far back as 1991. Several Senate and congressional inquiries in Washington cited public knowledge of the Double Irish from 2000 onwards. However, it was not the US that finally forced Ireland to close the structure in 2015, but the EU Commission; and existing users were given until 2020 to find alternative arrangements, two of which (e.g. Single malt arrangement) were already operating. The lack of action by the US, similar to their position with the OECD MLI (above), has been attributed to the of tax havens. However, some commentators note the reform of the US corporate tax code by the 2017 TCJA may change this. Fundamental United Kingdom After losing 22 tax inversions from 2007 to 2010, mostly to Ireland, the UK decided to completely reform its corporate tax code. In 2014, The Wall Street Journal reported that "In U.S. tax inversion Deals, U.K. is now a winner". In a 2015 presentation, HMRC showed that many of the outstanding British inversions from 2007 to 2010 period had returned to the UK as a result of the tax reforms (most of the rest had entered into subsequent transactions and could not return, including Shire). United States The US followed a broadly similar reform to the UK with the passing of the Tax Cuts and Jobs Act of 2017 (TCJA), which reduced the US headline corporate tax rate from 35% to 21%, changed the US corporate tax code from a "worldwide tax system" to a hybrid–"territorial tax system", and created new IP-based BEPS tools such as the FDII tax, as well as other anti-BEPS tools such as the BEAT tax. In advocating for the TCJA, the President's Council of Economic Advisors (CEA) heavily relied on the work of academic James R. Hines Jr. on the US corporate use of tax havens and the likely responses of US corporations to the TCJA. ==See also==