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Tax audit and management are some of the biggest business areas for professional firms, which take on a huge number of graduates every year. And tax is an issue which has, over the past few years, rarely been far from the headlines. In these recessionary times, the public have begun to take a keen interest in the tax arrangements of the wealthy.

In the US, one side of the electorate has been desperate to see Mitt Romney’s tax returns. In the UK, everyone from Ken Livingstone to Jimmy Carr have been criticised for their decisions to use tax arrangements which, while not illegal, see them pay income tax rates which are much lower than those to which many ordinary people are subject.

The biggest rancour has been reserved for large corporations that are domiciled in tax havens – countries or jurisdictions that offer businesses and individuals tax breaks if they’re registered there. Some of the best known havens are in exotic Caribbean climes such as the Cayman Islands and Bermuda. But equally renowned in the business world are arguably less glamorous havens like Delaware, the Netherlands and Ireland (some have even suggested that the City of London is a tax haven). It seems, then, that there’s a buck to be made from operating a tax haven. So if you’re considering setting one up, here are four points you’ll need to bear in mind.

1. Set an attractive tax rate

The most “successful” havens either have nominal tax rates or none at all. They allow a company that registers itself there to avoid the tax rate that’s set in its country(ies) of operation. For example, a large retail bank has 1,000 branches across the UK, where the current rate of corporation tax is 24 per cent (it will fall to 23 per cent in 2013). The bank may, however, have a “shell” parent company that’s registered for tax in a jurisdiction in which the corporate tax is, say, 0 per cent. If the bank has a clever accountant that knows how to exploit loopholes in the system, then they may find themselves with a seriously reduced tax bill.

2. Be as opaque as possible

One of the hallmarks of a good tax haven is its utter lack of transparency. Laws in tax friendly regimes generally protect financial institutions from having to disclose tax-sensitive information, even if information requests come from other governments. Furthermore, the details of those who channel assets through or are registered in tax havens are often impossible to obtain, due to the laws in the respective jurisdiction. In this business, you’d better remember that “mum” is the word.

3. Set yourself apart from the competition

Of the multitude of tax havens dotted around the world (the OECD has identified 38), many provide specialist services to certain industries or nationalities. Bermuda, for instance, is the tax haven of choice for the insurance industry. Despite having a population of just 65,000, it’s the third largest reinsurance centre in the world. Hedge funds, on the other hand, prefer to pay their dues in the Cayman Islands. The Republic of Ireland has increasingly paid host to multinational companies. Combine its 12.5 per cent rate of corporation tax with its world class infrastructure and proximity to the UK and you’re on to a winner.

4. Always play dumb

When a British politician talks of clamping down on the amount of revenue being lost to tax havens, you can guarantee there’ll be a steady stream of governors and businesspeople from havens vocally defending their “tax management” policies. When Ed Miliband threatened to “wage war” on UK tax havens, officials from Guernsey and Gibraltar turned on his comments, accusing him of “political posturing”. This is despite the fact that the EU (of which the Rock is a member) has placed Gibraltar on a “blacklist” of tax havens. If you’re serious about getting involved in this game, you’d better start practising your indignant, victimised voice.   

By

Finbarr Bermingham
Former Assistant Editor

Published

Issue 55

p47

10 October 2012

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