Tax Havens and Offshore Financial Centers in the Caribbean

TAX HAVENS AND THE CARIBBEAN: A SUNNY PLACE FOR SHADY PEOPLE? Anthony D.J. Gafoor Trinidad & Tobago 5th IATJ Conference, Washington, 2014 1

TAX HAVENS: DEFINITION The term tax avoidance can be found as early as the 1850s and the term tax haven has been widely used since the 1950s (Palan, Murphy and Chavagneux, Tax Havens: How Globalization Really Works, 2010) In truth, the term tax haven is a bit of a misnomer because these places offer an escape not just from taxes but from many other rules and regulations too....The common feature of tax havens is that they offer secrecy. (Shaxson, Treasure Islands: Uncovering the damage of offshore banking and tax havens, 2014) A tax haven is simply a country that allows you to reduce the amount of tax you pay. (Hadnum, The World s Best Tax Havens, 2013) 5th IATJ Conference, Washington, 2014 2

CARIBBEAN WORLDS MAIN OFFSHORE FINANCIAL CENTERS Due to the colonial experience, the Caribbean has multiple identities Spanish, French, English, Dutch. The focus here is in the Anglo Caribbean The Caribbean islands are among the world's main offshore financial centers. More than 1m offshore companies are registered in the British Virgin Islands alone, even though the total population is just 30,000. 5th IATJ Conference, Washington, 2014 3

MANY CARIBBEANS 5th IATJ Conference, Washington, 2014 4

THREE TYPES OF TAX HAVENS Hadnum identifies three main types: Nil tax havens Foreign Source Exempt Havens Low-Tax Havens 5th IATJ Conference, Washington, 2014 5

NIL TAX HAVENS No income/corporate tax; capital gains tax; inheritance tax) In the Caribbean, these include the Cayman Islands; St. Kitts and Nevis; The Bahamas; Bermuda; The Turks and Caicos Islands; and Anguilla 5th IATJ Conference, Washington, 2014 6

FOREIGN SOURCE EXEMPT HAVENS Taxes are levied only on locally derived income; foreign income is exempt provided no local business activity is involved No Caribbean countries appear to fall into this category; the closest example would be Panama which is geographically part of Central America though with a strong Caribbean connection 5th IATJ Conference, Washington, 2014 7

LOW TAX HAVENS Low-Tax Havens: (residents worldwide income is taxed but some countries offer tax advantages in special circumstances such as the ability to avoid capital gains tax; use of double taxation treaties also result in a lower tax bill) This includes the majority of the other Commonwealth Caribbean jurisdictions such as Trinidad & Tobago; Barbados; and Jamaica among others) 5th IATJ Conference, Washington, 2014 8

CARIBBEAN CONTEXT Issues of morality and ethics frequently surface in relation to tax havens in the Caribbean because of capital flight by corrupt administrators and governments In the Caribbean, tax havens are frequently associated with tax evasion and corrupt leaders This has given rise to debate as to whether the Caribbean is a shady place of sunny people or a sunny place for shady people 5th IATJ Conference, Washington, 2014 9

CARIBBEAN CONTEXT Of the 28 world best tax havens, approx. 9 are located in the Caribbean region These are: Anguilla; Bahamas; Barbados; Belize; Bermuda; British Virgin Islands; Cayman Islands; St. Kitts and Nevis; and the Turks and Caicos Islands (Source: Hadnum, 2013, The World s Best Tax Havens) 5th IATJ Conference, Washington, 2014 10

CARIBBEAN CONTEXT Anguilla (no income tax; inheritance or estate tax; capital gains tax; gift tax; or corporation tax) Bahamas (no income tax; corporation tax; capital gains tax or inheritance tax) (but there are other taxes such as stamp duty and property taxes) Barbados (no CGT or IHT and gift tax; but there is income tax and VAT (17.5%); corporation tax (25%) 5th IATJ Conference, Washington, 2014 11

CARIBBEAN CONTEXT Belize (No CGT or IHT but income is taxed at 25%) British Virgin Islands (no CGT; income tax; corporation tax; inheritance tax or sales tax) (but there is payroll tax of 14% and social security tax of 8 % only if working there) Cayman Islands (no income tax; corporation tax; CGT or IHT or estate tax) 5th IATJ Conference, Washington, 2014 12

CARIBBEAN CONTEXT St. Kitts and Nevis (no personal income tax bit corporation tax is 35% though offshore companies are exempt; there is also 10% withholding tax; no CGT) Turks and Caicos Islands (no income tax; CGT or IHT) (there is stamp duty and the recent imposition of VAT) 5th IATJ Conference, Washington, 2014 13

CONCLUSIONS No universally accepted definition of a tax haven Most countries offer some fiscal incentive - referred to as Preferential Tax Regimes (PTRs) No clear dividing line between PTRs; tax havens and offshore financial centers The traditional secrecy rules have been greatly impacted upon by exchange of information provisions and FATCA with particular reference to US private and corporate citizens operating within the Caribbean 5th IATJ Conference, Washington, 2014 14