Explainer: what are ‘tax havens’?

Source: Tommaso Faccio, The Conversation, April 5, 2016

The Panama Papers leak sheds some light on the intricate ways in which the wealthy can exploit secretive offshore tax regimes. As well as charging minimal or no tax to residents and non-residents, the main characteristics of tax havens are their lack of transparency and effective information exchange.

As the leaked files of Panama-based law firm Mossack Fonseca show, these havens are used by individuals and companies to stash their cash, away from the prying eyes of civilians or investigators. This is not necessarily because their money has been obtained illegally. In the case of public figures such as politicians, for example, they may want to keep the size of their wealth a secret or hide from their electorates that they or their relatives are legally minimising their tax. To do so, they hide their identity using a number of complex legal mechanisms….