Gimme Shelter

The tax haven market is booming. So where should you stow your dough?

By Peter Savodnik

ILLUSTRATIONS BY NEAL FOX

Once confined to a few tropical islands riddled with yachts and flashy drug dealers, the tax haven market has morphed into a sprawling tableau of low-tax zones that cater to wealthy individuals and multinationals. The glut is the result of persistent corruption in emerging markets such as Russia and Brazil, the financial crisis, and rising tax rates, especially in Europe (just ask Gérard Depardieu).

There are now 70-plus “business-friendly jurisdictions,” as tax lawyers say, and they’re sheltering $21 trillion to $32 trillion, up from $11.5 trillion in 2005, according to the Tax Justice Network, a group of tax haven opponents that sees no difference between tax avoidance and tax evasion.

Once upon a time, most business-friendly jurisdictions were more or less the same. Today each has its own character (and, in some cases, PowerPoint presentation). Yet to tax haven opponents, all this differentiation papers over an unavoidable fact. “The commonality is the willingness to provide secrecy services,” says Raymond Baker, director of Global Financial Integrity, a Washington advocacy group. “The Cayman Islands is particularly egregious. Singapore and Hong Kong are a growing concern. Dubai is far too lax on the handling of bulk cash.” Switzerland hoped to be the main recipient of illicit money around the world, “but the U.S. decided far too much of that money was going there, so banks put on a real effort to attract flight capital, particularly out of Latin America — and did so successfully,” says Baker.

That’s not how the tax havens, or the people parking their money there, see it. For the uninitiated, an abbreviated catalogue of haven types:

Delaware

YOU ARE: an American CEO

Yes, you’re in ... Delaware. It’s in a stable, democratic country (well, mostly), and it exempts subsidiaries of holding companies from taxes, which is why more than half the Fortune 500 — on paper — are there. They include Google, Ford, and Berkshire Hathaway, whose CEO, Warren Buffett, believes rich people don’t pay enough taxes. “Some tax havens have always been low-tax jurisdictions,” Cato Institute’s Daniel Mitchell says. “And then you have countries like the U.S., which are tax havens but no one knows about it.”

Cayman Islands

YOU ARE: a Republican

While tax havens are not popular with most Americans — the Foreign Account Tax Compliance Act, which took effect this year, forces foreign banks to disclose the names and balances of American account holders — they seem to have a special allure among senior Republicans. Mitt Romney moved millions to the islands (the better to shield it from lawsuits) and George W. Bush recently gave the keynote at an investment conference there.

Belize

YOU ARE: in the midst of a nasty divorce

Like the British Virgin Islands, the Seychelles, the Caymans, and Panama, Belize is where the holding companies that own the holding companies that own the real companies are. Belize offers an unparalleled level of secrecy. PanamaLaw.org, a website that provides information about tax havens, calls the Belize trust “the only structure we know of that does not allow for fraudulent conveyance actions.” Translation: People running away from a divorce settlement or any civil judgment from a foreign court need not worry.

Norway

YOU ARE: a Viking sports star

Among tax haven opponents there’s a vaguely Freudian belief that all of us are, deep down, tax evaders. So it was that Roger Schjerva, the state secretary of Norway’s ministry of finance, recently called his country a tax haven, noting it was easier to get information about bank accounts in a Pacific island than in Oslo. The Netherlands is also in this category; the so-called Dutch Sandwich has enabled thousands, including Mick Jagger and Steffi Graf, to avoid taxes.

Jersey

YOU ARE: a British tabloid fixture

The island of Jersey, off the French coast, is littered with seaside inns and medieval castles. It’s also where rich people from Britain often stow their cash. The island taxes income at a flat rate of 20 percent. Alas, Jersey’s fate is uncertain. It belongs to the Channel Islands, which is a dependency of the British crown. Prime Minister David Cameron, whose father made a small fortune in tax havens, has attacked celebrities who avoid paying taxes.

Cyprus

YOU ARE: a “classy” Russian businessman

Since the collapse of the Soviet Union, Cyprus has been the go-to haven for oligarchs looking to shield their money from the Kremlin ... or other oligarchs. As of Jan. 1, it was no longer on the Russian government’s tax haven blacklist, lending the Mediterranean island some respectability. “Cyprus isn’t a classic tax haven like Panama or BVI. There’s still a minimum level of taxation,” says Carlo Scevola, a tax attorney in Cyprus. “It’s a very high-standing jurisdiction which can be compared to the U.K., Latvia, or Bulgaria.”

Luxembourg

YOU ARE: a chic old-money scion

Luxembourg thinks of itself as a place where successful, well-dressed people invest in sophisticated funds. Diogo Duarte de Oliveira, partner at the Luxembourg office of law firm CMS DeBacker, says clients “want a jurisdiction that offers very skilled people, and this is not what you will find in Cyprus.” (Burn.) The specialized investment fund is popular. “You have this fund being used by private equity outfits or for passion investments such as art or diamonds.”

Dubai

YOU ARE: an embarrassment

Dubai is overrun with the most garish people on earth; mullets, Lamborghinis, and Ukrainian prostitutes are ubiquitous. In 2009 the city-state’s neighbor, Abu Dhabi, paid off Dubai’s debts with a $10 billion handout. Since then the real estate market has rebounded, and hordes of Iranian and Indian financiers, among others, are flocking there. Luxury villa prices are expected to rise 10 percent in 2013, according to property consultancy group Knight Frank.

Welcome!

Magazines Review offers you a broad range of popular American magazines online. Browse an extensive directory of magazines, covering most important aspects of your life. Find the most recent issues of your favourite magazine, or check out the oldest ones.

About content

All the articles are taken from the official magazine websites and other open web resources.

Please send your complains and suggestions through our feedback form. Thank you.