TAX HAVENS, SHELL COMPANY, ROUND TRIPPING

 

TAX HAVENS:

• Tax havens, or offshore financial centers, are generally countries or locations with low or no corporate taxes enabling outsiders to set up businesses there.
• Information is not easily provided by Tax Haven countries about these financial transactions and hence they are also be referred to as secrecy jurisdictions. 
• Examples of Tax Havens are countries like Panama, the Netherlands and  Maurititus etc. 
• Business is being executed in these tax havens through the legal entities ie shell company. 

                         

HOW TAX HAVENS EARN INCOME:

• Tax havens charge a lower tax rate than other countries and usually charge high customs or import duties to cover the losses in tax revenues. 
• Tax havens mostly charge a fee for new registration of companies, and individuals have to pay renewal charges every year which is the source of earning for these countries .
• By attracting foreign individuals or businesses, even if they pay a nominal tax rate, the nation may earn substantially more in tax revenues than it would otherwise. 
• The country also benefits from corporate investments in business operations as they offer jobs to the country's residents.
• In 2016, a report by Citizen for Tax Justice-a US-based think-tank , stated that more than 370 companies out of Fortune 500 operate subsidiaries in such countries.

• Obama in 2009 says Tax Haven is the largest tax scam in the world. 
• Topmost countries acting as tax havens are Bermuda, Netherlands, Luxembourg ,Cayman Islands ,Singapore and Switzerland etc.
•  Top cos. Benefitted from tax havens are apple, Nike and Goldman Sachs etc.

SHELL COMPANY /OFFSHORE COMPANY/ SPECIAL PURPOSE ENTITY:

• A shell company is a legal entity created in a tax haven. 
• Shell company typically exist only on paper, with no full-time employees, and no office. 
• The single most objective of shell companies is to avoid taxes by manipulating the tax laws.

ROUND TRIPPING: 

• Round tripping of FDI refers to the capital belonging to a country, leaves the country to the TAX HAVEN and then is reinvested in the parent company in the form of FDI.
• This money in most of the cases is used for share market manipulations.
• There can be multiple forms of Round Tripping like an entity transferring money to another entity only to receive it back later to create a false impression of sales or revenue.
• For instance, Company A can transfer $100,000 to Company B, which then returns the same amount to Company A. Company A can then record this as $100,000 in sales even though no goods or services were exchanged.
• Round-tripping can also be used to hide financial losses or debt by creating the impression of cash flow.
• For instance, a company can transfer money to an offshore account, which then transfers it back to create the impression of incoming revenue.