Share & Connect
Recently Costa Rica and the Cayman Islands have agreed with the United States to share information about offshore accounts of American citizens with the Internal Revenue Service (IRS). As part of an effort to tighten the noose around tax evasion and international illicit financial transactions, the US government has enforced a law called Foreign Account Tax Compliance Act (FACTA).
FACTA is a part of the Hiring Incentives to Restore Employment Act of 2010 and was primarily designed to combat offshore tax evasion, compelling foreign financial institutions to co-operate with the IRS.
Global tax havens are financial black holes gobbling up trillions of taxable dollars from around the world, operating on the dogmas of secrecy, directly wrecking down the global fiscal stature.
Offshore tax havens do not relate to any geographical location but they are generally called offshore because they are beyond the limits of constitutional authority of almost all countries, often islands-states such as the Cayman Islands and Bermuda. These locations were once popular destinations for sun and sand but now they stand out as centers of global financial crime, driven by low-tax or no-tax systems luring in the world’s wealthy elite.
Operations structure of offshore tax havens can be described as multinational companies operating through complex network of affiliate companies under corporate anonymity. It is supported by local authorities and financial institutions galvanized by greed and dishonesty.
According to KPMG global corporate tax rates table, the Cayman Islands follow a policy of zero corporate tax; along with Bermuda and the Bahamas. Latvia, Macau and Liechtenstein have adopted a low-tax rate system as well. Multinational companies often get lured by low-tax or no-tax rate policies that works as a cushion for evading taxes in their home countries.
The pace of global financial crime has increased twofold over the last few years, severely affecting fiscal health, the architecture of social justice, institutions of economic and social equality and, more seriously, worsened the global economic situation. Broadly, global financial crime is divided into three categories – money laundering, tax evasion and bribery. One of the direct impacts of siphoning off taxes can be seen on the federal budgets since tax evasion results in reduction in total federal revenues.
According to the Congressional Research Service report, “the federal government loses both individual and corporate income tax revenue from shifting of profits and income into low-tax countries. The revenue losses from tax avoidance and evasion are difficult to estimate but some suggest that annual cost of offshore tax abuses may be around $100 billion per year.”
According to Oxfam international, a UK-based international confederation of 17 organizations, “at least $18.5 trillion is hidden by wealthy individuals in tax havens worldwide, representing a loss of more than $156 billion in tax revenue.”
The stigma of the recent shutdown in America may have been faded fast from the media but it wasn’t just the outcome of a narrowed budget required to fund administrative operations or just a new trouble in the health care puzzle, but frankly, the culture of tax evasion had a major role in weakening the country’s fiscal health.
According to a report published by Friedrich Ebert Stitung, a German political foundation, “In the UK, the British NGO ActionAid has calculated an annual tax avoidance of 840 million for the 100 largest groups listed on the London Stock Exchange.”
Tax havens facilitate tax abuses, promote inequality and fiscal disequilibrium affecting the continuum of federal revenues in many countries and disturbing the lives of millions of people depended upon benefits under the system of social justice. Tax evasion undoubtedly contributes to widening fissure between the rich and poor, leading to increased income- and opportunity-based inequalities. Poor sections of society anywhere in the world are the primary recipient of social and economic deprivation.
The FACTA agreements are largely unilateral in nature insisted upon by America in negotiation with a few countries, but perhaps limited in resolving global tax abuses; in reality, tax avoidance and offshore tax havens are a global crisis that needs multilateral strategic synchronization between rich and poor countries towards global taxation rules, implementation, enforcement and transparency relating to banking secrecy and agreement between corporations and nation-states.