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What is a Tax Haven? Where are they?  How do individuals and corporations use them to lower the amount of tax they pay to governments.

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This is Dez Morgan here in Abu Dhabi reporting in with a solo episode. My partner at D2B, Skip Montreux is snowed under at work at the moment so unfortunately you will have to listen to me talking away by myself.
Today on Down to Business English I’ll be looking at the topic of Tax Havens: How they work and who benefits from them?

Here in the Arab Emirates we pay no income tax as companies are taxed rather than individuals. If you think about it it actually works out as the same thing in the end as the amount that people get paid is less because they have no responsibility to pay taxes. It does make me feel better though when I get all of my pay in my hand rather than handing over a sizable chunk of it to the government.
One place where people have been getting very angry about taxes is the United States, where an Occupy Wall Street campaign has sprung up. This campaign that has spread across the world is to protest the many loopholes that allow rich individuals and corporations to pay relatively little tax.
Let’s take a look at individual people first and talk about how they get around taxes. The easiest way is for them to move to a tax haven, which is a place that charges either no taxes or a relatively small amount. When I think of a tax haven I generally think of a sunny island in the Caribbean like Bermuda or the Cayman Islands and these are indeed havens where no taxes are charged. So if you were a high net worth individual you could be sitting on a beach with a cocktail safe in the knowledge that no government is going to take any of your money. Famous investor and fund manager Sir John Templeton moved to The Bahamas and renounced his U.S. citizenship to avoid taxes. He lived and invested from his Bahaman home from 1968 until he passed away in 2008 at the ripe old age of 96. Maybe not paying taxes is good for the health.
You might be surprised by some of the more unlikely places that are considered tax havens. The rock band U2 were recently criticized at the Glastonbury Rock Festival as they’ve taken up residence in The Netherlands to avoid taxes. I guess people felt that they should have stayed in their native Ireland and helped pay for some of Ireland’s economic problems.
The UK can also be considered a tax haven for certain individuals as money earned overseas is only taxed if it is repatriated back into the country. Ireland is similar in this respect so I guess U2 just really didn’t want to pay any tax.
The country that gets off the worst is undoubtedly the U.S., where Americans have to pay tax on income earned even if they don’t reside in the United States. The first $80,000 is tax free however which would mean that tax havens are not really available to citizens of the U.S. as they would need to declare earnings to the U.S. Government even if their place of residence didn’t charge them any tax. So that deals with individuals and tax havens now let us move on to talk about companies and corporations.
I guess the first question to ask would be how common is it for companies to have their headquarters in a tax beneficial country. Currently of the companies listed on the London stock exchange fully one quarter are domiciled in countries that are beneficial to their taxes. Are they paying some taxes in other countries that they operate in though? The answer to that is of course yes, but are they paying as much tax as they should be? In many cases the answer is probably not.
Companies transfer profits from subsidiaries to the parent company or other offices where taxation is lower to avoid paying the higher prices in the country where the profits were made. Another tactic is for the parent company to make huge charges to its subsidiaries so deflating the taxable profits made. This is a policy known as transfer pricing that is supposed to be controlled by law but in practice has proven notoriously difficult to police. A further difficulty in the modern world is with online businesses it can be quite difficult to track where the profit was made for taxation purposes. The popular online poker site, Party Poker is headquartered in Gibraltar where a set amount of just 100 pounds is charged on companies that do not trade in the domestic Gibraltarian market. As you can imagine it’s quite difficult to calculate exactly how much party poker makes in each country for taxation purposes.
Another tactic used is to group a selection of companies in different international markets under the umbrella of a single holding company in a tax beneficial zone. Profits flow back to the holding company and charges flow the other way all of which is again notoriously difficult to track.
Well that is about it on tax havens, it is easy to see why an electorate being asked to pay ever more taxes because of mistakes made by big companies might make people angry. Before I go off to Occupy Wall Street though, I guess we had better get D2V…Down to Vocabulary.

First up I have the expression to be snowed under which literally means when a place has been hit by so much snow that it becomes difficult to go outside. In the story however I used the idiomatic meaning which is when you have so much work that you have little time for anything else. I said that Skip couldn’t record with me today as he was snowed under with work. A further example from the business world would be how Sony is snowed under with orders when they release a new PlayStation so people have to wait often for several months to get one.
Next up I have the noun loophole which is an unintended gap in a law that companies or individuals can take advantage of. In the story I said that The Occupy Wall Street movement was angry about rich individuals and companies using these gaps or loopholes in the law to pay less taxes. A further example would be how a very good lawyer can often find loopholes in the case prepared by the police and so get a guilty person off of the charges. The famous O J Simpson case is an example of this.
Next up I have the noun phrase a tax haven and although I talk about it extensively in the story I just wanted to break it down for you here. Now tax we all know, but the word haven means a safe place so clearly a tax haven is a place where you can be safe from taxes. Another example of haven would be when a political refugee escapes from the country he or she is being persecuted in and seeks a safe haven in another one. Salman Rushdie, the writer sought safe haven in London after threats on his life from angry Muslims in 1988.
Next we have the verb to repatriate which means when someone or something returns to its home or place of origin. In the story I said that in the UK, if you have money invested outside of the country it only becomes taxable if it is returned or repatriated to the country. A further example would be when I leave this job in the UAE I get a repatriation flight paid for by the college.
Finally I have the noun umbrella which as you all know is the thing that you can open up to keep the rain off. There is an image around the world that London businessmen all carry umbrellas which is generally not true as London is too windy. In the story I use the term umbrella in a slightly different way to mean a holding company that covers many smaller companies and is treated as one entity for tax reasons. Yum Brands is the umbrella corporation for KFC, Pizza Hut and the Mexican food chain Taco Bell.

I hope that you enjoyed the show and will check out the tape script on downtobusinessenglish.com and also visit our page on Facebook. I would also again urge you to sign up for our newsletter at the website, where recently we have had an article on the late Steve Jobs and I talk about a trip I made to the eco-city of Masdar just outside of Abu Dhabi. Thanks again for listening and hopefully Skip will dig himself out and we will be able to record together again soon.
Bye for now.