Essay on The Effects of Tax Havens Can Have on a State

Essay on The Effects of Tax Havens Can Have on a State

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The phrase “tax haven” usually is associated with the islands of the Caribbean, the Alps of Switzerland, or a developing nation looking to improve its economy by encouraging businesses to come there, a place where the wealthy and multi-national enterprises can hide away their wealth from home states. They are seen as corrupt states, willing to help the already corrupted, but is the full truth? Could it be that tax havens play a key part in the development of not only a state, but the furthering of the international economy as well? The answer, while a complicated one, can be found. Through understanding key definitions and examining the effects that a tax haven can have on a state in which the haven is located and those around it, it will be seen that tax havens do play both a negative and a positive role within the international economy through the means of foreign direct investment.
The first definition to explore will be tax havens. As defined by the Organization for Economic Co-operation and Development (OECD) a tax haven is a state or territory in which taxes are either not levied or at a rate below the majority of other states. Furthermore, they identify three characteristics that define whether or not a state is a tax haven. The first of these is the ability to offer non-residents and/or foreign companies a financial system in which to hold their money with little to no taxes on income. Second, states may have laws or administrative practices in place that ensure the anonymity of personal financial information. Lastly, a lack of transparency in the operation of laws and a lack of consistency in how they are enforced. This may include secret dealings, negotiated tax rates, or off the book deals given to one ind...

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...rrounding states could benefit as these corporations look to expand and invest within them. Something that would not be possible if they were required to operate in a non-tax haven state.
Using Delaware as a case to study tax havens and whether or not its effects are positive or negative is not a simple question to answer. Within the international economy there are many moving parts and it is difficult to be able to examine them all at one instance. Tax havens do divert fdi away from non-tax havens in the short run, of which could have a negative impact on non-tax havens GDP and economy, and at the same time the ability to lower cost could cause an increase in fdi to non-tax havens in the long run, thus aiding economic and GDP growth. All that can fully be known and understood is tax havens, like Delaware, do have an effect on the international market.

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