Following the disclosure of Pandora’s documents: Last night, Pandora’s documents were published, 12 million documents leaked from economic agencies by the global research organization ICIJ, and the Israelis? Starring in them. The confidential documents reveal his popular tax havens all over the world, especially for Israelis.
A tax haven is a definition of a country with economic independence, in which the level of tax is relatively low compared to the average international tax level. Operating in a country that is a tax haven, allows profits generated in another country to be deposited in an account in the tax haven, and subject to a reduced tax payment. The use of tax havens has become the domain not only of wealthy people, but also of business owners, who want to enjoy the tax benefits inherent in these countries.
In light of this, the tax authorities in the world, as well as the tax authority in Israel, have set themselves the goal of locating the activity in those tax havens, while substantially examining the activity and whether beyond tax considerations, there is justification for conducting business activity in those countries. To this end, many laws have been enacted in recent years and cooperation and exchange of information between authorities and banking systems has been increased.
Countries used as tax havens
With the development of technology and the development of computerized e.commerce, the demand for tax havens has increased and access to them has become much more convenient, because unlike in previous years, today the investor does not need to be physically present and can manage his investments remotely. Aside from tax relief, companies and the self.employed are also looking for a place where outside government oversight and intervention in private property is less.
In general, there are many countries in the world that are defined as tax havens, including Switzerland, Cyprus, Luxembourg, Panama, the Virgin Islands, the Seychelles, Anguilla, the Bahamas, Belize and the hand is still outstretched. These countries compete with each other for the degree of attractiveness of tax breaks, but each also caters to a different audience with different needs and thus cultivates a relative advantage over the others.
When are tax havens used?
There is a wide variety of tax havens, suitable for many types of “tax refugees” with different needs and purposes. Here are some key examples of tax havens.
Investments and external banks – Banks are a convenient place for holding capital and investing for any capitalist who wants to save money due to the payment of tax in the mother country.
Holding companies – The holding company is registered in the tax haven country, while its subsidiaries will be able to operate in the parent countries but pay taxes according to the laws of the tax haven country. However, there are laws in many countries designed to prevent the use of tax havens, it is important to note that in the financial world there is a special nickname for subsidiaries of holding companies – “straw company”, because like the scarecrow, they hide the parent company.
Captive insurance companies – Insurance companies created by their owners and insuring them. The main purpose of these insurance companies is to insure the risk in their owners’ financial investments.
The use of tax havens is not prohibited by law or constitutes a criminal offense, but it has a civil significance, which creates a reporting obligation and a tax payment obligation in relation to companies that are essentially controlled and managed by Israeli residents or used by Israeli residents to provide services outside Israel. (Mainly counseling, freelancers), in which they are regularly engaged. At the same time, to the extent that the use of tax havens is intended to carry out criminal activity or for the purpose of money laundering, it will also have consequences in the criminal aspect.
In the beginning, tax havens were used mainly by families with many assets, criminal organizations and the underworld. The factor that has led to the flourishing of the tax haven countries we know today is the application of restrictions on the world capital markets by the OECD – the World Organization for Economic Cooperation and Development. The member states of the organization have regulated and increased the supervision of markets around the world. This regulation undermined the economic freedom of large companies, which were even harmed financially, and therefore began to look for a freer place.
At the same time, many countries began to demand high tax rates, many countries signed an agreement regulating the payment of tax in several countries (for example, if an Israeli resident paid tax for his income in another country signed a tax treaty with Israel, at a rate lower than the tax he had to pay in Israel , He will have to pay the balance of the tax to the tax authorities in Israel). Due to these and other reasons, tax havens began to flourish – initially in Europe, but soon also in the Caribbean and a variety of other places around the world.
How will tax havens be affected by the minimum global tax reform?
It should be emphasized that as long as things are properly reported to the relevant authorities, registration of companies and business operations outside of Israel is a legal and accepted practice. However, conducting business through the registration of companies in tax havens has wide significance for the state due to the “loss” of taxes that could have been paid from the companies ’profits. The difficulty of registering companies – and especially technology giants in countries where the corporate tax is relatively low – led last summer to a historic agreement between the G7 member countries in relation to a uniform global corporate tax of 15%. G7 companies hope that many more countries will join the agreement.
There is no doubt that as this initiative progresses, tax havens and those seeking to benefit from them will be required to recalculate a route and offer an attractive alternative, based on benefits that do not depend solely on the reduced tax rate.
The author is the director of the tax department at the Naschitz Brands Amir law firm