What are Tax-Havens and why do they exist?

Tid-Bits Tales, EP. 1.

So what are offshore financial centres?

Tax havens, or offshore financial centres, are places with low or no corporate taxes, which eases outsiders' ability to set up businesses. These centres also have minimal public disclosure, so the company's financial documents and information are safe and not accessible to most.

These places, thus, become very attractive if you wish to stash money outside of your own passport's region. However, that is a generalisation as not everyone has the same objective of hiding. So here are some uses of these financial centres:

Money held by rich people, incomes that are not taxed and are routed to these off shore havens. This money which is generated is not necessarily illegal, but most of its users do not tell their local authorities about their funds' whereabouts to save their money from the eyes of the jurisdiction. So, the offshore account is not illegal, but not informing your local authorities of this offshore financial station is illegal.

Today more than $10 Trillion of the richest of the rich is housed in these centres.

Another use of these locations is for multi-national corporations. Firms that do not with to pay corporate taxes do find their life here. Majority of the countries today lose more than $200 billion due to this corporate tax abuse. It also becomes difficult to prevent this as most of this transaction and procedure is well and truly legal.

It is believed that it is much more difficult to bring down MNCs as their offshoring due to their Multi-National status is legal and is not synonymous with individual tax cheats. Majority of the country's have no legal restrictions with companies incorporating themselves in these financial centres.

The problem is that these MNCs then are able to avoid tax and according to some reports save trillions every year. As their profits rise, they are able to increase the values of their shares which are then bought by honest taxpayers resulting in a lot of money just going abroad - just increasing the financial polarity within a country.

See now when this is so frowned upon, then how do these corporations and people get away with it?

See the first blame is Swiss Banks. But no, it is actually everyone's favourite villain- UK. The UK's "sun always shines on the British Empire" spider web has created overseas territories and crown dependencies, with 50% of those locations a tax haven. The question is why/how? See, after World War 2 the British Empire was on a decline. It had lost a lot in the First World War, that the second was just rubbing salt into the wounds.

The Empire lost all of its colonies and it was going into a financial crisis. Over this, Abdel Nasser, then the President of Egypt came forward and removed the French and British from the Suez Canal. The Canal was one of the most major trade routes, and the British took this punch straight to the jaw. Obviously, agitated and losing out on revenue, the British took advantage of Israel attacking Egypt in the 1950s and tried to retake control over the Canal.

However, due to the UN and US' pressure, they had to withdraw.

At this point British lost permanent control over the Canal and many investors started to contemplate whether the British economy was moving towards a financial crisis. People who did believe that it is time for a recession started to exchange British currency for something more valuable, and as the supply of the British currency suddenly rose in the world the Pound lost its value.

The central bank immediately tried to cut off the British Pound supply to the international community and halted all international borrowing of the currency. This block however, lead bankers to lose a lot of business as they were solely working as traders for international exchanges.

Therefore, to counteract the uproar of these conflicts - a compromise was found. Which is pretty... ummm... absurd.

The central bank said that the lending and the exchanges of foreign currency could still take place but not in Pounds. Now think about it, if I have to make any purchase, regardless of being an international body or not in India, what will I pay the people in? INR? If the bank is going to lend me money what will it be? INR? Obviously. As that is the currency that is accepted in the country. So the British Central Bank said, that they will allow these transactions to go on, but not in British Pound. Now, they cannot obviously change the rule that transactions in the United Kingdom have to be in British currency, so they started to do these transactions according to BBC in "nowhere".

Now the lending can be done, but they cannot be done in the UK. They cannot be done in another country, because no country wants to lose on the ability to regulate and make revenue through these transactions. So now for these transactions to happen outside the UK, banks have to be created with addresses offshore. So they came up with the idea to use the British overseas territories to do the job.

Here the lending continued in whichever currency seen fit by the banks, and while they were at it, for some odd reason they thought that this is a good way to borrow and lend billions without the government's oversight. The local authorities, therefore, made the regulations which made this whole procedure more seamless. And now because of this, offshore banking has taken off.

The British government has claimed that those offshore havens are independent states with their own laws, however, truly those are hollow statements to allow the financial circle to flow. There is probably no end to this, but let us see what happens in the future.