Tax havens are essential to maintain a healthy economy, limit the overall tax burden and improve efficiency in financial markets.
Turn down the heat, switch on the light, published today by the Institute of Economic Affairs, highlights the benefits of tax havens globally. The author argues that political pronouncements vilifying companies for avoiding tax lack any honesty – or understanding – that the issue at the heart of the current debate, tax competition, results from the actions of governments and not corporations.
This is unacceptable hypocrisy on the part of politicians. The government must recognise the importance of tax havens and stop simultaneously talking about the need to encourage business whilst also deriding tax havens and companies that use existing tax rules to minimise their tax bill.
The importance of tax havens for the economy:
- Punitive action on tax competition would damage growth.Without tax havens, big businesses would move away from the UK. If tax havens could not be used by multinational corporations in the UK, then a single rate of corporate tax would have to be set. If set too low, then corporations’ contribution to the overall tax take would fall. If too high, then business would move overseas, damaging the overall economy.
- Tax havens play a key role in limiting the tax burden. The existence of tax havens, coupled with high mobility of capital, means governments are constrained in the tax rates they could otherwise apply – crucial for both wealth and job creation.
- Tax havens improve efficiency and liquidity in financial markets.Without tax havens, many innovative products would be stifled by punitive tax regimes. Offshore tax havens allow the UK to make the most of its comparative advantage in financial services and avoid potentially damaging double or triple taxation on investmen