Turn down the heat, switch on the light: a rational analysis of tax havens, tax policy and tax politics

Tax havens are essential to maintain a healthy economy


  • Tax havens have existed for many centuries and are certainly not limited to ‘sunny places for shady people’ as suggested by Vince Cable.
  • The Netherlands, Luxembourg, Belgium and Switzerland all have some of the characteristics of tax havens.
  • There are many senses in which the UK has become a leading tax haven given the effect of government’s policy in recent years, and particularly over the last ten years or so. Criticism by UK politicians of tax havens in the context of the UK’s own declared policy is hypocrisy.
  • Much of the recent controversy has surrounded payments for intellectual property. There are some important issues here which require serious attention. Much of the value in modern companies is added by intellectual property, patented processes and brands. The profits generated by such brands do not necessarily belong in the countries in which sales take place. Given their nature, there is always going to be room for dispute as to how payments out of the UK for intellectual property should be determined; however, there would be little change in the UK tax base if such intellectual property were not located in tax havens.
  • International action on tax havens is bound to be influenced by political rather than economic criteria and is therefore likely to be extremely unsatisfactory.
  • In fact, tax havens bring many benefits to countries – including to high-tax countries. High-tax countries can attract mobile capital if tax havens can be used to reduce the overall rate of tax paid by those who control that capital. Without tax havens, high-tax countries would have to either