How tax havens were born

This article is part of a series of articles on tax havens, the use of which to reduce tax and levy liability, protect ownership and its anonymity is very attractive for some business entities. Today, when the tax burden e.g. in Slovakia is not in line with the basic principle of taxation, which is tax neutrality, the incentive to adjust one’s activities also with regard to tax consequences is higher than it should be in an efficient society. In other words, taxpayers have more incentive to pay less tax than is necessary in an efficient society. This article aims to briefly describe the development of tax havens in a broader sense and in a historical context.

The origins of tax optimisation through the international element can be traced back to ancient times, when, for example, traders in ancient Greece tried to optimise their tax burden by using ancient tax havens in the form of the Greek islands, which did not tax imports or the storage of goods on their territory, unlike Athens, whose tax on imported goods traders wanted to avoid. Therefore, Greek merchants were fond of using the ancient islands as tax havens with the clear aim of avoiding paying taxes in Athens. In modern antiquity, during the period of colonial discovery, American merchants sought to avoid British taxes by trading with Latin America. At the beginning of 19. The first tax havens were the US states of Delaware and New Jersey, which set very low corporate taxes in order to attract foreign entrepreneurs. Delaware, in particular, retains that status to this day.

Between the two world wars, the role of the Swiss came to the fore thanks to the banking law passed in 1934, which ensured absolute anonymity of ownership of funds and securities deposited in Swiss banks. Prior to Switzerland, Liechtenstein also tried a similar concept relatively successfully. The rise of tax havens as we know them today only came after the Second World War. Initially, tax havens were mostly used in connection with the taxation of individuals, but gradually large international corporations also came to like it. Bermuda takes the first place among tax havens because of its offshore legislation, which was adopted in 1935. The Netherlands Antilles, which still benefits from its colonial past, became an important tax haven in 1953. Their attractiveness lay, and still lies, in the wide network of treaties to avoid double taxation.

Another important milestone in the development of tax havens was the US and European regulation of the banking sector. The United States of America, also thanks to the historical legacy of the Great Depression of 1929, has pursued tough regulatory measures against the banking sector. However, they began to look for destinations and other ways to stretch their arms in their business, and so their primary target became London as the financial centre of the world. However, a series of measures by the US government to discourage US banks and large corporations from investing in Europe in order to protect the United States from capital flight has resulted in the rise in the importance of Caribbean states in international structuring. According to a 1975 report by Richard Gordon of the U.S. Treasury Department, as many as 125 U.S. banks had 732 organizational units located outside the United States, mostly in the Caribbean. From 1968 to 1976, the assets of financial institutions in tax havens increased from approximately US$3.7 billion to US$20.9 billion.

Gradually, tax havens were characterised by zero tax rates for all types of income until they came to the attention of the OECD, the USA or the UK, which since the 1990s have been tax havens. century, they have begun to take steps to regulate these efforts to attract investment and the headquarters of various multinational companies to their territories. Today, tax havens are characterised by almost no taxation. However, an important motive for the use of tax havens in the current period was and is not so much low or no tax burden, but the anonymity of ownership, the possibility of creating relationships on the basis of “trusts” on the basis of which wealthy people, who may be conducting risky business, insure the protection of their assets. The anonymity of ownership is a key factor for entrepreneurs in the illicit business, who seek to protect their money, not to reveal their identity, and at the same time, in the next step if possible, to legalize these earnings. Entrepreneurs then either reinvest the profits of their companies or try to get them back to their territory of residence by various more complicated methods.

Tax havens are now a much-discussed institution in international finance, international law and international relations. Their rise is just a result of the effects of the competitive environment that exists not only between businesses but also between countries. Given the persistent public debt problems in developed countries, tax havens have long been weaponised against tax havens. It will therefore be extremely interesting to follow their development in the period ahead.