Offshore Banking
The Myth of the Caribbean
as a Tax Haven
Joanna Charles
Is there a biased perception of the Caribbean as a home to tax havens? This article argues that the
answer is yes. Yet the “facts clearly show that the majority of our countries are compliant and have
taken the necessary steps for tax transparency requirements,” the author observes. The consequences for the region are significant, including correspondent banking issues, rising compliance
costs and reputational damage. The author proposes six steps to reverse negative perceptions.
‘T
he Caribbean is a sunny place for shady people to
put their money.” This seems to have been a mantra and a justification for the prejudicial labeling of
the Caribbean as a “Tax Haven.” However, perception is relative
and it changes based on the angle from which you view the
world. So I ask: What is the reality of the Caribbean? Are we
tax havens as so labeled by large economies? Or is the label a
product of biased perceptions rather than the true reality?
Tax Justice Network, an independent international network
dedicated to the analysis of tax competition and tax evasion,
estimates that as much as $21 to $32 trillion dollars of the world’s
private wealth is untaxed or lightly taxed, due to the liberalisation of capital movements and fierce tax competitionii. In a list of
the 40 most intensive offshore sectors in the world, six of the top
15 spots were occupied by Caribbean countries: The Cayman
Islands, BVI, Bermuda, Curaçao, the Bahamas and Barbados.iii
“
But what exactly is a tax haven? Ironically, there is no consensus
on what the term “Tax Haven” actually means. According to the
OECD, as seen in Table 1, there are some key identifying factors
of “Tax Havens.iv
I
n a list of the 40 most
intensive offshore sectors
in the world, 6 of the top
15 spots were occupied by
Caribbean countries.
”
Regulatory developments such as the formation of the Organization of Economic Co-operation and Development (OECD)
Global Forum on Transparency and Exchange of Information
for Tax Purposes (GF), The Multistate Tax Commission in the
US, FATCA and OECD Common Reporting Standards (CRS)
among others, highlight the renewed vigour with which the
world’s leading economies seek to eradicate tax evasion. The
OECD Global Forum’s 2015 report highlights that more than
$703 million in taxes has been recovered due to exchanges of
information agreementsi.
Defining a Tax Haven: It is said that “tax avoidance is as old
as taxation itself” and it is largely agreed that “Tax Havens” seem
to be the modern manifestation of this practice. In fact, The
Table 1: Tax Haven Identifiers
1. No or nominal (not adjusted for inflation)
taxation is applied on the relevant income.
2. Lack of transparency in the operation of the
legislative, legal or administrative provisions
of a country.
3. Strict secrecy laws which offer businesses and
individuals’ protection against scrutiny by tax
authorities.
4. A jurisdiction with no legislative requirements
to ensure that incorporated entities generate
sufficient economic activity. This may suggest
that this jurisdiction is attracting investment
which is purely tax driven.
Given the above, do any of our Caribbean countries fit into one
or more of these categories? According to the US Narcotics Report 2016, a few countries, such as the Bahamas, the Cayman
Islands and the British Virgin Islands, have zero rate corporate
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