The summer is coming up and many of us have not decided yet where to go this year. But for some persons or let us say owners of corporations the Cayman Islands are the best destinations. Despite having population of just 56,700, the Cayman Islands is the registered home of 93,000 companies. The attraction for all these corporations- hundreds of banks and insurers and thousands of mutual funds – is that the islands government does not impose direct taxation on companies or individuals. Instead, heavy taxes are imposed on imported goods and companies operating there have to pay a licence fee, while foreign workers must buy permit. The mainstay of the economy is luxury tourism. Multinational corporations can use the Caymans , and order places like it, to avoid paying tax in order countries. They do this by registering intellectual property at their subsidiary based there, then charging their subsidiary in a country with a big market, such as the UK, a massive fee to use the drug patent, search engine algorithm or other clever invention. This means the UK company pays little tax as its profits are wiped out by the fee, but the subsidiary in the Caymans makes a fortune. It is nice, is not it? Tax havens offer not only low or zero taxes, but something broader. What they do is to provide facilities for people or entities to get around the rules, laws and regulations of other jurisdictions, using secrecy as their prime tool.
The offshore system is a blind spot in international economics and in our understanding of the world. The issues are multi-faceted, and tax havens are steeped in secrecy and complexity – which helps explain why so few people have woken up to the scandal of offshore, and why civil society has been almost silent on international taxation for so long.