Forget about
the Bahamas, Panama, Cayman Islands, or Fiji. If you want to avoid paying taxes
and have no problem with dicey business practices, Europe has a lot to offer.
Europe is
far from innocent in the international offshore tax evasion industry, as the
Tax Justice Network (TJN) recently demonstrated. Many European countries, with
their stable infrastructure and professional personnel, provide fertile ground
for businesses or individuals to evade taxes.
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Markus Meinzer sees more than a
few loopholes that need to be closed |
There are
more than a few gaps that need to be filled in Europe, according to Markus
Meinzer of the TJN. He helped paint a picture of who's who among European tax
havens.
Andorra
The
independent mini-state of Andorra in the Pyrenees, which is not a part of the
European Union, offers a secretive place for those in neighboring countries to
stash their money. Particularly attractive is the personal service offered by
banking advisers there. It's also easy for Spaniards and French to simply drive
there to deposit cash. Afterwards, one can always tank up and buy cigarettes
there - tax-free, of course.
Austria
As a
country sharing borders with Germany, Hungary, Slovakia, Slovenia, Italy, the
Czech Republic and Switzerland, Austria draws foreign capital by promising
secrecy to account holders. It caters especially to Europe's German-speaking
population, Meinzer said. But he also said that he knows of Argentines who, for
example, combine investing in Austrian bonds with the advantages of bank
secrecy. Due precisely to the lack of financial transparency and its geographic
location, Austria has also attracted wealth from Arab world dictators for
decades.
Channel
Islands
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Guernsey is a safe haven for
dubious capital dealings |
The British
Channel Islands Jersey, Guernsey and Sark are home to hundreds of financial
institutions and insurance companies drawn to their simple and low taxes. While
Jersey probably "hides the most dirty business," according to
Meinzer, Guernsey is the most innovative.
With its
so-called self-protected companies, an apparent single company is organized
into cells with protective legal walls between them. And on Sark, according to
British newspaper The Guardian, there are 24 companies registered for each of
the approximately 600 inhabitants.
Cyprus
Cyprus is
the perfect example of what can go wrong with depending on such dubious
business models. It was particularly oriented toward former Soviet countries,
and acted as a hub for them. Transactions over letterbox companies brought
money into Cyprus, then back to countries like Russia - thus avoiding Russian
tax authorities. But since the Cyprus bailout , in part by the EU, the
Mediterranean island will have to come up with a new business model.
England
England,
with London, represents one of the largest hubs for tax evasion and capital
flight. Meinzer described London as "the mother of all tax havens" since
the zone, which does not answer to the crown, has developed a network that
continues to bring money back to the capital of the former empire. Money flows
from there to British Channel Islands, such as Guernsey, Jersey or to the Isle
of Man, then overseas to British territories in the Caribbean, such as the
Cayman or Virgin Islands - or in Europe, to Gibraltar. London, is the seat of
many dubious "letterbox companies," which only exist on the Internet.
Germany
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Frankfurt is a great place for foreign
investors to earn tax-free interest |
Germany
protects the data of foreign investors, who also don't have to pay taxes on
interest.
Only
Germans, or foreigners resident in Germany, have to actually shell out a flat
rate withholding tax on interest income, Meinzer said.
Information
on such yields also rarely flows out of Germany, he added: "Foreign
investors with German accounts are protected with a certain degree of
anonymity."
That's why
Germany ranks ninth in the world for financial secrecy, according to TJN.
Gibraltar
At the
southern tip of the Iberian Peninsula, Gibraltar has specialized in allowing
such letterbox companies, called "trusts." The structure of such
trusts means there is no real owner of the company. They are often used to add
a layer of secrecy to letterbox companies, Meinzer said, which is particularly
good for money laundering.
Meinzer
cited insider information in calling it "the dirty end of the
spectrum" for bringing money back into financial markets. The presence of
many gambling casinos there also comes into play.
Ireland
It's called
the "double Irish" in the financial world: A company founds two
subsidiaries in Ireland with its business tax rate of 12.5 percent. Then, one
claims to be based in a different tax haven. (Comparable taxes in the United
States, for example, are around 35 percent.)
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Ireland's idyllic landscape belies
its savvy financial sector |
While the
one company does business in Europe, it pays the other patent fees. Profits
vanish, as costs and income equal out on the balance sheet.
This is
completely legal in Ireland, and therefore an optimal location for companies
such as Google, Apple or Amazon.
Although
other countries like the Netherlands offer similar models, Meinzer said the
difference is that people do actually work in Ireland, which at least creates
some jobs and a bit of growth in the country.
Isle of Man
Taxes are
kind of an afterthought on this island between England, Scotland and Ireland.
Inheritances and capital gains aren't taxed at all, while the highest level of
taxation lies at 20 percent. Corporate tax is nonexistent. It's especially
loved as a hidey-hole for British millionaires.
Luxemburg
Luxembourg
is the second-largest financial hub in Europe, after London. Innumerable
investors and around 150 different banks enjoy a lenient tax framework in
Europe's stocks and bonds center. Luxembourg's status as an EU member makes it
particularly attractive for European companies and the international market,
Meinzer explained. "If I want to get around German laws, for example, I
could go through Luxembourg," Meinzer said, adding that 40 German banks do
business there.
Malta
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Malta's capital Valetta offers
a beautiful climate - for investors |
With its
low tax rates, Malta, like Cyprus, has long drawn foreign capital. Although
corporate taxes are around 35 percent, companies can get most of that refunded.
It's a
favorite among German companies, which earn a higher profit if based on Malta.
Meinzer said that while it's clearly a tax paradise for companies, it's not
clear if that's also the case for individuals.
Monaco
The
Principality of Monaco continues to be home to the rich and famous, being
surrounded by France. Millionaires happily set themselves up there due to the
fact that they pay no income or inheritance taxes. The city-state also does not
prosecute financial crimes committed abroad. Businesses, however, must pay
taxes there - at rates of around 33 percent. France, though it doesn't play an
active role, lends a protective hand, Meinzer said.
Netherlands
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The Netherlands is more than
just cheese |
What
Luxembourg is for private investors, the Netherlands is for large corporations.
Business taxes are incredibly low, with many tax advantages for interest and
licensing income.
With the
"Dutch sandwich," a parent company has a subsidiary in the
Netherlands, which it uses as a cheap tax base to develop its European
business.
Switzerland
Although
there are supposedly no more completely anonymous bank accounts in Switzerland
(and neighboring Liechtenstein), it continues to draw large sums of money due
to its strict banking secrecy. Considering the volume of money in Switzerland,
it made first place on the TJN's Financial Secrecy Index.
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