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Tax havens: good or bad for business?

25 June, 2012

Mention the words "tax haven" and immediately people think of yachts, cocktails, tropical islands, millionaires and tax avoidance. But is this a true picture?

While tax havens are perceived as and known for allowing individuals and companies to avoid paying income tax, research at RMIT University has shown they do provide valuable financial services.
Dr John McLaren studied the future survival of tax havens and offshore financial centres in the new international legal environment that is trying to curb such activities, as part of his PhD in the Graduate School of Business and Law.
He examined the role of the OECD, the G20 and the Australian Government in requiring tax havens to become more transparent and to eliminate their bank secrecy laws.
"I concluded that tax havens will continue to provide reduced banking and financial services due to the new international law," he said.
"However, they still perform an important role by providing expertise in investment, insurance and protecting assets of the wealthy, particularly in countries where individuals are persecuted for their religious beliefs or homosexuality.
"The Australian government invests its 'Future Fund' through a tax haven, the Cayman Islands, simply because of the expertise and the tax benefits."
Dr McLaren has been involved in teaching and learning about taxation law from his early years in legal practice and later working for ANZ bank in its tax effective financing area.
He said this area of international taxation law would keep evolving, especially given the financial problems being experienced in Europe and the US.
"Tax havens will be blamed for some of the world's current economic problems, for example in Europe where countries in financial crisis will try to blame tax havens for reducing their government revenue," Dr McLaren said.
"In reality, the governments of western economies are responsible for the economic problems being experienced today.
"Tax havens still perform a valuable role and their survival is important to the world economy. Hopefully, my research will allow a more balanced view to be taken of tax havens by tax administrators in Australia and elsewhere," he said.

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