Quora Answer: How are the Wealthy Affected as More Tax Havens are Forced to Comply with International Regulations?

The following is my answer to a Quora question: “How well do the super-rich avoid taxes as more tax havens are being forced to comply with developed nations?”

Tax avoidance is part of financial planning.  Tax evasion is a crime.  They are two sides of the same coin, with a fine line in between.  Tax avoidance does not need a tax haven.  There will always be jurisdictions with lower taxation, and there will always be areas in any tax code that can be exploited to lower tax exposure.  The idea that “tax havens” can be forced to comply with developed nations is not reality.  Countries or even jurisdictions on the same nation with lower taxes will always exist and be labelled tax havens. 

The current discussion is about a global minimum corporate tax rate.  That is just one type of tax.  As it is, it would be difficult to envision the European Union accepting it as it is, because countries such as Ireland and Estonia are not in favour of the proposed tax rates, which would undermine their competitiveness.  The EU needs a unanimous vote to implement it, and it not going to come anytime soon.  Countries such as Singapore and Qatar are also not in favour. 

The problem here is that the high corporate tax rate is needed by countries such as France, Norway and Germany to fund their welfare programmes, among other things.  They cannot depend on the income tax due to a shrinking and ageing population.  The US wants to increase the tax rate to fund their infrastructure bill.  It is a means to cover structural inefficiencies in their economies.  This is not about the redistribution of wealth and closing the wage gap.  In effect, they are punishing growing economies to erase their competitive advantage. 

This does not impede the flow of wealth to financial centres such as Singapore.  For example, Singapore does not tax capital gains.  This encourages companies to be based here, and invest in the economy.  The idea is to tax consumption, not profit.  Singapore also does not have an estate tax.  Personal taxes are relatively low.  More importantly, the country is noted for strong governance, ease of movement, strong rule of law, and political stability.  Taxes are just a small part of the equation. 

If we are talking about pure tax avoidance, there are many ways to game the system, from the use of blind trusts, to creative accounting that expenses out gains through personal consumption, to converting income into other forms of assets that are not liable to tax, or taxed lower.  Tax havens are not required for this.