The tax havens must be in a position, as a sovereign nation, to resist the demands for enquiries or information that come their way from other nations

It is no longer enough for tax haven bankers to wear bespoke suits and then take your assets and park them in a secure location, away from the taxman’s and other people’s prying eyes, and expect you to be content. The assets have to work for you, and here again, placing them out on interest (compound or simple) simply does not cut the ice any more. They have to be not just invested in some business somewhere—preferably in your own country or a part of the world where you can exert some sort of back-room control over it—but they also have to be invested in such a way that the ownership is not traced back to you. Name the large global corporation, and at some level or the other, you will find that they are there in a tax haven—paying lesser tax than you and I do. I did not say this—Warren Buffet—the global investor, did.

This is where the more versatile and modern tax havens come into their own mould. Apart from functioning only as traditional banks would in the traditional tax havens like, say, Switzerland, they also have to provide a full range of additional services, which include registered officers, shareholders, legal title without footprints, and much more. In other words, the tax haven has to function with absolute secrecy and confidentiality to enable the investor to not just secure his assets, but also control downstream business activities, and at the same time ensure that the services are provided at competitive prices. Here again, the Swiss have traditionally been a higher priced jurisdiction.

And then of course, the tax havens must also be in a position, as a sovereign nation, to resist the demands for enquiries or information that come their way from other nations. So, for example, if India asks the Isle of Man for details of Indian origin assets held by them, then the Isle of Man (or any other tax jurisdiction) must be in a position to deny this information with righteous indignation and in flowery English to boot, with the full strength of whatever legal system they follow supporting them. Tax havens, in short, work as ultra secret jurisdictions which have no compulsions in doing anything for anybody, as long as they see a profit in it for themselves, and to do that they have lock-ins and tie-ups with the best of banks, consultants, accounting firms and corporates globally.

WHAT IS A TAX HAVEN?

There is no single definition, but at its simplest, a tax haven is a territory (could be a house on a street, a part of a city, a city, a state, a country) where certain taxes are either not levied at all, or are levied at a very low rate. In addition, they offer total secrecy, as well as ample processes to achieve this. Tax havens are available for individuals, groups or corporates. A building in Cayman Islands, Ugland House in Georgetown, whose sole tenant is the international law firm Maples & Calder, has about 20,000 distinct corporate entities registered at this one address. Likewise, there are similar buildings in Wilmington, Delaware, USA, where thousands of companies stand registered at one address. Are these tax havens? You decide. However, unlike in other cases where multiple companies have their registered office at one address, in these cases the actual details of who really is the beneficiary owner of said companies usually remains hidden behind a cloak of absolute secrecy. That service, of providing not just a banking arrangement in a tax free environment, but also full corporate adherences is what a tax haven is. This also includes the option of slipping out of one tax haven into another, on a regular or “on-demand” basis, to further hide footprints. Minimum ticket size used to be around $50 million till a few years ago, but days are bad it seems, and agents are now willing to be of service for even a few crores.

Are Indians, and Indian companies’ clients, customers in such tax havens? Put it this way—there is hardly a foreign bank in India, and more than a couple of private banks too, who will not provide such services to their really high-roller clients. Likewise, there appears to be no dearth of companies, especially 100% wholly-owned subsidiaries registered in India, whose parent companies are registered in one or more of these tax havens.

The list of foreign banks which have set up non-retail banking operations in India is not just indicative, but very illuminating, in this context. What is the answer to the question? Yes, of course, Indian clients have been rated amongst the biggest. This is why any attempt to control the tax haven business in India is met by squeals of protests from a variety of impacted interests.

Tax havens are a complex subject, and a short article like this cannot even start doing justice, so it is better to go through the acres of material available on the subject online on the internet and in some wonderful books on the subject. One such book is TREASURE ISLANDS by Nicholas Shaxson. The mainstream media does tend to be a bit wary about the subject. This is because ownership and control of mainstream media is often routed through such tax havens. In my case, the interest really started way back in 1982, when while working on a ship, we tried to figure out WHO the owner really was—and came to a dead-end at something called “A Delaware Corporation”. A further exposure to ship-broking, commodities trading and payment processing brought more facts into play. It is a fascinating subject, once designed to provide the grease to international commerce, but now totally in control.

Which is, frightening, especially for countries like India, which have, time and again, as history shows, fallen to invaders with stronger not just military but economic might—and no wonder our prime minister appears to be taking this issue on so strongly.

(This is the concluding part of a two-part series)

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