What Are Tax Havens And How Do They Work?

What Are Tax Havens And How Do They Work?


This is the ancient Roman city of Kaunos. To attract more merchants to the city they
devised a clever tactic. Something you wouldn’t expect in the ancient
world. Tax incentives. Cargo brought through Kanous paid no import
taxes and thus the city prospered…..for a while. Kanous was not the first place to offer low
tax rates to attract foreign wealth and it definitely wasn’t the last. Today, roughly $8.7 trillion is held in off-shore
accounts in tax havens across the globe.But what are tax havens? How do they work and how do they mess with
the global economy and regular people’s wallets? Well, Let’s Find Out. Since the leak and subsequent complete disregard
of the Panama Papers the concept of Tax Havens have been thrust into the limelight. So what exactly is a tax haven? A tax haven is a place that offers little
or no taxation to people and businesses so they can avoid taxes in their home country. They are also highly secretive so that foreign
tax authorities can’t find out who has wealth stored there. Today there are about 55 tax havens across
the globe. According to Gabriel Zucman in 2018 the top
tax havens were: Ireland Caribbean islands such as the Cayman Islands
& British Virgin Islands Singapore Switzerland Netherlands Luxembourg Puerto Rico Hong Kong Bermuda How do they work and how do companies avoid
billions in taxes with them? Well let’s use a hypothetical to explain
one way they do it. Let’s say a fictional CEO called Jimmy wants
to avoid paying billions in taxes on the profits of his company, FoodnStuff. First he would create an anonymous shell company. Which is a company that exists only on paper,
in somewhere like the Cayman Islands or Bermuda. Taxes in these places are 0% or near that
and the identity of the companies owner is secret. Then he opens an account in Switzerland, under
the name of that shell company. FoodnStuff then pays that shell company for
fictional services, like patents or consulting. Payment is sent to the account in Switzerland. The taxable profits on FoodnStuff in the US
plummet because of all the expensive consulting. While the company in the Caymans technically
makes millions and pays no taxes. But the money is in the Swiss account and
can now earn Jimmy more money. Through investing or earning interest. When FoodnStuff needs money it can take out
a “loan” from the Cayman company. So money Jimmy made in New York or Tokyo is
subject to taxes in the Caymans and stored in accounts in Switzerland. Google uses are more advanced version of this
strategy. In 2015, $15.5 billion in profits made their
way to Google Ireland Holdings……. in Bermuda where the tax rate is 0. Other companies taking advantage of tax havens
are: Apple – Who have $246 billion offshore. They use Ireland as a tax haven. They would owe the U.S. government $76.7 billion
in taxes. Which is enough to end world hunger for a
year. While leaving you enough change to buy over
100,000 average US homes. Nike – It holds $12.2 billion offshore. It uses Bermuda as a tax haven. It should have but did not pay $4.1 billion. The 50 biggest U.S. companies which earn over
4 trillion a year hoard approximately $1.6 trillion offshore. These include Microsoft, IBM, General Electric,
Exxon Mobil, Chevron, and Walmart. One trillion dollars divided by 300 million
Americans comes out to $3,333 each. And this avoidance affects everyone. According to the US Federal Reserve in 2014
global household financial wealth was $95.5 trillion. In his book the Hidden Wealth Of Nations,
Gabriel Zucman estimates that 7.6 trillion of that 2014 wealth was held offshore. That was 8% of the world’s wealth. In 2017 it had risen to 8.7 trillion. With that 8.7 trillion you could pay off the
entire National debt of Italy, France, and Germany. But not the UK…sorry UK you almost got it
though. Greece’s famous debt is about 370 billion,
that’s less than 5% of that number. And Zuchman’s estimate does’t take into
account nonfinancial wealth. There are countless yachts registered in the
Cayman Islands, priceless art and gold hidden in Singapore and Luxembourg. Real Estate in London and New York is gobbled
up by shell companies in the British Virgin Islands. This could easily drive that 8% figure up
to 12% or more The rapid rise of wealth stored offshore slashes
government tax revenue. Zucman estimates that governments around the
world lose 170 billion annually. Enough to give every single person in China
130 dollars. $170 billion is about 1% of the total revenues
raised by governments worldwide according to Zucman. Now 1% isn’t really a shocking figure. It’s literally next to nothing. But that’s the global average. Some places are hit much harder than others. Europe pays the highest price with 2.5 trillion
or 11% of it’s total wealth held offshore, and a tax loss of 60$ billion. More than the GDP of all these European states. But developing countries lose the most relatively. Their wealth held abroad ranges from 27% in
Latin America to 44% in Africa, and up to 54% in Russia. This tax avoidance is stealing from developing
nations that desperately need those taxes. A result of this is that infrastructure, education,
healthcare, sanitation, and public works that those countries should actually be able to
afford aren’t built. This evasion only benefits the wealthiest. Look at this graph, for example in Norway,
Sweden, and Denmark about 3 percent of all personal taxes are avoided. But among those with more than $40 million
in assets, the top 0.01 percent, about 30 percent of taxes are. And Scandinavians reportedly are less likely
to avoid taxes than other places. In the United States, offshore evasion costs
about $32 billion annually. 1.8 times the annual budget of NASA. Tackling tax evasion would reduce the burden
on the vast majority of taxpayers not rich enough to hide their money. Countries like Greece wouldn’t have to impose
as much austerity if the ultra rich there paid the taxes they owe. Tax evasion by the ultra-rich and large corporations
is preventable. But it requires a global effort. Gabriel Zucman suggests penalising tax havens
and creating a global financial register. The register would record all the financial
investments circulating around the world. So that tax authorities could check with banks
and correctly tax their citizens and businesses. The OECD developed the Common Reporting Standard
in 2014. It’s an automatic exchange of information
between bank accounts and tax authorities globally that requires banks to report accurate
information on foreign accounts. Its purpose is to combat tax evasion. So far 97 countries have signed up, with more
countries intending to sign later. While not perfect and receiving criticism
for ignoring developing nations and for it’s many loopholes, it is a step in the right
direction. Along with this, In December 2017, the European
Union published its first ever blacklist of tax havens. Blacklisted countries face sanctions from
the EU. Current blacklisted countries are American
Samoa, Guam, Samoa, Trinidad and Tobago and US Virgin Islands. You may notice that most of that list isn’t
made up of the major Tax Havens we’ve discussed in this video, which is a shame. In reality the EU will need to tackle its
own tax havens first. Guam isn’t really a concern when the Netherlands,
Malta, Ireland, and Luxembourg are much larger havens located within Europe. With pressure being mounted on havens. With a global financial register and with
countries openly sharing information with each other a new way of fairly taxing the
ultra rich and multinational corporations can be achieved and the bleeding of taxable
wealth can be stopped. And it can be easily done because in the end
tax havens only benefit a select few. The majority of people in Ireland or Luxembourg
have nothing to gain in aiding bankers and billionaires avoid their tax obligations. The economy of Switzerland would still be
extremely powerful even if all all the offshore profits disappeared. Tax evasion earns Switzerland much less than
it hurts the world. If those with less are willing to pay the
taxes they owe then surely those with the most should at least do the bare minimum and
cooperate with the society that made them rich.

55 Comments

  1. - Cogito - says:

    I don't know why rich people always buy yachts when Jet Skis are clearly the superior watercraft. Hypothetically if you had a billion dollars all of a sudden what would you do with it?

  2. killr1234567 says:

    That’s alot of money

  3. The Piranha Plant in Smash. says:

    But I don’t understand why does being a tax haven is beneficial for the countries that are

  4. gabriel franca says:

    Tax is theft

  5. gabriel franca says:

    You really believe This money would have been useful If It were given to the American goverment?

  6. Papa Francesco says:

    1:50 A glitch in the matrix

  7. Octavio P. says:

    taxation is theft. so evading taxes is not stealing money

  8. The Homosexual Agenda says:

    Why should taxes be paid?

  9. gaiusgrdn says:

    Look at that graph

  10. Malay Archer says:

    1:48 That is one depressed jimmy

  11. Professor Slothingtons says:

    I wish people could understand that 1. Tax is not theft, without paying taxes we wouldn't have roads, parks, public hospitals, public schools, etc. that people desperately need, and 2. Tax evasion is only done by the rich and it only benefits them, it screws everyone else. I'm surprised by some people commenting here that tax is theft or agreeing with tax evasion, such an ignorant opinion. Unless they're evading taxes and they agree with it only becuase it benefits them?
    Anyways, great video as always!!!!

  12. Professor Slothingtons says:

    Jimmy was definetely a Fyre festival attendee

  13. Der Kanal says:

    Thank you so much for this well researched video. This is such an important issue. It's hard for people to imagine how much money the state and therefore the people loose trough tax evasion.
    Tax evaders need to be called out!

  14. Medium D Speaks says:

    What the heck happened to Jimmy when he pulled up to his desk?

  15. Gunnar Herzog says:

    Eat the rich?

    In all seriousness though, your last appeal about how the rich should cooperate with the society that made them rich and pay their dues really reminds me of Disney. They were quite happy to take all the old public domain folklore tails and squeeze profit out of them, but as soon as their own creations were on the verge of becoming part of the public domain and thus enabling the wider society to make use of them (as Disney had done with the aforementioned folklore), they threw a hissy fit and pressured law makers into changing the law. Now try to host Micky Mouse in your next video without any fair use provisions and see how long your video would remain up.
    This is basically the same underlying selfish behaviour with the high-income tax avoidance, where the individuals are happy taking in all the benefits, but are utterly horrified at the notion helping to keep the infrastructure running they relied on to get rich for other to use.

  16. n. o. says:

    5:58 neo-colonialism intenstifies

  17. n. o. says:

    The problem with this is that the rich control societies across the world, they wouldn't clamp down on themselves

  18. Marc Loui Rivero says:

    It was really depressing that the respective countries didn't conduct full fledged investigations on the panama and paradise papers on the concerned organizations and people, makes you suspect they have an incentive not to prosecute tax avoiders using havens.

  19. andy coutant says:

    awwwww sheeeeit new cogito. click.

  20. SteakOnSpear says:

    COMMUNISM!!!!!

  21. Tom Sistermans says:

    So I live in a tax haven and I hate it, I've been voting on a party that wants fair taxes for years but nope…

  22. Miguel says:

    So people keeping more of their own money instead of the government taking it to waste it on welfare is somehow bad for me. Right.

  23. Billy b says:

    Man. Britain could be thinking about this.

  24. Billy b says:

    What are we spending all this money on that we cant just lower taxes so companies keep their money in the country.

  25. Sean L says:

    Tree tousand tree hundred and tirty tree.

  26. speedy01247 says:

    Wait we could end WORLD HUNGER for only 51 billion dollars? WHAT THE FUCK, like seriously if everyone paid 10 dollars world hunger could be solved. (everyone on earth, 7 billion times ten is 70 billion)

  27. Kuya Leinad says:

    So I’ve been pondering about this idea so might as well put it out there since it’s relevant to this.

    What if we just lower the Rich’s base taxes by 3-5% but add a ‘contribution tax?’. So basically this contribution tax is a tax only for the wealthy. They can put in whatever much they want but they decide which sector of the national budget to put it on. So it’s basically more of an investment to a sector of a budget…

    So for example, perhaps company X would pay their contribution tax more on Infrastructure since the Infrastructure built would benefit their country more?

    Then at the end, there could be a top 10 contributors to each sector of the national budget and the wealthy gets recognised by the general public of their contribution to the nation. This not only benefits the company who gets massive publicity but it also benefits the nation which now gains more taxes albeit less control of the national budget allocations.

  28. Korakys says:

    The only way to change this is to change who the shareholders are. The vast majority of shares should be owned by the workers of those companies. That would pretty much prevent billionaires from happening.

  29. Eetu Palo says:

    Companies and millionaires exist by the grace of the people. No one can make money in a vaccuum. It's only logical that they give back to the society that made them successful in the first place.

  30. Arshnas Mohammed says:

    Dude, nice quality vid. U deserve more subs n views. I think ur videos need to be more click baity coz that's what gets the views Rollin initially. Have u tried to share or try to tell about ur vids in other places with similar content?
    Also try to talk about some trending topic.
    Just sharing my two cents from what i have seen over the years on youtube, u deserve the views n subs for this type of quality.
    Good luck my man.

  31. myles adams says:

    I love you cogito. Another great video my guy.

  32. J L says:

    Please explain how AEoI transparency and mandatory information exchange laws from OECD won't put end to this?

  33. dragonrykr says:

    Seizure Jimmy 1:50

  34. Moses Brown says:

    This video is great. Will show to everyone.

  35. Cookies4Wookiees says:

    This is where we apply cryptographic tracking of financial assets. 🙂 Tax havens die.

  36. -Rocketkids4- says:

    cogito I just wan to let you know four things 
    I love pugs
    you seem to love pugs
    your videos are epic

    You can do the math.

  37. zazante says:

    TAXATION IS THEFT!!!!

  38. Barry Sorento says:

    End the federal income tax all together!

  39. Pyro-Nexus says:

    I'm so dumb, I had to pause and rewatch bits of this video multiple times to just understand the schemes

  40. Pyro-Nexus says:

    If I was a billionaire, I'd pay off Greece's debt and become the hero of Greece, so that my statue would be erected beside the legendary greek people of history, like Leonidas or Alexander. The parents would tell their kids stories about my great financial adventures and with time I'd penetrate into the greek mythology and culture. Maybe they'd even call a city by my name. That would be one worthy investment.

  41. Epic Stimulus says:

    Rich people?
    John the Cappadocian joins the chat

  42. Bernard Yap says:

    I totally agree with taxes, but my country’s corruption is so obvious that it’s better to avoid taxes and keep it in our pockets to build the society yourself.

    In fact, private schools and hospitals is thriving here while government ones are going backwards.

    Although I also don’t ignore the fact that this will just increase the wealth gaps of society

  43. Lejinad69 says:

    Why should an international company pay america taxes?

  44. janvusnic says:

    Most underrated channel on youtube

  45. Ade says:

    5.50 Russia isn’t coloured as part of Europe 🤔. Why ?

  46. Siam says:

    5:42 Australia is upside down

  47. Amanda Peper says:

    The real question is : who steal who ? Government steal the work of people.

  48. Michael Thompson says:

    Typical… The US spends about a trillion dollars a year trying to kill people all over the world and corporations are vilified for not helping enough to pay for that shit. As if $70+ billion in Apple taxes would ACTUALLY be spent on something helpful, like feeding starving people, if they did pay it! >.<
    If you’re looking for things that you personally can do to scale back the influence/wealth of the powerful (In the US, Russia, China or anywhere else.), AND at the same time increase your own, start with these 7 things:
    1) Save at LEAST 10% of all you earn. If you are not saving at least that amount you are no better then a slave living for what your master gives you to eat. (Get yourself a free PDF copy of “The Richest Man in Babylon”: http://horizonspeakers.com/wp-content/uploads/ebooks/the-richest-man-in-babylon.pdf Easiest book you’ll ever read on personal finance and is taught in parable so enjoyable to read as well.)
    2) Keep your money in physical form. Either in Gold, Silver or, more pragmatically, physical currency (Remember in the most resent financial panics in the US (2008), Cyprus (2012), Greece (2015), etc. people were trying to get physical cash, not Gold or Silver.). If you must use the banking system only use Credit Unions or Savings and Loans. Keep only as much currency in it as you need for expenses over the course of a couple of weeks or a month tops (Business owners will need more because of tax and logistical reasons.).
    3) If you’re a wage slave paying down a lot of debt talk to an attorney about bankruptcy. You are doing your patriotic duty by not repaying banks. Fractional reserve banking is fraud so don’t lose a single nights sleep if you don’t repay another cent of it! (https://www.youtube.com/watch?v=iFDe5kUUyT0&list=PLE88E9ICdipidHkTehs1VbFzgwrq1jkUJ&index=4)
    4) Speaking of being a wage slave, if you’re getting a refund at the end of the year then you need to change your withholding status so you OWE at the end of the year. Why give the government a free loan for a year while you are paying 100+% from a payday lender?!?! Society trains you to be a slave, that doesn’t mean you actually have to be one!
    5) When possible use physical cash when you purchase things. This helps by a) making it hard for the powerful to profile you and add you to their metadata. b) allows those so inclined to reduce the power of government by being “tax neutral”. c) supports the poor by making merchants obligated to accept cash through your free market choice to use currency, as opposed to governments tyrannically passing laws forcing merchants to accept it (https://www.businessinsider.com/amazon-starbucks-cashless-plans-could-hurt-poor-unbanked-2018-1).
    6) Try keeping your patronage away from large entities, i.e. don't use Google use DuckDuckGo.com or some other small search engine that does not have massive power and also tries not to keep personal search information. As I always say, " Whenever you centralize power it always helps the powerful." And yes I realize the irony of saying this on a Google owned platform. 🙂
    7) Vote 3rd party, preferably one that pays lip service to freedom and liberty. Your vote doesn't really count anyway so you might as well make the powerful pay more for the privilege of owning you by adding the number of parties that they have to bribe (Remember action 6 above.)!
    8) Copy and paste this list to any future posts that you make on Youtube, or anywhere else for that matter. The only thing better then you doing these things is getting OTHERS to do them as well.
    You can search the internet for other actions that you can take and if you have any good ones feel free to let me know. The first two are hands down the best an individual can do (Least effort and most effective.).

  49. Reloader Hunt says:

    tax is theft

  50. MarleeSky says:

    #yang2020 #yanggang

  51. Chris Natterer - Offshore Secrets says:

    Taxes are theft, that's where the mess starts. Lowering your taxes is self-protection.

  52. jason keon says:

    Thanks of saying Trinidad and Tobago correctly don't know we are a tax haven.

  53. Legends Of Sam says:

    If only the governments would put all that money into good use

  54. Surian Tovar-Sheridan says:

    6:16 why is my country ( australia) upsidown

  55. CJ Thibeau says:

    Super simple yet informative issue on a huge topic! Def gunna show to my students!!

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