Canadian System of Tax Havens

International corporations have for long been in search of methods or to be more precise, tricks, to evade taxation of countless types, across their global market destinations and that's where the tax implementation teams found their use, curbing the practice of tax evasion, on both corporate and individual scale but, one such practice seems to be defying every possible effort of these taxation departments, especially that of the US, of putting an end to the "not so illegal" practice of tax avoidance. Tax haven -a term that still remains largely undefined, has in a way provided a major outlet to individuals and corporate setups in saving huge capital which otherwise would have been taken as tax to the state.

The countries that provide basic modifiable tax structure which is composite in it and relies on the administration's alteration, with time which has been used to favour huge as well as middle class businesses in terms of tax reductions as compared to their home state. This is what attracts these huge corporate establishments to setup industries in these states i.e. to enjoy tax benefits, which when was calculated led to a staggering range of $10 billion to $90 billion of revenue losses to the taxation departments. To add to these excerpts of tax avoidance, the individuals too have started using these tax havens in their favour by purchasing foreign investments or by simply not reporting their income which they are free to save in foreign banks that do not give out any details of the client. Another method involves shell corporations and trusts that are exempted under the US tax laws from taxing interest income and capital gains, including investments within the US.

Real Estate Taxation in multiple countries have yet not faced a threat as the taxation department faces due to tax havens, but given the nature of real estate tax being imposed in various countries, the probability of tax evasion in this sector cannot be ruled out. Most of the countries, especially the western part of the world favours a flexible structure of tax amount estimation, that takes into account the current land value of the holding, which as compared to other countries like India, Denmark etc has a better relevance in present day because the stringent and rigid set of rules being followed by the former countries while evaluating tax results in people resorting to non-investment methods, especially in real estate which is at present in a booming stage and if not regulated well, will outgrow the administration by finding loopholes in the system.

For the rapid revenue losses, inflicted by none other than their own corporate industries, President Obama had presented International Tax Proposals that included restricted access to foreign tax credits, control over check-the-box practice and many more. With multiple proposals on regulation of this 'undefined' practice, the Obama administration aims to raise $210 billion for fiscal year 2010-2019, another $129 billion for fiscal year 2012-2021 and yet another $148 billion for the fiscal year 2013-2022.

Taxes and Tax Haven

What Is Nonresident Tax

If you go to the definition of what is a nonresident tax, it is a return that comes to a state of which you are not a natural resident of. You might be working in an another state or country or you could make earnings in another state for which you need to file a nonresident tax return. If you fall into any of these categories, you might need to be clear about nonresident tax a bit more. You will then need to figure out the amount of income that you make in the nonresident state as well as the income that you make in the home state. Most of the federal returns even include the nonresident tax returns. Thus, it is necessary to complete one’s federal returns and then make a separate effort to file in nonresident tax returns. The legalities of filing nonresident tax returns may vary from country to country.

So how do you go about listing your income and deductions? In most states you need to first list out the total income as per the federal return in one column while in the other column one needs to write in the income that comes in as a nonresident. The total in both columns needs to be considered in order to calculate the percentage of the non-resident income as per the total income. Every state has its own laws by which one needs to allocate the taxable income or one’s tax liability accordingly.

What are Tax Havens

In such cases one often seeks out tax haven. These are countries like Anguilla, Nevis, British Virgin Islands, Singapore Hong Kong, Mauritius and other countries. Over the last two decades the number of tax havens has increased. These have evolved as most people search them out in order to protect their interests. The advancement of technology and communication has allowed these tax havens to come within reach of many people and they can avail of the benefits of storing their money and saving tax liabilities on them.

Their Characteristics

So what kind of services can you expect from a tax haven? They usually have the following characteristics:

• They are usually financial centers based offshore

• It can be a country or an organization that offers business services even to non nationals

• The business services consist of offshore trusts, registration of vessels, investment funds management, offshore foundations, offshore banking and others

• It is a legal as well a safe means of reducing one’s tax liabilities

When the economy is struggling and people are reeling under effects of low income and high tax liabilities, tax haven come to the rescue. People can resort to the offshore banking services of tax havens and get their money secured and away from unwanted tax liabilities. However, before one decides to approach such a country or organization, it is best to refer to the legal guidelines of their own country or state to understand the legalities involved.

Types of Tax Haven Arrangements and Offshore Tax Planning Misconceptions

The number of tax haven countries and territories that are available in the world is on the decline as more and more countries are signing international treaties that will allow them to share the financial information between them and this will bring transparency to the financial transactions that are done across the globe. In general, using such countries and territories was considered as an offshore planning exercise by many, but the fact is that it not regular tax planning but an aggressive one and will be considered to be a form of tax evasion.

Tax Haven Arrangements

There are different arrangements that are possible when it comes to the use of such havens and some of them are being reviewed by the Canadian Revenue Agency.

• Tax Shelters – This is a sort of a gifting arrangement or acquiring a property where the tax benefits that are available to you will be equal to or more than the cost that you have had to spend for it.

• Offshore Investment Entities – These are companies that are located in tax haven countries and are used to reroute the investments and it is done to delay the taxation that one will have to pay for the income that is earned from these investments. It is wrongly attributed to offshore tax planning and is in fact a type of aggressive planning.

• Welfare And Health Trusts – There are payments that are made to trusts in safe haven countries and are reported to the tax authorities as payments made for employee health plans for tax deductions.

• Spousal Trusts – To avoid capital gains that are made from the sale of shares of any Canadian business, taxpayers will resort to the emigration of trusts or use of trusts in safe haven countries.

• Arranged Loss Trading Schemes – Capital gains that are gained when dealing with agents or brokers who are in the haven countries are not reported, but if there are any capital losses, they report to the CRA. This is to help to save tax by showing losses incurred during the year.

Offshore Tax Planning Misconceptions

There is a basic thought among tax payers that using tax haven countries is a form of offshore tax planning and that they will be able to project them offshore investments if they are brought up by the tax authorities. The fact is that international tax planning is very complex in nature as it will involve a lot of procedures and approvals to be put in place in a legitimate way and it is definitely not in any way related to the countries that provide a haven for people who are looking to save tax in an illegal way. Offshore tax planning is considered to be a legitimate way to enhance your business and personal assets while ensuring safety of the assets.

Offshore Tax Planning Methods

There are many different options available to people who are looking at offshore investments to help them reduce the tax that they will have to pay in a country. But one as to ensure that only legitimate route are chosen as there are many illegitimate activities that can be done when we consider offshore tax planning. It is also known as international tax planning as you take your funds to an international location to operate a business or to invest in an existing business.

How Canada Is Losing Billions of Dollars to Tax Havens

What Are Tax Havens?

A Tax haven is a country that allows individuals from foreign countries or foreign businesses with very little or no tax liability in an environment that is economically and politically stable. Another important aspect of such countries is that they do not provide information about the financial transactions to foreign tax authorities. For a person to benefit from the tax havens tax policies he or she need not reside in the country and this is an advantage to people looking to save tax. No financial information shared and no requirement to stay in the country acting as the tax haven will make it possible for a citizen of another country to run a business in the tax haven without his home country tax officials knowing about it. Countries are aware of these countries and are trying to ensure that they do not lose tax that is due to them because of the tax havens. However, even after continued efforts of the G20, tax haven countries are still operating with ease.

Which Countries Are Considered As Tax Havens?

There were very few countries that were tax havens about two decades ago. But over the past decades there has been an evolution in tax haven countries and there are many countries sovereign and non sovereign those are considered as tax haven countries. Some of the countries are

• Bahamas

• Panama

• Luxembourg

• Cyprus

• San Marino

• Monaco

• Seychelles

• Liechtenstein

• British Virgin Islands

• Mauritius

• Isle of Mann

• Belize

• Singapore

• Hong Kong

• Anguilla

How Canada Is Losing Tax Revenue Due to Tax Havens

Tax havens that allow rich individuals, resource companies and Canadian banks from paying billion of dollars in taxes every year are on the rise and according to recent estimates, it has been found that the Canadian federal and provincial governments are denied as much as $80 billion in tax a year. The amount that is lost is huge and accounts to about half of the national budget for health care in Canada. Canadian residents who have used tax haven countries for their offshore business activities will not declare the income from such businesses and therefore will not pay tax. A Canadian citizen or resident has to pay taxes for his or her worldwide income and as such countries do not share financial information with Canada, they can get away without showing the income generated from tax haven countries.

Steps Taken to Counter Tax Havens

With the use of tax havens becoming a global problem, there are many initiatives that are being taken by other countries including Canada to counter these countries, but in vain till now. But Canada is leading the way and has started a few initiatives like to publish the estimated tax lost due to such countries and what impact it has on the federal and provincial treasury. Canada has planned to increase the resources that are available in the compliance division of the CRA to enable them to track tax cheats. Canada is also pushing for strong action to be taken against tax havens at the G20 and in the United Nations.