Exploitation of loopholes in tax code of tax havens by the business firms

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Good marketing strategy will improve your growth rate. What do you need to do to earn more profit from the same resources? One strategy is fit into your criteria. Tax havens, the location which gives a warm welcome to the business firms who are ready to invest in their country. However, on the other side it includes some disadvantages for the entire human community. The flexible tax legislation make many greedy business firms to hold the black money in tax haven banks which in turn affects the honest firms and common people who are paying tax regularly. International organizations are signing agreement with these tax havens seeking transparency and information sharing. We will know how far this approach work as time flows.

The burden of taxes

          A noble firm wanted to expand their business all over the world, they usually chose a location which favors their aspiration. When an offshore corporation is entering inside a new jurisdiction there are many obstacles to establishing that company. They have to pay a number of taxes to the jurisdiction where company is incorporated such as corporate tax, sales tax, exercise and customs etc. In some countries, these taxes consumes more than 65% of the profit. These unfavorable conditions force the firms to prefer tax haven countries. The tax haven countries also wanted to import multinational business to their country for their economic development and they are loosening the stringent laws and also cutting down the taxes to make them as a favorable destination if any wanted to incorporate. Some of the favorite tax havens are Luxemburg, The Cayman Island, Singapore, Ireland, Bermuda, Switzerland and many more countries.

How these countries are differ from other countries

          When a company wants to start their subsidiaries in a foreign country, there are two types of offshore incorporation. They can merge their firm with another firm which is already functioning there and the second one is starting a new separate firm. When setting up these companies, these tax haven countries will collect only a meager charge for establishment and with a minimum proof. When you trade in domestic territory you have to pay the minimum amount of tax and some royalties to the domestic authority. But by establishing trade Centre alone in this territory and trading out of the territory’s jurisdiction will not need to pay the corporate tax, sales tax etc. So many multinationals establish a center in these country and trade out of the boundaries which save billions of money every year. For example, Apple’s headquarters are in California but it opened a subsidiary in Reno, Nevada. Because corporate tax in California is 8.84% and in Nevada it is zero. Also, apple opened their subsidiary in low tax regions like Ireland, Luxemburg, British Virginia islands etc. in order to minimize the tax. In 2012, Apple has got $45.6 billion through this tax savings. With this tax benefits additionally, they are protected from the legal issues. The person want to register his company in any of these tax haven states can register in a nominee name and he can undertake the financial activities in the same name. So his identity is secured. Even though these tax haven countries are beneficial for an economy, some tax evaders’ misuse these advantages for doing illicit activities. It should be controlled for the welfare of human community.

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