Tax Havens: How Globalization Really Works

281 Pages·2009·1.336 MB·English

by  Ronen Palan, Richard Murphy, Christian Chavagneux

Tax Havens
A volume in the series
Cornell Studies in Money
edited by Eric Helleiner and Jonathan Kirshner
A list of titles in this series is available at www .cornellpress .cornell .edu .
Tax Havens
How Globalization Really Works
Ronen Palan, Richard Murphy,
and Christian Chavagneux
Cornell University Press
Ithaca and London
Copyright © 2010 by Cornell University
All rights reserved. Except for brief quotations in a review, this book, or parts
thereof, must not be reproduced in any form without permission in writing from
the publisher. For information, address Cornell University Press, Sage House,
512 East State Street, Ithaca, New York 14850.
First published 2010 by Cornell University Press
Printed in the United States of America
First printing, Cornell Paperbacks, 2010
Library of Congress Cataloging-in-Publication Data
Palan, Ronen, 1957–
Tax havens : how globalization really works / Ronen Palan, Richard Murphy,
and Christian Chavagneux.
p. cm.—(Cornell studies in money)
Includes bibliographical references and index.
ISBN 978-0-8014-4735-8 (cloth : alk. paper) ISBN 978-0-8014-7612-9 (pbk. : alk.
paper)
1. Tax havens. 2. Tax evasion. 3. International fi nance.
4. Globalization. I. Murphy, Richard, 1958– II. Chavagneux, Christian.
III. Title. IV. Series: Cornell studies in money.
HJ2336.P35 2010
336.2'06—dc22 2009026884
Cornell University Press strives to use environmentally responsible suppliers
and materials to the fullest extent possible in the publishing of its books. Such
materials include vegetable- based, low- VOC inks and acid- free papers that are
recycled, totally chlorine- free, or partly composed of nonwood fi bers. For further
information, visit our website at www .cornellpress .cornell .edu .
Cloth printing 10 9 8 7 6 5 4 3 2 1
Paperback printing 10 9 8 7 6 5 4 3 2 1
Contents
List of Tables and Figures vii
Ac know ledg ments ix
Introduction 1
PART I. TAX HAVENS AND THEIR USES
1. What Is a Tax Haven? 17
2. Tax Havens: Vital Statistics 46
3. The Instruments of Tax Havens 77
PART II. THE EVOLUTION OF TAX HAVENS
4. Origins of the Tax Havens 107
5. The British Empire Strikes Back 124
PART III. TAX HAVENS IN WORLD POLITICS
6. Tax Havens and the Developed World 153
7. Issues in Development 172
PART IV. THE BATTLE FOR HEARTS AND MINDS
8. Signs of Discontent 191
9. Institutional Attacks on Tax Havens 203
10. Tax Havens in the Twenty- First Century 226
Conclusion 236
Glossary 249
References 253
Index 267

Tables and Figures
Tables
1.1 Financial centers ranked by bank’s external assets,
all sectors 26
1.2 International positions by nationality of own ership of
reporting banks 28
1.3 Select foreign affi liates in the Irish fi nancial ser vice center,
assets and number of employees 37
1.4 Tax havens of the world 41
2.1 U.S. multinationals investment in tax havens, top
twelve destinations 53
2.2 Top ten FDI sources in China 54
2.3 Number of offshore entities in tax havens 58
2.4 Estimates of hedge fund assets by domicile, end of 2006 61
2.5 High net worth individuals (HNWI) total wealth 62
2.6 Estimates of individual’s nonresident assets that could be
avoiding tax on those assets in their home jurisdictions 63
2.7 Effective taxation of U.S. subsidiaries, 2004 67
2.8 Money laundering, jurisdictions of primary concern 72
viii Tables and Figures
3.1 Captive growth, 1989– 2007 96
3.2 Leading captive domiciles, 2007 97
7.1 Cross- border fl ows of global dirty money 173
9.1 Level of monitoring and investigation of suspicious
fi nancial activity 207
Figures
2.1 Banking assets and liabilities location in OFCs, 1977– 2007 51
2.2 Share of international loans directed to and originating
from tax havens and OFCs as percentage of world total 52
2.3 FDI in tax havens as share of world’s FDI, 1980– 2008 56
5.1 The booming Euromarket, 1963– 1980 133
5.2 Growth of banking deposits in Jersey since fi nancial
market liberalization 133
Ac know ledg ments
They say in fi nancial circles that “those who know do not talk and those
who talk don’t know.” In tax matters, those who know talk, sometimes, but
those who do not know talk a lot. The world of tax havens is opaque, con-
fusing, and secretive. It is a world that is saturated with stories, rumors,
and anecdotes. Yet the veritable fl ood of information can sometimes hide a
dearth of solid data. The subject of tax havens has attracted the attention of
a talented and dedicated group of academics, journalists, and activists
from all around the world. These people have become our friends and col-
leagues, sometimes actual friends, sometimes virtual friends, but friends
nonetheless. This book gives the reader an up-t o-d ate assessment of the
current state of knowledge about tax havens that this group has managed
to accumulate. Our thanks go to all these friends.
They include fi rst our colleagues on the Tax Justice Network. The con-
tribution of John Christensen, its director, must be especially noted, but it
is also important to note the contributions of Prem Sikka, Nicholas Shax-
son, Sol Picciotto, Mark Hampton, and many others who have worked to
create that or ga ni za tion over the last few years. The parallel work of Ray-
mond Baker and his colleagues at the Global Financial Integrity Project in
Washington, D.C., must also be noted.
We have relied on the work and conversation of a growing circle of aca-
demics from all over the world and from different disciplines. Jason Shar-
man, Greg Rawling, and Anthony Van Fossen from Australia; Jean-
Christophe Graz and Sébastien Guex from Switzerland; Thomas Rixen
and Philip Genschel from Germany; Jim Hines, Joel Slemrod, Simon Pak,
Robert Kudrle, Lorraine Eden, and Bill Maurer from the United States and