This sounds like a daft question, but I would be interested to know if there is any reason for having subsidiaries in tax havens, other than avoiding tax.

For instance, if you own breweries in various countries, why have a holding company (whatever that is) in a tax haven? what tax do you avoid?

@1 Luis Enrique

Yes, there are.

The most common is when two countries don’t have dual-taxation treaties with each other so an SPV (abasically a holding company) is set up in a tax haven to ease the process. Tax is still paid, but it doesn’t get paid twice.

A lot of the time tax haven susidiaries are used as a shell business to bring balance sheets in various countries together in one place as well in a cost efficicent manner before being transported back into one country where the bottom line is taxed. Again nothing illegal, but useful for large multinationals who make profits in one country and have costs/losses in another to aggregate in one place where they are not taxed then bring the profits home (where they are taxed – they can’t do anything with the money in the SPV so it has to be brought back).

It basically makes transfer pricing much easier.

Most Islamic finance is done through tax havens as well thanks to the subtleties of a product which effectively pays interest but doesn’t under Islamic Sharia Law.

@2 – That’s not *necessary* for Islamic finance, though. It’s usually done when local laws make non-interest bearing products impossible…I’d point out that in the UK they HAVE been possible for some time, without any major issues beyond far-right whining.

The UK is guilty of hosting tax havens… countries should slap a hefty additional charge on when companies use them, frankly.

luis

because of different tax rates around the world, a lot of companies use “havens” to optimise the mix of profits that get repatriated back to the home country to distribute as dividends. At one time, belgium was such a “haven” country.