Tax Havens: The Crisis of Transparency

In the midst of the 2016 Panama Papers scandal, Pascal Saint-Amans, Director of the Centre of Tax Policy and Administration, pointed out that transparency was one of the three main pillars of the international tax agenda. Indeed, the opaque nature of corporate vehicles, habitually associated with tax havens, has been heralded as the major contributor to the increase in tax avoidance. Anonymous legal structures are often enabled using the so-called shell companies, or “legal fictions”. By adding extra layers of complexity to the ownership structure, these companies can serve the devious purpose of obscuring transactions trails, which is handy for taxpayers wishing to minimise their tax burden. Although often associated with tax havens in the public imagination, evidence suggests that anonymous legal entities are provided on a much larger scale in some of the OECD countries. The world’s leading governments have been recently promoting transparency as the new way forward to address tax avoidance and evasion by multinational companies, with the OECD holding the leading position among transnational tax regulators. While the initiatives aiming to look through corporate vehicles are abundant, the implementation and effects thereof seemed to escape the interest of policymakers. Clearly, there is a need to step back and try to understand the effects of the existing regulations. In this chapter, we provide an outline of the transnational regulatory initiatives targeting the opaqueness of corporate vehicles, and discuss the potential effectiveness of the current transnational initiatives aiming to increase transparency of beneficial ownership and enforce better regulations on tax havens. The most active and internationally recognised transnational tax regulator is the OECD; hence, in this chapter, we concentrate on the OECD initiatives in tax matters, in particular, on the Base Erosion and Profit Shifting (BEPS) project, and its role within the transparency of beneficial ownership agenda. In the discussion section, we conclude that categorisation of the countries into tax havens might not be helpful for the overall regulatory goals of the OECD, which, in turn, undermines the neutrality of the organisation as a transnational regulator, and that the apparent lack of belief in the international initiative from the OECD member countries is not helpful in furthering the OECD objectives.