Is the US a tax haven?

US tax evasion

4th September 2017

When you think of tax havens the mind probably wanders to a few Caribbean islands, or perhaps Middle Eastern nations which developed the unwanted reputation in the 80s. You almost certainly wouldn’t consider the US, one of the largest and most powerful economies on Earth. However, the Panama Papers leak revealed that growing numbers of people and organisations are storing their finances within the country. But why is this happening and is the US now a tax haven?

How is the US a tax haven?

One of the main factors behind the accusations that the USA is now a tax haven is that it, along with Vanuatu and Bahrain, has failed to commit to the Common Reporting Standard and instead has developed its own regulation – the Foreign Account Tax Compliance Act (FATCA) in its place. These accusations aren’t entirely new. Both the Washington Post and Bloomberg have launched major exposés on the US’ practices and the Tax Justice Network ranks the US third in terms of the secrecy and scale of its offshore industry, behind only Switzerland and Hong Kong but ahead of the Cayman Islands and Luxembourg.

South Dakota’s booming economy

The evidence is rather overwhelming.  South Dakota, where the population is approximately 858,000 (the 46th largest state) has seen assets held in trusts registered here rise from $32.8bn in 2006 to $226bn in 2014 which seems unusual to most outside of the market. In addition, Boston Consulting Group estimates that there is over $800bn of offshore wealth in the US, the majority of which stems from Latin America. And Bruce Zagaris, a lawyer at Berliner, Corcoran & Rowe, says the US offshore industry is much bigger than most suspect. “I think the US is already the world’s largest offshore centre. It has done a real good job disabling competition from Swiss banks.”

The US has a long history of bringing in revenue from foreign sources and many commentators suggest this approach has been pivotal in its economic success. The Florida Bankers Association told Congress in 2011 that, “for more than 90 years the US government has encouraged foreigners to put their money in US banks by exempting these deposits from taxes and reporting.” In fact, the system is almost designed to aid the creation of ‘shell’ trusts. A 2012 study found that the US had the laxest regulations for setting up a company of this type anywhere in the world outside of Kenya. The scale of the study has to be seen to be believed as investigators posed as extremely high-risk customers, including terrorists, and were still allowed to set up an organisation to hold wealth. It was also shown that states such as Nevada, Delaware and even New York were far more lax than ‘notorious’ tax havens like the Cayman Islands and the Bahamas.

Rejected regulation

All in all, this is a worrying state of affairs for the US. While Trump’s government cuts regulation to boost the economy, it’s clear that significant amounts could be brought in from complying with international regulations and joining the Common Reporting Standard. That would at least put the nation on a level playing field in the international market and would allow foreign individuals and organisations to report on the non-compliance of those registered in their jurisdictions. However, the cutting of red tape almost across the board, along with The President’s approach to most things, suggest that compliance isn’t exactly a priority for the American government at the moment and, if anything, it’s likely that regulations will fall even further in the coming years.

While almost every country on Earth is upping their defences to reclaim revenue lost to tax evasion and avoidance, the US is bucking the trend and is now widely recognised as a tax haven. However, apart from Switzerland and a few other contenders, the global trend is only going one way and that’s towards greater regulation and an increased need for compliance. That means for organisations doing business around the world, the need to be onside with international regulations is of paramount importance. No other governments are likely to follow Trump’s lead, in regards to tax or anything else, so don’t be fooled by the American market, it really is the odd one out.


Live chat with one of our expert staff

Like our LinkedIn page

Follow us on Twitter

Get in touch on Facebook

Contact Us