On Tax Havens – Cyprus Confidential: Shining a light on tax evasion

Source: The post on Tax Havens has been created on the article “Cyprus Confidential” published in “Indian Express” on 20th November 2023.

UPSC Syllabus Topic: GS Paper 3 Internal Security – Money Laundering and its prevention.

News: The article discusses the benefits being provided by Cyprus, in terms of taxes and secrecy. This has made the EU member country a haven for evasion and money laundering for the rich, including Russia’s autocratic regime and other dictators and anti-democratic actors.

A detailed article on Money Laundering can be read here.

What is a tax haven?

It refers to a jurisdiction with extremely low tax rates.

What is tax evasion?

Tax evasion is a criminal activity by individuals, corporate, trusts and other entities to evade taxes by illegal means. It is the deliberate misrepresentation or concealment of the true state of their financial affairs to the tax authorities to reduce their tax liability.

According to the State of Tax Justice Report 2023, countries across the world will lose $ 4.8 trillion to tax havens over the next 10 years.

What is money laundering?

According to the UN Office on Drugs and Crime (UNODC), money laundering is the processing of money obtained from criminal activities to disguise their illegal origin. These criminal activities include financial fraud, drug trafficking and terrorist activities.

It involves these 3 stages:

Source: ALESSA.

What are the benefits being provided by Cyprus?

1. Preferential and loosely controlled tax rates.
2. Tax exemptions on income and gains on offshore trusts.
3. Zero estate duty (a levy on the estate of a person who has died).
4. No trust registration requirements.
5. Promise of beneficial owner secrecy.
6. Golden Passport scheme: Cypriot passports were made available in return for a certain investment and gave the new recipients a protective shield for their secretive investments in that country.

Question for practice:

Enumerate the benefits provided by tax havens such as Cyprus which make them hotspots of tax evasion and money laundering.