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Indebted Caribbean tax havens look to tax foreign investors

Industry analysts say new fees and taxes could bring in needed money to a region where some debts are near that of Greece. But could they scare off investors?

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'low tax' vs. 'no tax'

Mr. Schneider says the hedge fund industry is expanding at a pace not seen in years, with sector growth between 20 percent and 30 percent. The growth has increased demand for banks and companies that assist funds in setting up. And they are looking to established, trustworthy tax havens, such as the Caribbean.

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“I think this is a perfect time for the governments to increase fees,” Mr. Schneider says.

What’s more, some businesses are seeking out jurisdictions with low taxes, rather than no taxes at all. “When they come under scrutiny, it is easier for them to be paying taxes somewhere rather than avoiding taxes altogether,” the Bahamas finance ministry official says.

Many tax havens also levy no tax on foreign corporations that earn their profits outside of the jurisdiction. By locating in a tax haven, a company – or an individual – can save heavily.

Apple lowered its corporate tax rate to 9.8 percent last year by utilizing tax havens, including the British Virgin Islands, according to an April New York Times investigation. The report suggested Apple legally avoided paying $2.4 billion in taxes.

Meanwhile, wealthy individuals were able to hide at least $21 trillion – and perhaps as much as $32 trillion – in offshore accounts as of 2010, according to a study released in July by the Tax Justice Network, an international organization that pushes for more transparency in international finance.

But governments are increasingly examining companies and individuals that utilize tax havens.

In the US, the Foreign Account Tax Compliance Act (FATCA), which the IRS says will help “improve tax compliance involving foreign financial assets and offshore accounts” takes effect next year. It will force US taxpayers to report their foreign assets to the IRS.

In London earlier this month, Google, Amazon, and Starbucks representatives were grilled in a Parliament hearing over accounting practices. Through accounting that booked sales in low-tax countries, like Ireland, the companies paid relatively little tax in the United Kingdom. Google, for example, booked sales of more than $4 billion in Britain but reportedly paid just a $10 million tax bill.

Margaret Hodge, a member of Parliament, pointedly said: “We are not accusing you of being illegal, We are accusing you of being immoral.”

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