Rax Havens & U.S. and Japanese Tax Codes

This paper will discuss the attributes of tax havens and their use by U.S. taxpayers, the characteristics of three particular havens, and various U.S. and Japanese tax code provisions aimed at discouraging the use of havens by their residents.

The Department of the Treasury has listed four different types of uses of tax havens. The first use involves transactions which are not tax-motivated and may have little or no income tax impact; in such instances, the haven may be used to minimize the effect of currency and other controls. The second use involves transactions which are tax-motivated but fall within the letter of the law (also known as "tax planning"). These transactions include banking through subsidiaries, sales to unrelated parties through tax haven subsidiaries, and the structuring of tax haven operations to take advantage of certain de minimis exceptions to anti-tax haven legislation. One example would be the conversion of U.S. source income to foreign source income in order to increase the limitation on the amount of foreign income tax paid by a U.S. taxpayer that can be credited against U.S. taxes. A third use involves transactions which take advantage of an unintended legal or administrative loophole, also known as "tax avoidance." The usual purpose is to shift profits to controlled entities in tax-free areas. One example of this is the establishment of "captive" insurance companies, entities which are controlled

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sey. Jersey technically prohibited the incorporation of insurance companies without a special act of the State until 1983; since then a captive insurance company requires a permit from the Jersey Finance and Economics Committee to carry on "restricted insurance business." Jersey affords such companies none of the benefits of Guernsey. The Netherlands Antilles are a group of islands in the Caribbean Sea, the two most important being Curatao (the seat of the governor) and Aruba, located within 60 miles of the coast of Venezuela. As will be explained below, the Antilles enjoyed a favorable tax treaty with the United States until December 31, 1987, when the it expired; the renegotiated treaty has not been agreed to and its prospects are currently in doubt. The Antilles have traditionally been the site of offshore investment companies, used by both legitimate entities seeking to minimize tax liabilities and criminals to launder profits from illicit operations. Like the other locations already discussed, the Netherlands Antilles imposes an income tax on non-residents' profits earned within the territory only. Resident corporations pay a graduated income tax which starts at 27% on the first 40,000 florins ($22,344) and proceeds up to a
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Some common words found in the essay are:
Company Act, Netherlands Antilles, Tax Havens, Cayman Islands, Channel Islands, Department Treasury, Holding Company, United States', Jersey Guernsey, Caymans Exempted, tax havens, netherlands antilles, income tax, foreign corporation, cayman islands, insurance companies, investment company, holding company, captive insurance, personal holding company, foreign investment, foreign personal holding, captive insurance companies, foreign investment company, passive foreign investment,
Approximate Word count = 4324
Approximate Pages = 17 (250 words per page)