Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: list of goods taxed at 4% :: VAT Audit :: due date for vat payment :: empanelment :: TDS :: form 3cd :: ACCOUNTING STANDARDS :: ACCOUNTING STANDARD :: Central Excise rule to resale the machines to a new company :: articles on VAT and GST in India :: VAT RATES :: TAX RATES - GOODS TAXABLE @ 4% :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ARTICLES ON INPUT TAX CREDIT IN VAT
« News Headlines »
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers
 Finance ministry warns tax officials of action against GST protest
 Big changes for small units under GST
 Parliament’s winter session to begin on November 16 to expedite GST rollout
 Income-tax (27th Amendment) Rules, 2016 - 92/2016
 Announcement - Clarifications in Respect of MEF 2016-17

Should Bhutan be a tax haven for India?
January, 12th 2007

It meets the criterion of being small but isn't affluent, which is something most such havens are. 
Several years ago, while defending Indias Mauritius tax treaty, a prominent government economist told me that every country needs a teat to suckle from. He then went on to give several examples of tax havens and such like that facilitate capital flows. 
It was therefore pleasant to come across a paper that discussed tax havens. In a recent paper,* Dhammika Dharmapala and James R Hines Jr of the University of Michigan say that roughly 15 per cent of countries are tax havens. That means around 30 countries service the needs of both other countries and global capital. 
Panama, Bermuda, the Caribbean countries, Ireland, Luxembourg, Switzerland, Hong Kong and Singapore earned $7.4 billion in 2002 as a result of just American individuals doing the high-fives. In contrast, the controlled foreign divisions of American corporations reported $57.3 billion of after-tax earnings and profits in these countries in 2002, the paper states. 
The authors say that it is mostly small and affluent countries that become tax havens. The smallness part is easy to understand. After all, if you dont have a large domestic market, you may as well do other things to get on with becoming rich. 
But the affluent part seems dodgy as far as causality is concerned. That is, could it be that they become affluent because they are tax havens and not the other way around? 
Likewise, the authors say that better-governed countries are much more likely than others to become tax havens For a country with a population under one million, the likelihood of it becoming a tax haven rises from 24 per cent to 63 per cent as governance quality improves from the level of Brazil to that of Portugal. 
Or is it that if you want to be a successful tax haven, youd better ensure good governance? Who would trust, say, Haiti as a tax haven? 
Indeed, say the authors, low tax rates are by themselves not enough. A country could drop tax rates to as close to zero as possible and yet be unsuccessful as a tax haven if it is poorly governed. 
There has been considerable research on tax havens. The authors provide us an excellent sampling of the literature. One of the key findings pertains to the effect of tax cuts on investment. A 10 per cent tax reduction (for instance, reducing the corporate tax rate from 35 per cent to 31.5 per cent) is typically associated with a 6 per cent greater inbound foreign investment. Is that a takeaway for Chidambaram for the 2007 Budget? 
Indeed, say the authors, FDI may be even more sensitive. Recent evidence also points to this finding. This is because there a hundred other tax dodges that depend on tax regimes and combinations thereof. 
As the authors put it, It is entirely possible for firms to adjust transfer prices in a tax-sensitive fashion without violating any laws, which was the point of the Mauritius Treaty. 
From the point of view of the host country, which would suffer some tax loss as a result of reducing its rates, the reduced revenue can be made up by taxing other things. Thus, if you treat international capital as a necessary intermediate input, which you well might, following the classic study of Peter Diamond and James Mirrlees, we can say that a country would be better off by not taxing internationally mobile capital. 
Looking to it all, it strikes me that Bhutan could well become a nice little tax haven for India. Perhaps that is one way of viewing Indias new approach towards it? 

T C A Srinivasa-Raghavan

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Company Search Engine Optimization Company US SEO Local SEO Company Website SEO Company Alabama SEO Company Alaska SEO Company Arizona SEO Company Arkansas SEO Company California SEO Company Colorado SEO Company Connecticut SEO Company Delawa

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions