draining development.pdf - Khazar University

296 Draining Development?The Role of Secrecy JurisdictionsThe literature that alleges substantial transfer mispricing abuse by MNCsalso finds that tax havens play a significant role in the process. The termtax haven is, however, so widely misunderstood that this chapter doesnot use it, preferring instead to use the term secrecy jurisdiction. For amore detailed consideration of the term, the nature of a secrecy jurisdiction,and the economic significance in the matters under considerationhere, see chapter 11 in this volume. A list of the places currently consideredsignificant secrecy jurisdictions is available in table 9A.4. 25The term secrecy jurisdiction is considered more appropriate for thepurposes of the current analysis because, although the process of transfermispricing to which this chapter refers seeks to secure a tax advantage(by way of reduced tax payment) for those who pursue the activity, thisadvantage is not normally available unless the abuse giving rise to theadvantage—the artificial relocation of activities to one or more secrecyjurisdictions—can be hidden from view behind a veil of secrecy. Secrecyjurisdiction opacity is often, of course, linked to low tax rates (see above).The combination of low tax rates and secrecy has obvious attractionsfor those seeking to transfer misprice. However, to demonstrate whetheror not MNCs actually use secrecy jurisdictions and which ones theymight use if they do, TJN has coordinated, under the direction of theauthor of this chapter, a survey of the locations of MNC subsidiaries,paying particular attention to the secrecy jurisdictions TJN has identified.The results of the study by the U.S. Government AccountabilityOffice of December 2008 (GAO 2008), “Large U.S. Corporations andFederal Contractors with Subsidiaries in Jurisdictions Listed as TaxHavens or Financial Privacy Jurisdictions,” have been used as part of thesurvey. Because the U.S. survey excludes data on the Netherlands, theUnited Kingdom, and the United States, these locations have also beenexcluded from the TJN survey. Austria (for practical rather than methodologicalreasons), Belgium, and Madeira (because of difficulties inisolating data independently from Portugal) have also been excluded.The total sample of MNCs surveyed is shown in table 9.4.It should, however, be noted that the data selection has been pragmatic:the U.K. data should have been the entire FTSE 100, that is, the 100largest companies in the United Kingdom, designed to match the U.S.