Federal Efforts To Define and Combat the Tax Haven Problem

GAO discussed Federal efforts to define and combat the tax haven problem. Tax havens generally are defined by the tax community as countries which impose a low or zero rate of tax on all or certain categories of income and which do not impose currency control on nonresidents. GAO focused primarily on IRS efforts to detect and deter tax law abuses relating to tax havens. The Federal Government is concerned about tax havens primarily because they afford significant opportunities to abuse the tax system, particularly through tax evasion. IRS estimates that tax evasion through the use of haven countries is costing the Department of the Treasury billions of dollars annually. GAO found that, within the Federal Government, there has been a growing awareness of and willingness to deal with the tax haven problem. However, along with the awareness of the problem has come a recognition of the fact that there are no quick and easy solutions. Low tax rates on certain kinds of income offer a strong inducement for individuals and businesses to carry out economic activities through tax haven countries. Because tax havens have banking and commercial secrecy laws, they also present significant tax evasion opportunities. A nontreaty tax haven country supplies the United States with little or no information on financial transactions which take place in that country. Treaty havens display similar characteristics but also offer special tax benefits not generally available in countries which lack a tax treaty network. It was concluded that the United States should only maintain treaties with tax havens when treaties provide assurance that their provision would not be used in an unlawful fashion.