All the economic relations are simply an agreement between consumer and producer. Before the existence of government-dominated societies, people had been using the barter system which does not require any claim coming from the state. What governments had introduced to the economic system is taxation with the premise of equality. Nowadays, the tax system is nothing but a burden for the rich trying to maximize their profit. Many businesses seek to avoid high taxes by adapting their business model into a better method. At this point, tax havens offer what every corporation needs in the long run.
The most known tax havens are the British Virgin Islands, the Cayman Islands and Bermuda, but one country has surprisingly joined the elite league: The United Arab Emirates. What makes the country famous is its ultra-rich business people and it looks like it added another feature to its portfolio. According to a study released last week, the country has attracted $200 billion-plus flowing by its low tax opportunities.
The index by the Tax Justice Network is the most important document to identify the place of countries in the tax ranking. What it states is that the United Arab Emirates recently entered into top-10 ranking among the countries such as Switzerland and Bermuda.
The cash flow usually stems from the investments planned in the Netherlands. Like the Dutch-Irish sandwich, multi-nationals have changed their work practices for lower taxation. The study said that this changing pattern has boosted the financial activity in the UAE by over 180%.
The problem at this point is that much research has to focus on multinational activity rather than loopholes and tax rates. Therefore, the effect of tax rates and loopholes cannot completely be subtracted from the general activity and it is hard to identify exactly how much activity is triggered by low taxes. However, everybody knows what is going on in tax havens.
“You don’t need to be a tax expert to see why a global tax system programmed by a club of rich tax havens is hemorrhaging over $245 billion in lost corporate tax a year,” said Alex Cobham, Tax Justice Network’s chief executive.
The story behind this transformation of the country is the pandemic and its consequences. Dubai has suffered a lot from the lockdowns and decreasing rate of tourism. As a way of boosting the economy, the government loosened the limitations to draw the attention of the international companies while offering visas to rich foreigners.
We are not sure what will happen next but the UAE has to deal with criticism from the Financial Action Task Force. As a response, UAE recently approved the creation of a new government office to tackle money laundering and terrorist financing.