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  • Writer's pictureEdward Lehman

World’s Best Tax Haven: The United States

An estimated $21 - $32 trillion USD of private financial wealth is located — untaxed or lightly taxed — in jurisdictions around the world.

The United States is one of the top destinations for that capital.

The U.S. has been helping foreigners shield money from foreign tax institutions for a very long time.

And over the past few years, by refusing to accept the Common Reporting Standard (CRS) set up by the Organization for Economic Co-operation and Development, the U.S. has only bolstered its position as the tax haven jurisdiction of the world.

Built as a tool to combat tax evasion, the CRS shares financial accounts on a global level between tax authorities. At present, all European Union (E.U.) countries plus China, India, Hong Kong, Russia and 109 other countries have agreed to become signatories.

Notably absent from the list is the U.S.

By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to jurisdiction for investing foreign wealth.

In particular, Delaware, Nevada and Wyoming have become nearly synonymous as offshore tax havens, helping facilitate the establishment of shell companies — companies lacking information on their “beneficial owners,” the person or entity that actually controls the company.

But is this “new”? Not really.

The United States has long been a favorable jurisdiction and tax haven at the U.S. federal level. The 1921 Revenue Act exempted interest income on bank deposits owned by non-U.S. residents, and this was justified at the time as a measure to attract foreign capital to the U.S.

Another factor influencing policy makers in the 1960s and 1970s was the Vietnam War, which led to growing balance of payments deficits — after a long history of surpluses. The U.S. increasingly needed foreign loans to finance these deficits.

The tax haven principle of using tax exemptions to attract capital was re-affirmed in the Tax Reform Act of 1976. With no cross-border sharing of information to speak of, this meant foreigners’ could evade their home-country taxes via U.S. banks.

In 1981, the U.S. introduced a new mechanism in the field of financial regulation: the International Banking Facility. This allowed banks in the U.S. to establish a separate accountably for a U.S. bank, or a US branch/subsidiary of a foreign bank, and offer services to only non-U.S. residents and institutions.

In 2001, the United States enacted the Qualified Intermediary (QI) program, designed to help the U.S. government ferret out U.S. domestic tax cheats, while preserving the U.S. as a healthy jurisdiction for foreigners.

When the Foreign Account Tax Compliance Act (FATCA) was introduced in 2010, it was designed as a unilateral self-protection mechanism for the U.S., and a major step forwards for international transparency efforts.

FATCA is now a strong unilateral mechanism that does little to dent the U.S. role as a global tax haven – and instead gives it a "competitive" advantage over other jurisdictions.

AmChamUSA advocates for continued pro-growth tax policies in relevant tax legislation, and continues to work with the federal government on regulations and other guidance to implement the Tax Cuts and Jobs Act.

There is nothing inherently illegal about banks luring foreigners to put money in the U.S. with promises of confidentiality as long as they are not intentionally helping to evade taxes abroad.

AmChamUSA supports and encourages foreign businesspeople and companies setting up financial accounts in the U.S., and contributing to both the tax system and job creation mechanisms of the U.S.

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