LDF and Swiss-UK Tax Agreement 
1 Recent Developments 
1.34 Functionality of Tax Havens 
1.1.1 Definition 
The starting point of this thesis and the chosen research question is the existence of so-called tax ha- 
vens. The term "tax haven" is imprecise and has no clear segregation. In order to handle *tax havens" 
and to address some countries with this term, a few common definitions are available. Tax havens are 
often split into two categories. For the tight definition, tax havens are countries with low or no-taxes 
on income and/or earnings, with banking secrecy, lack of transparency and lack of information sharing. 
Furthermore, the incorporation of legal entities is simple and requires no or only little economic activi- 
ty. This definition is supported by the Organisation for Economic Co-operation and Development 
(OECD). The second, wider definition, which is mainly supported by economists, characterises tax 
havens as low-tax countries or no-tax countries with the aim of attracting capital .® 
The legal reduction of taxes with the help of tax havens is called tax avoidance, whereas the reduction 
of taxes in an “illegal™ way is called tax evasion. The activities of a UK citizen who has a bank ac- 
count in Panama and generates interest income which is not reported in his annual tax declaration 
would be deemed as tax evasion. In contrast, the relocation of a factory to a tax haven to take ad- 
vantage of lower corporate tax rates would be deemed as tax avoidance and is legal." The costs for the 
US of offshore tax abuses, avoidance and evasion are roughly estimated at USD 100 billion per year." 
Another source mentions that the total of international tax evasion by individuals is between USD 40 
billion and about USD 70 billion per year." 
  
$ Gravelle, 2013, p. 1. 
' OECD, 1998, p. 23. 
* Gravelle, 2013, p. 1. 
? Depending on that country's law 
? Gravelle, 2013, p. 1. 
! Levin, 2008. 
? Sawicky, 2005, p. 99-110. 
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