Tax havens: the phenomenon that leaves countries like Colombia with little money to finance social policies

August 15, 2023

Large fortunes are hidden in tax havens to evade or avoid paying taxes. There, the identity of the owners of these fortunes is hidden, their profits are camouflaged and very non-transparent transactions are carried out.

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The concept of tax havens has changed over time. In addition to referring to places with very low or no taxation, it has included the criterion that they are territories that do not cooperate in the provision and exchange of financial information.

Countries that are considered tax havens

There are several lists of tax havens and each country draws up its own list, depending on the subscription of conventions and the degree of cooperation in the exchange of information.

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In the case of Colombia, the list of tax havens includes Antigua and Barbuda, Brunei, Kuwait, Qatar, Western Samoa, Grenada, Hong Kong, the Cook Islands, the Solomon Islands, the Commonwealth of Dominica, Bahrain, Macau, Guyana, Liberia, Trinidad and Tobago and Yemen, among others.

Spain, for example, has a long list and the list is composed of, among others, Anguilla, Bahrain, Barbados, Bermuda, Dominica, Fiji, Gibraltar, Guam, Guernsey, Isle of Man, Cayman Islands, Falkland Islands, Mariana Islands, Solomon Islands, Turks and Caicos Islands, British Virgin Islands, U.S. Virgin Islands, Jersey, Palau, Samoa, with regard to the harmful tax regime (offshore business), American Samoa, Turks and Caicos Islands, British Virgin Islands, U.S. Virgin Islands, Jersey, Palau, Samoa, with respect to the offshore business tax regime, American Samoa, Seychelles, Trinidad and Tobago and Vanuatu.

Tax havens lose millions of dollars every year to the economies of countries around the world. A 2020 report by the Tax Justice Network indicates that about $427 billion in taxes are lost globally due to global tax abuse.

A huge amount of that money goes to tax havens. The same institution estimates that the world could lose around USD $4.7 trillion over the next ten years as a result of transnational tax abuses.

The impact of tax havens in Latin America

Figures from the Tax Justice Network indicate that, in the case of Latin America and the Caribbean, where most tax havens are concentrated, 22% of their wealth is found in them.

According to the same source, the countries of the region lose close to 1.5% of their Gross Domestic Product (GDP) every year. This situation affects public investment and the development of social programs that improve the standard of living of their inhabitants.

How do tax havens affect Colombia?

In the case of Colombia, according to data from the DIAN of 2021, about 40 billion pesos are lost every year due to VAT and corporate income tax evasion. Although the entity is not clear about the amount, it is known that a large part of that money goes to tax havens.

The DIAN indicates that the country lost $43.2 trillion due to evasion in 2018, $47.4 trillion in 2019 and $43.8 trillion in 2020, and tax havens would be responsible for a large part of these losses.

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The situation is so worrying that public figures, politicians and even artists have, or have had, bank accounts, investments, companies and/or make strong monetary movements in several tax havens around the world.

Some of these personalities are the former vice-president and former foreign minister, Martha Lucía Ramírez; the former minister of Transportation, Ángela María Orozco; the former Colombian ambassador to Chile, Guillermo Botero; the former minister of Education, Gina Parody; former presidents Andrés Pastrana and César Gaviria; the former Colombian ambassador to China, Luis Diego Monsalve, and the singer Shakira, the latter with several open investigations in Spain for tax evasion.

Ineffective measures against tax evasion

The measures adopted by Colombian governments to solve tax evasion have been ineffective, as they are limited to facilitating the repatriation of capital held in tax havens, by placing a lower tax of 15% on the taxable base and even giving them some additional benefits.

Among these measures is the normalization tax, which is a tax that the Commission of Experts on Tax Benefits recommended to eliminate, since it generates a parallel taxation system for evaders.

According to data from the DIAN, between 2015 and 2021, a total of 26,810 Colombians legalized assets worth 37.8 billion pesos. However, the collection for the State reached only 3.9 trillion pesos, a figure considerably below the average tax of 15% and well below what these assets would have had to pay in income tax.

In 2020, it was identified that, of the total legalized assets, 44.2% were located in Panama, 27.2% in the United States, 6% in the British Virgin Islands and 4.4% in the Bahamas.

This situation raises questions about the efficiency and effectiveness of the standardization tax, especially considering the concentration of assets in jurisdictions with particular tax characteristics.