Abstract

In order to minimise global tax exposure, taxpayers involved in international trade often exploit variations across international borders and international tax systems. These variations include differences between countries’ tax rates, legal concepts, standards of administration, reporting and enforcement, and governments’ attitudes towards the liberty and privacy of taxpayers and the confidentiality of financial and business transactions. Taxpayers will for instance invest in low tax or offshore tax-haven jurisdictions which promote banking secrecy provisions and lack transparency and exchange of tax information with other countries. These factors make it almost impossible for national governments to implement their tax laws and the resultant loss of revenue can be tremendous. This paper attempts to expose the intricacies of secret offshore tax shelters, its enablers and some of the sophisticated schemes they get involved in. The paper sets off on the premise that secret offshore tax shelters are encouraged by low-tax and tax-haven jurisdictions that develop tax policies aimed primarily at diverting finances and other geographically mobile capital from high tax countries. The paper sets forth some of the efforts taken by international organisations and national governments to curb offshore secrecy. The paper makes it clear that although countries may have legislation to curb offshore tax abuse by their residents; offshore secrecy makes it impossible to enforce this anti-tax abuse legislation as taxpayers will ensure that their transactions are kept from the knowledge of tax officials. The paper then zeros down to exposing offshore secrecy from a South African perspective and how the problem has been dealt with so far. From the success story of international and national initiatives in this regard, recommendations are offered as to how South Africa can enhance the effectiveness of its policies that deal with offshore secrecy and the ensuing tax abuse.