The tax world is full of legalistic terms which people who don’t work in it wouldn’t understand. It has been designed this way – making the language impenetrable makes it harder to figure out what’s broken and what the potential solutions are. So, below we try to explain some of the key terms in language that ordinary, tax-paying citizens can understand.
Obviously, for more detail on specific stories or issues, search in our archive for a relevant episode of The Taxcast here.
The person who actually benefits from the income or capital associated with owning something, and/or on whose behalf a transaction is being conducted. They are often different from legal or nominee owners, who may just be proxies who get no beneﬁt from the asset, whose identity is used to hide the real beneﬁcial owner.
Secrecy Jurisdiction/Tax Haven/Offshore
A tax haven or secrecy jurisdiction is a place that deliberately provides an escape route for people or entities who live or operate elsewhere. They shield them from whatever taxes, criminal laws, ﬁnancial regulations, transparency or other constraints they don’t like. Ordinary people whose lives are affected by tax haven laws are not consulted on these laws because they live in other countries: they have no say in how those laws are made, thus undermining their democratic rights.
General Tax Avoidance Principle
This principle allows tax authorities to ignore any transaction, or step in a transaction, that is designed only or primarily to get a tax advantage. The principle is intended to steer courts away from being too permissive towards tax avoidance.
High Net Worth Individuals
HNWIs, pronounced Hen-Wees: Wealthy individuals. Commonly this means people with investable assets worth over US$1 million. In 2011 Capgemini and Merrill Lynch estimated that there were 10.9 million HNWIs worldwide, with ﬁnancial wealth worth US$42 trillion.
Illicit Financial Flows
Financial ﬂows across borders that are either illicitly earned, transferred or used. Frequently described as “dirty money”. Breaking laws anywhere along the way earns such funds the label.
Tax evasion is an illegal – usually criminal – activity, by which a taxpayer escapes tax through deception. Tax avoidance, on the other hand, means getting around (or avoiding) the spirit of the law without actually breaking the law. There is a large grey area between the two poles of avoidance and evasion. At the Tax Justice Network we focus on building a fair tax system, because technical definitions of legal behaviour allow people to obey the letter of the law but flout it in spirit.
Countries offer tax incentives – for example, zero taxes on income from capital gains – in order to attract money from elsewhere. Research suggests that cross-border tax incentives typically serve little or no economic purpose and are frequently harmful.
A trust is an arrangement that separates out ownership of an asset. Under a standard trust a person gives up an asset for the beneﬁt of someone else (the beneﬁciary) under a set of rules (the trust deed.) These rules are enforced by a third person, the trustee. Trusts are used extensively in tax havens, whose laws provide secrecy which allows the original owner to pretend to have given away the asset while in reality still controlling it. This allows them to potentially escape the tax bill on its income, or hide links to money laundering or other criminal activity.