Firms will flee to tax havens

The actual number of companies registered in tax havens may be much higher than statistics suggest.

Illustrative stock photoIllustrative stock photo (Source: Sme)

Though the European Union countries, including Slovakia, have toughened up the fight against tax evasion after the Panama Papers scandal broke out, the number of companies established in tax havens has not yet decreased.

The reason is that companies are not only seeking a lower tax burden, but also anonymity of ownership, less red tape when founding companies and legal stability of off-shore countries, the Hospodárske Noviny daily.

“Entrepreneurs often need the flexibility of moving capital, and thus security,” said Peter Kremský, executive director of the Business Alliance of Slovakia, as quoted by Hospodárske Noviny.

The number of companies in tax havens in the third quarter of 2016 increased to 4,630 firms, up by 29 compared with the previous quarter. Though the number was lower than in the beginning of last year (amounting to 4,719), it was almost as high as for the whole year of 2015. As a result, the total number for 2016 may be much higher.

“In most cases, the fourth quarter is the strongest regarding departures of companies to tax-advantaged destinations,” said Milan Seliak, a business consultant oat Bisnode, as quoted by Hospodárske Noviny.

The actual number of companies registered in tax havens may be much higher. The Bisnode data only show the direct registration of these firms, but businesses often use more complex structures to mask their revenues, the daily reported.

As for destinations, the number of Slovak firms registered abroad increased the most in Liechtenstein, Latvia and United Arab Emirates. Other popular destinations include the Netherlands, the USA and Cyprus.

Moreover, observers say that Slovak firms often move to destinations that are not defined as tax havens, like the Czech Republic, Poland or Hungary.

“First they move their seats, later their business and, finally, their residence and their whole life,” Kremský told Hospodárske Noviny. “It is a big loss for Slovakia.”

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