8B.6 - Tax havens and alternative state models

Mobile capital and low-tax jurisdictions

Financial globalisation makes it easier to move investment and recorded profits across jurisdictions than to move every productive activity.

Deregulation, digital transactions and cross-border corporate structures reduce barriers to capital movement. Some jurisdictions attract financial businesses and wealthy residents through low tax rates, specialised services and predictable legal arrangements. This can create local professional jobs and revenue from fees or other taxes. The government's territorial sovereignty becomes a resource: it sets rules that are attractive to internationally mobile clients.

The Cayman Islands Monetary Authority's insurance FAQ, checked in October 2026, states that income, capital gains and corporation taxes are not payable there. Cayman is a British Overseas Territory, not an independent sovereign state. This is a useful low-tax jurisdiction example without pretending that every financial centre has the same constitutional status. Wealthy expatriates may also consider residence, climate and services, but a low local rate does not automatically remove tax obligations elsewhere.

For TNCs, an important distinction is between real activity and where profit is recorded. A company can locate production in one country while intellectual property or financing arrangements affect the profit recorded in another. Tax avoidance uses legal arrangements to reduce liability; tax evasion unlawfully conceals or misreports it. An offshore structure alone does not prove either, and transferring profits is not identical to transferring factories or workers.

Acceptance and resistance

Governments' responses to low-tax jurisdictions range from accommodation to regulation, rather than a fixed universal approval.

Historically, many governments and international organisations tolerated offshore centres because they served investment and financial intermediation and because sovereign jurisdictions controlled their own tax rules. A small jurisdiction may argue that financial services diversify its economy. Firms may value a predictable location for investment funds or transactions. These are reasons offered for the system, not proof that every arrangement benefits the wider world.

NGOs such as the Tax Justice Network argue that profit shifting and financial secrecy weaken the public revenue needed for services and worsen inequality. Its policy position emphasises transparency, beneficial-ownership information, stronger tax administration and progressive taxation. Treat the NGO as a primary source for that position; assess any estimate of lost revenue through its method and assumptions rather than accepting it solely because it supports the argument.

Responses have changed. The OECD's Global Anti-Base Erosion framework provides a 15% minimum effective tax mechanism for in-scope large multinational groups through coordinated top-up rules. Implementation began in a number of jurisdictions in 2024 and continues to change. It is not a universal 15% tax on every company or person, nor does it automatically abolish every benefit of an offshore centre. Differences in participation, scope and rules matter.

The specification's historical acceptance point should therefore be understood alongside subsequent efforts to limit harmful practices. Cooperation can strengthen states' practical ability to tax mobile profits, while tax competition can restrict it. A judgement should compare local jobs and financial services with revenue and distributional effects in other states, and distinguish regulated legitimate services from harmful secrecy or abuse.

Gini coefficients and income deciles

Inequality measures describe how resources are distributed, which is different from measuring their total or average amount.

A decile is one tenth of a population ranked from lowest to highest income or wealth. The income share of a decile is the percentage of total income received by those people. The richest 10% receiving 30% of income does not mean each person earns 30% of the national average. Wealth concerns a stock of assets net of liabilities, whereas income is a flow over a period; their distributions may differ.

The Gini coefficient summarises departure from equality, from 0 for complete equality towards 1 for extreme inequality. The World Bank commonly reports the Gini index on a 0–100 scale. A Lorenz curve plots the cumulative population share, ranked poorest first, against cumulative income share. The further the curve lies below the equality diagonal, the greater the inequality.