Round tripping
- December 1, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Round tripping
Subject :Economy
Context: Tax havens are used to roundtrip money into India
Context:
- A tax haven is a jurisdiction with very low “effective” rates of taxation for foreign investors.
- In some traditional definitions, a tax haven also offers financial secrecy.
- However, while countries with high levels of secrecy but also high rates of taxation, most notably the United States and Germany in the Financial Secrecy Index (“FSI”) rankings, can be featured in some tax haven lists, they are not universally considered as tax havens.
- A list of some of the most popular tax haven countries includes: Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, The Island of Jersey, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, St. Kitts, and Nevis.
- Some notable authors on tax havens describe them as “captured states”. The term is particularly used for smaller tax havens, with examples being Antigua, the Seychelles, and Jersey.
- Worldwide there is not a comprehensively defined standard for the classification of a tax haven country. However, there are several regulatory bodies that monitor tax haven countries, including the Organization of Economic Cooperation and Development (OECD) and the U.S. Government Accountability Office.
- Characteristics of tax haven countries generally include:
- no or low income taxes,
- minimal reporting of information,
- lack of transparency obligations,
- lack of local presence requirements, and
- marketing of tax haven vehicles.
Round tripping
- Money leaves the country through various channels such as inflated invoices, payments to shell companies overseas, the hawala route and so on. After cooling its heels overseas for a while, this money returns in a freshly laundered form; thus completing a round-trip.
- How does the money return to India? It could be invested in offshore funds that in turn invest in Indian assets. The Global Depository Receipts (GDR) and Participatory Notes (P-Notes) are some of the other routes that have been used in the past.