Companies fleeing from zero-tax Caribbean havens

WASHINGTON –– Many U.S. multinational corporations have packed up or are choosing to open subsidiaries in low-tax, rather than no-tax, countries that are seen as more legitimate than the formerly popular destinations of the Cayman Islands and the Bahamas.

They’re fleeing in response to regulations from the European Union that require them to justify the business purpose for their offshore operations. Low-tax countries that have been attractive destinations for multinationals — such as Singapore, Ireland and the Netherlands — are becoming even more desirable, especially as they make changes to show they’re more legitimate.

“The days of picking a holding jurisdiction mainly because of tax are over,” said Allen Tan, head of the tax practice at law firm Baker McKenzie Wong & Leow in Singapore.

American corporations have used tax havens for years to avoid higher levies where they earn their income. European countries and the U.S. have teamed up in recent years to stop the use of loopholes and collect more of the taxes the companies headquartered within their borders owe. Insurance firm Swiss Re AG closed one of its Bermuda subsidiaries in 2016. It opened its regional headquarters in Singapore in January. The company said in a statement that it doesn’t use tax havens for the purpose of avoiding tax and that the entities registered in Bermuda are fully taxable in the U.S.

Tax experts say the driving force behind the move away from flagrant tax havens are requirements from the Organization for Economic Cooperation and Development meant to stop firms from shifting profits abroad. The standards require companies to show employees and sales — in the countries where they earn income.