Tax havens' financial secrecy and its development

• Thesis title in Czech: Vývoj finančního tajemství v daňových rájích
• Thesis title in English: Tax havens' financial secrecy and its development
• Key words: Financial Secrecy Index, daňové raje, finančné tajomstvo, zahraničné financovanie
• English key words: Financial secrecy index, tax havens, financial secrecy, secrecy score
• Academic year of topic announcement: 2017/2018
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Miroslav Palanský, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 09.03.2018
• Date of assignment: 06.06.2018
• Date and time of defence: 05.02.2020 09:00
• Date of electronic submission: 06.01.2020
• Date of proceeded defence: 05.02.2020
• Opponents: prof. Petr Janský, Ph.D.

References

1. Tax justice network, 2018. Methodology of Financial Secrecy index 2018.

2. Tax justice network, 2015. Methodology of Financial Secrecy index 2015.

3. Smallwood, A. D., 2014. An analysis of the efficacy of Tax Justice Network’s methodology in constructing a secrecy index.

4. Cobham A., Janský P. and Meinzer M., 2015. The Financial Secrecy Index: Shedding New Light on the Geography of Secrecy.

5. Murphy, R., 2008. Finding the secrecy world: Rethinking the language of ‘offshore’.

6. Blum J. A., Levi M., Naylor T., Williams P., 1998. Financial Havens, Banking Secrecy and Money Laundering.

7. Schjelderup, G., 2016. Secrecy jurisdictions. International Tax and Public Finance, 23(1), pp 168-189.

8. Johannesen, N., Zucman, G., 2014. The end of bank secrecy? An evaluation of the G20 tax haven crackdown. American Economic Journal: Economic Policy. 6(1), pp 65-91.

9. Emmenegger, P., 2014. The politics of financial intransparency: the case of swiss banking secrecy. Swiss Political Science Review, 20(1), pp 146-164.

Preliminary scope of work in English

It is commonly thought that tax havens primarily provide possibilities of tax evasion to citizens of foreign countries. Some countries commonly labelled as tax havens offer foreigners not only lower tax rates, but also high financial secrecy – these countries are defined as secrecy jurisdictions. The objective of this thesis is to analyze development of financial secrecy, which is measured by Financial Secrecy Index (FSI), constituted biennially by Tax Justice Network. The index combines a jurisdiction´s secrecy score and global scale weighting in order to produce a ranking of countries which are either developed economies with a substantial share of the offshore finance market or small countries with benign tax environment, as well as combinations of these dimensions.

In my thesis I will focus on secrecy scores representing the qualitative component of FSI. The overall secrecy score consists of 20 Key Financial Secrecy Indicators (KFSI) that are combined to form a country´s secrecy score. The latest edition of FSI was published at the beginning of 2018, with fundamental changes in methodology in comparison with the preceding ranking launched at the end of 2015.

The main objective of this thesis is to shed light on the comparison of methodologies used in the consecutive versions of Financial Secrecy Index. Not only the total number of KFSI has changed (increased from 12 to 15 and then to 20), furthermore, majority of existing indicators have been changed. Constitutional changes in methodology among the newest and previous rankings may have raised doubt about the movements in ranking positions of jurisdictions. As a result, the movement of tax jurisdictions in the ranking might have been caused by an overhauled methodology, which would imply a contradiction with the basic idea of FSI. The design of FSI warrants that any changes in the ranking of countries across the FSI can be caused either by a jurisdiction´s qualitative data, e.g. laws or regulations, which would result in higher or lower level of secrecy score, or by the change of a jurisdiction´s share of total offshore financial services activity. The main contribution of this thesis is to answer the question, whether fundamental changes in methodology could affect the true position of the jurisdiction in the FSI. In addition, this thesis could help with estimating the best methodology for computing the Financial Secrecy Score in the future.

In order to answer the main question of this bachelor thesis, whether fundamental changes in methodology could affect the true position of the jurisdiction in the FSI or not, a new FSI will be constructed. This estimation of ranking will be based on a combination of previous versions of the Financial Secrecy Index. The methodology used to compute FSI 2018 will be applied to database of data published by Tax Justice Network, used to compute the secrecy score in FSI 2015. The second component of FSI – quantitative measure will be taken as given from the database of jurisdictions. The comparison of rankings from 2015 (under old and new methodology) with the latest edition of FSI will provide sufficient information to clarify movements of jurisdictions across the ranking over time.