TAX HAVEN NEWS. OTHER COUNTRIES ARE KEEPING UP WITH THE USA AND UK INVESTIGATIVE NEW LABRINYTH OF TAX HAVEN NEWS.
Earlier this month, I decided to see how hard it would be to set up my own offshore bank account. I figured it would be pretty difficult, because I’m not rich and don’t have a team of tax lawyers to oversee my money and because the E.U. and U.S. governments have been cracking down on tax havens by imposing stricter tax-sharing requirements. So I proceeded with some caution.
Deep thoughts this week:
1. It takes 10 minutes to open an offshore account.
2. But keeping it legal is expensive.
3. It would be better if the rules were simpler.
4. Then companies might spend more on innovation and less on tax lawyers.
1. It takes 10 minutes to open an offshore account.
2. But keeping it legal is expensive.
3. It would be better if the rules were simpler.
4. Then companies might spend more on innovation and less on tax lawyers.
It’s the Economy
Adam Davidson translates often confusing and sometimes terrifying economic and financial news.
Readers’ Comments
Share your thoughts.
First, I Googled “company registration tax haven” and randomly picked
three firms that set up accounts in offshore jurisdictions. Then I
called each and explained that I was hoping to minimize my tax exposure
and didn’t want anyone to know anything about my finances. Each company
quickly noted that I should consult a lawyer to make sure that I wasn’t
breaking the law. Then they calmly explained how to create an account
that, it seemed to me, was unlikely to be discovered by the I.R.S. or
any other authority.
I ended up working with A&P Intertrust, a Canadian company that I
chose largely because I liked its Web site the best. (The other two
companies’ sites appeared stuck in a late-’90s style with lots of
flashing boxes.) A&P works with the governments of Panama, the
British Virgin Islands and Belize. (Other companies that I contacted
prefer the Seychelles, Cyprus or the Cayman Islands, where Mitt Romney
has been reported to have money.) I decided to start my shell company in
Belize because it would be exempt from all Belizean taxes and, as
A&P’s site explained, “information about beneficial owners,
shareholders, directors and officers is not filed with the Belize
government and not available to the public.” And I’ve been to Belize and
like the place.
Setting up the company was a lot cheaper than I expected. A&P
charged $900 for a basic Belizean incorporation and another $85 for a
corporate seal to emboss legal documents. For $650 more, A&P offered
to open a bank account to stash my fledgling operation’s money in
Singapore — a country, the Web site also noted, that “cannot gather
information on foreigners’ bank accounts, bank-deposit interest and
investment gains under domestic tax law.” And for another $690, it
offered to assign a “nominee” who would be listed as the official
manager and owner of my business but would report to me under a secret
power-of-attorney contract. Then an A&P associate asked me to fill
out the incorporation information online, just so she wouldn’t type in
anything incorrectly. The whole thing took about 10 minutes.
Amazingly neither A&P nor I broke any law in Canada, Belize,
Singapore or the United States. The company required, in compliance with
international legal standards, that I e-mail it a notarized copy of my
passport, driver’s license and some other identity documents. But a
company representative also reassured me that these would not be visible
to any tax authority. Just before they processed the paperwork, I
explained that I was a journalist working on an article about offshore
tax havens, and I haven’t heard from them since. (A representative from
A&P declined to comment for this article, but he did note in an
e-mail that the company was still “happy to serve [me] as a client.”)
Setting up an account may be easy, but managing one is expensive.
Following the law requires a team of lawyers and accountants to
carefully monitor tax laws in dozens of countries and maintain accounts
that stay on the safe side of confusing rules. It’s not really worth the
cost for anyone other than wealthy investors looking to put aside
money, tax-free, for future generations. Or for large multinationals who
prefer to centralize their global cash-flow stream in a place that
doesn’t tax corporations or require a lot of financial reporting. Why
would a huge company like G.E. want to pay U.S. taxes every time its
Spanish subsidiary sells parts to a company in Belarus when it could
avoid them by incorporating offshore?
It’s easy to imagine that most other kinds of offshore activity is
shady, but there is no definitive way to know, because we don’t even
know how much money is in these centers. The estimates, however, are
striking. The Bank for International Settlements, which collects
voluntary reports from banks in 44 countries, offers the best single
source of data. It counts around $31 trillion of foreign-owned assets in
the world’s banks and estimates that about $4 trillion is in offshore
financial centers. An estimated $1.5 trillion is in the Cayman Islands
alone. The country of 52,000, which is about the size of Blaine, Minn.,
has more foreign-owned deposits than Japan or the Netherlands.
By the B.I.S.’s own estimation, the data — which do not include reports
from Belize, the Seychelles and other offshore havens — are quite
incomplete. The Tax Justice Network, a global research firm that
advocates against such havens, suggests that the amount hidden offshore
is between $21 trillion and $32 trillion. If properly taxed, that could
yield more than $200 billion in revenue around the world. Furthermore,
because a 2010 McKinsey & Company report estimated the world’s
financial assets at about $200 trillion, somewhere around 10 percent or
more of the world’s wealth is effectively invisible. And it’s also
almost certainly in the hands of the people and institutions that most
actively influence major investment decisions.
Lately the United States and the European Union have expressed deep
frustration with the international system of sharing tax information. In
order to investigate my Belizean company’s bank account in Singapore,
for instance, the I.R.S. would need to identify my bank and bank-account
number, prove I had broken the law and then petition judges in Belize and
Singapore to issue court orders forcing the release of my information.
It’s a nearly impossible standard. It can also be easily undermined by
enlarging the web of new accounts.
Next year, Washington will enact the most ambitious tax-recovery plan in
history, the Foreign Account Tax Compliance Act. Under Fatca, foreign
financial firms will have to proactively identify every American account
holder with assets of more than $50,000 and report details about their
financial activity or face a significant penalty. The move is very
unpopular among foreign banks, governments and Americans living abroad,
but the more complex rules could actually mean more business for
offshore centers. By the time Fatca is in full force, in 2017, truly
wealthy individuals and corporations will almost certainly have used
their resources to find more intricate loopholes.
One often-overlooked lesson of the financial crisis is that shenanigans
don’t happen in the absence of regulation; they happen when regulations
are exceedingly complex and involve confusing, overlapping regulatory
authorities. Collateralized debt obligations and credit-default swaps
were designed to squeeze through a labyrinth of laws, rules and taxes.
And most of these toxic assets were formed in offshore jurisdictions,
far from prying eyes and stricter reporting requirements. When Lehman
Brothers collapsed, it took regulators and creditors more than a year to
find out that the company comprised nearly 3,000 legal entities spread
across 50 countries.
My colleagues at NPR’s “Planet Money” recently polled several economists
of all political stripes and found that while they disagreed on the
right level of taxation, they generally agreed that the overly complex
taxation of rich people and corporations was disastrous. It all but
guarantees that those people and companies will spend an inordinate
amount of money figuring out how to game the system rather than come up
with new ideas that improve the economy. Economists generally agree that
the best tax system would be simple and strict, offering little
incentive to lobby for loopholes. The big problem, of course, is that
many of the people and corporations with the most influence over
Congress don’t want it that way.
No comments:
Post a Comment