Offshore Havens: Where Billionaires Stash Away Earnings

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Offshore Havens: Where Billionaires Stash Away Earnings

Let’s be honest: no one likes paying taxes, but some of us prefer to do their duty to the state, while others prefer to shy away from the need to share their income with the state. We are talking about large corporations, as well as smaller entities. The former learned to transfer money to offshore zones, while the latter learned to do double accounting or use other ways to reduce the amount of taxes paid.

Today, we are going to try to fully understand how to the first popular method works: how to siphon off money to an offshore account and whether it is and should be possible to stop the withdrawal of funds?

United States: an Increasingly Popular Offshore Haven?

For a long time, America’s richest people had searched for offshore zones in order to hide away their money outside the US, but now it looks like the US itself has been converted into a tax haven, not only for indigenous and local rich people, but also for foreign companies.

The US has been confidently focusing on making sure that rich members of the public are able to preserve their capital, bypassing the need to comply with global disclosure standards.

Lawyers try to help various companies transfer their money from offshore zones such as Cayman and Virgin Islands to some of the US states such as Nevada 

This way, Rothschild has opened a trust company called Reno which deals in withdrawal of client funds from offshore zones into a trust fund in Nevada. Reno is an exception from the rule obliging companies to disclose information on customer accounts.

Companies such as Cisa Trust Co. SA (Geneva consultancy company advising wealthy Latin American families on issues of investment and finance) and Trident Trust Co., a trust fund, which has transferred accounts from Switzerland and other offshore zones into Sioux Falls, S.D., are also on the list.

Most consultants are confident that this is the way companies provide protection against extortion in account holders’ countries. In addition, the rich believe that their capital is in better hands, handed over to American trust funds.

To be sure, offshore companies are not going to vanish into thin air, at least in the near term, while Switzerland along has over 1.9 trillion dollars sitting in its accounts.

Where the Shoe Pinches

As early as 2010, the US Congress was able to find a legal way to get to the once secret Swiss banks by adopting the law «On the disclosure of foreign accounts for tax purposes,» which required banks and other financial institutions around the world to disclose information about their clients from the United States or else they would be forced to come under a series of sanctions.

Then, banks in Switzerland paid billions of dollars in fines for aiding US citizens in avoiding taxes.

In Washington, they went on talking about the $700 million paid by major Swiss bank UBS in order to avoid being investigated on charges of abetting in tax avoidance (the penalty had not taken into account the information about another 19 thousand offshore accounts with the total amount of about twenty billion dollars sitting in them).

On top of that, it is still impossible to say with certainty which and how many of the countries that signed information disclosure rules will actually abide by them. About one hundred countries signed off on the rules. Of course, there is nothing wrong or illegal with banks being allowed to open and maintain accounts for foreign customers, but only if the funds deposited in the accounts have been cleared by tax authorities in their countries of origin.

Later on, the Swiss banks had long been subjected to prosecution by the United States and stayed under increased pressure from EU authorities.

Results Are Obvious

The unrelenting OECD has adopted even more stringent standards designed to assist states in pursuing tax evaders.

As recently as 2014, 97 jurisdictions agreed to introduce new information disclosure requirements for about all investments and accounts belonging to foreign citizens. Nauru, Bahrain, Vanuatu and the United States were the only countries to refuse to do so.

In the United States, they believe that account holders whose names have not been disclosed are used for money laundering. Over one and a half trillion dollars is laundered annually through financial systems worldwide.

500 Giant US Companies

It has transpired that five hundred largest US companies have deposited and are keeping in offshore accounts over $2.1trln, without declaring it or paying taxes. If taxes were to be paid, the nation’s treasury would swell by about $20bn.

Also, there is information that a considerable number of companies from Fortune 500 have offices in various offshore tax havens, from giants like Apple with $181.1bn in an offshore account to General Electrics with $119bn. In this championship, Microsoft has fallen behind a bit with its $108.3bn, and so has Pfizer with its $74bn.

Noteworthy, 358 or 72% of the Fortune 500 companies control various representation offices in offshore zones, adding up to a total of more than 6,500 branches. In total, Fortune 500 corporations are the owners of more than $2.1trln in offshore accounts.

Fifty seven companies have said that, as of now, they would have paid $184.4bn in taxes, had it not been for their offshore accounts.

These data indicate that offshore companies have been paying a 6% tax, down from the 35% they would have been paying in the United States.

A few Words on the UK

Experts down in the UK are discussing the issue of difference between tax evasion and tax cuts as a way to try and explain the difference to the public.

Tax optimization efforts are a legitimate activity that means finding loopholes in laws but not breaching them. In other words, it is the conscious use of and search for any possible legal ways to reduce the amount required to be paid in the form of taxes. There are a huge number of such ways, from charity to social security system contributions to various tax credits. By contrast, tax evasion means an illegal act whereby a legal entity breaks the law by submitting false information to public authorities. An example of such an act of evasion would be a deliberate concealment of any information on income or assets.

Where Is the Treasure Buried or Where Do the Rich Stash Their Money?

1. Isle of Man

Isle of ManThis tax haven is famous for the lack of inheritance tax and capital gains tax, and is also known for the lowest income tax rate. The highest tax rate is 20 per cent. Further, the Isle of Man provides retirement benefits.

2. Jersey Island

Jersey IslandJersey Island has had the tax haven status since mid-twentieth century, when rich Brits began to move to the island. In the UK, inheritance tax for wealth in excess of one million pounds was 80 per cent, while on the island this tax was altogether absent. Today, the island also has no inheritance tax or capital gains tax and no income tax.

3. Wonderful Mauritius

Wonderful Mauritius

Mauritius is another offshore zone and is quite popular among foreign investors. Citigroup, Pepsi, Chase and even JPMorgan have branches in Mauritius. Mauritius operates a fifteen percent tax system, but companies may use tax holidays there.

4. Unique Cayman Islands

Unique Cayman IslandsCayman Islands are one of the favorite offshore areas on the world map, with both physical and legal entities from around the globe flocking there. Local legislation allows companies to have assets without paying taxes on them absolutely legally.

However, the system of such tax benefits is quite complicated, so having a consultant who knows how to work your way around the taxes is must.

Noteworthy, the total amount of assets in the Caymans represents one 15th of the $30trln in total global assets.

5. Fabulous Ireland

Fabulous IrelandIreland is also rightly considered a tax haven, although the authorities claim that this is not true.

Some time ago, Ireland stole almost all of the headlines, when it had been reported that Pfizer announced a merger with Allergan (an Irish company) and that it intended to transfer the head office to Ireland. If this happened, the company would be able to avoid paying $148bn in taxes.

The even more famous Apple Corporation is also associated with Ireland and has a representation office here. In addition, over 1/4 of the Fortune list, too, have branches in Ireland. One of them is Google.

6. Beautiful Luxembourg

Beautiful LuxembourgAbsolutely unremarkable in terms of population, having only 550 thousand people and a tiny territory, the country neighbors states such as France, Belgium and Germany and is one of tax havens. Approximately 33% of the Fortune 500 own offices in Luxembourg, as reported in a 2014 report compiled by U.S. Education Fund PIRG and Citizens for Tax Justice.

For instance, the official representation office of Amazon in Luxembourg carried out all of the company’s sales on its behalf in Europe until this was revealed.

7. Scenic Monaco

 Scenic Monaco

This is a small country with as small a population as in the case of Luxemburg: thirty-six thousand people. All Monaco citizens have at their disposal all of the money they earn. This fact has been crucial in attracting here simply fabulous amounts of rich people. Corporate earnings tax is temptingly low here.

8. Lost Bermuda

Lost BermudaBermuda Islands have long been recognized as a tax haven, with low tax rates and complete absence of corporate tax. There are also offices there of more than a quarter of the Fortune 500.

Google, by the way, transfers here almost all of its foreign-earned profit through an Irish representation office, which saves the company about $2 billion year.

9. Majestic Switzerland

Majestic SwitzerlandSwitzerland has for a long time been not only a tax haven but also a place with privacy being the greatest advantage of the banking system. US companies have never refused the advantage provided by the Swiss tax system. About thirty percent of the Fortune 500 companies have their branches here, including Morgan Stanley and Pepsi.

10. Unmatched Bahamas

Unmatched Bahamas

11. Majestic Virgin Islands

Majestic Virgin Islands

These British Isles are one of the quietest and most coveted tax havens. Every day, nearly three hundred companies register here, their total number already approaching one million.

There is no income tax for individuals and legal entities and no capital gains tax here. Authorities fill the budget at the expense of salary taxes, company registration fees, import duties and others. Offshore services provision is what represents the important part of the islands’ economy.

12. Sunny Panama

Sunny PanamaPanama is rightly considered one of the greatest tax havens and international banking centers. It operates a Corporate Law system based on the corporate code written in the 1920s, stipulating the simplest way to create corporations. Over the past few years, Panama registered more companies than all of the islands in the Caribbean and Central America. Panama is called the main banking and financial center in Latin America for a reason.

Open an account now!

13. Unique Singapore

Unique Singapore

Singapore is not just an offshore zone but also a place that hosts the main representation offices of transnational organizations.

Here, taxes are charged only on income received in the territory of Singapore, and income generated outside the state is not taxed. This allows the country to offer investors an opportunity to earn the complete absence of offshore income taxes.

The US cannot be considered a tax haven, but the fact that the country is often used as a place to hide from its own taxes is true. To top it off, it’s worth mentioning other tax havens in remote corners of the world such as Seychelles and Malaysia, a list that goes on and on.

Perhaps, having at our disposal a multimillion-dollar income and a similar turnover, we would start thinking about the fact that offshore havens are a rather fair solution for those whose countries have crippling taxation systems which potentially threaten to destroy said companies. And perhaps it is also fair to say that taxes must be paid in any case and that people should put their countries first. You never know.

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