Why are offshorers in trouble and what are their options? A must-read book if you are currently using tax havens.
Offshore Apocalypse is required reading for anyone who is currently invested in tax havens. It is also strongly recommended for their attorneys, bankers, consultants and even their business partners – any of whom may unwittingly find themselves caught up in money-laundering investigations.
Take a look at this list of countries. If a taxpayer is the Ultimate Beneficial Owner (UBO) of a bank account in a country marked “September 2017,” then the bank is required to report account data beginning 1 January 2016 to the tax authority of the UBO’s home country as of September, 2017. If “September 2018” appears after the country’s name, then the bank must report account data beginning 1 January 2017 to the relevant tax authority as of September 2018. This gives UBOs a one-year window to perform a self-audit or to ask for an amnesty (if their home country has such a program available.) It is crucial that UBOs take advantage of one of these options since the Common Reporting Standard (CRS) makes it practically impossible to transfer offshore accounts to other locations.
The CRS calls on national authorities to obtain information from financial institutions in their jurisdictions and automatically exchange that information with tax officials in other countries on an annual basis. It stipulates the kinds of account data to be exchanged, the financial institutions required to report, and the different types of accounts and taxpayers covered.
Offshore Apocalypse: The Collapse of the Tax Haven Industry delivers a jolt of reality to people who have sunk their money into the multi-trillion dollar offshore tax-shelter business. This timely and incisive book exposes the tax haven industry for what it truly is – a vehicle for fraud. It lays bare the falsehoods that offshore promoters use to lure in clients – namely, that shell companies based in tax havens are a perfectly legal way for people to avoid tax obligations in their home countries. The book follows the fate of people who have taken these promises at face value – from the boardrooms of multinational companies to the prison cells where hundreds of them sit today.
People instinctively steer clear of dodgy salesmen trying to bamboozle them into buying used cars or vacation property. So why is it that educated people fail to apply the same skepticism when someone offers them a chance to save on taxes through odd-named companies in obscure Caribbean islands or Alpine hamlets? Especially when taking advantage of such offers can bring criminal charges and jail time?
This book does not promote the use of tax haven structures, but rather explains why using such companies is entirely illegal. The author became alarmed by the number of clients he encountered who wanted to optimise their taxes by setting up fake companies in foreign tax havens. These firms would be nothing but mailboxes at addresses that might be shared by hundreds of other corporations whose owners are also trying to dodge taxes.
The author explains, in plain English, why tax-haven abuse is illegal. In many cases, the practice should have been considered illegal long ago, but state authorities have not enforced the law effectively. The author proves the illegality of offshore schemes by dissecting international tax conventions authored by the Organisation for Economic Cooperation and Development as well as judgments handed down by national courts, the European Court of Justice and other judicial bodies. He backs up his findings through hundreds of links to legal documents, academic analyses, court rulings and news articles.
Readers will discover:
The legality of offshore company "tax planning" depends on two conditions:
Condition 1. The scheme must have a subsequently verifiable, i.e. realised, economic rationale for its creation, for which the tax advantage is disregarded.
If the offshore was created solely for the tax advantage, the offshore must be considered to have been created for the purpose of the tax advantage:
Condition 2: The manager of a company incorporated offshore cannot be a nominee, but must be the UBO who actually manages the company as a decision-maker living there (or, on behalf of the UBO, the person who actually makes day-to-day decisions there).
Without proper and verifiable compliance with these two points, the UBO is committing tax fraud - and money laundering if tax fraud is the predicate offence for money laundering in the UBO's country.
Since in most offshore locations without a double tax treaty (DTT) there can be no actual company management - as this is a condition for tax exemption there (ring fencing) - therefore the company will be a domestic tax resident company due to the place of management in the UBO country in the same way as a business company registered here.
In some countries it will "only" have a permanent establishment (PE) due to the speciality of the internal law, e.g. USA, but since the actual manager/UBO generates the income of the company in this PE, it will still be subject to US tax reporting and payment.
And if there is a tax treaty with the country of the offshore company, the company will be a domestic taxpayer because of the main tax residence rule of the treaty (Article 4(3)) because the principal place of business is in the country of the UBO.
The US is an exception here, because Article 5, Section 2(a), of its conventions means that the offshore company will "only" have a PE in the US.
It is well known that UBOs have been able to evade their domestic taxes for decades without being caught due to the lack of information exchange between offshore locations and banking havens, because the authorities could not sufficiently prove the fraudulent behaviour of the UBO due to the lack of information from the foreign side - even if this was obvious from circumstantial evidence to even the simplest audit.
But as a result of the six-point (nine-point in the US) offshore execution list mentioned above, offshore companies' foreign bank account details are automatically handed over to their home country's tax authorities without request. As a result, the anonymity of the actual beneficial owner behind the offshore company, the UBO, could no longer be guaranteed. And even if the country of registration of the offshore company did not disclose the details of the UBO behind the company, the tax administration would automatically receive the bank account details of the company from the country of the bank holding the account in autumn each year via the CRS.
Thus, the tax authorities can now see from the tracing of the transfers where and how the assets were transferred to the offshore account, and in the process what crimes the UBO and his/her accomplices criminal alliance or criminal organisation may have committed.
All of this makes the average way of running an offshore company for the average taxpayer/entrepreneur a dead end.
But not for everyone!
Although the law should apply to everyone, there are more equal among equals in every country - even in the US, which is considered the home of democracy. Where tax evasion by big (tech) companies through sham transactions can 'naturally' go unpunished, and indeed: in the Microsoft case in Puerto Rico, politicians 'supported' by the company rewarded institutionalised corruption/lobbying with restrictive legislation against the Tax Authority (IRS). This is what an expert familiar with the case said about the phenomenon:
“Most people, the 99%, they’re afraid of the IRS. The other 1%, they’re not afraid. They make the IRS afraid of them.”
But if the Tax Authority/IRS isn't afraid of you, then the title of the book succinctly sums up the main message for you: the era of offshore transactions that has become commonplace over the past decades is over for you, as is the assembly-line production of offshore companies that facilitate tax evasion. GAME OVER!
And if you suspect that your tax structures and business activities do not fully meet the 2 conditions of legality and you have not yet been caught out, you can find out about the different ways to get caught out by clicking on the "IF YOU ARE A UBO OR A PROMOTER" tab above right.
