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The Future of Financial Privacy Made Easy!
By admin | July 24, 2008
All around us, we see attacks on financial privacy. It might be easy to despair. To think that the right to financial privacy is a thing of the past. Hot on the heels of the latest UBS scandal in the US that I wrote about a few days ago, come press releases from the UK tax authorities like this one: UK to Begin Crackdown on Liechtenstein Account Holders
However, I’m an optimist. I believe most of these attacks are for show, and will continue to be. High profile prosecutions are intended to deter people from using perfectly effective, legal structures through psychological pressure applied through the mass media. It is commonly known as “tarring with the same brush.”
They would have you believe that going offshore is illegal. It is not. A properly, legally structured secret nest-egg offshore is not the same as having an illegal black money account that you have been required to declare and have failed to do so.
The people who are worried right now are those who have hidden offshore personal accounts. Let me say definitively: the idea of having an undeclared account that is hidden from the tax man is very passe. It is illegal. I would never recommend it and have never done so in my entire career. It is precisely those people who didn’t take care at the beginning to set things up properly, who are now under attack. If you are in this position you should do something about it now (hint: follow the advice in the rest of this blog)
If you have an account in your own name, or even an anonymous numbered account, that you were obliged to declare and you have not declared it, you are walking a very fine line. The only people who can hold assets safely in this type of account are those who have already established permanent residency in a country that does not tax worldwide income, such as Monaco or Andorra, or the Dominican Republic or Paraguay.
Hopefully, however, your planning has been more sophisticated than simply burying your account in a tax haven. There are perfectly legal ways to avoid tax.
There are some things coming out of the news articles about UBS, though, that I think we can learn from. The most important in my view is this one:
Up until now, there has been a glaringly simple way to avoid reporting requirements, which was to set up an offshore corporation. Legislation such as the US QI (Qualified Intermediary) agreements, and the European Union’s Savings Tax Directive, did not apply to corporations. The legal and trust departments of offshore banks have therefore been doing a roaring trade over the past few years setting up these offshore entities.
This is the area that I think will be targetted next, and it might be time to review such arrangements, in anticipation of changes afoot. You have been warned.
Whilst governments enter a very complicated and dicy legal area if they try to ‘pierce the corporate veil’ – try they will. They will try to make personal holding companies tax transparent, so that the account held by your offshore company will be treated for all intents and purposes as your personal account and will be declarable as such. I repeat this is not the law yet – there is plenty of time to change things. I am just predicting what will happen next.
Fortunately, there is quite an easy solution to the above problem. It is called the Panama Private Interest Foundation, and it’s a very flexible legal vehicle. Most importantly, legally speaking it does not have owners, so nobody can accuse you of owning one!
Like trusts, another little understood subject, there are of course there are a few do’s and don’ts involved in the use of Private Foundations. You don’t want to just go and buy one off the internet and set it up yourself, unless you are really sure you know what you are doing. That could be dangerous, as there are a few mistakes that are easy to make but could cost you a lot of money a few years hence.
But help is at hand. I’m writing an article about Panama Foundations right now for issue 51 of The Q Wealth Report which is due out in early September. In this article I will explain the correct and incorrect ways to use this wealth planning tool.
There are a couple of other important twists I should mention here, while trying to make a complex subject simple:
1. There are, of course, lots of other types of offshore investments other than bank accounts. Some, like physical gold, can be purchased through banks. Just last month I wrote an article called Five Non-Reportable Tax Shelters for US citizens which you can read here. Although it was written specifically for US citizens, it could equally apply to Brits, Germans and anyone else feeling the pressure.
2. What I wrote above applies mainly to offshore companies that are set up simply in order to hold bank accounts and assets. Many people use offshore companies for other purposes, such as invoicing fees, trading in goods, or e-commerce. Companies that are doing real business come into a different category.
Watch this space for more!
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