There’ll Always Be A Tax Haven

Even today, the sun seldom sets on the fragments of the British Empire. See this Telegraph slide show.

The fragments aren't as insignificant as their size suggests. Many have become thriving financial centers, including . . .

Anguilla: a population of fewer than 16,000 and a reputation as a tax haven.

Bermuda: a popular haven for corporations, especially reinsurance companies.

British Virgin Islands: the corporate tax rate is a less than punitive 0%.

Cayman Islands: probably the first locale people think of when they hear “tax haven.”

Gibraltar: where The Girl With the Dragon Tattoo stashed her millions.

Turks and Caicos: about 30% of GDP comes from “financial services.”

Until we get a world government (let's not hurry) tax havens will continue to lure business and spice up the practice of wealth management. Unfortunately, personal visits are seldom necessary.

Turks & Caicos beach

Related Posts:
The Girl With the Family Office
Shelters for Hedgies

The Case of the Inherited Tax Shelter

Should a woman who inherits a $43-million UBS account, sheltered years earlier by her husband, receive leniency from Uncle Sam?

Would your answer differ if the widow were age 49 instead of 79?

Would you be influenced by her failure – more likely, her advisers' failure – to disclose her inheritance to Uncle Sam until 2009, when a list of owners of UBS shelters went public?

Mary Estelle Curran has served a prison term most tax evaders can only dream of: five seconds probation. She also may be the only 79-year-old Palm Beach multimillionaire to be described as a "homemaker."

Despite this setback, Uncle Sam's attempts to crack down on offshore shelters are expected to continue. In January Wegelin, Switzerland's oldest private bank, went out of business after pleading guilty to helping more than 100 Americans shelter more than $1.2 billion.

Bermuda Tax Shelters for Hedgies

Bermuda Tax Dodge Aiding Billionaires, Reuters reports. Lovely views, no income tax. Where better than Bermuda to defer federal income tax by cycling hedge fund fees and profits through reinsurance companies?

This year's stiffer top tax rates should boost the appeal of tax deferment.

By setting up reinsurance companies [in Bermuda], money managers can take advantage of a loophole in IRS rules. Ordinarily, when hedge fund managers invest in their funds, they pay either the 39.6 percent rate for ordinary income or the 20 percent long- term capital gains rate, depending on how frequently securities are traded, plus an extra 3.8 percent health-law surcharge. If they were to move the hedge funds to tax havens, they would incur IRS penalties on earnings from what the agency calls “passive foreign investment companies.” 

Here’s the catch: The IRS doesn’t penalize earnings from insurance companies, which it considers to be “active” businesses. As a result, by routing money through a Bermuda reinsurer, which in turn puts its assets back into their own hedge funds, fund managers can defer any taxes until selling the stake. They then pay only the lower capital gains tax rate.

Having a business excuse to visit Bermuda sounds good to me, especially with more snow predicted for this weekend.

Bermuda - looking east from Gibbs Hill.

Why Some Private Bankers Go To the Ballet

The wink-and-nod aspects of international private banking are going (yuck) public.
The Guardian has published extracts from Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxson, In the first installment we learn that really private bankers don't sit around waiting for money to come in seeking shelter:

My bank never once had a client walk through the door. The bankers and their clients go on big-game hunting trips, or to the ballet in Budapest. That is where it happens.

Wikileaks, not content with embarrassing U.S. diplomats and stirring up trouble in Tunesia, now threatens to release details of thousands of offshore accounts. The Swiss bank accounts belonged to more than 2,000 American, European and Asian individuals and multinational companies, according to former Swiss banker Rudolf Elmer. Among the seekers of shelter were politicians, business leaders, celebrities, organized crime leaders and "three major financial institutions."

Will all this unwelcome transparency make global private banking a duller business going forward? Maybe not. Remember the words of John Maynard Keynes:

The avoidance of taxes is the only intellectual pursuit that carries any reward.

Marketing yacht loans and grantor retained annuity trusts doesn't exactly create an adrenalin rush. Sometimes I'm sorry the racy aspects of private banking are off limits.

Singapore is the New Switzerland

Photo via Wikimedia Commons

"For centuries," the NY Times observes, "Switzerland has been the sanctuary of choice for wealthy people seeking to hide their fortunes and evade taxes. Now, amid a growing crackdown on Swiss private banking, the rich are flocking to Singapore and Hong Kong…."

Beautiful, Beautiful Tax Havens

Taxes are almost certainly rising next year, on both sides of the Atlantic. In aid of wealth managers and their clients, the U.K.'s Telegraph offers this alluring slide show of tax havens.

Shown below, the Channel Islands, where there is no capital gains tax, inheritance tax, gift tax, estate duty, purchase tax (VAT) or wealth tax. Beautiful!

Where in the World are These Amazing Islands?

These islands have $41 million in bank assets for every resident!

On these islands stands a five-story office building with over 18,000 tenants!

Where are we? The Cayman Islands, subject of Senate Finance Committee hearings regarding tax shelters.

“Finding these tax cheats is a bit like a game of cat and mouse, only the mouse is hiding its cheese offshore.”

– Senator Chuck Grassley

“The Lichtenstein Leak”

Hankering to write a novel of international suspense? With a financial twist? Start taking notes on the Senate report on offshore tax dodging and the hearings now under way.

Caught in the investigative headlights are UBS, the Swiss bank, and LGT, run by the royal family of Lichtenstein.

A sample to get your novelist juices flowing:

The hearing will also include videotaped testimony from Heinrich Kieber, a German citizen and a former low-level employee of LGT, who is in the witness protection program.

In recent years, Mr. Kieber stole LGT client records and turned them over to German authorities, igniting a tax-evasion probe in Germany. Some of the records have made their way to the Internal Revenue Service, which is investigating 100 American citizens with LGT accounts.

In the videotape, Mr. Kieber is disguised and his voice is altered. The royal family of Liechtenstein has hired private detectives to track him down.