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Anyone know how this tax sheltering works? The article mentioned "One leaked memorandum from a partner of Mossack Fonseca said: 'Ninety-five per cent of our wor

by calebm 11y ago

Anyone know how this tax sheltering works? The article mentioned "One leaked memorandum from a partner of Mossack Fonseca said: 'Ninety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes.'" That would lead me to believe the "vehicle" for transferring wealth offshore might be selling vehicles - like selling yachts? Just a guess though.

sievebrain 11y ago
"Vehicle" in this context just means legal entity. It's the jargon of the space, it doesn't mean a mode of transport. The principle of offshore tax shelters is very simple. Countries tax activity that happens in their jurisdiction. Only America tries to tax activity that happens outside of America, and it's attempts to do so have caused huge problems for Americans everywhere (whilst raising trivial amounts of revenue). All other countries recognise that legitimate taxation is inherently region specific: a country that raises taxes from other countries is more properly called an empire. So countries tax things that happen inside their borders, and countries can set tax rates independently, and the world is full of small countries that don't require much revenue to operate. Hence, if you can shift your business activities from a high tax jurisdiction to a low tax jurisdiction, you can legally pay the lower rates of tax. Essentially all discussion of tax "avoidance" you may encounter revolves around the inherent difficulty of figuring out where a business actually is. For a person it's easy. A person is where their body is, and simply counting days spent in a country is sufficient to decide on tax residency. For a company it is not so easy because a company can do things in many places simultaneously. The rules that try to resolve this conundrum are extremely vague and thus, easily gamed. The case of the UK PM's father is instructive. His company had most of its meetings outside of the UK. This allowed them to argue that it wasn't a British company and thus shouldn't pay British taxes. If the British tax collectors want some of that revenue they'd need to argue that actually the business was done in the UK, really. That's a tricky argument. In the case of companies like Apple or Google, they set things up so their business is done in Ireland. They do this because the Irish people have repeatedly opted to allow very low (effectively zero) rates of corporation tax in order to attract skilled employment to a part of the world that would otherwise be fairly unattractive. Whilst technically Irish corporation taxes are not zero, their rules define the location of a business differently to some other countries, which means arrangements like the Double Irish become possible and that allows for moving profit out of Ireland essentially untaxed. The Irish people know this and allow it, because it has been a very powerful strategy for them and has made Dublin a business center of Europe. Some other countries like to complain about this, stating it's unfair competition, but all countries compete to attract businesses in various ways - often with direct subsidies rather than low tax rates. So their complaints ring somewhat hollow. In practice the money these big companies stash in the Bahamas will eventually get taxed anyway, because taxes apply when the money moves, and eventually that money will move. Probably back into the USA if/when a 'tax holiday' becomes politically acceptable.
- Retric 11y ago
  That's far from accurate. Many and possibly most countries tax overseas investment income. https://en.wikipedia.org/wiki/Tax_treaty https://en.wikipedia.org/wiki/Tax_treaty The normal way this works in you can deduct foreign taxes from foreign income to avoid double taxation and that's about it. Tax havens are the exception not the rule.
- tomp 11y ago
  You're a bit wrong in the beginning. Most countries tax activity that happens outside, but almost all only do it for their residents (UK is an exception, it doesn't even tax it's residents, if they're foreign born). Only the US (and another two or so third world countries) attempts to tax its citizens for all activity even if neither the citizen nor the activity is in the US.
  - sievebrain 11y ago
    Yes, sorry, I was talking about corporate taxation. Yes if you live in a country then all of your activity is assumed to have 'happened' in that country even if the money was raised abroad. But that's easy to enforce, as you are physically in their jurisdiction.
- deepnet 11y ago
  In the Cameron Sr. case the Guardian suggests that if they did have any UK decision meetings then Blairmore Holdings would be due UK taxes. http://www.theguardian.com/news/2016/apr/04/panama-papers-david-cameron-father-tax-bahamas http://www.theguardian.com/news/2016/apr/04/panama-papers-da...
patio11 11y ago
See the third definition here: http://www.merriam-webster.com/dictionary/vehicle http://www.merriam-webster.com/dictionary/vehicle They're generally referring to legal entities, investments, and particularly the interplay of a network of the above which exercises various features of countries' tax laws in advantageous ways.

by calebm 11y ago

sievebrain 11y ago

"Vehicle" in this context just means legal entity. It's the jargon of the space, it doesn't mean a mode of transport. The principle of offshore tax shelters is very simple. Countries tax activity that happens in their jurisdiction. Only America tries to tax activity that happens outside of America, and it's attempts to do so have caused huge problems for Americans everywhere (whilst raising trivial amounts of revenue). All other countries recognise that legitimate taxation is inherently region specific: a country that raises taxes from other countries is more properly called an empire. So countries tax things that happen inside their borders, and countries can set tax rates independently, and the world is full of small countries that don't require much revenue to operate. Hence, if you can shift your business activities from a high tax jurisdiction to a low tax jurisdiction, you can legally pay the lower rates of tax. Essentially all discussion of tax "avoidance" you may encounter revolves around the inherent difficulty of figuring out where a business actually is. For a person it's easy. A person is where their body is, and simply counting days spent in a country is sufficient to decide on tax residency. For a company it is not so easy because a company can do things in many places simultaneously. The rules that try to resolve this conundrum are extremely vague and thus, easily gamed. The case of the UK PM's father is instructive. His company had most of its meetings outside of the UK. This allowed them to argue that it wasn't a British company and thus shouldn't pay British taxes. If the British tax collectors want some of that revenue they'd need to argue that actually the business was done in the UK, really. That's a tricky argument. In the case of companies like Apple or Google, they set things up so their business is done in Ireland. They do this because the Irish people have repeatedly opted to allow very low (effectively zero) rates of corporation tax in order to attract skilled employment to a part of the world that would otherwise be fairly unattractive. Whilst technically Irish corporation taxes are not zero, their rules define the location of a business differently to some other countries, which means arrangements like the Double Irish become possible and that allows for moving profit out of Ireland essentially untaxed. The Irish people know this and allow it, because it has been a very powerful strategy for them and has made Dublin a business center of Europe. Some other countries like to complain about this, stating it's unfair competition, but all countries compete to attract businesses in various ways - often with direct subsidies rather than low tax rates. So their complaints ring somewhat hollow. In practice the money these big companies stash in the Bahamas will eventually get taxed anyway, because taxes apply when the money moves, and eventually that money will move. Probably back into the USA if/when a 'tax holiday' becomes politically acceptable.

Retric 11y ago
That's far from accurate. Many and possibly most countries tax overseas investment income. https://en.wikipedia.org/wiki/Tax_treaty https://en.wikipedia.org/wiki/Tax_treaty The normal way this works in you can deduct foreign taxes from foreign income to avoid double taxation and that's about it. Tax havens are the exception not the rule.
tomp 11y ago
You're a bit wrong in the beginning. Most countries tax activity that happens outside, but almost all only do it for their residents (UK is an exception, it doesn't even tax it's residents, if they're foreign born). Only the US (and another two or so third world countries) attempts to tax its citizens for all activity even if neither the citizen nor the activity is in the US.
- sievebrain 11y ago
  Yes, sorry, I was talking about corporate taxation. Yes if you live in a country then all of your activity is assumed to have 'happened' in that country even if the money was raised abroad. But that's easy to enforce, as you are physically in their jurisdiction.
deepnet 11y ago
In the Cameron Sr. case the Guardian suggests that if they did have any UK decision meetings then Blairmore Holdings would be due UK taxes. http://www.theguardian.com/news/2016/apr/04/panama-papers-david-cameron-father-tax-bahamas http://www.theguardian.com/news/2016/apr/04/panama-papers-da...

patio11 11y ago

See the third definition here: http://www.merriam-webster.com/dictionary/vehicle http://www.merriam-webster.com/dictionary/vehicle They're generally referring to legal entities, investments, and particularly the interplay of a network of the above which exercises various features of countries' tax laws in advantageous ways.