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The Paradise Papers: How Ridiculously Easy It Is for the Rich to Avoid Taxes

302 points by obi1kenobi 9y ago

troydavis 9y ago
This article claims to give specifics, but carefully omits that all legal ways to transfer money from a trust to a US individual will require the individual pay taxes on it. The offshore trust only serves to defer taxes, not avoid them, unless the money remains outside the US permanently. The US's tax policy is to tax income when it's brought into the country. One can debate the pros and cons of that policy, but it was a very intentional choice. Calling compliance with that law "avoiding taxes" is like calling an average American who deducts mortgage interest a "tax avoider": they're complying with the letter and the spirit of the tax law. Its implementors considered the pros and cons and decided that, on balance, the mortgage interest deduction made sense. Someone who isn't paying taxes they don't owe is not a "tax avoider." As an example, this article's sole proposed way to get the cash from a trust is patently illegal: > When your Uncle Joe dies, the insurer pays. The cash goes into your bank account tax-free. How can the taxman prove otherwise? You have a policy and Uncle Joe’s valid death certificate issued by your own government. The money is home free. … which they gloss over with: > If the phony insurance policy is too gruesome for you, you can find something more appealing in the summaries of the multitude of methods on the IRS website. A simple workaround would be to get a credit card from a foreign bank and pay it off through your secret bank account. This isn't "a simple workaround," it's a recipe for getting prosecuted for tax fraud – and quite possibly going jail, since it would be clear that this was intentional fraud. For a few perspectives that cover the issue better, start here: * https://www.irs.gov/businesses/income-from-abroad-is-taxable https://www.irs.gov/businesses/income-from-abroad-is-taxable (the IRS's own statement on hiding income offshore). "In addition to reporting your worldwide income, you must also report on your U.S. tax return whether you have any foreign bank or investment accounts." This isn't some theoretical risk; if, or more likely when, this account gets discovered, they'll be prosecuted. * https://www.nytimes.com/2017/11/07/world/offshore-tax-havens.html?_r=0 https://www.nytimes.com/2017/11/07/world/offshore-tax-havens... (look for examples how someone can actually get the money into the US without paying taxes; you won't find many, if any) * https://en.wikipedia.org/wiki/UBS_tax_evasion_controversy https://en.wikipedia.org/wiki/UBS_tax_evasion_controversy and https://www.cbsnews.com/news/swiss-to-let-banks-lift-secrecy-in-us-tax-deal/ https://www.cbsnews.com/news/swiss-to-let-banks-lift-secrecy... (2013; history of US pressure on the last few countries that are or were part of the worldwide banking system but didn't disclose transactions) * https://www.bloomberg.com/view/articles/2017-11-08/proxy-fights-and-mystery-trusts https://www.bloomberg.com/view/articles/2017-11-08/proxy-fig... - Matt Levine's summary (quoting the FT): "Otherwise, the Paradise Papers seem to be 'dull reading,' and they describe plans that are 'mostly, if not totally, legal' -- 'Some are not even questionable from a legitimacy point of view.' This sentence of the NYT article a good summary of the US's tax policy: > “I would have told the guy, ‘You’ve got this money offshore — just leave it offshore,’” Mr. Pfeifer said. “And he did.” Again, there are pros and cons to that policy, but this article doesn't try to point those out, it tries to paint people complying with the letter and spirit of the tax law as unethical.
- Retric 9y ago
  You can bring money into the US without paying taxes as long as you have an intermediary do so. EX: The trust could buy US property. You can also sell a security without making that a taxable event which allows you to earn interest from money that would have been paid as taxes. Thus, lowering your lifetime tax bill. Finally, because of the way our Tax system is setup such that deductions don't apply to say Social Security 'income tax' becomes a bigger deal for the rich. So, gaming the system becomes more viable the more money you have.
  - pjc50 9y ago
    Indeed. The only reason to bring money back into the US would be to spend it on consumption. If you want to invest it, or leave it to your heirs, or borrow against it, you can leave it offshore.
    - blunte 9y ago
      This exactly - you simply borrow against it at a very low rate.
      - njarboe 9y ago
        This works since 2009, but historically interest rates are not zero. It will be interesting to see how things turn out in the future when most of the richest people in the world have huge US dollar loans at low rates borrowed from pension funds and banks backed by hard assets. These people would benefit greatly if there is high inflation/hyperinflation. I don't really know, but I would guess in the recent past the super rich held a lot of US bonds and other dollar denominated assets that would loose value with inflation.
  - troydavis 9y ago
    > The trust could buy US property. The US tax policy deliberately draws that line, though, on the grounds that there's only 2 ways for that trust to exist: (a) the income was earned outside the US. The US says this isn't taxable until or unless it comes into the country for corporate or personal use. See slides 10 - 12 of https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pdf https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pd... for more - basically, if any party treats it as a personal bank account, it's not a trust. (b) the income was earned inside the US, and thus already passed through the US (and taxes were paid on it) before it was moved to the trust. Moving it to the trust isn't a taxable event, and any gains will be taxed if or when they are brought into the country (see (a)). Don't trust me, though, form your own opinion. These are good summaries of what an offshore trust can and can't do: * https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pdf https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pd... * https://en.wikipedia.org/wiki/Offshore_trust https://en.wikipedia.org/wiki/Offshore_trust * http://nomadcapitalist.com/offshore-trust/ http://nomadcapitalist.com/offshore-trust/ (covers a few countries) * https://www.theguardian.com/business/2016/apr/08/offshore-trusts-tax-avoidance-explainer https://www.theguardian.com/business/2016/apr/08/offshore-tr... (UK-specific but interesting)
jnordwick 9y ago
Getting bored of naked politics on HN. Can we have a special politics section so we can keep it separate? I guarantee I'm not the only one who thinks it is becoming disruptive to the technical, scientific, and business side of the site.
- jlgaddis 9y ago
  It's not exactly one of my interests either but apparently enough folks are interested in this kind of stuff for it to hit the top so quickly.
  - baxtr 9y ago
    I’ll bet there is a technology angle to this. Maybe blockchain could help here, too?
    - jlgaddis 9y ago
      Only if the solution is implemented in Rust, of course.
    - have_faith 9y ago
      The funny thing is that a blockchain ledger could help maybe.
- api 9y ago
  Here's an idea: we should have a section for off-topic stuff like Ask and Show. That can include naked politics, entertainment, etc. There should still be standards, but the standard should be a combination of interesting, relevant, well-written, and professional.
- ainiriand 9y ago
  Agree, HN should be for rather unconventional technology news.
- pjc50 9y ago
  That's a position a lot of people share, and a politics ban was recently tried. It was reverted because it's very hard to draw a clear barrier between them. Perhaps a tagging system would help, but HN is allergic to features.
gcb0 9y ago
if everything happens with unvalidated documents, why we never hear about falsaries emptying bank accounts? e.g. if I hide all my money in a trustee fund with an unregistered document, and I get it back by showing the bank the trust contract plus a signed document from the trust asignee, and none of those are registered anywhere (which the article calls secret documents), wouldn't it be trivial to falsify both of them, specially now that most accounts became public?
- marcosdumay 9y ago
  We would never hear about that, either it happening or not.
dexterdog 9y ago
If you believe that taxation is theft then what is morally wrong with doing everything within the law (and withoutince it is written by those whose primary interest is in maximizing state income) to counter that theft as much as possible?
- ThomPete 9y ago
  Nothing. But if your ability to avoid taxes is mostly due to your wealth and you can end up paying less in taxes than a normal family then something is obviously out of sync.
- makotech222 9y ago
  Paying what you owe isn't morally wrong. But using your wealth to corrupt the system so that you and you ilk owe less in taxes IS morally wrong. Its also wrong to support,continue and benefit from the system that keeps the corruption in place.
  - blunte 9y ago
    This, to me, is the biggest moral dilemma. To avoid ("legally" or fraudulently) taxes is to push the burden onto the people who are paying their appropriate amount of taxes. But to contribute to a corrupt, warmongering government, is also wrong. What you can do - what I do - is choose to live in a higher taxed country that isn't nearly as bad with respect to how it spends tax money. And so long as you pay more taxes to the country you live in, you end up owing none to the US.
    - snappyTertle 9y ago
      So...you benefit from the social programs of the US without contributing. Nice solution!
      - blunte 9y ago
        I'm pretty sure I get nothing out of the US social programs considering I'm a resident of another country.
dpiers 9y ago
| Both of these Papers were revealed by an organization with the cumbersome name of The International Consortium of Independent Journals (ICIJ) — a group in need of a new name and a publicity agent International Consortium of Investigative Journalists. The name is fine and the authors (extremely basic) facts are wrong.
- black_puppydog 9y ago
  Yeah. I am really happy about the ICIJ's work here, but I stopped reading this after seeing that the author didn't get the name right and then explicitely talked about the name. Luckily, there's plenty of good coverage on the topic. For example, I really enjoyed the (German) mini-podcast by the NDR: http://www.ndr.de/info/podcast4360.html http://www.ndr.de/info/podcast4360.html
- dude01 9y ago
  You're right, they got the name wrong. However, I read it all, and they seemed to know their stuff. They knew about using lawsuits to move money out, and they knew about using fake insurance policies to move money back in. I don't think most people know that - I only learned them recently.
PatientTrades 9y ago
The amount of loop holes and workarounds that our tax system allows is ridiculous. Maybe we should move to a tiered flat tax system No deducations, No credits to eliminate as much grey areas as possible.
- blunte 9y ago
  This has been promoted with significant traction many times. But remind yourself who is charged with writing the bills that become laws. Congress, which is funded by wealthy businesses and individuals, makes laws which specifically allow their "clients" to avoid taxes.
- makapuf 9y ago
  I think a flat tax as unfair as it is can be fairer than negative tiered as it is today.
- aeorgnoieang 9y ago
  One obstacle is the current system has diffuse costs but concentrated benefits. A much simpler tax system would be one in which many accountants would no longer be needed. They're enjoying the concentrated benefits and thus their incentive to protect the status quo is much higher than the incentive of everyone else to change it. They're also facing a loss, which people generally perceive as a more intense event than a gain of the same magnitude.
- gozur88 9y ago
  Flat tax systems sound good in theory, but they don't address the problem, which is what counts as income.
  - a_c_s 9y ago
    Yeah, I think we need to flatten them a different way: tax corporations and individuals on a percentage of revenue (income) they earn. Then it becomes very expensive to create a shell company to launder money through and games like paying oneself through a corporation lose their appeal.
porter 9y ago
You also never hear about breach of fiduciary duty by the trustees. This happens all the time in the U.S. and it's difficult to catch because it's all private. This is particularly true for the elderly. I wouldn't want to rely on offshore laws to enforce trustee fraud.
RoutinePlayer 9y ago
Do some of the comments here further highlight that money is the true religion in the US and the world?
deleted 9y ago
[deleted]
jijji 9y ago
When a US citizen does business overseas, putting the money into a offshore bank account outside the united states makes absolutely a lot of sense. The article makes it appear that people are somehow doing something wrong by doing business outside of their home country and then not bringing the money back to their home country. The big reason people don't bring the money back to their home country is because the money is subject to tariffs and fees which have nothing to do with the generating of the money in the first place, so it makes more sense to keep it offshore than to bring it to the US.
- yfufuffuc 9y ago
  This would be sensible if profits were being paid in each country. The double Irish functions to siphon profits from Europe and Asia to tax havens like Burmuda. This is a world wide scandal.
  - ringaroundthetx 9y ago
    Income taxes are a 100 year old concept in the western world, capital taxes are an even newer concept. The moral arguments to support them are even younger. And these guys are the scandal? I'm not suggesting there is no abuse happening here, or that its so binary as one side is morally good and the other side is morally bad, I'm just offering perspective to the limitation of your argument.
watty 9y ago
Guidelines for submission: "Off-Topic: Most stories about politics, or crime, or sports, unless they're evidence of some interesting new phenomenon..." Since the rich avoiding taxes isn't some new phenomenon, this is off-topic.
- kbenson 9y ago
  > Since the rich avoiding taxes isn't some new phenomenon, this is off-topic. The actual mechanics of how it is accomplished being published is a fairly new phenomenon, to my eyes. That makes it somewhat relevant.
  - watty 9y ago
    That's kind of silly. Every single thing that happens in politics is "new" at one point, so therefore we should be able to post every new political thing?
    - kbenson 9y ago
      That has little or no relation to what I said. The publishing of how something is done with specifics when that process was largely hidden previously makes this interesting. Your inability to see it as anything but purely political is not an attribute we share.
      - watty 9y ago
        What do you mean by "largely hidden"? Nothing in this blog post is hidden or secret.
        kbenson 9y ago
        My argument is that the process by which money is moved to these tax lenient locations and the companies that facilitate this and the options and services they offer has to this point been largely unknown to the average person, and is thus interesting to read about. Are you contending that all this was known, or that even if it was unknown it's uninteresting? Because otherwise I'm not sure what you're arguing.
matt_wulfeck 9y ago
>In the Caymans, your service provider, a local law firm, will offer a choice of cookie cutter plans with layers of trusts and corporations in other secrecy jurisdictions, which will make it impossible for the tax man to pin down who actually owns the account. The IRS just asks you if you have offshore holdings, in which you either tell the truth or perjure yourself. As far as I can tell, a lot of the labyrinthine layers are designed so that maybe you can lie to them without actually lying. Or at least say that to yourself. I bet a lot of the nouveau riche from developing countries use a service like this not to avoid taxes, but to avoid their shaky government from nationalizing their bank accounts.
- charlesdm 9y ago
  > The IRS just asks you if you have offshore holdings, in which you either tell the truth or perjure yourself. Say an offshore foundation is set up to benefit your family. You then make a loan of $10MM to it, that is then invested in some company. The foundation receives annual dividends of $1MM from this company, which are given (through a loan, salary or a sort of stipend) to your son living abroad. Do you own or control this foundation in the eyes of the law? The answer could be either yes or no, depending on the country you live in. Sometimes the answer isn't a clear yes or no either.
  - 3pt14159 9y ago
    If there is any ability for you to access the value at all, even in the case of bankruptcy, then yes you own the foundation, company, contract, work of art, crytpo-currency, etc. I understand this doesn't mesh with multi-party signatures on the blockchain, but that's at least an argument to be made that you constructed a situation where you couldn't access it as a manner of evading being forced to do so, so it kinda breaks that you do still have access to it.
- deleted 9y ago
  [deleted]
- danjoc 9y ago
  >perjure yourself. https://www.ped30.com/2017/11/06/tim-cook-has-some-explaining-to-do/ https://www.ped30.com/2017/11/06/tim-cook-has-some-explainin... It doesn't seem like perjury is such a big deal. Nobody is arresting Tim Cook for perjuring himself in front of Congress. Clapper did it too. Sessions as well. In fact, it has become a regular occurrence. It seems you're nobody until you've lied to Congress.
projectramo 9y ago
The "hacker" response to this paper: Is it true that they can easily hide this money? It seems like a complicated process. Once you have an account, how does one do anything with it? Is it illegal or is this perfectly legal? If it is illegal and there is an enforcement mechanism, this is not that different from drug smuggling or just theft. Of course it happens, but we should be looking at the scale of the problem. Can anyone do it? They claim its for the rich but they also claim the filing fee is $100. The non-hacker response: We don't want no politics.
- manmal 9y ago
  I heard that those shady Swiss banks won't accept you unless you plan to deposit at least 1 mio or more.
- Erwin 9y ago
  First you have to send your money to your foreign account. If you have earned it as wages and it's in your ordinary bank account, you have already paid quite a lot of taxes. Your employer will probably not be comfortable sending your paycheck to the Virgin Islands. Maybe if you own a piece of a company, nobody knows about it and you sell it without your tax authority know it, you can get it deposited somewhere. But normally such sales require extensive documentation to IRS. So what you most likely evade is the capital gains tax on your stock investment profits done from the tax heaven. If you still want to live in the country you owe money, you can then get an ATM or Visa card that lets you access your foreign account and pay for the minor things, but you may not be able to buy a house and put it on your credit card. Many countries also have a limit on how much you can pay for with cash, and how much cash you can even transfer across borders without declaring it (10,000 EUR in EU). The Danish and Swedish tax authorities have been watching both activities in the last 10 years: if you somehow transferred a million dollars to the Cayman Islands, they might ask a few hard questions. If you were using a Visa card to pay for a hotel or restaurant, that came from a tax heaven, they might have found you too through another project that analyzed foreign Visa usage that wasn't consistent with tourists. No significant high profile arrests came of it though -- they mostly settled without significant penalty. The tax haven money transfer resulted in approx 150 million USD extra tax (which is a good for just 125 man-years spent). The credit card investigation gave approximately 70 million, but of that just 10% was actual penalties -- in most cases it seems like the money was treated as income adjustment. Sadly, the Danish tax authorities were then embarrassed by the biggest tax fraud ever, on a far larger scale then factory owners stashing money in Cayman Islands -- a massive 2 billion dollar fraud involving claiming back withheld dividend tax under double-taxation. They've only found 15% of the money so far...
jasode 9y ago
I don't think this article actually explains how the rich are avoiding taxes using these layered schemes of trustees and powers of attorney. First, let's set aside corporations like Apple earning foreign income and not repatriating it or claiming Ireland tax jurisdiction or special treatment EU doesn't like. For this story, I'm specifically interested in the mechanisms citizens use to evade taxes. To me, the journalists are conflating 2 situations: 1) hiding money & assets (rich people like to hide money from spouses and their divorce lawyers, or hide them from lawsuits) 2) not declaring money to evade taxes A lot of the money that the rich store at the islands has already been seen by the IRS and taxes were paid on it. Therefore, I'm not getting a clear picture of which situation dominates...is it hiding money or evading taxes? If its evading taxes, I'd prefer the author explain that in more detail. Outlining the opaque layers of ownership doesn't really explain the tax evasion part. I ask this question because I read a book about "protecting your assets" and the techniques that author Jan D. Weir talks about overlap with hiding legally obtained money that all lawful taxes have been paid on.
- charlesdm 9y ago
  1. These journalists don't understand the half of it. All of these structures, mechanics etc serve a purpose, and while most journalists do a decent job of describing what the rich use (i.e. trusts, companies, foundations, PoA, etc) they don't actually describe why they do it. 2. Avoidance is not evasion. These really shouldn't be lumped all together because there is a massive difference. 3. Even if they get rid of all pure (Cayman Islands style) tax havens tomorrow, the rich won't be paying more in tax. They would then go to more respectable jurisdictions, such as Luxembourg, Switzerland, (for non Americans) the US, Singapore, etc.
  - mattmanser 9y ago
    I think your 3rd point is way off base, this is the whole point about avoidance. The rich are using the disparities between the laws systems to avoid tax and that's what needs fixing. You shouldn't be able to make a billion $$$ in the UK, for example, and then claim you actually earnt it in Luxembourg. If we, the UK tax payers, gave you the eduction, the opportunities, the law systems, the safety provided by our armies, foreign office, judicial systems, social safety nets and care from our health system, as well as all the other tangibles and intangibles that I could probably list for a couple of pages, you should pay back your share into the society. And yes, that's a percentage, not a fixed amount. The social contract of societies is being broken by these avoidance schemes. You luck out in the business lottery, then you pay up to help the rest of us. You'll still be stinking rich. And in the eyes of most people there's not much difference between avoidance and evasion, just the law. I think that's where a lot of the problem stems from, as long as the politicians keep saying "it's ok, but we need to tweak this and that" and giving sweetheart deals out to the rich not available to the rest of us, the public think "this is really not ok, it's totally unacceptable", we're going to keep getting Trumps, Farages, Le Pens and Brexits happening in western democracies. I think the general feeling is that the rich "got away" unpunished with the 2008 crash and now the scale of their tax avoidance is emerging, on top of the income gap widening, it's only going to get worse and politicians seem unwilling to change course and if they don't we'll all be in for some really nasty surprises in the next 10/20 years.
xefer 9y ago
I wonder if it would be possible to create a business whose purpose is to create tax shelters from money pooled together by tax payers who would otherwise not have enough individually to take advantage of these strategies available to the rich?
Shivetya 9y ago
Tax rates need to more reasonable to encourage the rich to pay them without question. When rates get to high the first hint is that they stop earning and spending where that holds true. A business doesn't always have the same opportunity because they tend to want to sell everywhere. The idea is to get them to spend freely and the trick is finding the breakpoint that changes the behavior. there will always be countries welcoming the rich and as luxuries become more available in more areas this will only increase. so find the balance
- omegaworks 9y ago
  >Tax rates need to more reasonable to encourage the rich to pay them without question. How does this not lead us to a race-to-the-bottom? If any reasonable person had the discretion, they'd pay as little tax as possible. Many of the "wealthiest" Americans play the "Declare Declining Real-Estate Value as a Loss" game to avoid paying tax altogether. [1] There is no lower limit that people will simply pay without question. You can always frame even a minuscule percentage-based tax as a problem given a large enough income by looking at the absolute values paid. That this is given as a rationale for lowering tax is pure propaganda. 1. https://www.thenation.com/article/without-the-amt-donald-trumps-2005-tax-rate-would-have-been-just-3-percent/ https://www.thenation.com/article/without-the-amt-donald-tru...
  - njarboe 9y ago
    There are studies (ref?) that around 10% people start thinking seriously about avoidance. Western historical religious tithing is at this level. State sales taxes rarely go above this level. When you go higher the tax is generally somewhat hidden from the person in the form of withholding the tax by the employer or included it the price and collecting at every level of production, not just at the end sale, as with a VAT.
  - cjlars 9y ago
    If you have a a 50% tax rate and can cut 10% off your tax bill with fancy accounting, your after tax income rises 10% to 55% of earnings. If you have a 10% tax rate and can cut 10% off your tax bill with fancy accounting, your after tax bill rises just over 1% to 91% of earnings. Decisions are made at the margin -- How much effort does it take to keep the extra cash and how much do you get to keep? high rates make tax evasion, legal or not, more worthwhile.
jondubois 9y ago
What really annoys me is the slope of taxation in most developed countries and how it just suddenly stops going up after your salary exceeds around $150K. If you earn less than $10K, you pay 0%; that makes sense, then if you earn $150K, you pay close to 50%... OK you could argue that this still makes sense. But then if you earn $200 million per year, you still only pay 50% tax - This makes no sense; the tax rate should follow a Lorenz curve which mirrors and offsets income inequality. To earn $100K+ as a professional using nothing but your brain is bastard-hard. It takes a toll mentally. Someone who owns stocks and is earning $500K+ per year from dividend payments while sitting around in their underwear all day doing nothing should be taxed at a much higher rate than someone who earns $150K by mutilating their brain every day. That seems extremely obvious to me. The most infuriating thing about the current tax system is that the magical $150K number (where the tax rate suddenly levels off) is in fact the exact point after which earning money starts to get easier. This is exactly the point when the tax rates should start really sloping up - Not the point where they should level off! Also, I think that the argument about protecting rich people so that they can have extra money to invest back in the economy is no longer valid. With innovations in crowd funding, large numbers of people can now easily pool their resources together to fund very significant and meaningful projects. Rich people these days are only interested in monopolising markets; not adding value.
- projectramo 9y ago
  I agree with some of the general sentiment here but what I don't understand is why how hard one works or how much toll it takes should have anything to do with taxation. For instance, suppose you're a happy go lucky guy who doesn't need much sleep and have a happy home life, and I am a grumpy dude who hates everyone around me and hate my co-workers. Should I pay less in tax? Tax policy should be based on our collective values regarding such things as what incentives we want and to what extent we want redistribution. It should not be related to punishing people who are enjoying their lives.
  - jondubois 9y ago
    In my books, money that you get from dividend or rent payments is not 'earned income'. I don't think it should be classified as income; it should get its own category and be taxed much higher. We don't want to encourage people to sit around and do nothing just because they happened to decide to buy a few Apple or Amazon shares 20 years ago. Maybe the tax rate would be correlated to happiness, but that's OK; maybe it will average out the human experience... That seems fair.
ciconia 9y ago
> Of course, everybody hates paying taxes. I don't.

302 points by obi1kenobi 9y ago

This article claims to give specifics, but carefully omits that all legal ways to transfer money from a trust to a US individual will require the individual pay taxes on it. The offshore trust only serves to defer taxes, not avoid them, unless the money remains outside the US permanently. The US's tax policy is to tax income when it's brought into the country. One can debate the pros and cons of that policy, but it was a very intentional choice. Calling compliance with that law "avoiding taxes" is like calling an average American who deducts mortgage interest a "tax avoider": they're complying with the letter and the spirit of the tax law. Its implementors considered the pros and cons and decided that, on balance, the mortgage interest deduction made sense. Someone who isn't paying taxes they don't owe is not a "tax avoider." As an example, this article's sole proposed way to get the cash from a trust is patently illegal: > When your Uncle Joe dies, the insurer pays. The cash goes into your bank account tax-free. How can the taxman prove otherwise? You have a policy and Uncle Joe’s valid death certificate issued by your own government. The money is home free. … which they gloss over with: > If the phony insurance policy is too gruesome for you, you can find something more appealing in the summaries of the multitude of methods on the IRS website. A simple workaround would be to get a credit card from a foreign bank and pay it off through your secret bank account. This isn't "a simple workaround," it's a recipe for getting prosecuted for tax fraud – and quite possibly going jail, since it would be clear that this was intentional fraud. For a few perspectives that cover the issue better, start here: * https://www.irs.gov/businesses/income-from-abroad-is-taxable https://www.irs.gov/businesses/income-from-abroad-is-taxable (the IRS's own statement on hiding income offshore). "In addition to reporting your worldwide income, you must also report on your U.S. tax return whether you have any foreign bank or investment accounts." This isn't some theoretical risk; if, or more likely when, this account gets discovered, they'll be prosecuted. * https://www.nytimes.com/2017/11/07/world/offshore-tax-havens.html?_r=0 https://www.nytimes.com/2017/11/07/world/offshore-tax-havens... (look for examples how someone can actually get the money into the US without paying taxes; you won't find many, if any) * https://en.wikipedia.org/wiki/UBS_tax_evasion_controversy https://en.wikipedia.org/wiki/UBS_tax_evasion_controversy and https://www.cbsnews.com/news/swiss-to-let-banks-lift-secrecy-in-us-tax-deal/ https://www.cbsnews.com/news/swiss-to-let-banks-lift-secrecy... (2013; history of US pressure on the last few countries that are or were part of the worldwide banking system but didn't disclose transactions) * https://www.bloomberg.com/view/articles/2017-11-08/proxy-fights-and-mystery-trusts https://www.bloomberg.com/view/articles/2017-11-08/proxy-fig... - Matt Levine's summary (quoting the FT): "Otherwise, the Paradise Papers seem to be 'dull reading,' and they describe plans that are 'mostly, if not totally, legal' -- 'Some are not even questionable from a legitimacy point of view.' This sentence of the NYT article a good summary of the US's tax policy: > “I would have told the guy, ‘You’ve got this money offshore — just leave it offshore,’” Mr. Pfeifer said. “And he did.” Again, there are pros and cons to that policy, but this article doesn't try to point those out, it tries to paint people complying with the letter and spirit of the tax law as unethical.

Retric 9y ago
You can bring money into the US without paying taxes as long as you have an intermediary do so. EX: The trust could buy US property. You can also sell a security without making that a taxable event which allows you to earn interest from money that would have been paid as taxes. Thus, lowering your lifetime tax bill. Finally, because of the way our Tax system is setup such that deductions don't apply to say Social Security 'income tax' becomes a bigger deal for the rich. So, gaming the system becomes more viable the more money you have.
- pjc50 9y ago
  Indeed. The only reason to bring money back into the US would be to spend it on consumption. If you want to invest it, or leave it to your heirs, or borrow against it, you can leave it offshore.
  - blunte 9y ago
    This exactly - you simply borrow against it at a very low rate.
    - njarboe 9y ago
      This works since 2009, but historically interest rates are not zero. It will be interesting to see how things turn out in the future when most of the richest people in the world have huge US dollar loans at low rates borrowed from pension funds and banks backed by hard assets. These people would benefit greatly if there is high inflation/hyperinflation. I don't really know, but I would guess in the recent past the super rich held a lot of US bonds and other dollar denominated assets that would loose value with inflation.
- troydavis 9y ago
  > The trust could buy US property. The US tax policy deliberately draws that line, though, on the grounds that there's only 2 ways for that trust to exist: (a) the income was earned outside the US. The US says this isn't taxable until or unless it comes into the country for corporate or personal use. See slides 10 - 12 of https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pdf https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pd... for more - basically, if any party treats it as a personal bank account, it's not a trust. (b) the income was earned inside the US, and thus already passed through the US (and taxes were paid on it) before it was moved to the trust. Moving it to the trust isn't a taxable event, and any gains will be taxed if or when they are brought into the country (see (a)). Don't trust me, though, form your own opinion. These are good summaries of what an offshore trust can and can't do: * https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pdf https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pd... * https://en.wikipedia.org/wiki/Offshore_trust https://en.wikipedia.org/wiki/Offshore_trust * http://nomadcapitalist.com/offshore-trust/ http://nomadcapitalist.com/offshore-trust/ (covers a few countries) * https://www.theguardian.com/business/2016/apr/08/offshore-trusts-tax-avoidance-explainer https://www.theguardian.com/business/2016/apr/08/offshore-tr... (UK-specific but interesting)

jnordwick 9y ago

Getting bored of naked politics on HN. Can we have a special politics section so we can keep it separate? I guarantee I'm not the only one who thinks it is becoming disruptive to the technical, scientific, and business side of the site.

jlgaddis 9y ago
It's not exactly one of my interests either but apparently enough folks are interested in this kind of stuff for it to hit the top so quickly.
- baxtr 9y ago
  I’ll bet there is a technology angle to this. Maybe blockchain could help here, too?
  - jlgaddis 9y ago
    Only if the solution is implemented in Rust, of course.
  - have_faith 9y ago
    The funny thing is that a blockchain ledger could help maybe.
api 9y ago
Here's an idea: we should have a section for off-topic stuff like Ask and Show. That can include naked politics, entertainment, etc. There should still be standards, but the standard should be a combination of interesting, relevant, well-written, and professional.
ainiriand 9y ago
Agree, HN should be for rather unconventional technology news.
pjc50 9y ago
That's a position a lot of people share, and a politics ban was recently tried. It was reverted because it's very hard to draw a clear barrier between them. Perhaps a tagging system would help, but HN is allergic to features.

gcb0 9y ago

if everything happens with unvalidated documents, why we never hear about falsaries emptying bank accounts? e.g. if I hide all my money in a trustee fund with an unregistered document, and I get it back by showing the bank the trust contract plus a signed document from the trust asignee, and none of those are registered anywhere (which the article calls secret documents), wouldn't it be trivial to falsify both of them, specially now that most accounts became public?

marcosdumay 9y ago
We would never hear about that, either it happening or not.

dexterdog 9y ago

If you believe that taxation is theft then what is morally wrong with doing everything within the law (and withoutince it is written by those whose primary interest is in maximizing state income) to counter that theft as much as possible?

ThomPete 9y ago
Nothing. But if your ability to avoid taxes is mostly due to your wealth and you can end up paying less in taxes than a normal family then something is obviously out of sync.
makotech222 9y ago
Paying what you owe isn't morally wrong. But using your wealth to corrupt the system so that you and you ilk owe less in taxes IS morally wrong. Its also wrong to support,continue and benefit from the system that keeps the corruption in place.
- blunte 9y ago
  This, to me, is the biggest moral dilemma. To avoid ("legally" or fraudulently) taxes is to push the burden onto the people who are paying their appropriate amount of taxes. But to contribute to a corrupt, warmongering government, is also wrong. What you can do - what I do - is choose to live in a higher taxed country that isn't nearly as bad with respect to how it spends tax money. And so long as you pay more taxes to the country you live in, you end up owing none to the US.
  - snappyTertle 9y ago
    So...you benefit from the social programs of the US without contributing. Nice solution!
    - blunte 9y ago
      I'm pretty sure I get nothing out of the US social programs considering I'm a resident of another country.

dpiers 9y ago

| Both of these Papers were revealed by an organization with the cumbersome name of The International Consortium of Independent Journals (ICIJ) — a group in need of a new name and a publicity agent International Consortium of Investigative Journalists. The name is fine and the authors (extremely basic) facts are wrong.

black_puppydog 9y ago
Yeah. I am really happy about the ICIJ's work here, but I stopped reading this after seeing that the author didn't get the name right and then explicitely talked about the name. Luckily, there's plenty of good coverage on the topic. For example, I really enjoyed the (German) mini-podcast by the NDR: http://www.ndr.de/info/podcast4360.html http://www.ndr.de/info/podcast4360.html
dude01 9y ago
You're right, they got the name wrong. However, I read it all, and they seemed to know their stuff. They knew about using lawsuits to move money out, and they knew about using fake insurance policies to move money back in. I don't think most people know that - I only learned them recently.

PatientTrades 9y ago

The amount of loop holes and workarounds that our tax system allows is ridiculous. Maybe we should move to a tiered flat tax system No deducations, No credits to eliminate as much grey areas as possible.

blunte 9y ago
This has been promoted with significant traction many times. But remind yourself who is charged with writing the bills that become laws. Congress, which is funded by wealthy businesses and individuals, makes laws which specifically allow their "clients" to avoid taxes.
makapuf 9y ago
I think a flat tax as unfair as it is can be fairer than negative tiered as it is today.
aeorgnoieang 9y ago
One obstacle is the current system has diffuse costs but concentrated benefits. A much simpler tax system would be one in which many accountants would no longer be needed. They're enjoying the concentrated benefits and thus their incentive to protect the status quo is much higher than the incentive of everyone else to change it. They're also facing a loss, which people generally perceive as a more intense event than a gain of the same magnitude.
gozur88 9y ago
Flat tax systems sound good in theory, but they don't address the problem, which is what counts as income.
- a_c_s 9y ago
  Yeah, I think we need to flatten them a different way: tax corporations and individuals on a percentage of revenue (income) they earn. Then it becomes very expensive to create a shell company to launder money through and games like paying oneself through a corporation lose their appeal.

porter 9y ago

You also never hear about breach of fiduciary duty by the trustees. This happens all the time in the U.S. and it's difficult to catch because it's all private. This is particularly true for the elderly. I wouldn't want to rely on offshore laws to enforce trustee fraud.

RoutinePlayer 9y ago

Do some of the comments here further highlight that money is the true religion in the US and the world?

deleted 9y ago

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jijji 9y ago

When a US citizen does business overseas, putting the money into a offshore bank account outside the united states makes absolutely a lot of sense. The article makes it appear that people are somehow doing something wrong by doing business outside of their home country and then not bringing the money back to their home country. The big reason people don't bring the money back to their home country is because the money is subject to tariffs and fees which have nothing to do with the generating of the money in the first place, so it makes more sense to keep it offshore than to bring it to the US.

yfufuffuc 9y ago
This would be sensible if profits were being paid in each country. The double Irish functions to siphon profits from Europe and Asia to tax havens like Burmuda. This is a world wide scandal.
- ringaroundthetx 9y ago
  Income taxes are a 100 year old concept in the western world, capital taxes are an even newer concept. The moral arguments to support them are even younger. And these guys are the scandal? I'm not suggesting there is no abuse happening here, or that its so binary as one side is morally good and the other side is morally bad, I'm just offering perspective to the limitation of your argument.

watty 9y ago

Guidelines for submission: "Off-Topic: Most stories about politics, or crime, or sports, unless they're evidence of some interesting new phenomenon..." Since the rich avoiding taxes isn't some new phenomenon, this is off-topic.

kbenson 9y ago
> Since the rich avoiding taxes isn't some new phenomenon, this is off-topic. The actual mechanics of how it is accomplished being published is a fairly new phenomenon, to my eyes. That makes it somewhat relevant.
- watty 9y ago
  That's kind of silly. Every single thing that happens in politics is "new" at one point, so therefore we should be able to post every new political thing?
  - kbenson 9y ago
    That has little or no relation to what I said. The publishing of how something is done with specifics when that process was largely hidden previously makes this interesting. Your inability to see it as anything but purely political is not an attribute we share.
    - watty 9y ago
      What do you mean by "largely hidden"? Nothing in this blog post is hidden or secret.
      - kbenson 9y ago
        My argument is that the process by which money is moved to these tax lenient locations and the companies that facilitate this and the options and services they offer has to this point been largely unknown to the average person, and is thus interesting to read about. Are you contending that all this was known, or that even if it was unknown it's uninteresting? Because otherwise I'm not sure what you're arguing.

matt_wulfeck 9y ago

>In the Caymans, your service provider, a local law firm, will offer a choice of cookie cutter plans with layers of trusts and corporations in other secrecy jurisdictions, which will make it impossible for the tax man to pin down who actually owns the account. The IRS just asks you if you have offshore holdings, in which you either tell the truth or perjure yourself. As far as I can tell, a lot of the labyrinthine layers are designed so that maybe you can lie to them without actually lying. Or at least say that to yourself. I bet a lot of the nouveau riche from developing countries use a service like this not to avoid taxes, but to avoid their shaky government from nationalizing their bank accounts.

charlesdm 9y ago
> The IRS just asks you if you have offshore holdings, in which you either tell the truth or perjure yourself. Say an offshore foundation is set up to benefit your family. You then make a loan of $10MM to it, that is then invested in some company. The foundation receives annual dividends of $1MM from this company, which are given (through a loan, salary or a sort of stipend) to your son living abroad. Do you own or control this foundation in the eyes of the law? The answer could be either yes or no, depending on the country you live in. Sometimes the answer isn't a clear yes or no either.
- 3pt14159 9y ago
  If there is any ability for you to access the value at all, even in the case of bankruptcy, then yes you own the foundation, company, contract, work of art, crytpo-currency, etc. I understand this doesn't mesh with multi-party signatures on the blockchain, but that's at least an argument to be made that you constructed a situation where you couldn't access it as a manner of evading being forced to do so, so it kinda breaks that you do still have access to it.
deleted 9y ago
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danjoc 9y ago
>perjure yourself. https://www.ped30.com/2017/11/06/tim-cook-has-some-explaining-to-do/ https://www.ped30.com/2017/11/06/tim-cook-has-some-explainin... It doesn't seem like perjury is such a big deal. Nobody is arresting Tim Cook for perjuring himself in front of Congress. Clapper did it too. Sessions as well. In fact, it has become a regular occurrence. It seems you're nobody until you've lied to Congress.

projectramo 9y ago

The "hacker" response to this paper: Is it true that they can easily hide this money? It seems like a complicated process. Once you have an account, how does one do anything with it? Is it illegal or is this perfectly legal? If it is illegal and there is an enforcement mechanism, this is not that different from drug smuggling or just theft. Of course it happens, but we should be looking at the scale of the problem. Can anyone do it? They claim its for the rich but they also claim the filing fee is $100. The non-hacker response: We don't want no politics.

manmal 9y ago
I heard that those shady Swiss banks won't accept you unless you plan to deposit at least 1 mio or more.
Erwin 9y ago
First you have to send your money to your foreign account. If you have earned it as wages and it's in your ordinary bank account, you have already paid quite a lot of taxes. Your employer will probably not be comfortable sending your paycheck to the Virgin Islands. Maybe if you own a piece of a company, nobody knows about it and you sell it without your tax authority know it, you can get it deposited somewhere. But normally such sales require extensive documentation to IRS. So what you most likely evade is the capital gains tax on your stock investment profits done from the tax heaven. If you still want to live in the country you owe money, you can then get an ATM or Visa card that lets you access your foreign account and pay for the minor things, but you may not be able to buy a house and put it on your credit card. Many countries also have a limit on how much you can pay for with cash, and how much cash you can even transfer across borders without declaring it (10,000 EUR in EU). The Danish and Swedish tax authorities have been watching both activities in the last 10 years: if you somehow transferred a million dollars to the Cayman Islands, they might ask a few hard questions. If you were using a Visa card to pay for a hotel or restaurant, that came from a tax heaven, they might have found you too through another project that analyzed foreign Visa usage that wasn't consistent with tourists. No significant high profile arrests came of it though -- they mostly settled without significant penalty. The tax haven money transfer resulted in approx 150 million USD extra tax (which is a good for just 125 man-years spent). The credit card investigation gave approximately 70 million, but of that just 10% was actual penalties -- in most cases it seems like the money was treated as income adjustment. Sadly, the Danish tax authorities were then embarrassed by the biggest tax fraud ever, on a far larger scale then factory owners stashing money in Cayman Islands -- a massive 2 billion dollar fraud involving claiming back withheld dividend tax under double-taxation. They've only found 15% of the money so far...

jasode 9y ago

I don't think this article actually explains how the rich are avoiding taxes using these layered schemes of trustees and powers of attorney. First, let's set aside corporations like Apple earning foreign income and not repatriating it or claiming Ireland tax jurisdiction or special treatment EU doesn't like. For this story, I'm specifically interested in the mechanisms citizens use to evade taxes. To me, the journalists are conflating 2 situations: 1) hiding money & assets (rich people like to hide money from spouses and their divorce lawyers, or hide them from lawsuits) 2) not declaring money to evade taxes A lot of the money that the rich store at the islands has already been seen by the IRS and taxes were paid on it. Therefore, I'm not getting a clear picture of which situation dominates...is it hiding money or evading taxes? If its evading taxes, I'd prefer the author explain that in more detail. Outlining the opaque layers of ownership doesn't really explain the tax evasion part. I ask this question because I read a book about "protecting your assets" and the techniques that author Jan D. Weir talks about overlap with hiding legally obtained money that all lawful taxes have been paid on.

charlesdm 9y ago
1. These journalists don't understand the half of it. All of these structures, mechanics etc serve a purpose, and while most journalists do a decent job of describing what the rich use (i.e. trusts, companies, foundations, PoA, etc) they don't actually describe why they do it. 2. Avoidance is not evasion. These really shouldn't be lumped all together because there is a massive difference. 3. Even if they get rid of all pure (Cayman Islands style) tax havens tomorrow, the rich won't be paying more in tax. They would then go to more respectable jurisdictions, such as Luxembourg, Switzerland, (for non Americans) the US, Singapore, etc.
- mattmanser 9y ago
  I think your 3rd point is way off base, this is the whole point about avoidance. The rich are using the disparities between the laws systems to avoid tax and that's what needs fixing. You shouldn't be able to make a billion $$$ in the UK, for example, and then claim you actually earnt it in Luxembourg. If we, the UK tax payers, gave you the eduction, the opportunities, the law systems, the safety provided by our armies, foreign office, judicial systems, social safety nets and care from our health system, as well as all the other tangibles and intangibles that I could probably list for a couple of pages, you should pay back your share into the society. And yes, that's a percentage, not a fixed amount. The social contract of societies is being broken by these avoidance schemes. You luck out in the business lottery, then you pay up to help the rest of us. You'll still be stinking rich. And in the eyes of most people there's not much difference between avoidance and evasion, just the law. I think that's where a lot of the problem stems from, as long as the politicians keep saying "it's ok, but we need to tweak this and that" and giving sweetheart deals out to the rich not available to the rest of us, the public think "this is really not ok, it's totally unacceptable", we're going to keep getting Trumps, Farages, Le Pens and Brexits happening in western democracies. I think the general feeling is that the rich "got away" unpunished with the 2008 crash and now the scale of their tax avoidance is emerging, on top of the income gap widening, it's only going to get worse and politicians seem unwilling to change course and if they don't we'll all be in for some really nasty surprises in the next 10/20 years.

xefer 9y ago

I wonder if it would be possible to create a business whose purpose is to create tax shelters from money pooled together by tax payers who would otherwise not have enough individually to take advantage of these strategies available to the rich?

Shivetya 9y ago

Tax rates need to more reasonable to encourage the rich to pay them without question. When rates get to high the first hint is that they stop earning and spending where that holds true. A business doesn't always have the same opportunity because they tend to want to sell everywhere. The idea is to get them to spend freely and the trick is finding the breakpoint that changes the behavior. there will always be countries welcoming the rich and as luxuries become more available in more areas this will only increase. so find the balance

omegaworks 9y ago
>Tax rates need to more reasonable to encourage the rich to pay them without question. How does this not lead us to a race-to-the-bottom? If any reasonable person had the discretion, they'd pay as little tax as possible. Many of the "wealthiest" Americans play the "Declare Declining Real-Estate Value as a Loss" game to avoid paying tax altogether. [1] There is no lower limit that people will simply pay without question. You can always frame even a minuscule percentage-based tax as a problem given a large enough income by looking at the absolute values paid. That this is given as a rationale for lowering tax is pure propaganda. 1. https://www.thenation.com/article/without-the-amt-donald-trumps-2005-tax-rate-would-have-been-just-3-percent/ https://www.thenation.com/article/without-the-amt-donald-tru...
- njarboe 9y ago
  There are studies (ref?) that around 10% people start thinking seriously about avoidance. Western historical religious tithing is at this level. State sales taxes rarely go above this level. When you go higher the tax is generally somewhat hidden from the person in the form of withholding the tax by the employer or included it the price and collecting at every level of production, not just at the end sale, as with a VAT.
- cjlars 9y ago
  If you have a a 50% tax rate and can cut 10% off your tax bill with fancy accounting, your after tax income rises 10% to 55% of earnings. If you have a 10% tax rate and can cut 10% off your tax bill with fancy accounting, your after tax bill rises just over 1% to 91% of earnings. Decisions are made at the margin -- How much effort does it take to keep the extra cash and how much do you get to keep? high rates make tax evasion, legal or not, more worthwhile.

jondubois 9y ago

What really annoys me is the slope of taxation in most developed countries and how it just suddenly stops going up after your salary exceeds around $150K. If you earn less than $10K, you pay 0%; that makes sense, then if you earn $150K, you pay close to 50%... OK you could argue that this still makes sense. But then if you earn $200 million per year, you still only pay 50% tax - This makes no sense; the tax rate should follow a Lorenz curve which mirrors and offsets income inequality. To earn $100K+ as a professional using nothing but your brain is bastard-hard. It takes a toll mentally. Someone who owns stocks and is earning $500K+ per year from dividend payments while sitting around in their underwear all day doing nothing should be taxed at a much higher rate than someone who earns $150K by mutilating their brain every day. That seems extremely obvious to me. The most infuriating thing about the current tax system is that the magical $150K number (where the tax rate suddenly levels off) is in fact the exact point after which earning money starts to get easier. This is exactly the point when the tax rates should start really sloping up - Not the point where they should level off! Also, I think that the argument about protecting rich people so that they can have extra money to invest back in the economy is no longer valid. With innovations in crowd funding, large numbers of people can now easily pool their resources together to fund very significant and meaningful projects. Rich people these days are only interested in monopolising markets; not adding value.

projectramo 9y ago
I agree with some of the general sentiment here but what I don't understand is why how hard one works or how much toll it takes should have anything to do with taxation. For instance, suppose you're a happy go lucky guy who doesn't need much sleep and have a happy home life, and I am a grumpy dude who hates everyone around me and hate my co-workers. Should I pay less in tax? Tax policy should be based on our collective values regarding such things as what incentives we want and to what extent we want redistribution. It should not be related to punishing people who are enjoying their lives.
- jondubois 9y ago
  In my books, money that you get from dividend or rent payments is not 'earned income'. I don't think it should be classified as income; it should get its own category and be taxed much higher. We don't want to encourage people to sit around and do nothing just because they happened to decide to buy a few Apple or Amazon shares 20 years ago. Maybe the tax rate would be correlated to happiness, but that's OK; maybe it will average out the human experience... That seems fair.

ciconia 9y ago

> Of course, everybody hates paying taxes. I don't.