6 ms·

What I never understood is, (how) does the money get transferred to the home country eventually? Doesn't it need to do that to have some utility? Otherwise, wha

What I never understood is, (how) does the money get transferred to the home country eventually? Doesn't it need to do that to have some utility? Otherwise, what's the point of just accumulating money offshore that you can't eventually use where you actually are?

underdeserver 5y ago
There's a lot you can do, such as borrow against it as collateral, transfer it to other offshore companies in return for services (the entire deal happening in the tax haven - therefore not taxed), or even have it hold property which you can then use.
- dataflow 5y ago
  But if you use it to pay someone else offshore, presumably you get something in return at the home country, right? And you didn't pay for it there, right? So isn't the fair market value (or something along those lines) of whatever you eventually receive in the home country therefore taxable income? I don't understand how the value loop can legally close without taxation one way or another.
  - toyg 5y ago
    Offshore entities can own properties in most open economies. They don't typically get taxed where they own the property or good, but where a profit is realized or an action takes place. For example, in TFA it's mentioned that the Blairs bought an offshore company that owned a building in London; they really bought the building, but doing it this way allowed them to avoid property taxes in the UK that relate to ownership transfers ("stamp duty"). They could then hire out offices, and if they do that through the offshore company that "taxable income" would similarly disappear. Her Majesty's Revenues & Customs might eventually object to the arrangement, but if the offshore owners are not known, what are they going to do, bulldoze a historical central London property? Obviously not.
    - slavik81 5y ago
      > what are they going to do, bulldoze a historical central London property? Seize the property and auction it off to the highest bidder. The process would be quite similar to a foreclosure. The problem the UK has is more that the stamp duty has countless loopholes. If he doesn't actually owe tax, then legally that's the end of the discussion. I have little faith that all the loopholes in a stamp tax can be closed. It would be much easier to enforce a property tax system. Events are abstract and ephemeral, but real property is tangible and immovable. Survey the area to assess a property tax each year. Mail the assessment to the property's address, and include a unique account number for payment. You can audit that all land in the tax jurisdiction has been assessed, and that all assessments have been paid. The only thing you really need to be careful about is what criteria you use for the assessment. Market value is relatively safe for that.
      - toyg 5y ago
        That's effectively what Council Tax was originally meant to be, but after a while nobody could be bothered with the survey activity. They even closed the door to piecemeal re-classification, after enough people started challenging the band their property sat in, by passing legislation that basically states the band is fixed as it is until Parliament says otherwise (i.e. likely forever).
        Mvandenbergh 5y ago
        Council tax was never meant to be anything like property tax and was structured specifically to act in a different way. For example: councils don't actually set their council tax rates by band. They set one rate which is the Band D rate. The rates of the other bands are then set based on fixed %s from that rate and the highest English rate (H) is only 200% of the Band D rate. The value of the lowest valued band H (based on the 1991 price levels) property relative to the highest band D is 3.6x. So right away we see that as a % of property value the typical household (D is the most common) in any given place pays more than the highest valued local properties. Of course it is also the case that band H is open-ended. There is then the fact that these are set and collected exclusively locally. That means that some of the lowest council tax rates in the country are in some of the richest places. Westminster and Wandsworth have Band D council tax in the £800s, Blaenau Gwent is over £2000!
  - Mvandenbergh 5y ago
    First of all, you can spend money on things outside your home country (second/nth house, buying a new yacht, etc.) and depending on how those are structured you can avoid that being taxable income. If someone takes a direct distribution or benefit in their country of residence and domicile then yes, those are definitely taxable events and careful tax avoiders pay their tax on these transactions. Second your intuition is correct, often people do break the law at this point, it's just very hard to detect without files like this which is why the previous Panama/Paradise leaks have led to so many prosecutions and tax recovery actions. They made clear what otherwise was secret. A common tactic is using the funds to buy property in which you then live as a tenant. In most countries (certainly in the UK) tenancy contracts are purely bilateral and non-public. There is no way for the government to know whether you are: 1) living in a property owned by a third party ownership company that you genuinely have no links to - btw many rich people do this for at least some of their homes so it's not like its an inherently suspicious activity. You can rent whole houses in central London for 10s of thousands a week. 2) living in a property owned by a company of which you are secretly the beneficial owner and paying market rent (to yourself). This may be allowed under some very carefully structured circumstances but usually not. 3) Like 2 but not actually paying rent. Definitely not allowed. Technically they could find the difference between 2 and 3 if they audited your outgoings but they would first have to have a reason to even start doing that. It's not like you can take a tax deduction for rent, so this doesn't even show up on your taxes, they would literally have to pull your bank records to look for the expected outgoing rent. Telling the difference between (1) and (2) is impossible without the secret ownership information. Another favourite is to use offshore accounts to buy things like jewellery, clothes, furniture, almost anything that isn't registrable property (i.e. anything other than real estate or vehicles). That is certainly illegal since you're taking a benefit which should be counted as income and taxed but good luck proving that.
curryst 5y ago
Probably stock buybacks. Company 2 then spends the profit on buying company 1's stock, which they basically burn. Stock prices go up and owners recoup value through capital gains.
- dataflow 5y ago
  How do you "burn" stock to raise the price in the home country? Sorry, I'm not following the scheme you're describing.
  - salawat 5y ago
    Company 2 bought stock in Company 1. Company 1 owns Company 2. Compamy 2 purchased stock that confers no rights or dividends. The money still changes hands. Once you realize enough growth, you do a stock buyback. those stocks you issued to yourself? poof. The magic of finance.
    - dataflow 5y ago
      It boggles my mind that two companies can own each other cyclically like this, but regardless: I still don't get the "poof" part. So we're saying C2 is paying C1 for its stock, and I imagine that revenue doesn't count as income for tax purposes since C2 now "owns" part of C1 in return. As I see it, that means C1 is effectively getting a loan from C2, putting part of itself as collateral. It can spend the loan to grow, which is nice, sure. Let's say it does that. Now you're saying C1 performs a stock buyback? Wouldn't that mean it has to pay more for the stocks (since they rose in value)? It'd have to bring that money from somewhere... but where? I mean all it can do at this point is pay back the money it got from C2, but then it's even, right? There's nothing left over after that, it's just repaying a loan as I see/understand it.
      - salawat 5y ago
        From growth. Remember, half the point of these havens is to shelter money from being taxable. Nothing else matters. You move it over there for favorable treatment. Company 2 received back money from Company 1 that they invested in, so it's off Company 1's books virtually, but not in reality. This is the hell created by multi-jurisdictional legal fictions. Short of a multi-national crackdown, being able to nail down the vagueries a bunch of well compensated international accounting firms and lawyers can get up to is unlikely at best.
anonymousDan 5y ago
In the case of the US, you keep it offshore until you can pressure politicians to grant a tax amnesty.
csomar 5y ago
You wait for a Trumpesque person to give you a tax-break and then you repatriate the money?

underdeserver 5y ago

There's a lot you can do, such as borrow against it as collateral, transfer it to other offshore companies in return for services (the entire deal happening in the tax haven - therefore not taxed), or even have it hold property which you can then use.

dataflow 5y ago
But if you use it to pay someone else offshore, presumably you get something in return at the home country, right? And you didn't pay for it there, right? So isn't the fair market value (or something along those lines) of whatever you eventually receive in the home country therefore taxable income? I don't understand how the value loop can legally close without taxation one way or another.
- toyg 5y ago
  Offshore entities can own properties in most open economies. They don't typically get taxed where they own the property or good, but where a profit is realized or an action takes place. For example, in TFA it's mentioned that the Blairs bought an offshore company that owned a building in London; they really bought the building, but doing it this way allowed them to avoid property taxes in the UK that relate to ownership transfers ("stamp duty"). They could then hire out offices, and if they do that through the offshore company that "taxable income" would similarly disappear. Her Majesty's Revenues & Customs might eventually object to the arrangement, but if the offshore owners are not known, what are they going to do, bulldoze a historical central London property? Obviously not.
  - slavik81 5y ago
    > what are they going to do, bulldoze a historical central London property? Seize the property and auction it off to the highest bidder. The process would be quite similar to a foreclosure. The problem the UK has is more that the stamp duty has countless loopholes. If he doesn't actually owe tax, then legally that's the end of the discussion. I have little faith that all the loopholes in a stamp tax can be closed. It would be much easier to enforce a property tax system. Events are abstract and ephemeral, but real property is tangible and immovable. Survey the area to assess a property tax each year. Mail the assessment to the property's address, and include a unique account number for payment. You can audit that all land in the tax jurisdiction has been assessed, and that all assessments have been paid. The only thing you really need to be careful about is what criteria you use for the assessment. Market value is relatively safe for that.
    - toyg 5y ago
      That's effectively what Council Tax was originally meant to be, but after a while nobody could be bothered with the survey activity. They even closed the door to piecemeal re-classification, after enough people started challenging the band their property sat in, by passing legislation that basically states the band is fixed as it is until Parliament says otherwise (i.e. likely forever).
      - Mvandenbergh 5y ago
        Council tax was never meant to be anything like property tax and was structured specifically to act in a different way. For example: councils don't actually set their council tax rates by band. They set one rate which is the Band D rate. The rates of the other bands are then set based on fixed %s from that rate and the highest English rate (H) is only 200% of the Band D rate. The value of the lowest valued band H (based on the 1991 price levels) property relative to the highest band D is 3.6x. So right away we see that as a % of property value the typical household (D is the most common) in any given place pays more than the highest valued local properties. Of course it is also the case that band H is open-ended. There is then the fact that these are set and collected exclusively locally. That means that some of the lowest council tax rates in the country are in some of the richest places. Westminster and Wandsworth have Band D council tax in the £800s, Blaenau Gwent is over £2000!
- Mvandenbergh 5y ago
  First of all, you can spend money on things outside your home country (second/nth house, buying a new yacht, etc.) and depending on how those are structured you can avoid that being taxable income. If someone takes a direct distribution or benefit in their country of residence and domicile then yes, those are definitely taxable events and careful tax avoiders pay their tax on these transactions. Second your intuition is correct, often people do break the law at this point, it's just very hard to detect without files like this which is why the previous Panama/Paradise leaks have led to so many prosecutions and tax recovery actions. They made clear what otherwise was secret. A common tactic is using the funds to buy property in which you then live as a tenant. In most countries (certainly in the UK) tenancy contracts are purely bilateral and non-public. There is no way for the government to know whether you are: 1) living in a property owned by a third party ownership company that you genuinely have no links to - btw many rich people do this for at least some of their homes so it's not like its an inherently suspicious activity. You can rent whole houses in central London for 10s of thousands a week. 2) living in a property owned by a company of which you are secretly the beneficial owner and paying market rent (to yourself). This may be allowed under some very carefully structured circumstances but usually not. 3) Like 2 but not actually paying rent. Definitely not allowed. Technically they could find the difference between 2 and 3 if they audited your outgoings but they would first have to have a reason to even start doing that. It's not like you can take a tax deduction for rent, so this doesn't even show up on your taxes, they would literally have to pull your bank records to look for the expected outgoing rent. Telling the difference between (1) and (2) is impossible without the secret ownership information. Another favourite is to use offshore accounts to buy things like jewellery, clothes, furniture, almost anything that isn't registrable property (i.e. anything other than real estate or vehicles). That is certainly illegal since you're taking a benefit which should be counted as income and taxed but good luck proving that.

curryst 5y ago

Probably stock buybacks. Company 2 then spends the profit on buying company 1's stock, which they basically burn. Stock prices go up and owners recoup value through capital gains.

dataflow 5y ago
How do you "burn" stock to raise the price in the home country? Sorry, I'm not following the scheme you're describing.
- salawat 5y ago
  Company 2 bought stock in Company 1. Company 1 owns Company 2. Compamy 2 purchased stock that confers no rights or dividends. The money still changes hands. Once you realize enough growth, you do a stock buyback. those stocks you issued to yourself? poof. The magic of finance.
  - dataflow 5y ago
    It boggles my mind that two companies can own each other cyclically like this, but regardless: I still don't get the "poof" part. So we're saying C2 is paying C1 for its stock, and I imagine that revenue doesn't count as income for tax purposes since C2 now "owns" part of C1 in return. As I see it, that means C1 is effectively getting a loan from C2, putting part of itself as collateral. It can spend the loan to grow, which is nice, sure. Let's say it does that. Now you're saying C1 performs a stock buyback? Wouldn't that mean it has to pay more for the stocks (since they rose in value)? It'd have to bring that money from somewhere... but where? I mean all it can do at this point is pay back the money it got from C2, but then it's even, right? There's nothing left over after that, it's just repaying a loan as I see/understand it.
    - salawat 5y ago
      From growth. Remember, half the point of these havens is to shelter money from being taxable. Nothing else matters. You move it over there for favorable treatment. Company 2 received back money from Company 1 that they invested in, so it's off Company 1's books virtually, but not in reality. This is the hell created by multi-jurisdictional legal fictions. Short of a multi-national crackdown, being able to nail down the vagueries a bunch of well compensated international accounting firms and lawyers can get up to is unlikely at best.

anonymousDan 5y ago

In the case of the US, you keep it offshore until you can pressure politicians to grant a tax amnesty.

csomar 5y ago

You wait for a Trumpesque person to give you a tax-break and then you repatriate the money?