Offshore Tax Competition Battles Heats Up

Two of the world’s biggest mining Companies BHP Billiton and Rio Tinto have reportedly joined global tech firms in lobbying against efforts to stop major multinational corporations from shifting profits to tax haven jurisdictions.


In submissions to an OECD draft paper, the mining companies said measures to prevent firms from abusing tax treaties would create ”unintended consequences” for dual-listed entities such as themselves.


Multinational firms including big pharmaceutical and global tech firms have made submissions rejecting proposals in the discussion draft. The draft proposes that the hitherto lawful practice of companies ”treaty shopping” for the most tax effective places offshore to bank untaxed profits be blocked.


It follows a push by governments around the world to limit the amount of money lost through offshore tax-minimising structures such as those used by Google and Apple.


Irish law firm Matheson, which advises seven of the top 10 global technology companies and over half of the 50 largest banks, said the proposals unfairly targeted small jurisdictions and big companies.


It defended the practice of corporations to set up smaller subsidiaries in offshore locations.


”Multinational groups frequently have intermediate companies in their corporate structure, for various commercial reasons including centralising risk management,” it said.


”The [proposals] should recognise this, and permit treaty access in such situations where sufficiently active business functions are being carried on with respect to such investment management operations.”


BHP and Rio Tinto, both listed on the Australian and London stock exchanges, said dual-listed entities would be unfairly affected. They said they should be exempt from the provisions ”in order to avoid what we believe would be unintended consequences”.


Australian accounting firm Pitcher Partners also made a submission claiming the proposals would result in hefty compliance costs for small-to-medium enterprises and make it ”more difficult for any taxpayer to access the benefits of a tax treaty”.


The OECD paper stands at the vanguard of global efforts to prevent companies who do business in multiple countries from channeling income through legal offshore tax-avoidance or offshore tax minimisation structures. In reality this is but a pathetic attempt by the fat OECD member welfare states to avoid the inevitable political fall out at home that would entail from their committing to reform their dated high spending (and high tax dependent) economies.


The old world welfare states think by frustrating international tax competition they will avoid the sting of the electorate and remain in power?


Like the boy who thought he could hold back the ocean by sticking his finger in the dyke there’s only so long these dinosaurs can hold back the creeping tide of economic reform….


Here’s hoping that more people see the OECD anti tax competition push for what it really is (that is, a con).


Resisting the EU Privacy Attack


In a recent press release the European Parliament has announced that the ultimate beneficial owners of companies and trusts will have to be listed in public registers in EU countries, under updated draft anti-money laundering rules approved by the Economic Affairs and the Justice and Home Affairs committees.


Under the disguise of its being an Anti Money Laundering measure the EU is cleverly almost sneakily hoping to bring Offshore Company’s tax free profits into the EU tax net!


Under the alleged anti-money laundering directive (AMLD), as amended by MEPs, public central registers – which were not envisaged in the initial Commission proposal – would list information on the ultimate beneficial owners of all sorts of legal arrangements, including companies, foundations and trusts.


If you are one of those people who doesn’t wanting competitors or predators (eg no win no fee lawyers) to know what you own a strategic rethink of your Corporate and business structure is called for. What you might want to do is place an Offshore Discretionary Trust or Offshore Discretionary Foundation at the bottom of the EU Company ownership tree.




In the case of an Offshore Trust or Private Foundation (“PIF”) there are essentially two ways that you can approach the issue of who to name as Beneficiaries (and when). The first (more traditional) method is to clearly set out in the Trust or Foundation Instrument the names of the persons that are to ultimately benefit from the Trust or PIF (which would usually include you and your partner/children).


The second, more creative approach is to set up a Discretionary Trust or Foundation and to maximize the “Discretionary” nature of the structure to avoid any person’s names appearing anywhere in the Trust or PIF Instrument.


One of the key features of Discretionary Foundations and Trusts is that the Trustee or Council/lor retains the power to add or substitute further beneficiaries after the Trust/PIF has been formed. If privacy is key what you can do in this instance is nominate an internationally recognized charity to be the primary beneficiary from the outset.


If you are setting up a Seychelles Foundation this may not really be necessary however as under the Seychelles law (a) The Foundation is deemed to be both legal and beneficial owner of any property it holds (eg shares in a European Company?) and (b) there is no deemed entitlement for beneficiaries.


Let’s assume you set up an Offshore Discretionary Foundation to own the shares of your European company. What this means is (ie if it’s a Seychelles Foundation) even if you or your spouse are named as beneficiaries of the Foundation your names should not have to appear in the EU register as “beneficial owners” of the Company.


Local legal advice should be sought however what’s clear is that timing will be key. Ideally you will want to review and if necessary upgrade your Corporate etc structure before the obligation to record beneficial ownership begins.


ACCA Study Dispels Tax Haven Leakage Myth

The respected English Accounting Group the ACCA (“Association of Chartered Certified Accountants”) has released findings suggesting the onshore Corporate Tax System is NOT being unduly affected by the judicious use of Offshore Companies, Tax Free Companies and Tax Havens.


In a statement issued today the ACCA claimed, according to the findings of a study commissioned by it, the system is neither “broken” nor being eroded.


The research was conducted by the RMIT University School of Economics, Finance and Marketing, and published in a final report, Multinational corporations, stateless income and tax havens. The report asserts that there is no evidence to support the belief that UK or US corporate income tax bases are being worn away by the use of tax haven companies. It acknowledges that some multinational companies do not pay as much tax in their host economies as consumers and voters might expect, but stresses that this does not necessarily imply any wrongdoing on the part of these companies.


Report author Sinclair Davidson was quoted as saying “It is one thing to point out that multinational corporations do not pay tax in some jurisdictions but that says nothing about the actual corporate income tax base. To the extent that corporate income tax revenues have fallen in recent years, this is more likely to be a result of poor economic conditions than aggressive tax planning.”


The report also apparently takes issue with the concept of “stateless income.” According to Davidson, there is no such thing as stateless income. Instead, there is “income that the governments of the UK and the US do not tax because under their own legal systems that income is not sourced in their economy. When these governments complain about stateless income, the question rather should be, ‘Why do the owners of intellectual property not locate their property in your economy?’”


Davidson does nevertheless note that the “stateless income doctrine may be used as a catalyst for re-writing the corporate income tax system.” Going forward, governments will need to think about the potential consequences of expanding the definition of source for corporate tax purposes.


“To the extent that stateless income is really a return on the development and ownership of intellectual property, then increasing taxation will have allocative efficiency consequences. At the same time it would also adversely affect the Irish and Dutch tax bases,” the report warns.


Davidson said: “It is not clear that tampering with the tried and tested norms of corporate income tax to (possibly) generate more corporate income tax revenue while reducing the corporate income tax collected in foreign economies, and possibly reducing investment at home, employment at home and consumption at home, is good policy.”


It’s refreshing to see sound research based logic being applied to the tax haven debate for once as opposed to hysteria. Let’s hope this marks the beginning of a rational dialogue on the merits of the flawed “income tax” focussed international tax system.