Category Archives: Company- Management

Google has backed down on its plan to launch its “digital wallet” in the Australian market, says Australian managing director Maile Carnegie.

Unveiled to much hype in the United States in 2011, Google Wallet sought to replace credit cards by allowing customers to pay for purchases with their smartphones.

But while some local start-ups are eyeing payments services, a market dominated by banks, Ms Carnegie on Thursday said this was not a high priority for the technology giant.

She said Australia rather was one of the world’s most innovative markets for digital financial services, leaving few obvious gaps for the company to fill.

Australians had been the most enthusiastic adopters of contactless payments in the world, she noted, whereas in the US, where Google Wallet was launched, many people still wrote cheques.

Despite Ms Carnegie’s comments Big banks view technology companies as threats to their lucrative businesses.

Australia’s largest Bank The Commonwealth Bank’s chief executive Ian Narev last year said the competitive threat from Apple or Google was as large as that posed by rival lenders.

The co-founder of technology firm Atlassian, Mike Cannon-Brookes last month described bank profitability as “insanity” and said companies including payments firm Tyro, where he is a director, were targeting the potentially lucrative market.

However, the chief executive of ANZ’s Australian operations, Phil Chronican, stressed that banks made most of their money in the highly regulated markets of lending money and taking deposits, rather than arranging payments.

“Many of the start-ups that are looking at the convenience of consumer payments are looking at a part that delivers a very small part of the profit pool of the banks,” said Mr Chronican, who was speaking alongside Ms Carnegie.

“Indeed one of the conundrums is that the banks are offering their consumers free payments today, and therefore it’s hard to know where the profit pool that can be attacked is.”

Mr Chronican added that many technology start-ups eyeing financial services were solving issues specific to the United States, rather than Australia.

“You hear about all these things happening in the US, and then you realise that 70 or 80 per cent of them just don’t transport,” he said.

It comes as the government’s financial system inquiry grapples with how to harness technology to encourage competition, without weakening regulations designed to protect consumers and promote financial stability.

Inquiry chairman David Murray told a separate conference on Thursday that financial services were a key target for leading technology entrepreneurs, and this presented an opportunity to lift competition.

“These technologies in our view will create substantial new competition in financial services and put pressure on existing players to make some significant investments in technology that, frankly, they might have made years ago if they had anticipated some of these developments,” Mr Murray said.

Online retail behemoth Amazon will soon offer borderless card payment facilities enabling your business to accept customer payments by card regardless of where you might be located.

The new product, Amazon Local Register, is a black, compact rectangular card reader stamped with Amazon’s logo across the front. The $US10 device plugs into a merchant’s smartphone or tablet, and works in conjunction with a smartphone app to process and track all of a merchant’s business transactions.

It also comes with an enticing offer: lower processing fees.

The device is a new stomping ground for the Seattle-based web company, which has expanded its online storefront over the years to include goods of nearly all sorts – books, furniture and electronics, to name a few. While many of the products on Amazon.com are sold directly by Amazon, the site also lists products sold and shipped by smaller retailers.

And that, some analysts say, is why this move was not entirely unexpected.

“So much of this is about Amazon building platform lock-in,” said Heath Terry, an internet analyst with Goldman Sachs, who said the Local Register card reader was just one more component filling out an entire suite of offerings for the small businesses that sell goods on Amazon.com.

“If you’re a third-party seller on Amazon’s site that’s using them for one thing, ultimately you’re using Amazon for everything,” Terry said.

This should all sound familiar. Square, the San Francisco payments startup valued at $US5 billion ($5.37 billion), has offered its sleek version of a mobile card reader since 2010.

PayPal, eBay’s payments division, which processed $US55 billion in transactions last quarter, offers a similar device.

And then there are the huge incumbents like Verifone, which has sold its own terminals to merchants of all sizes for decades.

So by most measures, Amazon is late to the game. And yet no company with a mobile card reader has emerged as a clear winner. Amazon could push its way into the market with its own set of attractive incentives for small businesses.

For instance, Amazon is offering early adopters an especially low processing fee on each credit card swipe processed. If a merchant signs up before the end of October, each swipe will cost 1.75 per cent of the total transaction, a deal which will last until the end of 2015.

That is a full percentage point below Square’s cut and less than PayPal’s 2.7 per cent charge as well. Even after the promotional deal expires, Amazon will charge merchants 2.5 per cent.

This is classic Amazon. With its low rate, the company is most likely losing money on transactions it processes, according to Colin Sebastian, an analyst with Baird Equity Research.

“In typical Amazon fashion, they’re using price as a motivator,” Sebastian said. “It’s pretty obvious in this case that they’re losing money on the swipes at least.”

That is similar to the company’s strategy with Kindle Fire tablets and smartphones; while Amazon makes little to no money on selling the Fire devices, each one acts as a portal to Amazon’s retail universe, where customers are encouraged to spend more money buying goods online.

But a better rate does not necessarily guarantee success. As competition has increased, payments companies have expanded the scope of their services, aiming to attract merchants with more than just a lower transaction cut on credit card swipes.

Both Square and PayPal, for instance, offer lending programs for merchants looking to expand their operations.

This week, Square started an appointment scheduling service for businesses. It has also acquired Caviar, a startup that provides food delivery service to small restaurants that do not otherwise offer it.

Some businesses may be reticent to sign up for Amazon’s new reader, lest they hand over scores of information to the online retailer. Packaged with its new card reader, Amazon’s Local Register software will manage detailed data on a merchant’s overall business operations, including sales trends and volume. That is the kind of data set that could help Amazon operate more successfully in the long run.

Every business needs a card payment facility, in particular online and Offshore incorporated businesses.

Whether you’re a fan of Amazon or not more competition in the often hard to access (and expensive) world of merchant account service providers can only be a good thing.

I’m sometimes asked how can I retain control of my tax free Offshore Foundation without anybody knowing?

The Seychelles model of Private Foundation provides an interesting option in this regard.

Howso?

When you register an Offshore Foundation the name of the person authorising the registration of the Foundation (ie “the Founder”) appears in a publicly filed/accessible document called a/the Charter.

However Seychelles law allows the Founder’s rights to be privately/secretly assigned to a third party.

What this means is you can deploy a “Nominee” Founder to create the Foundation and reserve the Founder’s rights/powers to yourself without anybody apart from you and your Offshore Foundation Service Provider knowing.

The following powers can be reserved to the Founder of a Seychelles Foundation (which rights you would secretly inherit ie if/when the Founder’s rights are assigned to you post registration):

• The right to appoint or remove Protectors
• The power to direct the dissolution of the Foundation and to direct the amendment of the Charter
• The Power to direct or approve the appointment or removal of a Councillor
• The Power to direct or approve the addition or exclusion of a Beneficiary
• The Power to direct or approve the continuation of the Foundation as a Foundation registered under the laws of a jurisdiction outside Seychelles
• The Power to direct or approve the Council to effect the forfeiture by a Beneficiary of his/her benefit, right and interest under the Foundation if the Beneficiary challenges in writing: (i) the establishment of the Foundation; or (ii) the transfer of any assets to or by the Foundation; or (iii) the Charter or any provision of the Charter; or (iv) the Regulations or any provision of the Regulations; or (v) any decision of a Councillor, the Protector or the Founder
• The Power to direct or approve the amendment of the Charter and/or the Regulations by the Council
• The Power to direct or approve investment activities of the Foundation, including the acquisition and disposal of investments by the Foundation
• The Power to direct or approve the rights, entitlements and restrictions relating to each Beneficiary, including the power to direct or approve the making of any distribution of Foundation Assets (or any part thereof) to a Beneficiary.

Note – The Offshore Foundation Council’s role is to manage the Foundation and carry out its objects. If a Founder is given very wide powers in respect of a Foundation (e.g. the power to direct or approve Foundation investment activities or distributions and the power to direct the dissolution of the Foundation or amendment of its constitutional documents) this may cause the Foundation to be viewed as a mere nominee of the Founder or may constitute ‘management or control’ so as to make the Foundation ‘tax resident’ where the Founder is resident or domiciled.

This could have adverse onshore tax consequences for the Offshore Foundation or Founder, especially if the Founder is resident or domiciled in a high tax country with a worldwide tax system. Hence if you’re looking to establish a tax free Offshore Foundation it would be wise to seek local legal and tax advice before deciding what powers might be reserved to the Founder (or to you as assignee Founder).

I’m often asked if I set up an Offshore Foundation using Nominees how can I still control the Foundation?

The day to day business of a tax free Offshore Foundation is overseen by a Councillor or Board of Councillors.

However you can ask, when the Offshore Foundation is registered, that a Protector is included as part of the Foundation structure.

What is a Protector? 

A Protector is a person whose prior written consent is legally required ahead of a Foundation Council doing certain key things. 

Certain rights can be reserved to a/the Protector including:

• The power to direct or approve the appointment or removal of a Councillor
• The power to direct or approve the addition or exclusion of a Beneficiary
• The power to direct or approve the continuation of the Foundation as a Foundation registered under the laws of a jurisdiction outside its country of registration
• The power to direct or approve the amendment of the Charter and/or the Regulations by the Council
• The power to direct or approve the dissolution of the Foundation
• The power to direct or approve investment activities of the Foundation, including the acquisition and disposal of investments by the Foundation
• The power to direct or approve the rights, entitlements and restrictions relating to each Beneficiary, including the power to direct or approve the making of any distribution of Foundation Assets (or any part thereof) to a Beneficiary.
• The power to direct or approve the Council to effect the forfeiture by a Beneficiary of his benefit, right and interest under the Foundation if he/she (ie the Beneficiary) challenges in writing:

(i)                 the establishment of the Foundation; or

(ii)               the transfer of any assets to or by the Foundation; or

(iii)             the Charter or any provision of the Charter; or

(iv)              the Regulations or any provision of the Regulations; or

(v)                any decision of a councillor, the Protector or the Founder

I’m often asked is there any advantage in spreading your Offshore Company and or Offshore Offshore Trust and or Offshore Foundation and Offshore Bank Account across several jurisdictions?

The bottom line is the more jurisdictions you mix into your structure the harder you make it for people to attack your (Offshore) assets.

Say you have 3 structures in place ie an Offshore Company an Offshore Trust and an Offshore Foundation (ie a serious asset protection structure). Say a firm of vulturous lawyers are suing you and  they suspect you have assets held by an Offshore Company (from which the Lawyers hope to extract recovery for their client + a fat fee for themselves).

The first thing that would happen is the vultures would try and find out who owns the Offshore Company. Unless you are involved in some very serious criminal activity (eg drug trafficking, money laundering, terrorist financing etc) no one should be able to find out who the owner/shareholder of that Offshore Company is (or who the beneficiaries of any Offshore Trust or Offshore Foundation beneath it are – see below).

To crack the privacy veil anyone wanting to either (a) attack/get hold of assets held by the Offshore Company or (b) find out who actually owns the Offshore company would have to apply to the Supreme Court of the Country where your Offshore Company is incorporated for a disclosure order ie a court order compelling the names of the shareholders/owners of the Offshore Company to be revealed.

Before the Court will even hear the application the vultures would have to produce evidence ie a prima facie case proving that the Offshore Company or persons closely connected to it have more likely than not been involved in serious criminal activity as defined.

If they do get the order they would find that the Offshore Company is owned by an Offshore Trust in a 2^nd country.

The lawyers for the vultures would then have to pack their bags go home and start all over again. That is they would then have apply to the Supreme Court of the country in which the Offshore Trust is registered for a disclosure order (ie for an order requiring that the names of the beneficiaries of the Trust be revealed). Again, usually before the Court will even hear the application, the vultures would once again have to produce evidence ie a prima facie case proving that the Trust or persons closely connected to it are more likely than not to have been involved in serious criminal activity as defined.

Say by some miracle they do get that order. All they will find out is that the sole beneficiary of the Trust is a Foundation registered in a 3rd jurisdiction.

The lawyers for the vultures would then (again) have to pack their bags go home and start over. That is they would then have apply to the Supreme Court of the country in which the Foundation is is registered for a  disclosure order ie a court order requiring that the names of the beneficiaries of the Foundation be revealed. As usual before the court will even hear the application the vultures would again have to produce evidence ie a prima facie case proving that the Foundation or persons closely connected to it are more likely than not to have been involved in serious criminal activity as defined.

And if the Offshore Company’s bank account is held in a 4^th country the vultures would need to appear before a Court in that 4^th country seeking an order that the Company’s Bank Account in that country be frozen (ie pending finalisation of litigation/claims against the company or its owners).

As any experienced litigation lawyer will tell you what’s described above is the lawyer’s equivalent of having to climb Mount Everest. The time it would take and the legal costs involved would be virtually inestimable.

It should come as no surprise to anyone then (given the proliferation of litigation lawyers and the advent of information exchange between OECD type jurisdictions) to hear that the use of multi-national Offshore Corporate Structures is on the rise.

Hopefully after reading the above you can well understand why…

Information was released publicly in the US last week showing that the number of US Companies re-incorporating in Offshore Tax Havens continues to climb.

The practice known as Corporate inversion is used by US companies, when bidding for (generally smaller) foreign companies, as a means of moving away from the higher American 35 percent corporate tax rate. Under current US law, a company that merges with an Offshore Company can move its headquarters Offshore (even though management and operations remain in the US), and take advantage of lower taxes offered Offshore, as long as at least 20 percent of its shares are held by the Offshore company’s shareholders after the merger.

The published list shows that 47 US corporations have reincorporated in Offshore Tax Havens through inversions in the last 10 years, as against only 29 in the previous 20 years. According to the data, there is estimated to be about ten prospective inversion deals that are pending completion.

To try and counter this ever increasing trend of Offshore Incorporation bills have been introduced into the House and the Senate in the US which propose to restrict corporate inversions by putting the minimum foreign shareholding at 50 percent.

However, the bills have yet to move forward with the house leaders reportedly preferring to deal with the question of Offshore re-Incorporation within the framework of future comprehensive tax reform. At the same time leading Republicans are said to have decided that using tax reform to lower the corporate tax rate and having a more internationally competitive tax code would be the better option.

With knee jerk positions on Offshore Tax Havens being released almost daily (following little if any reasoned debate) it is refreshing to see policy makers taking a more holistic approach to the issue of Offshore Tax Competition. In this instance the bigger picture sees that the practice of Corporate inversion is sending a clear message to Legislators… that if they want to retain the tax business of these companies they must be prepared to compete on price.

Whilst people are always resistant to change, in the commercial world – if a customer feels he/she is being taken for granted by a supplier – (and the customer knows that he/she can get a better deal elsewhere) what does he/she do? The customer weighs up the inconvenience of changing suppliers against the benefits of a move (ie fiscal savings).

It’s incumbent then on the supplier, knowing what the competitor is offering, to make it sufficiently attractive for the customer to stay loyal.

Why should the relationship between taxpayer and government be any different?

Forex trading is strictly forbidden in India and any individual caught trading in the Forex market will be charged with a crime and may even serve jail time.

Corporations are allowed to trade provided they use only free dollars from their reserves. Free dollars usage means that they are not allowed to convert the Indian currency to dollars and then use those converted dollars for trading. Moreover they are conditioned to stick to a leverage of less than ten times.

If you want to avoid jailtime and or have greater freedom to trade you may be interested to know that a combination of a tax free Offshore Company and a tax free Offshore Foundation can gift you the ability to trade more freely.

In terms of how that can work structurally and practically:
• The shares of the Company would be held by the Foundation; and
• The beneficiaries of the Foundation would be whoever you nominate.

And if you choose a Seychelles Foundation if/when the bank or a broker asks who is the beneficial owner of the company/account you can lawfully answer “the Foundation” as section 71 of the Seychelles Foundation Law clearly states that the legal AND beneficial owner of any asset transferred to a Seychelles Foundation is the Foundation itself. That can get you access to brokerages/trading platforms that won’t accept Indian residents or Corporations as customers. Such an argument could also be used in defence to any criminal claim as may be made against an Indian resident individual trading forex via an Offshore Corporation.

How does it work from a practical perspective?

In terms of structure the Offshore Company would be set up with a Nominee Director and with the Private Foundation as shareholder. Commercially, the company would do the buying and selling, ie it would generate the income. Ideally, you would be appointed as Consultant or as an arms’ length adviser to the Director of the Company with certain areas of responsibility (eg you could be an authorized Trader or Trading Manager or an IT Consultant or Management Consultant  or Sales Consultant etc) for which you would be paid a commission (eg a percentage of profits) or Consulting fees.

As part of your brief you might also be given signing power on a bank account reporting/answerable to the Director. However that relationship is structured for legal reasons, it would need to be seen to be commercially realistic. The income you generate from this would be paid to you or your local i.e. Indian company which, I imagine, would then pay a dividend to you, which would be assessable income at home for you.

And as India does not have Controlled Foreign Corporation (or Controlled Foreign Trust) Laws the remainder of the profit could be held (and/or reinvested) offshore potentially tax free.  (Though that’s something you should speak to your tax adviser about).

What is clear however is that a combination of a Tax Haven Company and an Offshore Foundation can gift you the opportunity to trade (and or greater freedom to trade) plus get you access to a wider choice of brokers.

I’m often asked What is the difference between a Tax Free Offshore Foundation and a Tax Free Offshore Trust?

Bottom line is if your reason for wanting to set up an Offshore Trust is to try and avoid tax at home on the earnings of the Trust (or to build a bullet proof fence around any assets to be held by the Trust) you might want to consider setting up a Foundation instead. The disadvantage of a Trust is it’s caught by local Controlled Foreign Trust laws. Put simply if you have the means to remote control an Offshore Trust or are a presently entitled beneficiary of an Offshore Trust chances are you would be required to declare locally and pay tax on the Trust’s earnings or at least your share thereof.

A Private Offshore Foundation is very similar to an Offshore Trust in that it’s set up by a Founder (like a Settlor in the case of an Offshore Trust) and managed day to day by a Councillor (like a Trustee in the case of an Offshore Trust) who manages the Offshore Foundation’s property for the benefit of the beneficiaries of the Offshore Foundation.

Moreover a nil tax Offshore Foundation may get you around the tax issues as it’s a separate legal entity in its own right (ie an Offshore Foundation actually owns – both legally and beneficially – any assets held by the Foundation – unlike an Offshore Trust where the Trustee holds property for someone else ie the beneficiaries) and by law the beneficiaries are not entitled to the income or capital of the Foundation until the Foundation Council actually resolves to pay a distribution to the Foundation Beneficiaries. What this means is potentially you can defer paying tax at home on income of investments held by the tax free Offshore Foundation enabling you to reinvest 100% of that income not just the after tax component.

This can enable you to access the power of compounding on those investment earnings meaning your net worth will grow MUCH faster than what it would were you to pay tax each year on your investment income.

Local laws can have an impact hence you should seek local legal/tax advice before committing to set up a nil tax Offshore Foundation or nil tax Offshore Trust.

In an embarrassing about face the American Internal Revenue Service (IRS) has stated it will be substantially diluting key features of its offshore voluntary compliance program (“OVCP”) which was hitherto designed to force US citizens with undisclosed Offshore Bank Accounts, (or Offshore Companies or Offshore Income or Offshore assets) to declare the existence of same to the IRS.

The changes came about after considerable pressure was applied by tax payer groups concerned that various Americans (in particular long term expat Americans who would in any other tax system be regarded as non-residents for tax purposes), unaware of their obligations to report the existence of their Offshore Income, (or Offshore Company or Offshore Bank Account) could be treated the same way as criminal tax evaders.

The IRS has said that the changes are intended for US taxpayers whose failure to disclose their offshore assets was “non-willful,”. There are also other important modifications to the 2012 OVDP.

The original ie 2012 procedures were available only to non-resident non-filers, and taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer’s response to a “risk” questionnaire. Under the new arrangements, the procedures are available to a greater number of US taxpayers living outside the US who have unreported Offshore accounts and, for the first time, to certain American taxpayers residing in the US.

The changes include an elimination of the requirement that the taxpayer should have USD1,500 or less of unpaid tax per year; the abolition of the risk questionnaire; and a new requirement for the taxpayer to certify that previous failures to comply were due to non-willful conduct.

For eligible American taxpayers residing outside the US, all penalties are to be waived. For eligible US taxpayers residing in the US, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue.

Since expatriating in 2001 I’ve met many Americans who, upon hearing that their non- American expat counterparts were not required to declare and pay tax at home on Offshore  earnings, simply assumed the same rules applied to them (as indeed they should if they’ve permanently departed America though that’s an argument for another 60 seconds). Hence the changes as effect such US persons are to be applauded as a common sense approach given the lack of criminal or unlawful intent on the part of parties concerned.

As of 1 July however the US Foreign Account Tax Compliance Act will come into effect, at which time banks will begin to report to the IRS the existence of Offshore Bank accounts held by US persons. Persons who wish to avoid this reporting requirement should speak to their Lawyer or Offshore Company Provider or Offshore Bank Account Provider ASAP about setting up a Seychelles Private Interest Foundation (or an Offshore non FATCA effected bank account) as a potential means of avoiding US reporting requirements.

Often I’m asked how can I access money earned by my Tax Free Offshore Company?

There’s 3 ways to bring home money from a nil tax Offshore/International Business Company:

1. Set yourself up as an arms’ length consultant and have the IBC pay you consulting fees periodically. This means you would only have to pay tax on what you bring into your home country (and even then you should be able to minimise tax payable on that as a lot of what otherwise-might-be personal expenses could be written off as business costs, eg home office, utilities, car, phone, electrical/office equipment, stationery, computers travel etc etc etc). The rest of the IBC’s income can remain offshore and be (re)invested offshore in tax friendly investments. Say your target capital base is 3 million Euro and every year you can leave at least half the IBC’s income offshore. Because you’re not paying tax yearly on all the IBCs income instead of taking 20 years to accumulate 3 million Euro with the power of compounding you could be able to accumulate 3 million within 5 to 7 years. This is what many clients do ie they pay a little bit of tax at home each year on their overseas earnings but most of their income is kept offshore and reinvested offshore.

2. Bring back the money as a loan. Yes this can be done but great attention to detail will be required particularly with respect to lending parties, loan terms and documentation. The loan would need to be seen arms length ie seen to be on commercial terms.

3. Use an anonymous debit card and withdraw cash from automated teller machines. This can still work in some places though it should that some of the bigger countries now have the ability to trace and connect one to such withdrawals

Note unless you live in a country that does not have CFC laws (and/or unless or are structured in a tax effective/compliant manner) you may still be required to declare and pay tax at home on your IBC’s earnings. Local law can impact on such plans and hence you should seek legal/tax advice before committing to travel down such a path.