Category Archives: Company- Management

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.

With the US having recently taken steps to restrict the ability of its citizens to trade forex we have noticed more and more US residents looking to incorporate Offshore.

If you fall into that category 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 when the bank or brokers 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 US residents as customers.

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) 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. US company which, I imagine, would then pay a dividend to you, which would be assessable income at home for you.

And as a Foundation arguably is not caught by Controlled Foreign Corporation (or Controlled Foreign Trust) Rules 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 more freedom to trade (and give you a wider choice of brokers).

Austrian Vice Chancellor Michael Spindelegger has stated that  Austria will support the proposed (as revised) European Union Savings Tax Directive, provided that third states such as Switzerland and Liechtenstein also agree to must participate in the Directive.

The aim of the new Directive is to close loopholes and prevent individuals from evading taxation on interest income by enhancing the existing automatic information exchange system for EU tax authorities.

Austria made its adoption of the text conditional. The Government said from the outset that it would not relinquish its banking secrecy for Austrian nationals, but will agree to exchange information automatically concerning EU residents with accounts held in Austria.

It also said that third states such as Switzerland and Liechtenstein must participate in the Directive, and warned against a European and a global standard operating in tandem.

The EU Council of Economic and Finance Ministers agreed at a recent meeting in Brussels that banking secrecy could remain in place for Austrian nationals.

So the game of cat and mouse between the EU and the EU tax (and Banking Privacy) Havens continues as it has since 2003.

One doubts the EU will get their way. Countries like Austria Switzerland and Liechtenstein (with their lucrative banking and financial services sectors) have too much to lose…  If I was a betting man my money would be on them agreeing to apply a 20% Witholding tax on interest earned in local accounts by non-nationals rather than hand over account owner info…

Foundations & Absolute Privacy

Recently the question was put to my firm as whether it would be possible to set up an Offshore Company with a Nominee Director and open an account for the Company without having to declare the client to the bank as the “beneficiary” of the account (or as the  “beneficial owner” of the Company applying for the account).

Interestingly (as the client lived in a country with Controlled Foreign Corporation ie“CFC” laws) the fellow in question (an Ebusiness owner) had already opted for the option of first registering a Seychelles Private Interest Foundation to hold the shares of the Offshore Company. (The Foundation was set up via a Nominee Founder and was managed by a Nominee Councillor).

We’d reached the stage where the Company was applying for a bank account and the client was unsure who/what should be entered in the Corporate Account application where “beneficial owners” details were supposed to be inserted.

My opinion was sought. Here’s the conclusion I came to after pouring over the Seychelles Foundations Act for many hours…

Bottom line is notwithstanding that an individual or individuals (or a class of beneficiary) may be named as beneficiaries in a Seychelles Foundation’s Regulations:

1. The beneficiaries have no legal or beneficial interest in property owned by the Foundation (unless or until such time as that property is transferred to the them – refer section 71 of the Seychelles Foundations Act 2009-2011 as amended).
2. The Foundation is deemed to be the legal AND beneficial owner of any property held by it (again section 71)
3. The Foundation is a legal entity in its own right not a mere Trustee (See section 23)
4. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (see section 63)
5. As such there is no “beneficial owner” of a Seychelles Foundation. The beneficial owner of any property/asset owned or held by the Foundation is the Foundation itself.

The net result?

We didn’t have to provide the names of (or DD to the bank as regards) the Foundation’s beneficiaries.

A victory for financial privacy!

US attempts to strongarm Swiss Banking giants Credit Suisse into giving up the names of American account beneficiaries appears to be stagnating.

Senator John McCain was quoted yesterday expressing frustration at the lack of success by the US who have, in 5 years of trying, thus far only managed to elicit from Credit Suisse the names of some 238 undeclared Swiss accounts held for or by US Beneficiaries.

The Senator reportedly said that the US Justice Department had decided to tackle the issue by filing treaty requests, with little success. About time!

It should be noted as a matter of International Law that the necessary mechanism in order to compel any country to give up the names of non-resident company owners or account holders is to file an application pursuant to a mutually agreed and signed Tax Information Exchange Agreement (which it is noted the US does not hold with the Swiss). America’s use of bully boy tactics to try and force banks and others into giving up ownership information in the absence of such a treaty smacks of disrespect (if not outright contempt) for the rule of law.

If US legislators are so concerned about Americans keeping money offshore in privacy havens one wonders why they aren’t spending time investigating and rectifying the root cause of such motivations that is:

(a)   excess government intrusion into and overregulation of private investment (& business) practices

(b)   a legal system which all but encourages frivolous law suits; &

(c)    consumer concerns about the stability of the American banking/monetary systems etc.

The age old rhetoric of painting anyone who holds an Offshore Company or Offshore Account as a tax evader is starting to wear a bit thin. In my experience (14 years specializing in International Corporate Structuring) the vast majority of Americans looking to set up non-American companies or accounts are motivated to do so by one of the above 3 reasons, not by the desire to avoid taxes.

Full marks to Credit Suisse for standing up to the bully boys.

But that more states/businesses were to show such courage….

Seychelles jurisdictional reputation has received a timely boost with the well regarded Fitch Ratings service confirming that Seychelles’ long-term and short-term foreign currency rating now stands at ‘B’ grade with a positive outlook.

Fitch reportedly attributed the positive outlook to the “strong budget discipline enforced since 2008,” which has led to a tighter control of expenditure, and has increased tax revenues.

There is expected to be a primary fiscal surplus (before interest payments) of 4 percent of gross domestic product (GDP) in 2014 and 2015, and, as a result, Fitch reportedly expects public debt to decline to 54 percent of GDP by 2015, from 70.5 percent in 2012.

Fitch pointed out that “revenue growth under-performed budget plans in 2013, mainly due to shortfalls in value added tax (VAT) receipts and excise revenues. The underperformance of VAT was partly due to lower than projected collection from the tourism sector, some teething problems in the first year of implementation of the new VAT regime, and appreciation of the Seychelles rupee. The fall in excise revenues reflected a decline in imports of motor vehicles and reductions in some excise tax rates.”

However, the agency acknowledged that the revenue shortfall was more than offset by a reduction in expenditure worth two percent of GDP. In Fitch’s view, “this shows the authorities’ commitment to fiscal discipline. Our current judgment is that the authorities will continue to enforce fiscal discipline in a way consistent with their debt reduction target of 50 percent of GDP by 2018.”

“[Our] sensitivity analysis does not currently anticipate developments with a material likelihood of leading to a downgrade. Any reversal of fiscal reforms or relaxation of expenditure control would likely result in negative rating action,” the agency concluded.

With both company incorporation numbers and Foundation registration numbers continuing to grow  rapidly in Seychelles (and competitor jurisdiction’s struggling to match Seychelles privacy and product features) the future looks bright for this tiny Indian Ocean Privacy Haven.

Liechtenstein is reportedly close to concluding the terms of a tax treaty with its close fellow Germanic neighbour Austria.

During a meeting in Vienna recently negotiations as regards the key terms of a proposed bilateral double taxation and withholding tax agreement took place during discussions between Liechtenstein’s Prime Minister Klaus Tschütscher and the Austrian Finance Minister Maria Fekter.

The deal is said to closely resemble an agreement concluded between Austria and Switzerland in early 2012, in that it will provide for an annual withholding tax to be levied by Liechtenstein authorities on assets held by Austrian residents in Liechtenstein banks.

Unlike the agreement reached with Switzerland however, the treaty being negotiated with Liechtenstein is anticipated to cover undeclared assets held both in foundations and trusts domiciled in Liechtenstein.

Such a deal is an interesting tactical move by Liechtenstein in that it will preserve ownership secrecy for Austrian residents banking in the Principality whilst at the same time avoiding conflict with EU laws designed to minimise cross border tax avoidance as between member states.

Traditionally a number of wealthy Austrian citizens have chosen to bank and receive profits in the more tax friendly and privacy respective environment offered by Liechtenstein.  Whether that trend continues or whether savvy Austrian investors will look further abroad for tax saving opportunities in the future remains to be seen.