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| Why
You Should Favor Offshore Jurisdictions without Tax Information Exchange
Agreements |
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| Imagine that
you were the finance minister of a small Caribbean island in the early
1980s. We’ll call the island “Amstrandia.” |
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| Amstrandia
doesn’t really exist, but it’s representative of more than a dozen Caribbean
islands and Central American countries. It’s a U.K. colony (now called
an “overseas territory”), which is almost completely dependent on outside
financial aid. To cut support costs, the U.K. convinced Amstrandia to become
a tax haven in the 1970s. But the 900-pound gorilla next door, the U.S.,
didn’t like that idea. |
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| Uncle Sam
thought that the U.S. investors who flocked to Amstrandia to take advantage
of its zero tax status and strict bank secrecy laws weren’t paying their
fair share of U.S. taxes. You soon learned that the U.K. Foreign Office,
despite having encouraged Amstrandia to become a tax haven, had no intention
of defending its haven status. |
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| The U.S. Treasury
Department decided to force Amstrandia and more than a dozen other jurisdictions
into ratifying treaties that required them to disclose U.S. interests in
banks, mutual funds, IBCs, and asset protection trusts. In return, the
Treasury Department would permit U.S. corporations the negligible benefit
of deducting the costs of conventions in these jurisdictions from their
taxable income. |
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| Sign on the Dotted Line—or
Else... |
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| The conversation
between the Treasury Department treaty negotiator and the leaders of jurisdictions
like Amstrandia might have gone something like this: |
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| “We want Amstrandia
to sign a Tax Information Exchange Agreement (TIEA) that gives the IRS
the right to obtain information on U.S. persons who have financial interests
in Amstrandia. After all, we have the right to know, because U.S. taxpayers
have stashed away billions of dollars in Amstrandian banks, mutual funds,
IBCs, and asset protection trusts. Oh, yes, and the treaty will give the
right to the Amstrandian Revenue Service to obtain information about Amstrandians
investing in the U.S.” |
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| The Prime
Minister reminds the Treasury official that Amstrandia doesn’t have an
income tax, and that therefore, there’s no Amstrandian Revenue Service. |
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| “We thought
you might say that,” said the official. “We’re prepared to allow U.S. businesses
that hold conventions on your island to take a tax deduction for the money
they spend here. Think of the opportunity that could bring to this island.” |
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| “That’s very
nice,” the Prime Minister replied. “But there are no hotels big enough
to host a convention, and the airfield isn’t long enough for anything larger
than a commuter plane. There’s no room to build a longer runway.” |
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| “One
thing that we could use, though,” he added, “is an actual tax treaty; the
kind that the U.S. has with more than 50 nations. Our citizens and businesses
investing in the U.S. would then get the benefits typically provided in
tax treaties, such as reduced withholding taxes, not being discriminated
against by the U.S. Treasury and the ability to avoid double taxation.” |
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| Call the World
Bank if You Need Help |
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The
Sovereign Society, headquartered in Waterford, Ireland, was founded in
1998 to provide proven legal strategies for individuals to protect their
wealth and privacy, lower their taxes and to help improve their personal
freedom and liberty.
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The
Society's highly qualified contacts recommend only carefully chosen banks
and investment advisors as well as financial and legal professionals located
in select tax and asset haven jurisdictions around the world. The Society
provides advice concerning the establishement and operation of offshore
bank accounts, asset protection trusts, international business corporations
(IBCs), private foundations, second citizenships and foreign residency,
as well as practical safeguards for financial, Internet and personal privacy.
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The
Sovereign Society stands alone in fulfilling this singular, international
offshore service role for its members. To learn more about our organization
and how you too can become a member, Click the link below:
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Yes,
learn what it is that the Sovereign Society can do for you. The Sovereign
Society's highly qualified Council of Experts, consist of carefully chosen
professionals located in select tax and asset havens around the world.
Their experts have spent their careers discovering the best global investments,
the safest tax havens and the most secure devices in which to protect your
assets.
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Access
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benefits of Sovereign Society members. Their global network of banks, investment
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as being the best in the business.
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| At that, the
Treasury official stood up. “It’s been a pleasure, Mr. Prime Minister.
But I have a flight to catch. As for developing Amstrandia’s infrastructure
for tourism, I’m sure the World Bank or the IMF might be able to help with
some additional loans, if you don’t mind complying with their austerity
measures, such as doubling gasoline taxes. But, a tax treaty won’t be possible.
We don’t negotiate tax treaties with tax havens.” |
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| “Our demands
for a TIEA are non-negotiable. If you’re not willing to sign the treaty,
we’ll place Amstrandia on tax and money laundering blacklists, and advise
U.S. banks that transactions with Amstrandian financial interests should
be handled with extra scrutiny. You wouldn’t want that, would you?” |
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| Of course,
the Prime Minister wouldn’t want that. So, he signed the TIEA and after
presenting the TIEA to Amstrandia’s executive council, the treaty was duly
ratified. |
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| Naturally,
the process didn’t always go the way it did in my fictional example. Some
offshore jurisdictions willingly signed TIEAs with the U.S. Others didn’t
sign TIEAs until the early 2000s, when George W. Bush’s administration
placed renewed pressure on offshore jurisdictions to ratify them. |
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| If you read
the press releases from the offshore jurisdictions that signed TIEAs, you’ll
come away believing that they may be invoked only in the event of probable
cause of tax fraud by a particular taxpayer. But that’s not what most of
the treaties actually say. Instead, most TIEAs state that any information
“foreseeably relevant or material to United States federal tax administration
and enforcement with respect to the person identified” for investigation
must be turned over to the IRS. |
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| Not “probable
cause” of a criminal or even civil tax offense. Not even “reasonable suspicion.”
Merely “foreseeably relevant.” U.S. courts have interpreted this authority
as permitting TIEA information requests “even if the United States has
no tax interest and no claim for U.S. taxes are potentially due and owing.”
In other words, fishing expeditions into offshore accounts are explicitly
permitted. The potential for abuse is obvious. |
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| Nations That Have Already
Given In |
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| TIEAs are
now in effect with Antigua & Barbuda, Aruba, the Bahamas, Barbados,
Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica, Dominica,
Dominican Republic, Grenada, Guernsey, Guyana, Honduras, the Isle of Man,
Jersey, the Marshall Islands, Mexico, Peru, St. Lucia, and Trinidad &
Tobago. In a handful of these countries, including Mexico and Barbados,
ordinary tax treaties are in effect, but in most jurisdictions “encouraged”
to sign TIEAs, information flows only one way—to the U.S. |
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| TIEAs have
had, from the Treasury Department’s perspective, their desired effect.
U.S. investment in Caribbean havens has decreased substantially. And with
disinvestment has come a resurgence of influence by narcotics traffickers
and other criminal elements in the region. The U.S. policy of deliberately
stifling investment has led several Caribbean governments to the brink
of financial collapse. Surely, this is not in the long-term interests of
the U.S., although the Treasury Department acts as though it is. |
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| Now that you
know about TIEAs, you’ll understand why The Sovereign Society generally
recommends jurisdictions that haven’t signed such agreements, e.g., Austria,
Liechtenstein and Panama. (Switzerland has consented to a TIEA-like addition
to the U.S.-Swiss tax treaty, but its terms are far more restrictive than
typical TIEAs.) While pressure continues on these countries, and others,
such as the United Arab Emirates, to ratify TIEAs, these jurisdictions
have the diplomatic and financial clout to avoid being intimidated by the
U.S. |
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| Let’s hope
their determination continues. |
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Index
of Sovereign Society Articles |
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