Panama Papers: Mossack Fonseca was unable to identify company owners
bbc.com
bbc.com
If a company has an international ownership structure that's complex enough that makes it difficult or impossible to follow the trail of ownership / leadership / directorship, then the company shouldn't be allowed to operate.
All the fuss and bluster in various countries about multi-nationals dodging their local tax responsibilities, and yet this is allowed to go on. There were a couple of such companies that have Australian Government contracts that were revealed to have opaque international ownership.
In the current environment of growing suspicion about foreign ownership and its relationship to national security, you'd think these issues would be a priority. How do you curtail foreign ownership and Chinese / Russian influence if you can't work out who's ultimately responsible? Maybe that's just talk to distract us non-string-pullers?
https://www.telegraph.co.uk/news/2017/11/05/paradise-papers-...
It is no secret that Juncker, the head of the European Commission, was the leader of Luxembourg when it established itself as a tax haven power house, and blocked any serious EU reform to curb tax evasion.
The various leaders of the world are the first to use these services. Theses funds allow them to finance campaigns, bribe officials, and maintain the statu quo. Of course they use political power to maintain this situation.
I don't often say nice things about GWB's administration but one thing that came out of their terrorist paranoia was that they managed to basically kill the tax haven status of Switzerland, where some funds transited. But it took all the weight of the USA while it was in berserk mode to shut down such a thing. There is dozen more to go.
That seems like it could have been a counter-productive strategy. Better that your enemies use a well-understood banking system with [theoretically] reliable and consistent bookkeeping than for those transactions to shift to a more disperse, more chaotic international system. Even if Swiss accounts were nominally secret, AFAIU the CIA and NSA had developed a fairly reliable system for snooping around.
There's a reason New York and London continue to be world leaders in processing financial transactions--the governments have been intentionally tolerant of shady characters, shady businesses, and shady nations as long as the transactions nominally followed the law. Among other benefits, that puts you in a good position to keep track of the bad guys and, when it really counts, to take them down. If you police too heavily all that activity goes somewhere else.
But it does leave you open to accusations of aiding & abetting bad behavior. There's a limit to what can be politically and legally tolerated in New York and London. But you can structure the international system to channel those intolerable transactions to the least worse alternatives.
Like so much with the War on Terror, the better approach would be to improve HUMINT and investigatory resources, rather than pushing the activity further underground and playing a game of whack-a-mole.
Even a hint of government access to Swiss accounts probably sent all nefarious accounts somewhere else.
Moving transactions to other systems is also risky for the bad guys, in terms of higher transaction costs and less predictability regarding the degree of confidentiality. It's like in computer security--you can't defend against an omnipotent attacker, rather you have to make some assumptions about your visibility and desirability as a target vs the strength of defenses. Choosing to go with some new, untested service may make you invisible or may leave you a sitting duck; how can you know?
Moreover, while organizations like Al Qaeda would have steered absolutely clear of the normal system, they benefit when more money moves via the darkest channels. They benefit from improved consistency, reliability, liquidity, and cover traffic.
And no, I don't buy the "we tolerate it so that we could watch it". Too much private money is at odds there. The truth is that this still exists because otherwise there would be no channel for the Saud family to fund the Bush one or for Russian oligarchs to pay up GOP members.
In my opinion, leaks have been the best tool so far: it adds a risk to tax evasion that is kind of new. Every added cost or added risk is welcomed.
And people usually hate when I mention that, but I am fairly convinced that most of the value of bitcoin comes from people desiring to move huge funds discreetly and efficiently between accounts. It probably made the whole industry move faster than countries' regulations.
Care to elaborate?
This results in an outcome which would've been exactly the same as if she had directly made the investments in her personal name. Meaning: a whole lot of talk about nothing by people who are clueless about tax matters.
These kinds of arrangements are not the problem. Neither is Emma Watson purchasing a property through an offshore company for privacy reasons.
The problem is autocrats siphoning off billions from their local economy and hiding it through layers of shell corporations across the world, which are not limited to just companies based in offshore tax havens.
She also donates all of the income from Crown holdings to government, as I recall. Most of the complainers about the royal family being taxpayer supported don't realize what a bargain the UK gets, they make a lot of money from HMTQ.
Personally, I find it quite interesting how several European monarchies within themselves managed to "strike a bargain" between old vested interests (the Crown) and commoners such that probably revolution was averted - and that this "power balance" lives on to this day.
Here's an article, from a reputable news organization: https://www.theguardian.com/commentisfree/2014/jun/28/royal-...
More recently: https://www.theguardian.com/commentisfree/2017/jul/19/queen-...
[1] https://en.wikipedia.org/wiki/Finances_of_the_British_royal_...
See reference 5 (I'll assume you know where it comes up): http://news.bbc.co.uk/2/hi/uk_news/5123580.stm, for what was happening before the Sovereign Grant Act.
See then the article on the Sovereign Grant, which carefully mentions that the Sovereign Grant is just a small part of the total cost of the monarchy. Note also that the same article mentions that the Royal Family also has private income which is undisclosed, separate from the Sovereign Grant.
Here's another article from a source without a conflict of interest, as provided by the wiki article you linked me to: https://www.express.co.uk/news/royal/581000/Royal-family-fin...
Note that:
* the Royal Family was receiving increases in funding, when austerity measures were otherwise being implemented in the UK
* the total annual cost of the Royal family is around £300m
Russell Brand has a pretty good video on this shit: https://www.youtube.com/watch?v=Vyj_9sIOPzU&t=235s
But I bet you consider him to be just another one of these godless anti-monarchists...
As these assets (while held in trust and managed professionally) belong to the sovereign, they are self sustainable and have covered all expenses. If there would be no monarchy, it's not unlikely these assets would return to the royal family.
Then look at the value a monarchy brings. In many parts of the world, a king or queen carries more respect than a president. They can help facilitate trade and form relationships that might otherwise not exist, because they're around for a long time as opposed to shorter term presidential thinking.
It seems the handout you are talking about are essentially part of the dividends that flow back from the yield generated by the assets of the Crown Estate. Austerity or not, these assets are worth a lot of money.
If you have a billion dollars worth of assets (or in this case, 12 billion), even during economic crisis you'll likely still be making ends meet without issues.
I do not mean to say this in a judgemental tone, as much as: "I'm glad you're participating, but...if you don't know the basics, why are you? I'm not an educator, so I don't know how much patience I'll have to bring you up to date. What's your stake in this?"
My stake in this is pretty clear: I'm a republican. I think that FOIA requests have allowed republicans to build a strong case around the issues surrounding the Royal Family's finances.
I can appreciate that there might be "spiritual" benefits to having a monarchy, as it is representative of a historical tradition, but frankly, what traditions does the British Monarchy stand for? It has a history of trying to either maintain or reinforce the status quo (i.e. the distribution of power and wealth), including economically (e.g. through protectionist laws, or Royal support of monopolies). In other words, a history of stifling innovation, if it threatens tradition. There's a reason Tories (royalists) are typically conservative (and not in a good way). Let's also put aside issues surrounding colonialism, mistreatment of labour during the industrial revolution, etc.. Also, it's not the case that the Royal Family is powerless today. To pretend otherwise is to be naive, as they remain well connected to politicians and corporations. Thus, they continue to be a family-centric (rather than nation-centric), non-transparent (key issue!) powerbase.
If we're looking for tradition, we ought to be willing to look at it without sugar coating it, otherwise we should be willing to form new traditions. If we're looking for a figurehead above party politics, who is around on a longer time scale than a prime minister, there are non-monarchist ways of providing such a figurehead.
Celebrities? Sure. Trust fund slackers? Yep.
Superclass...Maybe?
Edit: not suggesting that celebrities are part of the superclass but that I understand the general lifestyle associated with celebrities (I was previously employed in the film industry). On the other hand, I really don’t understand the lifestyle and social environment of this ‘superclass’. Perhaps, I simply lack the imagination to conceptualize what it would be like to possess a billion dollars. Perhaps, it’s just too divorced from my own reality.
At that point it starts to become about power.
This is probably made all the more true by the fact that we don't live in anything approaching a libertarian/voluntarist world. Getting that rich means you are now a 'player' among other power players whether you like it or not, and other power players don't always play fair.
Basically you probably are forced to become some kind of oligarch or politician or give some of your money away to stay below a certain threshold.
But I've never been up there so I don't really know. I'm only observing from afar.
This would seem to sync with the <it’s not wealth but power> alignment of the superclass.
In practice as long as the state (or any other force wielder) and economic actors exist in the same universe the latter can use money or deception to influence the former. Money can be used to amplify deception through intelligence tradecraft.
This means that large enough concentrations of wealth inevitably tend to mutate into political power a.k.a. the power to initiate force.
Rand is probably the worst offender when it comes to outright denying this and refusing to examine its implications.
The IRS & treasury department obviously have the power to get international governments to cooperate, but choose to focus their power on Johnny-salaryman instead of international money launderers.
As usual, the rich and powerful have ways around this (ie. holding assets in offshore corporations) while the little guy with no powerful connections gets screwed for his meager salary.
Care to elaborate on this point? The US (like most other developed nations) has tax treaties with many other countries, partly to ensure that its citizens are not taxed twice on the same income.
A list of such treaties is available here: https://www.irs.gov/businesses/international-businesses/unit...
For most US citizens living abroad, the practical outcome is that you don't pay 'double tax', but you pay the higher of {where you live, USA} taxes. (There's an alternative option that results in lower taxes, but only works for those earning less than ~$100k/year.)
The US government offers its overseas resident citizens two schemes to ensure they don't pay what you referred to as 'double tax'. You can choose only one or the other, not both.
A) FEIE (Foreign Earned Income Exclusion): https://www.irs.gov/individuals/international-taxpayers/fore...
For your friends who make less than $100k, this may mean they owe zero US Federal tax.
B) FTC (Foreign Tax Credit): https://www.irs.gov/individuals/international-taxpayers/fore...
Instead of A, you can calculate your US taxes as normal (i.e. as if you were living in the US), but then deduct the amount of any tax you paid in your country of residence. If you live in a high-tax country (e.g. UK), then IIUC your tax bill after deducting tax paid in your country of residence would be zero, i.e. you would not pay any taxes to the IRS.
According to OECD's "Taxing Wages 2017" report, an average earner in the UK pays less tax than a single average earner in the US. For a married single-earner couple, taxes will be lower in the US, and other specific situations can play in as well (e.g. while PPP adjusted income for average earners in the US and UK was almost identical, the nominal amounts diverge a bit more, so if you compare specific nominal income levels it may shift things a bit), but in general it's way too simplistic to assume the UK will be high tax and the US low tax.
I know that wasn't your point - it's just a pet peeve of mine that people seem to think US tax levels are so low; they can be, if your family situation is right, your deductions are just right, and you happen to live in one of the lower tax jurisdictions, but it can just as well go the other way. Similarly that a lot of people seem to think the UK is so high - it's below the OECD average.
If you want an unambiguous "high tax" example, go with Belgium - they top the OECD tax data on almost every measure by a large margin (40.7% tax + employer social security for an average earner vs. 26% for US and 23.3% for the UK according to Taxing Wages 2017) or Germany (39.7%).
Then there are things like FBAR. Pension savings can also be tricky, since the US apparently doesn't honor foreign equivalents to 401(k). Employer contributions, and tax-deferred contributes, can/will end up being taxed under the same double-taxing scheme as regular income.
As a counter-example, I moved from Norway to the US some years ago. I was required to pay income tax to Norway for (if I remember correctly) two years after moving, and the Norwegian tax authorities would tax me on my entire US income, but allowed me to use the US taxes as a credit against my Norwegian tax obligation. After the two years, I no longer have to pay Norwegian taxes on my US income.
1) Should US citizens resident abroad be subject to US tax on their non-US income?
2) Do US citizens resident abroad have to pay 'double tax' on their non-US income?
I was only talking about #2. The answer to this: mostly not (bar your examples about effectively eliminating deductions for pension contributions).
You're also talking about #1, about which I have expressed no opinion. I can see both sides of the argument.
In case I wasn't clear, even if "double taxation" doesn't actually result in double taxation or an additional tax obligation -- i.e. (owed_US - owed_foreign) > 0 -- then it's still an unnecessary headache for the citizen.
In the US, thanks to extremely complicated rules and lack of centralized information collection -- many people use an accountant to file their taxes, which is much less common in other parts of the world. In my native Norway, for example, the tax authorities already have everything most people need to file, and indeed if you don't file at all they will simply calculate your taxes for you. (Unlike the US, they will mail a bill if you owe anything.) Living outside the US then potentially means having to use an American accountant to figure things out, unless something like TurboTax can do the job. (Last I checked, apps like TurboTax didn't do complex use cases like FBAR.)
I was told that you can't relinquish US citizenship to avoid taxes. If that is your actual reason, you must find a suitable lie instead.
Also, even in countries with a treaty, it doesn't always prevent double taxation of both income and capital gains.
For example, the Obamacare surcharge on investment income of 3.8% isn't eligible for any foreign tax credits...and it's not like any expat could even take advantage of Obamacare if they wanted to. Hell, I had trouble trying to take advantage of an Obamacare plan when I just moved to a different state.
This also doesn't include the added cost of the accountant needed to prepare expat taxes, which can easily run $4k-8k for foreign accountants who know the US system and understand the specific rules of their treaty.
My understanding is that US Citizens living outside the US can claim the Foreign Tax Credit, and that this doesn't require a tax treaty between the US and the country of residence.
The IRS guidance on the subject doesn't (as far as I have read) specify that a tax treaty must exist, for the FTC to apply.
Any pointers to more info?
(Regarding your last issue about the need for an accountant, due to the complexity of the US tax system: that's a good point but orthogonal to the worldwide tax and double taxation issues.)
Secondly - as you pointed out - U.S. citizens who make more than a certain amount and live in a low/no income tax jurisdiction will end pating U.S. taxes.
Not to mention the dacronian reporting requirements.
1)As laid out in this article by the BBC, there simply is no record of the true beneficial owner.
2)The jurisdictions have no legal agreements with western countries to hand over their records.
Example: Person A in western country X has an offshore structure going through countries Y and Z, both of which have no legal agreement with country X. Now through some leaks and witnesses, prosecutors in country X know that person A is hiding something in Y and Z, but they cannot prove it. They cannot obtain those records legally, if there even are any.
That's what must be tackled.
There are efforts aiming at this [1], but it will take time.
It needs proper cadastral property registration and a link to the tax system. It can even be privacy-preserving; the system doesn't need to care who owns the land, just that the taxes are paid.
For the UK I'd happily swap out council tax + stamp duty for a 1-2% annual property tax.
[0] https://www.galbraithgroup.com/property/per170030-glenlochay...
1. https://www.thebalance.com/current-u-s-federal-government-ta...
2. https://www.usatoday.com/story/money/personalfinance/2017/04...
I'm sure there are extra details that'd require extra snooping, but how much extra detail is needed if they can't find owners even with a frantic internal investigation?
The people "resorting" to Fonseca were the privileged. They must not get any clemency in their transgressions. I'm happy to see there's at least some fallout from all of this. I expected less.
E.g. just about every U.S. university invests their endowments through offshore vehicles, and are not doing anything remotely seedy
I'd have much more sympathy if these people actually voted with their feet and left high tax jurisdictions (properly), but the reality is that most of these people want all the advantages without the downsides.
A different way of looking at it would be if they did move themselves and their businesses then we'd be in a worse position than with how they are now. We'd get zero benefit from the business being located in the UK and also we'd also collect less tax.
I can clearly see how the lack of fairness can be taken, but implementing your suggestion would be much worse.
My point is that most places have a tax system that is the way it is exactly because it strikes a balance where most people are still willing to live there when they earn a lot without evading taxes.
That some decide they don't want to leave, but don't want to pay their taxes either, then does not get much sympathy from me.
> I can clearly see how the lack of fairness can be taken, but implementing your suggestion would be much worse.
My only "suggestion" is to actually enforce the law and expect people to pay the tax that they are legally required to pay, and if someone don't want to pay the tax rate they're actually obliged to pay, then they should leave.
If that causes too many people to leave, then there's a debate to be had about tax levels. But what is truly unfair is to have some people pay their full tax bills while others evade them.
For example if they buy a £5,000 jacket in the UK then £1,000 of that is collected as VAT. If they live & shop elsewhere we don't get that revenue in the shops nor do we collect that VAT.
As a percentage they generally find ways of paying less but it will still be a substantial tax revenue.
Overall, I look at my neighbours who earn less combined than I earn alone, and they're far worse affected than I am by taxes despite paying far less.
Taxes could be 0.1% and these people would still want to avoid paying it.
When there is a reasonable expectation of foul play, subpoenas are the appropriate route.
A lot of damage can be done by exposing people's financials. They become targets to predatory litigation and other forms of crime.
> Other correspondence points to the primary reasons many clients were using offshore structures.
> One Uruguayan financial planner commented: "…the main purpose of this type of structure has been broken: confidentiality".
> Another intermediary wrote: "… the names of our customers have been known by the authorities of their countries. Thanks to Mossack, customers have to pay incomes taxes."
But I want to balance that right to privacy against the additional 'powers' you get when using a company to conduct business. We imbue companies with a lot of benefits depending on their form like limited liability, different taxation arrangements and we should be able to identify the principals of those companies publicly.
Anything that enables tax evasion, subversive campaign influence, or otherwise inhibiting the general public's fundamental rights should be banned.
Do you know the difference between evasion and avoidance?
Tax evasion already is illegal. Paying your car mechanic in cash and it not going through the books is evasion and is illegal.
Tax avoidance is not. When you used to buy the under £15 DVDs from Jersey you were avoiding paying the VAT you should have been but was perfectly legal.
Nevada, Wyoming, Delaware, and New Mexico are states and they all have varying degrees of privacy options for corporations by design.
Only public companies should be required to be public IMO.
So would you also say that self-employed people shouldn't have the same rights as employed people?
Unless everyone should have all their financial and employment records public then this is a double standard.
I don't think employees would be too happy if everyone can see where they worked, for how long, and how much they made at every job.
They may be "self-employed" in a social sense, but they'd not legally be considered self-employed in any jurisdiction where I know how it works.
E.g. I used a limited company in the UK to employ myself. For the purposes of everything relevant, I'm an employee of that company, as well as a director, and the sole owner, and the relevant records are publicly available because I chose to form a corporation. Socially I might have been "self employed" but legally I'd explicitly chosen not to be because the benefits I got from that outweigh the downsides. If I didn't want to reveal that information, I had the choice to operate as a sole proprietor without forming a company.
In the U.S., most self employed persons contract for their entities. They are not employees of the entity. The entity may, for tax purposes, be a disregarded entity. This may be a quibble of a jurisdictional nature.
I've contracted for US corporations both with and without a self-owned corporation in between.
Depending on where you live, I don't believe there's much stopping a group of people getting together and offering services, they can do so anonymously if they want.
However, when you incorporate you do so specifically to register your "group" with the government so that people dealing with you know you're operating legitimately, following laws etc. It's about trust, trust is inherently not anonymous.
While I'm sure somebody somewhere has incorporated for trust, but that's a very obscure reason. It's certainly not "the specific reason for incorporation." It also doesn't even make any sense. One of the benefits of incorporation is to minimize the recourse available to customers - namely in that your personal assets cannot be touched. Somebody operating an unincorporated business is exposing themselves to unlimited liability if they run afoul of anything.
You most certainly can obtain a EIN in the US without being incorporated, and a fairly large portion of non-incorporated businesses will need one.
> One of the benefits of incorporation is to minimize the recourse available to customers - namely in that your personal assets cannot be touched.
... and that's one of the key reasons why the other side of the coin is additional transparency to counter the increased abuse potential.
Most simply the ability to pool and share risk among a group of people and in most cases limit the extent of of personal risk when undertaking some activity.
If you don't wish to provide that information, the solution is simple: Don't put yourself in the situation of being a member of a corporation in a position that your local jurisdiction require details of.
The justification for this in Norway at least was that it's considered a social concern whether or not you pay your taxes, and that it was considered important that people should be able to trust that people around them also contribute.
But it's arguably shifted quite significantly in balance now that it's possible to look up online (and various restrictions have accordingly been put into place) vs. before when you used to have to go to the tax office and look it up in physical books - the latter took care of the public interest aspect while making it too cumbersome for people to do just to satisfy random curiosity (e.g. before it went online, I don't think I knew anyone who had ever bothered; afterwards "everyone" has probably looked up someone).
https://www.independent.co.uk/news/people/emma-watson-panama...
As such, society sets the rules, and those rules are a trade-off between the substantial powers that comes from the various features available, such as creating a corporate veil, maintaining an existence independent of its owners, or limiting liability, and the responsibilities we expect them to comply with partly to reign in those powers, partly to protect owners from each other, and transparency is an important part of both most places in the world.
If you don't want your personal financials exposed that way, then don't use a corporation for them. Their purpose is not to shield your personal finances.
If your jurisdiction does not provide adequate privacy protections for individuals then that is a separate problem - for corporations the lack of privacy most places is an intentional feature.
Thanks, but no. I don't want to live in a society that's ruled according to other people's ideas of what benifits them and find this idea completely immoral and alien. As a person, I want to be able to do whatever I very damn please, benificial or no, as long as it doesn't infringe other person's freedom.
Without negotiating those terms, why should society as a whole honour it if you decide to invent new rules and apply them to your new fictional entity to shield you from liability for example?
What you are suggesting does infringe on other persons freedoms in that your unilateral corporation only has meaning if you force others to act as if it exists.
Put another way: If I decide I'm King of my own kingdom, and insists that as king I can dismiss any debt I incur, why should society accept my fantasy to the detriment of other members of society? If I insist that I can incorporate some new class of corporation not subject to the rules of society, I'm no different than a madman proclaiming his own fictional kingdom - it has no real existence unless I negotiate that existence and the rules governing it with society around me (one such alternative might be to simply accept one of the existing forms of business).
Because it only concerns them if they enter any agreement with this fictional entity, and they're free to choose to do or not do it.
> If I decide I'm King of my own kingdom, and insists that as king I can dismiss any debt I incur, why should society accept my fantasy to the detriment of other members of society?
Because people that lend you something would have to sign a contract (out of their own free will) where it clearly states that they're lending to a virtual "kingdom" of yours, where you can dismiss any debt you want.
> it has no real existence unless I negotiate that existence and the rules governing it with society around me
"Society" is a peculiar word. Because if you meant "people", then I agree - you'd have to negotiate it with people that you would want to sign agreements with you, as I stated above.
However, if you meant government, or people that wouldn't have to enter any agreements with your virtual entity, I don't see why the hell it's their business to tell you what imaginary entities you can create.
Incorporation is a legal agreement between you and a government representing people around you that effectively acts as legal shorthand to create a basic set of rules and obligations.
If you just want it to remain your own fictional entity no-one is stopping you from inventing whatever rules you want as long as it remains in your own head, and nobody are requiring you to disclose any details. But you can't incorporate and expect to be able to dictate your own terms.
And the moment you enter into any kind of business under the name of your fictional, unincorporated entity, you're also entering into agreements with people on its behalf. If you do that on behalf of an entity that have no legal existence without making it explicit that said entity have no legal existence, you're harming people by tricking them into agreements where they lack legal protections they expected they'd have.
And if you do make it explicit, sure, I'm sure you could find a way of doing that which would be legal, but nobody would do it as they'd have no legal recourse against a non-existent entity if it doesn't hold up its side of the bargain. Feel free to try.
To put it another way: Nobody would accept entering into a contract with the Magic Kingdom (the fantasy place, not a legal entity of the theme park) unless Disney or a subsidiary is also party to the contract so they can sue Disney if the Magic Kingdom does not deliver on its obligations.
> Because people that lend you something would have to sign a contract (out of their own free will) where it clearly states that they're lending to a virtual "kingdom" of yours, where you can dismiss any debt you want.
They can't sign a contract with my virtual kingdom, because it has no legal existence. Any such contract would likely be void in the best case, or involve fraud on my end in the worst case.
However, if they sign a contract with me, they're just routing around my delusional "kingdom", and we're back to the point that I can't demand of society to accept my new type of corporate entity - I can't invent my own shorthand, because nobody else recognises it.
The very name "corporation" hints at this (from lating "corpus"), and the idea of a corporation predates the existence of the US by more than a millennium.