British Virgin Islands corruption scandal threatens its tax haven reputation(icij.org)
icij.org
British Virgin Islands corruption scandal threatens its tax haven reputation
https://www.icij.org/investigations/paradise-papers/british-virgin-islands-corruption-scandal-threatens-its-dependable-tax-haven-reputation/
33 comments
Tax havens have a reputation to preserve?
Well yeah they have a reputation as a place that can be reliably used as a tax haven.
I live in an offshore jurisdiction. They have reputations - but 'tax efficiency' is just one factor of many. Others would be how stable the legal system is / how often do laws change / what regulations are optimised for your particular company finances / how reliable the government is etc. You wouldn't want to move your very wealthy multinational company structure somewhere that could collapse or be somewhere where your company could not get financing etc.
Very curious about Georgia for this
Wonder what happens if there are no more tax haven period. Just wonder what they going to do with that 50 plus trillion dollars. Be good to invest in education and infrastructures.
I wanted to get in before the cliché comment about "legal tax avoidance" or loopholes. Pretty much anything that let's a person/company avoid paying large amounts of tax and involves complex arrangements isn't legal and isn't exploiting a loophole. What they are doing is exploiting is the limited resources of tax authorities to hold them to account. If tax authorities were properly funded you'd see a completely different story.
Closing the loopholes is more a political issue than a lack of resources issue. Companies like Apple won’t do illegal stuff but they will take advantage of loopholes. For example, the double Dutch Irish sandwich, which was recently closed, was one of the favorite ways for companies to avoid paying tax in the EU. Do you think it was a lack of resources impeding closing that loophole?
Actually it was a way to avoid paying US corporation taxes, not EU ones. It allowed US corporations to park their profits "offshore" indefinitely which is why only US corporations used this set-up. The US - uniquely in the world as far as I know - only collects corporation tax when the profits are repatriated. All others force companies to recognize and account for profits made in overseas subsidiaries regardless of where the profits are being held.
Please correct me if I am wrong, but AFAIK Apple and other corporations do (did?) following steps:
- shift income to US company
- use double Irish with a Dutch sandwich or similar to shift income to tax heaven
- pay effectively no taxes
- ask for funding, grants, bringing effective taxation rate below zero
- shift income to US company
- use double Irish with a Dutch sandwich or similar to shift income to tax heaven
- pay effectively no taxes
- ask for funding, grants, bringing effective taxation rate below zero
Mostly what you say is correct but there are a few points which make the story less outrage-provoking.
First of all "shifting income to a US company" has nothing to do with the set-up. Apple and everyone are obliged by decades of international pricing-transfer rules to book "profits" the the jurisdiction where the "value" was created. This is why most of the 30% or so margin Apple makes on an IPhone sale in Germany (for example) is booked as US profit. There's nothing nefarious going on here - the invention, engineering, design, etc. was all done in the US so it's perfectly correct that most of the profit is booked in the US. The rest of the profit will be booked in places like China (manufacturing), Ireland (packaging, localization) and Germany (distribution, logistics, sales) but the profit shares for these activities is understandably low.
The exact same thing happens in reversion when BMW sells a car in the US for example - most of the profit is booked in Germany.
Yes they used the Irish/Dutch sandwich to allow them to "park" these US profits in Bermuda (I believe). And yes, while these profits are sitting in bank account in Bermuda, Apple pays no taxes on them.
But the point people miss is that the tax liability doesn't go away - it's just been deferred.
Under political pressure, year or the year before (I think?) Apple repatriated a huge amount of profits parked in Bermuda going back years and paid US corporation tax on these profits. So the existence of the Irish/Dutch sandwich didn't allow them to evade paying taxes - it allowed Apple to defer paying them.
The advantage to Apple of course is the like the advantage to individuals of deferring tax payments - you get "use" of the money until you pay the tax. You can also wait for favorable to changes in tax rates before repatriation. But ultimately the tax is payable.
I think this idea (globally unique to the US) of allowing your corporations to expand globally without immediately booking foreign profits to the US corporation was designed as a sort of subsidy to help US companies compete abroad. If the US just got rid of this rule, then nearly all of the outrage over corporate tax evasion would go away I think. And this is why only US corporations used to have set-ups like the Irish-Dutch sandwich - it doesn't help companies domiciled anywhere else.
First of all "shifting income to a US company" has nothing to do with the set-up. Apple and everyone are obliged by decades of international pricing-transfer rules to book "profits" the the jurisdiction where the "value" was created. This is why most of the 30% or so margin Apple makes on an IPhone sale in Germany (for example) is booked as US profit. There's nothing nefarious going on here - the invention, engineering, design, etc. was all done in the US so it's perfectly correct that most of the profit is booked in the US. The rest of the profit will be booked in places like China (manufacturing), Ireland (packaging, localization) and Germany (distribution, logistics, sales) but the profit shares for these activities is understandably low.
The exact same thing happens in reversion when BMW sells a car in the US for example - most of the profit is booked in Germany.
Yes they used the Irish/Dutch sandwich to allow them to "park" these US profits in Bermuda (I believe). And yes, while these profits are sitting in bank account in Bermuda, Apple pays no taxes on them.
But the point people miss is that the tax liability doesn't go away - it's just been deferred.
Under political pressure, year or the year before (I think?) Apple repatriated a huge amount of profits parked in Bermuda going back years and paid US corporation tax on these profits. So the existence of the Irish/Dutch sandwich didn't allow them to evade paying taxes - it allowed Apple to defer paying them.
The advantage to Apple of course is the like the advantage to individuals of deferring tax payments - you get "use" of the money until you pay the tax. You can also wait for favorable to changes in tax rates before repatriation. But ultimately the tax is payable.
I think this idea (globally unique to the US) of allowing your corporations to expand globally without immediately booking foreign profits to the US corporation was designed as a sort of subsidy to help US companies compete abroad. If the US just got rid of this rule, then nearly all of the outrage over corporate tax evasion would go away I think. And this is why only US corporations used to have set-ups like the Irish-Dutch sandwich - it doesn't help companies domiciled anywhere else.
While we're advocating for people to pay taxes they are not legally required to pay, I would also like index fund holders to pay capital gains tax on rebalances.
I'd rather like everyone to stop paying capital gains taxes.
Or at least give everyone the same treatment as investments in ETF have: you pay your capital gains at the end, when you sell the ETF. Not when the fund makes internal transactions.
Or at least give everyone the same treatment as investments in ETF have: you pay your capital gains at the end, when you sell the ETF. Not when the fund makes internal transactions.
I'm pretty sure all of my transactions other than wages and living expenses are internal transactions to my fund!
Ok, and how about no more cap gains exclusion on selling primary residence and no more writing off mortgage interest (USA)?
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And that would be a good reform.
Why?
Isn't the real question "Why should transactions inside of funds get to avoid taxes?" or "Why is it that if you and 8 friends each own 11% of an offshore fund you owe capital gains on transactions inside the fund, but if you and 10 friends each own 9% of an offshore fund you do not?"
Which part of the double Irish with a Dutch sandwich was breaking law rather just exploiting loophole?
It was even grandfathered by legislation:
> The legislation passed in Ireland in 2015 ends the use of the tax scheme for new tax plans. Companies with established structures were able to benefit from the old system until 2020.
https://www.investopedia.com/terms/d/double-irish-with-a-dut...
It was even grandfathered by legislation:
> The legislation passed in Ireland in 2015 ends the use of the tax scheme for new tax plans. Companies with established structures were able to benefit from the old system until 2020.
https://www.investopedia.com/terms/d/double-irish-with-a-dut...
Not true. Many countries quite legally let you not pay any taxes of foreign dividends, for example, as long as you are tax resident. And they give you tax residence if you spend only 60 days a year in the country and not a tax resident in any other (i.e. don't spend over 183 days a year there). Cyprus is an example: YES you quite legally can avoid paying almost any taxes at all if you are bothered to live here 60 days a year and pay 10-15K per year in legal fees.
Singapore doesn't have any capital gains tax, and will only tax foreign dividends, if they haven't already been taxed at least 15% at source.
If the tax authorities were properly funded? Why not, if the tax system was fair? Or if people were good?
I would suggest that most of the tax system is in line with that odd expression - "The crime isn't what's illegal but what's legal."
Poor people commit crimes because they lack resources and imagination. Rich people use both to make sure they get what they want without putting themselves on the wrong side of the law.
I would suggest that most of the tax system is in line with that odd expression - "The crime isn't what's illegal but what's legal."
Poor people commit crimes because they lack resources and imagination. Rich people use both to make sure they get what they want without putting themselves on the wrong side of the law.
The ICIJ relies on drawing sensational conclusions and headlines for benign activity, and suggests outcomes that have no relation to anything.
The content of their article balances out all of this by pointing out how prevalent that compliant and legal non controversial uses of the BVI are to multinational corporations, to the point of basically admitting that their headlines are apocryphal.
In this case, there is just zero relation to public officials misappropriating funds and seized drugs to incorporating shell or active companies in the BVI. Bye.
The content of their article balances out all of this by pointing out how prevalent that compliant and legal non controversial uses of the BVI are to multinational corporations, to the point of basically admitting that their headlines are apocryphal.
In this case, there is just zero relation to public officials misappropriating funds and seized drugs to incorporating shell or active companies in the BVI. Bye.
The scandal has no direct relation to being a tax haven.
> outgoing BVI Governor Augustus Jaspert announced a commission of inquiry to investigate allegations of corruption and the misuse of millions of dollars in public funds.
> outgoing BVI Governor Augustus Jaspert announced a commission of inquiry to investigate allegations of corruption and the misuse of millions of dollars in public funds.
“Whoa, they actually investigate corruption? Not a place I want to rely on being able to bribe corrupt officials!”
ICIJ is the Caribbean town crier
It absolutely DOES have a relation. If in some place corruption cases are really investigated - this is not an appropriate place to hide money anymore.
Public affairs are separated from business. This was about whatever money had to be spent on X and were directed to Y via corruption
Not sure. Singapore has a reputation as a tax haven, but also a reputation for being squeaky clean.
(But that's perhaps a different kind of tax haven than the British Virgin Islands are?)
(But that's perhaps a different kind of tax haven than the British Virgin Islands are?)
It's the opposite. Unimpeachable officials enforcing favorable tax law protects depositors.
Just because one thinks "hiding money" and "corruption" are both bad doesn't mean that both are and that both go together.
Just because one thinks "hiding money" and "corruption" are both bad doesn't mean that both are and that both go together.