The U.S. Senate is proposing two bills to get a stronghold on the abuse of offshore tax havens. For those of you not sure of what this is, an offshore account is a bank account located outside the country of residence of the account holder, and typically in a low tax jurisdiction that provides financial and legal advantages. For years, offshore accounts have been used for a variety of reasons. Some of which are for privacy, less legal restriction, low or no taxation, easy access for deposits, and protection against local political or financial instability.
If passed, S. 396 will require U.S. companies to pay current income tax on their foreign source income if they operate in an identified “low-tax” jurisdiction. The list includes Liechtenstein, Guernsey, Jersey, Isle of Man, and the Cayman Islands. Belize is also a strong candidate for the being on that list. Also on the board is S. 681, which will establish a legal presumption that no transaction involving a tax haven was legitimate, assuming that all non-public entities organized “offshore” are controlled by the taxpayers who formed them or transferred assets to them. That would mean their income was currently taxable in the U.S.
The IRS is seeking action against over 100 U.S. taxpayers believed to have used the Liechtenstein tax secrecy laws to evade their U.S. tax responsibilities. Each week, the major tax reporting services carry stories of IRS enforcement actions against individuals (and most likely still stealing your breakfast cereal). These taxpayers are typically losing in court when they try to litigate their positions, too. Now the Government Accounting Office (GAC) is investigating taxpayers who have been identified as having accounts in the Cayman Islands. So far, it’s just an informational investigation because there is nothing wrong with owning such an account as long as you report it and include any income it earns, or that is deposited to the account, in your U.S. taxable income.
I’ve read that the IRS has budgeted almost $14 million and 134 full time agents to focus on “offshore activity” and the agency expects to recover over $100 million in additional taxes, fines, and penalties from enhanced enforcement activity (they are not getting my cereal!). Since there are still people out there who will tell you that an offshore account can be used to hide income from the IRS, you should know that they are idiotic morons who should be tied up against a brick wall until an elite group of ninja warriors come by and give them 1,000,000 tiny little papercuts all over their body before throwing them in the Gulf of Mexico. And not the clean side of the Gulf, the dirty side with all the mud and fish guts!
I think I would sleep much better at night knowing that I won’t get prosecuted for trying to save a few dollars and cheat the government out of some taxes. This has been a very lucrative deal for many years and for thousands of people, but that doesn’t make it right. Many people have legitimately conducted business and have been able to maintain stability through the legal process of doing business. It’s really not that difficult and if needed, just work that into your margin calculation. Taxes are a pain, but even worse than taxes are penalties and fines. Which would you rather pay??
If you have over $10,000 interest in one or more “financial accounts” in a foreign country you need to be sure you are aware of the need to file Treasury Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, before June 30 of each year. U.S. citizens are “taxable on their worldwide income, without regard to where the citizen lives or where the income is earned.”
3 thoughts on “Think your offshore tax haven is protected? Think again…”
These bills will surely take out skeletons from lost of people closet 🙂
The law would only affect the US, and would be summarily ignored by banks in other jurisdictions. The US has the most aggressive (not the highest) tax regime in the world. The tighter the IRS closes its grip, the more it will lose. All my business is done through an IBC and bank in Seychelles, no tax, no records, secrecy protected by law.
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