Questions & Answers
For backround it would be useful to have read Introduction to International Asset Protection, or to be familiar with the uses and workings of trusts.
Note: Links to outside organizations will open a page in a new window.
Q : Can international financial structures be used to avoid taxes?
We think that an alternative question, “In internationally diversifying my financial affairs, can I create more of what I am committed to providing to the world?”, deserves an affirmative answer. Properly set up, assets in an international (outside one’s home jurisdiction) structure can grow tax free and then be contributed to persons and causes of your choice, in a greater amount than would be the case without any legal restructuring. This is due to the power of compounding, among other reasons. Going international allows new ways of thinking, and focusing on just whether additional money will pass through one’s hands unnecessarily constrains the thought process.
Q : How can international financial structures be used to actually defer taxes, in practice?
Q : If all that I am really interested in is setting up an offshore nestegg and letting the income accumulate tax deferred, why not just buy an offshore annuity?
Q : I have heard about the OECD “Blacklist” and anti-offshore initiatives. What is this and how does it affect WIL’s ability to service and protect its clients?
Some history: In 2000 the 29 industrial OECD nations released a report titled “Towards Global Tax Cooperation” that claimed that low-tax nations are bad for the world economy and identified 35 nations who are guilty of “harmful tax competition”. The plan was to coerce nations practicing “harmful tax competition” to cease this through various economic means. Strong opposition to the initial plan formulation resulted in its evolution into a battle over “information exchange”, determining conditions under which it is legitimate for governments to suspend financial privacy and divulge confidential information to other governments. In the words of a June 2001 quote of a U.S. Treasury Department spokesperson: “The U.S. reiterated our position about refocusing the project solely on the need for appropriate information exchange in order to prevent tax evasion.” In the aftermath of the September 11, 2001 terrorist attacks the rhetoric against offshore privacy intensified further – of course using the pretense of defunding terrorists – to force financial account holder disclosures. Major discoveries of tax evasion in 2009 involving large Swiss and Liechtenstein banks gave further ammunition to the OECD states which was very effectively used in their war on offshore havens. The dust is still settling.
In the U.S. empire’s hubristic dotage its government has largely dispensed with the nominal consensus building of old and flat out dictated to everyone else how it wants things to work. Using the leverage the Federal Reserve controlled international funds wiring system, which comes courtesy of the U.S. dollar still being the world’s reserve currency, it simply threatens to withhold access to that system from any country or institution that does not comply with its orders. For instance, Switzerland had to abandon its ages-old commitment to privacy in the face of that threat. This has set in countervailing forces in motion. We suspect the world will look very different in the not-too-distant future, but that is the situation now so everyone has to deal with it.
The battlefront between the seekers of and aggressors against liberty will never be static. It has not been a good idea for quite some time now to rely on secrecy to keep financial activities private. We expect the job of protecting client interests to continue to become more difficult. If we begin to suspect that the jurisdictions and strategies we favor are no longer adequate in defending the interests of our clients we have contingency plans. The alternatives would be more expensive to use, and thus are not favored until that happens.
Q : You (and others) mention other offshore structures such as International Business Corporations (IBCs). Where can I get in touch with a supplier of these structures?
Q : How safe is it to put money into offshore banks and brokerages?
We submit an upside to the lack of an FDIC-like entity for offshore banks: If an offshore bank’s management intends that the bank survive and prosper then they must earn the trust of their depositors by prudently managing their balance sheets and businesses, by being careful about to whom they make loans, by effectively managing the maturity of the loan portfolio versus their deposits, by maintaining liquidity in order to service the cash demands of their depositors, and by showing they can withstand the effects of financial dislocations. They do not have the dubious benefit of a ready supply of uninformed customers who believe that the government will step in and bail them out if their investment (deposit) proves to have been unwise. The FDIC’s reserves are demonstrably utterly inadequate to make good on the claims it would face in the event of a general financial system liquidity crisis. Surely depositor “bail-ins,” such as those imposed on Cyprus bank depositors in 2013, would be the de facto result. We believe that strong foreign banks, who are used to having to live without the back door of last-resort access to goverment funds, would show themselves to be better prepared for such a crisis than their U.S. counterparts.
It is worth noting that, appearances to the contrary, bank account holders are unsecured creditors of the institution. In practice the deposit-holding bank creditors have been bailed out when banks fail. But that has largely happened in the context of a general financial system that has not been precariously leveraged to the hilt. Governments and central banks pulled out all the stops to stabilize things (and in the process merely coincidentally ... not ... bailing out their crony capitalist financier sponsors) following the world financial collapse of 2008. We have given up predicting that there are no rabbits left in the hats of the fiscal and monetary policy makers, but it sure seems like their tricks have been exhausted. The conclusion, again, is choose your financial institutions wisely. In particular shun those which engage in risky speculation using leverage.
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