Wealth International, Limited

Offshore News Digest for Week of April 3, 2006

Note:  This week’s Financial Digest may be found here.

Global Living & Business Taxes Asset Protection / Legal Structures Privacy Law Opinion & Analysis



Just because you have been offered the job, should you still accept it? The job may not be right for you, or your spouse. Unfamiliar surroundings, culture shock and the move away from family and friends are not right for everyone. Ask yourself how you will manage the move and the accompanying stress. Your relationships will be put under strain and you will have to rely upon each other more than you do in your home town. The reality is that divorce is a common side effect of many expatriate postings – you need to think about whether you want to put your relationship to the test.

Think about whether you both can work, or whether one of you will have to be a trailing spouse. Just because you have been offered a posting overseas does not mean that you spouse will be able to work. Visa restrictions, employment barriers, favoritism toward hiring local staff and the possible negative impact on the career of the trailing spouse must be considered.

If you have any doubts at this point in time, decline the offer. Without the right mental attitude to the new role, problems can quickly appear. Many postings fail because of: (1) Work problems – for example, the job is not quite what it was envisaged. Problems adapting to the local culture, language problems, difficulties with established business practices can all impact adversely on your working environment. (2) Family problems – unhappy spouses and children can place enormous pressure on your ability to manage the move. Regardless of how well you do at work, if you are returning home at the end of the day to an unhappy situation, this failure to settle and re-establish can force you to relocate back home. (3) Change – problems managing change and an inflexible attitude towards new ways of doing things can exacerbate the stresses of an international move.

You will be losing an entire network of family and friends and, if you or your partner fails to recreate new networks, you may be forced to rethink your stay overseas. Think about whether you are open to new experiences and ideas. Do you prefer the comfort of the familiar? Do new experiences, tastes, ideas seem threatening or make you uncomfortable? Do you tend to holiday and do the same things each year? If so, an overseas posting may not be right for you and your family.

Think about your job package. The salary is only one side of the employment picture and you need to take into account the cost of living in your new post as well as whether you could still afford to stay there if you were localized. Many employers offer accommodation, schooling, hardship, medical insurance, superannuation or company pension contributions, language classes, removal costs to and from the posting, repatriation allowances, end of contract bonuses, accompanying spouse allowances and so on. Will your employer pay for language classes for your family? Yearly trips back to your home country? These are all considerations that you did not have to negotiate in your old job but you need to think about them in an expatriate move.

Link here.


Here is a whole new twist on finding absolute freedom in a semi-free world – including living the absolute best of lifestyles in some of the world’s most exotic safe-havens, getting offshore residency, getting a second citizenship, and doing it all free of big brother, tax free. The author explains how to attain the following in record time: 1) A luxury yacht at a discounted price, 2) a Panamanian offshore corporation, 3) Panamanian residency, 4) a Panama address and phone number, 5) a Panamanian private offshore bank account, 6) a Panamanian drivers license, 7) Panamanian registry and insurance for your yacht, 8) the ability to live anywhere in the world on your yacht tax free, and 9) have your yacht delivered in the Caribbean or the Pacific. This is realistic stuff, it is easy to put in motion, and it solves more problems than any other method we have heard about.

Some people labor at moving offshore and getting their second citizenship, while others ride the process out in highest of style. Some spend a fortune on various residency schemes in order to qualify for an eventual passport. A select group of others spend their time wandering on their yacht from pristine hidden beaches to European yacht havens after qualifying for their residency in the blink of an eye. Which style of life appeals to you? If you are the type of person who wants to decide by way of experience which beach, harbor or nation that you like best, then having a luxury yacht is the option to consider. Whether it is a beach in the Caribbean, cruising the Mediterranean, the Pacific or the South American coast, a luxury yacht puts you there – in style. And all the while your front yard changes with with your whims. With today’s ubiquitous internet connectivity, yacht design, and navigational software, the sort of lifestyle I am discussing is a reality. But add to that a very important fact that is pertinent to this discussion – when your yacht is purchased and registered in Panama, you can actually have your cake and eat it too. Read on. …

Link here.


Standard & Poor’s has affirmed its “A-” long-term and “A-2” short-term Sovereign Credit Ratings on The Commonwealth of The Bahamas, and has predicted that the strong performance of the finance and tourism sectors will bode well for the Bahamian economy in the future. According to S&P, the outlook on the long-term ratings remains stable, with indications that this could be changed to “positive” should the government manage to contain fiscal pressures, and if foreign direct investment remains high. The recent ratings reflect the Bahamas’ macroeconomic stability, prudent fiscal policies, and steady monetary stance, S&P credit analyst Olga Kalinina stated. Moreover, the country’s fixed exchange-rate regime, in effect since 1973, ensures low inflation, while generally prudent fiscal management has led to only moderate accumulation of government debt, she added.

Debt is estimated at 24% of GDP on a net basis in 2006, compared to 20% for the “A” median. Kalinina noted that, “The stable ratings also reflect the island’s politically stable environment and high standard of living (compared to its peers), as well as the public sector’s low and declining external debt.”

Link here.


Zurich cantonal government says Swiss membership of the EU would have a positive impact on health, education, research and internal security. But the economy would clearly benefit from maintaining the current approach through bilateral treaties between Switzerland and Brussels. Zurich, one of the country’s 26 cantons, is the economic hub of Switzerland and home to about one sixth of the population. The report said if Switzerland were an EU member it would be able to help shape European-wide developments on asylum, immigration and health as well as research and education. However, the current policy of bilateral agreements with the EU would be an advantage for the financial sector and helped fend off pressure by Brussels to streamline the country’s tax policy, according to the reports. The document, which was compiled in 2004, is one of several studies to be published by other cantons and organizations on the issue.

Link here.


British Foreign Secretary, Jack Straw and the Chief Minister of Gibraltar, Peter Caruana have reached agreement on wide ranging reform and modernisation of the Gibraltar Constitution. The agreement sees the UK retaining international responsibility for Gibraltar, including its external relations and defence, and as the Member State responsible for Gibraltar in the EU. “Thus the close constitutional links with the UK, and enduring British Sovereignty are, in accordance with the wishes of the people of Gibraltar, enshrined in the new Constitution,” explained a joint statement published by the Gibraltar government last week. Howwever, the new Constitution also confirms that the people of Gibraltar have the right of self-determination – the first time that this right has been enshrined in Gibraltar’s Constitution.

Commenting on the agreement Mr. Straw noted that, “The new constitution strengthens Gibraltar’s links with the UK, and thoroughly modernizes the relationship between us, which I hope will be as welcome to the people of Gibraltar as it will be in the UK.” Meanwhile, Mr. Caruana observed that the agreement is a “good outcome” which maximizes Gibraltar’s self government while preserving British Sovereignty and Constitutional links with Britain. “Everyone in the Gibraltar Delegation regards this as a good constitutional text. It provides for a modern relationship between the UK and Gibraltar. The Government of Gibraltar is delighted with this settlement, and will have no hesitation in recommending it to the people of Gibraltar,” he added.

Link here.


The WTO’s deadline for the United States to respond to its ruling on the U.S.-Antiguan gaming dispute expired on April 3rd, with no sign that the U.S. has taken any action on the WTO’s demands. The ruling by the WTO Appellate Body in April 2005 upheld one of Antigua and Barbuda’s complaints over U.S. prohibitions, which prevented U.S. banks and major internet search engines from doing business with gambling firms on the island.

In mid-March, Antigua and Barbuda’s Ambassador to the WTO, Dr. John W. Ashe, responded with disappointment to a U.S. statement made in Geneva at a meeting of the WTO’s Dispute Settlement Body over the dispute. Last week Dr Ashe and Antigua and Barbuda’s legal adviser on the WTO dispute, Mark Mendel, met U.S. Congressman Pete Sessions (Texas) to discuss the current status of the dispute. “The primary objective of the meeting was to brief the Congressman on the status of our WTO dispute with the United States,” said Ambassador Ashe. Dr Ashe also asked the CARICOM Permanent Representatives to the Organization of American States to reinforce Antigua and Barbuda’s concerns over the dispute with the US Administration and Congressmen.

“What is troubling,” said the Ambassador after the Geneva meeting, “is what has actually been happening in the United States since we won our hard-fought and costly dispute. Legislation has indeed been introduced in the United States Congress addressing the difficult topic of remote and Internet gambling. In fact, two bills have been introduced separately in the Congress which are substantively quite similar. This legislation, one bill entitled the ‘Unlawful Internet Gambling Enforcement Act of 2005’ and another entitled the ‘Internet Gambling Prohibition Act’, is the only legislation introduced into the Congress since the determination of the ‘reasonable period of time’ in our case. … Unfortunately, each proposal is about as directly contrary to the recommendations and rulings of the DSB as could possibly be imagined.”

The tiny Caribbean jurisdiction, where several online gaming firms are based, argues that by seeking to legally prevent U.S. citizens from accessing online gambling services such as those offered by many companies in Antigua and Barbuda, the U.S. government was contradicting service sector commitments that it made when the WTO was formed in 1995. U.S. federal laws bar the placing of bets across state lines by electronic means, preventing Antiguan online gambling companies from accessing U.S. customers.”

Link here.


The internet is critical to the online gaming industry, and a seamless transition to a back-up network is vital to a hardened poker player who does not want to miss out on a hand because of a network failure. It is an opportunity that has not gone unnoticed by the Isle of Man government. The offshore tax haven is courting online gaming companies to set up disaster recovery operations there in a bid to prevent losses that may arise from a disruption of services. Six online gaming companies are understood to be in talks with the Manx government, to place back-up systems there, which they could bring online if their main communications network fails for any reason.

The talks come in the wake of a change in the island’s online gaming regulations last month. These laws allow companies to operate support facilities for up to 24 hours in an emergency, without a licence and without paying a duty on earnings in that period. “Businesses want to be able to operate here in an emergency without [the start being delayed by] the vetting process. The new law allows companies to have systems to suck data into their back-up location here regularly, but only bring it online if there is an emergency. It could be anything from a systems problem to a regulatory issue,” says Jon Allen, the managing director of Domicilium, an internet service provider on the island.

Once a company’s disaster operations have been active for more than 24 hours, it has to pay duty on earnings. After operating in this way for 30 days, the reason for the move is classed as a major disaster, and it must seek a full licence. Companies such as PartyGaming and 888.com may have up to 100,000 players online at any one time, illustrating that online gaming businesses are thriving. With more companies entering this market, secure and seamless back-up systems are necessities as they rely on always-available access to the internet.

Link here.


The Reserve Bank of India will formulate guidelines for the proposed International Financial Services Center in Mumbai and the overseas banking units to be located in special economic zones within 60 days. The guidelines will spell out the applicability of the stock exchange norms, insurance norms and banking norms in the IFSC. The model being considered is Labuan in Malaysia, which as designated as an offshore IFC in 1990. That OIFC offers a wide range of offshore financial products, including banking, investment banking, insurance, captives, trust business, fund management, investment holding, company management and Islamic financing.

There is a sense of urgency to put in place guidelines for the OBUs and the IFSC following the recommendation of the Indo-U.S. CEOs forum to set up an IFSC in Mumbai with assistance from the U.S. The Navi Mumbai SEZ has already earmarked land for the financial center.

Link here.


The Panama Canal Authority (ACP) has approved plans for a $7.5 billion expansion project that will increase the capacity of the famous waterway which, as China and India boom as major exporting nations, is already at full stretch. Under the plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, while existing channels will be dredged to ensure large craft can enter the system. The project will take about seven years and employ up to 8,000 people.

In the years since its construction by the U.S. marine corp in 1914, the canal had dictated the size of ships so that shipbuilders had built vessels, known as “Panamax” ships, just large enough to navigate the 60km long canal. However, since the mid 1990s a new generation of supertankers and container vessels up to 160 feet wide have been constructed, and these have been too large to negotiate the canal’s lock system – meaning that the canal authority has been losing potential revenues. Nonetheless, despite its constraints, the canal has been operating close to full capacity, and it handles some 5% of global trade annually. Last month, the canal authority announced that two records were broken during the third week of March, one in total tonnage and another when 27 “super” vessels – ships 91 feet or more in beam – transited through the canal, beating the previous record of 26 set in May 2005. The authority also announced that a third record was nearly equalled when 23 Panamax size ships transited the waterway, just shy of the current record of 24.

Panama intends to pay for the mammoth cost of the undertaking through a combination of canal fee increases and borrowing. It will also sell a form of “transit futures” meaning that shipping lines will be able to buy transits for use in several years, but at current prices. The plan must first be approved by the government of Martin Torrijos – which is expected – before being put to a referendum, likely to be held in the latter half of the year.

Link here.


China has imposed a moratorium on licensing new foreign magazines for publication, in a possible blow to companies that hope to break into the booming Chinese media market. The most high-profile possible victim of the new policy is the Chinese edition of Rolling Stone. The publishing venture in Shanghai for the U.S. music and pop culture magazine was ordered to dissolve last month after it put out a single issue. China’s move is part of an effort to help Chinese publishers expand their foreign sales, said the official, a director of the General Administration of Press and Publications. “We have no plans to add more ‘copyright cooperation’ with foreign media companies,” the official said, using the government term for partnerships to publish foreign magazine titles.

The official would not say how long the moratorium has been in effect or when it might end. He refused to be identified further because the policy has not been publicized. Foreign publishers are eager to tap into a potential Chinese market with hundreds of millions of increasingly affluent readers. But in order to publish in China, they must have a local partner. Foreign companies have formed several such ventures to launch Chinese editions of titles including the Washington Post Co.’s Newsweek, Lagardere SCA’s Elle and Car & Driver and the men’s magazine FHM, owned by Britain’s Emap PLC.

The moratorium was first reported Friday by The Asian Wall Street Journal, which said it has been in place for about a year and allows an exception for new science magazines. The Chinese publications official said magazines that already are licensed will not be affected. He said it also will not apply to distribution of foreign titles that are mailed into China. The official described the policy as part of a government effort to expand foreign sales by Chinese magazines to “balance” the influx of foreign titles into China. While some foreign magazines in China commission original material, others mostly use translations of foreign articles. Chinese officials are also worried about the social impact of imported pop culture and have tightened media controls in recent years with steps that include restrictions on foreign television programming.

Link here.

China on U.S. spending spree.

Chinese officials hoping to ease trade tensions before President Hu Jintao’s upcoming visit to Washington, D.C., kicked off a coast-to-coast buying spree in Los Angeles that will include $15 billion in orders for U.S. software, airplanes, electronics goods, auto parts, farm goods and other products. Although the new bookings will benefit many big names in industry, analysts were quick to express their skepticism about the Chinese trade mission. They characterized the supersize shopping extravaganza – the largest for a Chinese trade mission – as a not-so-subtle effort by Beijing to win over Americans without addressing the significant issues of the ballooning U.S.-China trade imbalance, piracy of U.S. goods and Chinese currency policy.

Even business groups warned that any gains from China’s commercial diplomacy would be short-lived unless they were accompanied by concrete action on issues such as stronger intellectual-property protection. Analysts said China’s efforts also could backfire because the timing of the deals was so clearly intended to smooth the way for Hu’s April 20 summit meeting with President Bush. The deals are intended to promote the paid use of software in China, which has the third-highest piracy rate of any country at 90%, according to a 2004 survey from the Business Software Alliance, based in Washington, D.C.

Link here.



The Irish Revenue Commission has named and shamed a number of high profile Irish business people in its latest tax defaulters list, published by the Revenue last week. Among those who made settlements with the Revenue for outstanding tax were four former executives of AIB, Ireland’s largest bank, who paid a total amount of €323,313 after admitting to evading tax through offshore investment schemes. All four of the former AIB employees were investors in Faldor Ltd, a British Virgin Islands company managed by AIB Investment Managers.

In 2003, the bank discovered that a number of senior executives in the early nineties had established an unauthorized investment account with AIB investment managers routed through Faldor. The settlements by the former AIB executives were among 148 settlements reached with the Revenue the 3-month period to 31 December 2005 for a total of €28.11 million. Of the 148 published settlements, 60 were for amounts exceeding €100,000, 13 exceeded €500,000, and 5 exceeded €1,000,000. 64 settlements totaling €11.83 million relate to bogus non-resident account holders. The total yield from Revenue audit and investigation programmes in the period 1 October 2005 to 31 December 2005 was €125.26 million.

Link here.


Thousands of businesses will find it easier to recruit skilled labor from overseas and enjoy significant reductions in compliance costs as a result of changes in tax law that went into effect on April 1, according to Finance Minister Dr. Michael Cullen. After 1 April, new migrants and returning New Zealanders who have not been tax-resident for at least 10 years will be exempted from tax for four years on foreign income such as dividends, interest, royalties and rental income. The 10 year requirement is designed to ensure that New Zealand residents do not leave the country just to become eligible for the exemption.

The changes are part of the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Bill which the government believes represents the most comprehensive package of business tax cuts since the late 1980s. The measures have a four year fiscal cost of $1.1 billion. In other changes, the Bill has cut the valuation rate on motor vehicle fringe benefits from 24% to 20% of the vehicle’s cost price, to reflect the decline in real motoring costs over the past 20 years. Day-to-day work tools such as cell phones and laptops will be exempt from fringe benefit tax, provided they cost less than $5,000 each and are to be primarily used for business.

“Overall, these and related changes will mean that fewer small businesses will need to file fringe benefit tax returns on minor benefits that are part of their day-to-day business activities. That means lower compliance costs and more time to spend on the business,” stated Dr. Cullen.

Link here.


It has been reported in the Swiss media that revenues generated by the transitional withholding tax on Swiss savings and investments under the European Savings Directive are far below expectations, suggesting that investors have easily manoeuvred their assets into places where the directive cannot reach. Roland Reding, a tax expert at accounting firm KPMG, said that he has seen figures suggesting that the amount of tax withheld by Swiss banks since the directive came into force last July is relatively small. “I have seen [banking] provisions for this tax and I was always surprised the figures were so small. The payments to the EU may be far below expectations.”

According to Swissinfo, estimates of Switzerland’s withholding tax contribution vary between CHF120-200 million ($91-152 million) for the first 12 months. These contributions will soon be handed back to the government of the state where the investor has their primary residence. As originally drafted, the directive aimed at a uniform “information exchange” regime to apply across the EU, with all countries agreeing to report interest on savings paid to the citizens of other Member States to those States’ tax authorities. As Europe’s major private banking center, Switzerland was forced by the EU to adopt the directive, along with the UK’s offshore dependent territories, the Netherlands Antilles, Aruba and some European centers (Andorra, Monaco, Liechtenstein and San Marino). By way of a compromise, the EU has allowed most of these places to opt for a “transitional” withholding tax at 15% (20% from 2008).

However, as expected, wealthy investors are finding it easy to circumvent the directive. One of the most obvious “loopholes”, as many describe it, is the fact that the provisions of the directive apply to individuals, but not to companies or trusts. Billions of euros in assets have also reportedly flown to parts of the world where the EU directive cannot reach such as Hong Kong and Singapore, while in August 2005 alone, shortly after the directive entered into force, nearly €7 billion poured out of Swiss accounts into Luxembourg Sicav II bonds, which are outside the scope of the Directive.

Link here.

Swiss government claims data shows EU withholding tax system works.

The first official figures on withholding tax revenues collected in Switzerland under the European Savings Tax Directive have been published, and the Swiss Ministry of Finance has claimed that the data shows the system is working. Up to the expiry of the registration deadline on 31 March 2006, the Federal Tax Administration had received approximately CHF138 million ($107 million) for the 2005 collection period, the Finance Ministry announced Wednesday. Of this, approximately CHF103 million will be transferred to the beneficiary EU member states, and Switzerland will receive approximately CHF34 million as recompense for its additional operating expenses. Approximately CHF31 million of this amount will be retained by the Confederation, with around CHF3 million going to the cantons.

“The amounts received show that the Swiss system of tax retention works,” the ministry stated, no doubt in an attempt to rebuff recent speculation that withholding tax revenues would be well short of what was expected. The ministry also stated that it was too early to carry out an analysis of revenues given the short time that the system has been in operation. It has been estimated that the banks spent up to CHF300 million on introducing the tax retention scheme.

Link here.


Advisers suggest that the official Budget figure for recovered taxes represents a huge underestimate of the avoidance going on through the schemes. The chancellor could raise almost £500 million a year by closing a key offshore property tax loophole – 10 times as much as Budget figures suggest. The abolition of “seeding relief”, which allowed property companies and individuals to put properties into offshore unit trusts as a way of avoiding stamp duty of up to 4%, is predicted to generate £50 million a year for the government, according to the Budget statement. But advisers have suggested that the figure represents a huge underestimate of the avoidance going on through the schemes.

Jeff Webber, associate director at Chiltern, said the number of properties being sold on free of stamp duty was so large that as much as 10 times that sum was being avoided. Property industry insiders suggested that law firms had been lining up clients to exploit the rules. Webber said that one Jersey firm had employed 50 new people to process transactions. A spokesman for the British Property Federation described the clampdown as closing of the stable door after the horse had bolted. The closing of the loophole was part of a surprisingly muted set of announcements on tax avoidance, predicted by many to be a key theme of the Budget.

Link here.


Tax revenues, at €10.75 billion, were €436 million ahead of the government’s target at the end of March 2006, Ireland’s Finance Minister Brian Cowen announced. Year on year tax receipts were up 19.1% compared to the projected increase of 14.3% to end March 2006, Exchequer data showned. Total current receipts in the first three months amounted to €10.87 billion compared to receipts of €9.13 billion for the same period in 2005. “The results to the end of the first quarter confirm that the public finances remain very much on track," commented Mr. Cowen. “Tax revenues are ahead of profile, with capital taxes performing particularly well. I am confident that these figures support the view that the economy will grow by over 4.5% this year, the strongest growth rate in the euro-area,” he added.

An Exchequer surplus of €2.42 billion was recorded in the first quarter of 2006. This compares to an Exchequer surplus of €880 million for the first quarter of 2005 and a budgeted deficit of €2.93 billion for 2006 as a whole.

Link here.


UK bank Halifax has warned that the number of households caught in the Inheritance Tax net will triple to 4.2 million by 2020 if future governments move the IHT threshold only in line with retail prices. The fifth Halifax Savings Report observed that successive governments have failed to increase the IHT threshold in line with house price growth. The bank calculated that the 2006/07 IHT threshold of £285,000 would now be £425,000 if it had been increased in line with house price inflation over the past ten years. House prices have risen by 176% in the past ten years, compared with just an 85% increase in the IHT threshold. Latest figures from the Inland Revenue show that the number of estates with assets of less than £500,000 that pay inheritance tax has increased by 70% from 11,279 to 19,166 over the period 1996/97 to 2002/03.

A 4% increase in the IHT threshold is scheduled for April 2006 to £285,000, followed by a 5% increase in April 2007, which will bring the threshold to £300,000. In Budget 2006 the government scheduled increases in the threshold up to £325,000 by 2009/10. However, Halifax says this is not nearly enough to stop millions more entering the IHT net in the coming years. The revenue raised by the government through IHT has risen since 1996/97 from £1.6 billion to £2.9 billion in 2004/05. A further rise is estimated in 2005/2006 to £3.2 billion. Around 6% of estates are estimated to pay IHT this year (35,000). The number has more than doubled since 1996/97 (15,000). About 40% of taxpayers, accounting for half of IHT revenues, reside in London and the South East.

Link here.


An analysis of IRS data by The New York Times found that the benefit of the lower taxes on investments was more concentrated on the very wealthiest Americans than the benefits of President Bush’s two previous tax cuts. The Times analyzed IRS figures for 2003, the latest year available and the first that reflected the tax cuts for income from dividends and from the sale of stock and other assets, known as capital gains.

According to the study, taxpayers with incomes greater than $10 million reduced their investment tax bill by an average of about $500,000 in 2003, and their total tax savings, which included the two Bush tax cuts on compensation, nearly doubled, to slightly more than $1 million. These taxpayers, whose average income was $26 million, paid about the same share of their income in income taxes as those making $200,000 to $500,000 because of the lowered rates on investment income.

Americans with annual incomes of $1 million or more reaped 43% of all the savings on investment taxes in 2003. The savings for these taxpayers averaged about $41,400 each. The newspaper’s tax cut analysis showed that more than 70% of the tax savings on investment income went to the top 2%, about 2.6 million taxpayers. And the savings from the investment tax cuts are expected to be larger in subsequent years because of gains in the stock market.

Congress is now debating whether to make the Bush tax cuts permanent. Stephen Entin, president of the Institute for Research on the Economics of Taxation, a Washington organization, told the Times that the tax cuts did not go far enough because the more money the wealthiest had to invest, the more that would go to investments that produce jobs. Opponents told the newspaper the cuts are too generous to those who already have plenty.

Link here.


Tax return preparers at commercial chains made mistakes on virtually every tax return prepared at the request of undercover congressional investigators. In 19 visits, the Government Accountability Office asked for assistance from preparers to file returns for two hypothetical families. Only two of 19 tax returns showed the correct refund amount, but both of those returns included errors. Incorrect refunds on the other tax returns delivered as much as $2,000 extra to some taxpayers but took more than $1,500 from others. The GAO said it looked at a tiny number of returns prepared by chain tax companies and the findings could not be generalized across the tax preparation industry. More than half of all taxpayers, especially those with complicated tax situations, ask a professional to prepare their returns.

The problems uncovered included bad advice and incomplete reporting. The top lawmakers on the Senate Finance Committee said the study indicated that tax professionals should have to meet minimum training and competency requirements before opening for business. “It’s incredible that we have legal requirements for someone to qualify as a barber to cut your hair, and yet there are no requirements for someone to prepare your taxes,” said Finance Committee Chairman Charles E. Grassley (R-Iowa). Robert Weinberger, a vice president at H&R Block, told the committee that the company supported the certification and registration of tax return preparers.

Link here.


A U.S. District Judge has ordered the IRS to turn over statistical data it collects on its audit activities to an educational institution which analyzes and disseminates information on the agency’s audit practices. The IRS has been withholding the reports from Professor Susan Long, a noted tax researcher at the Transactional Records Access Clearinghouse (TRAC), a non-partisan data-research organization at Syracuse University, on the grounds that it is no longer required to comply with a previous court order and that TRAC’s requests were a financial strain on the agency.

Professor Long, a co-director of TRAC, has been studying IRS data since she used a 1976 court order based on the Freedom of Information Act to force the agency to comply with requests for data. However, in May 2004, the IRS informed Professor Long that the agency would no longer supply the requested data, and that any future statistical data requests would cost $12,000 per month to receive in electronic format. According to the IRS, its lawyers concluded after lengthy research that the 1976 court order no longer applied and that therefore the agency was within its rights to withhold the information. The IRS also claimed that the data it now reports contains more information that previously.

However, Judge Marsha J. Pechman told the agency that its arguments were “not persuasive”, and stated that the IRS could not withhold the requested information simply because releasing it would make more information public. Judge Pechman ordered the IRS to turn over the data within two weeks to Professor Long, and also awarded her attorney fees. Recent TRAC reports have claimed that there has been a fall in the number of hours devoted to audits of large businesses and wealthy taxpayers, while the audit rate on lower income groups has increased. “All of these and many other similar findings were based on the kinds of data that the IRS has been unlawfully withholding from TRAC and the American people,” Professor Long stated last January.

Link here.


A group of religious leaders accused the I.R.S. of playing politics by ignoring its complaint that two large churches in Ohio are engaging in what it says are political activities, in violation of the tax code. In a letter to Commissioner Mark W. Everson, the clergy members cited reports of political events involving Fairfield Christian Church in Fairfield and World Harvest Church in Columbus and groups affiliated with them that have occurred or been disclosed since they raised the issue in January. The group argues that the churches may be violating prohibitions on political activities by charities and other tax-exempt organizations and has asked the I.R.S. to audit their political activities.

The group often notes that the agency is investigating All Saints Church, a large liberal Episcopal church in Pasadena, California, over a sermon in 2004 that imagined a debate among Jesus, President Bush and Senator John Kerry, then the Democratic presidential candidate, and asks why the agency has not begun a similar audit of the two Ohio churches, which are conservative. All Saints has denied wrongdoing and said the I.R.S. had not responded to its lawyers’ calls.

The Rev. Eric Williams of North Congregational United Church of Christ in Columbus has been coordinating the activities of the critical group and said it was sending a second letter to Mr. Everson because the troublesome activities were continuing. “The I.R.S. really needs to take a more proactive stance if it’s truly concerned about the political activities of all churches,” Mr. Williams said. Last year, the inspector general of the Treasury Department said political considerations played no role in selecting charities for reviews. A spokesman for World Harvest Church said the tax agency had not contacted his church. “This latest complaint filed by a group of left-leaning clergy amounts to nothing more than a campaign of harassment, and with the primary election just three weeks away, the timing couldn’t be more obvious,” the church said in a statement.

Link here.


Vermont rocketed past five other states during last fiscal year to lead the country with the highest state tax burden per resident, according to a recent U.S. Census Bureau report. Vermont’s jump in rankings for the year ending last June 30 was the third biggest, after Alaska and North Dakota, but those states had plenty of company in adding revenue. In every state except New Hampshire, revenues per resident grew in fiscal year 2005. In fact, collections increased by an average of 9.7% across the country, which translated into $57 billion more in state coffers. On average, states charged each of their residents $2,192, mostly from income and sales taxes.

The states that collected the most per person were Vermont, Hawaii, Wyoming, Connecticut and Delaware. South Dakota replaced Texas this year as the state with the lowest tax bills. But Texas still claimed the second-lowest burden, followed by New Hampshire, Colorado and Missouri. The Census report covered only taxes imposed by states, not local governments. The Census data showcases the sunny financial situation states faced during the last fiscal year. It was a welcome break in the clouds for the states, which had endured the worst economic downturn since the Great Depression at the beginning of the decade. Governors and lawmakers responded to the new revenue by shoring up the neglected budgets of highway departments and public universities, proposing new tax breaks and building up rainy day accounts to deal with future fiscal crises.

Many officials continue to push those politically popular tax breaks and programs in this election year when 36 governors seats are up for grabs and lawmakers are running for re-election in 46 states. But there are indications that the economic forecast is darkening. For example, state tax revenues registered their weakest quarterly growth in two years during the last three months of 2005, according to an analysis released last month by the Nelson A. Rockefeller Institute of Government. Vermont moved to a new system for taxing real estate for the first time during the year the report covered. The state collected $296 million more in property taxes last year than the previous year. That amounts to an increase of two-thirds. Meanwhile, Vermont also boosted its sales tax receipts last year while taking in less from both personal and corporate income taxes.

Link here.

Alaska #1 is “pork” per capita, again.

Alaska – infamous for its federally funded “bridges to nowhere” – ranked first in per-capita federal spending for pork-barrel projects in 2005, a distinction it has held for the past 16 years. Hawaii came in second, and Georgia ranked last, according to the “2006 Congressional Pig Book”, compiled by Citizens Against Government Waste (CAGW), a private, nonpartisan research group. The report, released April 4, was the 16th annual exposé of what the group calls “the most glaring and irresponsible pork-barrel projects” in congressional appropriations bills. The number of pork-barrel projects approved by Congress last year dropped by 29%, but the dollar level increased from $27.3 billion last year to $29 billion for fiscal 2006. The new report and database offer 9,963 examples of what the group calls wasteful federal spending, searchable by state.

CAGW defines pork as a line item in a federal appropriations bill that designates U.S. tax dollars for a local project “in circumvention of established congressional budget procedures.” Typically, pork-barrel projects are not competitively awarded or requested by the president, and are not the subject of congressional hearings, CAGW said. Last year, Alaska received a widely publicized federal appropriation of $453 million for two bridges in remote areas of the state. In the wake of hurricanes Katrina and Rita, and during a time of congressional belt-tightening, the project quickly became an embarrassment to the state. Alaska citizens proposed giving the money back to Congress to spend on rebuilding the Gulf Coast, and Gov. Frank Murkowski (R) proposed a state-funded public relations campaign to clean up Alaska’s reputation for milking U.S. taxpayers. Despite the citizens’ pleas, Alaska did not give back the money.

Although Alaska led the nation with $489 per capita ($325 million), it was less than half of the state’s 2005 per-capita number of $985. CAGW attributed Alaska’s drop to Sen. Ted Stevens’s (R-Alaska) descent from the chairmanship of the Senate Appropriations Committee. Every state has two senators, but states with the biggest per-capita appropriations tend to have senators on the powerful Senate Appropriations Committee.

Link here.



Once you have accumulated a significant amount of wealth, what is the best way to protect it? There are many options – ranging from an offshore account which offers privacy and a limited degree of asset protection, to an offshore trust which offers extremely strong asset protection, but requires that give up full control over your assets. In Switzerland and Liechtenstein, a different approach to asset protection is used: insurance policies designed for this purpose. Foreign investors are specifically protected.

When you purchase a properly set-up life insurance or annuity policy from a Swiss or Liechtenstein insurer, your creditors cannot seize it – even if you declare, or are forced, into bankruptcy. Your privacy is also protected because like banks in these countries, insurance companies are forbidden to disclose any information on the policies they issue to investigators without a court order or other legal process. Policies are available to foreign investors for an initial investment as small as $50,000. There are no big set-up costs required.

Another advantage of using an insurance policy for asset protection is that it is relatively uncontroversial. In all countries, the purchase of an insurance policy is an ordinary and common transaction. Moreover, most countries do not tax the growth of value inside insurance policies until it is actually realized. It may also be possible for the policy and/or death benefit to be passed down to the policy owner’s beneficiaries, tax-free.

In some cases, a Swiss or Liechtenstein insurance policy can be used to replace a trust. In other situations, it can be used to complement a trust and to strengthen its protection. For example, assigning investments to an offshore trust is much cheaper and easier if they are grouped together under one policy. This may also simplify the tax treatment of the structure, and consequently, the reporting requirements, either through a reduction in the number of assets to be listed, or by fulfilling the conditions for tax deferral.

Assets held within a policy are considered as being owned by the insurance company. This allows individual investors and trusts to hold assets privately, without being subject to the IRS “qualified intermediary” regulations. These rules impose withholding tax rates up to 35% on assets held through foreign accounts if the offshore bank does not fully comply with U.S. recordkeeping requirements, or fully disclose the identity of U.S. investors to the IRS.

When a foreign investor (the “policy owner”) purchases a Swiss or Liechtenstein insurance policy and irrevocably names a beneficiary (other than the owner), the policy cannot be included in the owner’s bankruptcy estate, since it is no longer considered the owner’s asset. If the owner designates a spouse or descendants as revocable beneficiaries, the policy is protected against any debt collection procedures instituted by the policy owner’s creditors. If a foreign court orders the seizure of the policy or its inclusion in a bankruptcy estate, the order is not legally binding in Liechtenstein or Switzerland. Debt collection and bankruptcy procedures in Switzerland and Liechtenstein are always based on Swiss or Liechtenstein bankruptcy rules alone, without regard to foreign law. In Liechtenstein, this protection extends to the unmarried life partner of the policy owner – a rare offshore benefit for same-sex couples.

Correctly structured, a Swiss or Liechtenstein insurance policy simply cannot be seized. However, you need to be aware of the Swiss or Liechtenstein fraudulent conveyance law. If no debt collection proceedings are initiated against you within one year of naming a beneficiary, the policy will be fully protected, i.e., if you are solvent when you purchase a Swiss or Liechtenstein insurance policy or when you name beneficiaries, you are safe. As with any asset protection plan, it is important to purchase a Swiss and Liechtenstein insurance policy before problems arise that could potentially lead to a claim against your assets.

Link here.


The global tax watch group that once branded The Bahamas as a harmful tax haven now welcomes the work by local officials to further the principles of transparency and effective exchange of information, according to an official of the OECD. The Bahamas made a commitment in March 2002 to improve the transparency of its tax and regulatory systems and establish effective exchange of information for tax matters with OECD countries by December 31, 2005.

Chris Barlow, of the OECD’s International Co-operation and Tax Competition Division Center for Tax Policy and Administration, pointed out in a communication to the Bahama Journal that currently the Global Forum is finalizing a report that surveys the legal and administrative framework in the areas of transparency and exchange of information in tax matters in more than eighty countries. “The publication of this report will mark a further step towards the achievement of a global level playing field in these areas.” It is anticipated that the report will be published in May and according to OECD officials demonstrates how OECD and non OECD countries are working together to ensure that progress is made towards a level playing field [where rules apply equally across the board].

The Bahamas was among 35 jurisdictions identified by the OECD in June 2000 as meeting the technical criteria for being a tax haven. Addressing a prime OECD concern, The Bahamas has already abolished bearer shares for IBCs through legislation enacted in December 2000. All bearer shares previously issued were recalled the following year. Authorities now require that the records of beneficial ownership of all shares of IBCs established in The Bahamas be maintained by a licensee under the Banks and Trust Companies Act. Relevant company records are also required to be maintained by the trustees.

Bahamas Ministry of Finance Minister James Smith had said that the Global Forum’s pending report would provide a wealth of information about the unevenness of the playing field which at present, he said, appears to be tipped heavily in favor of OECD members and non-member economies that were not named in any of the listing exercises. In the minister’s view, many practices for which offshore financial centers have been citied for deficiencies abound in OECD countries. “Good examples of this are the proliferation of bearer shares and the failure to meet the same high standards for anti-money laundering as are generally found in place in [offshore financial centers],” he said.

Link here.


Even though Big Brother is watching, the new global money system allows increased financial freedom for those willing to use it. Central to this new monetary system is “digital money” or “cyber-cash”, if you will. Modern money consists of currency symbols and numbers entered as bytes in computer databases. The new money also appears as plastic, magnetic “smart cards” that hold 500-times more information than old fashioned credit cards. A smart car’qs buying power instantly is rechargeable at ATMs worldwide, metering out “stored value” electronically. Millions of bank-issued smart cards have the ability to zap cash to and fro wherever on earth the owner commands. Electrons do not have to show their passports.

Until 1913, when the U.S. Congress created the Federal Reserve (and the IRS), American banks issued their own paper currency. Today the Fedwire and CHIPS, the New York-based “Clearing House for Interbank Payments System”, are parts of a worldwide, inter-connected electronic computer banking network called SWIFT, (Society for World Interbank Financial Transactions) which began in 1977. SWIFT regional centers in Brussels, Belgium and Culpeper, Virginia daily clear hundreds of millions of transactions valued at billions of dollars. Regardless of gold standard nostalgia, the mega-trillions of electronic gigabytes whirling between banks are real money! Whether coin or computer print-out, money is what people believe money is.

Technology makes the new money possible, but at the system core is an ancient principle – individual ownership of private property. There can be no commerce without identifiable parties held accountable by law. Every dollar, euro, or yen traveling through cyberspace has an owner with a unique “digital signature”. Prudent banks do not transfer millions without absolute certainty of the identities involved.

Link here.


What do America’s big money boys know that you do not? Watching what the experts who manage billions in U.S. pension funds are doing can teach us a lot. For more than a decade the trend of pension funds has been towards more and greater foreign investment. In 1980 less than 1% of U.S. pension fund assets were invested abroad. By 2000 that figure had risen to 20% and it is higher today. These guys know where the profits are to be made, increasingly in emerging and other foreign markets. So if offshore investment is so great for these major pension funds, why not for you too?

For many years I have extolled the virtues of taking your IRA or Retirement Plan offshore. But to do so usually means fighting your current U.S. plan custodian or broker. These guys do not want you to know what those big pension fund managers know – that many of the world’s best investments are only available outside of the U.S. And that broker opposition comes because going offshore with your IRA does not put any money in their pockets. Instead, it puts more money in your pocket. Some of this broker opposition to offshore and the tactics they use to discourage it is astounding.

One of my clients, TK, had experience as an international investor having dealt with a Swiss money manager for years. With this background TK thought it was a simple request when she asked her broker at a major U.S. brokerage firm to transfer her IRA to her Swiss investment advisor. I quote a response letter from her broker: “Dear Ms. TK: Due to laws, regulations and monitoring requirements of the Patriot Act and offshore activity, we have concluded that we must require you to transfer all of you (sic) accounts out of our company.” This, from a major U.S. financial firm! Since when did it become illegal to invest offshore?

Another prospective client of mine suffered a similar rebuff, then sent me this note: “After a last call today to my local trust company, wherein I learned that they’re not interested in doing business with me if I’m investing in anything having to do with ‘that country’, I am requesting forms for conversion of both my retirement plans.” This clients crime? She wanted to buy real estate in Nicaragua using her IRA. The rules governing U.S. retirement plans specifically allow funds to be invested in foreign real estate, but this trust company would not allow it.

Recently a small business owner I know had his retirement plan audited by the IRS. They looked at all his investments over the years and all his paperwork. The IRS said in effect, “Congratulations. Your investments have been perfectly in line with the rules.” But the IRS agent demanded a plan amendment required by a 1981 law, about which the plan owner knew nothing. Because of a missing piece of paper, the IRS ruled the plan would be disqualified and was now fully taxable. The plan totaled $145,000 and the IRS wanted to assess a $60,000 penalty! The owner was forced to settle with the IRS for $10,000 and got stuck with $13,000 in legal fees.

There seems to be a clear attempt to bully people into investing in the same bland U.S. investments Wall Street always tries to sell you – but now they label you as a possible money laundering criminal if you want to go offshore! Another reason to move your retirement plan investments offshore is the government’s continuing attack on wealth, including laws that have all but abolished U.S. domestic financial privacy and allowed property confiscation by police fiat. If you have a pension or retirement plan, you should consider moving your plan outside of the U.S. now – while you still can.

Link here.


When we write about “offshore jurisdictions” or “offshore tax havens”, what that means is any foreign place compared to where you now live and do business. When we say “offshore we mean any other place in the world that is not your home country but where financial and tax advantages are available. That is where we (and you) should want to be. Charles Caine, editor of Offshore Investment says “offshore simply means a different jurisdiction which will permit somebody from outside to obtain some special financial benefit.”

Let us get some terms straight. A tax haven is a country or other jurisdiction (some are colonial possessions of other nations, mostly the UK), that promotes and guarantees no taxes or low taxes for foreigners who chose to do business there. An asset haven is a country or jurisdiction that has adopted special laws and has a judicial system that guarantees strong protection for assets, plus a high degree of financial privacy. The same jurisdiction or place can be both a tax and asset haven and most usually do combine both functions.

So what are the benefits of “going offshore” with your finances? Much more profitable investments, better estate planning, strong asset protection, lower taxes, less regulation, even immediate residency, dual citizenship and a second passport. And you do not have to pick up and move to these havens to enjoy most of these benefits – only move your cash or other assets there.

A certain few nations and places have got it figured out. They have set up a legal system that makes them stand out as places that attract money – truly desirable offshore financial centers. They cater to foreign folks and foreign cash with laws that guarantee privacy, asset protection, ease of doing business and profitable investments – with little or no local taxes. Just as some American states (Florida, New Hampshire, Alaska et al) offer their citizens an escape from other states’ income taxes, offshore tax havens do the same for foreigners. These are tax breaks local citizens can only dream about, but the locals do profit from better jobs and higher incomes. (The two largest tax havens in the world are the USA and the UK – but only for non-citizens who choose to invest there. Locals pay taxes … lots of them).

The World Bank guesses more than half the world’s personal wealth – over $50 trillion – is stashed in 60 or so asset and tax havens worldwide – places like Switzerland, Panama and Hong Kong. In these places it is a crime to reveal a person’s financial information. Court procedures are stable, predictable and judges block any quick and easy enforcement of foreign judgments. No doubt places like this may seem strange and unfamiliar to you at first – they are certainly nothing like Bush’s current American financial police state, thank goodness! And that is exactly why you should consider “going offshore” – before Big Brother blocks your exit.

Link here.


The U.S. Justice Department announced that a federal court in Orlando, Florida has permanently barred Pierre Gauthier and his father, Jean Jay Gauthier from promoting an alleged tax-fraud scheme. According to the complaint filed in the case, the Gauthiers helped customers set up offshore trusts and corporations to conceal their income and assets from the IRS, while using offshore debit or credit cards to repatriate the funds. The civil injunction order, signed by Judge G. Kendall Sharp of the U.S. District Court for the Middle District of Florida, requires the Gauthiers to stop selling the program. The injunction, to which the two men consented, also requires them to notify their customers of the injunction and post a copy of the it on their Web sites.

Link here.



The IRS this week disputed reports which have suggested that its proposals on the use of taxpayer information by tax preparers would reduce privacy protections. Late last month, Connecticut Congresswoman, Nancy Johnson objected to the proposals, arguing that they would allow confidential tax returns to be sold to marketing companies and data brokers. Johnson is a senior member of the House Ways and Means Committee, which oversees the IRS. In a letter to IRS Commissioner Mark W. Everson, Johnson argued that confidential tax and financial information should be given every protection. “The IRS should protect Americans’ privacy, not let it be sold to the highest bidder,” the letter said.

In a statement released this week, however, the tax authority hit back, announcing that, “The IRS is committed to safeguarding taxpayers’ information. The tax information held by the IRS is private and protected. A proposed rule change would strengthen taxpayers’ control over their tax information now in the hands of tax preparers or tax software companies. The proposed rule says the taxpayers should receive proper warnings and consent notices that allow them to make an informed decision over the disclosure or use of their tax information by their preparer.”

It went on to add that, “Federal law prohibits tax return preparers from disclosing information given to them by their customers except in limited circumstances. This rule (set forth in section 7216 of the Internal Revenue Code) applies to private return preparers and is in addition to the strong protection provided by section 6103 against disclosure of return information by the government. Current regulations under section 7216, largely unchanged since 1974, permit return preparers to disclose their customers’ tax return information to third parties if the customer gives consent. The current regulations also set forth, in summary terms, the form of the consent the customer must give. … Under the proposed rules, if a return preparer wants to obtain consent, it must give the customer a strong warning. …/ Existing rules contain no such warning.”

A public hearing on the matter is set to take place on April 4.

Link here.


Canadians making, sending and receiving phone calls, faxes and emails in and out of the country should pay close attention to recent revelations about a mass domestic spying program in the United States. Pundits and politicians from all sides of the spectrum in the U.S. are outraged about revelations that President George Bush secretly authorized the National Security Agency to spy, without warrants, on emails, faxes and telephone calls going into and out of that country. The vast data-mining system being used by the NSA is not just monitoring a few suspected terrorists. It is filtering through the international, and possibly even domestic, communications of potentially all ordinary, law-abiding U.S. citizens.

This mass invasion of privacy is anathema in the U.S., where in the 1970s, “warrantless” wiretapping by law enforcement agencies and the president led to a complete overhaul of the legislative framework and Richard Nixon’s impeachment. Not surprisingly, the recently revealed NSA wiretapping program is being strongly denounced, and Bush’s authority to create it is being questioned. The uproar is being fueled by admissions by the FBI, the agency which follows up on NSA “tips”, that the program simply is not effective at netting would-be terrorists.

What does this have to do with Canada? The Canadian Security Establishment (CSE) – the functional equivalent of the NSA – has been authorized to do the same kind of domestic spying here and may already be using the same data-mining approach to conduct mass surveillance of Canadians’ international communications. A rather obtuse section of the Canadian Anti-terrorism Act allows the minister of defence to authorize the CSE “to intercept private communications” coming into and out of Canada “in relation to an activity or class of activities specified in the authorization,” for the very broad purpose of “obtaining foreign intelligence.” While the CSE used to be restricted to spying on communications outside of Canada, the new act allows it to spy on domestic communication, as long as it involves someone outside of Canada. This power to spy on our international communications has been handed to the CSE without any effective oversight or safeguards.

Canada’s program may be even more intrusive than its American counterpart, because, unlike the U.S. program, there is no pretense that “probable cause” is required or that the program is restricted to an “anti-terrorism” purpose. And it is unclear what kind of restrictions there are on the kind of information the CSE can pass on to law enforcement agencies. As a consequence of these powers, the privacy and constitutional rights of many Canadians could be grossly violated. Furthermore, because the Charter deems intelligence gathering without a warrant illegal, prosecutions based on this intelligence could be jeopardized.

The CSE’s provisions in the Anti-terrorism Act have opened the door to massive, domestic and international spying on ordinary citizens. Canadians need to know how these powers are being used, on what scale, how often, and at whose request. We need to know who is advising the defence minister on what to authorize. We need to ask why there is no effective oversight mechanism for this kind of activity in Canada, and summon up a little outrage of our own.

Link here.



Prosecutors investigating alleged financial irregularities raided the Seoul office of the U.S. investment fund Lone Star amid calls for increased scrutiny of foreign funds’ practices in South Korea. Armed with a court-issued warrant, prosecutors also planned to ask the U.S. to extradite Steven Lee, the former country manager for the fund, who resigned and left South Korea last year after he was accused of tax evasion and embezzlement. Lone Star, based in Dallas, has become a focal point of growing public discontent with foreign funds. Those sentiments were heightened after it was reported last week that the fund stood to gain more than $4 billion from its 2½ year investment in Korea Exchange Bank but will likely pay no taxes to local authorities because its investment was conducted through a tax haven.

In the raid, 60 prosecutors ransacked Lone Star’s office in a glitzy steel and glass office tower in southern Seoul. Investigators also raided the homes of the heads of Lone Star Advisers Korea and Hudson Advisers Korea, local units of Lone Star, and barred 10 unidentified people from leaving the country. Raids of corporations and the homes of officials by prosecutors are not uncommon here. On March 26, Prosecutors entered the offices of Hyundai Motor, the country’s largest automaker, and barred executives from leaving the country while they investigated charges that subsidiaries of the company had maintained an illegal fund used to bribe government officials.

Foreign funds entered South Korea in the aftermath of the 1997-98 Asian financial crisis, snapped up distressed assets and later sold them at huge profits. Lone Star reaped a 280 billion-won ($285 million) profit through the sale of a Seoul office building last year. It says it does not need to pay taxes on the sale of Korea Exchange because the investment was conducted through its unit in Belgium, with which South Korea has a treaty that prevents double taxation. The government is asking Parliament to enact a law in July requiring investors to pay withholding taxes even in deals handled via countries with which Seoul has double-taxation treaties. Lone Star hopes to sell Korea Exchange before July.

Link here.


77 years sounds like a respectable age for a tax regime, but this is apparently not enough to spare it the pain of a EU state aid investigation. On February 8, 2006, the EC opened such an investigation into Luxembourg tax laws that date back to 1929 and exempt certain holdings from corporate taxes. So called “1929 holding companies” are one among several available vehicles that Luxembourg has created to attract financial institutions and holdings of multinationals, with considerable success. The financial services sector is reported to employ roughly 10% of Luxembourg’s working population and the country still has approximately 12,000 holding companies, although their number has declined in recent years.

1929 holding companies are exempted from business taxes on earnings (dividends, interests and royalties) and payments (dividends and royalty fees). At least until recently, this tax-efficient solution was available to holdings of multinationals established in Luxembourg, provided these limited their activities to financing, licensing, management and coordination services. As a general rule, EU state aid rules prohibit any form of aid granted by an EU member state or through state resources “in any form whatsoever” which distorts or threatens to distort competition by favouring certain companies. This so-called selectivity or specificity criterion can be fulfilled even if the state aid measure in question is drafted in general terms and can affect a substantial number of beneficiaries – as is usually the case with tax measures if, in reality, the resulting benefit is limited to an identifiable group.

It is a well-established principle, confirmed by the European Court of Justice, that national legislation providing corporate tax breaks may fall under the scope of the EC Treaty’s state aid rules, if certain conditions are met. This can have far-reaching implications – approximately 25% of all state aid in the EU is reportedly granted through tax schemes. Some of the EC’s decisions in the area of direct corporate taxation seem to be based on a broad interpretation of the concept of illegal state aid, thus effectively introducing limits to the member states’ discretionary powers in this area.

This conflict may come at a surprisingly late moment, but it did not come out of the blue. The EC first initiated a review of Luxembourg’s 1929 legislation in December 2001. The EC’s official announcement obscures the fact that, in recent times, Luxembourg’s 1929 holding companies have lost their appeal as, for example, they have not benefited from any bilateral treaty benefits. More importantly, however, recent changes in Luxembourg law have already heralded the end for 1929 holding companies. Tax benefits have been canceled for newcomers, with existing 1929 holdings set to benefit from a “grandfathering” clause until the end of 2010. It is therefore somewhat surprising that the EC has decided to escalate its investigation at this 11th-hour phase.

Link here.


The medical malpractice tort reform measure approved by Nevada voters in 2004 was supposed to reduce malpractice insurance rates and provide protection for both doctors and patients. Doctors, patients and lawyers, however, insist it has done neither. What it has done, they complain, is prevent people with legitimate claims from being fairly compensated while making it difficult for some to even pursue litigation. They also point out that malpractice insurance rates have yet to decrease.

Limits on compensation and the added burdens placed on plaintiffs by the measure have caused some lawyers – who previously accepted cases on a contingency basis, meaning they would be paid only if they won – to insist on a retainer before taking a medical malpractice case. Others have simply stopped taking such cases altogether. “I can’t imagine a malpractice case we could handle on contingencies,” said Hamilton Moore, a Boulder City attorney. “The upfront commitment shifts a lot of the initial risk to the plaintiff, but that’s the only way we can continue to take these cases.” Clark County courts handled about 330 cases a year before the latest tort reform, according to the state Board of Medical Examiners. Last year, the number dropped to 160.

Supporters of the measure contend that reduction demonstrates that people no longer are filing the frivolous lawsuits that they say were the catalyst for spiraling malpractice insurance rates. Opponents, however, argue that the case reduction simply underlines the difficulty that some patients with legitimate claims are having in securing representation. Moore believes the tort reform measure affects more than just the number of cases filed. The $10 million “Keep Our Doctors in Nevada” campaign that accompanied the 2004 initiative, he said, has poisoned jury pools against plaintiffs. “People are afraid if they hand out a large judgment, even if it’s fair, they will lose their doctor,” Moore said.

Link here.



A few months ago I argued the case for value investing. I referenced scientific studies that did not support technical analysis or market timing. Some readers strongly objected to my conclusion, but no readers addressed the question of my evidence. Similarly, over the years I have written extensively about individual liberty, and found myself puzzled when I could not convert followers of socialism, communism, or any other forms of big government to the principles of individual sovereignty. Once again, this in spite of the historical evidence. I have puzzled over this phenomenon throughout my life. Arguments for a free-market fail to sway those who believe in government intervention. Evidence for Darwinian evolution fails to convince believers in religion. And studies showing the random nature of price movements fail to sway believers in technical analysis.

It seems that evolution has endowed us all with wiring that demands we support whatever beliefs that have been “stamped” into our brains. This has been demonstrated by a recent research study at Emory University in Atlanta, a study that has potentially wide implications, from politics to religion to investments. The investigators used functional magnetic-resonance imaging (fMRI) to study a group of committed Democrats and Republicans during the three months prior to the last U.S. Presidential election. The Democrats and Republicans were asked to evaluate threatening information about their own candidate while undergoing fMRI to see which parts of their brains were activated.

As reported by Emory, “… the partisans were given 18 sets of stimuli, six each regarding President George W. Bush, his challenger, Senator John Kerry, and politically neutral male control figures such as actor Tom Hanks. For each set of stimuli, partisans first read a statement from the target (Bush or Kerry), followed by a second statement that documented a clear contradiction between the target’s words and deeds, generally suggesting that the candidate was dishonest or pandering. Next, partisans were asked to consider the discrepancy, and then to rate the extent to which the person’s words and deeds were contradictory.”

Drew Westen, director of clinical psychology at Emory who led the study, said, “We did not see any increased activation of the parts of the brain normally engaged during reasoning, What we saw instead was a network of emotion circuits lighting up, including circuits hypothesized to be involved in regulating emotion, and circuits known to be involved in resolving conflicts.” In other words, in most cases no amount of logic interferes with our strongly-held beliefs. The brain automatically rationalizes discrepancies in facts to support beliefs.

Do you and I succumb to emotionally-biased judgments when we have a vested interest in supporting our beliefs? Only when we find ourselves resisting the evidence. Success in life tends to be proportional to our willingness to examine the evidence. H. L. Mencken observed, “The most common of all follies is to believe passionately in the palpably not true.” Beliefs, at least false beliefs, are an impediment to us all. Or, as Mark Twain put it, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Link here.


You have to be careful on April Fool’s Day. Your favorite website is likely to portray an outlandish story as real news, and there you go telling the guy in the next cubicle that Barry Bonds picked up AT&T Stadium and moved it six inches to the right to comply with a new zoning ordinance. And then you go on and on about how ridiculous zoning laws are in California and finally the guy says that Barry Bonds did not pick up anything but a check because his elbow is still hurt, and that it is April Fool’s Day, and that you are an idiot. This year may be different. A bevy of stories have emerged, sounding like they are April Fool’s jokes but are not. Instead, these are real news items that appear to be straight out of the Weekly World News. We will call them Reverse April Fool’s Stories because not only are they true, the April Fool is not the one reading them.

Link here.


In the following table, columns 1 & 2 are the president and his last year in office, columns 3 & 4 are the debt and (estimated) population for that year (from the websites shown below), and column 5 is the computed per-person share of the U.S. National debt in that year’s dollars. The numbers are correlated to the year, but not the day (i.e., President Clinton left office in January of 2001, the debt number is from 09/30/2001, and the population estimate is from 1 July).

I considered, but ultimately rejected, another column showing the debt share in 2006 dollars because the several internet-based inflation calculators I consulted gave different results. However it is interesting to consider that in 1901 an ounce of gold cost (roughly) the per-person share of the debt, while today the per-person share is (about) 51 ounces of gold.

Some might argue that it is not fair to blame the president for the debt. I agree that congress is partly (or mostly) to blame. However, the president is responsible because of his ability to veto. And yes, he can line item veto – simply cross out the offending lines and veto the entire bill (with a note to congress that the bill will be signed after the offending lines are removed). Whether the fault is the president or congress, would honorable men (and women) vote (and sign) for such indebtedness?

Link here.


The recent unveiling by the Democrats of an alternative national security program illustrates the limited choices Americans have in U.S. politics. The highlights of the Democrats’ plan are tired and worn – rebuilding the U.S. military, implementing the recommendations of the 9-11 Commission, increasing resources to catch the elusive Osama bin Laden, and the vague “responsible redeployment of U.S. forces” from Iraq, which does not set a deadline for the withdrawal of all U.S. forces. No one should be surprised that a party that essentially rolled over to the Bush administration’s transparently questionable Iraq adventure, and has been timid in its criticism of it ever since, would not come up with much of an alternative program.

Although globalization has opened markets around the world, the U.S. political system remains closed to true competition. Curiously, Americans are equally proud that they have one of the freest and most vibrant economies in the world and a two-party oligarchy that restricts competition among political parties. If greater competition is better in economics, why not in politics? Although no specific constitutional or legal requirement limits the number of major political parties, the U.S. has had only two dominant parties throughout most of its history because of the way the Constitution is written. The “winner take all” nature of the political system provides powerful disincentives for two stodgy, fairly broad political parties to break up into smaller, more competitive parties that would actually stand for something.

In contrast, a parliamentary system – in which parties earn the number of seats they have in parliament based on their percentage of the vote (proportional representation) and choose a prime minister based upon a party leader’s ability to form a coalition of parties that commands a majority in the legislature – is more competitive. Governing coalitions formed after a rough and tumble election campaign that give voters a wider choice among multiple parties are much different from the electoral coalitions of the two-party system, which cause political groupings to mute their differences in an attempt to allow their coalition to win.

Even the restricted competition in the U.S. political system has eroded since World War II. Military adventures overseas during the Cold War and thereafter have created an imperial presidency much stronger than the nation’s founders had intended. As in ancient Rome, the empire is slowly destroying the republic. In reality, the American people, who ultimately are supposed to be in charge of the political system, are governed by massive, unresponsive executive-branch bureaucracies. And the Congress, envisioned by the founders to be the dominant branch of government and a major check on executive power, has ceded much of its power to those bureaucracies, especially in foreign policy and decisions to go to war. Moreover, although the American people retain the theoretical ability to vote their representatives out of power, they rarely do because incumbent advantages are now so great and gerrymandered geographic boundaries create friendly districts for incumbent members.

Link here.

John Kerry, the antiwar candidate?

With the Gallup Poll showing 51% of Americans want all U.S. troops out of Iraq by year’s end, John Kerry has made his move. The 2004 Democratic nominee is calling for complete withdrawal of U.S. forces, if Iraqis do not agree on a unity government by May 15. Even if the Iraqis pull a government together, Kerry wants all U.S. forces removed by December 31. The ice is cracking. With half the nation backing “Bring-the-Boys-Home-by-Christmas”, Democratic support for getting out must be in the 60% range. Kerry is moving to the base of his party, not away from it. He is kissing the Joe Lieberman wing goodbye.

His decision reveals a political calculation that the only way to take the nomination from Hillary is to move left, ride the antiwar horse, and rally the Hollyleft and True Believers. In this huge sector of the Democratic Party there has been a vacuum, filled only by Rep. John Murtha and Sen. Russ Feingold. Now, every Democrat who sees himself as the alternative to Hillary is going to have to ask himself: What is the benefit of hanging back and standing with the Bush-Rumsfeld-Rice-Cheney stay-the-course policy?

Kerry’s move could set off a stampede of centrist Democrats to back a timetable for withdrawal that will force Hillary to reconsider and force the GOP to stand by Bush, making “Iraq – Stay or Go?” the issue of 2006. While President Bush, who believes in this war and the cause of democratizing the Middle East, may be unfazed by Kerry’s defection, his party – especially senators from Blue States, like Rick Santorum, and House members from swing districts – cannot be sanguine about having Iraq become the issue this fall. But if Democrats are approaching a moment of truth, the GOP must come to terms, soon, with the failure of the Wilsonian policies Bush embraced on the counsel of his neoconservatives – or ride those policies into political irrelevance.

Link here.


Internet gambling is booming as Americans continue to wager billions of dollars on online sports books, Web casinos and virtual poker rooms even though the U.S. Department of Justice considers such activities illegal. Several U.S. lawmakers are trying to crack down on the industry by clarifying existing U.S. laws and making it easier to go after offenders. One of those measures, the Unlawful Internet Gambling Enforcement Act, seeks to curb online gambling by trying to cut off the money supply, as the bill would outlaw the use of credit cards, checks or money transfers to settle wagers. The bill is sponsored by Rep. Jim Leach (R-Iowa). The Wall Street Journal Online asked Rep. Leach and David Carruthers, chief executive of BetOnSports Plc, an online sports book and casino based in Costa Rica, to debate whether Internet gambling should be banned in the U.S. Their exchange, carried out over email, is below.

Rep. Leach writes that, Casino gambling, as it is practiced in all Western democracies, has been allowed to exist only with comprehensive regulation. Internet gambling lacks such oversight. Offshore Internet gambling sites, which target the U.S. market and accept bets from Americans, operate in direct violation of U.S. law.… Gambling is one field where the efficiencies of the Internet are counterproductive for society. When consumers deal with an offshore entity, they give their personal financial information to unknown individuals, who, by definition, are engaged in criminal activity. Internet casinos introduce a gaming room in homes, offices and school dormitories with bettors who abdicate the comprehensive protections afforded by U.S. law.

Offshore Internet gambling sites sweep dollars out of the U.S. into largely unknown, often criminal hands. The potential threat of identity theft and fraud is high for the individual bettor just as the risk posed to our national security from terror and criminal organizations that control such sites or used them for money laundering purposes is real. Internet gambling’s characteristics are unique: Online players can gamble 24 hours a day from home; children may play without sufficient age verification; and betting with a credit card can undercut a player’s perception of the value of cash, leading to gambling addiction, bankruptcy and crime. The illegal Internet gambling business is booming and the consequences of this unfettered illegal activity are profound. … But Internet gambling is more than a theoretical issue of technology confronting law. Society is the family writ large, and it is the American family that is jeopardized by the lure of Internet gambling. Problem gambling can lead to serious psychological and physical as well as financial harm. … The problem with the current circumstance is that enforcement tools are so inadequate. … H.R. 4411 focuses on the gambling business, not the gambler.

Mr. Carruthers responds, It may surprise Rep. Leach to know that I share his concerns about problem gambling and underage gambling. That is why I would like our business to be regulated by the U.S. government. I run a multi-billion-dollar public company listed on the London Stock Exchange, and we operate with the highest standards of practice to protect consumers, restrict minor access and protect the vulnerable. … Online gambling is the most transparent form of gambling there is – every transaction is logged and every transaction is available for scrutiny. … Regulation would standardize and strengthen our best practices and in addition provide taxable revenues to the U.S. government. It is inconsistent to have comprehensive regulation of land-based casino gambling and to not have the same oversight of the Internet-gambling industry. This is what we seek. … Prohibition would not stop online gambling, it would send it underground and leave the vulnerable unprotected. … [W]e are looking for clear standards, regulations and licensing for what is an everyday entertainment medium enjoyed by millions.

Rep. Leach: … The vulnerable are unprotected because companies that tap the American market violate our law and its protections. No amount of regulation can address Web-based gaming’s particular intrusiveness and harm to the American home. Internet gambling regulation cannot work like traditional casino-based regulation. Brick-and-mortar casinos have the means to keep kids and problem gamblers away. But not an Internet casino. The anonymity the Internet provides a gambler is unique and novel. Regulation over the Internet would not have the effect of protecting underage or problem gamblers nor would it eliminate the money laundering problem or deal as comprehensively with the integrity of games. Even if one concedes that a regulatory regime could attempt to address each of these things, the Internet is so pervasive and borderless that one country’s regulations are woefully insufficient.

It is no accident that supporters of the legislation I have introduced range from every major sporting organization – the NFL, MLB, NHL, NBA, NCAA – to the American Bankers Association to the Christian Coalition to the Episcopal, Presbyterian, Methodist, Baptist and Lutheran churches, to 48 of the 50 state attorneys general.”

Mr. Carruthers: Gambling on the Internet is entertainment and a personal choice. Why is the congressman trying to tell Americans what they can and cannot do in the privacy of their own homes? Isn’t he supposed to represent his constituents? According to the Wall Street Journal’s own poll on online gambling last month, 85% of those polled believe Congress should not ban online gambling. The fact that a small number of people gamble more than they should is not reason to prohibit the entertainment for every adult.

Thinking that one can ban a form of entertainment on the Internet is ludicrous. The Internet gives people access to the world and is a communications tool. Ultimately, it is the individual in his or her own privacy who should be in control of their access to the Internet – not any government. There is no other institution that has more interest in preserving the integrity of sports than the online gambling industry. Regulation would standardize these best practices throughout the industry. American consumers would then know which companies are licensed and which are not. I would like to invite Rep. Leach and any of his colleagues to see our operations first-hand in Costa Rica. This way, he can see directly the controls and practices we have in place.

Rep. Leach: Entertainment is multi-dimensional, but gambling online is not the same as bowling. No home, no office, no college dormitory should be a casino. American law varies by state but generally makes no moral judgments on the wisdom of gambling. The legislation I have introduced does not extend existing prohibitions on gambling; it only provides an enforcement mechanism for laws on the books. In a country of laws, upholding the law is fundamental.

In addition to protecting the rule of law, it is also fundamental for a society to protect the security of its citizens. Here, it is relevant to note the testimony before Congress of Dennis Lormel, then chief of the FB’qs Financial Crimes Section: “The Internet gambling and online capabilities have become a haven for money laundering activities. We believe there is a huge potential for offshore sites being utilized to launder money, and there are examples of pending cases, particularly in our organized crime program, involving enterprises using these types of services as conduits for money laundering.”

Likewise, in a formal report, the U.S. Department of State expressed a similar concern: “The Internet gambling operations are, in essence, the functional equivalent of wholly unregulated offshore banks with the bettor accounts serving as bank accounts for account holders who are, in the virtual world, virtually anonymous. For these reasons, Internet gambling operations are vulnerable to be used, not only for money laundering, but also criminal activities ranging from terrorist financing to tax evasion.” Mr. Carruthers’s invitation to visit the gambling operations of BetOnSports in Costa Rica may seem a generous gesture. But for a congressman to accept it would be ethically dubious, if not illegal.

Mr. Carruthers: I take offense to the congressman’s unsubstantiated allegations about this industry and money laundering. He talks about money laundering but doesn’t have any specific facts to back it up. There have been absolutely no convictions of online gambling’s association with money laundering. And, as a CEO of a multi-billion-dollar public company, it is clear that I follow very specific transparent reporting practices and governance procedures to run this company. I have fiduciary responsibility to my shareholders and ethical responsibilities to my customers.

The congressman’s refusal to educate himself about the realities of our industry are disturbing. Has he asked his constituents what they think about this kind of government invasion of their privacy and whether they want the government to ban online gambling? … The fact is millions of Americans are now gambling online everyday. They are enjoying this form of entertainment and doing it responsibly. And if the congressman does not want to accept my invitation to visit our operations and see our effort first-hand, I suggest then that we get together in Washington. I would like to meet him and tell him first hand all that we are doing to protect American citizens. How could one possibly think of legislative action without knowing all the information?

The fact is Americans account for 45% of the consumers who bet online. Overall, Americans wagered nearly $6 billion dollars online in 2005, compared to $1.5 billion dollars in 2001. This is a thriving, legitimate and successful business that will not go away. Trying to prohibit the online gaming industry is a futile exercise and waste of resources. The constantly evolving structure of the Internet will make prohibition increasingly difficult, if not impossible. … There is a lot of hypocrisy in the effort to ban online gaming. Some forms of online gaming are permitted – state lotteries and horse racing, for example. Regulation would bring clarity to efforts clouded with hypocrisy. … The issue is: What are the most viable and effective ways to regulate a business that not only exists, but is growing? … Not only would regulation strengthen companies that wish to operate responsibly, licensing our companies would also bring billions of dollars of tax revenues to state and local budgets.

Link here.
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