At 12:06 AM 02/18/2002 -0500, [EMAIL PROTECTED] wrote: >This article from NYTimes.com >has been sent to you by [EMAIL PROTECTED] > > >I find it difficult to see why citizens should be treated any different >then corporations whe it comes to their ability to shelter offshore income >from the IRS. Some in fact engage in "buy-back" transactions but they >must be very careful at tax time. > >[EMAIL PROTECTED]
That's simple - corporations are fictitious persons. If you, as a real person, want to stop being a US citizen and move somewhere else that doesn't have an income tax, you can, but it's somewhat difficult and may be a bigger change in your lifestyle than you want. But if a US corporation wants to dissolve and sell its assets to a Bermuda corporation, and have the Bermuda corporation operate in the US as a foreign corporation, while its fictitious person is lying on the beach in the islands, it'll keep a bunch of lawyers and accountants busy for a little while they learn new tricks, but it's not too much more trouble than being a Delaware corporation instead of a California corporation. So what can _you_ do if you want to shelter _your_ income by having it emigrate? If you're a direct employee of a US corporation, like I am, you won't be able to do much about your wages, but if you're a contractor or consultant, you may already own a corporation you're using to bill your customers and pay your business expenses and pay you, so you could replace that with a tax-haven corporation, whether that's Anguillan, Bermudan, Caymans, etc. But you can also create a non-US corporation and use it for your investments. You can't simply put your money in a Caymans bank and have the interest be tax-exempt, because it's still income to you, so the Feds can tax it. But you if you invest your money in a corporation, chartered in some appropriate country, and that corporation put the money in a bank, and earns interest, there's no US connection even though you own the corporation, so until you tell it to pay you dividends, you're not getting taxed, and the interest can compound at full rate instead of after-taxes, which can be a big win if you're getting much interest. Similarly, if the corporation invests in things that make capital gains, those aren't taxable - only the dividends that you as a stockholder get paid are taxable. That doesn't help directly if you've got one winning investment - but if you're in the more typical situation where some of your investments win and some of them lose, and they don't conveniently do so in the same tax year, you're still able to balance them out instead of doing the US lame carryover-loss. All of this is perfectly legal tax avoidance, assuming you do it properly. It used to be more difficult than it is today - but there's now a decent communications infrastructure, and you can do things like get a Visa card on the tax-haven bank account so you don't have to wire money around when you want to spend it, and while it may be more expensive to set up some of these corporations than your typical "$50 Delaware Corporation", it's not too expensive compared to the amount a typical Silicon Valley investor of 3-5 years ago could save on tax-sheltering. On the other hand, if all your money is invested in businesses that are losing their shirts, it's a bit less help :-) though it can still be useful for stretching your losses to cover future capital gains. Of course, there are other aspects of overseas corporations as an investment, such as illegal tax evasion, sheltering assets where they're hard to reach in lawsuits and other court judgements, laundering money for Bad People, running scams where the victims' money ends up in your hard-to-reach overseas corporation, ripping of your country's money when you're a politician, scamming people to pay the up-front money to collect the money your relatives allegedly ripped off when they were live politicians, and then the also-occasionally popular sports of running "banks" or "investment corporations" in tax-haven countries that fold up and disappear, ripping off their investors. It's much more difficult to get money back in those cases, since you're forced to deal with courts that are far away and may be corrupt, but most of the popular tax-haven countries are good at protecting investors because they want lots of repeat business (or if they're not, they cease being "popular" pretty fast...)
