Inside The Secretive World Of International Tax Havens

You know that mid April date. Nobody likes it. But we do it nevertheless. It’s part of being American after all, right? Death and, yes, taxes.

But for some, meaning the uber-rich and connected, there are a few other options in many legal gray areas that help them avoid paying taxes and gives a little secrecy and asset protection that can be very intriguing. Well, that is until Panama Papers came out and shone a bright light on the shadowy world of international tax havens.

You’ve heard the names of these countries - Panama, Switzerland, Cook Islands, Malta, Isle of Man, Luxembourg, Cayman Islands, Ireland, Jersey (not the state), Mauritius and even the Bahamas - and besides for most of them being rather sunny and filled with mega yachts, they also offer big tax savings. Secret numbered accounts, financial shell games, and, in some places, book cooking; all are part of this world.

For the most part, offshore accounts, shell companies and tax havens have had a bad reputation for a reason. But if you speak to any tax attorney they will tell you - while gray areas exist, it’s legal if you can afford it and go about the right channels. Loopholes in financial and tax laws exist, it’s all about how you utilize them. But in reality, offshore exploiters have abused and superceeded the gray areas and loop holes in the system (as the Panama Papers lined up for us to scrutinize) and may now have ruined it for everyone else. But what exactly is the appeal and why are these countries scrutinized? Even the offshore financial activities of above board business behemoths like Apple, Amazon and Google are getting their fair share of watchful eyes recently.

The list of countries above (and a bunch of new and unexplored ones like South Africa) have favorable tax conditions in particular, when it comes to capital gains, interest, inheritance, and even just good old income. And this is what has appealed to so many multinationals. But then there is the secrecy element - which is, of course, where so much of the problem, and also appeal, lies.

Imagine you buy an expensive painting at an auction, and since you’re really rich and potentially in the news, you might not want people to know that’s what you’ve done with your money. Pulling the large some of money out of your account in Switzerland could offer you a little privacy that you’ve been after. Or, maybe you are going through a divorce and you don’t want your ex to take you for everything you have - well the Bahamas is a perfect place to stash away some loot she can’t get to. And that doesn’t make you a criminal. Until it does, of course.

But as Nicholas Shaxson, a British journalist and author of “Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens” point out - it’s not the mafia or the spies or celebrities or even terrorists that are at the center of usage for these havens, but banks and large corporations. And so it goes far far beyond just tax. “Tax havens aren’t just about tax. They are about escape – escape from criminal laws, escape from creditors, escape from tax, escape from prudent financial regulation – above all, escape from democratic scrutiny and accountability. Tax havens get rich by taking fees for providing these escape routes. This is their core line of business. It is what they do,” says Shaxson. So you can easily see how complex a system this is.

But let’s not hate on tax havens completely. Say you’ve come into some money (inheritance or the like) the way to look at it is simple. If you’re earning $250,000 per year or so it’s not worth it. But say you received a significant sum, (call it accumulated family wealth), well then it’s worth considering. Who knows how the recent election will affect tax rates in the future, so it’s wise to pay up. But avoiding additional taxes on your inheritance by legally holding it in Cuba perhaps - well that’s the smart way of making your money work for you. And don’t let the bank handle that, rather, use a trusty lawyer with serious international experience.

In the meantime, let’s see what movie will come out next with a sexy brunette, a yacht and a whole lot of green dollar bills floating around. It might just inspire you, Mr. Bond.