Sooner or later, secrecy fails as a tax planning strategyOctober 1, 2013 - Phil HodgenUS Real Estate Investments, Voluntary Disclosure
The train is headed straight at you. You cannot tell how far away it is. You can step off the tracks to safety.
Alt: you’re naked but you don’t know it yet.
British Crown Dependencies and Overseas Territories
I know that there are a lot of you out there with corporations, trusts, foundations, and other holding structures. You are relying on the “How not to be seen” strategy. (YouTube. You might laugh out loud. You Have Been Warned.)
I know this because I have set these structures up, and I have torn them apart. I have defended clients with Very Serious Problems involving these structures. I have prepared the tax returns to disclose the structures and the assets inside them.
If your structures are set up in British Crown Dependencies and Overseas Territories (the Channel Islands, British Virgin Islands, Bahamas, the Caymans, etc.), be warned. We are on the long march towards full disclosure of the beneficial ownership of these structures.
Translated: the U.K. wants to know the people behind the corporations, trusts, etc. Mr. Cameron wants to know your name.
The money quote from David Cameron’s speech on 15 June 2013:
“[S]ome people use complicated and fake structures to hide their profits and avoid taxes and because bribes are often held in opaquely owned companies with bank accounts in secrecy havens.
The UK is today leading the way by committing to create a central registry of company ownership.
And this morning I have held meetings with our overseas territories and crown dependencies.
Each and every one of our overseas territories and crown dependencies has agreed to sign up to the multi-lateral convention on information exchange to exchange information automatically with the UK and to produce action plans on beneficial ownership.”
That, too. NSA, etc.
What does this mean to you? For those of you with something to hide, I think you should plan on reality being approximately equal to:
“My ‘secret’ information is proactively handed to British government officials, who reflexively and promiscuously share it with the the United States and any other government official who asks, from any country in the world.”
In other words, your secrets are not secret.
This will take some time to happen. But it will take less time than you think.
Be prepared for the day when these holding structures are as visible to your home country government.
Only the whims and vagaries of U.K. politics and civil service will stand between you and total disclosure. And we know that a politician will throw you under the bus in a heartbeat–especially if you cannot vote for him.
Americans: secrecy is a weak tax planning strategy; stop using it.
What seemed like a good idea 10 years ago has now compounded itself into a seemingly intractable dilemma. I know this because people tell me so every day.
Start looking for what is true, not what you want to be true. When you hear the answer, accept it. Swallow and digest the big chunks of truth.
We have a lot of non-U.S. clients–from countries other than the EU, U.K, Australia, etc.
For many of them, the concern is rather more primal. When the revolution comes, everything they own can (and will) be seized. For a few of our clients, they will be among the first to be lined up against the wall and shot. Some of them tell me stories of seeing events like this in their own lifetimes. They do not want to repeat it.
You are the target of Mr. Cameron’s plans. Again, from his 15 June 2013 speech:
Take Equatorial Guinea, Africa’s third largest oil producer where the President has maintained that oil revenues are a state secret. Action by the US Justice Department against the President’s son lists assets allegedly acquired with money stolen from the state including a Gulfstream jet, eight Ferraris, seven Rolls-Royce, a $38 million estate in Malibu, and white gloves previously owned by Michael Jackson.
This is the model that the United Kingdom and the United States will follow. If it is politically expedient to the U.S. government, you will lose everything you own.
You need rather more nuanced thinking.
I am not saying your private financial affairs should be completely visible. Keeping things confidential is smart for a variety of reasons–personal safety among them.
Run your life like a poker game where you get to deal yourself the cards you want. If your opponent–the IRS, Inland Revenue, or anyone else–calls your bluff, you have to flip the cards over.
You are a fool if you don’t know your opponents.
You are a fool if you deal yourself losing cards.
Play the game as though your bluff will be called. Choose your cards so that even the Department of Justice will concede that you played the game right.
In other words, keep it confidential, and keep it legal.
In this poker game, your opponents WILL call your bluff.
You get to choose. Why are you playing to lose?
A hint. Tax returns are how you talk to the government about money. It all starts here.