Tax Avoidance

Introducing “Freeports” the Latest Way for Oligarchs to Store Their Assets

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The following article from The Economist is extremely telling about the macro world we live in on several different levels. First, it shows that the super wealthy are desperately concerned about not only the debasement of their national fiat currencies, but are also seriously concerned about appropriation of assets. Second, it exposes an interesting point related to Bitcoin. While the Senate held hearings on BTC last week, and focused on money laundering and tax avoidance, here you have these Freeports springing up all over the world, which seem to be extremely friendly to such activities. More than anything else, it shows that if people have a need and desire to hide assets, they will find a way to do it.

More from The Economist:

PASSENGERS at Findel airport in Luxembourg may have noticed a cluster of cranes a few hundred yards from the runway. The structure being erected looks fairly unremarkable (though it will eventually be topped with striking hexagonal skylights). Along its side is a line of loading bays, suggesting it could be intended as a spillover site for the brimming cargo terminal nearby. This new addition to one of Europe’s busiest air-freight hubs will not hold any old goods, however. It will soon be home to billions of dollars’ worth of fine art and other treasures, much of which will have been whisked straight from collectors’ private jets along a dedicated road linking the runway to the warehouse. 

The world’s rich are increasingly investing in expensive stuff, and “freeports” such as Luxembourg’s are becoming their repositories of choice. Their attractions are similar to those offered by offshore financial centres: security and confidentiality, not much scrutiny, the ability for owners to hide behind nominees, and an array of tax advantages. This special treatment is possible because goods in freeports are technically in transit, even if in reality the ports are used more and more as permanent homes for accumulated wealth. If anyone knows how to game the rules, it is the super-rich and their advisers.

Because of the confidentiality, the value of goods stashed in freeports is unknowable. It is thought to be in the hundreds of billions of dollars, and rising. Though much of what lies within is perfectly legitimate, the protection offered from prying eyes ensures that they appeal to kleptocrats and tax-dodgers as well as plutocrats. Freeports have been among the beneficiaries as undeclared money has fled offshore bank accounts as a result of tax-evasion crackdowns in America and Europe.

Several factors have fuelled this buying binge. One is growing distrust of financial assets. Collectibles have outperformed stocks over the past decade, with some, like rare coins, doing a lot better, according toThe Economist’s valuables index. Another factor is the steady growth of the world’s ultra-wealthy population. According to Wealth-X, a provider of data on the very rich, and UBS, a financial-services firm, a record 199,235 individuals have assets of $30m or more, a 6% increase over 2012.

Oligarch asset consolidation. Thank you Ben Bernanke!

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Shocker! Multinational Corporations Don’t Pay Taxes

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One of the strangest things about the corporate tax debate is that it is nearly impossible to figure out the amount companies are actually paying. Nowhere is there a straightforward number showing how much in federal taxes a firm pays to the U.S. Treasury every year.

– From a recent Washington Post article published March 26

Back in March 2011, I first discussed the extreme extent to which the largest corporations in America go in order to avoid paying taxes, when I highlighted how GE has a unit of 975 people devoted entirely to achieving this end.  It was clear back then that the biggest multinational companies in the nation take advantage schemes and loopholes that would never be available to the average citizen.  Tactics such as the “Double Irish” and the “Dutch Sandwich,” which these corporations expend considerable resources implementing.  Well, now we have an update on the story courtesy of the Washington Post.  We learn that:

Companies have also found ways to shift their income across national boundaries, roving from country to country in search of the lowest tax burden. Ed Kleinbard, a tax professor at the University of Southern California Gould School of Law, has dubbed these movable earnings “stateless income.”

The trend has revolutionized company tax planning, especially in businesses that rely on intellectual property. The Senate Permanent Subcommittee on Investigations found that from 2009 to 2011, Microsoft, a member of the Dow 30, was able to shift offshore almost half its net revenue from U.S. retail sales, or roughly $21 billion, by transferring intellectual-property rights to a Puerto Rican subsidiary. As a result, the subcommittee found that Microsoft saved up to $4.5 billion in taxes on products sold in this country.

Robert Willens, who has been a corporate tax expert for more than 40 years, said he has noticed an unprecedented level of enthusiasm for reducing taxes.  “Maybe it’s just the pressure to produce profits,” Willens said. “I think people realize now that it’s not difficult to avoid U.S. taxes . . . and investors are demanding ­consistently improving performance.”

According to a Congressional Research Service report from January, U.S. multinationals in 2008 reported 43 percent of their overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland, all places famous for having among the lowest tax rates in the world.

The same report noted that profits reported in Bermuda rose from 260 percent of the country’s economic output in 1999 to more than 1,000 percent in 2008.

Complaints voiced, heard

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