Last week, I wrote an upbeat article on the future of Swiss private and offshore banking, entitled “The Future of Swiss Banking Looks Better than Ever.” This article focused mainly on the recently averted US trade war with Switzerland, and how the IRS got the publicity it wanted to scare people into compliance. It appears that the deal between the IRS and Switzerland regarding UBS account holders has still not been fully resolved, dragging out the publicity machine still further.
But how is this strategy playing out in the rest of the world? Another much vaunted tax information exchange agreement (TIEA) is that which the UK has been negotiating with Liechtenstein. A press release put out by the HMRC (British tax authorities) states firmly that “Those who have been evading UK tax on assets held in Liechtenstein banks must now settle with us. There are no alternatives.”
Is that true? Not really. At any rate there is certainly no need to rush into any hasty decisions… as the Press Release notes, “The Liechtenstein Disclosure Facility (LDF) runs from 1 September 2009 to 31 March 2015.”
This oddly-named Liechtenstein Disclosure Facility even more oddly also offers “a special Bespoke Service, including an option for personalised treatment by a `discrete [sic] HMRC (UK Revenue and Customs) team to ensure consistency of treatment'” notes TJN. At least it sounds like private banking clients will be getting the VIP service and treatment they are accustomed to!
There are more details which actually make this TIEA extremely favorable to the taxpayer, that I won’t go into here but can certainly cover in-depth in a future article in The Q Wealth Report. The bottom line is that this agreement – even more so than the US-Switzerland example – is more words and political posturing than anything else.
Brits with undeclared holdings in Liechtenstein probably need not be unduly worried, though it is clearly time to start looking into alternatives. One good alternative beckons in Panama for example – the Panama Foundation laws are almost a carbon copy of the famed Liechtenstein Anstalt or Foundation, and there is no TIEA with the UK.
But Brits at least have the option for completely and legally eliminating income taxes at a stroke. And those with undeclared holdings in Liechtenstein have until 2015 to do it. I’m talking, of course, about simply following their money and retiring overseas.
Contrast that to the USA where the IRS is dedicating more and more resources to pursuing thousands non-resident US citizens whom, it believes, are not filing their taxes properly. Americans are left with only one option to legally eliminate US taxes for ever – and that is renunciation of citizenship. It’s a big step, but certainly an option that Americans now seem to be taking up in droves – the brain drain I’ve often talked about. I’m seeing lots of American clients who at least want to establish residency somewhere offshore with a view to keeping their options open. Smart Americans are leaving and taking their money with them.
But it’s not nice to be stateless. So in order to renounce citizenship, or even just to keep their options open, US citizens need to be thinking about acquiring a second passport – whether it be via the slower and more secure route to a new citizenship through residence and naturalization, or the faster route of buying a second passport via economic citizenship programs.
Away from the USA and the UK, all around the world, tax havens targeted by the OECD and G20 summit in April amid a blaze of publicity seem to be getting back to business as normal. Belgium, hardly a low tax nation but another producer of fine chocolate – and one that perhaps surprisingly has substantial interests in managing non-resident bank accounts, just completed the hurdle of signing twelve TIEAs necessary to get off the blacklist. The last five countries they signed with? Singapore, the Seychelles, San Marino, the Isle of Man, and Monaco.
The cracks in the crackdown are beginning to show. A study recently published in Germany claims that “Tax is the price of civilization. Tax havens are the price of globalization.” Governments know that already and act accordingly. Just don’t expect them to admit it in public. And expect them to ramp up the use of scare tactics and bluffing to keep the populace under control.
Further reading: Writer Peter Macfarlane is a commentator, writer and consultant on offshore banking and asset protection matters. He offers a free personal e-mail consultation to all Q Wealth Members. If you are not yet a member, join today for instant access to Peter’s reports including the Practical Offshore Banking Guide, The Gold Report, and “Panama Foundations Demystified.”