Is the US the World’s Favorite Tax Haven?
Find here the full transcript for this panel, which was part of #TLTaxCon19 held in Barcelona in October 2019.
Our panellists were:
- John Richardson, Lawyer, Citizenship Solutions, Canada
- Jimmy Sexton, CEO, Esquire Group, UAE & USA
Mateo Jarrin: Okay, welcome back after lunch break. We're switching things around and we're going to have the panel first and then the presentation from RAKICC.
So this should be fun. We have two of the most outspoken and opinionated guys with us to regale us with all their tales about how the US is the world's greatest tax haven. I'm not including myself, I'm just here to moderate. Okay. So before we get started, if you guys could introduce yourselves, quick introduction and then we'll jump into the questions. I'm hoping from the audience a lot of good questions, challenge these guys, they're up for it. So, please, Jimmy, an introduction.
Jimmy Sexton: My name is Jimmy Sexton I'm the founder and CEO of Esquire Group. We're an international tax advisory group. We mostly work with family offices and ultra high net worth individuals and show them how to legally escape the OECD and the world tax cartels, protect their assets so they can pass it on to the next generation, according to their wishes.
John Richardson: Let me just add that he's one of the good guys. Yeah, so I'm John Richardson. I'm from Toronto, Canada and you've heard from me this morning already.
Mateo Jarrin: So our first question, kind of, to set the mood. So what sorts of opportunities are available to firms and individuals in the US that would lead one to categorize the US as a tax haven? It's a loaded question.
Question: What sorts of opportunities are available to firms and individuals in the US that would lead one to categorize the US as a tax haven?
John Richardson: Well, I think it's the whole legislative structure. The whole assumptions upon which it's based. I mean, I think that there's really two general parts and I'll give the two sort of general answers and then perhaps you can elaborate, but the first point I would make is that, I will talk about FATCA and that sort of stuff in a second, but the United States has very favourable tax rules to attract capital to the United States. In fact, if you were to go to a site, which I once saw called www.taxhavenusa.com, it actually describes this as to why it's a good idea to get your capital into the USA, so the rules lure the capital into the United States. There are certain kinds of investment income that are not taxed at all. The capital gains on shares would not be taxed.
Jimmy Sexton: Yeah, just to back up, the things you're talking about are for non-residents or non-resident businesses, so as a US person it's not so much of a tax haven but as a non-US person or company, it's a fantastic place.
John Richardson: Yeah, absolutely. So, in other words, lure the money in so that's the first thing.
The second thing is that FATCA, because it has been the US excuse for not signing onto the CRS, has actually created an environment where people can park their money in the United States, with an expectation that the US government is not going to transmit that information, at least on an automatic information exchange basis, to other countries. So those would be the two main factors but I just want to add, lest we forget this, that this is really good stuff unless you have the misfortune of dying with a lot of these assets in the United States, in which case they are in certain circumstances subject to like a 40% confiscation, so I mean as the US gets more and more hungry for revenue, who knows, they may start knocking off people with significant assets.
Jimmy Sexton: To add two things to that, I mean, one, the estate tax is something that you can plan around. I mean, by using a foreign corporation or properly structured foreign trust, you can get out of the danger of those US estate tax laws.
Adding to what you were saying about the FATCA and the data not flowing out of the US, I would add two more factors to that. One is you don't have all of this beneficial owner register nonsense that they have in the EU and the rest of the world now, so you have a little bit more privacy. Privacy doesn't mean you're doing anything illegal; people just have a right to it, other than if you live in Europe.
And the other thing is you can still do banking there. I mean, you can form a company in the United States, walk into a bank and get an account open in about 15 minutes. In Europe, you're lucky if you get an account open in 15 months with all the due diligence and the EU money laundering directives and all this kind of nonsense. I mean they've crippled business. I'm watching a lot of my clients from Europe go to the US just because they can do banking there so much easier. So they might have their companies in Europe, but all the banking is in the US, all the money's in the US. And so I think those things and the favorable tax environment and the fact that it's so business friendly.
John Richardson: I would add very efficient capital markets and that sort of thing. I mean, it's clear that if you're not a US citizen or green card holder that I'm not sure there's any place in the world that's more favorable to keep your assets than the United States. It's got, you may not agree with the rules, but I think it's still a country with strong rule of law of course and stuff like that.
Jimmy Sexton: And relatively fast compared with the rest of the world. I think a lot of times we think they say the wheels of justice move slowly but I think they actually do move quite a bit faster in the US than a lot of places.
John Richardson: Well, certainly no worse.
Mateo Jarrin: Do you guys want to discuss a little bit the structures available in Delaware, Wyoming, Nevada, etc?
Question: Do you guys want to discuss a little bit the structures available in Delaware, Wyoming, Nevada, etc?
Jimmy Sexton: Yeah, I think a lot of these states have sort of… So Wyoming actually invented the LLC back I believe in the 60s or 70s. And so they have very modern legislation that they keep trying to modernize even more. I think Delaware's one of the big favorites right now for privacy, mainly because you don't have to disclose to shareholders or the directors. I think in Wyoming, you may have to disclose the directors. I know Nevada, you have to disclose the directors, but a lot of these states either don't have an income tax at all or they do have an income tax, but only on revenue generated within the state, which you can obviously a lot of times avoid or it makes up only a small part of the revenue. And there's a lot of privacy, there's no central shareholder registers in the US, there's no beneficial owner registers. You can have companies as a director in a lot of these places. So it's still one of those places that offers a lot of privacy and a lot of these people use these entities not even for doing business in the US, but they'll form a US entity just so they can do business in Europe or in other places, because they don't want their competitors and other people to know who's behind it. It's one of the things that we used to see, for example, with Disneyland a lot. When Disneyland was trying to buy up Anaheim, they were going around to the hotel owners and the hotel owners were going, "Hey, it's Disney, we're going to jack the price way up." So then they went and formed a Wyoming company, put another director and went back and did the same thing and they got it at a fair market value. There's absolutely nothing illegal about that, but that's something for example in Europe that's no longer possible. And so they use a lot of the companies for transactions like this.
John Richardson: Yeah, I think that to some degree, although this could change, it's a function of the basic constitutional structure. The banks and every state has its own set of trust laws and banks and things like that and although it's not impossible in the future that federal government could swoop in and damage this. At the present time, this is pretty much under the control of the states.
Jimmy Sexton: And the one thing I'd like to add is, even though the US everybody complains that it's not transparent, they don't have a beneficial owner register, there's none of this, at the end of the day the IRS does know who owns it because all these entities have to file some kind of a tax return and information returns and everything else. What the rest of the world doesn't like about the transparency is getting that information out of the IRS, unless you're a US government agency, is impossible. But the information is there; it's just not public or shared.
John Richardson: Yeah, well, so the title of this discussion I think had the words tax haven. So, what's a tax haven, I don't know, I guess, whatever somebody thinks it is but it's generally agreed that the tax havens have two characteristics. One, a lack of transparency or secrecy and, two, low taxation. And there's no doubt that the United States has that. In fact, one of the things that I find interesting—I mean, most of what I do is expatriation work on that—but it was in 1966 that was the genesis of these favorable non-resident alien tax rules. At the same time, they moved to this favorable set of tax rules, they also began the beginning of the exit tax rules because they knew full well that these rules were just so attractive and so much more attractive for non-citizens than citizens or residents, they knew that there would be incentives to expatriate to take advantage of this regime. And I've never suggested to somebody, "Well, why don't you renounce US citizenship so you can get better investment in the United States?" but as I think about it at this moment it's probably not a bad idea. Would you agree?
Jimmy Sexton: I'd agree with that. I mean I have people that have done that, not on my advice but on their own volition, but certainly it's a lot more attractive. And the other thing I would add about being the world's most successful tax havens is this: it's the only tax haven that's not on a blacklist. They're part of the OECD, they're one of the biggest funders of the OECD, they meet the criteria for being on the EU's blacklist and the EU can't put them on there. So I mean as far as tax havens, what makes it the best, most successful is not only its laws, who's going to bully the US? I mean, Europe's too scared; they only pick on countries that can't do anything against them like the Crown Dependencies and stuff like that, but not the US. They really cornered the market, right? They did FATCA, they didn't sign onto BEPS, they didn't sign onto CRS.
John Richardson: They've created a moat around the country to keep all the competitors away. Make no mistake, I personally do believe that people should pay tax but I also believe in tax competition. And maybe this is unfair competition, maybe it's not, but the point is that it does provide a degree of tax competition, which I mean, given the things we've been talking about the OECD, I don't see how that could be anything but a good thing.
Jimmy Sexton: The one thing I would add to that, I think we touched on this a little bit on one of our panels last year, is the fact that I kind of predicted that this was going to cause a race to the bottom in terms of taxes. And I think we are seeing that now. I mean if you look at Europe, Germany announced they're lowering taxes, the UK is lowering corporate taxes, Australia is lowering its corporate taxes. So I think that this really is driving a healthy tax competition, you have on one side the OECD and everybody trying to make more tax rules and sort of ensure this global minimum tax, but, at the same time, you see the individual countries, kind of going, "Oh shit, we're losing out to the US," and now you see them lowering their tax rates, creating more favorable regimes with income exemptions and stuff like that, and I agree with you, I think it's very positive.
John Richardson: Lowering the tax rates, I think there's a lot of reasons for that. But a year ago or two years ago, the US did lower its corporate tax rate quite significantly.
Jimmy Sexton: I mean, we went down from the highest, 39 to 21. Yeah, that's a big drop.
Mateo Jarrin: Okay, moving on. I'll repeat this question. I know we've discussed it a little bit but I'll include it and get you a little riled up and get you to speak a little bit more about this. Is the US truly hypocritical sustaining action against individuals and corporations that use tax havens to conceal their wealth, yet continue to offer many of the same services within its borders? Come on get excited guys.
Question: Is the US truly hypocritical sustaining action against individuals and corporations that use tax havens to conceal their wealth, yet continue to offer many of the same services within its borders?
John Richardson: Why would you even ask something like that? What a strange question.
Jimmy Sexton: If you don't mind I'll jump in here. I think it's hypocritical and I also think it's awesome. I just think it's awesome that a country came in and said, "You know what? We're going to do whatever the hell we want and there's not a damn thing anybody can do about it." And then they went and took out all the individual tax havens, like we kind of touched on, to knock out the competition. Like I said, I don't know who's going to knock out the US, I think it's awesome.
John Richardson: No, I don't think it's hypocritical at all, because to be a hypocrite suggests some consciousness and concern or awareness of what's going on in the rest of the world. And I don't think that the US has even the slightest interest in what's going on in the rest of the world. I think this is very much reflected by—Stella made the point this morning—about being led by the US tax wise, we talked about clear correlations between this new tax proposal and the GILTI rules, but the tax reform in 2017 was a direct assault on the tax base of practically every other country in the world, principally through the subpart F regime, which basically created fictitious tax events that allow the US to essentially extract or extort tax from the tax base of other countries before there was a realization event in that country, guaranteeing that the US quest for this money could have no way be stopped by any argument about something as ridiculous as foreign tax credits, because there was a timing mismatch on this.
Jimmy Sexton: One of the things that I wonder sometimes, it might be a little bit of a conspiracy theory type thing with the GILTI rules and the deemed repatriation regime that came in in 2007, is we have this big Apple case with these 15 billion Euros and the US tried to intervene in this case, claiming because one of the EU arguments is, "Hey this income isn't being taxed anywhere, it should be taxed somewhere." Right? And so the US tried to intervene and said, "Hey, wait a minute, listen, it is going to be taxed somewhere, it's going to be taxed in the US at some point in the future," and the EU court basically said, "No, you can't intervene on this basis," and they didn't allow it. And then before the trial went in, the US did this deemed repatriation and they did these GILTI rules. And part of me thinks that the US did this very consciously, so that they can prove that the income of their companies, their tech giants are being taxed somewhere. And that in the event this were to happen again in the EU, with an Apple or a Google or something like this, that the US could intervene and show actual current damages that their tax base was being eroded. And the EU court would have a hard time denying that because they can show actual damages. And then you have the US government in there fighting on behalf of US companies in the EU court. Now we got some really exciting stuff going on, I mean, I'd love to see that.
John Richardson: Yeah, to add to that, I mean that's an interesting observation. So, for those for whom it's too long in the past and know what happened was basically this: Apple was apparently running a lot of its stuff through Ireland using it as the headquarters. Ireland is a country that has turned hosting multinational companies into a major revenue source. In other words, they don't have to tax on the full rate, you just have to tax them at a very low rate. What then happened was that because the rates in Ireland were significantly below the rates in other European countries, whoever the powers to be are sort of ganged up on Ireland said, "No, this is an impermissible subsidy."
Jimmy Sexton: There's another factor to that too because they had this double Irish structure where effectively they were allowing them so Ireland has a 12.5% tax rate on your profit. And what a lot of these companies did is they had Bermuda companies, and they would pay like 80% of the revenue that came in as royalties out to Bermuda so they were really only paying, and then out of the 20% that's left you have all your business expenses and everything else, then you have this very small percentage left that gets taxed at 12.5%.
John Richardson: So they were able to show basically no profits. So, if these other European countries were to succeed in pushing back on Ireland that would have resulted in Ireland having to impose, I think it was a $15 billion tax on Apple. Now, the US was up in arms, Secretary Lew was in Europe basically the next day complaining about this. An average person might wonder, "Well, why would they care?" Because, as I said this morning, if that money gets paid to Ireland that means that $15 billion is used as a tax credit against US tax. So I'll put it the same way I did this morning, from a US perspective, all foreign tax credits are essentially stealing from the US tax base. Yeah, so interesting problem.
Mateo Jarrin: Okay, next question. This is more about how the European Union will react to all of this or how they have reacted so we want your opinion, we might see some hands raised and some questions later. But do you think that European Union will attempt to compel the US to make FATCA truly reciprocal? In other words, will the US ever sign onto the CRS?
Question: Do you think that European Union will attempt to compel the US to make FATCA truly reciprocal? In other words, will the US ever sign onto the CRS?
Jimmy Sexton: So first of all, I don't think Europe has the capacity to compel them. They just updated the blacklist on October 10. Somebody from the EU basically came out and said they meet the criteria for putting on the blacklist but it's not politically possible. And so, I think, no, they can't compel them. And I mean technically under FATCA there are bilateral agreements with FATCA that the US should be sending the reciprocal data, but in 2012 the IRS basically said that we don't believe that your foreign systems have the proper security in order to receive and protect this data, but they didn't set any standards of what would be satisfying. So, the data just never flowed. I guess the short answer is no, I don't think it's going to change, because I don't think there's any motivation at the current moment. I don't think that the US is susceptible enough to EU pressure.
John Richardson: There's an old Russian saying: the days go slowly, the years go quickly. I am inclined to think that somewhere down the road, one of two things is going to happen. Either, the US will take position with the acquiescence and recognition of the rest of the world that they are a jurisdiction completely under themselves, they're not even going to pretend to be integrated internationally in any responsible way. And they will just continue on. I'd be surprised they did that because that's just a road 200 years from now being exactly like North Korea is today, closed society with enough nuclear weapons to cause problems.
The other thing that could happen, which I actually think is more likely, is that the change to things like FATCA and CRS are going to come in a different way. And that is that I think we would all agree that FATCA is a sanction essentially on other countries no more no less with a 30% withholding, but it's there to try to enforce the US, what they call citizenship-based taxation, which I call imposing worldwide taxation on the citizens of other countries. And once it is recognized that that's in fact what's going on, then I think you're going to get clear pushback because I think these countries are going to have to push back. And then I think there's likely to be an accommodation on this, which would be that the US may in fact down the road join the CRS. I don't know, nobody knows for sure I don't even know the US knows, right? But I'm not convinced that they have a commitment to FATCA at the expense of the CRS, I think that their view probably is more we've already got FATCA so we don't have any particular incentive at the moment to join the CRS but where the rubber hits the road on this thing is whether the US is willing to comply with the CRS, which is actually some kind of reciprocity of information. Now under FATCA, it's partly a question that they don't give up information, but it's a little more complicated than that. And if anybody took the trouble to actually read the IGAs they'd see that they're not even obligated to. All there is some statement about aspirational goals that we're going to work towards and then they don't even say reciprocity, what they say is an equivalent form of information disclosure. Now, that needs to be understood in terms of a world where the US has citizenship-based taxation, other countries have residence-based taxation, which means that I think one can argue quite credibly that equivalent level of disclosure is necessarily far less than what the US is entitled to under a citizenship-based taxation thing. So I think it's far too early to tell. I certainly don't think this is going to become a priority though until the shit hits the fan some other way on this problem.
Jimmy Sexton: Yeah, I kind of tend to think a little bit different, that we might see down the line is sort of the activation of the bilateral flow of information under FATCA. Because, rather than the US joining the CRS, because I don't see the US joining a reporting system that they don't control, right? I mean that's something that's under the OECD. Also, I think you're very right that it would be very difficult for the US to gather the data required by the CRS because they don't have a lot of this information in terms of beneficial owners and all this stuff. I think more likely what we'd see is an expansion of FATCA with some bilateral flow of information. And basically the whole world using an information exchange system that's owned and controlled by the US.
John Richardson: Yeah, somebody suggested this to me in a recent discussion, would be that the US would sign onto the CRS, but there would be an agreement that the CRS obligations be met under the FATCA rules. But the current state of affairs, I mean the US is on a runaway path to, I believe, complete isolation as long as other countries continue to exist. I mean, maybe what the US should do is just deem everybody in the world a US citizen. That would make them subject to all US tax rules, you'd have no more CFC, PFIC problems, none of these things, the world would be a better place. What do you think?
Mateo Jarrin: Okay, thank you. One last question. This was actually a question suggested by Jimmy, and it's kind of related to this but it's a more general broader question on the subject. So why haven't more professionals in our industry spoken out against some of the initiatives put forth by the EU and organizations like the OECD?
Question: Why haven't more professionals in our industry spoken out against some of the initiatives put forth by the EU and organizations like the OECD?
John Richardson: Well, I mean, I can give you a stream of consciousness answer to this. I don't know. Well, other than you, I think, or at least you're clearly philosophically aligned with my view of the world on this, thank you for that by the way, I feel less lonely. Yeah, we meet once a year. It's nice.
I think that there are a number of reasons. Okay. The first is that if you view this as just one more tax treaty thing, it's hard to get excited about it. But if you view it as enforcing a worldwide system of taxation on citizens of other countries, then the people who are subjected to are going to get excited about it but I have been working on this problem in a professional capacity and as a lobbyist I've also have been running a lawsuit in Canada on this thing but support Jenny, actually for many reasons. But I don't think that the compliance people understand the problem. To be honest, I think you can only understand it if you've been under threat of your life savings being confiscated, which is what absolutely is going on because the US imposing a very different tax system on people who don't live in the United States or their whole lives are foreign. I think it's not in their economic interest for a lot of them, I think the learning curve on this is so long, I think that 95% of the people preparing US taxes don't understand the system anyway because all they do is they just fill out forms and put stuff into a computer, and I think they really don't understand why this is a problem. And it takes too much energy and commitment. I mean I've been working on this problem for just shy of a decade now, and I consider myself to be a permanent student of this. I don't think anybody who claims to know all about this, that's the clearest proof they don't understand it. Okay. So it's a combination of those things and we live in a world where if it doesn't affect you personally then who really cares. I mean I agree there were bigger problems in the world than US taxation, but there is no bigger problem in the world for the people who are negatively affected by it. Would you agree?
Jimmy Sexton: Yeah, I would absolutely agree with that and I would go one step further that it's not just the US taxation part of it. Part of my question has to do with the fact that there's really a worldwide assault on our freedom going on, not just by the United States but by Europe. I mean, we've talked about this much, you have the DAC6 where you have lawyers that have to rat out their clients. I mean this is like the most morally offensive thing I've ever heard. Then you have all these beneficial owner registers, you have the CRS, you have all of these different things going on. All the due diligence, the anti-money laundering, the anti terrorism. And so far, I don't think it stopped any terrorism or any anti-money laundering. I just think that they've made it so complicated to do business now, for us to do our business, which is legal business.
And everybody in the industry, which was the thing that I noticed I was so surprised about at the last conference, where Alex Cobham was speaking, is most of the professionals, you see them at the conference and they treat these guys who are directly assaulting their business, like there's some sort of, yeah, it's just a submissiveness where this person just stands up there and so like Alex, just dictating, yeah, this is great, everybody's going, okay, yeah, well, we got to deal with this. Well, there's a lot more of us than there are of them. And I really wish that there were more people because when you talk to people in our profession privately, they hate these guys, they hate all these laws that are coming in but then you put them in front of these guys and they kiss their ass.
John Richardson: Yeah, but they hate them because it makes their professional lives so incredibly difficult. Yeah, that's why they hate them. They don't hate them because of the way that they're harming individuals. Yeah, the US tax system, it harms individuals, it harms countries. It doesn't even work well for the United States, such an antiquated tax system.
Jimmy Sexton: Now I think they finally did something somewhat intelligent and they made this new expatriation relief procedure where basically if you don't have a lot of money and you're not going to owe tax, you can kind of get out.
John Richardson: As long as you're never filed the US tax return. By the way, here's a tip on that. Within the next week, I learned from, by the way, tax compliance people are my friends, I'm in communication all the time, and I got a hot tip from one of them just about to get on the plane that they are going to be expanding into green card holders. That's a very good sign.
But I'll tell you something very… I don't think that that is actually good news because what struck me about it was that this notice came out the beginning of September. In summary, what it was is people are expatriating without meeting their tax compliance requirements could basically file, you wouldn't be a covered expatriate, provided that you had never filed a US tax return before. And now what struck me about this was that this bulletin was a joint bulletin from Treasury, IRS, the State Department and Social Security. And this is the first time I've ever seen any coordinated discussion from those three parts of the US government.
So, for those of you who know people, all US citizens want to renounce if they're outside the United States but who are thinking seriously of it, I strongly suggest they get out as soon as possible. Not only that, but if the Democrats become a government again, the gift tax is going to go down from the $11 million, one way of getting below the $2 million on this is of course the gift thing, and it's going to be much, much harder for people to get out of the US tax. Plus, generally speaking, non-US currency is low compared to where it has been, so that's another factor. So for those who want to get out of the US system, I doubt there will ever be a better time than now.
Mateo Jarrin: We've done six webinars with John, and he ends every single webinar...
John Richardson: All roads lead to renunciation.
Mateo Jarrin: There you go, thank you John for that. I think that that wraps up our session. I know you guys probably have plenty of questions so we have about 20 minutes for questions, if we don't have that many that's fine.
Question: With regard to the exchange of information that you touched upon, what if there's a change of government in the US next year? Will that impact your answers?
Jimmy Sexton: I don't think it would change my answer. FATCA existed under the under a Democrat system. When they didn't honor the bilateral aspect of the IGAs, that happened under Obama. So no I don't think that would change much. I mean, unless they were to get somebody in power that really wanted to get along with the rest of the world. But, yeah, I don't think it would change my answer at this time.
John Richardson: I think at this time would be the operative words. If you pay attention to what's going on with the Democrats, which is really the only thing to pay attention to at the moment. Well, because Trump is the Republican nominee. But they're all talking about wealth taxes. And I think anybody who thinks there aren't going to be wealth taxes in the US is just simply crazy, wishful thinking. There will be wealth taxes but what I found particularly interesting was the people who are helping, I believe, it was either Elizabeth Warren or Bernie Sanders, one of those two groups, specifically, referenced: one, the need for reporting of foreign assets and, two, the existence of FATCA to facilitate that. So, in that context, it's impossible for me to believe that the US government would get rid of FATCA, so much of it the implementations is left to the Treasury. And if they move in the direction of wealth taxes, there seems little doubt that they're going to have an interest in foreign assets and the infrastructure that is FATCA is there to support that already. But that's down the road, 5, 10, 15, who knows.
Question: I am going to try to play at least another side as a journalist in the room here, and I have here a report from the World Bank that talks about how $1 to $1.6 trillion a year are in tax evasion, I think it's referencing to developing countries, and $20 to $40 billion a year in corrupt money, and when you read the financial press you see numbers like this all the time, and I guess my question for you guys both would be: If you're against transparency and beneficial ownership and just seem to be generally against transparency, what then is the solution to stop tax evasion and stop corruption and stop bribery? How do you stop these things if not like spreading the light out as far as possible?
Jimmy Sexton: Well, I think I would have answered in a couple different ways. So one is I'm not against stopping corruption and bribery and all this stuff. I'm for that. But I think, first of all, this number $1.6 trillion or whatever it is, I think is a bunch of nonsense, because think about how much income you would have to generate to come up with 1.6 trillion of lost taxes. I think I did the math one time; it's like basically everybody's evading taxes on all money to come up with 1.6 trillion of lost revenue in taxes. So, they just literally make up these numbers, for one.
The second thing is a lot of this stuff with transparency assumes the criminals are going to put their own name in the beneficial owner register. Can you think of Pablo Escobar going to put his name down, like, yeah, I own this company? There's no chance. And, as a matter of fact, there were two cases earlier this year out of Jersey. One was with the former mayor of São Paulo and the other one was with somebody from Nigeria. And basically there's corruption money, it was bribery money, and the court systems of Jersey and the BVI were able to weed this out, and they were able to get the money forfeited. But the point is, they found the money in BVI companies, and the owners of the BVI companies, you could have never connected them to the actual people that have perpetrated the fraud, that received the money for the bribery or whatever else. So the only way they could link it was the money flows. So I think the point is, things that they're doing just assume that the criminals are going to be honest in this one aspect of their life. They're going to find a strawmen. They always have. I think if you look at the history of tax fraud, the history of corruption and bribery and all this stuff, they've always used nominee shareholders, they've used nominee directors. They've haven't themselves signed on the banks, they're going to go find some clean guy to go start this company and do this and sign on the bank accounts. And so it's not that I'm against it. I just think that this has absolutely no chance of stopping it, and it is basically making it that business almost can't function within the EU.
John Richardson: I don't disagree with anything that you said and I agree very specifically and enthusiastically with your claim that this is not going to stop. People who normally would hide assets, they will find a way around, making themselves visible. They may transfer their wealth into different kinds of assets, that's another thing they can do. Recently, in the United States there was this Paul Manafort conviction. And what I found interesting about it was that, as an afterthought they hit him with a bunch of FBAR penalties and stuff like that. But there was no indication that the FATCA rules had identified this guy anyway. Yeah, I think that that certainly underscores the claim that the people for whom this is really designed to go after are going to be able to steer clear of it and I think they steer clear of it today. This stuff destroys the lives of everyday middle class people with regular jobs, who not only are just trying to get by, but live by sort of a moral code where they equate morality with obeying law, this sort of stuff, and they have nothing to hide anyway. It just caused a big problem in their lives. I mean the people who the stuff is presumably aimed at, for example, the UBS group, which was the motivator. They knew full well that what they were doing was wrong. And a lot of them just moved on to Singapore and places like that.
I think that the question that society as a whole needs to ask and politicians, in particular, is this: Do we want a world where everybody lives under constant threat of sanction and really a form and reporting slavery, or we want a world where there's a general presumption of freedom? I think that's the question, and I would much rather have some tax evasion going on and a general presumption of freedom than a society where there's no presumption of freedom and some tax evasion going on.
Comment from Audience: I could offer a different slant rather than a question on that. When I looked into FATCA and the CRS, in a way, I couldn't fault the US government for coming up with FATCA in the first place, or the OECD with the CRS because it was a reaction to such abuse by bankers in my country of origin and other countries that in a way you had to understand that and I think in that respect it's fine.
But then I said at a conference, do we all agree that we shouldn't condone domestic abuse, yeah, beating in the bedroom? Are we all agreeing that we shouldn't have it? Hands up if we agree. Yeah, great. So I'm going to propose today a law against beating in the bedroom. And this law is—do we agree?—in public interest. It is to fight crime. Great. So my proposal, because we are all against, is we should have a CCTV in every bedroom in the country. And that I think is where FATCA and CRS got it wrong. They went from one extreme to the other.
Another example, face recognition. Do we agree that face recognition would eradicate crime from our streets? Of course, if every street would have a CCTV with face recognition, we wouldn't have crime out there. But then let's go one step further. Why shouldn't we fingerprint? Why should we have a general database of our DNA? And when you look at that, you realize that for every extreme, there is another extreme. And so the point for Jenny, for example, is we're not against FATCA or the CRS, what they do is do something noble in their idea, but the way they achieve it is disproportionate. In the same way, as when I went to China two weeks ago, and I had CCTV everywhere and I had to touch-in and touch-out with my passport when I boarded a train. I felt probably safe, but I felt very disquiet, and so that's what's going on.
We know that we've got a different constitutional framework, but in Europe at least, following the Holocaust, and at the height of Stalinism, we introduced the European Convention of Human Rights. That was in 1950. It was there for a reason. And we revamped the European Convention of Human Rights in 2000, made it part of the EU law through the EU Charter of Fundamental Rights, which contains three fundamental principles: right to privacy, right to data protection and proportionality. Because within two years, the EU was going to take on board all the Eastern European countries, and so the EU was saying, "If you come on this side of the fence, fundamental rights are there," and then you build the state around it, and I think that's what at stake.
I'm not a libertarian. Less government, government out and let's take out our rifles, right to carry rifles and my freedom. But I'm very concerned that if you start eroding the rule of law and proportionality with leaders like we've got in the UK at the moment, who have got no problems in going against the Constitution, it's a very quick slippery road into something we cannot control. That's why we fight that stuff. But I think that: Are we against the fight against tax evasion? The answer must be no.
Comment from Audience: Okay. Thank you very much, that's an extremely interesting question. And if you want to learn loads about it, I recommend you to buy my PhD thesis, which is on this very point, which was published in 2017. And it says that five of the seven top countries in the world where there's tax evasion are countries known as Brazil, Russia, India, China and South Africa. And the reason principally why there's this massive outflow of money is not tax avoidance or tax evasion per se, but it's because the people in those countries wanted equal treatment with foreigners coming into their countries. And there were massive tax incentives for foreigners coming into their countries. And they said, "Why should we be treated differently to them?" So they took the money out and they brought the money back in. That's principally what it's all about, but you can't do things like that now.
John Richardson: Yeah. And on that point, you would know more about this than I, but I think that the CFC rules, and Russia, actually, if I'm not mistaken, requires reporting of dual citizenship, as well, are tied to this sort of moment in history. And I think frankly, you're going to see this in the United States as well because this may sound extreme, but I think it's accurate. I think the United States is moving in the direction of wealth confiscation. There's no doubt and I think you can call it a tax if you want, but that's what they're talking about. And I think that you're going to see an accelerated interest on the part of Americans getting their assets out or at least of diversification for these reasons. I mentioned in 1966, right at the point that the US created this favorable tax regime for non-residents, they also began the exit tax rules.
Comment from Audience: The most often used device to get money out of those countries so called illegally was what that report describes as mispriced invoicing. That's basically what it says, mispriced invoicing. Now, we've transitioned a long way, but in the old days, transfer pricing wasn't evasion. There was avoidance, maybe. If you look at my thesis, you'll say that I conclude the transfer pricing out of China, transfer pricing out of India, and transfer pricing out of Russia was tantamount to criminal evasion, according to the laws in those countries, and they impose these massive sanctions against the senior accounting officers who were involved in mispriced transfer pricing, they would throw them in jail because they saw that transfer pricing was the greatest way or the most used way that money was getting out. And that's why you see, if you look at the IBDF database of multinational tax cases, there's something like 13, 14,000 cases in that database. About 6,000 are on India, and of the 6,000 about 5,000 are on Indian transfer pricing. And why was that? India had no anti-abuse rules, basically, it had no thin capitalization rules, it had no CFC rules. Foreign tax residents all you had to do is give them a piece of paper from the foreign country. It was Rafferty's rules, complete Rafferty's rules.
In my view, it's a funny sort of analogy, or a conclusion, in my view, it's the less developed countries that were driving CRS. In fact, if I remember correctly, the lady in charge, or the person in charge of the forum is a lady out of India, and has been there for many years. It's the Indians and the Chinese, who have been taking the lead in this stuff in the world, because they're so sick and tired of this money coming out and coming back in again.
John Richardson: So why should the rest of the world be paying the regulatory price? One other thing that I wanted to mention was talking about this $1.6 trillion figure and you made the points that these are inaccurate. The time that there was discussion just before FATCA was enacted, they came up with a figure of $200 billion in lost tax revenue. This is an absolute fabrication pulled, I mean, if they don't know where the money is how in the world could they even begin, I mean, it was an outright lie.
Comment from Audience: When France introduced a public register of trusts since struck down by the constitutional courts on the basis that it trampled on the right to privacy. The law was introduced by a green parliamentarian who said that, according to Transparency International, 90% of money stemming from tax evasion and money laundering is transferred via trusts. How did he know it? There wasn't any register.
So, these fabricated numbers are there for a reason, to capture headlines and therefore to push, but they should be challenged. So, for example, in our case we've done, we set a challenge against the CRS in the UK and HMRC in open correspondence that HMRC had estimated that out of the CRS, the Treasury would collect 573—I like the three at the end of it. Yeah, it's like a 3 million. And we said in our reply, this is fantastic, can you please give us the methodology? We never got an answer.
Jimmy Sexton: Well, I mean it's like in the UK when they went live with the big beneficial owner register, they were so proud that they had identified 1,200 possible cases of tax evasion out of three and a half million companies. Like congratulations, guys. But the other thing I was going to say, if people really want to stop corruption and this and that, it shouldn't be in the financial markets because the real corrupt people are getting the money through artwork and gold, they should go regulate that, not the banks.
Comment from Audience: A comment that I would like to add coming from Brazil. Brazil was mentioned. And imagine that you wake up one day and the government decides that you can only have $300 per month to live for your family. This is something that happened in the early 90s. So my experience in Brazil shows that a lot of people have money abroad because their parents sold companies and send all their money abroad. And now they don't know exactly what to do, how to solve this, how to fix that. So it's not corruption. It's not crime, it's not money laundering, its simply people's money. As we are not safe to say, "Hey, this has criminal consequences," people will still remain with the money offshore. And not because of corruption or because they are criminals. And the same thing for Venezuela and the same thing for Argentina where you have to buy dollars 10 times more than the official rate if you want to send any money abroad. So, we have to take in consideration all this. It's not only corruption, it's not only because it's a criminal laundry or something like that. No, we have a lot of situations and I have a lot of friends of mine in Brazil that they have money abroad, and they have absolutely no idea what they keep doing, they go to Miami to use the credit card, buy a lot of iPhones and things like that, and sell that in Brazil to bring their money back. So, this is the kind of situation that we are not going to solve with this, I think so.
Comment from Audience: The point that FATCA, KYC in particular, and all these rules, CRS, they don't really fight the bad guys, but they hugely affect the guys who want to do business. I have genuine businessmen who had to flee Russia and who want to do business but they can't have bank accounts opened or even Russian companies having an offshore holding company in Cyprus. The company was opened, but none of the banks have has opened a bank account for these holding companies. The business is genuine, the nominee is genuine, the beneficiary is genuine, but they refuse to open bank account. That's ridiculous. And one of my clients had to change the name, his physical name, and that, only that, helped him to have his personal bank account in the UK. On the other hand, we have Panama case. The famous Panama case, where we have the musician holding billions of dollars, allegedly, on behalf of Putin, and nobody could stop him from doing that. So these rules have gone too far, honestly.
John Richardson: You know that people are now forced to renounce their American citizenship over this problem. They can't get bank accounts in various countries.
Jimmy Sexton: I think the banking problems have gotten so big. I have a client right now who is a European citizen. He has several European companies in one country. And all of these companies have accounts with the same bank and have for many years, it's a lot of money. And now he's trying to open a new company, and he can't get an account at the same bank where he's already been, and it's a completely legitimate business, he's had a relationship with this bank for two decades, and he can't get an account opened. It is the most ridiculous thing. He just wants a bank account, and he can't get it, they're like prove your income, he's like you have it, you've been doing my banking for 20 years.
Comment from Audience: I was asked by a Swiss bank to sign the certificate for one of its clients who had two subsidiaries in the same country and the Swiss bank asked me to sign that the transfer pricing arrangements between subsidiary one and subsidiary two in the same country were acceptable to the tax authority in that country.
John Richardson: Well, I don't think we've changed anybody's mind here. But two final points. We are the good guys. And second, of course, support Jenny, support Jenny, come on.