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Yearly Archives: 2012

Super-rich 'hiding' at least $21tn in Tax havens

July 23, 2012

A new study for the lobbying group Tax Justice Network (TJN) claims that wealthy individuals worldwide are holding between USD21 trillion and USD32 trillion in bank accounts in low-tax international financial centres.

The research was compiled by James Henry, formerly chief economist at the management consultancy McKinsey. He used data published by the Bank of International Settlements, International Monetary Fund, World Bank, and various national governments, including their tax authorities, to estimate the world’s stock of undeclared wealth.

Henry alleges that the ‘missing’ trillions have been invested ‘virtually tax-free through the world's still expanding black hole of more than 80 offshore secrecy jurisdictions’. This ‘offshore economy’ as Henry calls it, is large enough to have ‘very significant negative impacts on the domestic tax bases of source countries’.

Some USD9.8 trillion of the total is owned by 92,000 individuals, Henry estimates. This total only includes deposit and investment accounts, not material assets such as property and the inevitable yachts and private jets.

According to TJN, the report, called The Price of Offshore Revisited, demonstrates that the problem of economic inequality is far worse than previously understood.

‘All studies exploring economic inequality have systematically underestimated the wealth and income enjoyed by the world’s wealthiest individuals,’ said TJN’s John Christensen. According to TJN, the use of discretionary trusts is an important method of preventing assets being counted in national statistics. So is the alleged practice of some offshore finance centres of deeming certain income or assets to be located in other jurisdictions.

Mr Whiting, though, urged caution. "I cannot disprove the figures at all, but they do seem staggering. If the suggestion is that such amounts are actively hidden and never accessed, that seems odd - not least in terms of what the tax authorities are doing. In fact, the US, UK and German authorities are doing a lot."

He also pointed out that if tax havens were stuffed with such sizeable amounts, "you would expect the havens to be more conspicuously wealthy than they are".

Other findings in Mr Henry's report include:

· At the end of 2010, the 50 leading private banks alone collectively managed more than $12.1tn in cross-border invested assets for private clients

· The three private banks handling the most assets offshore are UBS, Credit Suisse and Goldman Sachs

· Less than 100,000 people worldwide own about $9.8tn of the wealth held offshore.

Mr Henry told the BBC that it was difficult to detail hidden assets in some individual countries, including the UK, because of restrictions on getting access to data.

A spokesman for the Treasury said great strides were being made in cracking down on people hiding assets.

Sources
Step Journal

Tax Justice Network (Henry report, PDF file)

Tax Justice Network (gloss on report, PDF)

Observer (1)

Observer (2)

BBC

CBS News

Read more at: Tax Times blog

US Expatiation More Than Doubling.

July 23, 2012

America’s rich are renouncing their citizenship at record levels.

New data from Uncle Sam show that defections by Americans are expected to double this year, largely to avoid any stiff tax bills resulting from the proposed 55 percent hike on the rich; as well as the likely expiration on Dec. 31 of the Bush era tax cuts.
As many as 8,000 US citizens are projected by immigration officials to renounce in 2012, or about 154 a week, versus 3,805 in 2011, or about 73 per week.
High-net-worth individuals are making decisions that having a US passport just isn’t worth the cost anymore.
They’re able to do what they do from any place in the world, and they’re choosing to do it from places with much lower tax rates,” he said.
There’s a catch to renounce citizenship — and thus escape any future US taxes forever — a citizen must buy that unique freedom with a a one-time exit tax of 15 percent on the fair-market value of all assets — including real estate, securities, businesses and personal belongings — less their basis price.
Many see it as a cheaper way to get out from under any tax liabilities on future wealth, while their assets have lower values during the weak economy. The step before dumping citizenship is, of course, finding a new homeland and getting citizenship there.
There are numerous tax-haven nations and island regimes around the world eagerly welcome disenchanted rich Former Americans with quick citizenship, business deals and protections from the US Justice Department and the IRS.
Among the popular spots: Australia, Norway, Singapore, Cayman Islands, Costa Rica, Guernsey and Antigua.
There is another way to have your cake and eat it, too. The US possessions in the Caribbean — St. Thomas, St. John and St. Croix — give a 90 percent tax credit to US citizens living there at least 183 days a year, resulting in an effective tax rate of just 3.5 percent, he said.
If you have any question regarding the Alternative of Expatriating from the US, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).
For more on this story, go to FoxNews.

Read more at: Tax Times blog

FATCA Compliance deadline extended for QIs

July 19, 2012

The US Internal Revenue Service (IRS) is giving qualified intermediaries (QIs) an extra year to achieve compliance with the Foreign Accounts Tax Compliance Act (FATCA), which requires foreign banks to notify the assets of US taxpayers to the IRS.

Foreign banks cannot remain as QIs unless they become FATCA-compliant, and those whose QI status expires at the end of 2012 have now had their renewal date extended until the end of 2013.

Qualified Intermediaries and FATCA Implementation

Though final regulations for foreign financial institutions (FFIs) have not been issued, some basics of the administration of the Qualified Intermediary (QI) Program and FATCA implementation are known. These include the following:

1. QI's must become FATCA compliant to retain their QI status and the QI agreement will be modified to reflect the Chapter 4 requirements.

2. The renewal of the QI agreement for QI's whose renewal is expiring December 31, 2012 has been extended per Notice 2011-53 until December 31, 2013.

3. The renewal of the QI agreement will be accomplished through the online FATCA FFI registration system. This online registration system will be available no later than Jan. 1, 2013.

If you have any FATCA question, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

DISREGARDED ENTITIES – DISREGARDED FOR ALL PURPOSES?

July 19, 2012

Under the check the box rules, entities owned by one person can often be disregarded for federal tax purposes. Such entities are referred to as "disregarded entities."

As time has progressed since the passage of the check the box rules, the IRS has created more and more exceptions to the disregarded treatment. For example, disregarded entity status is ignored or modified in regard to employment and withholding taxes of a disregarded entity.

The IRS has now issued final treasury regulations that provide that an entity whose disregarded status is ignored for employment tax purposes will be treated as a corporation. Treas. Regs. §301.7701-2(c)(2)((iv)(B).
It would be helpful to put in one place the several exceptions that now exist to disregarded entity status. The following is a summary of the principal exceptions, but is not intended to be exhaustive. If any readers think I have missed anything major, please feel free to comment to this posting and let us know what the item is.
A. Status is modified if the single owner of the entity is a bank. Treas. Regs. §301.7701-2(c)(2)(iii).
 
 
B. Status is modified for certain tax liabilities. Treas. Regs. §301.7701-2(c)(2)(iii). These include: (1) federal tax liabilities of the entity with respect to any taxable period for which the entity was not disregarded; (2) federal tax liabilities of any other entity for which the entity is liable; and (3) refunds or credits of federal tax.
 
 
C. Disregarded status ignored or modified for taxes imposed under Subtitle C—Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A, 24, and 25 of the Internal Revenue Code) and taxes imposed under Subtitle A, including Chapter 2—Tax on Self-Employment Income. Treas. Regs. §301.7701-2(c)(2)(iv)(A).
 
 
D. Status is modified for certain excise taxes, as described in Treas.Regs. §301.7701-2(c)(2)(v). Although liability for excise taxes isn't dependent on an entity's classification, an entity's classification is relevant for certain tax administration purposes, such as determining the proper location for filing a notice of federal tax lien and the place for hand-carrying a return under Code §6091 .
 
 
E. Conduit financing proposed regulations will treat a disregarded entity as separate from its single member. Code §7701(l).
 
 
F. Special rules will apply in hybrid situations. Hybrid situations are circumstances where an entity is not disregarded in one jurisdiction but is disregarded in another.
 
      (1) Hybrid payments made between a CFC and its hybrid branch, or between two hybrid branches of a CFC, would be recharacterized as subpart F income in the same amounts, if the conditions of the regulations are met. Those conditions are as follows: (1) the hybrid branch payment reduces the foreign tax liability of the payer; (2) the payment would have been FPHC income if paid between two CFCs; and (3) a disparity exists between the effective rate of tax on the payment in the hands of the payee and the hypothetical rate of tax that would have applied if the payment had been taxed to the payer. If no tax rate disparity exists, no recharacterization would occur. Proposed Regulations under TD 8827, 1999-30 IRB 120.
      (2) In certain cases, payments made by domestic reverse hybrid entities to related foreign interest holders are recharacterized as a dividend. Such payments are recharacterized as dividends to the extent of the interest holder's proportionate share of payments by the domestic entity to the domestic reverse hybrid entity that are treated as dividends by either jurisdiction. The recharacterization as a dividend means that the payments cannot be deducted by the domestic reverse hybrid entity. This prevents the use of a domestic reverse hybrid entity to make deductible payments to the foreign interest holder that are taxed at lower withholding tax rates. Treas.Reg. §1.894-1(d)(2)(ii)(B).
      (3) Special rules relating to allocation of foreign tax credits. Prop.Regs. §1.901-2(f)(3).

      (4) Special ruled relation to limitation on use of Dual Consolidated Losses. Treas.Reg. §1.1503-2(g)(2).

G. A new exception now has been added to the list. Under final regulations issued under Section 881, the IRS can treat a disregarded entity in a financing structure as a person separate from its owner (that is, as a non-disregarded entity), in determining whether a financing arrangement exists that should be recharacterized under the multiple-party financing rules of Code §7701(l) and Treas. Regs. §1.881-3. These rules allow the IRS to disregard the participation of one or more intermediate entities in a financing arrangement and recharacterize the financing arrangement as a transaction directly between other parties. It will often be applied where intermediate entities are employed by taxpayers to obtain treaty or other tax benefits that would not be available if a financing transaction was directly conducted between the ultimate lender and borrower.


If you have any questions relating to Disregarded Entities,  contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

We acknowledge Charles Rubin for originally compiling this list, which we supplemented herein.

Read more at: Tax Times blog

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