Before I sat down to write this month's column for TPAtlanta, I wrote out my annual checks to the IRS and to the Georgia Income Tax Division. While completing tax returns and paying taxes can seem like a burden, in many ways it is also a privilege. There is indeed a sense of privilege and patriotism involved in this annual exercise.

I also feel a great sense of pride when I have completed these tasks, as well as a feeling of personal accomplishment when my refunds or payments due are within a few hundred dollars of the required total.

Unfortunately, there are others who take this gamesmanship over taxes to the extreme!

Regular readers of TPAtlantaa will recall that we spent some time in this space during 2006 discussing money laundering, tax evasion schemes, and the impact of such malfeasance on our industry and the economies of countries that were less than diligent in their fiduciary oversight.

We think that now is a good time to review and to update what is going on in the fight against money laundering, and we will attempt to give our readers some additional insights over the next couple of issues.

Authorities worldwide have begun waging war on tax shelters-and the bankers, lawyers and accountants who sell them

"In this world nothing is certain but death and taxes," Benjamin Franklin famously proclaimed. But for the well-heeled and well-advised, only the grim reaper is a dead certainty. The private bankers of the rich can find ways to structure transactions that greatly reduce their tax bills and sometimes eliminate them altogether. This often involves moving money offshore.

According to Boston Consulting Group, offshore private-banking assets total almost $6 trillion. Some of this wealth is stashed offshore for safe keeping by the well-to-do from politically turbulent parts of the world. But most of it is there to minimize taxes-sometimes legally, often not. Most Offshore Financial Centers (OFCs) do not levy capital-gains or inheritance taxes, nor taxes on passive income such as interest.

Strict banking-secrecy rules in some of them can shield assets from the taxman as well as afford protection from unscrupulous governments. In a number of jurisdictions-including Switzerland, Luxembourg and Singapore-not paying taxes owed to foreign authorities is not a crime. Other OFCs, including many in the Caribbean, do not have any laws against tax evasion because they impose no income taxes.

These benefits have persuaded some prosperous people to set up house in sunny tax havens. Popular destinations include Monaco, a city-state of just two square kilometers on the Riviera that Ringo Starr and Roger Moore call home; Switzerland, abode of Tina Turner and Boris Becker; Andorra, squeezed between France and Spain; and various Caribbean islands. Other jurisdictions are trying to elbow into this business, not so much to draw tax exiles as to attract entrepreneurs who bring with them taxable businesses and brain power. Last year the Isle of Man capped income tax at £100,000, in the hope of convincing London investment managers of the charms of island living. Guernsey plans to impose a £200,000 cap.

Singapore is trying to edge out Hong Kong as a home for hedge-fund investors and bankers by offering permanent residency in two years or less and a low-tax, business-friendly environment, as well as a bit of fun. "One problem we face is that hedge-fund managers are young and lively," a former government official explains, "and compared with Hong Kong we are boring." So Singapore has recently reversed a law that banned dancing on bar-tops, opened a slew of new bars and restaurants and loosened restrictions on racy films.

Famous tax exiles make good headlines, but there are relatively few of them. Most of the rich would rather stay put, moving only their assets to tax havens. One simple way to do this is to open a bank account in an OFC that does not tax interest payments. These are meant to be disclosed to the taxman at home, but often are not. Tax dodgers can tap these funds from afar by using debit and credit cards, although tax authorities are now cracking down on this.

One way to get round this is by setting up a trust. This involves putting money, property and other assets into an independent legal entity and designating someone reliable to manage it. Trusts had their origins in the Crusades. Knights would assign their land and other possessions to a trusted friend to take care of their affairs should they die abroad.

These days users of trusts have more mundane motives. If a trust is set up in a tax haven, assets often accumulate in it free of tax as long as they remain offshore. Money can also be passed on to heirs through the trust, avoiding inheritance taxes. And trusts are a nifty way to protect assets from an angry spouse in the event of a divorce. Long popular in America and Britain, they have now caught on in Europe and, increasingly, Asia.

Another method by which the wealthy can squirrel some of their assets offshore is by setting up a company. It is a particularly straightforward way to hold disparate and worldwide assets-such as land, factories and investments-and transfer them to heirs or spouses, who can take a stake in the company. Such companies can be relatively simple to set up. The British Virgin Islands, one of the cheapest places for doing this, gets a lot of business out of it.

The use of trusts and companies offshore can minimize some taxes-such as inheritance tax-and defer others, such as income tax, until the money is brought home. Both are standard tools in tax planning for the affluent. What has made them controversial is their lack of transparency. Most jurisdictions, including America and Britain, do not regulate trusts. Bermuda, Cayman, Jersey and the British Virgin Islands do-a point of particular pride for OFCs-but it is still hard to get information on them. Companies are an even bigger problem, as they can be set up easily either onshore or offshore without much disclosure.

Wouldn't it be nice if each of us in our little Transaction Processing community should be in such a situation where our personal finances would make it worthwhile for us to investigate these fancy tax maneuvers?

Stay tuned to this space where next month we will continue to explore how the rich get richer by trying to win at the tax game. Until then, be safe, play fair, and may your own off shore adventures simply be to lay on a beach somewhere and to enjoy the warmth of the sun!

Calvin D. Johnson, Publisher
publisher@tpatlanta.com
Trans Atlantic Systems, Inc.