Tough Tax Talk As The Swiss Play It Cool

I have to admit to.. and I will use a German word here.. Schadenfraude.

The German finance minister, Peer Steinbrück, said Tuesday that Switzerland should be placed on an international list of tax havens, this without even laughing, as his country moves from one cock-up to another.

Speaking to reporters in Paris after a conference on measures to combat tax avoidance, Steinbrück said Switzerland deserved to be on the list being drawn up by the Organization for Economic Cooperation and Development because Swiss investment conditions encouraged some German taxpayers to commit fraud.

Delphine Jaccard, a spokeswoman for the Swiss Finance Ministry, said in a statement, "Switzerland has taken account of the results of the conference and presently sees no reason to react." Switzerland, she said, "has already made agreements with several states, including Germany" relating to "the exchange of information for the implementation of domestic law of contractual states in cases of tax fraud."

"Switzerland is only prepared to cooperate with us if there is tax evasion," Steinbrück added. "But to prove this tax evasion we need the exact information that Switzerland has, but it will not deliver it. That is the problem."

Now I don't mean to go on a rant...but I will.

The Germans, once again, are vomiting forward the opinions on Switzerland’s whole financial system not just its taxation procedures. The whole idea that Switzerland should be forced into Europe by marginalising it is a typical bully boy tactic of a crumbling alliance.

I would have thought that the Germans should take a look at their own system first and show the rest of us their shining example in fiscal management.

For example Herr Steinbruck, take a look at the fine way your regulatory and market organisations have managed the VW/Porsche farce.

Porsche said on Monday that it had 43pc of VW's shares, and options relating to a further 32pc. That sowed panic among hedge funds who had sold the stock short. As they desperately tried to buy shares to cover their positions, the price shot up as high as 1000 Euros or 20 times the target of most analysts.

The squeeze leaves many with red faces. Start with the short sellers. They may have reckoned Porsche would pause on its buying campaign once it hit 51pc, leaving the shares to deflate for a while. But VW’s limited free float made that a risky bet – akin to picking up pennies in front of a steamroller.

German market overseers also look inept. Porsche doesn’t have to disclose its activities in the options market, even if those options would in practice enable it to lay its hands on the underlying shares. That leaves other investors largely in the dark.

The words 'piss', 'up' and 'brewery' come to mind.

German Index tracking funds were forced to buy VW shares to keep in line with the index weighting in what amounts to guaranteed losses for million of Germans. During all this time the market regulators sat on the fence and did nothing. No suspending of trading, no limits, nothing. Finally the Dax announced that all would end on Monday. I guess this waiting game is so the Herr Steinbruck can find a way of blaming their totally inept handling of the affair on someone else, the evil Swiss perhaps.

I am reminded of the chant when England beat Germany at football 5-1. "Let's all laugh at Germany."

Of course the Swiss banks, mainly UBS have smarted from losses and bad moves, but we have kept the bail outs in-house. If Europe is such a great idea then I would have expected to have Hungary (an EU member state) bailed out by its European 'partners' not so, the IMF did that.

By the way Herr Steinbruck, my house prices has not gone down 30%, and there are no foreclosure signs in my village.

I would suggest that before the European community starts being tough guys with Switzerland they get themselves into a position where corruption is routed out of the EU Commission, that the EU actually creates a regulatory system that works rather than just fleecing its members, that politicians stop taking money from the banks they are supposed to oversee and that governments create a workable tax system that doesn't tax the life out of its citizens, perhaps then they will not seek out 'tax havens'.

The whole EU community should take a long hard look at the way Switzerland runs its affairs. We have true democracy here with referendum on pretty much everything, we have a firm but fair regulatory system that protects against systemic risk.

The EU may also want to consider the rule here that if a lender is found to have not done sufficient investigation into the ability of the borrower to repay the loan, then the lender becomes liable.

This simple ruling adopted by the loud mouthed politicians in the EU scrambling to blame everyone else, would have killed this current crisis before it even started.

When Houdini was performing his tricks he said the essence of magic was misdirection, get your 'mark' to concentrate on something else while you performed your 'magic'. This is a classic case of misdirection. Blame the tax havens for your problems so they won't notice you trying to shovel away the excrement you have left on your own doorstep.

Thanks Herr Steinbruck, for your opinions, but next time we want them we will ask... just don't hold your breath.

Gaddaffi Looses The Plot.... Again..

Oh dear! We are not doing too well at the moment with our reputation as pacifists, staunchly avoiding the worlds conflicts and doing our best to be mediators.

No, the worm has turned and Switzerland is kicking ass! Our first prod was to upset the world's most powerful nation by letting our biggest bank help US citizens tax plan, now we arrest the Libyan dictators son for alledgedly beating people up.

Not a good few months at the office for us.

The latest situation is that the Swiss authorities arrested Libyan dictator Gaddaffi's son, although he is now out on bail.

Col Gaddafi's government has recalled some of its diplomats from Switzerland, reduced flights between the countries, stopped processing visa requests from Swiss citizens, demanded the closure of Swiss firms in Libya, detained two Swiss citizens and probably stopped eating cheese and stamped his feet a lot.

The most worrying thing, however, is that he has stopped shipping oil to Switzerland, as we get 50% of our fuel supply from there this could be a problem.

Swiss foreign minister Micheline Calmy-Rey has formally complained about the moves to her Libyan counterpart and has advised citizens not to travel to Libya. Swiss International Air Lines said Libya has reduced its flights between Zurich and Tripoli from three per week to one.

The airline's spokesman said: "The notice from Libya was very surprising and short notice."

Libya also announced a similar cut in Geneva flights with Libyan airline Afriqiyah.

Col Gaddafi's youngest son Hannibal, 32, and his wife Aline were arrested last Wednesday after an incident in a five-star hotel in Geneva. He was released on bail two days later after posting bail of 500,000 Swiss Francs. His wife, who is nine months pregnant, was taken to hospital during police questioning.

The couple were charged with assaulting two of their staff, a Moroccan man and a Tunisian woman, with a belt and coat hanger. The woman was hospitalised.

Mr Gaddafi, whose real name is Motassim Bilal Gaddafi, and his wife deny the allegations. They had arrived in Geneva on July 5 for the birth of their child. Switzerland have dispatched a diplomatic delegation to Tripoli to provide the Libyan authorities with more details about the arrest and "to prevent a crisis between the two countries", the Swiss foreign ministry said.

Libya is the largest provider of oil to Switzerland. Hannibal Gaddafi has had previous run-ins with the law. In 2005, he was convicted by a French court for striking his pregnant companion in a Paris hotel. He was given a four-month suspended prison sentence and a 500 Euro fine.

He also was at the centre of a separate commotion in 2004, when Paris police stopped him for speeding on the Champs Elysees and his bodyguards attacked several officers. Two of the bodyguards were taken into custody but released after a delegation from the Libyan embassy showed up at the police station and apologised.

I am sure the Swiss will deal with this, but isn't this an indication of the switch in power caused by the oil price. Affectivley Gadaffi is using his oil power to pressure the Swiss government into dropping charges against his son. I don't know about you but to me that is outrageous.

I don't care if you are the richest man on the planet, or the most famous of celebrity... you are not above the law. Beat people up... go to jail... it is not that difficult to understand surely? Even for the rich, spoilt son of dictator and a sponsor of terrorism.

It was only a little while ago that Gadaffi was shaking hands in tents with Tony Blair and his hangers on telling the world he was changed man.

Time is a great healer, I guess. He is back on form... US take note...

Maybe we should retaliate and freeze the billions and billions of dollars that Gadaffi, no doubt, has salted away in his Swiss bank accounts, or better still post the information on the Internet.... That would get his attention......and that of his long suffering people.

Offshore Investment

Offshore investing is often portrayed in the media, as the practice of sending your hard earned money to some Caribbean Island in order to evade tax or to find a whole for your ill gotten gains. Of course there are some jurisdictions that may fit into this bracket and we know that there are those whose nefarious activities have to result in ill gotten gains, and these people have to bank too. However, offshore investing as a strategy for some investors has its place in any planned portfolio.

What Is Offshore Investing?

Offshore Investment is essentially the strategy of investing outside the investors home country for the purposes of tax planning, privacy or gaining higher returns from investment vehicles not available to the investor in his home country. There is no shortage of money-market, bond and equity assets offered by reputable offshore companies that are fiscally sound, time-tested and, most importantly, legal.

Advantages

There are several reasons why people invest offshore:

Tax Reduction -

When discussing investing offshore with your friends down the local watering hole this is the one area that comes up most frequently and, one would assume, would be the first reason that investors look offshore. Plenty of jurisdictions offer tax breaks of many kinds to encourage investments by foreigners. For small countries with little resources and not much tax income from its citizens there is an incentive to increase the countries economic activities by offering a safe, legal, tax efficient structure for companies to base themselves for investment purposes either as holdings companies or investment vehicles.

To put it in simple terms an individual or corporation can set up a company in an offshore jurisdiction where that corporation does not have any operational facilities or business (in fact most of these types of company are prohibited from operating in the host country) and as such it attracts little or no tax in that jurisdiction for investments made. This makes it very attractive as part of an investment strategy to route investments rather than doing this individually or corporately in the home state.

In recent years, however, the U.S. and UK governments has become increasingly aware of the tax revenue lost to offshore investing, and has created more defined and restrictive laws that close tax loopholes. Investment revenue earned through offshore investment is now a focus of regulators and the tax man alike. According to the U.S. Internal Revenue Service (IRS), U.S. citizens and residents are now taxed on their worldwide income. As a result, investors who use offshore entities to evade U.S. federal income tax on capital gains can be prosecuted for tax evasion. Therefore, although the lower corporate expenses of offshore companies can translate into better gains for investors, the IRS maintains that U.S. taxpayers are not to be allowed to evade taxes by shifting their individual tax liability to some foreign entity. In the UK the European Savings Directive was intended to be an anonymous way of a European country paying withholding tax on interest on foreign held accounts directly to the home state of the account holder. Unfortunately this has recently been usurped by the UK government to gather information on offshore accounts. They then gave an amnesty called 'The Offshore Disclosure Facility' which gave UK taxpayers until the 22nd of June 2007 to tell the tax man about their accounts, pay taxes due and a 10% fine. 50,000 people did so.

However, as the taxman becomes more sophisticated at finding ways to reel in the offshore loopholes, the practitioners will find ever more complicated ways of helping clients plan for their taxes in an efficient manner and investing in the right offshore jurisdiction is still the place to do this.

Asset Protection - Offshore centers are popular locations for restructuring ownership of assets. Through trusts, foundations or through an existing corporation, individual wealth ownership can be transferred from people to other legal entities. Many individuals who are concerned about lawsuits, or lenders foreclosing on outstanding debts elect to transfer a portion of their assets from their personal estates to an entity that holds it outside of their home country. By making these on paper ownership transfers, individuals are no longer susceptible to seizure or other domestic troubles. If the trustor is a U.S. resident, their trustor status allows them to make contributions to their offshore trust free of income tax. However, the trustor of an offshore asset-protection fund will still be taxed on the trust’s income (the revenue made from investments under the trust entity), even if that income has not been distributed.

The use of bearer shares, for example is a classic strategy of exchanging ownership of companies without a paper trail of transfer, and therefore tax. What is a bearer share? If you are in the UK pull out a bank note and you will see "promise to pay the bearer..." The very notes in your pocket are bearer notes meaning that whoever has the ten pound note in their hand owns it and it can be exchanged for goods and services. It is the same with bearer shares. Lets say you own a company that you have built up to be worth ten million Euros and you want to sell it. If it is a UK company, there would be capital gains and stamp duty on the transfer, evidence by a trail of paperwork. If it is an offshore company held with bearer shares, you could simply give the shares to whomever you are selling the company to and there is no trail to follow.

Of course it is not that simple, as there are other considerations, such as the fact that you should declare the sale, but you see where we are coming from.

Confidentiality - Many offshore jurisdictions, such as Switzerland, offer the complimentary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party. An example of a breach of banking confidentiality is divulging customer identities; disclosing shareholders is a breach of corporate confidentiality in some jurisdictions. However, this secrecy doesn't mean that offshore investors are criminals with something to hide.

It’s also important to note that offshore laws will allow identity disclosure in clear instances of drug trafficking, money laundering or other illegal activities. From the point of view of a high-profile investor, however, keeping information, such as the investor’s identity, secret while accumulating shares of a public company can offer that investor a significant financial (and legal) advantage. High-profile investors don’t like the public at large knowing what stocks they’re investing in. Multi-millionaire investors don’t want a bunch of little fish buying the same stocks that they have targeted for large volume share purchases - the little guys run up the prices.

Because nations are not required to accept the laws of a foreign government, offshore jurisdictions are, in most cases, immune to the laws that may apply where the investor resides. U.S. courts can assert jurisdiction over any assets that are located within U.S. borders. Therefore, it is prudent to be sure that the assets an investor is attempting to protect not be held physically in the United States.

Diversification of Investment - In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restriction hinders the establishment of a truly diversified investment portfolio. Offshore accounts are much more flexible, giving investors unlimited access to international markets and to all major exchanges. On top of that, there are many opportunities in developing nations, especially in those that are beginning to privatize sectors that were formerly under government control. China’s willingness to privatize some industries has investors drooling over the world’s largest consumer market.

Disadvantages

Tax Laws are Tightening - The UK 'Offshore Disclosure Facility' is just the start of an assault on tax loopholes and the IRS already tax US citizens on their worldwide income. However, where there is a will from investors and fees for the offshore practitioners and jurisdictions, there will be armies of accounts and advisers working on structuring further strategies for clients.

Cost - Although the general myth is that offshore investing is for the very wealthy, this is not necessarily true. In years gone by this may have been the case but with the information age and specifically the Internet, services are becoming more freely available and cheaper. However, services do not come free and the old adage is true "pay peanuts, get monkeys". Many companies offer a quick fix... set up an offshore company for $300 and away you go. Offshore tax planning is simply not this easy, it requires thought and planning, and with that comes fees.

How Safe Is Offshore Investing?

More than half of the worlds assets are held in offshore jurisdictions. If you ever go down to Monaco, have a look at the flags hanging off the super yachts. Ask yourself the question as to why a country such as St Vincent and the Grenadines (with 120,000 population and a low average income) is represented very well by multi million dollar yachts being registered there. St Vincent just happens to be a very tax efficient jurisdiction for such assets.

The question of safety is relative to what you are investing and where. Registering your super yacth in St Vincent is safe, because someone there is hardly likely to steal it, Would you invest your multi million portfolio from there? Maybe not. Places such as the Bahamas, BVI and of course, the daddy of all jurisdictions, Switzerland, have first class reputations for safety, privacy and security.

Conclusion

Investing offshore is different for every investor, depending on their home country, their wealth, the assets that they are looking to protect or the kind of investments that are being made, so each person requires a selected strategy. Creating this strategy may take lawyers, accounts and investment advisers to create the right structure. In the end, however, if the correct structure is created the benefits can be very good indeed.

There is, after all, a reason that the wealthy have been doing it for years....