TAX HAVENS and Corporate Strategies - Essays on Offshore Investments

By Antonio C. T. de Mello

A incerteza política, uma economia volátil, agressões ao sigilo bancário, as ameaças à manutenção da riqueza, aumento da carga fiscal, os serviços governamentais deficientes para compensar o pagamento de impostos, administração pública ineficaz, crises sociais, o medo .. Neste contexto caótico, empresários buscarem constantemente alternativas para salvaguardar os seus investimentos a partir de "confisco legal" resultante da tributação extremamente elevada direta e indireta em que os cidadãos são submetidos.

Em um mundo que está cada dia mais inter-conectado, o conhecimento e divulgação de novas oportunidades de negócios e oportunidades de investimento alternativas que existem fora das fronteiras nacionais torna-se uma oportunidade cada vez mais atraente, especialmente quando associada a uma redução em impostos e um aumento da possível lucros obtidos possível através dos assim chamados "paraísos fiscais" ou "Jurisdições Fiscais Privilegiados" ..

Apesar de existir uma linha tênue entre a evasão fiscal (legal) e evasão (ilegal), essas práticas e estratégias de negócios quando colocado em prática de acordo com um programa fiscal anterior e cuidadosamente preparado, em conjunto com um estudo aprofundado das estruturas jurídicas no exterior, de fato representam uma oportunidade excepcional para o lucro e também para proteger os ativos e outras formas de riqueza, dentro dos limites da legislação em vigor.

Mais do que uma opção para proteger a privacidade pessoal e financeira dos cidadãos que vivem em um universo no mar, o investimento e novas oportunidades de negócio descritas aqui representam verdadeiras oportunidades para qualquer pessoa com a curiosidade de descobrir um novo mundo ainda a ser explorado.

Junte-se a esta aventura, esqueça os preconceitos, descobrir um novo mundo no universo offshore e, principalmente, ser livre para pensar, aprender como se comportar e acumular sua propriedade pessoal protegido contra os excessos do governo e interferência Fiscal ..

• Language: English
• Publisher: Antonio C. T. de Mello
• Release date: Jul 31, 2015
• ISBN: 9781507115923

Book preview

Dedication

To whom received me at the beginning of my life, teaching me my first words, showing me how the world should be seen, molding my character and fortifying my spirit, keeping it free and truly critical about the obscure reality of the world and men; my Grandfather, Octávio Teixeira de Mello, in memoriam.

To my wife Maria do Céo, friend and companion at all times and my beloved young son Erick Mathieu, the larger reasons for my existence and sources of continuing happy moments in my life, for the worries, patience and many hours of being together that were forfeited because of my work.

When you perceive that, to produce, you need to be authorized by someone who produces nothing; When you prove to yourself that Money flows to those who don’t negotiate goods but favors; When you conclude that many become rich through graft and influence, more than through labor, and that the laws do not protect us from them, but to the contrary it is they that are protected from you; When you perceive that corruption is recompensed, and that honesty converts itself into self-sacrifice; Then you can state, without fear of erring, that your society is condemned.

Ayn Rand, Jewish philosopher, fugitive from the Russian revolution, in 1920.

INDEX

INTRODUCTION......................................................................................10

PART ONE....................................................................................................1

The Issue of Taxation.....................................................................................1

The Tax Authority and Public Management of Tax Revenues........2

Reflections on the Rejection to the Tax Authority...........................3

Roads to Liberty...........................................................................................10

Battered Citizen Syndrome............................................................12

Increase in Financial Operation Tax (IOF) for Travel Cards........14

Risks and Solutions for the Brazilian Businessman................................16

Inverse Depersonalization.................................................................17

Advantages to Wealth Shielding.......................................................20

International Diversification of Financial Assets...........................22

World Citizens – New Global Citizens......................................................25

Multiple Flag Theory..........................................................................27

Advantages of Dual Citizenship and a Second Passport...............28

Reflection: Slavery or Liberty?..................................................................31

PART TWO..................................................................................................32

Tax Havens Demystified.............................................................................32

Corporate Inversion............................................................................36

Recent Examples of Corporate Inversion........................................38

Main Privileged Tax Jurisdictions..............................................................40

Tax Schedule.......................................................................................41

Offshore Companies....................................................................................43

The British Model...............................................................................43

The American Model..........................................................................44

Specialized Offshore Companies......................................................44

Requirements of an Offshore Company...........................................45

Main Uses of an Offshore Company..........................................................47

Personal or Family Holdings.............................................................47

Private Interest Foundations.............................................................47

Individual Service Companies...........................................................48

International Business – Trading Companies.................................48

International Investments Companies.............................................50

Offshore Companies: Main Existing Structures......................................52

The United States as a Tax Haven............................................................53

Delaware Corporations...............................................................................54

Advantages of Delaware Corporations............................................56

Corporate Structures in Delaware...................................................56

Foreign Owned Delaware Corporations..........................................57

Filing of Documents with the Government.....................................57

Limited Liability Companies in Delaware................................................59

The LLC Concept................................................................................59

A Delaware LLC..................................................................................60

Delaware LLCs Owned by Foreigners.............................................60

Government Document Protocol.......................................................61

Business Management.......................................................................61

Corporate Tax Treatment..................................................................62

Uses for LLC........................................................................................62

Benefits of a Delaware LLC Entity...................................................64

LLC Series in Delaware.....................................................................65

Panama as a Tax Haven..............................................................................67

Retiring in Panama......................................................................................69

Companies in Panama.................................................................................72

Secrecy Banking and Professional in Panama................................73

Protection from the Panamanian Commercial Code.....................73

Protection from the Panamanian Penal Code.................................74

International Treaties.........................................................................76

Panamanian Corporations..........................................................................77

Main Characteristics of Panamanian Corporations.......................77

Panama Banking – Banking Secrecy Laws......................................78

Private Interest Foundations in Panama..................................................80

Characteristics of a Private Interest Foundation in Panama.......81

Special Panama-Pacifico Economic Zone.................................................84

Panama Free Trade Zone Diamond Exchange and Panama Gem & Jewelry Center  87

Belize as a Tax Haven.................................................................................92

Retiring in Belize.........................................................................................93

Export Processing Zone (EPZ) and Taxation in Belize...........................97

Belize International Business Company – IBC.........................................98

Formation of a Belize IBC..................................................................99

Privacy and Anonymity....................................................................100

Exemption from Taxes.....................................................................100

Choice of an Offshore Structure by the Businessman.........................102

Offshore Banking.......................................................................................104

Personal Offshore Banking Account..............................................108

Confidentiality of Offshore Banking Accounts.............................110

Types of Offshore Banking Accounts.............................................111

ATM International Cards.................................................................112

Reasons to Implement an Offshore Strategy.........................................115

Using Deductible Taxes in an IBC..................................................120

Reverse Process................................................................................121

Remotely Shared Business..............................................................122

The Depositor of Trust..............................................................................124

Trust, or Relationship of Confidence?........................................126

Main Types of Trust Relationships.................................................129

Reasons to Organize a Trust...........................................................129

1Freedom from Taxes on the Internet....................................................131

The Issue of Privacy..................................................................................134

PART THREE..........................................................................................137

Construction and Preservation of Wealth..............................................137

The Cost of Wealth...........................................................................140

The Three Path Doctrine.................................................................142

Offshore Investments................................................................................147

Improved Positioning of the Investor.....................................................149

Dividend Composition...............................................................................151

Dividend Reinvestment Plans – DRIP............................................151

Gold Royalty Transmission Companies.........................................154

Investment in Metals (Coins)..........................................................157

Virtual Currency – The Bitcoin Era............................................159

Popularization of the Bitcoin...........................................................161

Investments in Asset Options..........................................................162

Acquisition of Gold and Other Precious Metals in Kind – Brazil and Abroad  166

Investment in Baskets of Rare Earth.............................................168

Financial Service Providing Companies.................................................171

Banking Licenses..............................................................................171

Anjouan Offshore Bank....................................................................172

Antigua Offshore Bank.....................................................................172

Dominica Offshore Bank..................................................................173

Belize Offshore Bank........................................................................174

Samoa Offshore Bank.......................................................................175

Saint Vincent & Grenadines Offshore Bank.................................176

St. Lucia Offshore Bank...................................................................176

Panama Offshore Banking........................................................................178

General License................................................................................178

International License.......................................................................178

Representation License...................................................................178

General banking license..................................................................179

The restrictive bank license............................................................180

Offshore Banking Alternatives.................................................................183

A New Zealand Offshore Finance Company.................................183

Swedish Credit Union......................................................................184

Panama Financial Services Offshore Company (OFS)................186

Belize Financial Offshore Licenses................................................187

Captive Insurance Companies.................................................................190

Investment in Slot Machines................................................................193

Investment in Pharmaceutical Licenses.................................................195

Investment in Drop Shipping...................................................................197

Extra Income with Image Royalties........................................................200

Investment in Delivery Trucks.................................................................202

Investment in Foreign Exchange (Forex)...............................................203

Investment in Binary Options..................................................................206

Investment in Shares of Biotechnology Companies.............................209

Extra Income with Real Estate Assets....................................................211

FINAL CONSIDERATIONS.................................................................213

ABOUT THE AUTHOR..........................................................................215

INTRODUCTION

The advent of the internet radically changed the way we live. The expression age of information has never by itself meant so much as it does today, considering that all, absolutely all, branches of human endeavor are influenced by it, and all become increasingly meshed; it is now possible to combine as well as to isolate perceptions and perspectives of diverse results without losing focus of their ultimate objectives, creating new inroads and opportunities for those who are able to take advantage from them.

The convenience brought on by the generation, collection, availability, handling and dissemination of information originating in the most diverse fields of knowledge are proof of an unprecedented evolution in universal culture, particularly in the current model of interaction between individuals and their governments; in light of the ostensible globalization of activities and attitudes, consumption and services, production and investments, we can begin to foresee an expanding number of signals pointing to a significant behavioral change that approaches us, questioning, with increased frequency, the limits of government interference in the private lives of citizens, particularly in relation to their financial concerns.

With the tearing down of geographical barriers that blocked individuals’ horizons and access to global information in real time, the spreading of knowledge concerning other business opportunities, life-styles, scientific discoveries, government policies and positive economic results, permit and even inspire these individuals to think about their own modus vivendi, increasingly challenging their own governments to implement programs identical to those implemented by other governments, and that will also improve the well being of its own population.

Moreover, for those individuals that are still restrained by the sovereignty of Governments committed to outdated models of Public Administration, corroded by corruption and which practice a tax revenue collection model that borders on legalized extortion, without implementing the required corresponding rendering of public services to the population, the awareness and certainty that the required changes are still far from being put in place, ultimately lead these enlightened individuals to look for legal means that permit the reduction of the fiscal burdens that apply to their personal income and business returns, preparing an efficient tax plan, and picking up business opportunities that exist outside of their own borders, diversifying their financial assets so as to protect their wealth, and defending themselves from eventual political and economic risks.

In this context, what Brazilian entrepreneur between roughly forty and fifty years old doesn’t remember the tragic confiscation of savings that occurred in the Color Age? Or the maxi devaluations of local currency against the US dollar at the apex of the hyperinflation crises, dividing by one thousand an individual’s purchasing power and that of their personal assets each time they were enacted. In a broader perspective, we can identify the confiscation of precious metals such as gold and silver in countries such as the United States and Argentina at times of crisis. Individuals that have all their assets centralized in one unique fiscal jurisdiction are subject to the effects of economic crises situations such as these, which tend to occur cyclically.

Consequently, we have opted to divide this work in three Parts, with Part One aiming to provide the reader with a more critical assessment of the current situation facing Brazilian society, the detailed reasoning at first sight for excessive taxation and consequent rejection by tax payers in light of the Government’s inefficiency in its administration of resources received by the Tax System, the risks of concentrating personal wealth in only one country and the need to diversify financial assets globally as a means of protecting personal wealth, while touching upon the concept of global citizenship and the theory of multiple allegiance, explaining in the process the signs of behavioral changes that approach us.

Continuing, Part Two presents the reader to some of the principal mechanisms of international investments and financial diversification, by introducing him to the fascinating world of tax havens and offshore jurisdictions; far from pretending to cover the entire subject, it tries to present, as light and direct reading, a brief introduction to what are tax havens and some of the main privileged fiscal jurisdictions, their legality, some of the more significant types of offshore entities, how offshore Banks operate, personal accounts, corporate accounts, trading accounts, and investment accounts, pre-paid and anonymous cards, as well as the advantages of each one.

Finally, in Part Three, the reader will find news items about the natural need for creating and maintaining individual wealth, the cost of this wealth, the behavioral posture of persons and groups that adopt the triple path doctrine Wisdom, Courage, Power, and some simple suggestions about how to generate a second source of income to form wealth, as well as information about the principal and more common alternatives to business and offshore investments, specially selected for the Brazilian business community, inserted, among others, in the context of global financial markets, including such companies that deal in royalty distribution in gold and silver, noble metals, DRIP, and derivatives contracts and options, credit cooperatives, special activities licensees, bit coins and virtual currencies, etc.

We will also touch upon the characteristics of some of the most widely used tax havens by international business men and large global corporations, some corporate strategies being used increasingly, such as Corporate Inversion, the advantages of each one and certain attractive aspects of fiscal incentives such as citizenship and residency, retirement, and quality of life.

Much of the information used in this book is found in a number of articles and essays written by the author and published in various information sites, or collected from presentations and conferences made to closed groups of businessmen, having been selected, reviewed, and inserted as an integral part of the content, thus maintaining focus on the subjects of the offshore universe, tax planning strategies, asset protection, and alternative investment opportunities; certain articles and texts are accompanied by images of drawings, illustrations and cartoons freely downloaded from the internet for no other purpose than to make reading more enjoyable.

For the Brazilian business market, and the general Portuguese speaking public, the introductory knowledge acquired with this book should be regarded as a new approach to the legality of strategies, about corporate strategies that avail themselves of tax havens and other friendly tax jurisdictions to reach their objectives, about the adoption of a new behavioral posture for the creation and preservation of personal wealth with the birth of new business opportunities and international diversification, investments in new markets, growth of profits and legal tax deductions, always keeping in mind that the programs mentioned in this book, if eventually implemented, should first be analyzed individually, in light of the specific legislation of each country together with Brazilian legislation, by previously consulting with a specialized professional.

Having made these initial considerations, I would like to wish that all readers may enjoy some pleasant, and especially instructive, moments while reading, expanding horizons, and stimulating critical thought about the true meaning and reach of the word liberty, as concerns our personal and financial lives.

Antonio Mello.

PART ONE

The Issue of Taxation

Ever since always, when men organized themselves into societies, the practical issue of maintaining this social organization existed, so as to permit its continuity, aggregating benefits to its members in spite of adversities resulting from constant invasions and conquests carried out by belligerent rival groups; it is also at this time that a social conscience in conflict first appears, assuming dichotomous and antagonistic elements: the need for payment of taxes to maintain the social entity.

On the one hand, it is necessary to consider the obligation of individual sacrifice in favor of all, so as to provide basic social needs such as security, sanitation, health, education, while, on the other hand, there exists the general view that no measurable consideration is forthcoming from the state organization – meaning: Government – and considering tax paid on a compulsory basis as a true confiscation of individual property practiced by a superior entity; basically this is the understanding of the great majority of the population: why pay taxes to the Government if it does not return anything in exchange as it should? Why must I have to take a part of my property, acquired with my labor, to give to the Government if it does little or nothing to protect me?

Moreover, if there exists a personal understanding concerning an individual obligation to contribute, there should also exist with no less certainty a real motivation for payment of such tax, through positive material results received from the use of resources collected by Governments as a consideration given to tax payers, in the form of public works and services, a fact that, unfortunately, we can easily conclude does not occur extensively in our country, or when this consideration is evident, it is found that a considerable part of the resources employed were wasted, over charged, or siphoned off to meet obscure interests of corrupt politicians.

In the words of the north American expert on Constitutional Law Michel Rosenfeld, in his book The Identity of the Constitutional Subject: Selfhood, Citizenship, Culture, and Community, Ed. Mandamentos, 2003, we find that: ... discontent over the payment of taxes does not result only from their complexity and high burden, but, principally from the dissatisfaction with the use of the funds raised by the Administration to meet the most evident popular aspirations (basic sanitation, health, education, etc.).

Hence, by pursuing once again the primary understanding that fiscal norms imposed by Government on all taxpayers (http://pt.wikipedia.org/wiki/Contribuinte) bound to it by citizenship (http://pt.wikipedia.org/wiki/Cidadania), are naturally rejected by a significant proportion of individuals that stop contributing because they do not recognize the compensating consideration that should be given to them by the Government, we see a true vicious circle of evasion – increase in the tax burden – evasion caused by this attitude, and we conclude that this illegal behavior(evasion) ultimately harms a significant share of the Brazilian business class that after all has to support more rigorous tax surveillance over their businesses, investments and wealth, both on a corporate as well as personal level.

The Tax Authority and Public Management of Tax Revenues

As stated initially, in our culture men have always organized themselves in self administrating societies through a State entity representative of this group (Government), funding the maintenance of this society through the compulsory surrender of a share of every individuals wealth throughout their useful and productive life, with this funding being, in theory, due exclusively in exchange for public consideration represented by collective and individual benefits made available by the Government covering the most varied requirements of social life and which, as a general rule, should be clearly visible, available and usable by all taxpayers, subject to total discredit, ruin and fragmentation of such social organization.

In a country such as Brazil, where the number of taxpayers reaches millions, the visibility of state consideration is not so simple, or effective, so that in practice, in light of the customary inefficiency in the distribution and use of collected tax revenues by the authorities among all tax payers to support their most elementary social needs, this invisibility usually generates strong indignation, disbelief, and, principally, a sense of insecurity in the face of an unequivocal absence of effective social return, as a practical result from the payment of all compulsory taxes, leaving the tax payers the pure and simple feeling of having had their wealth confiscated.

As a result, in day to day reality, it can be noted that tax evasion as a reoccurring practice is looked at by a large share of tax payers as an almost natural practice, in no way reproachable under current standards, but to the contrary, assimilated beforehand as the only way to avoid the true confiscation of wealth carried out by the Government; this rejection of fiscal rules persists specially among the more needy population, usually excluded from a large share of the benefits that the Fiscal State should provide to them aiming for a better redistribution of income, and through several types of social benefits that should be readily available.

To these tax payers, the compulsory or obligatory nature of taxation is regarded precisely as confiscation of a portion of their wealth or income, so painstakingly acquired through months and years of labor, as, for these citizens, receiving government compensation for their taxes is not even expected except in the shape of political promises and unfinished, or rarely materialized infrastructure projects, perhaps in election years, and that in no way are sufficient to justify compulsory payment of taxes, in their most varied forms: taxes, levies and other contributions.

As a result, considering that the Brazilian Government uses taxation as the basic source of funding to maintain its apparatus, directly or indirectly from its tax payers, constant increases in tax rates applied to existing taxes become necessary, together with the creation of new taxes, as means of compensating for tax evasion or as a direct consequence of any eventual decrease in revenues; in this situation the business class, already greatly sacrificed with the taxation it has to support, ends up suffocating with absolutely confiscatory increases in its fiscal burden, necessary, from the distorted viewpoint of the Government to compensate for the reduction in tax collections as a result of the previously mentioned evasion, at times making it impossible financially to continue business or compromising new investments.

Reflections on the Rejection to the Tax Authority

Against the conclusion concerning the inefficiency of the existing tax collection model, especially in what concerns the redistribution of income to taxpayers in the form of social benefits such as security, health, education, basic sanitation, infrastructure, transport, retirement plans, etc. the last three years (2012-2014) have witnessed significant social and economic movements, that corroborate the premises that support the logical contention of this book as we can present below.

Concerning the inefficiency or total lack of inspection over the allocation and provision of basic infrastructure services to the population, we can observe in the area of public transport, great discontent with the services effectively provided to the population, both as relates to quantity as to the quality of the existing vehicle fleet, without mentioning the irrational logistical planning of route distribution that should better meet the user’s needs, all the way to the charging of tariffs considered extortive, the increase of which authorized by the Government sparked large protests, marches and popular demonstrations, that ended up degenerating into looting exercises and destruction of public and private properties, with estimated losses reaching millions of reais.

Similarly, as regards the energy sector, the lack of large power generation, transmission and distribution infrastructure projects, together with the rampant tariff increases charged to the final consumer, as well as the inability of the Government to successfully conclude negotiations for concessions to explore these services with large business consortia, combined to cause the occurrence of extensive energy black-outs in various regions throughout the country, also causing countless losses to the population at large.

Still as concerns the energy sector, we can mention two well known examples of a repeated practice showing neglect by the Federal Government in relation to the tax payer and final consumer of this service, the first being the practice of illegally increasing the public tariff for vehicular natural gas put in place with impunity by various Automotive Fuel Distributors, and the second is the illegal charging of the Value Added Tax on the Circulation of Merchandise and Services (ICMS), included in the prices in the electric energy purchase contracts in the accounts of the electricity concessionaries, considering in both cases as a focal point for reference what occurs specifically in the State of Rio de Janeiro.

In the first instance above, as expressly is stated in Law no. 8.987 dated 13 February, 1995, that regulates Concessions and Permissions to provide public services in accordance with Art. 175 of the Federal Constitution, the concession to provide public services such as supply and distribution of water, phone services, , electricity and gas, should presuppose the provision to the users of each service adequately, including among other requisites an affordable tariff(art. 6º, §1º of Law nº. 8987/95).

In the instance of providing services which are specific, measurable, individual, or, in other words, present themselves materially to the user, the legislation follows a subjective right of rendering such service. The enjoyment of these services will not be the same for all users, which may benefit from them in varying intensities, according to each one’s needs. These are services such as electricity, phone, gas, running water and public transport. They are specific, which means that they are provided independently, expressly and are also divisible, so that their effective or potential use can be measured individually. These services are paid for by tariffs (also called prices), as these types of public services may be the object of a Concession. .

Therefore, a Concession is the legal form used by the State to grant to a third party the right to provide a public service in its own name, for the account and risk of the concessionaire, in the conditions established by the Public Authority, but subject to a contractual assurance of economic and financial balance, achieved usually by the use of tariffs and with a fixed term of duration.

The tariffs charged to users by these companies will be defined in the competitive bidding process. Their value cannot be changed unilaterally, but only with the authorization of the public authority, that will