Billionaires fight to Keep their trillions away from the taxman

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There is one thing that billionaires do much better than the ordindary Joe (besides earning money of course!): they know how to protect their money. In fact, when it comes to protecting their money, billionaires really excel, applying all kinds of clever and astute measure to enjoy their wealth while hiding it from prying eyes.

A veritable battalion of lawyers and financial advisors make their living advising on the direction tax legislation and the creation of a multitude of corporate layers composed of trusts and holding companies incorporated in offshore jurisdictions to maintain the light tax status of the billionaires fortunes. Through the use of these opaque tax structures they avoid taxation and, equally importantly for many, certainly the oligarchs of Russia that obtained their wealth in the lawless environment that prevailed after the collapse of communism, are able to put their assets outside of their home jurisdictions.

Panama, Liechtenstein, Switzerland, British Channel Islands, Cyprus, Cayman Islands etc are just some of the tax havens that provide a welcome link keeping the wealthiest of the globe’s citizens funds out of reach of their individual home countries tax men and also protection in the event of lawsuits/bankruptcie

The reasons for setting up a holding company are often simple:

To avoid paying taxes, or to minimise them. These offshore structures are often exempt from taxes or subject to very low rates.

To ensure confidentiality and privacy about financial affairs.

To hide assets from legal authorities and to protect them. In the event of a lawsuit against an individual, no seizure of the assets is possible. In certain instances, monies may have been illegally obtained in the first place and so using an offshore jurisdiction gives potential protection by hiding it.

According to Tax Justice Network, a UK-based organisation, in 2010 wealthy individuals were hiding as much as £21 trillion in assets in offshore jurisdictions and James Henry, economist at McKinsey % Co., states that less than 100,000 people own £6.3 trillion of offshore assets. If true, they are amazing statistics as taxed at 20$ they would wipe out the entirety of Europe’s debts!

Dmitry Rybolovlev

In one example, Dmitry Rybolovlev is Russia’s 14th richest person and is currently being accused by his former wife of hiding assets through a multitude of third-parties. He owns billions of assets indirectly, including jewelry, houses, boats etc, all belonging to holding companies held offshore and so making it difficult for his former wife to get a share of it. As an example, in 2011 he bought a £57 million apartment in New York using a trust associated with his daughter (as you do!).

Li Ka-Shing

In another example, Li Ka-Shing and Lee Shau Kee, Asia’s most wealthy individuals, also control parts of their fortunes through offshore structures. Li owns a 43% stake in the company Cheung Kong Holdings through trusts and companies based in the Cayman islands and British islands whilst Lee holds shares in Henderson Land Development through 10 firms set up in the British Virgin Islands and Panama.

Alisher Usmanov, officially Russians richest person controls a 30% stake in the Premier League team Arsenal – worth £151.7 million – through a holding company based in Jersey, in the British Channel islands.

Meanwhile Ingvar Kamprad – the Ikea owner – isn’t really its legal owner. He controls the Ikea group but only through a multitude of complicated trust and corporate layers rather than itself directly. All to minimise tax.

The examples don’t end here, there are just too many ultra high net worth individuals who have salted away funds into under the radar tax havens in recent decades as they look to keep their funds out of reach from legal authorities. At the same time, companies are also looking for the most advantageous places to hold their cash and so maximise their shareholder’s value by paying less taxes. It is not because of a local skilled workforce that 50% of corporate America was incorporated in Delaware but rather due to its reduced tax burden. And why has Apple incorporated Braeburn Capital, its own fund management operations, in Nevada? The reason is simple: to avoid California higher taxes.

There is a shift however that is ongoing in these austere times with Governments the world over looking to close loopholes and “encourage” the tax havens to give up information voluntarily on their clients – Switzerland in particular is no longer the secret hiding place of choice after the various cantons opened up to the US authorities during the last 2 years. The message is clear to the world’s wealthiest – we are coming for you if you have bent the rules too far. Whether they get their hands on much of the trillions salted away however is another matter…

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