The Panama Papers leak is still a hot topic these days, and we're caught in the midst of the tornado; the tornado of inaccurate assumptions and misconceptions.
It's true that the leak reveals the who's who in the offshore world – the latest revealed from the list being Denise Rich, Gianluigi Longinotti-Buitoni among others, including institutions like New York University School of Medicine; and those are just from New York City alone. Also the latest public figure 'exposed' would be Harry Potter star, Emma Watson.
The naming and shaming endeavor by the media leads us to raise one question: Why the media and the general public seem to be naming-and-shaming-happy rather than seeking the truth about the leak?
While it looks like that we're trying to defend what's condemned evil by the society, namely offshore banking and company formation, we need to stand firm in our opinion, that offshore structures are important factors in the global trend of internationalization – an unstoppable trend that continue to grow in popularity thanks to the Internet – which allows us to easily live and work anywhere in the world - and the Government's pressure toward small businesses and obvious favor toward big businesses – most likely those that pay lower, even zero, corporate taxes, while having their assets stashed offshore – legally.
That said, here are five popular misconceptions about offshore banking, made worse by the Panama Papers coverages, that you should know about:
1. Offshore banking is illegal
This is probably the biggest misconception of all. Reading through the comments on the articles that we've read on Panama Papers, we can assume that 90 percent of them think that offshore banking is illegal, and everyone should stay away from such arrangement.
Here's the truth: Offshore banking is as legal as any other banking services. The main difference between offshore and onshore banking is the location of your assets. Having your assets secured in an offshore bank account means that yours are located outside your home country.
However, due to the nature of offshore banks, it seems that anyone with illegal intentions – e.g. Money laundering - can also benefit from the services offered.
2. Offshore banking is for evading taxes
While a few uses offshore banks for tax evasion purposes, many use them for tax avoidance purposes.
But are there differences between tax evasion and tax avoidance? Aren't they the same thing? To answer your questions: No - both are fundamentally different.
Tax evasion is using methods to lower taxes illegally. On a contrary, tax avoidance is a legal way to lower taxes.
With all of those said, it's a misconception saying that people use offshore banking for evading taxes. Some do evade taxes, but the majority is using offshore banking for other, legal purposes – asset protection in a better jurisdiction, tax avoidance, and so on.
3. Offshore banking is for rich people only
This is yet another big misconception that I read from the discussions on Panama Papers and offshore structures. Perhaps it's once the privilege for big companies and rich people, but not anymore.
As we mentioned above, the Internet and internationalization trend have made offshore banking accessible for anyone. You don't need a large amount of money for opening an account.
4. Engaging in offshore banking activities means you're stealing from the Government and the poor
The Government bails out big corporations that pay little to zero taxes – for the sake of protecting thousands of workers. However, what about the rest of us? You have two options: Comply by paying taxes set by the Government or get creative. How about inflation and franctional-reserve banking allowed by the Government? So, who's stealing whom? You decide.
Now, technicalities-aside, there's a moral issue that's needed to address. Some say that engaging in offshore activities, including banking, is amoral because it's said that not paying taxes the way they set by the Government isn't good for society, including considered as “stealing from the poor.” Well, criminals and corrupt politicians are likely to do so, but relating offshore banking services like those illegal operations is misleading at best.
The best way to describe it is this: You drive a car, with a proper licence plate and everything else legal. If robbers, kidnappers or other bad guys use the same car make like yours for their activities, does that mean that your car is illegal? No. Does that mean that your car manufacturer involve in the criminal acts? No. The same thing goes with offshore banking – it's legal, but all is coming back to what you do with it.
5. Offshore banking is risky, unsafe and insecure
Offshore banks are among the world's safest. Here's the proof.
True, that some offshore jurisdictions are not financially sound, but other jurisdictions, especially International financial hubs like Singapore, Dubai, Hong Kong, Amsterdam, and Dublin are among the world's largest. Setting up an offshore structure in any of those jurisdictions will offer you sound protection and privacy of your assets – allegedly better that banks in your home country.
There's a lot of explaining to do when it comes to offshore banking, due to the assumptions and misconceptions. Unfortunately, the explanations often come from the unlikely “experts” or entities.
The “war” against offshore structures will continue, and things would be more complicated in the future for an average person to make use of the structures for asset protection and legal tax avoidance endeavors.
If you are in doubt, please consult with us for an objective look at offshore banking and company formation.