Beyond tax avoidance: People just want to escape

Reading the recent articles on the offshore world, we can learn that, again and again, going offshore is condemned as unethical, irresponsible and cruel.

Undeclared, embezzled and hidden wealth is said to be the main cause of poverty, particularly in the developing countries. While it's true that offshore structures are used by criminals, outlaws, tax evaders, corruptors and money launderers to hide their dirty money, it's only half of the picture.

We're not trying to be defensive about the whole notion that “offshore is bad,” but we need to be realistic and fair in our judgment. At least we need to be better in seeking the right information, and be sure that the source of that information is credible and, of course, not fake information.

What we need to see is the other half of the picture, and unfortunately, this side of the picture is not much talked about.

First and foremost – let's talk about tax avoidance.

Avoiding taxes is legal

No, it's not a myth: you can avoid taxes, and it's completely legal. If you need proof, here's one: The IRS stated that while tax evasion is not okay, tax avoidance is perfectly legal.

Here's an example: Accounting tricks.

If you involved in business accounting, you understand that companies prepare several sets of reports: For investors, for tax men, and for internal uses. Those use different methods of accounting, which result in different figures.

The purpose of such accounting techniques is to maximize positive impacts of the report for the company. Financial reports for investors is crafted so that it'll be attractive to investors. Financial reports for tax authorities is presented in such a way that it'll reduce your tax liabilities. Financial reports for your company contains figures that matter to decision makers.

Is it legal for companies to create multiple reports as mentioned above? The answer is yes. It's the best practice. And yes, you can avoid taxes by arranging your numbers – real numbers, presented differently – so that they make sense to the tax men.

As you can see, reducing taxes is legal. Indeed, the idea of tax avoidance is to use legal means to reduce tax liabilities.

Now, back to the accounting tricks, there are certain tactics used to reduce your tax bills. One of the most common tactics is by setting up offshore structures that manage your revenue – or a part of your revenue – in such a way that you pay less corporate taxes in the process.

And believe it or not, using shell companies and offshore bank accounts are perfectly legal – if those are reported to your home country's tax men.

On a personal level, things are quite similar: In your tax planning endeavor, you want to pay as little taxes as possible. You can then work on your figures, taking into account your income, expenditures, and expenses.

In essence, the above shows that going offshore is one of the better ways to avoid paying (too much) taxes.

Note: For a more in depth explanation about tax evasion vs. tax avoidance, read our article on this particular issue.

While tax avoidance is an important reason people go offshore, it's not the only one. In fact, to some people, there's There are many other reasons, and all geared toward this particular issue: Escaping from your jurisdiction.

People just want to escape

While the bad guys want to escape from creditors, lawsuits, and so on, those who want to follow the rules just want to protect their assets in safe places and be taxed fairly. And some of those safe places happen to be located outside of their home country, and the tax rates happen to be low or even zero.

But why?

There are numerous reasons; here is a few.

1. Control over your finance

Your home country's bank is your government's partner in keeping your finances in check. Essentially, should things go wrong, they know where to go.

That's what exactly happens when it comes to capital control. When the economy is in critical condition, your government can just seize your account and limit your access to it. This happened in countries like Cyprus and Greece, and is happening right now in Venezuela.

2. Corrupted jurisdiction

We can talk about things in idealistic POV, but as we know it, the world is far from ideal. Here's one example: Corrupted jurisdictions.

Let's be honest here. While assets stashed in offshore jurisdictions are said to be the main cause of poverty and other issues, the real problem is the corrupt jurisdiction.

In taxation, people with good intentions want to pay taxes in full so that those can be use to build public facilities well and increase the welfare of the community. They should be able to watch the allocations of their taxes paid. Unfortunately, many jurisdictions can't just offer you those – at least, not effectively. Inefficiencies may be the culprit, but corrupted budget should be the real reason.

3. Theft

“Stealing” citizens' money through usage mismanagement, inflation, taxation, corruption, and so on is simply not right. People naturally just want to be treated fair – so they go to places where they're treated the best, and more often than not, that means offshore jurisdictions.

Indeed, we should navigate our way better – with or without the help of others, including your government. You should take care of your own financial well-being – not your company, government or anyone else.

Options are there; why shouldn't you use them to protect your financial future?

Takeaway

Going offshore is not just about tax avoidance; it's all about personal freedom achieved through solid financial planning. You can do so by using the available means to escape from any form of controls - legally.

You need to stay on top of the internationalization game – it's a trend that you can't ignore. One of the ways to achieve that is by understanding what going offshore is all about, and if you decide to go offshore, know how to do it right.

Consult with your trusted lawyer on how to structure your asset protection. If you prefer a specialist with reputation and hands-on experience, consult with us.