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View Diary: Romney Parks Millions in Offshore Tax Havens UPDATE 2 (309 comments)

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  •  A lot of that stuff has been shut down (7+ / 0-)

    though it was more rampant, I understand, in the 90s. Now marketed tax shelters are rather severely punished and the IRS has lots more flexibility to ban them by designating illegal "listed transactions" at the administrative agency level.

    I don't think what Romney is doing is avoiding US taxes. As a US citizen he is taxed on his worldwide income, even if it is earned offshore.  A lot of funds are set up in these types of jurisdictions to avoid taxes on the fund itself or foreign withholding taxes on worldwide investors, not income taxes imposed by the investor's own home country. The Cayman Islands contracts with funds to guarantee, for a small fee, that it will be immune to all Cayman Islands taxation for periods of up to 50 years or more, regardless of future law -- that's one thing that makes it an attractive jurisdiction.

    This isn't to say that there are very dishonest games you can play with international borders -- shifting income-producing assets out of the US tax net at below-arm's-length cost is, I think, a big problem these days. But that's not what Romney is doing.

    I hate to be in the position of defending him, and I understand that the optics are bad for him, and that's a good thing. But if you have a substantial amount of money to invest, and you are looking at the types of funds that take minimum subscriptions of $100,000, it's just a fact that you are going to be looking at a lot of Cayman entities.

    •  But only when he receives the income! (2+ / 0-)
      Recommended by:
      tardis10, BPARTR

      I don't know the specifics of his offshore vehicles, but the big advantage of having an offshore corporation is that while U.S. taxes are paid on money that you pull out of the corporation, it can grow within the corporation tax-free.  As long as the corporation doesn't do business in the Caymans, it doesn't pay Caymans taxes, and you don't pay U.S. taxes until you get paid (either by salary, dividend, or selling your stock).  There's a description of how this works here.

      PROUD to be a Democrat!

      by leevank on Wed Jan 18, 2012 at 06:55:53 PM PST

      [ Parent ]

      •  The article (0+ / 0-)

        does not appear to mention the controlled foreign corporation, passive foreign investment company, or personal holding company rules. I wonder if the author is aware of those or just chose to ignore them? Also it apparently was written 16 years ago, and I would not rely on it today.

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