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View Diary: Turning the Fiscal Cliff to our advantage (12 comments)

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  •  nycv - accounts held in the Caymans (0+ / 0-)

    are taxed the same as accounts held in NYC. US taxpayers are subject to the same IRS code regardless of where their financial assets are domiciled. So while various countries are viewed as "tax havens" assets held there are treated the same for the purposes of US federal income tax. For citizens of those countries and some other nations the tax havens have an actual benefit. That's not the case for Americans.  

    "let's talk about that"

    by VClib on Tue Nov 13, 2012 at 04:02:50 AM PST

    [ Parent ]

    •  They aren't held in personal accounts (1+ / 0-)
      Recommended by:
      Frank Schnittger

      Large amounts are accumualted in accounts held by corporatations that are located off shore.  Funds located in the Caymens also avoid US regulation and oversight.  The US taxpayer would hold shares in the fund, and would owe tax on any distributions, but the funds themselves could make investments all over the world, not pay distributions, and be subject to little tax or regulation.  

      Often these funds are controlled by US citizens.  The location in the Caymens is simply to avoid taxation and regulation.

      •  acer - I was responding to nycv's comment (0+ / 0-)

        where they wrote that Romney, and other individual tax payers, should pay an extra $1 million in federal income tax every year they had an account in the Cayman Islands.

        However, I don't really understand your comment. Large amounts, some say several trillion, are held offshore by corporations because to repatriate them would require the corporations to pay full US corporate income tax. It makes no sense for corporations to bring the money back to the US at 65 cents on the dollar when they can invest those funds anywhere else in the world at 100 cents on the dollar. That's just how the current tax laws are written. The US is the only G20 country that even tries to collect corporate income tax on a world wide basis. That's corporations, now let's discuss funds.

        Every large real estate fund, oil & gas fund, movie production fund, venture capital fund, private equity fund and hedge fund that is raising money using a partnership ownership model follows exactly the same practice. They will establish two sister funds, one for US taxpayers which will be registered as a US limited partnership and another offshore in a tax haven like the Cayman Islands for non-US taxpayers. The funds invest in complete tandem and can often invest anywhere in the world, although some partnerships are restricted to investing in the US. The reason for the dual funds is that non-US investors want no part of dealing with the IRS. It gets very complicated requiring those non-US entities to jump through a lot of hoops to show they owe no US income tax. When there are sister funds the fund manager will not let US taxpayers invest in the offshore sister fund. The goal is not to have US investors escape taxes, but to allow entities that have no US tax liability to invest with less hassle. These investment partnerships historically had little regulation because the investors were limited to individuals with very high net worth or institutions. In many cases the minimum investments were $5 or $10 million. That has changed and these partnerships are now under much closer regulation. However, if a fund manager in England, Hong Kong, or Germany, as an example, has one fund, typically domiciled in a tax haven, any US investor, who qualifies, can invest, but that investment has to be disclosed to the IRS.

        "let's talk about that"

        by VClib on Tue Nov 13, 2012 at 11:51:05 AM PST

        [ Parent ]

        •  Just pointing out there are benefits... (0+ / 0-)

          even for Americans.  Tax deferral is a benefit.  And sometimes income is even artificially shifted to offshore corporations from US subsidiaries, just to avoid current taxes. Also, in some cases there is tax avoidance, not legal, but made easier in the past by the lack of regulation and reporting.  I'd like to know whether Romney paid his taxes on that Swiss bank account for example, or whether he was one of those who took advantage of amnesty in 2009.

          But with regard to Romney's Caymans accounts, they were through Bain, and legal, but yes, they also helped him pay a very low rate, though this had more to do with the carried interest loophole, than where they were located.  

          But look at the big picture here.  We have businesses which make virtually no capital investments.  And yet they pay no corporate or business tax, because they are "pass throughs", partnerships or S-Corps or similar.  But then, they still "pass through" these earnings as capital gains, which are for no good reason taxed at a lower rate.  On top of which, the managers of these funds then are even able to treat their own profits--essentially management fees, since they weren't investing their own funds--also as "capital gains".  

          Even for businesses which do involve capital investment, the capital gains tax break there only comes when you sell, so the effect of the tax code is to encourage disinvestment, not investment.  And then, rather than reinvest in the US, they are further incentivized to move the funds offshore.

          So we are giving people tax breaks to sell jobs creating investments in the US, giving them further incentives to move investments overseas, and then not taxing these overseas entities at all, even though they are owned and controlled by US residents and conduct little actual activity in the Cayman Islands.  

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