The Use of the United States and Its Territories for International Planning

and Tax Structures

by William L. Blum, Esq.wblum@solblum.com

Moscow International Congress of Tax Advisors

The history of the Offshore Financial Centers

• The rise of Offshore Financial Centers originated in the United Kingdom and the Netherlands Antilles:

• 1880’s to 1930’s: Early origins.

• 1939-1945: World War II. Funds shifted to Curacao after Nazi invasion of the Netherlands.

• 1960-1970’s: Bermuda, Bahamas, the Cayman Islands, and others jurisdiction are recognized to be politically, economically, and commercially safe.

• Current Offshore Financial Centers associated with the United Kingdom: Channel Islands, Jersey, Guernsey, Isle of Man, Cayman Islands, Bermuda, British Virgin Islands, Turks and Caicos, Gibraltar, Hong Kong, Singapore, Bahamas, Bahrain, and Dubai.

• There is between $21 to $32 trillion dollars booked in offshore financial centers.• Swiss banks hold about $1.9 trillion dollars in assets not reported by

account holders.

• The 30 companies with the most money offshore hold almost $1.2 trillion dollars overseas.• Apple alone has approximately $111.3 billion dollars offshore.

• At least 362 Fortune 500 companies operate over 7,500 subsidiaries in offshore financial centers.• Citigroup alone had 427 tax haven subsidiaries in 2008 but only 21 by

2013; yet Citigroup doubled its offshore cash in those years.

Numbers behind the Offshore Financial Centers

The Caribbean

Europe Pacific

Financial Centers around the World

The fight against the Tax Havens

U.S. Taxpayer and FATCA

• What is FATCA? It is an important development in U.S. efforts to combat tax evasion by U.S. Persons holding accounts and other financial assets outside the United States.

• How has it started? The “UBS case”.

• When it started? It was enacted by the U.S. Congress in 2010.

• How it works? Reporting institutions are required to provide information to the IRS regarding financial assets and/or substantial ownership interests held outside the U.S. by a U.S. Person.

• Non-compliance? Entities deemed “non-U.S. reporting institutions” that do not fulfil the requirements of FATCA are subject to a 30% withholding on U.S. source income.

FATCA – The Foreign Account Tax Compliance Act

Reciprocal treatment?

• The non-US reporting institutions must report all relevant information concerning the U.S. account holder and, if necessary, proceed with due diligence to identify the ultimate U.S. Person controlling the reported asset.

• The U.S. reporting institutions only report the account holder’s name, address and taxpayer number, regardless of the identity of the ultimate beneficiary of the account. There is NO reciprocal requirement for the U.S. reporting institutions to undertake due diligence to identify ultimate beneficiaries and/or controlling persons of potential reportable accounts.

What about the reporting to the foreign country?

Bank Account

Non-US Entity

Non-U.S. Reporting Institution

Information received by the

USA

U.S. Ultimate Beneficial Owners

Bank Account

U.S. Entity

U.S. Reporting Institution

Non-U.S. Ultimate Beneficial Owners

NO information is

sent by the USA

Example of the non-reciprocal treatment

OECD reaction to Tax Havens

• 1998-2000: Over 40 jurisdictions were identified by the OECD as  tax havens (“blacklist”) according to the following criteria:

• Zero or nominal tax on the relevant income• Lack of effective exchange of information

• Lack of transparency

• No substantial activities

• 2017: No jurisdiction is currently listed by OECD as an uncooperative tax haven by the Committee on Fiscal Affairs. All jurisdictions are considered to “meet” the principles of transparency and exchange of information. Is this true?

Tax Havens according to the OECD

• What is it? Promulgated by the OECD, the CRS provides automatic exchange of information on an annual basis among participating countries.

• CRS x FATCA? The CRS is more detailed than the FATCA in regard to the financial institutions required to report, taxpayers covered, and due diligence procedures to be taken.

• Who signed the CRS? As of December 2016, there were already over 1,300 bilateral exchange relationships with respect to 87 jurisdictions committed to the CRS.

• When are the first exchanges occurring? September 2017 regarding 2016 data.

The Common Reporting Standards (“CRS”)

The United States and its Territories!

!

• Will the USA sign the CRS in a near future? Probably not.

• The look-through rule: Applicable to non-US reporting institutions responsible for reporting ultimate beneficial owners of non-financial entities located in the USA.

Who has not signed the CRS?

Planning using U.S. entities

• Most popular jurisdictions:

• Delaware, New York• South Dakota, Alaska, Wyoming, and others

• Entities and their uses:

• Liability Companies• Corporations• Trusts / Hybrid Trusts

Domestic Planning in the USA

• U.S. Virgin Islands

• Puerto Rico

• Guam

• Northern Mariana Islands

• American Samoa

U.S. Territories

• U.S. Virgin Islands exempt companies and their uses

• Advantages found in the U.S. Virgin Islands

• Mirror system and Territorial Tax Agencies

• No taxation in the U.S. Virgin Islands

• Inapplicability of U.S. Estate Tax

• Low compliance costs

• High standards of banking services

Planning in the U.S. Virgin Islands

• Asset Protection and pending legislation

• High standards of asset protection.

• Potential application of foreign law in case of dissolution of marriages and/or inheritance.

• Avoidance of forced heirship.

Breaking news in the U.S. Virgin Islands

Thank you!

NEW YORK40 Wall Street , 35th FloorNew York, NY 10005212.267.7600212.267.2030 (fax)

VIRGIN ISLANDSRoyal Palms Professional BuildingSuite 1019053 Estate ThomasSt. Thomas, VI 00802

For further information please contact me at wblum@solblum.com

http://www.solblum.com