[CaymanCruiser]

Using a throwaway for obvious reasons.

I have a fair bit of insight into this industry, both from friends, acquaintances, and family who use a variety of offshore structures to manage their wealth and from my own dealings (the company I founded and currently manage is offshored for tax and legal purposes).

What people don’t realise is that aside from a couple outliers offshore jurisdictions aren’t that shady at all and the major ones are usually under the protection and sometimes outright control of much larger and much more influential jurisdictions, with the United Kingdom being the leader here. If tax avoidance was as simple as just starting a business in a zero or low tax jurisdictions we would see a lot more of this kind of business being done in Africa (with the notable exception of Seychelles today) than the Caribbean overseas territories, but mature legal frameworks and more importantly reliable governments are incredibly important to both small time players who may stash some cash offshore as savings and large multinationals. If anything shady (civil unrest, wealth confiscation etc.) were to go down in the British Virgin Islands for example the United Kingdom has a nuclear option (as BVI is for all intents and purposes a Crown colony) to unseat the sitting government and bring order, which is incredibly valuable as an insurance policy.

Yes, it is possible to incorporate offshore corporations in less-reputable jurisdictions like Vanuatu or Seychelles, but doing business with these vehicles is next to impossible because no reputable bank in Singapore, Hong Kong, or Switzerland is going to want to have you as a customer if they don’t already know you due to compliance reasons. Without a bank account your ability to funnel and store money in these opaque conduits becomes rather difficult and there really isn’t any point any longer. Of course, there are small shady banks in certain jurisdictions (notably those that aren’t under indirect British control) that will take you on as a client, but then you run into the risk of them running away with your money or defaulting.

The money itself isn’t really managed by or from these island nations/colonies either, and in the cases where there are nominee directors the beneficial owner will usually have a power of attorney as well as an undated resignation letter from the nominee director which effectively gives them wherever they are total control of the company.

What is interesting is that crypto is changing all of this due it being completely outside the severely regulated financial sector, opening up a ton of opportunity for small island nations to compete on tax efficiency without being subject to the quite frankly draconian rules that usually places them on US/EU/OECD blacklists which can create severe consequences for the economies of said nations through sanctions.

Very interesting times indeed, and I think we will see more and more companies (particularly tech companies) being offshored than before in the next few years.

[pavlov]

> ...the United Kingdom being the leader here.

Having lived in the UK, I'm convinced that the real reason for Brexit is to preserve these offshore tax havens from any meddling by EU regulations.

It's not an accident that Brexit suddenly became crucially important to the Conservative Party only when the EU developed a new interest in unified financial regulations after all the turmoil of 2008-2011.

[buboard]

The EU has plenty of tax heavens and satellite states. Some exist to serve the old rich (luxembourg, monaco) and others chose that path because, unless you are already a rich country, capital in EU is sparse, which further leads to brain drain. That's how countries like ireland and cyprus manage to recover faster than others.

I can't say if the latest regulations have really made an impact. They have surely made banking in EU a lot more bureaucratic and a lot more expensive for a small business.

[hogFeast]

The EU has an unbelievable number of tax havens. It is one of the last places in the developed world where you can genuinely clean dirty money with ease.

The last Commission President was literally the ringleader for tax theft: he was FM/PM of Luxembourg, and actively lobbied companies to domicile there, funnel revenue through Luxembourg (i.e. structuring for tax avoidance alone), and personally negotiated the 1% corporation tax deals.

...it always amazes me how little people actually understand about the EU.

Btw, the main issue for the Conservatives has been their inability to force the overseas territories to do things (what they actually think about tax havens is irrelevant now, events have moved on).

[pavlov]

Juncker made for a convenient political foil in many ways, but ultimately EU policy is made by national leaders in the European Council. The shady practices of Luxembourg and Cyprus were previously of no interest to the national leaders who had bigger fish to fry.

This has changed though, as certain European parties' voters have become irate about international tax evasion. For center-left PMs, stomping down on countries like Cyprus isn't going to lose them any votes and increasingly looks like a political win.

For Britain, the conundrum is that there's so much British money in the "nearshore" tax havens of Channel Islands and the Isle of Man. Whereas Luxembourg mostly cut sweetheart deals for corporations and Cyprus mostly dealt with non-EU foreigners who don't get to vote anyway, cleaning up the British tax havens would threaten the hidden wealth of Conservative voters directly.

[hogFeast]

This isn't the case. All the main financial institutions in the Channel Islands and IoM are global so they KYC properly. More to the point though: the information-sharing is pretty much gold standard (bank accounts have been shared for a while but now beneficial ownership of companies is shared too).

The only way to avoid tax is to permanently move there. And, if you are familiar with either of those locations, you should know that the punishment fits the crime.

Also: it is far bigger than Luxembourg and Cyprus. Malta is basically a haven for financial fraud. Ireland is basically a tax haven now. And basically all of the East European nations are targets given the weak controls of their financial institutions (and Denmark as it turned out).

[sumedh]

Netherland has Curacao as its tax haven even when its part of the EU.

[52-6F-62]

> tax and legal purposes

This may be terribly naive, but doesn't that make the business de-facto illegal? What kind of legitimate business deserves to buck paying into the systems that support them? As a default I want to disagree, but I would like to know what business needs to operate outside of these constraints.

Surely the businesses utilizing the favours of banks like Cayman are not being operated within tyrannical countries (which is the first and only reasoning I can see for operating in the manor you prescribed).

The very fact that they operate this way seems shady to me.

[seibelj]

I still can’t believe it’s legal to move from SF to Texas if you were born and raised in SF. You owe the good people of San Francisco repayment for raising and nurturing you. Leaving after all that education and local services is a corrupt tax-dodge into a state without income tax.

[52-6F-62]

I'm not American, and most people aren't. You might need to tailor your metaphor.

That said, I disagree. Context matters. The comment above isn't talking about moving a business, it's only talking about operating with as little fiscal impunity as possible. Or at least it reads that way—which is why I was asking for more input.

[jxramos]

https://en.m.wikipedia.org/wiki/Freedom_of_movement_under_Un...

[seibelj]

There’s legality and morality. Moving all my wealth to Cayman (or Texas) may be 100% legal but I thought we were debating ethics. All of these HNers decamping from NYC and SF to Florida and Texas are horrible awful people depriving the local governments of California and New York their deserved taxes!

[yabadabadoes]

You should probably look further into the brain drain which is a global theme with complex ethics. Independent people moving are not really bad or necessarily hurting a state they leave as they send remittances, move back to retire, etc. The overall affect of states incentivizing bulk drains can be brutal though as can the resulting investment decisions of a state that knows it's brightest will be drained. At any rate, in the big scheme of things don't worry about NY and SF, they (and even their own domestic victims) are not victims of drain on average.

[tossAfterUsing]

When you say "deserved taxes", what precisely is the reasoning behind this deservedness?

it seems to me that there's no reasonable way to lay claim to the work product of another person without being a total jerk... maybe i'm mistaken.

[seibelj]

It's mind blowing to me that people get angry about moving wealth to a lower tax country like Cayman, but are totally milquetoast about moving someplace within the same country that has the same effect of lowering one's effective taxation.

If you are worked up about this Cayman thing, then you should be apoplectic if your neighbor moves to Texas or Florida. What horrible, disgusting people who are leaving their former communities to rot! They raised taxes on the rich in order to transfer more wealth to the community, and then the rich up and leave! Such completely selfish actions are galling and it fills me with anger, as it should any self-respecting person. We need the government to track where people live each day, and then make them pay their taxes proportional to where they lived for the rest of their lives. It's only fair to the communities that protected and nurtured them.

We need to outlaw each and every tax dodge. Clipping coupons deprives the state of their sales tax, as the total price is on goods is lowered which reduces the total tax bill, which is why I'm against coupons. How long will we allow this madness to continue?

[kevin_thibedeau]

Texas receives more federal dollars than it contributes. The real tax dodge is perpetrated by state governments that manipulate the federal budget to their benefit.

[stjohnswarts]

That's a lie. Texas pays more in federal taxes than it receives.

[youdontknowtho]

Thats not a lie, Texas breaks even some years and not on others. The surrounding states are wildly dependent on federal money at the same time they insult the people of the states that contribute to their own upkeep.

[hedvig]

Terrible analogy.

[GhettoMaestro]

> I still can’t believe it’s legal to move from SF to Texas if you were born and raised in SF. You owe the good people of San Francisco repayment for raising and nurturing you. Leaving after all that education and local services is a corrupt tax-dodge into a state without income tax.

Lol you again. How many times must you hear this to understand: Total freedom implies freedom of movement. You do not own people. You never will. You have no moral basis.

[ChainOfFools]

pretty sure OP was sarcastically trying to highlight the possibility that some premises may not be safe to leave unexamined. though tone is much more something I'd expect to see on Reddit than HN, it's a valid criticism.

[GhettoMaestro]

No. He has repeatedly made the same comment (or "meme", "canard"). It is not insightful commentary; it is not much more beyond propaganda at this point.

California has made horrible financial decisions for over a decade. To pretend it is somehow moral to trap people and their wealth to those decisions is complete insanity. Also it won't work, to point out the obvious.

[pjc50]

Pleased to see the "no borders" argument being made, but the more important one is to the south of California.

[CaymanCruiser]

>This may be terribly naive, but doesn't that make the business de-facto illegal? What kind of legitimate business deserves to buck paying into the systems that support them? As a default I want to disagree, but I would like to know what business needs to operate outside of these constraints.

These constraints that you speak of are entirely arbitrary (geographical delineation) and were designed for a time before the internet. I would instead ask the question why Western governments are refusing to get with the changing tides and reform their archaic taxation codes to account for an increasingly globalised economy.

>Surely the businesses utilizing the favours of banks like Cayman are not being operated within tyrannical countries (which is the first and only reasoning I can see for operating in the manor you prescribed).

Not at all. There certainly exists a subgroup of individuals, companies, and institutions that operate in jurisdictions where there is a huge amount of uncertainty, but there is also a very large contingent that offshores their business to reduce regulatory burden and reduce tax liabilities, many of whom are individuals and companies that you and I have heard of. I doubt they will be using Cayman National Bank though, it is more likely that they will be using banks that you and I have also heard of like Barclays or DBS.

[52-6F-62]

I'm sorry but that just sounds absurdly reductive to me. It makes a gross assumption that people are incapable of keeping their government in check.

Perhaps, in spite of my own cynicism, I believe people are capable of deciding how they want their societies to run (also in spite of our hiccups here in the Western world).

So again: why do such businesses deserve to operate with such impunity? A natural function of business is risk. Subverting reasonable social good is an active harm that is reasonable given the circumstances (like an ambulance or fire truck asserting the right of way on a city street), but I fail to see why that should apply to any and all business.

I'll be happy to be convinced otherwise—but I doubt I will be.

I know you're speaking out under the condition of anonymity, so I won't ask which business you're operating or employed by but I am immensely curious about which industry you're representing. It would help much in understanding your perspective.

[Concrescator]

I'm going to be honest. As an American it feels like my government is not in check. Not at all. They are failing to represent the wishes of constituents.

I too feel like the person you replied to. Why can't our goverment get with the times and create infrastructure to support the new global economy.

[CaymanCruiser]

>It makes a gross assumption that people are incapable of keeping their government in check.

There is a difference between keeping a government in check, and ensuring governance stays relevant. Western democracy usually ensures the former, but is not very good on the latter.

>Subverting reasonable social good is an active harm that is reasonable given the circumstances (like an ambulance or fire truck asserting the right of way on a city street), but I fail to see why that should apply to any and all business.

This is more of a political argument than anything else, and I'm not too keen on going into my political views on this matter (although I'm sure it is not too difficult to infer them from my posts). What I will say however is that I think you are conferring an arbitrary civic duty on corporations, with the dutiful obligations of which being up for a significant amount of interpretation across societies and jurisdictions.

[52-6F-62]

Yeah. I don’t think we can avoid the breach into politics on this subject, though, since it seems inherently political and I can tell we have some fundamental philosophical differences!

Anyway I appreciate the thoughtful responses regardless.

[kneel]

>I would instead ask the question why Western governments are refusing to get with the changing tides and reform their archaic taxation codes to account for an increasingly globalised economy.

Systemic corruption, governments are infested with corporate interests and tax avoiders.

Attempting to even the playing field would expose massive corruption.

[tossAfterUsing]

> get with the changing tides and reform their archaic taxation codes to account for an increasingly globalised economy.

they don't know how.

[jdkee]

"the company I founded and currently manage is offshored for tax and legal purposes"

Simply curious, how do you feel about the ethics of this? Is it to reduce the tax burden in your company's home country?

[CaymanCruiser]

There are two dimensions here, one is the tax liability and the second is regulatory compliance.

Yes, the tax liability is significantly reduced when using offshore structures and I don't necessarily see this as a bad thing especially since an ultra-low corporate tax rate makes it possible to offer our customers services at a lower price than otherwise - I see this as a good thing.

The second is that regulatory compliance is much, much, much easier especially when working in industries like finance, insurance, or crypto. The flexibility and clarity of the regulatory climate in offshore jurisdictions is a huge advantage as it makes it possible for us to focus on doing business rather than narrowly tiptoeing an arbitrary and complex regulatory line as is the case in "home" jurisdictions like the US or the EU. This is further compounded when you have a distributed workforce located in various jurisdictions (which sometimes changes on a week-to-week basis).

[bikeshaving]

> an ultra-low corporate tax rate makes it possible to offer our customers services at a lower price than otherwise - I see this as a good thing.

The claim that you’re transparently passing the savings of tax avoidance onto consumers rather than charging market-rate and pocketing the difference is both unlikely and unprovable. And even if you were charging less, this would essentially amount to an unfair, extra-legal competitive advantage.

[CaymanCruiser]

> ...unfair, extra-legal competitive advantage.

It is not unfair, and it is not extra-legal. Anyone can offshore their company and in some cases it can take less than an day (incorporating an LLP in the UK takes a couple of hours) with virtually zero barriers of entry, all fully compliant with the relevant legislation.

If legal regulatory arbitrage (through tax havens) is unfair, then the corollary is that any kind of business profit arising from utilising uncommon knowledge is unfair. I think this position is untenable.

[egman_ekki]

I thought most OECD countries have rules for companies being tax liable at their "effective place of management" and "arms length" etc principles to prevent funneling money to tax havens. Or is it just the correct loopholes you need to know about to ignore all of this?

[pas]

It's very much a big proxy war between big economies. Currently the countries benefit from tax havens where growth is the highest (because these investment/offshore vehicles/vessels are low tax and the yields are reinvested, and the tax is reaped by the country where it gets invested; even if the profit was originally from a different country - but it's transferred to the tax haven via various schemes, like the intellectual property royalty payments and so on.)

https://repository.law.umich.edu/articles/717/

[bikeshaving]

> If legal regulatory arbitrage (through tax havens) is unfair, then the corollary is that any kind of business profit arising from utilising uncommon knowledge is unfair.

This syllogism is so unsound that I’m not sure how to respond. I don’t think I’m arguing that, and I don’t think that using corporate tax havens is merely “using uncommon knowledge.”

[jonny_eh]

> It is not unfair, and it is not extra-legal

Then why are you using a pseudonym?

[NamTaf]

"If you have nothing to hide, then you have nothing to fear" isn't a reasonable position to hold, and your statement basically amounts to it. There's plenty of reasons to want to stay anonymous when talking about business such as this.

To clarify, I don't necessarily agree with his position, but I disagree with your proposition that he is using a pseudonym for that reason.

[ehvatum]

If such a scheme were the only thing allowing you to make a profit, would you appreciate this guy drawing attention to it? In fact, you could protect your operation by submitting numerous tips to tax agencies across the world, causing his business to fail due to the immense cost of litigating such complex cases, even though he would be cleared if he could afford the defense. Everyone gets the right message: the public hears that tax havens "don't work", whistleblowers learn to keep quiet, regulators notch up another win, and the truly powerful get to continue dodging taxes.

[ryandrake]

> makes it possible for us to focus on doing business rather than narrowly tiptoeing an arbitrary and complex regulatory line

This can be solved by simply operating well within the legal line. If you’re operating so close to the border of what’s illegal that you’re “tiptoeing the line” then maybe that is the root problem.

I’ve been in several businesses and not once ever had to stop and ask myself “is what I’m doing technically legal?”

[magashna]

> quite frankly draconian rules that usually places them on US/EU/OECD blacklists

Assuming ethics is not a concern

[CaymanCruiser]

I think the true moral crime here is preventing sovereign nations (using bullying tactics no less) who lack natural resources and other income-generating resources from offering convenient and flexible regulatory climates to business who need it. Singapore and Hong Kong were two countries that did this for decades and look where they are now - why shouldn't Vanuatu or Seychelles be offered the same opportunity?

[rswail]

SG is strategically located in Asia and has taken advantage of that.

HK was/is an entreport to China. Before 1949, it was not as important as Shanghai. After 1949, it was where a lot of southern Chinese escaped and became a manufacturing/cheap labor hub, while also taking advantage of British civil service practices.

Post China's economic changes, HK became the bridge between the world and China's economy, plus the place for China's new rich to park their money "safely".

Today, it is losing/has lost that advantage, because China's corruption has taken hold of the government, and as a result, the "rule of law".

[magashna]

That's a really crafty way of saying "they did it, so I should be able to do it"

[phatfish]

Sure OK, but I want my "moral right" to a social democracy of the Nordic style. How come the Swedes and Norwegians can have a functioning socially responsible government but the UK gets a bunch of incompetent capitalists?

[squiggleblaz]

You're still an EU citizen, you have a legal right to take advantage of the Swedish social democracy.

[C1sc0cat]

You have to be carful about letting just anyone waltz up and become a pay to play citizen - or you end up like Malta.

[Concrescator]

Who's ethics? Really. Who's.

Ethics isn't a black and white thing and people feel differently globally about whats ethical.

Take copyright. That's a western thing, but personally I think we can do without. I like China's ethics on copyright even though most westerners would disagree.

[wahern]

What ethics? China has nominally had standard, WTO-compatible copyright protections for decades. The problem is inconsistent and often corrupt enforcement.

The sine qua non of any legal system is consistent application of the law: https://en.wikipedia.org/wiki/Rule_of_law If you don't have the Rule of Law, you don't have much of anything.

Western companies would have you think that China systematically ignores copyright, patent, and trademark protections, sort of like that there's a quasi-legal norm of simply ignoring those protections. But that's a strategically misleading characterization designed for Western audiences.

[rswail]

US government would have you think that China...

The US did exactly the same thing to the UK back in the early 20th century. All developing economies do. Protecting "Intellectual Property Rights" are only relevant to a nation's economy when those rights have value in that economy.

Nations that are in the "developing" state are generally the destination of outsourced manufacturing from developed states. They are arbitraging their lower costs of labor, less developed regulatory environment ("light touch", "economic development zones") and lower standards for environmental and other protections.

China is starting to enforce IPR because it now has the developed capacity to create IP.

[wahern]

Perhaps you're referring to the 19th century? The U.S. didn't recognize foreign copyrights until 1891: https://en.wikipedia.org/wiki/International_Copyright_Act_of... But when it did happen the enforcement apparatus (rule of law) executed the protections quickly and efficiently, AFAIU.

The difference with China is that China does recognize foreign copyrights. Why does the difference matter? Because consistent recognition in China can't happen with a simple passage of a law--that law exists. Any promises they make can't be upheld as their entire administrative apparatus is intertwined with communist party politics, and deficiencies in the political machine are what make enforcement so costly. Excepting espionage and trade secrets, I've never seen any evidence of an official or even unofficial policy of looking the other way for IPR violations; what I have seen is plenty of evidence that the processes for enforcement are byzantine, regardless of whether you're a domestic or foreign owned company, and too slow to catch violators such that it remains profitable. Have you been to developing countries? The black and grey markets are huge. You can't suppress these by fiat; you can only replace them, organically, with legal alternatives. (Same as digital piracy in the U.S.) The leadership can move mountains but they can't move a million mole hills nearly as easily.

The situation can and likely will improve without any major legal or political reforms. What you need, if you wish to accelerate this, is to incentivize the monied interests in China. How to do that? Maybe tie their foreign IP protections, particularly patents[1], on their domestic enforcement of copyright? That way corporations have an independent, self-serving interest in regularizing and normalizing copyright enforcement up and down the value chain, such as by building out their own value chain to replace the black and grey markets. Foreign trademarks are readily enforced in China, within the limits of what the bureaucracy can achieve, precisely because domestic companies have an interest in enforcement of their own trademarks domestically. And I'd bet big money that many of Disney's problems have already been solved by multiplexes owned by corporate conglomerates, which help to displace pirate DVD shops. Omnibus trade deals aren't going to get that done, and there's ample proof of this because there have been many.

You can't address a situation without understanding why it's happening. You can't ascribe simple motivations to such complex systems.[2] Whether you're Xi Jinping, Donald Trump, Vladimir Putin, Fidel Castro, or Hugo Chávez, you can't simply decree that some complex reform happen; things are more likely to go sideways or backwards. (OTOH, if you control the media--and even if you don't--you can simply declare that it happened, and more often than not enough people will believe you, or at least be satisfied.)

[1] Because language and cultural barriers means they're unlikely to have major export markets in copyrightable materials any time soon.

[2] I mean, you can. People do all the time, obviously. Simple narratives are an easy sell. But political reforms built on simple narratives don't have great track records.

[hogFeast]

In most cases, setting up your business there saves you no tax. It only saves you tax if you are a resident or if you don't tell the govt where you are a tax resident that you have a business there (not telling your govt is tremendously risky given that most of this information is now reported).

The main reason businesses are set up there is the legal benefits. Not just a stable legal environment but also because it is far easier to deal with international investors (most countries withhold tax from foreign investors at source, you can claim it back but that hits your ROI).

[Scoundreller]

Depends on the country. Some countries have treaties letting your home corporation receive dividends from its foreign affiliate tax-free. Canada allows this kind of thing.

Then there's how to wash your Canadian income into this foreign operation...

There was a big case of a uranium mining company in Canada that sold options that effectively forced it to forever sell its product to its recently setup Swiss subsidiary at the "glut" price. If the price went up, all the profit would go to the Swiss subsidiary. If the price stayed low, they'd just liquidate the subsidiary.

Voila.

[balls187]

> Simply curious, how do you feel about the ethics of this?

This seems like standard practice for many companies who operate offices in foreign countries. It is easier (compliance) and cheaper (compliance and taxes) to have foreign subsidiaries.

What ethical violations are you envisioning?

[FpUser]

If you want to talk ethics you should probably start at the government. Ethics should start with the higher level. The average business owner/s trying to LEGALLY minimize their tax is hardly unethical comparatively to the sovereign that allows it in a first place. If we are talking guys like Google then yes. Those just buy governments.