Counterparties — Richie Havens: Here Comes the Sunlight

By Ben Walsh
April 4, 2013

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The International Consortium of Investigative Journalists has quantified the size of the offshore tax haven bubble, and is doing its darndest to burst it.

The group, led by Gerard Ryle, and working with 38 media outlets, has amassed 2.5 million documents containing details of more than 120,000 offshore companies and trusts, as well as the identities of almost 130,000 individuals.

The documents implicate a wide-ranging and sleazy set of the global elite: politicians, despots, and their aides and associates; the oldest daughter of former Philippine dictator Ferdinand Marcos; a wealthy Spanish art collector; arms dealers. Also mentioned is Denise Rich, the wife of the controversially pardoned oil-trader Marc Rich.

Der Speigel writes that the details in the documents go back nearly 30 years. The 200 gigabyte leak, the German paper writes, is 160 times larger than the cables released by Wikileaks in 2010. Gawker has a good run-down of the important details that have been released so far.

A former chief economist for McKinsey estimates there could be as much as $32 trillion in offshore taxhavens.  Creating sham corporations in offshore locations, and stocking their boards with phony directors, is a lucrative cottage industry. One British couple on the the island of Nevis served as directors for 2,000 companies.

Individuals aren’t alone in seeking fairer climates for their assets to winter in. The biggest US companies increased their untaxed offshore cash piles by  $183 billion, or 14.4%, in 2012. Victor Fleischer, a tax law professor, details the arcane mechanisms companies use to get and keep that money in low-tax jurisdictions. Some of the more common strategies include alternating short-term loans between foreign and domestic subsidiaries, and transferring intellectual property abroad. Starbucks, like Google and Microsoft, is among the companies that use these techniques.

Ending these practices may involve more data dumps like today’s. Last year, both the European Union and the UK announced their intention to crack down on tax havens. A key tactic? Naming and shaming companies and individuals that use legal tax-avoidance schemes. — Ben Walsh

On to today’s links:

Long Reads
The cost of building Apple’s new headquarters has ballooned to $5 billion – Businessweek

Bold Moves
Japan embarks on “monetary easing in an entirely new dimension” – NYT

Regulations
Can a judge really block the SEC’s $600 million settlement with Steven Cohen? – Theodoric Meyer
A “quintessential captured regulator” is leaving the SEC – Gary Weiss

Housing
Foreclosure reviews created a “bureaucratic maze that delayed relief” and enriched consultants – DealBook
What the GAO found: “complexity… overly broad guidance, and limited monitoring” – GAO

EU Mess
“The ECB’s main preoccupation has become the playing of chicken with governments” – Economist

RIP
Roger Ebert is dead at 70 – Chicago Sun-Times

Wonks
What happened to the Internet productivity miracle? – John Cassidy
Central banks have “virtually no influence over long-term real (inflation-adjusted) rates” – Ken Rogoff

Alpha
Carlyle, KKR, and Blackstone want a piece of your 401(k) – Bloomberg
Workers are getting misleading information about their 401(k) options when they switch jobs – WaPo

Oxpeckers
“Can I make the semicolon interesting to people who used to be into the kind of stuff I did at Vice?” – NYT

Best Practices
The top risk managers run spy networks that rely on human intel, not models – Jesse Eisinger

Interesting
“Rents are flat or falling in markets where investors are most active” – Trulia

Remuneration
Physically and verbally abusive ex-Rutgers coach is due a $100,000 bonus – AP

Advanced Strategy
The laundry detergent business is almost too innovative – WSJ

Regulations
Activist courts are hobbling Dodd-Frank – Mike Konczal

Compelling
The death of peak oil – James Hamilton

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And, of course, there are many more links at Counterparties.

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Comments
One comment so far

Option 2) “Leave the Game”: For most taxpayers, this involves becoming non-resident. For Americans this requires giving up their US citizenship or resident alien status. Generally it means bringing forward the payment of capital gains. This is not necessarily a bad thing for the following reasons a) interest rates are low to borrow money to pay any tax immediately owing on a deemed disposition; b) no longer have any tax liability to your current tax home from this point forward; c) do not have to worry if government decides to increase income, capital gains, gift or estate taxes OR bring in new taxes like mansion or wealth taxes. The major disadvantage is that the individual has to go through a one-time effort to overcome their life inertia. As there are MANY places in the world that the wealthy could move their tax residence which allows them to minimize their future tax payments without compromising their personal or business lifestyle, the future benefits could easily outweigh the one time effort;

Option 3) “Cheat the Game”: In years past, it was cheap and easy to engage in tax evasion. The morally challenged who were considering this option, did not seriously consider that they would ever have to pay the penalty of discovery. However the penalties of executing Option 3, are now real and unattractive.

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