Tax Saving Methods Of Overseas Corporation

Tax Saving Methods Of Overseas Corporation

This eBook guide can teach you how to set up an offshore corporation without having to fly overseas or hire an accountant. By doing this, you can avoid taxes on your income, even if you make more than $1,000,000. You get to keep it all! You will learn how a tax haven works, learn how to withdraw your earnings, and keep this all totally legal and aboveboard. Using this method, you can legally avoid having to pay huge amounts of cash for just making money. You should not have to give up the money that you rightfully made just because the government says so. You can also avoid things like inheritance tax and make your tax returns much easier. This is NOT tax evasion! This is legal method of setting up your business, that is totally aboveboard. If you want to learn how to save money for your business, this method is for you! Read more here...

Tax Saving Methods Of Overseas Corporation Summary


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Tax Evasion

The second element in this chapter on tax avoision is the simple, straightforward evasion of taxes. Let us begin with some rather obvious cases of evasion. Tax evasion is often thought of as simply underreporting of income to tax authorities. The income may be obtained legally or from illegal activities such as the sale of drugs, certain types of gambling, sexual services, or stolen goods.5 The term ''black'' or ''underground'' economy describes the activities used by people to evade taxes. People who engage in these illegal activities obviously do not pay income tax in most cases. In the United States some members of the mafia who are very well off pay income tax for the purpose of explaining to the Internal Revenue Service why they have an obviously high standard of living. Normally they claim their income is based on legal forms of gambling such as horseracing.

Deconcentration L1 L4

US corporate tax concession equal to the amount of total income already paid to a foreign government. If a US corporation has paid 10 million tax abroad on a pretax income of 20 million when it remits 5 million in dividends to the USA its deemed tax will be 10 million x 0.5.

Practice Of Islamic Banking

Sixth, unfair treatment in taxation is also considered to be a major obstacle in the use of PLS. While profit is taxed, interest is exempted on the grounds that it constitutes a cost item. This legal discrimination and its associated problem, tax evasion, make PLS less reliable as a tool for reward sharing.

Part A Uniformity Principles

The Uniformity-of-Profit Principle and Its Applications 172 Keeping the Various Branches of Industry in Proper Balance 173 The Power of the Consumers to Determine the Relative Size of the Various Industries 174 The Impetus to Continuous Economic Progress 176 Profits and the Repeal of Price Controls 180 The Effect of Business Tax Exemptions and Their Elimination 183 Additional Bases for the Uniformity-of-Profit Principle 183 Permanent Inequalities in the Rate of Profit 185

The Home Mortgage Deduction

Consider the following simple example of tax avoidance under U.S. tax law. Homeowners who have mortgages may deduct the interest on the mortgage from their taxable income. The mortgage deduction, the largest loophole in the U.S. tax code, works for people in all tax brackets. Although it now has immense political support, it originally got into the income tax laws more or less by accident. The reason that this example of tax avoidance leads to inefficiency can perhaps best be shown by considering my own situation. I am a bachelor and, for the past 15 years, I have owned either the house or apartment in which I lived subject to as large a mortgage as I can talk bankers into lending me. If I rented a house or apartment, I would not be able to avoid taxes because I would not be paying interest rent on a house is not deductible.

The Cost of Loopholes

The reader may feel that the home mortgage interest deduction is not a gigantic inefficiency inflicted upon the economy. The total reduction in taxes from this loophole is probably sizable. Some would further argue that, after all, ''if you give the money to the government it will only waste it.'' Any major cost imposed by this loophole comes from people's modifying their behavior (buying houses rather than renting them) to avoid taxes. When we turn to the illegal evasion methods later in this chapter, you will find that the same question can be asked, but that it results in a different answer. We can find many other cases of this sort in which the economy is distorted by the existence of tax advantages. One element of the tax code that affects wealthy people more than any other is simply taking long vacations. On a vacation I would not be earning money, but I would presumably be getting as much pleasure out of my vacation as from the income I would otherwise earn. If this assumption...

Banking Overseas Caribbean and London The largest volume of assets is held by branches in London

Because it is a major international financial center and the central location for the Eurodollar market. Latin America and the Far East have many branches because of the importance of U.S. trade with these regions. Parts of the Caribbean (especially the Bahamas and the Cayman Islands) have become important as tax havens, with minimal taxation and few restrictive regulations. In actuality, the bank branches in the Bahamas and the Cayman Islands are shell operations because they function primarily as bookkeeping centers and do not provide normal banking services.

Box 91 Mergers acquisitions and takeovers hold the phone

Tax competition between host countries can result in less activity in high tax countries, especially when it occurs between neighboring states which serve the same market. As barriers to trade have fallen within the EU politicians in high-tax countries such as France and Germany have sought greater harmonization of member-country corporate tax rates, From the perspective of the home country, we raised the concern that host countries have the opportunity to tax MNC income first, which reduces the tax benefit to the home country. For many developing countries, there is a benefit from being able to impose a corporate tax on enterprises that keep books and are subject to financial audits, conditions that may not hold for domestic enterprises. Nevertheless, host countries complain that MNCs are able to shift income out of their jurisdiction to avoid taxation, too. For example, suppose a US MNC finances the expansion of an affiliate by borrowing from a subsidiary in the Cayman Islands...

Box 112 Wealth of the Irish

How was all of this accomplished in less than 20 years Through a combination of pre-existing strengths and sound economic policies, Irish entry into the European Union in the mid-1970s was critical, but it was also helped by the presence of a well-educated, English-speaking labor force. The European Union Common Agricultural Policy and regional grant programs provided money from Brussels, and tough controls on government costs were used to move the budget from deficit to sizable surpluses. Most important, low-corporate tax rates were aggressively used to attract foreign investors, who were also drawn by the labor force, a relatively central location and free access to markets in Europe.

The Fiscal Treatment Of Canadian Domestic Shipping

Perhaps the most important aspect to draw forward into the discussion later in this paper is that Canada taxes all domestic companies on their worldwide income. This is certainly quite different from the situation in other countries. For example, Hong Kong and Singapore treat international income as exempt from the base on which domestic corporate tax is calculated. The critical issue for Canada moving forward will be whether to treat domestic shipping more like international shipping or to maintain the existing distinct separation in treatment between the two. This issue will enter into deliberations if Canada contemplates a move towards an alternate fiscal regime, like the tonnage tax approach currently used in a number of European countries. The next section will explore the tonnage tax option.

Literature On The Fiscal Treatment Of Shipping

While these foundations for the analysis of fiscal policy were built prior to the debate in the 1990s about the nature of the fiscal reform that developed countries should undertake, they did not impede the continued interest by academics and governments in the topic. For example, Lee (1996) examined the Korean flag fiscal environment in comparison with that provided by flags of convenience and concluded that Korean flag shipping was at a serious fiscal disadvantage. The combination of national tax (corporate tax, income tax, capital gains and withholding tax on bareboat charter income), customs duties (on both capital and repair and maintenance) and a wide variety of local taxes resulted in a punitive fiscal environment for Korean flag shipping. If a Korean shipping company's fiscal burden was indexed to 100, a Japanese operator's fiscal burden would be indexed at 42.9 (less than half of the Korean burden), and under the Liberian flag at a mere 6.0. Furthermore, Lee noted that the...

Corporate Income Taxation

If the rate of tax is predetermined, the representative shareholder can estimate, within some limits, his own share in corporate-tax liability under these highly restricted conditions. As we have shown in the discussion of the earlier models, however, the rate of tax cannot be determined independently of the decision on the quantity of public goods to be supplied. If we think of the group as voting or deciding in some other fashion on various proposals for spending on public goods, we must allow the rate of tax to be adjusted. Or, alternatively, if we think of the group as voting on the rate of tax to be levied, we must allow the quantity of public goods to remain dependent on the tax-rate decision. In either of these cases, the individual must make some estimate as to the size of the aggregate tax base. In this extreme model, where the tax is levied on pure economic profit, there is no direct behavioral response on the part of the corporation. However, even here, the independent...

The Mathematics Of Indirect Aid Or Tax Expenditures

The table can also be used to illustrate the effect a progressive tax rate structure has on incentives to donate. Assume now that in column B the top row shows taxable income of 50,000 instead of 100,000. Then the table can be interpreted as showing that when an individual's income rises from 50,000 (column B) to 100,000 (column A), he or she rises into a higher marginal tax bracket (50 instead of 39.6 ), and the tax saving achieved by making a charitable donation accordingly rises from 39.6 cents to 50 cents on the dollar. In other words, under a progressive income tax structure, the higher your income, the stronger your incentive to make charitable donations.

Individual Corporate And Foundation Support

To put these numbers in perspective, bear in mind that total direct federal government support for the arts in fiscal 1983-84 came to only 266 million. (See Table 13.1 below.) Moreover, in addition to making charitable contributions, corporations also provide support for the arts through expenditures charged to their advertising and promotion budgets. For example, a corporation might sponsor in that way a series of summer concerts in the park. Like any other increase in costs, such outlays also reduce profits and therefore cut corporate tax liability. Advertising and promotion outlays for the arts are not included in any of the contributions totals discussed in this section. In fact, the total value of such expenditures is simply unknown.

Money Laundering Scale Scope And Typology

While such a definition covers the underlying purpose of money laundering it is incomplete because it gives the impression that all such activity is the result of serious criminal activity. While drug trafficking, loan sharking, illegal gambling, embezzlement, extortion, illegal trafficking in arms, prostitution and slavery represent the principal source of proceeds in money laundering, less violent but no less serious activity such as tax evasion, regulatory evasion and smuggling also forms part of the picture.1 The 1997 report of the Financial Action Task Force (FATF) also refers to bank fraud, credit card fraud, investment, advance fee and bankruptcy fraud.2 The geographic distribution of money-laundering activity takes in financial crimes from the Scandinavian countries to organized criminal activity in Italy, Japan, Colombia, Russia, Eastern Europe, Nigeria and the Far East.

The Microeconomics Of Money Laundering

The results of the crime and punishment analysis suggest that an increase in the probability of detection and or an increase in the penalty will have a negative effect on criminal activity. The basic framework of Becker (1968) has been extended to the general theory of tax evasion by Allingham and Sandmo (1972) and applied to the firm by Marrelli (1984). The basic results of this literature are that an increase in the probability of detection or an increase in the penalty will increase compliance but an increase in taxes or a reduction in the returns from legitimate activity will have ambiguous effects because of offsetting scale effects.7

Formulate The Linear Programming Problem That Dch Would Use To Minimize Its Total Labor Costs Per Month Showing Both

Creative Accountants, Ltd., is a small San Francisco-based accounting partnership specializing in the preparation of individual (I) and corporate (C) income tax returns. Prevailing prices in the local market are 125 for individual tax return preparation and 250 for corporate tax return preparation.

Possible alternatives and policy solutions

Of late, the authorities have been raising the issue of reconsidering some of the results of privatization in the early 1990s. The issue become non-academic when billionaire YUKOS shareholders Mikhail Khodorkovsky and Platon Lebedev were arrested in 2003 and brought to trial on charges of illegally appropriating government-owned assets and gross tax evasion. But, as mentioned above, the drive against YUKOS is still an exception and does not signify a drastic break with neo-liberal policies.

The Extent of Evasion

Tax evasion is illegal, so those engaging in it have every reason to seek to conceal what they are doing. This introduces a fundamental difficulty into the measurement of tax evasion. Even so, the fact that the estimates that are available show evasion to constitute a significant part of total economic activity underline the importance of measurement. They also emphasize the value of developing a theory of evasion which can be used to design a tax structure that minimizes evasion and ensures that the policy is optimal given that evasion occurs. Before proceeding, it is worth making some distinctions. Firstly, tax evasion is the failure to declare taxable activity. Tax evasion should be distinguished from tax avoidance, which is the reorganization of economic activity, possibly at some cost, to lower tax payment. Tax avoidance is legal, tax evasion is not. In practice, the distinction is not this clear cut since tax avoidance schemes frequently need to be tested in court to clarify...

Banking Regulation Hedge Funds And Otc Derivatives

The OTC derivatives market is the pinnacle linkage between banking organizations and hedge funds with regard to trading activities. Hedge funds are generally defined as private investment vehicles that are incorporated or based in an offshore financial centre or tax haven jurisdiction but hold US principals, and engage in myriad trading activities that are largely Finally, the Working Group addressed issues regarding hedge funds and offshore financial centres and tax havens, and explicitly emphasized that one of the possible incentives to encourage offshore centres to adopt and comply with 'internationally agreed upon standards' could include the imposition of higher risk weightings on counterparty transactions for banks doing business with a financial entity operating in an offshore jurisdiction that does not comply with the Basle Core Principles.

Compliance and Social Interaction

It follows from this that the choice of tax evasion becomes more attractive when more taxpayers make the same choice of breaking the law. Because of the way interactions work, the aggregate compliance tendency is toward one of the extremes only the worst outcome of nobody complying or the best outcome of full compliance are possible. This is illustrated in the Figure 18.8 depicting the payoff from compliance and non-compliance (vertical axis) against the non-compliance rate in the group (horizontal axis). At the intersection of the two payoff functions taxpayers are indifferent between compliance or non-compliance. Starting from this point, a small reduction in non-compliance would break the indifference in favour of compliance and trigger a chain reaction toward increasing compliance. Alternatively a small increase in non-compliance triggers a chain reaction in the opposite direction making non-compliance progressively more and more attractive.

The Pricing Of Deposit Insurance Premiums

First, let us make the following assumptions. Let us assume that banks in a capital market operate in a public bank regulatory and corporate tax jurisdiction. Now, let us make the rather more restrictive assumption that debt capital is raised entirely via loans from banks and that the industrial structure of this capital market is competitive13 and two less restrictive assumptions the risk-free rate is given by 8 and 8 1 and that we have a two-date economy t0 and t + 1. For an investing company (IC) to make a return it would have to make an investment into a project or vector of projects, the success or otherwise of which could be assessed over the period t0 to t + 1. Accordingly an IC can be identified by the success or failure probabilities of its investment projects ct e 1,0 . At the microeconomic level any investment project undertaken by the company will require capital investment of 114 and will yield a finite constant X if successful (where X 8) and 0 if unsuccessful. The bank...

Engineering Economics in Action Part 6B

That book value is an estimate of the market value that has been calculated according to very particular rules. Corporate tax rules require us to use a particular depreciation scheme for all of our assets. Now, the reality is that things decline in value at different rates, and computers lose value really quickly. We could, for our own purposes, determine a book value for any asset that is a better estimate of its market value, but sometimes it's too much trouble to keep one set of figures for tax reasons and another for other purposes. So often everything is given a book value according to the tax rules, and consequently sometimes the difference between the book value and the market value can be a lot.

The public corporation its ownership and control

A tax levied on corporate profit reduces the care and effort owners will put into its operation, since part of the return that would have been received by owners will go to the state. De facto, private owners of the corporation are saddled with a shirking partner, the state, which takes part of the revenue and provides none of the effort to improve the firm's return. Consequently, the greater is the corporate tax rate, the greater the incentive for corporate owners and management to pursue the quiet life.

Failures of market selfregulation

The criminal activities, associated with electronic money schemes, are tax evasion and money laundering. Should electronic money schemes offer the possibility of executing anonymous transfers of large amount of money, they could be increasingly used for such criminal purposes. The emergence of e-money has sounded an alarm in government. This is especially so concerning traceless electronic money systems that provide payers and payees more anonymity than they would have with paper currency. Tax evasion can be accomplished with a few strokes of the keyboard. In a world of anonymity, e-money can be transferred around the globe at the speed of light. The more government tries to tax, regulate, control, and confiscate, the greater the incentive for business and investors to leave. In the electronic payments system, we cannot both keep the present income tax system and enforce it, and at the same time keep our liberty and privacy. What are the economic consequences of tax evasion An...

Uctural Features of Developing Countries

There is a history of high inflation. In many countries the government was unable to pay for its heavy expenditures and the losses of state-owned enterprises through taxes alone. Tax evasion was rampant, and much economic activity was driven underground, so it proved easiest simply to print money. Seigniorage is the name economists give to the real resources a government earns when it prints money that it spends on goods and services. When their governments were expanding money supplies continually to extract high levels of seigniorage, developing countries experienced inflation and even hyperinflation, (See, for example, the box on inflation and money-supply growth in Latin America in Chapter 14, p, 377.)

Alternatives to flexible exchange rates

There is no way of knowing how common such under-invoicing is, but many believe it is a widespread means of evading both exchange controls and ad valorem tariffs. With regard to the latter, if, for example, Australia maintains a 10 percent import tariff on foreign cars, invoicing a car at 9,000 which is actually worth 10,000 saves the importer 100, unless this ruse is discovered by the Australian customs agents. This is why customs valuation procedures are often so controversial. In addition, multinational firms can use transfer pricing to shift profits from high-tax to low-tax jurisdictions. If, for example, a British firm owns a subsidiary in Germany, where the corporate tax rates are considerably higher than in the UK, a great temptation will exist to overprice any parts, components, or services that are sold to the subsidiary, and to underprice anything the parent firm purchases from that subsidiary. Doing so shifts profits away from Germany and into the UK, saving the parent firm...

Fiscal Treatment In Europe The Tonnage Tax Approach

The guidelines recognized, however, that it was relatively expensive to operate EC registered ships with EC seafarers on board, and that this situation inhibited the pursuit of high quality operations and undermined the goal of safe, efficient, environmentally friendly transport. It was these circumstances that led to the fundamental decision taken by the European Commission to create conditions that allowed fair competition with flags of convenience. The fiscal costs, mainly corporate taxation and wage-related liabilities, were concluded to be the critical and distorting factors (European Commission, 1997, p. 1.4). The approach was to reduce contribution rates on social protection and income tax for EC seafarers employed on EC-registered vessels. of ships for a number of years on a tax-free basis provided that they were eventually re-invested in the acquisition of ships. More notably, the guidelines also endorsed the replacement of the normal corporate tax system by a tonnage tax....

The Dynamic Trickledown Hypothesis

Another version of the argument was put forward by economists associated with the Republican Party, most notably Martin Feldstein (chairman of the Council of Economic Advisers and chief economic advisor to Ronald Reagan) and Lawrence Lindsey (director of the National Economic Council under George W. Bush).8 Feldstein and Lindsey presented a set of arguments referred to as the new tax responsiveness theory, suggesting that tax cuts for the very rich would lead them to reduce their efforts at tax avoidance and thereby raise additional revenue. Subsequent work found that the results of Feldstein and Lindsey were overstated, and led to the commonsense conclusion that the best way to minimize tax avoidance was to tighten up on tax loopholes and tax havens. The latter effort, at least, is bearing some fruit with a series of recent OECD initiatives forcing tax havens to enter into information-sharing agreements.

Present Value Analysis and the Difficulty of Forecasting Future Cash Flow

Although some businesses are more stable than others and therefore more predictable, estimating future cash flow for a business is usually a guessing game. A recurring theme in this book is that the future is not predictable, except within fairly wide boundaries. Will Coca-Cola sell soda next year Of course. Will it sell more than this year Pretty definitely, since it has done so every year since 1980. How much more is not so clear. How much the company will earn from selling it is even less clear factors such as pricing, the sensitivity of demand to changes in price, competitors' actions, and changes in corporate tax rates all may affect profitability. Forecasting sales or profits many years into the future is considerably more imprecise, and a great many factors can derail any business forecast.

Anonymity and Legal Environment for Commerce

The future of electronic commerce depends on establishing adequate frameworks for commerce for the Internet. In addition to a workable tax regime, a consistent and effective legal framework will give content owners an incentive to market their products online while providing consumers and other market agents with a reference on what activities are acceptable or criminally liable. A legal framework is needed not only for copyrights but also for transactions that are the basis of commerce. For example, can contracts be signed electronically and sent over the Internet Do these documents have legal enforceability Can a third party act as a witness for an online signing of a contract or for completing a transaction While governments are preoccupied with the possibility of money laundering, security breaches by hackers, and tax evasion, the ordinary aspects of commerce are neglected even though these aspects constitute legal and commercial frameworks without which normal transactions cannot...

Auditing and Punishment

The analysis of the tax evasion decision assumed that the probability of detection and the rate of the fine levied when caught evading were fixed. This is a satisfactory assumption from the perspective of the individual taxpayer. From the government's perspective, though, these are variables that can be chosen. The probability of detection can be raised by the employment of additional taxpayers and the fine can be legislated or set by the courts. The purpose of this section is to analyze the issues involved in the government's decision. Numerous comments can be made in respect of this result. The first begins with the objective of the government. In previous chapters it has been assumed that the government is guided in its policy choice by a social welfare function. There will be clear differences between a policy designed to maximize revenue and one that maximizes welfare. For instance, inflicting an infinite fine upon a taxpayer caught evading will have a significantly detrimental...

Public Economics

In the broadest interpretation, public economics is the study of economic efficiency, distribution, and government economic policy. The subject encompasses topics as diverse as responses to market failure due to the existence of externalities, the motives for tax evasion, and the explanation of bureaucratic decision making. In order to reach into all of these areas, public economics


It analysis the basic tax instruments and the economics of tax evasion. Chapters 15 and 16 consider commodity taxation and income taxation respectively which are the two main taxes levied upon consumers. In both of these chapters the economic effects of the instruments are considered and rules for setting the taxes optimally are derived. The results illustrate the resolution of the equity efficiency trade-off in the design of policy and the consequences of the limited information available to the government. In addition to the theoretical analysis, the results of application of the methods to data are considered. The numerical results are useful since the theoretical analysis leads only to characterizations of optimal taxes rather than explicit solutions. Chapter 17 determines the degree to which taxation can achieve redistribution and contrasts this to other economic allocation mechanisms. These chapters all assume that the taxes which are levied...

Nonus Investors

In offshore funds, which are domiciled in tax haven countries like Bermuda and the Cayman Islands. These offshore funds may be managed by firms that are located in the United States, but the assets of the funds are located outside the United States. These offshore funds may accept assets from wealthy non-U.S. individuals, as well as non-U.S. institutions. As in the United States, the list of institutions includes pension funds, foundations, and other pools of capital whose investment activities are directed by a group of fiduciaries. Offshore funds may also accept assets from U.S. tax-exempt institutions. Some people think of offshore funds as tax-evasion devices, but this is not the case. Offshore funds accept assets that are already not liable for taxes in the investor's home jurisdiction. No doubt, there are situations in which investors are using offshore funds as a place to invest flight capital that should not have left the home jurisdiction. And no doubt there are situations in...

Export subsidies

Determining what government assistance constitutes an unfair subsidy has proven quite contentious in practice. Typically, those who lodge a complaint must distinguish between practices that provide a benefit to a specific industry, in contrast to practices that are available to all industries. For example, a lower corporate tax rate or a lower interest rate that benefits all industries does not represent a countervailable subsidy. The subsidies code adopted in the Tokyo Round of international trade negotiations, however, suggests that subsidies need not benefit only exported goods to be countervailable. In the early 1980s US steelmakers' complaints about European subsidization of state-owned enterprises represented an early test of this new clause, but the negotiated resolution of those cases did not clarify the applicability of limits on state assistance.


To isolate this first effect on individual choice behavior, suppose that, as an owner of a specific number of corporate stocks and as a consumer of a specific quantity of commodities produced in the corporate sector, the individual estimates his own personal tax liability to be the same as that predicted under the head tax scheme depicted in Figure 2.1. Suppose, however, that he would prefer to pay this sum under the corporate tax arrangement rather than through the head tax. For purposes of his decision calculus, this would have the effect of shifting the supply curve, or tax-price line, downward, even though the net tax paid is the same in the two cases. Due to the nonpecuniary advantages and disadvantages of the various methods of payment, the individual may act differently in separate institutional situations, even with equivalent net taxes. The effects on his choices will be identical to those stemming from a tax-price reduction. This nonpecuniary or convenience effect does not...

Tax Avoision

In the literature about taxes, references to the terms ''tax avoidance'' and ''tax evasion'' are frequent. Arthur Seldon dealt with this problem by combining the two words to create the new word ''avoision,'' which is in the title of this chapter. This chapter develops the implications of that new term, which captures in one word both tax avoidance and tax evasion as methods of reducing one's total tax payment. Roughly speaking, tax avoidance is taking measures to reduce tax liability that are perfectly legal. Tax evasion, on the other hand, refers to the use of illegal means to lower one's tax liability. Both have implications for resource allocations for society and the choice of taxpayers. We will consider them one at a time, beginning with tax avoidance.

The Isc Approach

Canada's Department of Finance response to the Deep-Sea Task Force recommendation was relatively swift it took the position that to grant an exemption from Canadian income tax for a business enterprise resident in Canada would set an unacceptable precedent for the Department. Furthermore, the Department was engaged in discussions on corporate tax restructuring and corporate tax reform, and there was concern about the use of ISCs to avoid taxes. Clarkson Gordon (as reported by Jonathan Seymour & Associates, 1988, Appendix II) undertook an assessment of the ISC model in the context of competing tax regimes and in particular that of the U.S. Their resulting Memorandum to the Department recommended that incorporation in Canada not be required and that the ISC only needed to have a majority of Canadian resident directors. To qualify as an ISC, the recommendation was that 75 of salaries must be paid to Canadian residents. From a tax perspective, the ISC issue became ensnared in a larger...


What are the considerations that are driving this fundamental shift In evaluating the reasons behind the adoption of a tonnage tax regime, it is important to recognize that it is the related policy objectives that are driving the initiative. More particularly, as observed earlier, many if not most Member States of the EU have accepted that, in order to preserve maritime know-how and skills and strengthen safety and environmental protection, they must reduce the difference in operating costs between ships that are owned and managed in the concerned State (whether national of foreign flag) and its third flag competition including flags of open registry States. They have also recognized that this would require fiscal and other mechanisms designed to remove differentials in corporate tax and crew costs. bilaterals and effectively prevents a situation similar to shipping from developing. Furthermore, since the cost of capital varies little worldwide, and there is little or no difference in...

Balancing items

In practice it is impossible to identify all flows invisibles are hard to track, some speculative flows go unmeasured and some transactions are concealed by tax evasion or organised crime. Even visible trade is sometimes overlooked. In the late 1980s British customs officials stumbled upon 1.5 billion of aircraft imports which had previously gone unnoticed. In addition, the balance of payments accounts relate to specific periods such as calendar years. Lags mean that one-half of a transaction may not be recorded in the same period as the other half.


In the Third world both nation-building and egalitarianism were the aims of the leaders who saw the State as an enterprise. As in the past this led to dirigisme and the control of the market. The 'nation-building' aim was particularly badly served as the dirigisme it entailed led as in 18th century Europe- where the mercantilist system of the post Renaissance absolutist states was established for similar motives- to national disorder. (see Hecksher). For dirigisme bred corruption, rent-seeking, tax evasion and illegal activities in underground economies. The most serious consequence for the State was an erosion of its fiscal base and the prospect of an unMarxian withering away of the State. In both cases economic liberalization was undertaken to restore the fiscal base, and thence government control over ungovernable economies. In some cases the changeover could only occur through

Value of an Asset

To match the way in which certain assets depreciate and to meet regulator - or accuracy requirements, many different depreciation models have been developed over time. Of the large number of depreciation schemes available (see Close-Up 6.1), straight-line and declining-balance are certainly the most commonly used. Straight-line depreciation is popular primarily because it is particularly easy to calculate. The declining-balance method is required by tax law in many jurisdictions for determining corporate taxes, as is discussed in Chapter 8. In particular, straight-line and declining-balance depreciation are the only ones necessary for corporate tax calculations in Canada, the UK, Australia, and the United States. Consequently, these are the only depreciation methods presented in detail in this book.

Offshore Funds

Offshore funds are generally based in tax haven countries such as Bermuda, the British Virgin Islands, or the Cayman Islands. In recent years, Ireland has also become increasingly important as a domicile for offshore funds. These offshore funds are not to be confused with funds that are offered to retail investors in the European Union, Japan, or elsewhere. The countries in which these funds are sold all have regulatory schemes very similar to the SEC scheme that governs mutual funds in the United States. The basic message to the fund manager is the same as in the United States If you want to sell to the general public, then you have to follow investment restrictions designed to protect the general public. The tax haven countries mentioned above do not restrict the investment activity of the funds, nor do they impose taxes on the funds. But they do impose various administrative fees, so that an offshore fund business is often a significant source of revenue for its host country.

Performance Fees

If the hedge fund takes the form of an offshore corporation, then there is also a tax advantage. The asset-based fee and the performance-based fee both build up inside the offshore corporation and are not subject to taxes until they are explicitly repatriated back to the United States.


The microeconomics of money laundering suggests that if the activity becomes more costly, the incentive to engage in such activity will diminish. The imposition of penalties on financial institutions will increase the risk-inesss of laundering activity and increase the premium paid by the criminals to launder illegitimate funds. The crime and tax evasion literature suggests that a reduction in the return from illegitimate activities will lead to a tendency towards legitimate activity. Alternatively, if the return from This chapter has examined the various methods that have been used to launder cash obtained from criminal activity. Money-laundering activity covers a wide area of criminal activity - from the concealment of cash from drug trafficking to tax and value-added-tax evasion. The theoretical literature on the microeconomics of money laundering is closely associated with the economics of crime and punishment, tax evasion and the black economy. Traditionally the macroeconomics of...

Evidence on Evasion

The model of tax evasion has predicted the effect that changes in various parameters will have upon the level of tax evasion. In some cases, such as the effect of the probability of detection and the fine, these are unambiguous. In others, particularly the effect of changes in the tax rate, the effects depend upon the precise specification of the tax system and upon assumptions concerning attitudes towards risk. These uncertainties make it valuable to investigate further evidence to see how the ambiguities are resolved in practice. The analysis of evidence also allows the investigation of the relevance of other parameters, such as the source of income, and other hypotheses on tax evasion, for example the importance of social norms. There have been two approaches taken in studying tax evasion. The first has been to collect survey or interview data and use econometric analysis to provide a quantitative determination of the relationships. The second has been to use experiments to provide...

Effect of Honesty

The evidence discussed in the previous section has turned up a number of factors that are not explained by the basic model of tax evasion. Foremost amongst these are that some taxpayers choose not to evade even when they would accept an identical gamble and that there are social aspects of the evasion decision. The purpose of this section is to show how simple modifications to the model can incorporate these factors and can change the conclusions concerning the effect of the tax rate. The feature that distinguishes tax evasion from a simple gamble is that taxpayers submitting incorrect returns feel varying degrees of anxiety and regret. To some, being caught would represent a traumatic experience which would do immense damage to their self-image. To others, it would be only a slight inconvenience. The innate belief in honesty of some taxpayers is not captured by representing tax evasion as just a gamble nor are the non-monetary costs of detection and punishment captured by preferences...

Tax Compliance Game

Even without specifying details of the game, it is possible to make a general observation predictability in auditing cannot be an equilibrium strategy. This can be seen in several stages. First, no auditing at all cannot be a optimal because it would mean maximal tax evasion. Secondly, auditing of all declarations cannot be a solution either because no revenue service would incur the cost of auditing knowing that full enforcement induces everyone to comply. Finally, pre-specified limits on the range of delarations that will be audited are also flawed. Taxpayers who are considering under-reporting income will make sure that they stay just outside the audit limit, and those who cannot avoid being audited will choose to report truthfully. Exactly the wrong set of taxpayers will be audited. This establishes that the equilibrium strategy must be unpredictable.

Tax reform H2

Tax reform is high on the political agenda of many countries, including the UK, Canada, New Zealand, France, Japan and sweden. common to many of these proposals is a switch from income to expenditure taxes and a reduction of the top marginal income tax rates. indexation of personal allowances is often removed, thus increasing tax yields in times of inflation. in the uK, the top marginal rate of income tax was reduced in 1979 from 83 per cent to 60 per cent and value-added tax was raised from two rates of 8 per cent and 12.5 per cent to a single rate of 15 per cent in stages, corporation tax has been reduced from 52 per cent to 35 per cent. But in the Budget of 1988 income tax was simplified by the reduction in the number of bands to two - at 25 per cent and 40 per cent. In the USA, the Reagan Administration quickly reduced the top marginal rate of income tax from 70 per cent to 50 per cent and in 1986 the top rate was cut to 28 per cent. Japan reduced the top income tax rate from 85...

Policy Reform

The analysis of Section 23.2.2 has demonstrated the surprising and strong result that the long-run tax rate on capital should be zero. Although the derivation was undertaken for an exogenous growth model, the result also applies when growth is endogenous. The basic intuition that the intertemporal allocation should not be distorted applies equally in both cases. This is an important conclusion since it contrasts markedly with observed tax structures. For example, in 2002 the top corporate tax rate was 40 in the US, 30 in the UK and 38.4 in Germany. Although Ireland was much lower at 16 , the OECD average was 31.4 .

Financing the war

A number of explanations have been offered, all of which may tell us something about what was happening. Contemporaries pointed to the use of US currency abroad such as in Cuba, Canada, and Europe. Contemporaries also suggested that the founding of the Federal Reserve had led to a greater use of currency because the presence of the Federal Reserve added to the safety and convenience of the currency. Since the Federal Reserve was a relatively new institution when the war began (it only came into being at the end of 1913), this effect may still have been in process during the war. Philip Cagan (1958), however, noted that currency in circulation also rose in World War II, a development that he attributed to the rise in income tax evasion and the greater use of currency by military personnel and by civilian workers moving into areas where they did not have established banking relationships.


As we are more concerned with motivation than the size of the loss it seems appropriate to consider the evidence in studies of tax evasion see Elffers (1999) . Work in this area began with the rational choice model in its SEU variant, but many other decision-making models have been applied. The biggest departure from the mainstream is in studies which look at underlying personal differences in the tendency to observe the norm of (near) full tax observance irrespective of the levels of punishment and returns to evasion. These suggest that the factors mentioned in Chapter 5 are relevant to tax cheating that is people observe the rules as a function of how reasonable they think the system is in terms of fairness, the use made of the tax revenues and the behaviour of those in the reference group to which the individual belongs. All of these will go to make up the level of the internally imposed feeling of guilt costs that an individual experiences if tempted into evasion. Elffers (1999,...


Digital currency can be equipped with varying degrees of anonymity, masking the user identity to the bank, the payee, or both. Strong anonymity guarantees untraceability whereas a weaker version allows the user's identity to be traced when the need arises. The issue of anonymity may evokes debates about tax evasion, money laundering and other criminal uses of digital

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