Part One: Setting Up
Want to pay the same tax rate as Apple, Google or the Prime Minister, but don’t have millions to spend on advisors?
Setting up in a tax haven is a completely legal way to avoid the hassle of paying the same share as the rest of the population. The Chaser’s Guide to Tax Havens will see you go from Overtaxed Chump to Freeloader virtually overnight, with our simple 1,413-step process.
This quarter, step one: setting up your corporate vehicle. Plus, some bonus handy hints to help you deflect criticism during Question Time.
When The Chaser decided to launch the Quarterly, there was only one concern on everyone’s mind: what if print publishing was so amazingly profitable that we end up paying mountains of tax?
Of course, this question doesn’t just relate to print publishing. It is of concern to a wide variety of industries: from penny-farthing manufacturing to fax machine retailing.
In fact, no matter what industry you’re in, the risk is that some of your income will be used to fund the education of your neighbour, or provide affordable medication to the elderly.
The question is: how can you avoid being one of the ones who still contributes their fair share?
After all, even Prime Ministers nowadays are wising up to advantages of offshore tax havens, lest they contribute avoidably large sums to the common weal.
Luckily, many of the biggest companies we know and love have thought of a solution. Google, Apple and Chevron pay little to no corporate tax in Australia despite doing billions in revenue each year. All thanks to ‘tax planning’.
Setting up in a tax haven is surprisingly easy – and can be fun, as long as you’re drunk. Before we begin, it’s important to understand the thinking behind modern corporate structures.
Step One: Change your thinking
There are lots of pre-conceived notions you will need to be jettison before you embark on the tax-minimised lifestyle.
Myth 1: Paying tax is a social necessity
Even if you’re the president of your local Ayn Rand Book Club, you probably grudgingly admit that society only functions because there is enough money to pay for the military, police and, perhaps some roads, right? Wrong. Society functions because people pay tax. But if you structure yourself in way that you’re no longer a human, but instead a faceless, inhuman corporate entity, then you needn’t feel any obligation to pay tax inside the jurisdictions you operate.
After all, corporations don’t drive, they don’t go to school or hospital. And they don’t even serve in times of war. But most of all, they don’t have the capacity to understand moral obligations, or feel guilt about freeloading. Inhumanity never felt so carefree!
Myth 2: Profits are good
Profits are a wealth-destroying symptom of bad planning. The reason is simple: in many jurisdictions, profits lead to taxes. And taxes lead to having your hard earn wealth frittered away on people who are even worse at financial planning than you.
If you allow your company to be taxed, you are merely creating an incentive for more bad planning. By avoiding tax, you are setting a positive role model for companies everywhere.
And while everyone here at The Chaser acknowledges that there is a certain cost to living in a “society” (whatever that is), it would be an abrogation of our fiduciary duties as directors if we didn’t aggressively and relentlessly pursue every accounting mechanism to limit The Chaser’s contribution to the childcare crèches and cancer research institutes that politicians are so keen to build on behalf of “society”. After all, when did a company ever have kids or get breast cancer?
For this reason, we spent the northern summer months of this year researching the tax systems across the globe, establishing which ones have the fairest and most equitable structures – that balance the needs of “society” against the needs of making fuck-tons of money. This fact-finding mission was as extensive as possible – looking at the high-taxing socialist utopias of France and Norway, all the way through to the classic havens of Bermuda and Monaco.
NOWADAYS, tax havens even have the Prime Ministerial stamp of approval.
Judging by the Federal Parliament’s Register of Member’s Interests, Malcolm Turnbull understands keenly the benefits of making sure ones investments live and grow off shore, with several investments in managed funds based in the Cayman Islands.
So why does he claim that he pays his income tax ‘in full’ in Australia? Because he does!
Income tax is only payable once the income from those investments is repatriated back to Australia. Of course, the whole point about good planning is to avoid your money coming back on-shore. If you follow our simple guide, there should be no need to repatriate your income ever again! And the great thing is that you can still tell your friends and parlimentary colleagues that you pay your income tax in full!
Step Two: Where to haven?
Our findings were various:
- that Bermuda has some lovely beaches;
- that southern France can get a little nippy if you’re dining in a sea-front villa at twilight, even in summer;
- that Norway’s bars are overpriced and understaffed, especially during peak holiday periods
A word of warning: establishing a corporate structure that follows the best-practice methods requires knowing what those methods are, all of which are, by definition, fiendishly complicated and opaque. It is therefore best to get drunk before deciding on which structure best suits your needs.
The Double Irish Dutch Sandwich
The first thing we did was engage a team of high-paid tax lawyers and accountants to go out to lunch with. While we were smashing down the Moet and oysters, Amy, our intern, was back at the office researching the various tax-avoidance methods. Before our underpaid UberX driver took us to Rockpool, we left Amy with the following instructions:
- our structure has to have the same tax-minimising effect as Apple and Google gets away with;
- it has to be cheap enough for The Chaser to actually do;
- it has to come with little or no administrative burden.
Amy is a somewhat earnest, hard-working figure, and by the time we had polished off the last of the Muscat, she had compiled a 6000 word report, detailing the practices of Apple, Google and Chevron.
While the details are too sobering to detail here (but nice work, Amy – really), basically by far the best design is, surprise, surprise, Apple’s. It comes down to the simple process of setting up a group of companies in Ireland, and then declaring to local authorities that you’re a foreign company for tax purposes, and declaring to foreign authorities that you’re a local Irish company for tax purposes. Brilliant.
But as you’d also expect, the more useable structure comes from Google. Though it’s not as elegant, it gets the job done nevertheless, and involves washing the money through the Netherlands – which has a tax treaty with Ireland – before heading off to a tax haven of your choice. The benefit with this, is that – unlike Ireland – the Netherlands doesn’t have any withholding tax on outgoing funds, which means that if you go via Netherlands you can get the full amount all the way to your favoured destination, without some of it being diverted to any sort of use for the benefit of the public.
Unfortunately, the moment Irish authorities learnt that the loop hole they’d designed for corporations to discover was about to be made public, they immediately announced that it would be rapidly closed off, lest their country be labelled a tax haven. Companies therefore only have until 2021 to work out a different way to protect their profits. Better hurry!
IF YOU SET UP two companies in Ireland you can claim one of them is a foreign company (that is not subject to local tax), and the other one is a local company. You then make all your money in the local Irish company, but then charge royalties equal to your profits to the foreign company. This means that the foreign company, the one that doesn’t have to pay tax, earns all the money.
And then, in a stroke of genius that would even make Bernie Madoff blush, you tick a box on your tax return in the USA, claiming that the whole entity in Ireland (both companies) should be grouped as the same entity – an Irish based group of companies, whose transfers between the companies are private, internal affairs. And because one of the companies is a local Irish based company (the profitless one), the group is assumed to be paying its fair share of tax, and not subject to US tax. Genius.
Of course, now that this sort of planning has become widely known, the Irish government has closed off this particular loophole (allowing Google and other companies until 2021 the chance to find another way to achieve the same outcome), which means that if we’re to replicate such genius planning, we needed to go a bit further afield.
With the Irish Dutch Sandwich option all but closed off to new entrants, we decided to look further afield. We needed a new Netherlands – somewhere that had a tax treaty with Ireland, but didn’t have any withholding tax. Unfortunately, the problem with setting up in the more obvious places like Bermuda or the Cayman Islands is that most legislatures around the world have already wised up to their antics and they are deemed to be “tax havens”. This brings with it a whole host of paperwork and admin that – as a small business operator – defeats the purpose of being in a tax haven in the first place.
So what we needed was a legitimate place, with legitimate tax treaties, that also happened to have a zero rate of corporate tax.
Another long lunch later, and Amy had come up with a list of such places: Mauritius, Malta and UAE.
Amy had stumbled upon a website called Fidusuisse, which allows you to set up companies in any one of 18 offshore locations, including Seychelles, British Virgin Islands and Latvia.
Initially Mauritius caught her eye. Amy talked at length about how Mauritius was a gateway to Africa, and started explaining that places like the Congo were resource rich, and with the current global commodity slump, we could probably pick up a mine or two at bargain basement prices. The Chaser could move away from satire and into the resources sector. “It could be the world’s first satirical mining operation,” she said with more than a glint of possibility in her eyes.
Amy was a bright kid, but there were immediate drawbacks that couldn’t be overlooked. The rules allowed company meetings to be conducted anywhere in the world, but the Mauritius government had sneakily put into the rules the need for two of the company’s directors to come from Mauritius. This would involve paying a couple of locals hundreds of dollars a year, just to be the local faces of our corporation. That’s money that would be better spent on Moet. Secondly, and more chillingly, there was a requirement to prepare and file accounts, and even the possibility of needing an audit.
Audits? Accounts? Ongoing paperwork? One got the feeling that Mauritius didn’t really get the point of what being a tax haven was all about. And while access to the Congo’s rare metals seemed like a missed opportunity, if Mauritius required the filing of accounts, then the government just didn’t understand what “business friendly” environment really meant.
Next, we looked at Malta. The main advantage of this little group of islands is that it is a member of the EU, which means that if we ever went into manufacturing automobiles, we could just cheat our way through the process. “We could make satirical emissions targets,” exclaimed Amy before we explained to her that Volkswagen had already thought of that idea. The advertised benefit of Malta is that it provides “simplified accounting”, which Amy explained meant not having to provide a “true and accurate” record of what has gone on inside you’re business. Now we were talking!
But then we spotted the fatal flaw. In return for this freedom, Malta had a 5% corporate tax rate. While this might appeal to companies desperate for the political stability of an EU member, for us, paying any amount of our money towards social services was a deal-breaker.
Thus, the only option left was the United Arab Emirate of Ras Al Khaimah. 0% tax, proclaimed the Fidusuisse website, which, it went on, is payable by the 5000 or so companies who have so far set up in the RAK Free Trade Zone:
“This is one of the most dynamic free trade zones in the world and it allows 100% ownership of the company for the investor.”
For the simple sum of 2700 euros, the Fidusuisse would set up a legitimate company in RAK.
“And the great thing is,” Amy said, “as far as I can work out, there are no requirements to file any accounts after you’ve set up the company.”
Speaking as a small business owner, this was music to our ears. We knew where The Chaser Quarterly was going to be headquartered. A web search revealed a Hong Kong based company called offshorecompanycorp.com, which, after a quick phone call to them to make sure they existed, offered to undercut the Fidusuisse service. For just $US2495 – $1349 to OffshoreCompanyCorp, and $1150 to the RAK governemnt, and three simple web-forms later, The Chaser International Corporation of RAK was set up.
That’s right. The company behind The Chaser Quarterly now resides in the United Arab Emirates. At the time of press, we were still waiting on our incorporation certificate from the RAK Government, but we were assured it would be issued “next Monday”.
What this means is that no matter how profitable this esteemed publication gets, it will never, ever, pay for universal healthcare.
There was, however, just one fly in the ointment. We were just about to head off to the local watering hole to celebrate, when Amy looked up from her computer. “Hey. This is funny. RAK is dry,” she said, smiling.
For a moment, we didn’t quite get what she meant. Sure, we’d imagined vast tracts of desert. A sandy waste land bereft of water or vegetation, but that was not what she meant. No. We had set up The Chaser Quarterly in a place where it is illegal to possess or consume alcohol. Our board meetings would have to be conducted entirely sober. No beer. Nothing. Our whole creative process – refined over 16 years of back-breaking drinking – would be illegal.
Why had we not tried harder to work out a way to stick with Ireland? At least they had the liquor laws and culture conducive to productive board meetings.
IF YOU’RE SETTING UP in a tax haven, chances are nobody – not even the Australian Tax Office – will ever find out. One of the great advantages of tax havens is that they offer opaque public records. Even when there is a fig leaf of transparency, it is easy to set up “nominees” that shield the true ownership or control of a corporate entity.
But if you find yourself having to declare your assets on, say, a parliamentary register for some reason, then you need a backup plan to attack anyone who criticises your tax planning. Rather than argue the merits of each tax structure, the best approach is to label any valid criticisms as “engaging in the politics of envy”, and claim that your opponents hate rich people. Not only will this make your opponent look like a poor loser, but it will also give the entirely unjustified impression that you inhabit the moral high ground on the issue. Tax minimisation never felt so pure!
When former Apple employees talk about Steve Jobs’ notorious tantrums, I usually imagine a be-skivvied man pacing back and forth in his expansive office, identifying key character flaws with all the flakkies in the room, humiliating them one by one.
Upon hearing the news of RAK’s liquor laws, I ducked out to the local Best and Less, bought myself a black skivvy, put it on, and then came back to the office to commence my take down of Amy and her incompetent, irresponsible, ill-researched fuck up, that had cost the company thousands of dollars in wasted incorporation fees. Unfortunately, everyone had left for the day and were chatting about the problem down at the Toxteth Hotel (it was 3pm, after all).
By the time I arrived, Amy – who was still sober – had already come up with a solution: in the RAK, it is possible to apply to the government to get a licence to consume alcohol. “It looks hard,” said Amy. “But it’s possible.” Relief flooded through my veins. Sure, there’d be some extra paperwork, but for this, it seemed worth it.
Next edition: Step Two – Applying for a liquor licence in Ras Al Khaimah.