Considering a foreign bank account? It pays to know where your money might be going.
As we have discussed, there are a lot of reasons people hold assets in offshore bank accounts. You might be living abroad, wish to diversify your portfolio, or are experiencing economic tumult in your home country. For security, anonymity, and growth opportunity, an offshore tax haven could be your answer. If that's the case, it’s important to understand the difference between an offshore financial center (OFC) and a secrecy jurisdiction. It also goes right along with the conversation about the difference between tax avoidance and offshore tax evasion.
Sometimes, looks can be deceiving. The term tax haven, while conjuring visions of waves lapping on an island paradise, can also refer to Luxembourg, Delaware, or even Wyoming in the good old U.S. of A. These are jurisdictions that offer financial services along with preferential tax and business structures that appeal to businesses and investors from around the world. While a tax haven may be labeled as onshore, the term offshore identifies that the tax haven is looking to serve the needs of non-resident or other global interests.
Tax Avoidance vs. Evasion
A tax haven can be an OFC, as noted above, interested in attracting foreign business through financial services, possessing a relatively insignificant reporting and regulatory structure, and tax rates and other conditions that are meaningful to the offshore investor. OFCs are attractive to global businesses looking to shift tax payments from high-tax jurisdictions, where much of their business is conducted, to the low-tax jurisdiction of the OFC.
While an OFC provides a certain level of opacity to investors, it is not the overall aim of an OFC. Investors circulating funds through a Controlled Foreign Corporation (CFC) may be doing so as a legitimate and legal means of tax avoidance—not evasion. By nature, OFCs involve more regulatory reporting than is likely required in a secrecy jurisdiction.
A secrecy jurisdiction can have a lot of the same attributes as an OFC but is primarily structured to provide secrecy and opacity to businesses, groups, and people who do not wish to be identified. In short, people and businesses that may have something to hide—including criminal enterprises or terrorist organizations.
According to the Tax Justice Network, a secrecy jurisdiction offers services that can assist its clients evade legitimate tax liabilities and skirt financial regulations against global money laundering, including reporting requirements. A secrecy jurisdiction may enable networks of entities, funds, and processes designed to hide, launder, and move money across borders without regulatory oversight.
OFCs and secrecy jurisdictions may look similar, but their purposes are not. If you are considering offshore investment, know your aims—and your risk.
Facing Legal Issues with Offshore Accounts? We Can Help.
While offshore structures may offer opportunity, they can also invite scrutiny—especially when reporting obligations are overlooked or misunderstood. If you’re being audited, investigated, or have concerns about offshore account compliance, the experienced tax attorneys at Robert J. Fedor, Esq., L.L.C. can help.
We focus on resolving complex offshore tax issues and defending clients in civil and criminal tax matters. Contact us at 440-250-9709 or schedule a confidential consultation. We serve clients in Ohio, New York, Chicago, and internationally.
Want to learn more about how offshore tax issues unfold? Download our free guide, Offshore Tax Matters Explained, for insights into reporting rules, risk factors, and how to stay ahead of trouble.
