Offshore Tax Evasion and Celebrities: Soccer Star, Christiano Renaldo

June 29, 2017  |   Posted by :   |   Tax Evasion   |   0 Comments

On June 13, 2017 Bloomberg News reported that Christiano Renaldo, the world’s best paid athlete ($93m last 12 months), who lead Real Madrid to Championship and Spanish Titles (and was 4 time world soccer player of the year) was accused by Spanish prosecutors of $16.5m tax evasion.

According to prosecutors, for the 3-year period (2011-2013), Renaldo under reported worldwide income stating 11.5m Euro while earning 43m Euros. He apparently has assets outside of Spain of 203m Euros (as disclosed in 2014 tax declaration).

The income apparently came from income from payments for his celebrity “Image Rights” (as the world’s leading soccer player). He is accused of “knowingly” hiding this income offshore and not paying income taxes due on these payments received.

He joins other worldwide soccer stars (Lionel Messi, who had his appeal rejected 6/17 over the same issue in Spain for which he was convicted of tax evasion and given a 2 year jail sentence which he never served. Neymar, his teammate is also under investigation for tax evasion related to his transfer from Brazil team Santos).

For the first time, international celebrities are now facing criminal tax evasion prosecution for unreported offshore income received from payments for their Image Rights. Athletes, Movie Stars and Musicians all face the same danger. With the disclosure of hidden assets and income held thru anonymous offshore entities, in Switzerland and the BVI (Panama Papers) the days of tax cheating for world wide celebrities appears to be coming to their bitter end. Or as the Bob Dylan song goes, “Its all over now, Baby Blue”.

The Cristiano Ronaldo tax evasion case in Spain centers on the soccer star’s Celebrity Image Rights. The primary allegation against Ronaldo is that he assigned his Image Rights (Name and Likeness) to offshore shell companies; he hid the ownership from the Spanish Taxing Authorities and is being criminally prosecuted for failure to declare the related income and pay tax due.

The Spanish Prosecution alleges that Ronaldo failed to provide Spanish Tax Authorities with a “Complete Accounting of Earnings” from his Celebrity Image Rights. The Prosecution alleges:

1) Ronaldo used his offshore company (Tollin) to hide income from his Celebrity Image Rights from the Tax Authorities and filed tax returns that understated his income and tax due;

2) The Tax Authorities allege that Ronaldo defrauded the Spanish Government out of 14.7m Euros ($16.5m US) between 2011-2014. Apparently in 2014, Ronaldo received a large payment for his Celebrity Image Rights (for the period 2015-2020) days before a Spanish Tax Law (the David Beckham Law was repealed). The timing of the payment in light of the repeal of the law indicate the transaction was “tax motivated”.

3) Ronaldo’s Agency (Gestifute) issued a public statement stating “using off-shore structures is common among soccer players”.

Ronaldo’s case in which he is being prosecuted by Spain for tax evasion is the second major tax evasion case involving a major worldwide soccer star. Soccer star, Lionel Messi, was previously convicted of tax evasion in Spain for using shell companies (established in the UK, Switzerland, Uruguay and Belize) to avoid taxes on 4.16m Euros of Messi income derived from his Celebrity Image Rights.

In Messi’s case, Spanish prosecutors focused on Messi’s clandestine, secretive, opaque structure in which the names of the beneficial owners of his off-shore shell companies was hidden, not revealed to tax authorities or the income received declared for tax purposes. The Court found Messi guilty of setting up a “chain of shell companies” to conceal criminal tax evasion and sentenced him to 21 months in jail (and his father to 15 months in jail) but they never served the jail time (in Spain sentences under 2 years do not require incarceration).

At trial, Messi claimed that he “did not understand the structure”, that he signed documents without reading them and he was just an innocent taxpayer who made mistakes. His defense failed. The Court held that he was being “willfully blind” to avoid his tax obligations.

In the United States, US athletes, entertainers and celebrities with worldwide income, which is not reported face heightened scrutiny. As of 2010, the Foreign Account Tax Compliance Act (“FATCA”) requires US taxpayers to include in their tax returns “world wide reporting and disclosure”. FATCA requires foreign banks to disclose American’s accounts held outside of the US, which are over $50,000. As of 2017, over 100,000 foreign financial institutions in over 80 countries are co-operating with the IRS to reveal massive amounts of financial information regarding US taxpayer offshore accounts.

In the US, willful “blindness” to tax obligations is not a defense to criminal tax evasion charges. Willfulness is defined under US tax laws as an intentional, voluntary violation of a known legal duty. Willfulness is confirmed by the Taxpayer knowledge of the tax reporting requirements and the Taxpayer conscious choice to fail to report the income and comply with the tax law.

A conscious effort to avoid learning about their tax reporting duties for offshore income is considered willfulness.

If the world’s biggest soccer stars use anonymously owned offshore companies to hold their Celebrity Image Rights in order not to report the related income and pay taxes due, after being advised by top lawyers, bankers and accountants (as revealed in the Panama Papers which included Messi) what are the risks for US athletes, entertainers and celebrities who also fail to report their worldwide income?

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Panama Papers Update – OECD

June 28, 2017  |   Posted by :   |   Tax Evasion   |   0 Comments

In a major development the Paris based Organization for Economic Co-operation and Development (OECD) confirmed on 6/28/17 (Financial Times) that the resulting uproar and political pressure from the Panama Papers has lead to all uncooperative tax havens agreeing to commit to international transparency reporting standards (known as CRS i.e. Common Reporting Standards). These new agreements commit the over 80 tax havens worldwide to exchange tax information on request and commit to automatic information exchange.

Starting in September 2017 worldwide countries and financial centres will send to Foreign Tax Authorities details of client Bank balances, interest, dividends and income from insurance products. The only non-participating country is Trinidad/Tobagos judged too small to matter.

The ramifications are still unknown but it appears that foreign shell companies (held in offshore tax havens for secrecy and maintained with anonymous owners) may now have a complete disclosure of their financial details sent to relevant Tax Authorities worldwide. Ironically, the US, which spearheaded disclosure of offshore holdings with the 2010 Foreign Account Tax Compliance Act, known as FATCA, is not committing to join the CRS preferring to exchange financial information under FATCA (which is considered to have lesser disclosures required than CRS).

In the words of the international Tax Justice Network, Alex Cobham, Chief Executive: “The US is the elephant in the room. If you are going to produce a tax haven blacklist with one member it would not be a small Caribbean country, it would be Tax Haven USA”. Disclosures subsequent to the Panama Papers, confirm that in recent years multiple US states (Delaware, Wyoming, South Dakota, Nevada) have been the recipient of billions of dollars of wealth, repatriated from offshore tax havens “hiding in plain sight” in the US behind State formed anonymous companies whose beneficial owners remain undisclosed.

More troubling is the apparent huge failure of the three different IRS Offshore Voluntary Disclosure Programs since 2009 to collect taxes due on undisclosed offshore accounts (reputed to hold trillions of dollars in assets for wealthy Americans in up to 10m separate accounts).

Since 2009, the IRS has collected $9.9 B from 55,800 taxpayers while being aware that up to $184B per year is being not paid for federal, state and local taxes from these “wealthy American tax cheats” who hide their assets offshore behind anonymously owned companies. In comparison, the OECD reports that during the same 8-year period (2009-2017), their commensurate worldwide tax amnesties have collected over 85 Billion Euros (nearly $97B US) from more than 500,000 taxpayers who disclosed their unreported offshore assets and paid tax.

So the major question: Why does the OECD collect nearly 10x the amount of taxes from nearly 10x the amount of taxpayers under the similar amnesty that the IRS has instituted which such paltry results. Who is being protected? Why?

These questions need to be addressed by the IRS, and those in Congress (Congressman and Senators) who do not view tax cheating as a “sport” but as a serious crime (or crimes). Tax evasion is a felony. It is just not unpatriotic it has been analogized by the US Supreme Court as an “embezzlement from the national treasury” (See 2005 Case, Pasquantino). The same very wealthy Americans who prosper from the magnificent benefits of being Americans, turn around and hide their assets and income offshore, commit tax evasion and instead of being criminally prosecuted as unpatriotic tax cheats are allowed to keep their ill gotten tax-cheating gains while living in their multi-million dollar homes, flying on their private jets and traveling the seas on their private yachts.

Why is “tax treason” allowed? Who is willing to face the fact: the richest Americans who owe the most to our great country are bankrupting the nation, states and cities by cheating on their taxes by not declaring their offshore assets or income while the IRS limply fails to enforce tax collection? This does not appear to be what the Founding Fathers had in mind for our terrific democracy when in the Declaration of Independence they granted an American birthright to Life, Liberty and the Pursuit of Happiness.

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Offshore Tax Evasion – Panama Papers Update

June 26, 2017  |   Posted by :   |   Tax Evasion   |   0 Comments

A recent study based on the Panama Papers and HSBC Swiss Bank Private Bank public information leaks verify that the superrich evade nearly 1/3 of their taxes due (See Guardian 6/1/17 article, “Super rich evade nearly 1/3 of their tax due”).

The study was lead by researchers at the Norwegian University of Life Sciences and the University of Copenhagen, which studied wealth statistics in Norway, Sweden and Denmark (where detailed records of personal wealth are available). The study found that similar or higher level of tax evasion were to be found among the super rich in other countries. Examples cited included: Latin America, Europe and Asia where there is more offshore wealth ownership than Norway (& other countries studied).

The Study’s findings confirm that the top .01% of the world’s wealthiest people who own 50% of the world’s wealth use offshore tax havens to hide their wealth (i.e. those who have assets over 31 million pounds or nearly $40m US).

The political and economic ramifications of this pervasive worldwide tax cheating by the Super-rich worldwide can be seen in many countries where the populace lives on $2 per day, where the schools, hospitals, roads, bridges, ports are either non-existent or crumbling, where health care is in short supply so pervasive disease, health issues and suffering are massive.

The career politicians and the respective taxing agencies turn a” blind eye” and allow the proliferation of tax cheating which bankrupts entire cities (see Detroit, Michigan, numerous cities in California and other places), states (the State of Illinois is virtually bankrupt), and countries Greece’s financial fiasco is the direct result of a reported 89% of their taxes due being uncollected.

Without tax revenues, governments cannot fund needed social services. Crime rises. Criminals are enriched. Even in the United States which has the Internal Revenue Service the world’s leading and pre-eminent taxing authority the Super-rich have made a mockery of taxes.

Estimates in the US are that up to 10m US taxpayers have undisclosed offshore accounts involving trillions of dollars in assets held secretly in the 80 world wide tax havens lead by Switzerland and the United Kingdom territories and crown dependencies. According to published studies, the United States/ State & Local Governments are out $184 B per year in tax revenues as the Super-rich hide their assets offshore, do not report their income while bankrupting US states and cities, underfunding US pensions and destroying the US safety net of health, education and transportation. While less than 1% of these taxpayers live in $25m+ homes, drive $3m cars (see new Bugatti car), travel on their privately owned jets and take cruises on their giant yachts the rest of America pays the Bill.

Who invented these rules? How can the Super-rich cheat on their taxes and get away with these tax crimes?

In the US not paying taxes due on undisclosed assets and unreported income subjects “Tax Cheats” to criminal prosecution for 4 separate felonies for tax crimes: willful evasion of tax, obstruction of tax collection, conspiracy to commit tax evasion (if done in tandem with another party, and filing false income tax returns by failing to report their income. These 4 tax crimes have statutory punishment of up to 16 years in jail.

If the Tax Cheats use their tax evasion proceeds to buy assets it is then designated as money laundering. If they use mail or wire transfer as a result of the asset purchase (which may include telephone calls, checks, wire transfers or related correspondence) each of these are separate felonies with 20-year jail sentences.

Since 2006 when Senator Carl Levin introduced the Stop Tax Haven Abuse Act the US Congress has known that nearly $200B per year in taxes due goes uncollected. Over the last 11 years nearly $2 Trillion in taxes have been uncollected. The IRS has responded with three separate offshore voluntary disclosure programs commencing in 2009.

In the last 8 years, as of 2017, the IRS has collected $9.9B from 55,800 taxpayers. Less than 1% of those cheating on their taxes have been held to account for their tax crimes. Nearly $2 Trillion in federal/state/local tax is missing from affected governments.

If this what the IRS calls success, how do they define failure?

The world wide tax system is clearly broken, it is up to all global taxpayers to demand that their elected officials do what is necessary to fix it or it will stay broken at which point everyone loses except those criminals who successfully cheat on their taxes.

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Offshore Tax Evasion and the City of London (UK)

June 19, 2017  |   Posted by :   |   Tax Evasion   |   0 Comments

In an explosive article for the UK Independent, author Paul Holden poses a rhetorical question, “David Cameron vowed to crack down on offshore tax evasion so why has it disappeared from the Tory Manifesto?”

Previously in 2016, Italian Mafia expert and author Roberto Saviana labeled the UK “the world’s most corrupt country” citing the vast sums of “dirty money” that flow into London via the British territories and crown dependencies which are non-transparent tax havens.

In the City of London (the financial center of London) a vast interconnected cluster of bankers, lawyers, accountants and advisors get paid huge sums of money to facilitate tax cheating by hiding funds for the super-rich as evidenced by disclosures on the Panama Papers and the Swiss Leaks. These tax-cheating professionals have created a cottage industry for their criminal tax evasion pursuits and are the “Enablers” of the tax crimes and money laundering which has the City of London at their epicenter. The Tax Justice Network has cited them as the biggest threat to financial transparency.

In 2016 the OECD estimated that $240B per year in tax revenue is lost annually due to worldwide tax cheating. Separate US estimates are that $184B per year in Federal/State/Local taxes are lost annually to offshore tax evasion. US taxpayers who illegally do not declare assets held offshore or income from those assets are distinguished from US multi-national corporations who, under existing US tax law, do not have to pay tax on offshore profits until the funds are repatriated to the US. This inconsistency in US tax law smacks of both lack of patriotism and general unfairness to all those patriotic Americans who faithfully pay their taxes annually.

In 2012, the Tax Justice Network estimated that between $21 Trillion – $32 Trillion is held as private wealth for super-rich individuals worldwide in 80 worldwide tax havens. The UK is at the head of the list sponsoring numerous worldwide tax havens holding trillions of dollars in financial wealth. Offshore tax evasion for the super rich does not yet account for the proceeds from the offshore tax evasion which are used to “launder” these criminal illicit funds and are used to purchase worldwide real estate, art, yachts, private jets, jewelry and gold bullion.

The corruption of the super rich, the failure of elected officials or taxing authorities to seriously pursue these tax and other crimes has led to a world wide network of less than 1% of the population controlling the vast world wealth. Russian oligarchs, Saudi princes, corrupt politicians, dictators, despots, drug dealers, arms traffickers, sex slavery trade all benefit and get to keep their ill gotten gains. They live the life of wealth and ostentatious exhibitionism while driving around in their $2m cars, from their $25m+ homes to go and board their private jets and boats. Simply put, the worldwide tax system is a “rigged game” where the super rich cheat on their taxes, launder their tax evasion proceeds into expensive assets and get away with it.

As the bank robber, Willie Sutton once replied when asked why he robbed banks stated, “that’s where the money is”. The superrich do not rob banks, they rob national treasuries. In the 2005 US Supreme Court Case Pasquantino, the Court analogized those who do not pay their taxes as embezzling funds from their national (or state) treasury.

IRS/2009-2012 Offshore Voluntary Disclosure Program

Since 2009, the IRS has established 3 different Offshore Voluntary Disclosure Programs (most recent version implemented in 2012 and significantly modified in 2014). In 2017, the IRS has reported that to date (8 years later) the IRS has received 55,800 taxpayer disclosures of unreported offshore accounts/income and has collected $9.9B in tax, interest and penalties.

While the United States has annually nearly $200B in lost federal, state and local tax revenue from the tax cheating done by the super rich (facilitated and enabled by their legion of advisors), since 2009 the IRS paltry collection efforts has netted less than $10B from less than 60,000 US taxpayers despite 3 separate Offshore Voluntary Disclosure Programs implemented by the IRS since 2009. While the IRS estimates there may be up to 10 million US taxpayers with undisclosed offshore accounts, they have not even found 1% of these taxpayers.

In the UK territories the British Virgin Islands named in the Panama Papers, a small island in the Caribbean with 28,000 population, since the 1980’s, when they legislated account secrecy laws, has created over 1m companies (with no disclosure of the actual owners) of which 479,000 are still in existence. Over ½ of the thousands of companies set up by disgraced Panama Papers law firm Mossack Fonseca were in the BVI.

The social, political and tax ramifications of this entirely corrupt worldwide system depends on the secrecy of the tax havens, and the expertise of lawyers, accountants and bankers who facilitate these crimes. The sad truth is: they are bankrupting their own countries.

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The IRS and Married Couples: Real Estate

June 15, 2017  |   Posted by :   |   International Tax Planning,IRS Tax Audits   |   0 Comments

Two new cases in 2017 have been recently decided by the US Tax Court, which involves married couples with Real Estate:

1. Asad, TC Memo. 2017-8: Husband & Wife who each owned rental property deducted large losses on their joint tax returns. They later divorced. As per the divorce agreement, the divorced couple wanted to split the taxes 50/50. The IRS successfully argued at trial that under the joint tax returns each spouse was jointly and severally liable for the taxes owed. The Tax Court ruled in favor of the IRS holding that the tax allocations set forth in the divorce agreement do not control the couple’s liabilities to the IRS.

Under Asad, the key issue is that the spouses filed joint income tax returns and therefore were jointly and severally liable for all taxes due. They each individually owed 100% of the taxes due and could not contract between each other to pro-rate the taxes on a 50/50 basis. In addition, the divorce decree did not supersede the IRS legal right to pursue collection against for both spouses for 100% of the taxes due, so if one spouse did not pay their share of the taxes due (50%), the other spouse could be obliged to pay the full 100% of the taxes due.

For married couples, the Asad is an example of the dangers in filing joint income tax returns which would not have been the case (for collection purposes) if the spouses had filed married filing separate tax returns in which case they would have been held liable for only the taxes due under their filed tax return.

2. Nielsen, TC Summ. Op. 2017-31: a couple who owned several rentals incorrectly included the cost basis of the land and the buildings in the computation of the depreciable basis (which is not allowed since land is non-depreciable). During the IRS audit, the IRS relied on county assessments to figure the cost apportionment between the value of the land and improvements and the Tax Court sided with the IRS stating their allocation was reasonable.

Taxpayers, who buy real estate, should specify in the contract of sale the total purchase price and how much is allocated for the building and for the raw land. The contract of sale then becomes their evidence of the depreciable basis of the property (i.e. Building not land). The Taxpayers should maintain copies of the contracts for the original acquisition and then use it for any future sale tax planning. Building depreciation is subject to recapture as ordinary income. Capital gains tax is recalculated at ordinary income tax rates to the extent of recapture of prior depreciation deductions and taxed as ordinary income. Since long-term capital gains tax rates are 20% and ordinary income tax rates are 39.6% (maximum federal tax rates) this tax planning is essential to minimize tax due on sale of real estate.

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