Location Will Get You Everywhere

PPLI Elevates Your Tax Efficiency

In using Private Placement Life Insurance (PPLI) for tax efficient structures for wealthy international families, the location of the various elements in the structure is of vital importance.  If any one of these elements is out of position, the whole PPLI structure suffers.

Since the French Open tennis tournament is now being played, we will include a handy description of being out of position below.  For an example from the tax world, a matter from the new U.S. Tax overall was brought to our attention with a video from  Fox News, (Fox Business).  This video highlights the importance of location for the government entity who is collecting the tax.  In this example, a company moves its headquarters, thus, a change in the U.S. taxing authority on the state level.

Merely listing the various location elements in PPLI structuring shows us that we are putting together a complicated puzzle.  But once the last piece of this puzzle is successfully put in place, a powerful result takes place for the client.  We include our list at the end of our blog.

Take this example from a recent PPLI case.  A U.S. Green card holder who spent little time in the U.S., generated her income in a E.U. country through a BVI company. She was not a tax resident of this E.U. country, but wished to shield her substantial income from U.S. taxes.

A foreign non-grantor trust purchased a PPLI. We placed her business inside a holding company structure that was inside the PPLI policy. Now, instead of paying U.S. income tax, and being subject to U.S. estate tax, she was able to take tax-free distributions from the PPLI policy. Many different types of locations were involved here!

We now go to the French Open, where one of the coaches of Rafael Nadal, Francisco Roig, describes one way Nadal maneuvers his opponent out of position, for our example, please read location:

“It’s tougher to play him physically because he’s moving you much more than before,” Roig said. “He’s opening the court unbelievable with the backhand. Before, the backhand—against a right-handed player—was more in the middle. But now you have to run three or four meters more, and open the width in the forehand area. You are soon out of position and then he kills you again with the forehand cross court.”

Our quote is courtesy of Tom Perrotta of the Wall Street Journal,

“A Scary Thought at the French Open: Rafael Nadal Is More Efficient Than Ever.”

This is also our goal for international tax planning–to be more efficient than ever.

Before pondering our lists of location elements, we give you the Fox News video, highlighting the change of physical location of a major company in the NYC investment world.

We must consider the location of all these elements when we craft our structures:

  • the trust that usually owns the policy;
  • the trustee of the trust;
  • the insured or insureds on the policy;
  • the domicile of the insurance company;
  • the assets;
  • the holding company structures, if any;
  • the beneficiaries.

I am sure there are more, but these are the main ones that come to mind.  Please give us your thoughts, and thank you for your continued trust and support.

 

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 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

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Different Uses of a Tax Shield

PPLI: Two Sides of One Face, Part I 

Tax Shield concepts are best understood by comparing similar Private Placement Life Insurance (PPLI) concepts.  In our specialty, PPLI structures for wealthy international families, an article caught our attention that highlights our topic–the difference between PPLI structuring for families strictly in the U.S. context, and those structures that work best for international families.

Our topic is much like the picture of this cat: two sides that have something in common, yet also something that can be very different.

The international families we work with may have ties to the U.S. like U.S. beneficiaries, real estate, or investments, but they also have substantial wealth outside the U.S.  Our firm is able to create structures for these international families that have a very robust character.  An odd phrase for international tax planning, but as you will read below, this robust character allows our firm many more possibilities than we have for our clients who are U.S. persons and just have holdings inside the U.S.

The article mentioned above is “Private Placement Life Insurance Primer, Recent tax law changes make for a particularly interesting time to explore PPLI,” by Brian Gartner and Matthew Phillips.

In the structuring process, one decision that is made early on in the process is whether to put the policy under U.S. tax and insurance rules (a so-called 953(d)) policy, or that of the country where the insurance company is domiciled, usually Bermuda or Barbados, a non-953(d) policy.  If we can use a non-953(d) policy, we have much more flexibility in the structuring process.

In the picture of the cat, the two blue eyes are blue, and contrast to the black and gray sides of the face.  For our discussion, the two blue eyes are what is similar to both 953(d) policies and non-953(d) policies.  So we will look into the eyes of our topic first, and discuss the similarities.

A key element in our two policy types is the tax deferral of the assets inside the policy.  This chart, courtesy of the article mentioned above, is an example of U.S. centric planning. It shows how powerful tax deferral can be in terms of what an investor keeps after taxes. The chart compares a  Taxable Investment vs. placing those same assets inside a properly constructed PPLI policy.

Another aspect where we look into the same pair of eyes and see something similar relates to trust planning with PPLI.  We quote from the article:

“Trustees are attracted to PPLI in the context of multi-generational trust planning for three main reasons: (1) assets within a trust allocated through PPLI grow on an income tax-deferred basis; (2) the trustee can make income tax-free distributions to trust beneficiaries from PPLI without having to consider the income tax consequences of liquidating assets; and (3) the trust will eventually receive an income tax-free insurance benefit, which will serve to effectively step-up the basis of the assets within the trust that are allocated through PPLI.”

In our next blog we will discuss how using a non-953 policy works with the investor control and diversification requirements of the U.S. tax code.

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 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

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Expanded Worldwide Planning (EWP) in Pictures

PPLI + EWP = New Insights

As the saying goes, “A picture is worth a thousand words.” We have paired images with the main principles of Expanded Worldwide Planning (EWP) to hopefully give you some new insights on this planning tool for wealthy international families.  There are many possibilities for using Private Placement Life Insurance (PPLI) in connection with other entities like trusts and holding companies.

Planning with trust and foundations frequently offer only limited tax planning opportunities whereas EWP provides a tax shield. Adding a PPLI policy held by the correct entity in the proper jurisdiction creates a notable planning opportunity.

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. It allows for a tax compliant system that still respects basic rights of privacy. It addresses the concerns of law firms and international planners about some aspects of CRS related to their clients’ privacy. EWP assists with the privacy and welfare of families by protecting their financial records and keeping them in compliance with tax regulations.

EWP gives privacy and compliance with tax laws

Asset protection

Expanded Worldwide Planning  protects assets with segregated account legislation by using the benefits of life insurance. This structure uses asset protection laws in the jurisdictions of residence to shield these assets from creditors’ claims. A trust with its own asset protection provisions can still receive additional protection with PPLI.

Asset protection

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element provides a wealth holder a method to enact an estate plan according to his/her wishes without complying forced heirship rules in the home country. This plan must be coordinated with all the aspects of a properly structured PPLI policy together with other elements of a wealth owner’s financial and legal planning.

Succession planning

Tax shield

EWP adds tax deferral, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered tax-deferred in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

Tax shield

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to PPLI structures. In addition, the insurance company is considered the beneficial owner of the assets. This approach greatly simplifies reporting obligations to tax authorizes because assets in the policy are held in segregated accounts and can be spread over multiple jurisdictions worldwide.

Compliance simplifier

Trust substitute

Expanded Worldwide Planning creates viable structure under specific insurance regulations for civil law jurisdictions. It also creates a new role for commercial trust companies. In most civil law jurisdictions, trusts are poorly acknowledged and trust law is not well developed. As a result, companies with foreign trusts in these civil law jurisdictions, face obstacles.

We appreciate your comments, suggestions, and questions. Please provide us with a brief fact pattern and we can tell you if our firm’s tools are right tool for you.

 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

 

 

PFIC + subpart F + GILTI rules

PFIC + subpart F + GILTI rules = PPLI Opportunity 

A lot of acronyms to swallow!  Yes, the recently enacted U.S. tax reform legislation has been very unkind to those subject to these sections of the U.S. tax code.  Our good friend Private Placement Life Insurance (PPLI) in combination with Expanded Worldwide Planning (EWP) can soften, and in some cases, eliminate these taxes. We will discuss each of these tax rules separately, but first some basics on how you can achieve this success.

Distributions from a properly structured PPLI policy are distributions from a life insurance policy. Like all policies, both U.S. and issued in other jurisdictions around the world, the distributions are subject to the tax code sections that apply to life insurance.

In the U.S. context one can withdraw all basis in the policy, which are the premiums paid, tax free, and take very low cost loans to withdraw the remaining funds.  The costs of these loans is equivalent to an administrative charge, and is usually in the range of 25 bps. PPLI companies are most frequently found in Bermuda and Barbados, and have similar very friendly client access to the funds inside the policy.

The concept of a distribution is important, because a properly structured PPLI policy can hold many different types of assets, basically anything that can be hold by a trust company. More pointedly for our short blog, passive foreign investment company (PFIC) income and subpart F income can be structured inside a PPLI policy, and, therefore, shielded from tax.

It is not in the scope of this blog to discuss the technical tax aspects of these code sections, so we refer you to an excellent article by James Meadow CA, CPA (NC), LLM (US TAX), MBA published recently in Moodys Gartner Tax Law, “The US “Transition Tax” for 2017: More Sad News for Many US Citizens Residing Abroad,”

The article discusses tax from the standpoint of how it affects U.S. persons residing outside the U.S., but gives a very clear and cogent review of how PFIC holdings and those taxed under subpart F are treated under the new U.S. legislation.

The recent legislation has brought an increase in taxation for those who have subpart F income. Thus, we encourage those in this situation to explore using PPLI.  Using PPLI to shield PFIC income has been used for many years.

Section 951A gives us GILTI

The new U.S. tax legislation gives us a new section of the tax code, Section 951A. For those who have an interest in a controlled foreign corporations (CFC), particularly if they are not C corporation shareholders, there is a new opportunity to use a PPLI structure to shield this income from tax. Section 951A gives us global intangible low-taxed income (GILTI), which if held in other than a C corporation, has very unfavorable tax consequences that can be greatly mitigated by using PPLI.

We use the concept of Expanded Worldwide Planning (EWP) that allows income with unfavorable tax consequences to be reclassified as a distribution from a properly structured PPLI policy.

Your suggestions, comments, and questions are greatly appreciated. Thank you for your continued trust and support.

 

 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

 

 

 

PPLI + EWP = Unique Benefits

Expanded Worldwide Planning (EWP)

If a tax authority wishes to tax something, two items of concern are what type of tax to apply and was the transaction done in its jurisdiction. In our internet age this is not always so easy to clarify.  Our embrace of Expanded Worldwide Planning (EWP) makes this process of classification of tax and location simpler.

At the heart of EWP is a properly structured Private Placement Life Insurance (PPLI) policy. The assets inside this policy can be anything that can held by a trust company. These assets can also be located anywhere in the world.  While these assets are inside this PPLI policy, all tax is deferred.  At the death of the insured life/lives under the policy, these assets pass tax-free to the beneficiaries of the PPLI policy.

The news items that gave birth to our thoughts we will discuss below.  But first some more about EWP and PPLI, and how it can streamline reporting obligations to tax authorities, and bypass the need to classify the type of tax that needs to be applied to the assets. As we stated above,all tax is deferred for assets inside a properly structured PPLI policy.

Further, for reporting purposes, the insurance company becomes the beneficial owner of the assets inside the policy.  For clients not seeking to hide assets, but seeking legitimate privacy, this is an added bonus for using EWP.

What to tax and where it is located?

 Our first news item we have quoted previously, and now use it to illustrate how a new tax entity is not so easy to fit into an existing tax code that was written before this new tax entity was even invented. The taxation of property and currency occupy different sections of a tax authorities code.

 Courtesy of Mateo Jarrin Cuvi of Taxlinked.net

“Israel’s tax authorities have decided to classify Bitcoin & other cryptocurrencies as property instead of currencies. How will this affect their taxation.”

Our next quote deals with the location of the item to be taxed, and nicely illustrates how this can be challenging to governments and tax authorities.

Courtesy of Brent Kendall and Nicole Hong of the Wall Street Journal

“High Court Grapples With Case of Emails Stored Abroad”

WASHINGTON—Supreme Court justices voiced concern Tuesday that Microsoft’s resistance to U.S. search warrants for customer emails stored overseas would hamper criminal investigations, in a case that pits leading tech companies against law enforcement.

The justices were reviewing a lower-court ruling Microsoft won in 2016 that clipped the Justice Department’s authority to obtain overseas emails. The battle dates back to 2013 when the U.S. got a warrant that ordered Microsoft to hand over messages in an email account that was linked to narcotics trafficking. Microsoft argued the warrant wasn’t valid because the emails were stored in Ireland.”

Wealthy international clients are looking for simple and compliant structures that also have privacy safeguards.  Using EWP with PPLI can give this to them.  Please let us know how we can assist you further with using these unique and straightforward structures.

 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

 

 

Chinese + Investor Control + PPLI = Success

Part II: EWP Chinese Case Study

Expanded Worldwide Planning (EWP) with the right fact pattern can deliver a Private Placement Life Insurance Policy (PPLI) which gives clients the control they wish.  In the much discussed Webber v. Commissioner, U.S. Tax Court case, the policy issued by the offshore company had a 953(d) election, therefore, the issues of investor control and diversification were of paramount importance.  What if the PPLI policy had been a non-953(d) issued PPLI policy?

For international clients with no connection to the U.S., a non-953(d) policy suits their needs perfectly.  So where does that leave us on the investor control issue?  It eliminates it, along with the diversification requirement under the U.S. tax code.  Why?  Because, if the insurance company was domiciled in Barbados, we are using the Barbados tax and insurance code. For this jurisdiction there are no investor control and diversification requirements.

Let us use a Chinese family as a case study.  Mr. Lee’s wealth had been generated from steel manufacturing in China. Over the years he has used various offshore structures.  Mr. Lee is now concerned with CRS and the fact than these offshore structures will now be reported to Chinese tax authorities.  Using EWP and a properly structured PPLI policy, the insurance company will become the beneficial owner of the assets inside the PPLI policy.

If ties develop to the U.S. through Mr. Lee’s daughters, who are attending school in the U.S., we can also issue a 953(d) PPLI policy to benefit them and shield them from tax. By using an EWP structure, Mr. Lee and his family can keep their affairs private, tax efficient, and tax compliant.

Now back to the Webber case. The most comprehensive article on investor control, as it pertains to PPLI policies, that I have read is by Steven Horowitz. The article is impressive both in terms of the detailed analysis of investor control, and the conclusions that Mr. Horowitz reaches.  We quote one of his key points below, and invite you to read the full article,

“I truly believe that the Service should have lost the case on the issue of investor control, but not because of the fact that the investor/ Taxpayer did not exercise too much control. Rather, the case should have been decided based upon the one major point of law, namely: Jeffrey T. Webber did not own the policy. The body of case law and revenue rulings, right or wrong, provides that it is the “policyholder/ owner of the contract” (See, Rev. Rul. 82-54, 1982 C.B. 11), must be the one who has exercised the excessive control over the investments within the contract. The Code provisions and historical body of tax law which govern the tax treatment of life insurance policies and annuity contracts provides in pertinent part as follows in a very clear fashion, the relevant language is as follows: the Policy Holder and owner of the contract are the parties who may not exercise an overabundance of control over the investments within the contract. As Mr. Webber was not the owner of the policy or policyholder (without application of the grantor trust rules), then the Court could not reach the conclusion that it reached without first dealing with the issue of grantor trust status (which would have made Mr. Webber the “Owner” for all federal income tax purposes), (See Rev. Rul. 85-13, 1985-1 C.B. 184).”

Most wealth owners wish structures where they maintain control of their assets. They also wish to keep their affairs private, tax efficient, and tax compliant. Using EWP and a properly structured PPLI policy, it is possible to achieve all these aims.

Please let us know how we can assist you in using these structures.  Our experienced staff is here to serve you.

 

 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

PPLI Protects U.S. Situs Assets

Estate Tax Planning for Non-U.S. Persons

Winston Churchill’s quote is apt for many who plan for wealthy international clients. Perhaps you have had this happen to you?  You receive a call from a close relative of a client who has just purchased an apartment in their own name. This relative spends considerable time in New York City. You know that the family is now exposed to U.S. estate tax, and you have to figure out how to extricate them from this issue.

Our firm focuses on the adroit and compliant concept of Expanded Worldwide Planning (EWP).  At the heart of EWP is a properly structured Private Placement Life Insurance (PPLI) policy that allows the insurance company of the assets inside the policy to become the beneficial owner of these assets.  In many cases this gives the structure additional privacy protection as well as simplicity.

Life insurance, and this includes PPLI, is a well-recognized and well-established financial planning tool. If the overall structure is properly conceived, you have a tax efficient and compliant structure that gives tax-deferred growth to the assets inside the PPLI policy.  At the death of the insured life in the policy, a tax-free death benefit transfers the assets to, in most cases, a trust that conforms to the family’s estate planning aims.

Prior to the passage of the Trump Administration’s new tax bill, many had speculated on two key possible impacts for non-U.S. persons—the elimination of the estate tax exemption disparity between non-U.S. and U.S. persons, and the elimination of the estate tax itself, which could have eliminated a long-standing reason to use offshore structures.

On December 22, 2017, Public Law 115‑97 (“Tax Cuts and Jobs Act”) was enacted amending the estate tax for U.S. persons only. Sections 2010 and 2001, both of which apply to estates of citizens or residents, did not alter taxes imposed on the estates of nonresidents who are not U.S. citizens who hold U.S. situs assets.

Under Section 2010, the basic exclusion amount for estates of resident or citizen decedents dying after December 31, 2017, and before January 1, 2026, is increased from $5 million to $10 million. But I.R.C. Sections 2101-2108 which pertain to the “Estates of Non-Residents Not Citizens,” were not amended. Accordingly, the tax imposed on the transfer of the taxable estate of decedent nonresidents who are not U.S. citizens remains subject to a minimum basic exclusion of only $60,000.

Given the continuing taxation upon death of U.S. situs assets for those private wealth clients, care is urged in planning how those assets are held. The many and varied planning possibilities inherent in EWP can be achieved through using the correct PPLI structure.  The protection of U.S. situs assets of non-U.S. persons is just one of the many uses of EWP.

If you give us a brief fact pattern of your situation, we can let you know if EWP and PPLI are the right fit for you.  We look forward to your questions and comments.

 

 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

 

 

Domesticating a FNGT vs. Using PPLI

Why PPLI Can Be A Better Choice

When the grantor of a foreign trust dies that has U.S. beneficiaries, the trust becomes a Foreign Non-Grantor Trust, (FNGT) for U.S. tax purposes.  If distributions are then made to U.S. beneficiaries, the trust is exposed to a draconian tax regime. For our discussion, we will refer to this section of the tax code (ss665-669) as the throwback rules.

Briefly, the throwback rules are special rules that can result in adverse tax consequences when a foreign non-grantor trust earns distributable net income (DNI), which accumulates and becomes undistributed net income (UNI), before being distributed to US beneficiaries in later years.

Two common ways of dealing with this issue are domesticating the trust to a low tax jurisdiction in the U.S. like South Dakota, Nevada, or Delaware, and using a Private Placement Life Insurance (PPLI) policy to shield the trust from these significant taxes.  We will briefly discuss and contrast these two solutions.

Amidst this discussion, we will add a little levity in the form of two poems that you hopefully will find amusing and on point.

The Happy Niece

U.S. beneficiaries pay hefty tax,

Those FNGT assets get the axe.

PPLI structuring shows the way,

With a great solution to save the day.

Clients will receive a well-deserved peace,

Desired assets can even pass to their niece.

The PPLI solution is a clear winner when there are both U.S. beneficiaries and non-U.S. beneficiaries, and when there are both U.S. investments and non-U.S. investments.

If the trust is domesticated, adverse tax consequences arise when U.S. beneficiaries are attributed ownership of certain foreign assets held by the trust, such as passive foreign investment companies. The domesticated trust’s U.S. status may increase the administrative burden of establishing and maintaining banking relationships outside the U.S.  Non-U.S. beneficiaries may not find domestication the ideal solution if they would otherwise have little or no U.S. ties.

The PPLI solution does involve fees and the cost of the death benefit on the insured life in the policy.  Usually the tax and privacy advantages of using insurance outweigh these costs.  Although there are less tax benefits, using an annuity instead of life insurance reduces the costs and simplifies the transaction.

Domestication is attractive because the throwback rules have limited application to U.S. trusts.  As with the PPLI solution, domestication rarely reduces existing UNI, it prevents further accumulation of UNI. This makes sense, because undistributed income of a U.S. non-grantor trust is taxed currently, rendering moot the throwback rules’ anti-deferral purpose. Still, without additional planning tools, such as a life insurance or annuity contract, domestication generally subjects ‘domesticated’ income to current U.S. taxation, regardless of the income’s source or whether or not it is distributed.

Foreign investments within the now-domesticated US trust could also raise controlled foreign corporation and passive foreign investment company considerations, making such investments less attractive and indirectly restricting the trust’s investment universe.

Once investments are part of a properly constructed PPLI policy none of the following are treated as taxable income:

  • The income and investment returns inside the policy;
  • Withdrawals up to premium;
  • Policy loans, and;
  • Death benefit proceeds.

Therefore, these items are also not considered DNI and cannot add to the FNGT’s UNI.  Furthermore, trust assets can be used to pay the life insurance premiums on the policy, depleting the existing source of trust DNI.

Prized Relief

Pre-immigration PPLI is wise,

To guard against U.S. taxes will be your prize.

If minimizing taxes is what you conceive,

Your find reward you will surely receive.

Assets grown tax-free will be your motif,

To achieve this goal is a true relief.

Please give us your thoughts, comments, and suggestions.  We hope our brief overview brings into focus how these two methods of dealing with the throwback rules can serve you.

 

 by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

 

PPLI and Pre-immigration Planning

Top Three Important Factors

Pre-immigration tax planning using a properly structured PPLI policy prior to a permanent move to the U.S. can be effective in shielding the assets inside the policy from US taxation for income, gift, and estate taxes. For temporary stays in the U.S., using a Private Placement Deferred Annuity (PPDA) can be highly effective and easier to implement.

The first factor may often be overlooked: find the best immigration attorney possible. Your specific immigration status is a large factor in determining your tax status. United States immigration laws are very complex, but within their complexity lies a tremendous opportunity to live, work, study and/or invest in the US in ways that minimize US income and/or estate tax consequences as well as risk.
Often, the most evident approach to immigration is not the most desirable. For wealthy individuals and families, any discussion regarding US immigration issues should include appropriate wealth planning and tax counsel. An expert immigration attorney will be able to properly coordinate with PPLI planning to achieve the best planning result possible.

The second factor runs contrary to tax laws in most other countries: the concept of U.S. residency for Federal income tax purposes is different from that for Federal gift and estate tax purposes. This is because residence for income tax purposes is determined by reference to one’s residency while residence for estate and gift tax purposes is determined with reference to one’s domicile. Consequently, an individual can be a tax resident for income tax purposes but not for estate and gift tax purposes and vice versa.

There is currently legislation being considered in the U.S. Congress and Senate that may alter these laws, but this is the situation presently. A properly constructed PPLI policy provides tax-deferral for the assets inside the policy. In most cases, the policy passes the assets to the named beneficiary as a tax-free death benefit. PPLI is an excellent tax vehicle to create maximum tax efficiency.

NRA’s Can Use PPLI

The third factor to consider addresses an individual who is neither a resident nor a citizen of the U.S. (referred to here as a “non-resident alien” or “NRA”) who is presented with an opportunity to invest in U.S. real estate, tangible property such as art or collectibles that will be located in this country, stock of a U.S. company, or as a partner in a limited partnership or member of a limited liability company (“LLC”).

Typically, the savvy NRA investor knows what he must do to avoid being treated as a U.S. resident for income tax purposes. But, he may not be aware that these investments could attract one of the three federal transfer taxes, namely, the federal gift tax, estate tax, and generation-skipping transfer (“GST”) tax.

There are various PPLI structures that can be used to mitigate the taxation described above for the NRA. Each of these structures would be tailored to the type of investment, insurance regulations in the NRAs home country, holding period of the investment, and the timing of the liquidity event of the insured person(s).

We welcome any comments on the topic. You can place them at the bottom of this page. Thank you!

 

Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

 

 

Privacy and the Paradise Papers

The “New Switzerland” Revisited

The right to privacy is enshrined in the formal pronouncements of government bodies throughout the world. The Paradise Papers, and previously the Panama Papers, demonstrate that in practice, this right to privacy receives very different interpretations. These two data hacks reveal the conflict between tax authorities’ right to tax and citizens’ fundamental right to privacy.

How one thinks about this conflict is of course dictated by how it is discussed. Most people receive their information from the various media outlets. Depending on whom you listen to, you will receive very different interpretations of the documents that have been put forward to the public.

As quoted in the New York Times this week, Ross Delston, a Washington D.C.-based anti-money-laundering expert, said, “What we learned confirms what we always suspected: That the use of offshore companies is more widespread than ever imagined. Offshore financial centers are useful not just for crooks, oligarchs and politically exposed persons but also to the largest global companies and highest net-worth individuals.”

Mateo Jarrin Cuvi in his October 27, 2017 post on Taxlinked, “Data Protection Takes Hit with Bermuda Hack,” quotes the Cayman Compass in reference to the Panama Papers, “In recent years we have witnessed the emergence of a different sort of “investigative journalism” that largely includes the public dumping of private information, oftentimes in the absence of analysis, context or verification. It is journalism most foul.”
Two opposing views indeed!

Privacy Moves to the United States?

Another practical demonstration of the conflict between government taxation and citizens’ fundamental right to privacy is what some have termed the “New Switzerland.” This is the movement of funds previously placed in locations like Switzerland and offshore jurisdictions to the United States.

To continue our theme of contrasting viewpoints, below are quotes on tax avoidance. The first is by the Tax Justice Network, and the second by Learned Hand, a U.S. Federal Judge from a 1934 case, Helvering v. Gregory. The attitude expressed by Learned Hand is prevalent in the U.S., while the OECD champions the attitude in the Tax Justice Network quote that is in reference to the Paradise Papers.

“Just because no one is put in jail, doesn’t mean no one has committed a crime. All that said, just because a prosecuting authority doesn’t bring charges, it doesn’t mean that no crime has taken place.”

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

No wonder the “New Switzerland” has come to pass!
One irony in this movement of funds to the U.S. is that the U.S. in effect began the movement of tax transparency with FATCA in 2008, which was closely followed-up with the OECD’s Common Reporting Standard (CRS). Some have brought their funds to the U.S. in structures that can be easily pierced by CRS.

There are structures that give privacy and significant tax benefits to international clients without moving family assets to the US merely to avoid CRS reporting. These structures also achieve tax compliance with tax authorities. Our firm specializes in these structures, and would be glad to discuss them with you in more detail.

We welcome your inquiries. Please Contact Us or write them at the bottom of the page.

Thank you!

Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc