Tax Compliance & Privacy Together: PPLI

Expanded Worldwide Planning (EWP) in Action

A government needs tax dollars to achieve its aims.  Many countries give their citizens, at least in their official pronouncements, a right to keep their financial affairs private.  We have conflict here.  How is this conflict resolved?

In most governmental systems throughout the world, the judicial system has the role of mediator between a government and its citizens. We will discuss two current topics in this area below.  But first, since our role is to assist private clients in navigating the difficult waters between tax compliance and privacy, a word on how we accomplish this.

We are advocates of Expanded Worldwide Planning (EWP).  EWP works to resolve the conflict outlined above. This is achieved by using a properly structured Private Placement Life Insurance (PPLI) policy.

Any asset that can be held in custody by a reputable trust company can go into the PPLI structure. Many policies are owned by trusts which can be domiciled in jurisdictions in keeping with the client’s planning needs. In terms of asset management, it is an open architecture model where the assets can be located in multiple jurisdictions with multiple asset managers.

PPLI insurance costs generally average about 1 percent of the cash value of the policy. The cost of the death benefit varies with the health and age of the insured person, and generally policies are designed with the lowest death benefit possible. Tax and enhanced privacy benefits outweigh the costs of using a PPLI structure. Asset management fees will depend on the asset manager(s) selected to manage the assets inside the policy.

Notable Current Issues on This Topic

These two important items are brought to us courtesy of the Society of Trust and Estate Practitioners (STEP).

  • Powers to issue ‘unexplained wealth orders’ against people who cannot account for their assets, as set out in the UK Criminal Finances Act 2017, will come into effect this Wednesday (31 January), the UK government has announced. A new procedure allowing the authorities to issue bank account freezing and forfeiture notices without a court order comes into force at the same time. An extended legal definition of ‘cash’, to include many kinds of physical property, will come into force on 16 April, along with a new procedure to seize, detain and forfeit it.
  • The trusts, tax structures and other banking arrangements disclosed by documents stolen from offshore law firm Appleby Global are unlikely to be examined in detail in the course of the firm’s breach of confidence litigation against the BBC and the Guardian, according to an interim judgment of the England and Wales High Court. The primary issue will be whether the defendants’ journalism was sufficiently in the public interest to outweigh the breach of confidence entailed by the hacking of Appleby’s computer system, and the subsequent leaking of its client documents to the media (Appleby v BBC and The Guardian, 2018 EWHC 104 Ch).

The first news item is striking in that the UK government has eliminated the obtaining of a court order in allowing authorities to issue bank account freezing and forfeiture orders.  We mention the second item, Appleby v BBC and The Guardian, because the issue the Court is deciding goes to the heart of all the recent leaks of private client information by news organizations and non-profits.

EWP and a properly structured PPLI policy cannot solve all your problems, but we hope we can assist in solving a few of them.  We welcome your inquiries, comments, and suggestions.

 

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

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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 RFC, @ Advanced Financial Solutions, Inc

Michael Malloy Contact Info