Few people would think of the U.K. as a tax haven. However,
compared with many other regimes, Brits living and working overseas are treated very
favourably by the U.K. Inland Revenue Department.
For example, British citizens who do not spend more than 105 days in the
U.K. in any one financial year (April 5th to April 4th), and an average of not more than
90 days a year over four financial years, are relieved of U.K. tax liability on overseas
earnings. Aren’t we lucky!
(However, if you’re deriving an income in the U.K. - say from renting
out your house there - you still have to pay tax on that income. More about this next
week.)
Uncle Sam’s Big Brother
This contrasts sharply with that bastion of freedom, the United States.
American citizens are subject to tax on their worldwide earnings - including income,
interest, dividends and capital gains - no matter where in the world they live.
Also, under the new U.S. tax rules, holders of Green Cards and anyone who
has resided in the U.S. for more than 183 days over a three-year period are also liable to
tax on their worldwide income.
This means Americans, Green Card holders and longer-staying visitors have
a legal obligation to report all their income from all sources anywhere to the IRS.
The U.S. Internal Revenue Service recently announced it was launching a
campaign against overseas citizens and Green Card holders who may have neglected to report
all of their world income, on all of which they will have a back tax liability.
It may come as a surprise to many that the IRS estimates some 3 million
Americans and countless Green Card holders have not been reporting all their income. It
reckons it is losing over $3 billion a year to these naughty tax evaders.
(Is that all? That would hardly cover the cost of an aircraft carrier,
would it? And how much will it cost U.S. taxpayers to employ the extra bureaucrats
required to chase after this money, salted away all over the world, I wonder?)
To pursue these miscreants, the IRS is teaming up with the U.S.
Immigration Department, which keeps very efficient track of everyone who enters or leaves
the U.S. legally, no matter who, from where, and through which port of entry.
Of course this does not include those estimated 2,000 a day who don’t
like to apply for visas and stand in lines at Immigration counters, but prefer to enter
the U.S. by climbing the fence or swimming across the Rio Grande (hence the term
‘wetback’), who will do their very best to evade paying tax on their illegal
earnings until either they’re caught by the Immigration people and deported (but at
least 40% return somehow), or another amnesty is declared when these illegal immigrants
come out of the woodwork and apply for their Green Cards...
In the U.S. every bank and credit card transaction is recorded and these
records are available to the authorities for inspection.
Also, any sum of $10,000 or more entering or leaving the U.S. banking
system is automatically ‘flagged’ and the U.S. Treasury Department notified.
It seems George Orwell’s ‘1984’ scenario has already been
surpassed.
The price of U.S. citizenship
To add insult to injury, the U.S. Tax reporting system is one of the most
complicated in the world. So complex is the Tax Code that even U.S.-based tax lawyers (let
alone most offshore financial advisors) are unaware of all the potential problems.
Make a mistake, and the IRS will penalize you. Forget something, and
they’ll penalize you.
Okay, you are permitted a certain tax-exemption for living overseas
($70,000), provided you stay physically out of the U.S. for 335 days of a consecutive
12-month period and have no "continental" U.S.-earned income during that period.
You can also deduct some more for your legal spouse and each registered
child you’re supporting.
But the remainder gets taxed on a sliding scale which means the
‘average’ American expatriate still may have to pay as much as 35%-45% of his
total income to the U.S. Government, even though he’s living abroad.
Beneficent taxes
Compare this, for example, with Hong Kong where the maximum any HK
resident has to pay - no matter how many millions he might have earned last year - is 15%.
Of course, Hong Kong doesn’t have to support a massive defence budget
to defend the free world, nor a welfare system that provides a steady income to those too
indolent to work (not that there are too many of those in Hong Kong anyway: 3%
unemployment is regarded as a major disaster to their economy!)
Also the Hong Kong Police are visible, diligent, virtually uncorrupt, and
make the streets safe for anyone to walk, even at night.
Excellent medical facilities are available at any Government hospital to
anyone in Hong Kong - even a tourist - for only a nominal cost, largely paid for from this
15%...
Similarly in the U.K., where the National Health Service provides medical
treatment (both emergency and in-patient) either free or at nominal cost. And not only to
its own citizens, but to anyone who happens to get sick whilst in the U.K.
In the United States, on the other hand, where medical treatment is
supposed to be the best in the world, it seems only the very rich and the very poor can
afford to get sick.
Those in between have to have a good health insurance policy, which itself
has become outrageously expensive, if they wish to receive medical treatment.
Even well-known international healthcare insurers exclude treatment in the
United States from their policies as being prohibitively expensive. Otherwise all
international policyholders would be paying substantially higher premiums to subside the
minority who require treatment in the States.
And no reciprocal arrangement exists whereby a citizen of country A which
provides free government medical facilities can enjoy these same benefits if taken sick in
country B which doesn’t. Citizens of country B taken sick in country A can, however,
avail of country A’s free medical services, paid for from the local tax revenues.
(And who says double standards only apply in Thailand?)
Diligent pursuit
Various U.S. agencies - the DEA as well as the IRS - have been actively
engaged for some time in trying to determine the extent of revenues lost as a result of
overseas American citizens failing to report all their income.
This has apparently gone as far as attempting by one means or another to
find out which clients of international financial institutions are Americans, and how much
each of these has invested.
Armed with this information, these government agencies can then check back
on reported income, and see what discrepancies there might be...
There is nothing illegal per se about an American holding offshore
investments. The only problem is if he or she fails to report these to the appropriate
U.S. authorities, and pay tax on the growth.
While it is of course everyone’s moral and legal responsibility to
comply with the laws of their own country and the country they’re residing in, and
the authorities’ duty to ensure their citizens’ compliance with those laws,
these international activities by U.S. government agencies not only threaten the
confidentiality of all the other clients of respectable and legitimate offshore financial
institutions, but the reporting requirements demanded of them by the IRS have become so
much of a burdensome nuisance that most offshore investment houses - even the offshore
arms of major American firms - will no longer accept American clients, so they can tell
the IRS, DEA et al to leave them and all their other legitimate clients in peace.
Tax benefits
Most offshore investment instruments carry no tax benefits for offshore
Americans as do some for certain other nationalities who plan to draw down their
accumulated capital after returning eventually to their home country.
Indeed, some offshore investment instruments may even complicate an
American’s tax situation (or that of his U.S.-resident heirs), even if he diligently
adheres to the reporting rules, since these instruments, by their nature and structure,
fall outside the U.S. Securities Act of 1933.
One such example is the collective investment vehicle known generically as
a Personal Portfolio Bond, or ‘PPB’ for short.
These instruments are offered by all the major offshore British insurance
companies, and are very useful for high-net-worth investors or those already holding a
diverse portfolio of unit trusts or offshore mutual funds, inasmuch as they permit an
investor to hold a very wide variety of different assets or, in some cases, virtually any
fund from the thousands available nowadays, under a single collective umbrella.
This makes management and administration of a complex portfolio much
simpler, and in many cases, considerably more cost-effective, inasmuch as the
‘normal’ entry & exit costs attaching to direct entry into such funds are
typically substantially discounted.
If properly structured to comply with Section 739 of the U.K. Income &
Corporation Taxes Act 1988, these instruments can have a useful degree of tax-efficiency
in the U.K., as tested in the famous case brought by Prof. Willoughby challenging the U.K.
IRD, which went up through the courts to the House of Lords, where the IRD lost yet again
- and therefore plans to have the law changed in its favour.
Fortunately, whenever the U.K. tax laws on investments have been changed
in the past, they have never been made retrospective, and usually carry a grace period to
permit suitable restructuring where appropriate.
There used to be tax-efficient instruments available to Australians also,
but the laws there were changed a few years back, and - which was the real sting - made
retrospective, so that holders of what had been investments properly structured to be
tax-free under existing laws suddenly had no tax advantage whatsoever. Indeed, holders of
these instruments returning to Australia suddenly found they were liable to pay tax on the
theoretical growth each year, even if they hadn’t actually drawn anything down from
the investment!
By contrast, British, French and German citizens living overseas can hold
certain offshore instruments which, if they return to their home country, can be brought
onshore and the entire capital drawn down without incurring any tax liability at all, even
on the growth!
Of course, these instruments have to be suitably structured to comply with
the respective taxation regulations, including the length of time the investment must be
held or contributed into before it qualifies for beneficial tax treatment. But this
rigidity notwithstanding, it can make a big difference if you can legally avoid paying,
say, 25% let alone 40% tax on the growth of your investments!
By Dr. Iain Corness
Break out the cigars! Pop the champagne corks! The
General’s Supreme Commander came to town and came clean about the new product to be
built up there at the Eastern Seaboard Industrial Estate.
Jack Smith Jr.
Chairman and CEO of General Motors world wide, Jack Smith Jr., was in our
neck of the woods for four hours last week and held a quick Press Conference for the
waiting and watching media bloodhounds. The Pattaya Mail didn’t quite score an
invitation (probably as retribution for my suggesting that GM have been indulging in
vacillation of late), but having the Automaniacal ear to the ground we got wind of the
Press do. Actually GM were quite nice about it when I rang them and I didn’t have to
wear dark glasses and a trenchcoat to get past the minders at the door. Two Opels were
sitting there in pride of place in the foyer, trucked in the day before, my spies told me.
Was this an omen, I asked myself?
Signing in I got given my security badge and a cup of coffee and a front
row seat while I waited for the pearls of wisdom from the man who probably earns more in
one minute than I do one month! After three quarters of an hour wait, the minders got
excited and Jack Smith Jr. entered the auditorium, wiping away the remnants of his lunch,
to fill us in on life at the top in GM.
Jack told us all about the new GM plants in Argentina, Poland and China
and how the Thailand Plant was a "World class Plant, global in outlook with the
latest techniques." He also said how the global goal for this region was to have a
10% share by 2010.
The invited Press Corps were an interesting bunch, and probably had 90%
Finance Writers and 10% car people because the questions put to Jack were about world
politics and regional financial problems. Since Jack had come from the APEC meeting, this
was probably the reason, but, hell, we had come there to find out from the world’s
number 1 car maker, what car they were going to make here.
Since nobody in the press gallery was going to do it, Automania stood up
and asked the Big Man the Big Question. (Remember that initially GM were going to make
Opel Vectra’s, then something smaller, then mothball the plant and wait for God or
something, and then at last count it was going to be a minivan.)
Jack smiled and said it was going to be a car (back to Plan A,
hoobloodyray!) but he would not disclose what it was going to be. "It will be
released in Bangkok at the Motor Show on December 2nd, but you will have to wait till then
to see what it is!" said he. So much for open-ness of government,
"transparency" and all the other 1998 buzz words!
At that point, the minders brought the press conference to a close before
another journo might ask other pointed questions relating to car production!
We were then herded into busses and taken for a trip around the plant.
Nice plant from the outside, even if someone had left a Toyota Corona parked outside one
building. Naughty! Naughty! It will be a robotic plant in the main, with real human beings
used for rectification of paint and minor details like that. I "innocently"
asked one minder where they were going to source the engines from and was told that some
were from Japan and some would be from Europe, depending upon the model.
At last! A clue! What does GM produce that comes in different engine sizes
and different countries of origin? My guess is Corsas, but the model run is getting long
in the tooth right now, so it is probably the Corsa replacement. Anyway, we’ll all
know after December 2nd. Thanks, Jack!
Traps for young players
Yet another distressing case of visitors (and
locals) being stood over by the Beach Road Brigands who rent out motorcycles. Here’s
the all too often repeated scenario. The hirer is told he must leave his passport as
security and as soon as that happens he is powerless. Any accident damage, no matter how
minor, is going to be made out to be very expensive and you have no way of beating this
problem. They have your passport!
Young fellow had a scrape on a Honda CBR and was told the repairs would be
17,000 Baht if you please. He got his own estimate and even that was over-inflated at
10,000. Going back to the hirer with this new quote, he was then told that there was even
more damage than they had thought originally and the price to fix (and get his passport
back) was now 20,000 Baht. All he can now do is go to the Tourist Police and hope. It will
still be a very expensive exercise.
The moral of this tale is to only hire any form of transport that has
guaranteed 100% First Class Insurance, and never leave your passport with anyone! Finding
motorcycle renters with First Class insurance is well nigh impossible, and renting cars
from the side of the road is just as bad. They may have some kind of insurance, but you
can bet your bottom dollar it won’t cover YOU in an accident. It will be the
compulsory 3rd party injury insurance and that’s all. Beware! You have been warned.
Autotrivia Quiz
I really should apologize for last week’s quiz question about the Mk
IV Jaguars. It was a real trick, because the factory never made any Mk IV’s! Sure
there was a Mk V, but the model before it was never released as the Mk IV. They were just
called 2 1/2 litre or 3 1/2 litre Jaguars. It was only after the next model (the Mk V)
came out that people started calling the earlier ones Mk IV’s.
Let’s stick with Jaguar for this week’s question. What was the
original name (not initials!) for this manufacturer? Fax or email the editorial office.
First correct wins the Automania FREE beer!
"Where else can expat ladies and westernized
Thais socialize without being bothered by go go dancers and such?" He brushed aside
the role he plays in the operation though, which is chief lion tamer and magician. He is
the guy who keeps Pattaya’s infamous Kim Fletcher in line in case anyone is
interested and if that is not a tough enough call, Trevor’s the genius behind
assessing new locations, business planning, marketing, designing cost accounting and
analysis of the whole operation and generally keeping his finger on the pulse. "The
general managers like Kim get the fun jobs of sales and service which is attracting
customers and selling," he said, laughing.
“Big Idieas”
Dear Hillary,