What I write is based on hands-on experience working in a senior executive post with a British international bank in Nassau, Bahamas back in the 1970s. I have since then gained further knowledge on trusts and on setting up companies in offshore jurisdictions both in my professional capacity and also in view of my involvement in the drafting in 1988 of the first trust legislation in Malta, restricted to persons or entities not domiciled in Malta.
Admittedly, since then the Bahamas and similarly other shady offshore centres, including the British Virgin Islands (BVI), Cayman Islands and Panama, have made some attempt at cleaning up their stables but nonetheless their standards remain well below those of reputable financial centres in Europe such as Malta and Luxembourg.
It should be said also that the two laws enacted in 1988 regulating trusts and also international financial activities were completely revamped in 1994 when it was decided that the time had come for Malta to move away from a ‘tax haven’ status i.e. from an ‘offshore’ to an ‘onshore’ regime thus making it possible for a Malta-domiciled person or entity to be a party in a Malta registered trust.
It is beyond comprehension that a Malta-domiciled person wishing to settle in a trust solely immovable property situated in or outside Malta opts to place this within the ambit of a New Zealand trust and an underlying trading company registered in Panama or in any other offshore jurisdiction known for its secrecy and which is classified by the Bureau of International Narcotics and Law Enforcement Affairs as being “of primary concern”.
There is nothing illegal in itself in having an offshore company so long as this is used for legitimately owned assets and/or to cater for income that has already been taxed at the point where this arose
If the scope were to ‘shelter’ rental income surely there was no need to go all the way to Panama setting up a trading company under the umbrella of a trust registered in New Zealand. Professional advisers in the field of setting up – or selling off the shelf as often happens – companies registered in offshore centres use a model set of memorandum and articles of association that include a host of possible activities in a company’s ‘objects clause’. These usually do provide for the possibility of income from commissions and brokerage activities. However, such objects would normally not be included if the company was to be simply a vehicle for owning immovable property situated in another country.
Shady jurisdictions such as Panama do not require a company to file annual returns, nor even to prepare and file annual accounts with the regulator. Thus there is no way that one can trace the underlying transaction of a company registered there. Moreover, where secrecy is vital, such companies would also have as nominee shareholders and nominee directors staff members of the local professional firm that would have handled the necessary formalities for setting up the company.
In the case of the Bahamas, BVI, Panama and other shady centres the initial set-up costs are only a few hundred dollars and the annual fee is even less as, for the reasons already stated above, there are no administration costs and the local firm charges what is known as a ‘responsibility fee’ as nominees. Thus total secrecy is obtainable at a modest cost but, assuming that proper due diligence procedures are adhered to, opening a bank account could present problems.
Space precludes me from going into greater detail. The above are just some thoughts based on my own knowledge and experience. The media has been aghast in recent weeks with revelations of politically exposed persons (PEP) in Malta having been found to be behind companies registered in the BVI and Panama.
One leading UK newspaper also revealed that the security and bank note printer De la Rue – the parent company of a long-standing manufacturing company of the same name in Malta – allegedly made secret payments and lavished huge commissions on a middleman to secure lucrative contracts in India. This was uncovered by the Panama Papers data leak which revealed that De La Rue made these illicit payments to a Panamanian company whose beneficial owner was a prominent Indian businessman. Although no PEP was involved, still De La Rue’s name was rubbished by the UK printed media.
There is nothing illegal in itself in having an offshore company so long as this is used for legitimately owned assets and/or to cater for income already taxed at the point where this arose.
There are diverse definitions of a secretive tax haven. One I came across recently is: “It boils down to two words: escape and elsewhere. You take your money elsewhere, to another country, in order to escape the rules and laws of society where you live and operate”.
Of course, in the case of a PEP the scope for using a tax haven could well extend to hiding illicit gains made from one’s position to the detriment of tax-paying citizens. This is why reputable banks refuse to open bank accounts where dubious activities are suspected.