ERA OF COMPLIANCE. THE TIME OF RESTRUCTURING
For a professional it is clear that the time of non-tax-compliant money is either over or will be over soon.
On March 13 2009 (it was by the way Friday the 13th) the Swiss Finance Minister (and then-President of the Confederation) Mr. Hans Rudolf Merz, standing in front of the most recognizable door in the world at Downing street 10, SW1A 2AA, London, UK has announced the decision of Switzerland to comply with OECD standards. His statement signaled the beginning of the end of what was known as the “Swiss banking secrecy” and symbolized the new future of the Swiss financial sector, the tax-compliant future. In a way the statement announced the new era, the era of tax compliance.
Unprecedented - in the number and in the importance - events have happened since the announcement of Mr. Merz’s statement: Switzerland changed its Double Taxation Treaties with a number of countries (including Russia) allowing the tax information exchange; Switzerland signed a SDF with the UK and a similar agreement with Austria, the Swiss banks witnessed an unbelievable pressure from the US, and so on. And even more things are expected to happen: criminalization of tax evasion, equating tax evasion to money laundering, accession to the OECD Treaty on Administrative Assistance in Tax Matters, and so on.
How all that has already happened and is expected to happen has influenced or may in the future affect the so called Russian money kept in Switzerland, which might amount to quite a sizable figure?
There’s no doubt that Russia is much less active in comparison to its Western partners in the field of tax control, especially when it comes to the funds kept outside of Russia and all sorts of anti-abuse and anti-avoidance rules (CFC, substance test, arm’s length control, etc.). There are almost no known precedents of Russian tax authorities attacking Russian off-shore non-taxed money stored abroad.
One may consider such a state of affairs as a signal to relax and enjoy the simplicity of the moment – keep money in an off-shore account, transfer it using e-banking while seating in Moscow, use companies registered in exotic islands that cannot even be pinpointed on the World map, use nominees (whom one has never seen) and sign off-shore company’s documents as an attorney.
The other may consider the situation as a signal to change, to rethink the way of keeping and working with the “foreign” money and getting compliant, because compliance is a new worldwide global standard.
Tax compliance, in our belief, doesn’t close the door to asset protection, tax optimization and succession planning; it just makes these tasks more difficult and more demanding, but not impossible. The widely used (or abused), so called “retail” schemes will not survive, whereas thoroughly thought through, individualized, legitimate, and properly adopted solutions will always work.
Let’s not forget this: “tax compliance” doesn’t mean that an entrepreneur must pay the highest possible taxes in the world, comply with the strictest tax laws in the world and follow all circulars of all tax authorities in the world!
Tax compliance means that every entrepreneur must obey the tax laws of that country where he conducts his business and that that country has its sovereign right to establish tax rates, exemptions and other tax rules that it considers appropriate. And as long as there is no global universal tax rate in the world, as long as there is no world’s single list of tax exemptions, there will always be opportunities for a legitimate presence in the on-shore world with law or zero taxes.
TIME OF RESTRUCTURING
As of today, Russia doesn’t apply strong control to foreign assets of its taxpayers (see “RUSSIA vs OFF-SHORE/RUSSIA, THE TAX PARADISE”). Even the recently introduced measures as well as those that have already been announced but not yet enforced (see “RUSSIA vs OFF-SHORE/CHANGING ENVIRONMENT”) don’t at all put an end to the opportunities for legitimate operations with foreign assets. That is why we are convinced that the ERA OF COMPLIANCE requires everyone to realize that now is the TIME FOR RESTRUCTURING, that anyone who contemplates placing his money abroad and working with that money abroad must take into consideration these new realities. And anyone who already has a structure for keeping money abroad must carefully analyze/audit it and most likely change it.