All the recent scandal about the Panama Papers and tax havens and shell companies bring to light the hornet’s nest that FATCA has been stirring up. The media makes it sound like having a shell company or an offshore account automatically makes you a criminal – but that is far from the case. I will try to explain the Panama Papers in plain English.
Basic Principles Of The Panama Papers
Say you and your farmer neighbors decide to form a co-op. Under the terms of that co-op, you must report all your contract income and pay dues and a share of the co-ops expenses. Its quite the agreement as it also binds your land, and your unborn children as they too will have to continue to report and pay taxes on the money that you once generated or pay an exit fee.
Now that centuries have passed since the original agreement, being the nonconformist humans we are some of the co-op members disagree with some of the expenses incurred and fees paid, and they wish there was a way to keep some of their affairs separate. Kind of like cherry picking some would say – others would say that after decades, centuries of the co-op agreement being in effect it has fallen to the tyranny of some.
You see there’s crazy rules like, they decided to start taking a portion of your sales at the Farmers Market. Then they decided to also take a yearly amount based on how much land or property you had allotted. They even started charging tax on the hay used to pull trolley horses. They also want a portion of the sales you generate if you travel to another farmers fair, and if you want to work and live in another land, you still have to send your share back. Phewww…
And so, the neighboring county has a co-op for anyone who wishes to keep affairs separate. They promise not to tell, neither your co-op , your dad nor your wife. Whatever money you transact through their co-op, or keep there, has been sworn to complete secrecy. It’s a safe heaven for illicit transactions, the drug trade, government bribes or pretty much anything you desire until someone talks, your co-op flexes their muscle, a strong one, and the neighboring co-op is subdued with economic sanctions.
And so you find out that some very wealthy people in your co-op, who you thought were abiding by the same rules that you have been working so hard at respecting were instead keeping some of their affairs separate. We’re talking business owners, co-op leaders, and prominent celebrities. All making more money and paying less into the co-op…Allegedly, just by having an offshore account.
Now, it doesn’t mean that you are automatically guilty of some bad behavior. There are indeed certain times where you can run affairs through different co-ops, you just have to make sure you report them to your own – and pay in your share. This is where things get murky for some government leaders and prominent public figures – since they are supposed to be leading by example, why would they need to keep some things secret?
I can see someone moving to a different co-op because they have business reasons related to international trade, or perhaps a legit reason to fend off creditors as part of an ongoing legal process , heck maybe even if you want to do some aggressive tax planning – but if you choose to go this route you should be at least smart enough to hire accountants and attorneys that can ensure legal compliance.
As for those on the Panama Papers leak that did not follow the proper procedures? Well they have a lot more than just explaining to do – a blog post won’t do!
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