Tax Trouble in Paradise, Again
- The Knowledge Group
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It happened again; dubbed the “Paradise Papers,” reams of tax shelter documentation have been obtained and are in the process of being publicized similar to last year’s disclosure of tax shelters and their holders in the Panama Papers. The fact that tax shelters exist is no big surprise. Both accountants and the general public have known for decades these tools exist offshore in interesting Caribbean islands and similar locations. However, what is catching the press’ interest as well keen eyes in government tax agencies is both the amount of money involved as well as who is involved. The domino-effect on offshore accounts becoming taboo again started when the IRS was able to crack the secrecy of the Swiss bank account world back in 2009 starting with Swiss banking giant, UBS. Since then, money has moved internationally to other locations deemed more private, particularly into Western Hemisphere locations near the equator. However, that hasn’t kept the secrecy hunters and related investigators from uncovering more and more accounts.
The existence of an offshore account in and of itself is not illegal. The problem comes in how much interest is earned and not reported by the accountholder to his or her country’s tax agencies. For U.S. taxfilers, the IRS put down a serious deadline starting in 2009 to get taxpayers to report their accounts voluntarily. After waiting a few years for cooperation, the federal tax agency has begun going after scofflaws who continue to fail to report their accounts and earnings. The penalties are significant and painful. So every new disclosure like the latest Paradise Papers is not just significant in whom was banking offshore, but how much and whether it has been reported or not to tax agencies.
Shockingly, the Paradise Papers are only the tip of a bigger iceberg estimated to represent something near $10 trillion. And the figure is obviously more than than the entire economy and gross domestic product of many countries. So the potential tax recoveries are bound to be huge as well. Who says redistribution of wealth is only relegated to the Cold War history books?