It sounds like the easy life but banking offshore has its pitfalls

Herald Sun, article by Scott Pape, March 12, 2013

Some media reports suggest that as many as 100,000 Australians have offshore bank accounts.  In Australia it's not illegal to have an offshore account, but you do have to declare any income from related overseas accounts.

'LET'S say you're cheating on your wife - and you don't want to lose 50 per cent of your assets if you get caught", he explained. 
"But I'm not cheating on my wife, and we're about to have a baby in three months!" I protested.
"Well I'm just giving you an example."
"Of what?"
"Of how anybody can hide their money away from prying eyes."
Who was I speaking to? A sleazy lawyer? Eddie Obeid? Ricky Nixon?
No, it was Professor Jason Sharman from Griffith University, who happens to be a world expert on offshore tax havens.
I spoke to the Professor this week about the crisis in Cyprus (one of many tax havens in the world). As you know by now, they're broke and need a bailout - but that's nothing new.
What is new is that Germany (backed up by the IMF) is appropriating (in other words stealing) a percentage of the funds of depositors who have over 100,000 euros, before the bailout can be approved.
But what I wanted to know was how a pointy-headed professor from Brisbane became an international expert on the opaque world of tax havens.

Gilligan's Island

WELL, 10 years ago some of his students hit him with a curly question: there are roughly 40 countries in the world with populations below a million. How do these tiny nations (often islands), with no manufacturing, no exports and patchy tourism, keep the lights on?
With that in mind he set out on a decade-long journey that has taken him to just about every tax haven in the world (it's work, but a good chance to travel to exotic locations).
What he found is that the majority of these countries set themselves up as tax havens. (Which makes sense. After all, they can't all be like Nauru and house our boat people, or like Tassie and house our Greens voters.)
Sharman found that becoming a tax haven has two benefits for a country.
Firstly (once the right tax treaties are set up) it becomes a magnet for wealthy people and big corporations wanting to get around paying tax in their home countries.
The haven charges low tax (e.g. Cyprus has a flat rate of 10 per cent) on the very large amounts in their banks. Like an oversized pimple on a teenager, Cyprus's banking industry is currently five times the size of the rest of its economy, according to Standard & Poor's. (But that zit has just been popped - more on that in a moment).
Secondly, the haven hopes it will spawn a mini army of bank employees, lawyers and international tax agents to service this industry. According to London's Telegraph newspaper, "70 per cent of Cyprus's workforce is employed in banking and financial services". (Or at least they were employed.)
Which is all very interesting, but I know what you really want to hear about - the Professor's example of how the dirty divorcee dog can hide his bones. So here it is.

Tax Havens R'Us

"ALL this guy needs to do is to jump on the internet and set up a company in the tax haven of the Seychelles - call it, say, Consultants R'Us. That can be done easily, quickly and anonymously for a few hundred dollars.
"Consultants R'Us can now open a bank account in another tax haven - Belize, the Cayman Islands or (at least until a few weeks ago) Cyprus.
"The company issues him with a $100,000 bill for 'consulting services' and he pays the money into the offshore bank account.
"Hey presto, he's now got money that he can access overseas, and because of the various tax treaties in place it's going to be almost impossible for anyone to prove that he owns Consultants R'Us."
At this point, my head was spinning. This all sounds a bit far-fetched - I mean Aussies don't do this stuff, do they?
Apparently they do.
Some media reports suggest that as many as 100,000 Australians have offshore bank accounts (though it's hard to quantify - it's not like the tax havens have corporate boxes at the footy).
The Professor says the internet has made it all much more accessible: google "tax havens" and hundreds of sites will pop up.
"One of the most bizarre things I've seen", says Sharman, "was a small country selling banking licences. You didn't get a branch with the pens chained to the desk, but you did legally own a bank and could behave like one internationally."
Barefoot: "Hang on, stop. Have you got an offshore bank account?"
Sharman: "Well, um, yes."
Barefoot: "Where?"
Sharman: "Cyprus."
Barefoot: "Good one, Professor."
Sharman explained that he'd only set it up as an academic exercise, and was at pains to point out an important fact: while the internet allows you to set up these accounts quickly and cheaply, maintaining your anonymity is very costly.
Let me be clear: I'm certainly not advocating offshore bank accounts. They can land you in prison for tax evasion (like Glenn Wheatley) and you can lose control of a large chunk of your change (like Boris from Russia). As my accountant says, it's simple and stress free: "earn the money, pay the tax".
Navigating the shark-infested waters of international tax law requires a bevy of lawyers, tax experts and other pricy professionals. What's more, the ATO is getting much better at hunting these schemes down (just ask Paul Hogan, who has felt the blade of the ATO: "That's not a tax structure, this is a tax structure").
In Australia it's not illegal to have an offshore account, but you do have to declare any income from related overseas accounts.
But even if you can afford to pay the professionals, you then need to make sure the bank that's holding your loot doesn't do something stupid with your money - like lend it to the Greek Government as the Cyprus banks did.

The Pain in Spain, and Italy, and Greece, and Russia

THE Professor explained that tax havens exist for two reasons: greed and fear.
Greed drives corporations and individuals to hide their money so they pay less tax. Fear rears its head when people don't trust their governments; they hide their cash in safer countries, as happened after the collapse of the communist regime in Russia.
And right now millions of Italians, Spaniards and Greeks (as well as wealthy Chinese and Indians) are fearful of similar cash-grabs by their governments.
"Up until two weeks ago, no one would have thought it was possible, but now it's very real", warns the Professor.
Tread Your Own Path!