The Rock Star, The Nude Estates, and the Lithuanian Shopping Mall

We've all got an image in our minds of who uses "offshore tax havens" to host their business. Let's say you're a junior-varsity Russian oligarch. You've spent a lifetime looting your country's resources like an all-you-can-steal buffet, and now it's time to take some of your chipskis off the table. You buy a flat in London's posh Mayfair, or maybe a condo overlooking New York's Central Park. Then you stash the rest of your rubles in some sunny flyspeck of an island like Bermuda or the Caymans, where Putin's goons can't steal them back.

But most people who do business offshore aren't crooked billionaires. They're perfectly legitimate multinational corporations, business owners, and investors just like us. If you've worn shoes from Nike, made calls on an iPhone, or downloaded music from Sheryl Crow, you've even done business with them!

Last month, the investigative journalists who brought us 2016's Panama Papers dropped Season Two of their effort to expose how the global 1% use international entities to structure their wealth. The "Paradise Papers" include 13.4 million electronic documents, mostly gleaned through a "data security incident" from the Bermuda-based law firm of Appleby Spurling Hunter. And one of the names that those intrepid detectives uncovered was Paul David Hewson, originally from Dublin's middle-class Finglas suburb.

Of course, you probably know Hewson better by his stage name, Bono. (His U2 bandmates dubbed him Bono Vox, meaning "good voice," in high school.) Now, Bono's made hundreds of millions of dollars in his career. But he's also hobnobbed with the Dalai Lama and been nominated for a Nobel Peace Prize. He's hardly the sort of guy you'd expect to be moving money in mysterious ways. So what's the deal? Here's how the BBC lays it out:

"Bono owned a share in the Ausra shopping center located in the Lithuanian city of Utena via his stake in a company called Nude Estates, based in Malta. In 2007, Nude Estates bought the mall via a company they incorporated in Lithuania called UAB Nude Estates 2. In 2012, Nude Estates Malta Ltd. transferred the ownership of both Nude Estates 2 and the mall to a new offshore company, Nude Estates 1, based on the English island of Guernsey. Both Malta and Guernsey are low-tax jurisdictions, though foreign investors pay a five percent tax on company profits in Malta, while they pay no tax in Guernsey."

There you have it. Even paying 5% tax in Malta, they still hadn't found what they were looking for. So Nude Estates tripped through the waters with Bono's money for the rattle and hum of tax-free Guernsey. Bono himself seemed taken aback by the disclosure. He said he would be distressed if "anything less than exemplary" was done with his name anywhere near it. And he said, "I take this stuff very seriously. I have campaigned for the beneficial ownership of offshore companies to be made transparent. Indeed this is why my name is on documents rather than in a trust."

Here in the U.S, we're subject to tax on all our worldwide income, no matter where it's earned. That means that moving investments offshore doesn't convey any sort of automatic tax benefit, with or without you. Fortunately, the same internal revenue code that taxes us on foreign income offers countless strategies to minimize or avoid that tax. All you really need is a plan. So call us when you desire to save, and let's see if we can rescue enough wasted tax dollars to send you someplace where the streets have no name!

Green Apples

Green Apple

For 20 years now, Apple has blazed a reputation for stylish design and innovative products, creating a near-cult following among fans. Apple's computers appeal to the artists and designers who set so many of today's trends. Their iPod has helped change how the world listens to music. Their iPad has made online content available nearly anywhere. And their iPhone is helping change the way we communicate with friends, family, and colleagues. (Just a few years ago, your mother-in-law didn't have a cell phone. Now she sends text messages and "checks in" on Facebook.)

Apple may be the most successful company on earth. At one point last year, they had more cash on hand ($76.2 billion) than the United States government ($73.8 billion). And Apple is currently the most valuable company on the planet, with a "market cap" (total value of tradeable shares) that topped $590 billion dollars on April 10. (That's right . . . those iTunes you casually download for a buck each have created a company worth over half a trillion dollars.) In fact, Apple's current market cap is more than the gross domestic products of Iraq, North Korea, Vietnam, Puerto Rico, and New Zealand -- combined.

But Apple's most recent annual report reveals the company's genius for creating successful marketing strategies also extends to successful tax strategies. How else would you describe a strategy that lets Apple earn billions and pays less than 10% of their taxable income in tax?

How do they do it? Largely by keeping the money they earn outside the United States, outside the United States. Apple owns subsidiaries in tax havens like Ireland, the Netherlands, Luxembourg, and the British Virgin islands. They helped pioneer the "Double Irish with a Dutch Sandwich" strategy that hundreds of other multinational companies have imitated. Apple even maintains a subsidiary in tax-free Nevada -- the blandly-named "Braeburn Capital" -- to manage that enormous cash haul without paying tax in its home state of California. For 2011, the company paid a worldwide tax of $3.3 billion on $34.2 billion of profit. But one study concludes that Apple would have paid $2.4 billion more without these rules.

Now Apple has become part of the political debate. At the risk of grossly oversimplifying a pretty complicated discussion, Democrats in Washington scoff that taking an extra $2.4 billion in tax last year would have squelched Apple's creativity. Republicans reply that using the cash to grow the business or distribute more dividends to shareholders will grow the economy faster than if it goes to the IRS. Both President Obama and presumed Republican nominee Mitt Romney have called for eliminating corporate tax loopholes in order to pay for lower rates (28% in President Obama's plan, 25% in Governor Romney's). Either way, Apple is likely to become one of the stories -- like Warren Buffett paying a higher tax rate than his secretary -- that come to define this year's campaign.

Taxes always play a part in Presidential races. But this time, with the economy still struggling and the Bush tax cuts scheduled to expire in a few short months, taxes will be even more important than usual. Our job, as November approaches, includes helping you understand just what the candidates' proposals mean for your bottom line. So keep up with these emails -- and if you're curious how any of the proposals you hear about would affect your plan, call us!