One good reason is.... foreign, non-resident alien individuals, offshore companies, offshore trusts and offshore banks avoid all US capital gains taxes on their stock market trades because the U.S. has never taxed the capital gains of non-resident entities that do not have an office or are "doing business inside the United States". By domiciling in places like the Caymans or the Bahamas (where there are no income or estate taxes), Warburg, Dillon Read's foreign clients can avoid US capital gains taxes.

There are other tax loopholes for foreigners. Under US estate tax law, a nonresident alien individual that dies holding his US assets in his own name will be subject to US estate taxes at a rate of 55% - with no marital deduction allowed, and only a $60,000 exclusion. Foreigners that hold their US assets in offshore companies can avoid all US estate taxes. That's one reason why there are over 113,000 companies registered in the Bahamas alone - with another 350,000 in the BVI - another commonwealth country that does not tax these companies at all.

There are fewer loopholes for American citizens, yet 65% of the money on deposit in Cayman banks (according to a Cayman government release in 1988) came from the USA. There was not another country on their list that had more money invested in Cayman banks. The Caymans rank as the 4th or 5th largest financial center in the world. The Bahamas are in the top ten. Today, there is more money on deposit in the Cayman banks alone, than in all the commercial banks in the State of California. That is a fact.

Bank secrecy seems to play an important role too. The IRS and other foreign revenue agents cannot seize, lien on, freeze or investigate bank accounts in the Bahamas, Caymans and in other tax havens.

Most small American taxpayers cannot qualify for the aforementioned tax exemptions allowed nonresidents, unless they can avoid both the Controlled Foreign Corporation provisions enacted during the Kennedy Administration and the Passive Foreign Investment Company provisions enacted in 1986. Most U.S. tax attorneys and big 8 accounting firms will probably tell you that is not possible -- but most all the large NY investment bankers (and hundreds of brand name U.S. banks) have offices and subsidiaries in tax havens. Why?

Banking institutions like Chase Manhattan Private Bank & Trust Company Bahamas Limited do not have to pay taxes on their non-subpart F incomes. Non subpart income is income from performing services for their "foreign" clients in the tax haven itself.

The Chase Manhattan Corporation has assets of more than $357 billion with operations in 48 countries around the world - including many of the popular tax havens - like the Bahamas!

Last January, Chase announced a strategic realignment of its international private banking business - to be called Chase Manhattan Private Bank & Trust Company (Bahamas) Limited. Chase announced that Chase Manhattan Private Bank & Trust Company (Bahamas) Limited will assume administrative responsibility for approximately 1,000 fiduciary accounts for its Latin American clients.

American taxpayers should be cautious and understand that Chase Manhattan's recent expansion into the tax free Bahamas was not done to attract U.S. customers. In fact, Americans probably should not open bank and trading accounts with any offshore U.S. institution, as the IRS can and does send its auditors to these offshore (i.e., in the Bahamas, Caymans Bermuda, etc.) to inspect bank accounts, banking books and records. American taxpayers are required to file an information return with the U.S. Treasury department whenever they open bank accounts in foreign countries and deposit more than $10,000.

Exploiting the nearby Caribbean tax havens is still very big business

According to an article in the Washington Post, billionaire Rupert Murdoch's News Corp. listed more than 60 subsidiaries incorporated in the Cayman Islands, Bermuda, the British Virgin Islands and the Netherlands Antilles, all nations that have low or no corporate taxes and limited financial disclosure laws.

Star TV -- the company's satellite TV service in Asia -- was incorporated half a world away in the British Virgin Islands. This was done, one former News Corp. executive said, primarily to shelter eventual profits.

News Corp., in 1997, reported paying $103 million in worldwide taxes on operating income of $1.32 billion, an effective tax rate of 7.8 percent, according to company documents. By contrast, American-based competitor Walt Disney Co.'s effective tax rate was 28 percent. Viacom Inc., the parent of MTV and Paramount Pictures, paid 22 percent. Time Warner Inc., a U.S. media and entertainment company that is roughly the same size as News Corp., paid taxes at a 17 percent rate.

That pattern has persisted through the 1990s. News Corp.'s tax rate has averaged 5.7 percent in this decade, while those of Walt Disney, Time Warner and Viacom have averaged from 27.2 percent to 32.5 percent.

Thomas Azzara

New Providence Estate Planners, Ltd.

(Lawyers and Consultants)
54 Sandyport Drive
P.O. Box CB 11552
Nassau, Bahamas
Fax/phone: (242) 327-7359
email: taxman@batelnet.bs
website: http://www.bahamasbahamas.com

Tom Azzara is an offshore consultant based in the Bahamas. Tom's Bahamian law firm has incorporated over 1,070 International Business Companies in the Bahamas. Tom works independent of/with a Bahamian bank owned by a $20 billion dollar parent bank from South Africa. This bank and trust company is the second oldest bank and trust company in the Bahamas. Its founder and previous major shareholder was Barclays Bank, Plc. Most of these companies end up with them. Contact me if you need something offshore.

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