$11.5 Trillion Lost In Bermuda Triangle

May 6, 2005 8:36 AM

$11.5 Trillion Lost In Bermuda Triangle In case you've ever wondered just how much money the mega rich keep nice and tax free in off shore shelters, it's $11.5 trillion.
posted by expriest (46 comments total)

Well, that's quite a bit!
posted by delmoi at 8:39 AM on May 6, 2005

If they can work private accounts like this into Social Security for everyone, I'm all for it.
posted by trondant at 8:55 AM on May 6, 2005

What makes me furious are American companies that house offshore to not pay American taxes, yet continue to do business with the American government.

Sort of a gold plated yacht to the Bahamas.
posted by Mean Mr. Bucket at 8:58 AM on May 6, 2005

Also see: A Tax Benefit for Big Donors Often Bypasses Idea of Charity.

When you consider the loopholes available for billionaires, it makes sense that Bill Gates et al. were against modifying the Estate Tax a few years ago from 675K to 1$ million and up. Better to keep the public focused on the small fry.
posted by mlis at 9:00 AM on May 6, 2005

As a result, dozens of church groups and other nongovernmental organizations concerned with world poverty are joining tax reformers in what will probably become a major political battle.

Church groups mad about people not paying taxes is, sadly, an irony I am not able to deal with.
posted by Mean Mr. Bucket at 9:00 AM on May 6, 2005

I remember almost having an aneurism when that was first reported. What I love is the line about the fact that this is just an approximation of personal wealth being hidden. The amount corporations are hiding dwarfs it.

Meanwhile we could keep the poor from dropping like flies in the third world for a fraction of a percent of that each year. I'm not exaggerating in the least when I consider this to be a crime against humanity.

I firmly believe there should be a revolution, and while I'm a pacifist I honestly couldn't blame a soul for it being bloody.
posted by the_savage_mind at 9:14 AM on May 6, 2005

Hmm...it seems that some people don't even bother hiding it offshore. They just park it alongside.
posted by Duug at 9:38 AM on May 6, 2005

I firmly believe there should be a revolution, and while I'm a pacifist I honestly couldn't blame a soul for it being bloody.

Same here. It's particularly irksome when I hear the wealthy decry inheritance taxation, social security reform, and "unfair, overly-complicated" taxes (flat-tax lunatics). Progressive taxation is about the only thing keeping the greedy bastards in check, if you can call it that, yet the last guy to propose a solution to the problem was killed about 70 years ago.
posted by Civil_Disobedient at 9:55 AM on May 6, 2005

Some of the things we could probably do with all this loot witheld:
Keep the city of Venice from sinking into the sea, end poverty worldwide, fund one *hell* of a manned space program, increase wages for everyone, universal health care worldwide, end cancer, increase lifespans, provide decent housing for all, free education from kindergarten through four year college, become the all-being masters of time, space and dimension... ad infinitum
posted by mk1gti at 9:56 AM on May 6, 2005

What makes everyone so sure that if taxes on this money were paid to Governments, that it would somehow find it's way into being used to end world hunger etc.
If our governments were so interested in doing this they could do far more right now.
posted by TheFeatheredMullet at 10:03 AM on May 6, 2005

One of the apologists for moving so much money offshore (in the replies to the FPP) was..."Well, if the taxes weren't so high, maybe they wouldn't have to."

Sorry to sound like an old codger here, but I remember my father, who paid quite a lot of taxes because there were much higher tax brackets in the 50's/60's, being proud to pay his fair share and claimed never to have cheated. (Although there were a few legit ways to work the system even back then.)

He served in WWII, the GI bill helped him and others get an education and a house, and the government seemed to be doing a few good things for the people.

Things have changed.
posted by kozad at 10:18 AM on May 6, 2005

Duug... thanks for the link. That boat is awesome. That really gives people something to dream about and work for.
posted by dios at 10:19 AM on May 6, 2005

Ah, yes, dios, that is what life is about. "Work towards that boat, little man; everything you could ever dream of is yours with just a few more hours at the office, getting that better job, beating the other guy to the corner office."

...and so many have come to believe that such is the fundamental American Dream. Sad.
posted by Pliskie at 10:37 AM on May 6, 2005

While it is great to see that everyone here is altruistic with other peoples' money - which is the easiest way to be altruistic of course - I thought I might as well raise the issue that a lot of the "facts" stated are either misrepresented or just wrong.

I am American, but I live in Bermuda. I work for a company which deals with hedge funds (accounting). So I would argue I have a bit of experience with this.

1) There is a key point between tax evasion and tax sheltering. The former being illegal, the latter being legal. The former completely hiding one's assets and avoiding tax entirely, the second is being honest but using the legal system to pay as little tax as possible.
If the money is in a legitimate system - such as Bermuda - then it is at best a tax shelter and less tax is paid, but it is not tax free.
If the money is in a system that is truly hidden - then it is likely due to illegal actions. Drug dealers and "terrorist groups" are at the top of that list. The issue with that is if you are putting your money in a place where it is hidden, that place could essentially just take all of your money and there isn't much you can do about that. This has happened on several occasions that I am aware of with big time drug dealers during times of government turnover in a country they thought they could trust to hide their money in.

2) American companies base themselves overseas for two reasons: 1) tax, 2) legal. The American court system is a joke. The UK court system is considered by many to be more efficient at clearing out crap cases and not allowing for the suit to be tied up in court so long. I will add that this favors the large company and not so much the little guy in that sort of matter - so when it is "better" - it is better to the company and hence why they like it. By basing in a country like Bermuda, they have the local court system if something comes up - and if it turns out to be crap, then they can jump up to privy council in the UK.
I would say of the companies based here - the legal reasons far outweigh any tax reasons. The only ones who are here solely for tax reasons are the hedge funds.

3) The American companies based here still pay US tax. In fact, every cent that they make in the US is taxable by the IRS and is accounted for. If you think that by them basing themselves offshore they are avoiding that, you are smoking crack and I wish you well with it - but it doesn't make you right.
That said, if you are a large American company and you are based here and you do a lot of business globally, your global sales are then outside of the tax law of America. You only pay US tax on what you make in the US.
Say you are Coke and you sell $X of Coke in the US, and $Y of it in Germany. By being based offshore, you pay the US tax on the $X made, but not on the $Y made. But then also note you have to pay Germany tax on the $Y you made there, but not the $X made in the US.
This is not some sleazy plan to keep the little guy down - this is just good business sense. If you don't see it as that, then you probably didn't do very well in your economics class - which is fine - but try stomping about and waving your arms less when you whine about this and maybe read a bit more first.

4) In terms of personal assets, say you are a millionaire (or a billionaire - after all Perot and Bloomberg have houses here - although I think the latter sold his after the people of NYC found fault in him coming here so often) - and you want to just pop on over and put all of your money into a bank here and then YAY! you don't have to pay taxes on it.
Well, if you are a US citizen, again you are smoking fantastic crack, but it doesn't make you correct.
Any bank account here which is created by a US citizen is tracked very closely and if that account at any point in a year goes over $10K, it has to be reported in your taxes.

5) Say you want to move here and stop paying taxes - what a grand idea! Except that the US is the only country in the world (well, technically not true - there is some small island country that also does this) that taxes its citizens no matter where they live. Say you live in NYC - you pay US taxes - and you should. Bravo.
Say you live in Bermuda - you still pay US taxes. The only way to get out of that is to give up your citizenship and if you do that, then you have no other citizenship and nobody will give it to you at that point - so you become a person without a country and you can essentially just float at sea since nobody will take you in (well, nowhere you should want to go).
Do note that you don't pay taxes on the first $80K of your salary. So if you live in Bermuda and you are paid $80K here (the dollar here is tied to the US dollar, so they are the same thing), then you don't pay US taxes - YAY! And you can write off the income tax in the country in which you live ( but there is none in Bermuda ).
But say you make $100K here. Well, you get $80K tax free and then you pay taxes as if you were paid $20K. There are also housing allowances which are nice.
But say you are a millionaire and as a CEO of a company they are paying you $3M a year - can you really save much on taxes by being here? Not really - that $80K is essentially nothing on that.

6) Also the money that is supposedly all just stashed here? It doesn't exist. The money to which they are referring to are part of the profits and losses you see in companies which are public. The money is tied up in the company - not sitting in a vault somewhere. Were that money in the States - it would be taxed away, their profit margins would be less, the stocks would be worth less, products would cost more, etc.

Do note that there ARE hedge funds based here (although the people who are trading and managing the fund are for the most part all in NYC, Boston, London, or Australia since it is much cheaper there than here) and they do have millions of dollars in them. But again, that money isn't just sitting in a bank here as cash - it works like this:
1) You are rich and have lots of money - YAY!
2) You contact a hedge fund (they are not allowed to advertise, so you have to find them) and you say "Here, take my money and do with it as you may - just make sure that it does better than mutual funds."
3) The hedge fund usually requires $500K or more for the initial subscription into the fund and they charge a performance fee - usually about 20%.
4) The hedge fund takes that money and then buys things around the world - it depends on the way the fund is setup. They might be buying risk in the case of the insurance backed funds (car insurance is doing well right now) - they might be shorting equity - or they might be playing with bonds. Essentially they can do whatever the hell they want with it as long as they tell you what that will be when you come in and keep you updated as to how your money is doing. Those things they are buying are in the US, they are in the UK, and so that money is going right back into the countries from where it came in the first place, just like... oh hey taxes! Also, those fund managers in NYC and Boston? They pay for office space and they have their office staff - they are in the US so they all pay US taxes. When you, the rich person with your money in the fund, cash out of that fund - guess who gets taxed on the income? You! YAY! Oh wait... we are supposed to be talking about how little taxation there is... damn.


I could go on if you like - but basically there is a general lack of knowledge about this area - so when someone says "That shit is BAD!" and then jumps up and down and talks about how wrong it is - it generally annoys anyone that actually knows even the smallest amount about how it works.

So yeah uh... there you go.
posted by MrFancypants at 10:46 AM on May 6, 2005 [1 favorite]

MrFancypants took the words right out of my mouth.
posted by Specklet at 10:51 AM on May 6, 2005

I would like to thank MrFancypants for his very thoughtful and informative contribution, and to ask him for a job. I have an LLM in taxation from Boston University, have practiced in the corporate and estate planning fields for fifteen years, and love both the island and people of Bermuda. May I email you my resume?
posted by yhbc at 11:11 AM on May 6, 2005

Thanks Mr.F, sounds like your case is well put, but may I ask, any links to that effect?
posted by uni verse at 11:12 AM on May 6, 2005

The hedge fund usually requires $500K

The more you own, the more you earn.
posted by nims at 11:15 AM on May 6, 2005

Gosh, so many points.

There is a key point between tax evasion and tax sheltering.

One is illegal, the other abuses legal loopholes and technicalities buried so deep in tax code as to make most auditers head spin, and are not in keeping with the spirit of the law.

The American court system is a joke. [...] By basing in a country like Bermuda, they have the local court system if something comes up - and if it turns out to be crap

Excellent point. Oh wait, I mean, crap point. Can Bermuda prosecute an illegal action done by an American company on American soil?

The American companies based here still pay US tax.

Sometimes. But I doubt the IRS would keeps a list of the various ways shelters are abused if it wasn't an issue. From a US Senate report on tax shelters:

Some tax shelters are specific tax benefits explicitly enacted by Congress to advance a legitimate endeavor, such as the low income housing tax credit. Those types of legitimate tax shelters are not the focus of this Report. The tax shelters under investigation by the Subcommittee are complex transactions used by corporations or individuals to obtain significant tax benefits in a manner never intended by the tax code. These transactions have no economic substance or business purpose other than to reduce or eliminate a person’s tax liability.

Say you want to move here and stop paying taxes

Say you don't want to move there, but don't want to pay taxes. Say you do want to move there, but do want to pay taxes. Say strawman, and let's be done with this tangent.

The money to which they are referring to are part of the profits and losses you see in companies which are public.

I don't quite understand what you're getting at. Is it your contention that because the money isn't in gold bullion it's suddently irrelevant to the IRS? Are you serious? This is really your job, huh?

but basically there is a general lack of knowledge about this area

Aah, yes. We're all obviously too stupid to understand, but thank you for your patience with us poor financial cretins.
posted by Civil_Disobedient at 11:17 AM on May 6, 2005

Were that money in the States - it would be taxed away, their profit margins would be less, the stocks would be worth less, products would cost more, etc.

I'm not sure where you think that tax money goes, but most of it goes right back to the corporations that contract with the government. Another good chunk (at least, compared to what's left) goes towards maintaining the very mechanisms that keep these entities alive and impede competition from individuals.

A fraction of it goes to welfare queens and other boogeymen of the budget.
posted by sonofsamiam at 11:32 AM on May 6, 2005

Duug that boat is fantastic. My friend and I sailed from long beach to Catalina about 18 months ago and saw it there. He had a sailboat the size of ours (36') lashed to the side of the boat. It looked like a little toy. At night, we expected some sort of raging party with disco balls, strippers, and cocaine, sadly, the boat was pretty much dark and silent all night. I have photos but don't have them on this computer so I can't post them to my website.
posted by MillMan at 11:33 AM on May 6, 2005

yhbc, you are welcome to email me whatever you like - I think my gmail account is in my profile. I will note that I am the head of IT here and don't have much say in the hiring process, and as far as I know we are only looking for accountants with hedge fund experience - but email away and I will pass it on to those who make that sort of decision.
Also note that you can't move to Bermuda unless you either have a work permit or a spouse of someone who has a work permit. Or are a spouse of Bermudian (my case). The current government here doesn't seem to like giving out work permits - but there is a shortage of accountants here for the most part, so Bermuda is always looking for those.

As for uni verse and your request for links - I wrote up a long response and then realized that I was essentially repeatedly saying "US Tax Code, see irs.gov" and then also suggesting Google searches. All of this is readily available info on the net - all free and just one boring read away.

Some Google searches which might prove interesting:
"list offshore entities"
"OFAC" or "office of foreign assets control"
"world check" or "worldcheck"
"how does a hedge fund work"
"hedge fund legal"
"hedge fund locations"
"tax shelter" or "tax evasion"
"tax elliot spitzer"
posted by MrFancypants at 11:37 AM on May 6, 2005

Civil_Disobedient raises an excellent point - there are many abuses of the tax shelters and additionally the IRS not only tracks them, but investigates them and prosecutes them.
Do note though that the link you provided doesn't list a single case which applies to what we are talking about in the offshore sense - those were all onshore issues with the exception of Guam - and that is a US Entity, which by definition is no an offshore location (well, perhaps in the nautical sense it is).
Perhaps the way I worded it was inappropriate? The difference is between "tax evasion" and "tax avoidance". The latter being the case where you pay as little tax as legally allowed. The former being paying no tax at all when you are legally obliged to.
As to how evil it is, feel free to speculate to the full extent and we can just have a difference of opinion.

As for illegal actions on US soil - it is irrelevant what Bermuda courts can do - that would be tried in US court. The same way that a spammer who breaks US laws but is acting out of Europe is tried in a US court (if they can get them). I think you are misunderstanding what legal actions would take place in Bermuda.
The legal issues which would go in front of the courts are corporate law issues in terms of getting debts resolved and that sort of thing.
When you are prosecuting for illegal actions, that depends on where the offense is taking place.

As for my reference to moving to Bermuda and avoiding taxes - hardly a strawman at all - in fact it is entirely on point. We are discussing how money which would otherwise be taxed is supposedly in these offshore countries - so the point of wealthy people hiding their money here through various means - including the misconception that people can just move to these countries and avoid tax - is relevant.

As for the part where you use the ad hominem and also call into question what I know - I will feed your flames and add that I am an IT person. While I write all of our software and manage the databases and client details, I am not a lawyer and not even an accountant.
So if that means I suddenly am unable to know how this works - point to you - well played.

And as for your closing line - I never said you were stupid, nor anyone here was stupid. I did raise the point that perhaps some were ignorant to the true facts, so rushed judgments and snap decisions were perhaps not the best reaction without first educating oneself.

Bravo though on the flame war attempt though - I liked it and I think others did too. I give you 8 or so points on style, and probably closer to 6 on content.
I'm sure you will respond though - so we both have plenty of room for improvement.
posted by MrFancypants at 11:57 AM on May 6, 2005

I'm sure you will respond though - so we both have plenty of room for improvement.

Just responding to say thanks for keeping it civil. :)
posted by Civil_Disobedient at 12:30 PM on May 6, 2005

My schaudenfraude meter would go off the charts if Bermuda unexpectedly had a coup and the new government just seized all that money.
posted by iron chef morimoto at 12:32 PM on May 6, 2005

you can't move to Bermuda unless you either have a work permit or a spouse of someone who has a work permit. Or are a spouse of Bermudian (my case).

Dang it, there's always a catch. Oh well, I suppose that just proves that you love the people of Bermuda even more than I do . . .
posted by yhbc at 12:33 PM on May 6, 2005

The distinction between tax fraud and tax avoidence is an important one. If you object to tax avoidence, elect a different Congress and revamp the tax code.

I think the problem with the linked article is that it doesn't distinguish properly between the LEGAL tax avoidence (aka tax shelters, etc) MrFancypants is talking about and the criminal activity.

For the record, tax fraud far outweighs the amount of hot money from drugs or other laundering of criminal funds. It used to be believed that drug money laundering was the largest component of US hot money in overseas accounts. Then the IRS and Customs (through an odd set of circumstances) was able to seize all the records of an offshore bank that specialized in illegal money laundering.

And to their suprise, they discovered that 90% of the illegally concealed assets were from legal businesses, not criminal enterprises.

The criminal aspect of hot money is tied up in capital flight, corruption, and tax fraud. One of the best sources is R.T. Naylor's Hot Money and the Politics of Debt

More on Nalyor's most recent book here

And there is always Transparency International, one of the key NGO's fighting corruption
posted by warbaby at 12:42 PM on May 6, 2005

I was under the impression the hedge funds locate to the Caribbean to avoid SEC rules, not to avoid taxation. Capital gains made on a hedge fund still have to be reported, right? I would guess a big chunk of that $11.5 trillion is hedge fund assets.
posted by mr_roboto at 12:54 PM on May 6, 2005

mr. fancypants... my dad's an immigrant who has worked long hours his entire life. He's one of those Greeks who outworks any other five guys you may know, and he loves it that way. He came here with nothing and he's successful. A self-made man who is a fundamental believer in capitalism as the realistic economic solution.

He doesn't enjoy having other people spend 'his' money, but the thought of taking his business out of America and avoiding taxes is one that sends him into rage.

In his words it's cowardly and treasonous.

I pay my taxes and I agree.

Though you were civil, I take offense at your statement that all we're doing is playing with other people's money. I make less than the people we're talking about. I pay /double/ taxes because of my dual citizen nature now. And yet I feel okay with that because a) I have gotten the pay off of public education, museums, road systems, etc., and b) if I can help fund that for others who may be even less able to live a life of luxury than myself, I'm all for it.

As for the IRS prosecuting tax shelters, there were just a string of articles on how the IRS budget has been starved to the point where they can't even afford to go after corporations any longe. Gee, I wonder who they're going to go after with their limited budgets? Hmmm. Who can't afford to defend themselves? Hmmmmmmm.

They are specifically talking about sitations where taxable profit is being hidden. The US is able to tax income from abroad, as far as I know. When they are aware of it. But income is not the same as holdings. Foreign holdings are not taxable in the same way, or are they? I might be mistaken here.

Also, if you actually read the Tax Justice article, you'll see that despite the existence of some amount of taxes on tax shelters, they're discussing situations where the conservative estimates are that 250 billion dollars a year in taxes is being hidden. 250 thousand million dollars a year. Hidden. Minimum.

Overall, the cost of tax havens to the global economy is likely to be considerably higher than US$ 255 billion because the figure does not include tax losses caused by corporate profits hidden in tax havens and the downwards pressure on tax revenues caused by countries engaging in tax competition to attract or retain investment.

So we have yet another way in which money is siphoned away from where it is obligated to go by the social contract that ends up giving corporations blow jobs all over the place... pushing some nations to offer lower taxation than others in an effort to attract capital. The losers? Everybody else! Yayyyyy!
posted by the_savage_mind at 1:07 PM on May 6, 2005

mr_roboto - you are correct on the SEC rules which as you say might even be more important than the tax reasons, that was a huge oversight on my part to leave that out.

In terms of capital gains of shareholders in the fund when they cash out - yes if they are US citizens. As for the fund as an entity, that is beyond my scope since I don't own my own fund - but I would assume it isn't taxed on its foreign dealings and it probably gets interesting when you look at where the managers are based and all of that.
Our owner could speak better about that, but he is off-island at the moment - I think he is back this weekend and then I will ask him about it.
posted by MrFancypants at 1:11 PM on May 6, 2005

the_savage_mind, this could quickly and easily devolve into an argument over the benefits/detriments of capitalism and/or socialism, and I'm not really sure how constructive that would be for any of us, so in the end we are probably going to have to agree that we disagree on some (many?) points.
For example it sounds like you and your father feel very strongly one way towards it, perhaps in a way that differs from my own perspective.

I personally prefer lower taxation across the board and a smaller government. While I am unlikely to be swayed from that, just the same way - you and your father are unlikely to be swayed from your views on what it should be.

But I think the two points I would raise is that notice how we each see it a different way, but I think we could also both say we are seeing the same system as it stands now is currently broken.
If you want it changed - the fault is not with the corporations - the fault is with the government systems which put it into place.

This is where the talk of lobbyists starts and we can all hold hands on that one - there are very few people I have met who are fans of the lobbyists (and I have friends who are lobbyists - they even hate lobbyists... go figure).

This is starting to go off course - I think warbaby probably has said it best so far and with far less babbling than I have.
posted by MrFancypants at 1:24 PM on May 6, 2005

Thanks.

Ed Thorp, the brilliant probability mathematician who discovered card counting at blackjack, also was the first to nail the math behind hedging and optimal portfolio selection in 1969.

See reference 25, "Optimal Gambling Systems for Favorable Games" at this page which encapsulates the highlights of his career.

Claude Shannon suggested the Kelly Criterion to Thorp when refereeing the original paper on blackjack "Fortune's Formula." Together, the two tackled roulette and laid the groundwork for what later became known as Chaos Theory.
posted by warbaby at 4:17 PM on May 6, 2005

Overall, the cost of tax havens to the global economy is likely to be considerably higher than US$ 255 billion because the figure does not include tax losses caused by corporate profits hidden in tax havens and the downwards pressure on tax revenues caused by countries engaging in tax competition to attract or retain investment.

"The losers? Everybody else! Yayyyyy!"

Not really, since that money is presumably spent somewhere on Earth. If you're Coke and you save money on taxes, you don't just sit on the extra cash, you go out and hire people, invest in new products, etc, etc etc to try to make it into MORE money.

I know it is every liberal's fantasy that there is a Mr. Burns or Uncle Scrooge type character who does nothing and produces nothing and only sits around counting his money and laughing at others all day. There's a reason cartoons are cartoons.

Bill Gates is trying to make money. Warren Buffett is trying to make money. The Waltons are trying to make money, and none of them really needs it. Fortunatley for the rest of society, they need employees and various servives for which they must pay.

So if you assume that tax money is "ours" who would you trust with it: Bill Gates, who turned nothing into 270 billion dollars, or the federal government, the same people responsible for the disaster that is AmTrak and the USPS?

I'll go with Billy.
posted by b_thinky at 4:54 PM on May 6, 2005

every liberal's fantasy that there is a Mr. Burns or Uncle Scrooge type character who does nothing and produces nothing . . .

One of the very best original Uncle Scrooge shorts was the one where he had all his money in a giant corn crib (this was pre-money bin) and a tornado came and distributed it all over the country - everyone was a millionaire, so no one had to "work" any more. Scrooge assured his nephews that if he tended to business, it would all come back to him, and it did.

In those ten pages, Carl Barks taught me more than most economics courses, and its stuck with me a lot longer. I may be a liberal in most areas, but not with money.
posted by yhbc at 5:05 PM on May 6, 2005

Bill Gates, who turned nothing into 270 billion dollars, or the federal government, the same people responsible for the disaster that is AmTrak and the USPS?

OK. What the fuck, b_thinky!?! Criticize the U.S. government all you want but do not fuck with the postal service. It's self-sustaining, requiring no tax input from the federal government's general funds. And it's competitive, shipping for rates that are not only comparable to those of private delivery services, but also cheaper than almost any national post office in the world. It's fast and efficient: it handles a tremendous volume, with miniscule loss rates. I can take for granted that a first class letter will cross the goddamn continent and reach it's proper recipient in as little as three days. For 37 cents! Do you have any idea how much U.S. business relies on the infrastucture supplied by the USPS? It's the backbone of the economy (or at least a verteba). The USPS is the envy of the world, I tell you. The envy of the world!
posted by mr_roboto at 5:17 PM on May 6, 2005

b_thinky would also have us believe that government-controlled automobile insurance is a Bad Thing, but the simple fact remains that BC's public insurance company provides the lowest overall rates in North America.

There is a lot to be said for publicly-controlled programs that provide for the greater common good. Go ahead and compete corporately for widget manufacturing and sales, but let's make sure everyone has equal and fair access to the basic infrastructures that allow us to have such a great society.
posted by five fresh fish at 6:09 PM on May 6, 2005

MrFancypants: You are wrong that the US is the only country that will tax you when you are not resident there. I am a Canadian citizen living in the United States, and I pay U.S. income tax on my income (in 2003 I paid $1500 out of a total taxable income of $15 644 USD), and then I have to pay Canadian income tax on my world-wide income. They do allow me to subtract what I paid the states from what I owe (which, because the American rate was so high, meant I didn't owe any in 2003), but the expectation is that all Canadian citizens pay Canadian income tax, regardless of where that tax is from. The only difference is there is a treaty between Canada and that US that means if the US begins to tax you on your world-wide income (e.g., after five years in the States, they will consider me a resident for tax purposes), then Canada will tax you on your Canadian income alone. But I do not know if this applies to other countries.

As for the moral correctness of purposely trying to withhold money from your own government, you just have to ask yourself how patriotic you are. I love my country, and my country has helped me. So I owe it to help it back, not just the government, but the whole of the society, by paying my taxes.
posted by jb at 11:30 AM on May 7, 2005

jb, do you still own a house, land, and/or rental property in Canada? Do you have a wife and/or kids who still live in Canada?
If so, then you are still legally considered a resident at some level in Canada and will have to pay some level of taxes.

If not, you should really look into that further, because I assure you that you don't have to pay taxes. There are many Canadians working here and part of the draw for them is making a salary here which is tied to the US dollar (which is not as high compared to the Canadian dollar as it used to be - but is still currently better) and they are not taxed on it - this is a huge benefit from them.

But for that to come into effect, you have to move (including your spouse and kids if that applies) out of the country.

AFAIK it doesn't apply to college students who are going to school in another country.
posted by MrFancypants at 6:30 AM on May 8, 2005

No, I do not own any of those things you might have noticed that my salary was under $20,000 USD and that was a very good year for me).

Yes, I am a student (though a graduate student, not a college student), but I would still owe Canadian taxes regardless, unless I have become a resident of another country. Perhaps Bermuda makes people resident immediately, or the people you know actively sought to be residents of Bermuda. But as far as I know, I have no way to become a resident of the United States until I have been here for five years (when the US will begin to tax me on my worldwide income, and so far their tax rates have been much higher); even for workers, it is not that easy to get the immigrant status in the US that makes you a resident. Residency must be granted by the other country for Canada to stop taxing you; this is not always granted immediately or easily.
posted by jb at 8:24 AM on May 8, 2005

Though I am very sorry to hear that Canadians, all of who benefited from an excellent public heath care system and public schools, wish to actively make high salaries and not pay Canadian taxes. It just seems so unpatriotic, and quite a bit greedy, not to want to contribute back to your country and the society that helped you get to that favourable situation.
posted by jb at 8:26 AM on May 8, 2005

Okay, been lurking for a few years, but just had to sign up and reply to this.

I am a Canadian, living offshore for the last several years, and I can assure you that Canadians who are not Canadian residents do not have to pay Canadian income tax in any way.

I get this advice from my own tax guy specializing in expatriate tax, and from co-workers, also Canadian, who have their own expert tax guys, and all of us are given the same story.

Permanent US residency should not be required. What is at issue is whether, for tax reasons, you are considered a Canadian resident. Your status in other countries is only of secondary importance, and is not required (it merely acts as an indicator that you are indeed living somewhere else, and not just making it up). There is no "official" residency status you have, you don't just go in and obtain or release your residency.. it all depends on your personal situation.

If you do not own a car or property in Canada, and are not still paying into provincial medical programs, and aren't supporting a family, have no income from Canadian sources, and if you genuinely plan to live elsewhere for an indefinite period of time (at least 2 years) then you are NOT a resident of Canada, for tax purposes. Residency for tax purposes does not mean right-to-abide by immigration purposes, they are different. You do not require permanent US status to be a Canadian non-resident... the fact that you are living outside Canada and do not have residency ties to the country is enough. You can be non-resident and just move from country to country on temporary work visas, for instance.

If you are actually meeting that description, and are still paying Canadian taxes in any significant amount, you should really seek out an expert (or a new expert) in expatriate tax laws. Likely you are not even required to file anymore.

The system is based around making sure you aren't just trying to live in Canada and have all the benefits of a taxpaying resident, but somehow claim you aren't a resident. Even if you are only gone for 1 year, or even less, i'ts possible to be exempt from tax if you can show that you genuinely were trying to be non-resident, and your situation simply changed.

As for being "Non-patriotic"... our system of taxation based on residency, and not on citizenship, is the same as most other countries on this earth.. the US is one major exception. Think about this:I must pay my own medical care, even while on vacation back to Canada to visit family. The roads where I live are crap, and I have to pay twice as much for a car and even more for gas and maintenance. Crime is higher, insurance is more expensive. I can go on and on about my additional expenses here. I get none of the benefits my taxes would pay for, and neither would anyone else in the society I live and work in. Further.. what's unpatriotic about not paying taxes that the tax law clearly says you don't have to pay?
posted by TravellingDen at 9:12 AM on May 8, 2005

IMO when the tax law clearly allows you to reduce your tax payment, you are obligated to take advantage of that law: the more money you have for yourself, the more you can decide how you wish to distribute it.

Put it into the local economy by purchasing that widget you've always wanted, and you help generate/finance a job in the community, which round-about helps generate more taxes than if you'd given it to the government.

Put it into a charity, and you provide help to those whom the government would overlook.

Yes, it is vital that Canadians pay taxes to support the wonderful public infrastructure we have -- but we must also support the private infrastructure that makes the entire economy tick along.

And FWIW, I think the notion that Americans pay "lower taxes" has been pretty much debunked when one compares apples to apples: you gotta factor in all the services which we fund through taxes, that they have to pay for themselves, especially wrt healthcare. Once you do that, it looks like Canadians by and large get the better deal.
posted by five fresh fish at 9:25 AM on May 8, 2005

TravellingDen - I may be wrong - I had just assumed that paying Canadian taxes was part of being a Canadian citizen (no matter where I live). I do have legal residency still in Canada (because I live in the US for the purpose of education), and even though I'm only in Canada maybe a cumulative 4-6 weeks a year, I have no desire to lose my residency status because it means I still have OHIP when I do visit (and I do plan to visit if I ever need major care, because it's better service than the overpriced university coverage I have here).

I am curious, though: this spring we were asking Canada Revenue about residency status for a friend of mine, who is a dual Canadian/British citizen in the UK for education. He's resided there for 2 1/2 years, spent no more than a few weeks at a time in Canada (I think 3 tops) in all that time, cumulatively maybe 4-6 a year, and they still told him that unless he had proof that the UK considered him a resident (ie for tax purposes), he would be considered a Canadian resident and have to pay taxes (his income is also from the UK, and he owns no property in Canada). The Canada Revenue people had said pretty well the same thing to me - that when the States started taxing me like an American (on worldwide, as opposed to just U.S. income), they would tax me only on Canadian income. Until then, I would not be considered to have lost my Canadian residency.
posted by jb at 9:01 PM on May 10, 2005

I can broadly verify what TravellingDen said, but a key thing to remember is that if you come into the sights of the powers that be, they reserve the right to judge each situation individually, and what constitutes 'financial ties to Canada' is deliberately left vague in their documentation. If you're not trying to cheat the system, though, it's probably OK. For example, I haven't paid taxes in Canada for many years, but I have neither resided nor earned money there, and I don't have any assets or property of any kind there.

How that would apply to jb's question, for someone who has dual citizenship, though, I haven't a clue.
posted by stavrosthewonderchicken at 9:23 PM on May 10, 2005

fff: The issue is that much of this money isn't going back into the economy of the societies where much of it was generated. And it is a decidedly grey area as to whether it is legal (that's why they are called loopholes - and they can be closed if the government desires).

Several years ago (maybe a decade), it was widely known that big businesses in Toronto didn't pay their property tax. They didn't do anything illegal, they just "deferred" it indefinitely. I didn't really understand how, maybe it was something that was allowed. All I knew was that the TD bank, which was showing profits, owned some of the most valuable property in downtown Toronto, and owed something like 10 million in property tax they just didn't pay. I found out about this because I knew the daughter of one of their Vice-Presidents (he left soon after).

Now whether it's legal or not, should it be legal for a large, extremely profitable business just not to pay its taxes? Are small businesses given such consideration? And what happens to the infrastructure if businesses don't pay tax.

All businesses benefit directly from government services - they ship on roads maintained by the government, their property is protected by police paid for by the government, their workforce is educated by the government (perhaps a little too much - businesses are increasingly dumping their training costs onto universities, all in the name of "practical" education), and in Canada their workforce is kept healthy by the government. The list is probably longer. Yes, businesses are needed to support the economy, but an economy exists to serve the society, not the other way around. And businesses have to abide by the will of the society, as represented in democratic government - they benefit, but they also have to pay back. It's mutual. (They, of course, have a say in that government, both through the votes of owners and employees as well as through lobbying - in fact, though lobbying, businesses have more say than many other stakeholders in our society.)

I feel the same way about individuals - we have our individual freedoms, but we owe it, on a moral level if not a legal, to respect our society by giving back. We all have gotten different things - maybe it was an excellent public education, maybe it was financial support, maybe it was good roads and clean and safe cities. Even when you aren't aware of it, if you live or grew up in the mainstream Western world, you are benefitting/have benefitted from a whole heap of services you don't pay for, except in your taxes. Sure, dollar for dollar you may pay more than you have received directly, if you make an excellent salary, but the world that lets you enjoy that excellent salary (which is still excellent after taxes) is a world built on the infrastructure of public spending, including the public spending that keeps the poor from so unhappy they will start a communist revolution and toss you out of your comfortable bed. (Maybe the millionaires of 1920's and 30s Shanghai should have thought a little longer about this sort of thing - I've been teaching Chinese history, and social revolution wasn't so surprising there).
posted by jb at 9:25 PM on May 10, 2005

mrfancy: wow a lot of arguments and points being made, I'll take some because answering all of them would take me time I can't spare..gotta "make" money , you know.

Point 1: a distiction between tax evasion and tax sheltering

From a legal point of view indeed the two forms of tax reduction are distinct, because the latter should be, in good theory, the fruit of a compromise with government benefitting both parties (we'll disregard temporarily corrupt or stupid government officials not acting in the exclusive interest of the majority of their voters, regardless of political color)

From a mathematical point of view, tax evasion and tax sheltering have exactly the same effect : reducing the absolute value of numbers that would turn out to be negative in the balance sheet, influencing the cash-flow and probably generating a financial cost or a financial
risk. In other words all the companies everywhere in the world care for is to pay less taxes because tax is perceived as a COST without a corresponding REVENUE in the balance sheet. A pure cost is "evil" for a company as it reduces the net profit, shows a "costly" structure to investors and is the most likely cause of cash-flow crisis. To some eyes, Osama Bin is ten times better then any costs.

Running out of time...too keep the conclusion short , tax sheltering has negative costs paid by everybody. So I pay too and get nothing from it, fuck that !
posted by elpapacito at 11:19 AM on May 11, 2005