Suppose I want to extract – entirely free of any taxes – $100,000 from my profitable, very visible On-Shore Company.
- First, I have my Off-Shore Company #1 buy a piece of art of a promising artist at a real art auction. The hammer falls at $500,000.
- Then the On-Shore Company buys it from Off-Shore Company #1 for the same price of $500,000, as a “diversification” to the On-Shore Company’s investment portfolio.
- A few months later the On-Shore Company sells it “in distress” (because of “financial difficulties”) to a foreign buyer, which is my Off-Shore Company #2, for $400,000. On-Shore Company can deduct $100,000 in losses.
As a recap:
- $500,000 went from on-shore to off-shore,
- and $400,000 went from off-shore to on-shore.
So, at the end of the day, $100,000 went off-shore, without paying any taxes, completely at my disposal !!
If I had transferred those $100,000 from On-Shore Company to a personal bank account on-shore, I would have had to pay corporate taxes and dividend withholding tax. In most Western economies I would have been very lucky to be left with $40-30,000.
Off-shore shareholder secrecy regulations prevent the tax authorities from proving that you are the economic beneficiary of both off-shore companies.
Fine art is especially suited for this kind of operation because market prices are notoriously volatile, actually “what any fool wants to pay for it”. So tax authorities will have a hard time proving that the prices used in the transaction did not correspond to an economic reality.
#Not a finacial advice but good read