Tax Reduction Planning

There is a widely held but mistaken belief that a citizen of a high-tax country can simply go to an "offshore service provider" in a tax haven jurisdiction and purchase a company or trust that will allow them to avoid (evade) the taxes otherwise imposed by their home country. This is generally not the case.

Many high tax countries such as Germany, Belgium, England, Japan and others, impose income taxed based on a territorial concept. If the income is earned within the country or if it is earned as part of an international transaction, part of which takes place in the country, they impose a tax. If, on the other hand, a citizen of such a country earns income from totally outside their home country, their country of citizenship leaves the taxation up to the country where the income is earned. For citizens of these countries, there are many tax advantages associated with moving working assets to a tax haven jurisdiction.

For "U.S. Persons" the situation is more difficult. First, a "U.S. Person" is a tax code term. It refers to all Citizens of the U.S., all companies or other entities that are organized under U.S. law, and all resident aliens, whether individual or corporate. US Citizens are taxed on their world wide income regardless of the source (there are some exemptions but they are technical and will not be discussed here.) Other U.S. Persons are taxed on all income that is earned within the U.S. or in close connection with the U.S., regardless of the citizenship of the tax payer.

For many years, the "offshore service providers" (attorneys, accountants & company formation services) located in the world's many tax haven jurisdictions have been willing to assist American citizens commit tax evasion, using schemes that they claim will never be discovered. They sell the secrecy of bearer share company arrangement, abusive trusts arrangements and layered transactions designed to permit the American citizen to lie and get away with it. Prudential Trustees believes that this is a dangerous and foolish course. These "service providers" will earn their fees, but if their scheme comes unraveled, it is the American that stands to lose everything, including their personal freedom. This is not an acceptable risk.

Tax reduction planning for U.S. persons is therefore more complicated, and presents fewer opportunities for substantial relief under the law. Often, a legal strategy can arrange for tax deferment on income earned through an offshore strategy. This is not only legal but a very powerful financial strategy to permit invested funds to grow and compound much faster than they could in the U.S. Other plans permit the use of legal strategies that can substantially reduce the effective taxes imposed on certain transactions. Sometimes the effective applicable tax rate can be reduced. Sometimes exemptions can be created that will reduce the amount of the income subject to tax. Very seldom is it possible to totally avoid the tax obligations that would be imposed on a U.S. taxpayer without violating the law. It is our position that it is never worth it to commit a felony in the hopes of saving a little money. This is particularly so when it is possible to reduce the tax burden through legal means.

Prudential is always prepared to assist its clients in the implementation of strategies that lawfully defer or reduce their tax burdens. We direct inquires from those who are not currently clients to the experienced lawyers, both American and Caribbean, with whom we have developed trusted relationships. We know that the professional providers, including accountants, banks, brokerage houses and others with whom these attorneys work, will direct these taxpayers through the process of lawful tax planning. We do not mean to say that the opportunities are not real or that the benefits are not substantial. We mean only to remind every reader that while it is prudent and wise to examine and utilize every lawful arrangement to reduce taxes, that it is never prudent or wise to seduced by outrageous promises from those who will charge you fees but not share your exposure to the consequences of their illegal schemes.

Every client of Prudential is a foreign trust. Prudential will not take on as a client any person from any country as a direct client. If that person should arrange to be the Protector of an otherwise legitimate trust formed in compliance with our Master Deed of Trust, then we would be pleased to work with that Protector as the law permits. We have substantial experience in these matters and are pleased to be able to offer that experience to our clientele.