Cross-border families, dual citizenship and tax evasion

[Camelcel]

I am new here and apologize in advance if my post is breaking any rules. I came up with two simple schemes to avoid taxes of my high tax country that look too good to be true and wanted to check what is wrong with them.

Background. I hold two citizenships - one in a rich, high tax country where I reside, the other - in a poor, low tax country. I also have close family in the poor country. In addition to my day job, I do some trading and would like to hide any income from trading activity from tax authorities (otherwise I would likely never be able to grow my account significantly, beating the market is hard enough, without 50% marginal tax rates).

1. Suppose I make up some proof of residence in my poor homeland and set up a brokerage account in a reputable jurisdiction under my poor country passport. Will the high tax country ever learn about this account? Can the brokerage find our about my other passport and residency in a high tax country? What can go wrong with this scheme?

2. Now suppose my sibling opens a brokerage account in a reputable jurisdiction and gives me full power of attorney including the right to deposit and withdraw funds from his account (some brokerages allow this). In this scheme the brokerage will know that I am a citizen of a rich country. I will fund the account, trade on it, and withdraw funds to my bank account in high tax country. In my tax return I will declare the withdrawals to be family gifts, which are not taxable in the rich country.

I suppose this setup would look very suspicious to the brokerage. Will they report me? Am I a reportable person even if I don't own the account technically? Can the rich country tax authorities find out that I am withdrawing funds from an account that I control through power of attorney? Is this even illegal? What can go wrong?

Thanks.

 

[khinkali]

The high tax country can look for possible matches to taxpayers based on name and date of birth. Also place of birth if it was logged when you signed up, either from your passports or from the data you provided.

There are a quite a few providers making good money from fuzzy matching KYC info. Miss-spellings, name variations, etc. won't fool them easily.

The question is whether the high tax country would bother trying to match your identities? If you have a high value brokerage account or receive large gifts from family members, then it seems worth their while to cross reference your data and look for possible matches for closer investigation.

Also, your schemes look like they would leave a trail due to the Travel Rule (which is upsetting lots of crypto folk as it starts to apply to VASPs).

 

[Camelcel]

Thank you for your reply. I am far from being a high net worth individual, so I don't think the tax authority will bother to cross reference my identity. I am hoping that as far as there is no automatic matching algo that cross-references millions of tax payers against millions of account holders across the globe (is there such a thing?), I should be in the clear. As for the travel rule, I don't see how it invalidates my second scheme - when I get the funds from my close relative? In that case I have nothing to hide and just argue that it's a gift. Thank you for the input. I have zero knowledge about this stuff, certainly will have to do more research.

 

[khinkali]

I am far from being a high net worth individual, so I don't think the tax authority will bother to cross reference my identity

One high tax country (Sweden) famously got the banks to hand over the names of everyone who had used a foreign card in an ATM. They cross-referenced the names against their citizens and looked into the coincidences. This was just ATMs, not big money transactions.

I am hoping that as far as there is no automatic matching algo that cross-references millions of tax payers against millions of account holders across the globe

There's Common Reporting Standard for Automatic Exchange Of Information. I don't know about your specific brokerage account but we are moving towards a world where each regulated provider will hand your information to the next, providing a chain of information that follows the money.

I have nothing to hide and just argue that it's a gift

I understand that you would want to argue that it's just a gift, but I can't imagine a high tax country's tax officials taking that view. You put some of your money into someone's account, trade it and then take the profits? I'd want some legal certainty that this isn't money laundering in addition to tax evasion.

I don't want to sounds negative about your ideas, but I do suggest that you try to be very clear about whether you are looking for a legal tax avoidance scheme where you use jurisdictional arbitrage to minimise your tax base, or an illegal tax evasion and laundering scheme where you try not to get caught. The skills you need for each approach are probably quite different!

 

[Marzio]

One high tax country (Sweden) famously got the banks to hand over the names of everyone who had used a foreign card in an ATM. They cross-referenced the names against their citizens and looked into the coincidences.

How the bank knows the names of the people who used a card in an ATM?

 

[khinkali]

@marzio the local ATM operator has access to some information when you make a transaction. The Government can ask for it and check foreign cards with the same customer name as a resident.

But this was many years ago. I guess they're much more sophisticated now.

The German tax office is known to pay illegal bribes to people working in foreign financial institutions to violate local privacy laws. These actions are probably approved by a former East German citizen now in the unified German Government...

 

[Marzio]

the local ATM operator has access to some information when you make a transaction

The operator can access to the card number and other stuff but i don't understand how they can access names of those who used the ATM. I mean lets suppose that i'm from France and i'm going to Sweden and use an ATM to get some cash. How the operator can access my name?

 

[Sir Gelato]

The operator can access to the card number and other stuff but i don't understand how they can access names of those who used the ATM. I mean lets suppose that i'm from France and i'm going to Sweden and use an ATM to get some cash. How the operator can access my name?

Your card number it is linked to some bank account that's on your name, I've been studing atms and even open many to know how they work and let me tell you that EVERYTHING is registered, time, clients, cards, money, etc...

 

[khinkali]

I don't know the mechanics for ATMs. When you meet ex Swedish tax refugees they tend to moan about Astrid Lindgren's 102% marginal tax rate and the famous Swedish ATM name matching exercise.

But for "Chain Rule" in principle you should look into the US version of the Travel Rule (e.g. 31 CRF 103.33 ) which has been around for over 40 years. It is coming to crypto providers this year (see FATF Travel Rule and EU's 5AMLD).

Also, it's good to assume that tax authorities might go much further than OECD requirements. For example Georgia doesn't have CRS yet, but it has had some kind of exchange with Germany for some time.

There are some smart people who find ways through the minefield, but it's not something I'd like to try myself!

 

[tradingworldwide321]

Hi there

I am a forex trader and been here in Offshorecorptalk for a while. I have been learning from here and other researchings I've done by my own so I am going to give you a brief about your situation. I say brief because it's not an advice neither a solution because I don't work in the field and don't even know where do you exactly are located at. So here I go.

1. Suppose I make up some proof of residence in my poor homeland and set up a brokerage account in a reputable jurisdiction under my poor country passport. Will the high tax country ever learn about this account? Can the brokerage find our about my other passport and residency in a high tax country? What can go wrong with this scheme?}

Answer: Which jurisdiction do you plan to open a brokerage account?

Question: Will the high tax country ever learn about this account?
Answer: It depends about the jurisdiction brokerage account. If you open a UK brokerage account and you are Swiss resident, then they may report your account to Swiss government because of CRS. However, you need to know which countries has signed an agrement to exchange information and which not, I can't tell you because you don't say nothing. For example, if you live in Ecuador, ecuador has not signed an agreement with Seychelles, so you can open a brokereage account in Seychelles and Ecuador will not know nothing UNTIL you declare you have it because of the Ecuador Law. Please go to this site and learn which countries has signed mutual agreement Countries - Financial Action Task Force (FATF) and check your passports and brokerages jurisdictions. However, if you a US resident then CRS will apply to you and you will not have any choice. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-crs-country-status-010920.pdf
In few words, it's all about tax treaties. Do your homework because you didn't mention nothing about your countries, which I respect.

Question: Can the brokerage find our about my other passport and residency in a high tax country?
Answer: Other passport no, but does residency. Regulated brokers are require to implement AML policies and one policy is about WHERE you are a legal tax resident and where is funds coming from. Example: let's say you are a US Citizen and also a Nigerian Citizen. So let's say the brokerage asks you where are you from? So you say Nigeria, okey, where do you live ? I live in USA. Okey, Are you US citizen? Do you have a permanent residence? yes, okey now tell us your US address... and send us a bank statement showing you US address. So broker may not ask you US passport but by law it needs to know about it. Other example: where are you from? Nigeria, where do you live ? Nigeria, okey give us your Nigerian Adress, so you give them a Nigerian adress which your cousin lives, okey, now gives us a bank statement showing that YOU really lives in that address.. What do you plan to do then? You can not believe making fraud to that bank statement, changing the name of him to you name brother. We are not living in 50, 60 70 80's anymore.

Let's say you have Nigerian Passport, Nigerian Adress and Nigerian Bank account and Nigerian Address, okey now what about IP connection? YOu will need a VPN that routes to Nigerian. Okey now how do you plan to move your funds from your Nigerian Bank account to you US bank account where you actually live? making an international transfer? Okey, they will ask you, what is that transfer about coming from your Nigerian bank account to our US bank account? What is that about? A gift? My job? Okey tell us what do you work with ? okey I work as a freelance, okey show us proof of source of funds, show us the clients that payed out to you, shows us your nigerian clients.... you will face a lot of problems, trying to evade... you see goverments are not stupid. Now if you tell them it's trading they will tell you that it's prohibited from US laws, that a US citizen is working with a foreign broker. Prohibited and we will have to fine you or send you to jail. So you need to research about your country and working with foreign brokers...


2. Now suppose my sibling opens a brokerage account in a reputable jurisdiction and gives me full power of attorney including the right to deposit and withdraw funds from his account (some brokerages allow this). In this scheme the brokerage will know that I am a citizen of a rich country. I will fund the account, trade on it, and withdraw funds to my bank account in high tax country. In my tax return I will declare the withdrawals to be family gifts, which are not taxable in the rich country.

I suppose this setup would look very suspicious to the brokerage. Will they report me? Am I a reportable person even if I don't own the account technically? Can the rich country tax authorities find out that I am withdrawing funds from an account that I control through power of attorney? Is this even illegal? What can go wrong?


Question: Will they report me?
Answer: Yes, they will close your accounts and frooze your funds. You will loose it.

Question: Am I a reportable person even if I don't own the account technically?
Answer: Of course, you are legally liable for your actions and our siblings as well.

Question: Can the rich country tax authorities find out that I am withdrawing funds from an account that I control through power of attorney?
Answer: It depends where is funds going to. If you move funds to your country where you reside, of course. But if you move it somewhere else may be not, however you have to be very very careful.

Question: Is this even illegal?
Answer: Yes and no, withdrawing funds that is not yours it's illegal and you will have to go to jail, and trading for behalf of others is yes and no, it dependes about your countries and what do they think about it, example, in panama if you trade on behalf of others, it's illegal, you need to have a license, however, in Costa Rica, you don't need a license... Yet. I don't know too much about US and EU but I think you need a license for doing that, otherwise it's illegal.

Final thoughs:

Dear brother, doing tax evasion is not a good choice, it will bring you a lot of problems even if you start from 100 USD.
By other hand, you can't deposit withdrawal under power of attorney, the power of attorney only makes you open and close trades in the trading terminal and charging comission for it. The only way to take deposits from third parties is you are a legal hedge fund, mutual fund, investment bank, company etc... which they all require a license and millions to make it worth the costs.

I know your cousins can give you power of attorney to let you manage their bank account but you are liable to both countries for tax purposes and broker will not open their accounts. The broker rule says, you deposit and withdrawal in your own name, point.

I can not give you an advice because I don't know about your countries however here is an idea but you need to talk with local tax advisors for the two countries.

The best you may do is open an offshore IBC LLC company for trading with your own funds and a Saint Vincent and Grenadines LLC which is the only offshore jurisdiction that can let you be a Financial Advisor so you can trade on behalf of your clients but you are not allow to take deposits and withdrawals from to their accounts without license however you will need to confirm with the broker if they agree or not.
Open a corporate offshore bank account for that offshore company. Then open a corporate brokerage account.
Make profits and you can pay yourself as the director of the company from the speculative company and send the funds to you actually live as wages, or make a dividend but I strongly advise to find local advise because you don't have no idea how legal or illegal can be. In my country is legal but in you US I can become a bad boy LOL. and you know what happens to bad boys.

The last thing you can do in order to protect your assets is keep all all in an offshore foundation BUT you can't withdraw as you think, you need to study and be smart how do plan to withdraw because it's a foundation not a corporation and there are rules to comply with and if you keep your funds in your foundation, you are not the owner anymore so you may not be elegile to pay taxes, but remember, YOU ARE NOT the OWNER of your funds ANYMORE, so you CAN'T send funds to the foundation to your personal bank account as gift, only as wages, because you are the manager, director... You can not make a wire transfer of 1 Million to your personal bank account and buy a ferrari, BUT your foundation can hold any assets like cars, real estate, companies, yachts, jets, crypto whatever.... BUT in the name of the foundation, and the owner is the foundation itself not you.

So there are two options, one is flexible and the other is super restrictive but you are not liable to personal taxes because the funds doesn't belong to you.

Example:
I have a foundation and this one is the shareholder of the Financial Advising LLC in St Vincent and Grenadines, also owner of another St Vincent LLC speculative trading, also is the owner of a Panama IBC which this IBC is the owner of some luxury real estate in Panama which gives to the foundation passive income, also the panama IBC holds cars which are rented to create passive income, also I buy foreign real estate with a Belize IBC etc... but all of this is to the foundation, it doesn't belong to you my friend.

So I suggest not to evade but think smart and finally, with all respect you deserve, don't say you live in a rich country because all worlwide goverments are rich, but some are richest than others, but don't say that please, because I can tell you I live in one of the most powerful countries also but this is nonsense. I could say: in the country I currently live or in the country I live which has high personal/corporate taxes.

I hope this can give you an overview.

Bes regards.

 

[Camelcel]

Thank you but I disagree with some of your statements.

1. I will just say that it is very easy for me to provide a proof of residence in my poor home country. I have bank accounts, utility bills, and property under my name there. So if I am registered as an account owner under my poor country passport, how would anyone link this account to my rich country identity? I understand that if the rich country authorities would specifically look for accounts under my name, they would find out, but if they don't bother, then what?

2. Here is the link to Saxo Bank power of attorney https://www.home.saxo/-/media/documents/account-forms/power-of-attorney.pdf As you can see it gives the right to deposit and withdraw funds from the principal's account. So I don't see any issues here.

 

[Snakes6369]

I wouldnt do this, its illegal. If you want to avoid taxes you have to move to another country.

 

[tradingworldwide321]

Thank you but I disagree with some of your statements.

1. I will just say that it is very easy for me to provide a proof of residence in my poor home country. I have bank accounts, utility bills, and property under my name there. So if I am registered as an account owner under my poor country passport, how would anyone link this account to my rich country identity? I understand that if the rich country authorities would specifically look for accounts under my name, they would find out, but if they don't bother, then what?

2. Here is the link to Saxo Bank power of attorney https://www.home.saxo/-/media/documents/account-forms/power-of-attorney.pdf As you can see it gives the right to deposit and withdraw funds from the principal's account. So I don't see any issues here.

Hi

About Point 1:
Okey, then you can register yourself with your passport first, first bank account and first registered address from that country. It can works of course but my question is: once you start trading and make profits of 1k, 10k, 100k, 1M etc...
What are you gonna do?
How do you plan to move your profits to the country you live?
Do you want to keep away your profits from the country you live?
How are you gonna deposit and withdrawals profits? Via credit card, wire transfer, Skrill?
Which broker jurisdiction are you going to register yourself? I know SAXO is stronly EU and they are a bank, so they will exchange information but they have a lot of licenses jurisdictions.
You also need to check if the broker allows your jurisdiction because I was reading they don't open accounts for offshore jurisdictions.

Read this: https://www.home.saxo/-/media/documents/partners/reporting-us-exchanges.pdf
Are you gonna trade US futures options?

If they don't bother, well It may not happen nothing yet.

¿how would anyone link this account to my rich country identity?
It's all about CRS, or Tax treaties between countries, check it out if they have it. But what I can tell you is USA/EU has strong laws about trading, leverage and even power of attorney, most of them requires license, I can't say which does which doesn't because I don't live there but I certainly know that.

Also research or look advise about this:
What my homeland and my current country thinks about trading and acting as an asset manager (power of attorney)?
If I keep my profits in my homeland, how my homeland and current country will tax my foreign income, foreign wealth and personal assets?
If I keep my profits in my current country, how my homeland and current country will tax my foreign income, foreign wealth and personal assets?

I put an example:
Person is citizen and lives in a high personal taxes country A, also he is citizen of high personal taxes country B. So tax laws for country A says: if my citizen spends more than 15k USD, or lives in my country more than 163 days, or have an offshore tax residency, or have a wife/children living in my country, or have more than 50% of their wealth (wealth means brokerage accounts, cars, houses etc...) in my country, he will have to declare what he does and how much he has and pay worlwide income and pay wealth tax.

But let's say this person doesn't have wife/children, doesn't live more than 163 days, neither offshore tax residency, so there's a last rule, keeping more than 50% of their wealth in my country, so I would need to open a bank account overseas and depending of the jurisdiction, this banking jurisdiction has tax treats with country A and/or B.

Now let's say country B has the same rules about taxes. So, how do you plan not to pay taxes? The only way according to this circumstances is living in three countries, 4 months each one, but this person has two bank accounts, one bank account in country A and another in country B and you can not have more than 50% of your wealth in both countries, so what are you gonna do?
What do you plan to do if the EU broker doesn't allow a bank oversears and only accept a local bank, which is the addres this person was registered with?

About Point 2:
The document says you have two powers:
A. Saxo Bank may accept from the Attorney ...... any order for the purchase and sale of all instruments available....
B. Saxo Bank may accept from the Attorney, ...... any order regarding withdrawal and/or transfer of funds to the credit or debit of the Principal’s account(s).

Here it says: Broker accept from you to perfom an activity, the activity of going to client portal and click on deposit or click on withdrawal or transfers funds from one brokerage account to another one within the the broker to where? to the Principal Account and who is the principal? The principal is the owner of the account.

So this clearly means you can deposit/withdrawal for them but not with your name and your bank accounts. Only using their own bank accounts, credit cards, own wallets etc...

I want to let you know that no broker, even unregulated ones can not allow that a third party deposit/withdrawal for the client. That's clearly money laundering, I don't mind if you don't do that, it is according to the international AML rules.

Now as I can see, you don't share any information about your countries. I recommend to talk with local tax advisors and ask them if you require a license for acting as a power of attorney in the country you are from and the country you live in.

If for the country you live in requires a license to do that and you don't do have it, you will be working illegal.
You have two options: go away from that country or get a local or international license. You would need to check this with advisors or say where you live and we will try to research.

 

[Skadevolder]

I am hoping that as far as there is no automatic matching algo that cross-references millions of tax payers against millions of account holders across the globe (is there such a thing?)

There is. Norway claim an average matchrate of up to 70 % on CRS data, where the majority is identified by AI/Machinelearning. However, most financial institutions still supply horrible quality reports.

 

[reesek]

you guys need a non-reportable personal accounts both brokerage and settlement to move funds in between
fund them with crypto and you are all set

 

[jscargo]

Hi,

I am considering the same thing. But what about both countries have a double tax treaty and you keep residency in both of them?

Meaning in a way that you wouldn't care about whether the higher tax country would know about your investments, because you already paid it in the low tax country and they won't double tax you because of the treaty.

 

[JustAnotherNomad]

Meaning in a way that you wouldn't care about whether the higher tax country would know about your investments, because you already paid it in the low tax country and they won't double tax you because of the treaty.

That would be quite the exception. Usually treaties aren’t designed in such a taxpayer-friendly way. And even existing treaties are usually updated after a while, and not in a way that’s favorable for the taxpayer.

 

[reesek]

Hi,

I am considering the same thing. But what about both countries have a double tax treaty and you keep residency in both of them?

if you pay some minimal amount of tax in both countries they will not bother, both considering you a tax resident there, true

again, your profile will only come to some analysis when you make a big official transaction (say buy a property 1mm+)

until that, you are flying under the radar with amounts like 50-100k per year and even month

 

[dvm]

Answer: Yes and no, withdrawing funds that is not yours it's illegal and you will have to go to jail,...

How is it illegal? Even in the US a person can add authorized users to their account, issue a debit/credit card in their name and let them use the money in the account. And this would be perfectly legal. The same goes in other countries. For example, a father issues a card linked to his account in the son's name, the son can absolutely legally use (withdraw) the money from the father's account through this card.

 

[tradingworldwide321]

How is it illegal? Even in the US a person can add authorized users to their account, issue a debit/credit card in their name and let them use the money in the account. And this would be perfectly legal. The same goes in other countries. For example, a father issues a card linked to his account in the son's name, the son can absolutely legally use (withdraw) the money from the father's account through this card.

Your example is correct but doesn't fit this scenario.
Most commercial banks let the client have a beneficiary which can be a parent, wife, son or friend, and according to the client's profile, bank can give some loan to the beneficiary which the client is totally responsible for the beneficiaries' actions, in case they don't pay, we talk about credit card. With debit card, you can add authorized a few users of course, but they allow this because.

But this topic is very different, we are talking about trading and making wire transfers, you can't withdraw to third parties and if you do that, you will be considered a criminal and the broker is not going to allow that.

You can't use another people's name to withdraw YOUR money, that's what criminals do in sophisticated ways which seems to be here.