Discover an alternative to traditional banking


How to Create an Offshore Tax Shelter

Offshore financial centers are often used tothe "BLIPS".The mechanism was as follows:
run tax shelters. They have little or noTwo companies in the Isle of Man (UK), St.
taxes, and little or no financialCroix and another investment firm "Rogue"
regulations. For example, in the Britisheach borrowed $41.7 million from National
Virgin Islands, corporations can be formedWestminster Bank. The loans were for 7 years
without the public disclosure of the names ofat fixed interest rates. The loans paid
the directors or officers of the corporation.Interest Only, until a balloon payment at the
Favorite offshore tax havens includeend of the 7 years. St. Croix and Rogue
colonial relics such as the Cayman Islandsagreed to pay high interest rates of 17.97%,
(British), the Dutch Antilles and Curacaoin exchange for a $25 million payment to them
(Netherlands). Other places are feudalfrom Nat West at the time the loans
relics like Monaco, Liechentenstein andoriginated. So St. Croix and Rogue, received
Andorra in Europe, or other nominallyat the beginning of the loans a total of
independent small nations from the old$66.7 million. Then the $66.7 million plus
British, Dutch and French Empires. Other$1.5 million from each was put in an interest
places historically in the U.S. zone ofbearing loan at Nat West.In addition, St.
influence are Panama and the U.S. VirginCroix and Rogue agreed to pay $25 million to
Islands.The leading offshore center is theNatWest, if they paid off the loan early,
Cayman Islands, which is now the fifthwhich is exactly what they did a couple of
largest banking center in the world, afterweeks  later,  May  25th,  2000.
New York, London, Tokyo and Hong Kong.This is
the backdrop on looking over legal papersTo make it a little juicier, the two onshore
from a court opinion on July 20th 2006. Thecompanies behind the offshore companies had
judge in Texas District court ruled thatan interest swap deal with NatWest, where
certain technicalities of the case againstthey received a floating interest rate, in
the BLIPS tax shelter were wrong. This willexchange for the high fixed interest rate.
have some effects in the case against 8 KPMGThose under indictment argued that the $25
Accounting Firm former executives. KPMGmillion that they received upfront was a
itself has already pled guilty and paid aliability or not. It was money they
$456 million fine. One gets a feeling howreceived, but it was not actually "loaned" to
these illegal tax shelter were carried outthem. Plaintiffs argued that it was not a
from these papers. BLIPS stands for Bondliability under IRS section 762, because
Linked Issue Premium Structure. It created athis money was never lent to them. The tax
financial structure to make the capital gainsshelters aim to create an illusion of capital
tax deductions, through a capital loss.losses, and also interest payments, both of
However, this "loss" had been paid at thewhich are tax deductible.
beginning of the deal as the "premium", hence



1 A B C D E F 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125