By Corey Pein
The American Prospect
I counted on a $200 tax refund this year. But the Internal Revenue Service, perhaps sensing that I had vast hidden assets, adjusted my return, and I only got 129 bucks.
As a magazine intern and a college student, I make a little less than the average citizen of the Bahamas, who earns about $15,000 per year. The economy of that commonwealth orbits around tourism, smuggling and international finance. Smugglers, of course, don’t pay taxes. And in the Bahamas, pretty much nobody does — there are no income, sales, inheritance or withholding taxes.
Which is why the islands are so attractive to multinational corporations seeking to do what all good wealthy institutions do: hoard their fortunes. Legally, if possible and convenient. For now, the tax-dodging scheme called a “corporate inversion” is perfectly legal. (Congress might change that eventually, because the embarrassingly simple process has been getting some bad publicity lately.) Here’s how it works: A corporation sets up another company in a no-tax zone such as the Bahamas, calling itself a subsidiary of the new foreign corporation. The same people are in charge of both companies, and nothing really changes, except that the company’s mail takes a detour through the Gulf Stream.
After my own disappointing tax experience, followed by weeks of unpaid labor at this magazine, I realized that I had something to learn from the super-rich. I began thinking: “When I start making big bucks as a beat reporter at a small daily, why should I pay taxes if I don’t have to?” It’s a popular sentiment, after all, extending to the highest levels of government. Our president was a director of an oil company that inverted itself.
So I set about finding a way to create my own tax haven in the Caribbean, even if I couldn’t afford to visit there. I considered calling Michael Kopper, who was Andrew Fastow’s right-hand man at Enron, for some advice. People who are close to him made out pretty well in the past. But then he pleaded guilty to conspiracy charges and other fraudulent activities, so I figured I should keep my distance. Instead, I went where most young reporters start their research these days — Google — and quickly found some Web sites that promised to shelter my money and lower my tax burden, and to do it all while assuring my complete anonymity. “Do you realize that if you have assets equalling more than $50k USD, you are 5 times likely to be sued?” one site asked me, loudly. “Protecting one’s assets are a major reason to establish yourself offshore.”
Who could argue with that?
But I doubted that large corporations established their tax havens by surfing the Internet. A recent government report says that many tax-abuse schemes are passed along by word of mouth, originating with lawyers, accountants and the like.
The IRS distinguishes between legal “tax avoidance” and illegal “tax abuse.” Corporate inversions are perfectly dandy, even though a private citizen trying to do pretty much the same thing can face jail time — an annoying pitfall for us mere humans that corporations, which are uber-people, don’t have to worry about.
Luckily, though, the only documentation a business must provide to get the inversion ball rolling is a business card and a company brochure. I thought, “Well, if I can’t do it as myself, maybe I’ll start Pein Enterprises — no, Intern Unlimited LLC. I’ve always wanted to have business cards.”
The Bahamian government, through the stuffy-sounding Bahamas Financial Services Board, partners with private companies to promote the islands as a financial Shangri-la. It doesn’t take much to become a member of the board: You just pay a fee of $1,200 for a small company and fill out a four-page application that looks like a fourth-grade multiple-choice exam.
The board’s Web site also lists member companies, many of which can help engineer full-scale inversions — complete with mail forwarding, bank transfers and corporate minutes — within 24 hours. Some will even furnish Bahamians to serve as directors of new offshore corporations. The typical charge for setting up the basics of an inversion is between $1,000 and $2,000, with a smaller annual fee for extras such as the rent-a-director service.
I chose to do business with the Trident Trust company, because it had a slick brochure and because someone actually answered when I called. Getting something from other companies besides an endlessly ringing phone had proven tough; then again, if I were where they are, I would find plenty of things to do other than sit at my desk.
“Hello, Trident Trust,” a woman answered.
“Hello, I’m interested in setting up an IBC,” I said — that’s shorthand for international business corporation. Establishing one is the first step of an inversion. Under the International Business Companies Act of 2000, the dominant legislation governing offshore corporate conduct, companies that invert are not required to file financial statements or annual returns. I found that encouraging, because who, after all, has time these days to deal with such things? Not me.
“Hello,” she said.
“Yes, hello?”
“Hello?”
“I’m interested in setting up an IBC,” I repeated, trying to sound assertive and businesslike. “Can you do that?”
There was a pause.
“Are you a client of ours?”
“No — do I have to be?” I asked, all of a sudden a little worried about my prospects. Luckily, though, the fact that I had never done business with Trident and hadn’t yet provided my name didn’t seem to be a problem.
“Could you send us a fax and then we’ll send you the information,” the woman asked, through thousand-mile static.
“Ok,” I said. Great. “What should I put on the fax?”
“Just tell us what you need and we’ll send you a confirmation.”
Less than two hours after I shot my fax off to the Bahamas, I received a message from a woman named Lourdes Segovia in Trident’s Atlanta office. Her company has branches all over the world. It also has a reputation: Over the years, Trident has been accused of laundering money for characters ranging from Nigerian bankers to Brazilian presidents.
When I called Segovia back, she wondered how I had heard about her company — the Web site? She seemed the kind of person who asks questions and then answers them for you.
“So this company is going to be for yourself?”
“Yeah,” I said. My fax had been pretty vague.
“Have you actually sought legal advice?”
“No,” I said. I hadn’t seen a reason to — everyone knows inversions are legal.
“What are you trying to do with this company?” she asked.
Why, avoid taxes, of course. But she kept talking.
“We deal with cr�me de la cr�me attorneys, we deal with top-notch law firms,” she said. “It is very atypical for us to deal with U.S. people.”
“Oh.”
Now my Trident representative seemed a little baffled. “You don’t know any attorneys in D.C.? You don’t have any contacts there?”
“I do,” I said, “but I haven’t consulted them about this. Do you know any?”
She didn’t hang up, but the conversation was over. I tried to sound chipper when telling her, “Thanks, bye,” but really I was a little depressed. The more I found out, the more I realized that tax havens are not for people like me. They’re for big winners, like our president or the guys at Enron.
Reprinted from The American Prospect
