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Manafort indictment calls attention to foreign tax havens

The investigation into allegations of Russian interference in the 2016 presidential election has led to allegations of United States tax violations. One example is the recent indictment of President Donald Trump’s former campaign chairman, Paul Manafort. Mr. Manafort is accused of using shell companies to hide assets and avoid tax obligations.

As noted in a piece by The Atlantic, the use of shell corporations is not always illegal. There are some shell companies that operate within the bounds of the law. However, the practice becomes illegal when used to evade tax obligations or launder money connected to criminal activity. The use of one particular area, Cyprus, for a shell corporation has supported concerns that Mr. Manafort’s dealings are not in line with tax laws. Cyprus has a reputation as a tax haven that keeps ownership details from the public. Cyprus also has a history as a hot spot for money-laundering activities. 

Other countries used for these corporations by Mr. Manafort include St. Vincent, Grenadines and Seychelles. Each one has a known history as a tax haven.

So what exactly is a foreign tax haven? As noted above, a tax haven is one that offers a combination of negligible tax obligations and privacy. The use of a shell company in one of these areas can reduce tax obligations when it comes to capital gains or inheritance. As noted in a recent piece by The Motley Fool, these legal tools can allow the wealthy and large corporations to save “million or even billions” in tax obligations — all legally. Ireland, Luxemburg, Monaco and Switzerland are popular examples of tax havens utilized for legal shell corporations.

In order to use these tools legally, the owner must meet certain tax obligations. It is important to stay in compliance with all applicable tax laws, such as the Foreign Account Tax Compliance Act. Those who use these legal tools and are contacted by the Internal Revenue Service should take the contact seriously. It may be the beginning of an audit or other tax issue. As such, it is wise to seek legal counsel. An experienced international tax attorney can advocate for your interests with the IRS.  

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