By Mark V O'Shea Cert PFS, TEP
Banks are handing over millions to various governments to ‘tidy up’ investigations into their involvement in ‘encouraging’ individuals to open deposit accounts in locations where no tax would be due.
The problem is that although there was no tax due in the country where the account was held, the account holder had a legal responsibility to declare the interest in their home country. Clearly this has not happened in a great number of cases.
Recent events have focussed on Switzerland and Germany. At the end of May, Basler Kantonalbank settled ‘tax regulatory issues’ with Germany. To ‘tidy up’ the problem the bank agreed to hand over €38.6 million to Germany. This is the fourth Swiss Bank to ‘settle’ with Germany.
It is unlikely that this will let the errant individuals off the hook. They will still owe the back taxes and probably a fine in addition once the accounts are ‘uncovered’. However, tax evasion is becoming a much more serious criminal offence in many countries. In the UK for example, jail can be the outcome. The number of tax evaders jailed has risen from 171 in 2011 to 220 in 2014. I expect the rest of Europe will follow this hard line.
What I don’t understand is why all these sophisticated private bankers appear not to have advised all the errant individuals that they could have legally avoided tax! Presumably the banks want to keep the money on their balance sheets rather than advising clients there is a better way.
So what is the better way? Believe it or not, transferring the money to a Private Placement Life Insurance policy. PPLI would have given most clients compliant tax deferral and in some countries completely tax free withdrawals as well as tax free final encashment!
With more sophisticated contracts, such as Private Placement Life Insurance (PPLI), the client could have even kept the money in the same bank and still have the tax advantages! You don’t even have to pay for any life insurance cover.
Even more disappointing, as far as the advice is concerned, is that many European life insurers have a capital guaranteed fund that also gives guaranteed annual returns. As this money would no longer be in the bank, it would be completely safe from any bank failures or bail ins.
Not in the banker’s interests I suppose, but they would have avoided all those big fines and not had clients that are constantly looking over their shoulder waiting to be caught up in Tax investigations.
FTA can construct a PPLI policy that will provide Privacy, Capital Protection and Tax Efficiency in a fully compliant fashion. The policy can be used with an existing International Trust or replace a trust completely, and as well as being accepted across multiple jurisdictions it has none of the onerous reporting requirements that so many seek to avoid!