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From Good Old to Good New Tax Times

June 13, 2020

From Good Old to Good New Tax Times

Good old times are often mentioned by tax advisors and their clients. They paid almost no tax, legislation protected anonymity of bank accounts and of beneficial owners, there was practically no exchange of information between governments and information technology offered them limited possibilities to analyze data.

Some entrepreneurs made a Swiss company with a nominee director, this company issued invoices to his onshore company. Then the entrepreneur opened a secret bank account in Switzerland and issued a private commission note to the Swiss company about a high percentage of its profits. There was little tax to pay: the Swiss company had almost no profits and the anonymity was protected by law; the entrepreneur could sleep well if he did not declare any profits in his country of residence.

For decades, this became one of the standard models, but the need to change was coming:

First, Switzerland joined the European Social Security Coordination, and payments from Swiss companies to private persons became subject to social charges. As a solution, offshore companies were put between Swiss companies and the private entrepreneurs.

Second, compliance departments of banks became more burdensome and closed the accounts of both offshore companies and those private entrepreneurs who were not Swiss residents.  As a solution, the offshore companies opened bank accounts in other countries and issued credit cards to the private entrepreneurs.

At the end, compliance in these countries became burdensome, too, fiduciaries asked extensive questions and the need for substance made such structures more expensive. There was a demand for a change.

Consequently, there was response to this demand: during the last years, some other countries created legal solutions to benefit from low taxes and to keep ownership undisclosed to the public. These countries also offer a moderate salary level that makes it easy to create substance, and a banking system with an acceptable level of compliance burden. They do not tax the transfer of funds from corporate to private level, so companies do not accumulate equity which makes them less attractive for aggressive tax inspectors. Other countries are following now, step by step.

Today, structures combining the benefits of Slovakia and Malta make it possible to save costs, to save tax and to use the EU legislation legally.

Now it is up to professional tax advisors to make “good new times” happen: to research new opportunities, to elaborate good structures and to offer clients even a better service than they enjoyed in the “good old times”.


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