Drop names like Putin and al-Assad in the same sentence and you’re sure to get a reaction regardless of the subject matter. This week we’ve seen Iceland’s Prime Minister resign and the Australian Taxation Office is reportedly investigating 800 high net-worth individuals as a result of the leaked ‘Panama Papers’. In their simplest form, the ‘Panama Papers’ are client files from a law firm who set-up business/wealth structures for wealthy and high profile clients.
So where is the line between a Shameful Scam and Smart Structuring?
When asked, many business owners will tell you they’ve set up a particular structure because ‘their accountant told them to‘, but what is the real reason that people implement business/wealth structures?
There are 3 main reasons for setting up a business/wealth structure:
- Asset Protection – Separating wealth from business risk is entirely legal and generally ethical behaviour. The creation of separate entities (e.g. companies and trusts) enables a barrier to be put in place between the personal wealth of the business owners and the trading risk of the business. This concept is generally accepted as encouraging entrepreneurial behaviour, as it allows business owners to try new ventures in a less risky manner.
- Enabling Investment – It is much simpler and cleaner if multiple founders/investors create a separate entity (e.g. company and/or trust). The creation of separate entities enables the interested parties to more readily share common ownership in a business or other asset.
- Tax Minimisation – Tax minimisation differs from tax avoidance. Tax minimisation is the concept of working within the laws of a country to ensure that business owners and their families obtain the most beneficial taxing position. Tax avoidance on the other hand is the concept of breaking or circumventing the laws of a particular country in order to avoid paying tax. The majority of the fall-out from the Panama Papers is sure to focus on the avoidance of tax in the home nation of the wealthy individual/group.
In our view the test in determining whether you have set up a smart structure or you are a shameful scammer is two-fold:
- Is the structure legal? (our job)
- Can you sleep at night? (your job)
We specialise in smart structuring for your business and personal wealth.
Nick Hitchens
DISCLAIMER: This post is the opinion of the author and in no way constitutes legal advice.