The Panama Papers and the revelation of the offshore financial activities of countless celebrities, current and former government officials, and sports personalities make tax havens, tax avoidance, and tax evasion look like they are getting bigger. They aren’t.
In fact, the Panama Papers show that it is becoming more and more difficult to hide behind a shell company and avoid paying taxes in the United States or other high-tax countries.
No Legal Way to Avoid Taxes
Let’s start with the basics. There is practically no legal way for a U.S. citizen to avoid paying U.S. taxes, even if this income is somehow connected to a shell company in a low-tax jurisdiction, or tax haven.
“There is a doctrine under U.S. law that’s called ‘assignment of income doctrine.’ The person who earned it has to pay tax on it,” said Mark Leeds, a partner at the law firm Mayer Brown. This is true for any kind of income, whether it comes from investments or wages.
He also noted that this is different for corporations that themselves earn active income. Active income earned through a non-U.S. corporation still has the possibility to avoid U.S. taxes for revenue generated abroad, at least until the money is brought back home.
So if you have to pay U.S. taxes anyway, and assuming you don’t want to break the law, what’s the point of having money stashed away on the Cayman Islands, for example?
