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THE A TO Z OF OFFSHORE TERMS
Administrative Office
An administrative office is frequently located in a country other than that of
the headquarters office, the parent company or a country of operation.
The role of such an administrative office may be to co-ordinate international
or regional activities, to provide particular services (such as management analysis,
financial or other related services) or to perform a given function (such as marketing).
A number of otherwise high tax jurisdictions (such as the United Kingdom,
France, Belgium and Greece) grant special tax treatment in order to attract the
administrative offices of multinationals. In the case of Monaco, which has been
particularly successful in this regard, not only may the administrative office
benefit from favoured tax treatment, but also its employee’s resident in Monaco
would not be subject to tax there.
ADSL: Asymmetric digital subscriber
line.
Akte Van Opricht: Statutes of a Dutch company.
Aktiengesellschaft (AG): German company limited by shares.
Alternate
Director: A person appointed to represent and vote on behalf of a director
of a company when he is absent from a meeting of directors.
Anstalt:
Establishment, a legal entity without shares established in Liechtenstein, with
some features of a trust but with corporate personality. Does not have shares.
Apostille: Certificate of Good Standing in connection with corporations
according to the Convention of The Hague of October 05, 1961.
Anti-Avoidance
Measures: The object of anti-avoidance measures, insofar as they relate to
tax havens, is to prevent the avoidance or reduction of tax through the displacement
of one or more connecting factors (i.e. the basis of tax liability) from the taxing
jurisdiction concerned to a tax haven jurisdiction.
Anti-avoidance measures
may be of general application or may refer to specific tax havens. Any measures
usually appear in domestic tax systems; they may however be imposed by tax treaties.
Arbitrage: A form of hedged investment meant to capture slight
differences in the prices of two related securities.
Articles of Association:
see Byelaws
Articles of Incorporation:
Must contain: 1)
the Corporation's name; 2) its registered address; 3) its objects and aims; 4)
its capitalization; 5) a statement that the company is a limited liability organization.
Asset Protection Trust (APT):
A new type of trust, which
places the trust's assets beyond the reach of potential foreign governments, litigious
plaintiffs, creditors and contingency fee lawyers.
ATM (Automatic
Teller Machine; Cash Dispenser):
Used for cash withdrawals with your
credit card or debit card at over 600,000 ATMs worldwide.
Auditors:
The last body needed in connection with a corporation: required to inspect
the company's bookkeeping and verify the correctness of annual accounts. Usually
not employees or directors of the corporation but an outside firm.
Aussensteuergesetz:
Anti-avoidance German law whereby German citizens remain subject to the
principal German taxes for a period of ten years if they emigrate to a country
designated in the legislation (as from time to time amended) as a low tax country.
Back-to-Back Loan:
Back-to-Back loans are matching deposit
arrangements. They may be used in order to solve a financing or exchange control
problem. However, in the case of certain tax havens, the function of back-to-back
loans is to reduce the taxable base subject to withholding taxes on interest payments,
by interposing an intermediary subsidiary company between the source of the income
and the recipient. For example, an intermediary company located in the Netherlands
or the Netherlands Antilles may be interposed to take advantage of a favourable
tax treaty. In such cases, the authorities usually require a certain spread or
"turn" on the rates to create a small profit that is subject to tax locally.
Banking:
A considerable volume of international banking takes
place offshore and many of the world's major banks have banking and trust company
operations in one or more tax havens.
Most tax haven jurisdictions have
enacted legislative provisions and set up administrative authorities whose function
it is to control banking and trust company activities.
Banking Passport:
A banking passport is simply that you create a "new person" with another
nationality and a full set of ID, a separate "legal entity" through a second passport
(or third) in a name of your choice.
Bank Secrecy:
In
most countries, one of the terms of the relationship between banker and customer
is that the banker will keep the customer's affairs secret. Staff members are
normally required to sign a declaration of secrecy as regards the business of
the banks.
Where numbered accounts are used, their purpose is to limit
the number of persons who know the identity of the client. In certain countries
(e.g. Switzerland and the Cayman Islands), specific legislation makes breaches
of bank secrecy subject to criminal law sanctions. However, in all legal systems
(including Switzerland) there are specific cases where the duty of secrecy of
a banker is discharged, e.g. where fraud, money laundering and narcotics are involved.
The exchange of information clause contained in most tax treaties may
enable the tax administration of one treaty country to obtain information concerning
bank accounts, which its residents have in the other country.
Bearer
Bond:
A bond issued in bearer form rather than being registered in
a specific owner's name. Ownership is determined by possession.
Bearer
Shares:
Shares in the capital of a company that are transferable
by delivery of the certificate. They do not display a shareholder's name but instead
grant ownership rights to any individual who is in actual physical possession
of the certificate(s) unlike registered shares, which are transferred by an instrument
of transfer and display the shareholder's name on the actual share certificate,
the name of the holder is not registered in the books of the company.
Beneficiary:
A person to whom a trust's proceeds are distributed.
Besloten Vennootschap met Beperkte aansprakelijkheid (BV):
Dutch
limited company for small commercial enterprise not required to publish accounts;
used as a Substantial Holding Company.
Big Brother:
Your
(un)friendly local government watching over your shoulder. Famous quote: "Big
Brother is watching you!" - Author George Orwell in his book 'Nineteen Eighty
four', 1949. Also, see Echelon!
Board of Directors:
The
company's "cabinet" - as specified in the Articles of Association - is supposed
to make decisions on the issues that are too specific for the general meeting
to discuss but which are beyond the day-to-day responsibility of the company management.
Bonds:
A bond certificate is simply an IOU. It certifies
that you have loaned money to a government or corporation and describes the terms
of the loan. Only corporations can issue stocks, but corporations or governments
can issue bonds.
British Commonwealth of Nations:
The
54 member states, with year of admission:
Antigua and Barbuda (1981),
Australia (1931) (1), Bahamas (1973), Bangladesh (1972), Barbados (1966), Belize
(1981), Botswana (1966), Brunei (1984) (2), Britain (1931), Cameroon (1995), Canada
(1931) (1), Cyprus (1961), Dominica (1978), Fiji Islands (1997) (3), Gambia (1965),
Ghana (1957), Grenada (1974), Guyana (1966), India (1947), Jamaica (1962), Kenya
(1963), Kiribati (1979), Lesotho (1966, Malawi (1964), Malaysia (1957), Maldives
(1982), Malta (1964), Mauritius (1968), Mozambique (1995), Namibia (1990), Nauru
(1968) (4), New Zealand (1931) (1), Nigeria (1960) (5), Pakistan (1989) (6), Papua
New Guinea (1975), St Kitts and Nevis (1983), St Lucia (1979), St Vincent and
Grenadines (1979), Samoa (1970), Seychelles (1976), Sierra Leone (1961), Singapore
(1965), Solomon Islands (1978), South Africa (1994) (7), Sri Lanka (1948), Swaziland
(1968), Tanzania (1961), Tonga (1970) (2), Trinidad and Tobago (1962), Tuvalu
(1978), Uganda (1982), Vanuatu (1980), Zambia (1964) and Zimbabwe (1980).
(1): Independence given legal effect by the Statute of Westminster 1931. (2):
Brunei and Tonga had been sovereign states in treaty relationship with Britain.
(3): Fiji left 1987; but rejoined in 1997. It changed its name to 'Fiji Islands'
in 1998. (4): Nauru was first a Mandate, then a Trust territory. (5): Membership
suspended 1995. (6): Left 1992 rejoined 1989. (7): Left 1961 rejoined 1994.
Browser:
A program used to locate and view HTML documents (Microsoft
Internet Explorer, Netscape Navigator, and Opera, for example).
Business
Class:
A class of service on airlines that is usually situated between
first class and coach and offers amenities as larger seats, free cocktails, and
early check-in.
Bye-Laws or By-Laws (also Articles of Association):
Articles of Association of a company (in certain jurisdictions).
Captive Bank:
Bank intended to provide services to the promoter
and associates of the promoter, usually an international group of companies.
Captive Insurance Company:
Insurance company established by a
company or international group to provide insurance (or reinsurance) for the promoter
and associates of the promoter.
Cedula: National ID in Spanish
speaking countries.
Certificate of Incorporation:
Certificate
issued to companies who have complied with all the statutory requirements for
registration.
Charter: Memorandum of Association.
CID:
Custom ID card.
Common Trust Fund:
A trust that operates
by the process of pooling funds from a number of participants in the trust, who
as beneficiaries under the trust, share in the income or other gains derived from
the acquisition, holding, management or disposal of assets acquired for the trust.
Corporate Officers:
Another "cabinet like" institution,
sometime part of the Board of Directors: president, secretary Etc. These individuals
have the right to represent the company to third parties, to negotiate and make
commitments in its name.
Corporation (Corp.):
The basic
existence of a corporation usually derives from two documents: the Articles of
Association and the Certificate of Incorporation.
Corporation Tax
Company:
A company incorporated in Controlled Foreign Corporation:
A company incorporated outside the United States but under control of
a United States resident and subject to the anti-tax haven measures contained
in Subpart F.
Couponsteuer:
Tax charged on distributions
of certain Liechtenstein legal entities (AG and Anstalt with share capital).
Credit, Credit Card:
With an old-fashioned credit card, you charge
to your heart's content and receive a bill at the end of the month. The credit
card company hopes that you will eventually pay off the balance. In other words,
the card company trusts you to pay.
Cuba Clause:
The
so-called "Cuba Clause" allows the situs and proper law of a trust to be transferred
from one jurisdiction to another.
CV: Curriculum Vitae. Course
of your career.
DEA: The Drug Enforcement Agency (USA).
Debenture: An unsecured bond backed only by the general credit of the issuing
corporation.
Debit, Credit Card:
Almost as tricky to
get these days as the good old "credit, credit card", a debit card is directly
tied to a bank account. Whatever charges the user runs up are debited to the bank
account, and monthly statements do not carry a remittance slip. The same account
may have a chequebook tied to it as well. Credit as such, however, is not extended
since you are not allowed to use the card if the balance on the bank account wanders
into the red.
Deelnemingsvrijstelling:
Substantial Holding
Company (in the Netherlands).
Derivatives:
Financial
contracts whose values are based on, or derived from, the price of an underlying
financial asset or price - for example, a stock or an interest rate.
DES:
Department of Education Standards (United Kingdom).
Discretionary Trust:
A highly flexible arrangement in which the
beneficiary has no fixed interest in any part of the income of the trust or its
assets except perhaps at the termination of the trust. The Trustees usually hold
the property and income for a broad class of beneficiaries to whom they distribute
the assets at their discretion. However, an informal memorandum written by the
settlor that outlines his wishes but has no legal status may guide the Trustees.
One advantage of this arrangement is that benefits can be varied according to
changes in circumstances with little difficulty. Another is that the beneficiary
has a somewhat nebulous hope of receiving anything and therefore it is difficult
for any creditors to find an interest to which to attach a liability.
Dollar Premium: See Investment Currency Premium.
Domicile:
The place where an individual has his permanent home, or to which he
intends to return, or in some cases the country of origin. In other jurisdictions
the place where an individual has a long established residence or in relation
to a company, where it is incorporated.
Dividend:
Discretionary
payment by a corporation to its shareholders, usually in the form of cash, stock,
or other property.
Double Taxation Agreement (or Double Tax Treaty):
Agreement between two countries intended to relieve persons who would
otherwise be subject to tax in both countries from being taxed twice in respect
of the same transactions or events.
Echelon:
Almost all
phone calls in the world are routinely scanned for "suspicious words" by various
governmental agencies' computers.
You have probably heard of Echelon,
the international surveillance system set-up by U.S.A.'s NSA (Nation Security
Agency) in close collaboration with their counterparts in Canada, Great Britain,
Australia and New Zealand that listens in on all telephone conversations in the
world and scans your faxes, e-mails for "suspicious words", such as 'drugs', 'terrorist'
'bombs', 'money laundering', 'offshore', 'tax havens', etc. etc. - and even your
private ATM transactions.
Moreover, there are others, and more to come!
The European Union is planning its own EU Phone, Fax & Internet Surveillance System.
In Germany, all international calls are already automatically scanned by the Bundes-Nachrichten-Dienst.
Even Austria is following suit. Big Brother is indeed listing in on you EVERYWHERE
- whether you have something to "hide" or not!
Also, visit EPIC (Electronic
Privacy Information Centre) whose web site www.epic.org contains
tons and tons of useful privacy information and tools!
Emigration:
Emigration to a tax haven or to a country offering special retirement
incentives may serve to break totally or in part the link between a taxpayer and
the high tax jurisdiction from which he is emigrating. Normally, it is the change
in the place of residence that is material; however, in other cases a change in
domicile or even citizenship (in the case of the United States) may be necessary.
Anti-avoidance provisions or exchange controls may delay or render extremely difficult
the coming into effect of the fiscal advantages of the act of emigration.
Escrow:
When a contract or an asset such as money is placed with
a third party until certain conditions are met, it is said to be held in escrow.
Parties that are in dispute over the ownership of an asset may agree to place
the asset in escrow, that is until an arbitrator has had time to decide who the
rightful owner is.
Establishment: See Anstalt.
Euro:
The European Currency Union. Member countries: Spain, Italy, Ireland,
Netherlands, Luxembourg, Austria, Germany, Finland, Portugal, France and Belgium.
Eurobonds:
Eurobonds are long-term loans issued in terms
of the United States dollars or other currencies or in terms of composite units
of account. They may take the form of loans, debentures or convertible debentures
and are issued at a fixed rate of interest. Eurobonds are normally issued in countries
where interest payments are not subject to withholding tax. International underwriting
syndicates frequently handle major issues.
Eurocurrency/-dollar:
Eurocurrencies are currencies held outside the country of origin by non-residents
of that country and made available to the Eurocurrency market for lending. The
market originally developed in Eurodollars, but other currencies, e.g. Euros,
Swiss francs and Yen, now form a major part of the market. The market is not subject
to exchange controls or other restrictions, although investors and borrowers may
be so subject in their own countries.
European Union (EU):
Member countries: Spain, Italy, Ireland, Netherlands, Luxembourg, United Kingdom,
Austria, Germany, Finland, Portugal, France, Sweden, Belgium, Denmark and Greece.
Exchange Control:
Regulations whereby a country controls
transactions in foreign currencies or securities. In some jurisdictions (e.g.
Australia, Japan and the United Kingdom), the regulations may render a contract
void unless prior consent is obtained.
Exempt Company:
A company exempted from tax or from compliance with specified regulations of the
country in which it is established.
Exempt Gilt:
Security
issued by the British Government with the condition that they would be free of
United Kingdom tax when beneficially owned by non-residents.
Exempt
Trust:
A trust established in a country where the Government issues
a guarantee that the trust income and property will not be taxed for a specified
number of years no matter what laws are subsequently passed relating to income,
inheritance, estate duty, or capital gains taxes.
Exequatur:
Recognition of a country's consul by a foreign government.
Factoring:
A service in which a factoring house or other financial institution purchases
a customer's accounts receivables and assumes all the credit risks of the customer's
debtors and the responsibility of collection payments.
FATF:
G-7's Financial Action Task Force set up in 1989.
FBI:
The Federal Bureau of Investigation (USA).
FDIC:
Federal
Deposit Insurance Corporation: a U.S. government-sponsored corporation that insures
accounts in national banks and other qualified institutions.
FIAT
Money:
FIAT money is paper money that is created out of nothing and
without any work - usually by banks or central banks. Visit The Foundation for
the Advancement of Monetary Education's website for in-depth and authoritative
information FAME.
Fiduciary: See Trustee.
FINCEN:
America's Financial Crimes Enforcement Network.
Flag of Convenience:
The flag of a ship is the flag of the country of its registration. The
term "flag of convenience" refers to the flag of a country (in particular Liberia
and Panama) which is chosen for ship registration in order to achieve fiscal benefits
(no income tax being levied by such countries on international shipping operations)
and other non-tax advantages relating to lower labour costs and manning scales,
officer and crew requirements, trade union practices, etc. Ownership of the ship
is normally vested in a company incorporated in the country of the flag.
In addition to Liberia and Panama, the following countries offer or are preparing
incentives to offer flag of convenience facilities: the Cayman Islands, Costa
Rica, Cyprus, Gibraltar, Haiti, Honduras, Hong Kong, Malta, Morocco, the Netherlands
Antilles, Madeira, Singapore and Vanuatu.
Foreign Bank Accounts (U.S.):
Every United States resident, partnership, corporation, estate or trust
must advise the United States Treasury of any financial interest in or signature
authority over a foreign bank, securities or other financial account in a foreign
country and must report that relationship each calendar year by filing Form 90-22.1
with the Treasury Department on or before June 30 of the succeeding year. This
report must be at the following address: United States Treasury Department, P.O.
Box 28309, Central Station, Washington, DC 20005. A "foreign country" includes
all geographical areas located outside the United States, Guam, Puerto Rico, and
the U.S. Virgin Islands.
Foreign Corporation:
A corporation
organized under the laws of a foreign country and whose parent company in the
home country may participate in any percentage of shares of the affiliate corporation.
Forfeiting:
Buying without recourse of obligations, usually
trade drafts or promissory notes, arising from international transactions. The
buyer of the obligations explicitly foregoes his legal right to a claim upon any
previous owner of the debt when endorsing "without recourse." The seller of forfeitable
trade drafts or promissory notes usually is an exporter who has taken the obligations
in full or part payment for goods supplied and who wishes to pass on all risks
and responsibility for collection of the debt to the forfeiting financier and
receive immediate cash.
Foundation: See Stiftung.
Free
Zones:
Free zones are designated areas that receive special treatment
through their exclusion from the area to which the country's normal customs rules
apply. A free port is one at which imports may be landed without paying customs
duties. The system of free zones or free ports favours export processing, transhipment
and the entrepot trade since there is no need to pay and then reclaim customs
duties.
Though free zones are often part of a tax incentive package in
what would otherwise be a high tax jurisdiction, they may also be found in tax
havens, e.g. Freeport in the Bahamas.
G-8:
Group of Seven:
U. S. A., Canada, Italy, Japan, United Kingdom, Germany, France & Russia.
GAO: General Accounting Office (USA).
Gesellschaft mit beschränkter
Haftung (GmbH): German private limited company without shares.
GCP:
"Gross Criminal Product".
GDP: Gross Domestic Product of a country.
Gesellschaft mit beschränkter Haftung (GmbH):
An Austrian,
German, Liechtenstein or Swiss based private limited company without shares.
GmbH: as above.
Gilt: Security issued and guaranteed by
the Government.
Golden Parachute:
Provisions in the employment
contracts of executives guaranteeing substantial severance benefits if they lose
their position in a corporate takeover.
GPOA: General power of
attorney.
Greenmail:
A company buying back its own shares
for more than the going market price to avoid a threatened hostile takeover.
GSM:
Global System for Mobile Communications or GSM is the digital
transmission technique widely adopted in Europe and supported in North America
for PCS. GSM uses 900 MHz and 1800 MHz in Europe. In North America, GSM uses the
1900 MHz.
Hedge Fund:
A flexible investment fund for
a limited number of large investors (the minimum investment is typically US$1
million). Hedge funds use almost all investment techniques, including those forbidden
to mutual funds, such as short-selling and heavy leveraging.
Hedging:
Taking two positions whose gains and losses will offset each other if
prices change, in order to limit financial risk.
Holding Company:
A company whose activity is limited to holding and managing investments
or property but not having ordinary commercial or trading activities. The requirements
to achieve holding company status vary in different countries (in particular Liechtenstein,
Luxembourg, Nauru and the Netherlands).
IATA or IATAN:
International Air Transport Association or International Airlines Travel Agency
Network.
IBC (International Business Corporation):
A
company exempted from tax or from compliance with specified regulations of the
jurisdiction in which it is established but not allowed to trade or own real estate
there.
IBIT: International Business and Investment Trust.
IDA: Irish Development Authority.
IFC: International Finance
Companies.
Incorporation Haven:
An incorporation haven
is a country, such as Liberia and Marshall Islands, which has no infrastructure
of local attorneys or accountants. It is simply in the business of registering
corporations and ships. There are no other services offered and the tax haven
clientele never goes there. The registration of new companies is carried out by
representative offices in New York, Zurich, Hong Kong, Tokyo, Rotterdam and Piraeus,
in the case of Liberia and Marshall Islands.
INR:
The
State Department's Bureau of Intelligence and Research (U.S.A.).
Insider
Information:
Important facts about the conditions or plans of a corporation
that have not been released to the public.
Intellectual Property:
Ownership conferring right to possess, use or dispose of products created
by human ingenuity, including patents, trademarks and copyrights.
Inter-Company
Pricing:
Tax havens may be used for the purpose of inter-company
pricing in a number of ways. In the first place, a manufacturing company located
in a high tax jurisdiction could effect sales to a related company in a tax haven
jurisdiction at cost or at prices involving a very small profit margin; the tax
haven company could then in turn sell the goods to one or more related marketing
companies in high tax jurisdictions at high prices which would produce a low profit
in the hands of the latter company or companies.
A variation of this technique
would involve selling to unrelated marketing companies at arm's length prices,
the primary object of the exercise still being achieved since the manufacturing
company would have avoided taxation on the real profits that would otherwise have
accrued to it.
Secondly, raw materials, goods, or components manufactured
at a very low cost abroad, could be purchased by a company and then sold to a
related company in a high tax jurisdiction at high prices that would give the
latter company a substantially lower profit than if purchases had been affected
directly.
Often inter-company pricing takes place by companies merely
passing invoices without the subject matter of the sale actually being transferred
to or by the intermediary company.
Interest: The cost of borrowing
money.
Interest Rate Swap:
An agreement involving exchange
of interest coupons at a fixed rate for coupons at a floating rate. Both parties'
liabilities under the swap are in the same currency and for an equal amount. Thus,
there is no exchange of principal. Interest swap transactions are arranged between
entities, one of which wishes to reduce the cost of its floating rate obligation
and/or to obtain other benefits and the other wishes to borrow fixed rate funds
without recourse to the bond market.
International Business Corporation
(IBC):
In addition to its everyday usage, this term has a special
meaning in the legislation of Antigua, Bahamas (highly recommended!), Barbados,
Grenada and St. Vincent and refers to companies registered in a foreign country
that can conduct business anywhere in the world, except for the country it is
registered in. An IBC also requires a minimum of only one Director instead of
multiple director requirements. The Director may also serve as the Shareholder.
(A Bahamian IBC only requires ONE Shareholder!).
International Financial
Centres:
The term "International Financial Centre" which is occasionally
used - incorrectly - as a synonym for "tax havens", refers more correctly to centres
such as London, Luxembourg, Paris, Singapore and Zurich. One of the important
requirements of a successful international financial centre is that international
financial business transacted there should not be subject to inconvenient controls
or withholding taxes.
International Monetary Fund (IMF):
Aims to promote international monetary cooperation and currency stabilization
and expansion of international trade.
IPO: Initial Public Offering.
International Tax Planning:
The object of international
tax planning is to determine, from the tax point of view, whether or not to embark
on a project; and, if it is embarked upon or has already been commenced, then
to minimize or defer the imposition of the tax burden falling on taxable persons
and events and to do so lawfully, in the attainment of the desired business and
other objectives, while taking into consideration all relevant tax factors with
particular regard to the danger of double taxation and the advantages which may
be derived from the inter-relationship of two or more tax systems, and in the
light of the material non-tax factors.
The role of tax havens in international
tax planning lies in the possibility of situating a taxable person or a taxable
event in a tax haven with a view to displacing the connecting factor with a high
tax jurisdiction and thus permitting a modification in the incidence of tax.
Investment Bank:
A financial institution that arranges the initial
issuance of stocks and bonds and offers companies about acquisitions and divestitures.
Investment Currency Premium:
Premium payable to persons
resident in the Scheduled Territories for exchange control purposes in order to
purchase investment currency, namely foreign currency from a limited pool of such
currency designated as eligible for use for certain investments and payments abroad
(in particular for portfolio or property investment and direct investment which
cannot be shown to provide benefits over a short period to the balance of payments
of countries in the Scheduled Territories).
Investment Holding Company:
A company organized in a tax haven country by an investor which purchases
and subsequently handles for him his personal investment portfolio through the
anonymity of a nominee company. Consideration for the purchase is the establishment
on the investment company's books of a debt to the investor equivalent to the
value of the investments transferred whereby the income generated from the investment
holding company's assets are not taxable.
Investment Incentive:
Investment incentives are incentives of various kinds, which are granted
in order to attract local or foreign investment capital to certain activities
(e.g. exports, technological development), or particular areas (e.g. backward
regions or designated areas as part of a decentralization policy). Such incentives
may be of various types, e.g. grants, interest-free loans, factory sites, exemption
from exchange restrictions, and are frequently granted as a package together with
tax incentives.
IOU:
I owe you. Signed document bearing
these letters followed by specified sum, constituting formal acknowledgement of
debt.
IRC:
Inland Revenue Commissioners (United Kingdom
tax authority).
I.R.S.:
Internal Revenue Service (United
States tax authority).
Joint Venture:
A type of business
partnership involving joint management and the sharing of risks and profits as
between two or more enterprises based in different countries. When the capital
of the partnership is known as a joint venture.
Junk Bonds:
Bonds issued by companies with low credit ratings. They typically pay relatively
high interest rates because of fear of default.
Letter Box Company:
A corporation set up in a tax haven with nothing more than a mailing
address to take advantage of tax provisions. Severely criticised in many quarters
as an evasive measure, the company whose existence is little more than a nameplate
has been outlawed in Monaco but is allowed to function in many other havens.
Leverage:
The extent to which a purchase was paid for with borrowed
money. Amplifies the potential gain or loss for the purchaser.
Licensing:
Technology that can be the subject matter of licensing covers all forms
of industrial enterprise. It embraces industrial property, which may be protected
by patents, trademarks, etc. As well as technology which cannot be patented.
Industrial enterprises frequently exploit their technology by transferring it
to licensing companies in tax havens so that royalties and other sums may be received
by the licensing company from related companies or third parties thus reducing
the total tax burden. The anti-avoidance provisions of most developed countries
have limited the use of tax havens for this purpose.
Limited Liability
Company (LLC):
A hybrid between the partnership and the corporation
(originates from the German GmbH created by law in 1892).
Mail drops
and Serviced Offices:
What is a mail drop? A mail forwarding service
- mail drop - allows a person to use their (the mail drop’s) address to receive
mail and then have it forwarded to the address where the person actually wishes
to receive mail. Sometimes it's in the same city, other times in another continent.
Mail is sent to the mail drop and is then placed unopened into another envelope
and mailed to its final destination.
As long as your intentions are legal,
there is never any problem with authorities. A good, reliable service does not
condone fraudulent business activity. You can still use your regular address to
receive most of your mail but your confidential mail goes to the mail forwarding
service and then to you.
Financial privacy is almost a thing of the past
nowadays. With computers, it's eroding rapidly, much quicker than in the past.
You might say, "Who needs Privacy? I have nothing to hide!" It seems that whenever
you make a simple purchase, they ask for your name and address. Then about a month
later you start receiving weekly catalogues, sales literature, promotions, etc.
Many companies sell our names to others and eventually you are being bombarded
with Investment Schemes, Get Rich Quick Letters, Chain Letters, Miracle Health
Cures, and other distracting material.
People who use mail forwarding
services are a mixed bag of individuals and organisations. Some people have made
enemies in life, ex-spouses, and business acquaintances and while they may be
living in Paris, France, they would like the other party to think they are in
London, England, so they use a mail forwarding service.
If you are going
to sell a product by mail and have the best product in the world but are located
in San Salvador, El Salvador a potential buyer for your product may be hesitant
about sending money for your product. If you have a US address, most buyers are
not too worried about sending money through the mail.
Many people, maybe
they have accumulated great wealth or are celebrities, have to worry about the
press, fans and admirers, enemies, kidnappers, robbers, and so on. With a mail
drop, you can keep distance between you and these people. Companies use mail-forwarding
services to do thing their competition might find out about if they used their
regular address. It's also a good way to check out your competition. You can easily
find out what they are charging people you are aiming to sell to. Another company
ran Help Wanted Ads just to see how loyal his employees were to him. Mailing list
companies also use mail forwarding services to salt their mailing lists to the
people they are renting to, and check to see that the lists are being used on
a one time basis.
In using a mail drop try to find out beforehand how
much privacy they give you, some will give information out to anyone calling over
the phone - a good one will not as it could be just anyone calling. Try to find
out how long they have been in business and if they plan to be in business for
a while. Make sure they don't sell your name to other people's mail order businesses
as this can defeat their purpose.
Mail forwarding service combined with
serviced business offices: Business centres particularly suit companies setting-up
branch office(s) overseas. They prefer to establish themselves before signing
a lease, though some companies that arrive intending to use a business centre
for a few months end up staying with them for years - for the sake of convenience,
the comfort of clean modern offices with a prestigious address, without the hassle
of maintenance and other problems associated with a lease, becomes too difficult
to give up.
Telephone services range from a basic message-taking service
to the most up-to-date call diversion system. One business centre offers a diversion
service called "The London Office". This was designed with the telecommunications
company so that your own 171-telephone number is instantly diverted to a chosen
number anywhere in the world, and a programmed announcement saying, "This is a
call from your London office" pre-warns whoever answers the telephone. Of course,
you pay for the second leg of the call. The telephone services available from
"The London Office" link with another service called "The Virtual Office". This
is a package offering clients the flexibility to work from anywhere they choose;
local telephone numbers are logged onto a computer system for call diversion.
The package includes use of the business centre’s address, use of meeting rooms
and secretarial services.
In most serviced office centres clients can
buy services ‘à la carte’ in order to suit their particular needs. For example,
you can rent conference rooms by the hour so as to have an office for, for example
in London, when the need arises. The main attraction of the serviced office facility
is that the client has the option to walk away when his licence expires. Business
centres take the operational headaches out of renting office space and of clients
having to employ their own staff, which leaves them free to focus their efforts
entirely on the success of their business.
Management and Control:
In certain legal systems (e.g. Ireland) which follow the former United
Kingdom law in this regard, a company is treated as being resident in the country
in which its management and control is exercised, and not in the country of its
place of registration or incorporation. The criterion of residence may be of relevance
in international arrangements in involving tax havens, and can be material from
both the fiscal and the exchange control points of view.
Management
Company:
See Administrative Offices.
Margin Account:
A brokerage account that allows a person to trade securities on credit.
Margin Call:
A margin call is a demand for more collateral
on a margin account.
Memorandum of Association:
See Articles
of Association.
Minute Book:
Used for writing up the
minutes of meeting.
Minutes:
Brief summary of proceedings
of a meeting/assembly/committee.
MLAT:
Mutual Legal Assistance
Treaty created by the U.S. in the hope of accessing foreign records.
Money Laundering:
Money-laundering occurs when criminals seek
to make illegally obtained funds look legitimate by funnelling them through a
string of banks and businesses until the money's origin is obscured.
Money Trail:
The 'fingerprint' most money transactions leave.
MTC Number:
The Money Transfer Control Number given in
connection with a Western Union money transfer.
Mutual Assistance
Agreement:
A contract agreement between two or more nations in which
the fiscal Governments are empowered to take preference over the civil rights
of each others' citizens in ascertaining and collecting crime-related proceeds
or tax liability.
Mutual Fund:
Investment Company usually
formed in a tax haven and issuing shares to the public.
Naamlose Vennootschap
(NV):
Limited Company in the Netherlands used as a Substantial Holding
Company, required to publish its accounts.
Nominee Director:
Someone who acts on your behalf as a 'front' director of the company. In some
jurisdictions the nominee director can also be another offshore company.
Non-Resident Company:
A company treated by the jurisdiction in
which it is incorporated as non-resident for tax purposes or exchange control
purposes or both.
No-Tax Haven:
Term used by certain
financial writers to refer to tax havens where there are no relevant taxes.
OECD
Organisation for Economic Co-operation and Development.
Offshore:
Any country other than your own.
Offshore
Centre:
A financial centre used as a foreign base for overseas operations
where the investor may move in and out of his investment freely and which fits
the needs of the user.
Offshore Finance Company:
A company
organised in a foreign country, usually in a tax haven country, which handles
such financing services as arranging foreign loans in Eurocurrency markets and
floating bonds or other forms of indebtedness abroad in United States dollars
or other hard currencies. Generally, the offshore finance company is created to
handle the financing requirements of its parent or related companies but is used
occasionally to handle the financing needs of the parent company's distributors
or agents overseas.
Offshore Fund:
A mutual fund offering
its shares to person’s resident outside the country in which it is incorporated.
Offshore Holding Company:
A company organised in a foreign
country which controls one or more affiliate companies and which manages, administers
or services its affiliate companies usually located outside the country in which
the parent company is incorporated.
Offshore Investor:
An investor who is a user of a foreign base company in an offshore centre and
who may move in and out of his investment freely.
Offshore Trading
Company:
A company organised in a foreign country to buy goods from
an exporter in one or more other foreign countries and to sell these same goods
to importers in other foreign countries. The offshore trading company processes
the documents and all managerial, administrative and day-to-day financial transactions
are handled by it. The goods are shipped from the seller in one country to the
buyer in the other country without ever being shipped or landed in the country
where the offshore trading company is located.
Paper Trail:
The inevitable trail that most transactions leave tracing back to its originator.
Partnerships:
A partnership often offers useful features
for the purposes of an overall tax plan. In certain jurisdictions, a partnership
may have corporate attributes and resemble a company. However, even where a partnership
does not have corporate attributes, requirements relating to formations and registration
the nationality and/or residence of partners, limited liability, restrictions
on activities, should be examined in the context of the general law governing
local partnerships.
Permanent Establishment:
Legal concept
applied by a country in order to tax commercial activities realised in its territory
by a company or person incorporated or resident outside the jurisdiction. The
expression is commonly used in double taxation agreements and is defined in the
OECD model agreement, although in practice there is no consistent definition adopted
either in double taxation agreements or in jurisdictions that recognise the concept
under their general tax laws.
Personen- und Gesellschaftsrecht:
Law applicable to individuals and corporate bodies in Liechtenstein.
Petrodollar:
United States dollars obtained by oil exporting
countries.
Portal:
Internet general-purpose starting
point.
Protector:
An individual appointed by the settlor
of a trust to ensure that the trustee(s) administers and manages the trust assets
in accordance with the trust deed and he is often vested with the power to appoint
and remove trustees.
PT - The Perpetual Traveller:
A
PT by definition, is a non-conformist in a highly regulated, highly taxed, first
world society. Briefly, a PT merely arranges his or her paperwork in such a way
that all governments consider him a tourist. A person who is just "Passing Through".
The advantage is that being thought of by government officials as a person who
is merely "Parked Temporarily"; a PT is not subjected to taxes, military service,
lawsuits, or persecution for partaking in innocent but forbidden pursuits or pleasures.
Unlike most citizens or subjects, the PT will not be persecuted for his beliefs
or lack of them. PT stands for many things: a PT can be a "Prior Taxpayer", "Permanent
Tourist", "Party Thrower", "Priority Thinker", "Practically Transparent", "Privacy
Trained", or "Perpetual Traveller" if he or she wants to be. The individual who
is a PT can stay in one place most of the time. PT is a concept, a way of life,
a way of perceiving the universe and your place in it. One can be a full-time
PT or a part-time PT. Some may not want to break out all at once, or become a
PT at all. They just want to be aware of the possibilities, and are prepared to
modify their lifestyle in the event of a crisis. Knowledge will make you sort
of a PT. A "Possibility Thinker" who is "Prepared Thoroughly" for the future.
Ready-Made Company: See Shelf Company.
Real Estate:
Withholding and other taxes are frequently imposed on rental income deriving
from the holding of real estate in a foreign country; similarly, capital gains
taxes may be imposed on the profits flowing from the sale of property. However,
in exceptional cases, the provisions of a tax treaty may be of considerable value
in minimizing the total tax burden, e.g. the treaty between the Netherlands Antilles
and the United States.
Ownership of real estate by individuals may also
result in liability to death duties and similar taxes in the country in which
the real estate is situated, irrespective of the residence or domicile of the
individual owner. For this reason, it is common to hold foreign real estate through
a tax haven or other company.
Registered Share:
Share
that is transferred by an instrument of transfer. The name of the holder is registered
in the books of the company and the shareholder's name is displayed on the actual
share certificate.
Resident Company:
A company treated
by the jurisdiction in which it is incorporated or in which it conducts commercial
activities as resident for tax purposes or exchange control purposes or both.
Royalty:
All amounts received for the privilege of using
intangibles such as patents, copyrights, secret processes and formulae, as well
as amounts received for the privilege of exploiting mineral, oil and gas deposits.
Scheduled Territories:
Since June 1972, the United Kingdom,
the Channel Islands, the Isle of Man, the Republic of Ireland and Gibraltar.
Schengen Treaty:
A number of European countries have signed an
agreement called the Schengen Treaty, which states that if a person secures a
visa from one member country, they may use a Schengen Visa to enter all other
member countries. Current member countries include Belgium, France, Germany, Greece,
Luxembourg, The Netherlands, Portugal and Spain. Austria and Italy have also agreed
to become members in the future.
Screen Company:
A company
incorporated in a country which charges a nil or low rate of tax on receipts or
distributions of interest, dividends or royalties received from another country,
taking advantage of a favourable double taxation agreement between two countries
which reduces the tax withheld at source in the country in which the income arises.
SEC:
Securities and Exchange Commission, United States
federal organisation that supervises information provided by companies whose shares
are offered to or dealt in by the public.
Secured Credit Card:
Here, there are two accounts: a frozen bank account the funds in which
act as a guarantee for the card - and the actual credit card account. Statements
are mailed only in the months when something is charged to the account, unless
the balance for the preceding month has yet to be paid off in full. Nevertheless,
you are still obliged to make a minimum monthly payment of 10 per cent of the
outstanding balance within a couple of weeks from receiving your statement.
Settlor:
The person who creates a trust.
Shelf Company:
A company that previously has been organised with designated capital
and registration cost paid and is placed on an inactive basis, with annual registration,
capital and stamp duty fees currently paid but shares held in bearer form and
the directors and officers substituted at the time the company is taken off the
shelf and becomes active.
Share of Stock:
Represents
ownership in a corporation. There exist several different types (common and preferred)
and classes of shares with different privileges and rights, such as registered
shares (with or without par value), preference shares, (non-)redeemable shares,
shares with or without voting rights and bearer shares etc.
Shipping:
Owing to the innate mobility of the shipping industry it is common for
ship owners and operators to have recourse to tax havens. Frequently the ownership,
operation, administration and registration are situated in carefully chosen (and
often different) jurisdictions in order to keep global tax burdens at a low level.
SIM Card:
SIM: Subscriber Identity Module is a card commonly
used in a GSM phone. The card holds a microchip that stores information and encrypts
voice and data transmissions, making it close to impossible to listen in on calls.
The SIM card also stores data that identifies the caller to the network service
provider. Also, visit Nokia's phone glossary.
Smurfing:
Breaking large sums of money into small deposits through anonymous bank accounts
and offshore "shell" companies into order to dodge banks to report these transactions.
Social Engineering:
Posing as someone else to obtain
the information you need.
Sociedades Gestoras de Participatoes Sociais
(SGPS):
Madeira holding company specifically designed to take advantage
of European Union Directive 90/435.
Spam:
The email equivalent
of junk (snail) mail.
Spoofing:
Doing something not quite
100% legal but which is not normally illegal enough to cause problems.
Stepping-Stone Country:
A country in which a screen company is
incorporated.
Sterling Area:
The area in which the pound
sterling is legal tender, namely the Scheduled Territories. In general, the United
Kingdom does not impose restrictions on exchange transactions or payments and
receipts between residents of the United Kingdom and residents of the Scheduled
Territories. Exchange control applies mainly to transactions with residents of
countries outside the Scheduled Territories.
Stiftung:
Foundation, a legal entity established in Liechtenstein with corporate personality
and founded in order to receive a permanent transfer of assets by way of settlement.
Do not have shares.
Stockholders' Annual Meeting:
"The
parliament"/"ultimate authority": 1) approves annual accounts of both profit and
loss and the company's assets and liabilities; 2) makes policy decisions on future
business actions; 3) personnel decisions (president, secretary and treasurer -
to be retained or replaced - the same goes for whether to retain or replace the
auditors and directors; 4) constitutional issues: should the Articles of Association
be modified or changed?; should quorum requirements be changed? - etc.
Subpart F Income:
The section of the American tax law of 1962
containing anti-tax haven measures in relation to specified companies known as
"controlled foreign corporations".
Subsidiary Company:
A subsidiary company is a company under the control of another company through
stock ownership.
Substantial Holding Company:
A particular
type of holding company established in the Netherlands exempted from tax on income
from investments under specified conditions.
Suffix:
The name/abbreviation of letters after the company name to denote limited liability,
for example: Limited, Corporation, Incorporated, Société Anonyme (France), Société
par actions (France), Sociedad Anonima, Sociedade Anonima, Stiftung (Liechtenstein),
Limitada, Aktiengesellschaft (Germany), Naamloze Vennootschap (The Netherlands),
Aktieselskab (Denmark), Sociedad Berhad Anonima (Western Samoa), Berhad (Labuan),
Sociedad Anónima de Inversión (Uruguay), AG (Germany), ApS, A/S (Denmark), BV
(The Netherlands), Corp., Est. (Liechtenstein), GmbH (Germany), Inc., KFT (Hungary),
LDA, LLC, Ltd., PLC (United Kingdom), RT (Hungary), SA, SARL (France), SAFI (Uruguay).
SWIFT:
Society for Worldwide Interbank Financial Telecommunications.
Tax Avoidance:
Lawful agreement, or re-arrangement, of
the affairs of an individual or company intended to avoid liability to tax.
Tax Evasion:
Fraudulent or illegal arrangements made with the
intention of evading tax, e.g. by failure to make full disclosure to the revenue
authorities.
Tax Incentives:
The term Tax Incentives
is used when tax benefits are part of an economic development programme. Most
tax incentive measures fall into one or more of the following categories: tax
exemption (tax holiday); deduction from the taxable base; reduction in the rate
of tax; tax deferment.
Tax Haven:
The term Tax Haven
is generally used to refer to a jurisdiction: 1) where there are no relevant taxes;
2) where taxes are levied only on internal taxable events, but not at all, or
at low tax rates, on profits from foreign sources; or 3) where special tax privileges
are granted to certain types of taxable persons or events. Such special tax privileges
may be accorded by the domestic internal tax system or may derive from a combination
of domestic and treaty provisions. (Where tax benefits are part of an economic
development programme the term tax incentives is usually used).
Simply
stated, a tax haven is any country whose laws, regulations, traditions, and, in
some cases, treaty arrangements make it possible for one to reduce his over all
burden. The tax havens of the world broadly may be classified into six separate
categories: 1) no-tax havens (e.g., Anguilla, Bahamas, Bermuda, Cayman Islands,
Nevis, St. Vincent, Turks and Caicos, and Vanuatu); 2) countries taxing only local
income (e.g., Costa Rica, Liberia, Panama, Gibraltar and Hong Kong); 3) low-tax
havens with treaty benefits (e.g., the Netherlands, the Netherlands Antilles,
British Virgin Islands, Luxembourg and Singapore); 4) countries offering special
privileges (e.g., Channel Islands and the Isle of Man); 5) tax havens for individuals
(e.g., Andorra, Sark, Campione and Monaco; 6) tax havens for International Business
Companies (e.g., Antigua, Barbados, Grenada, Jamaica and Montserrat).
Tax Holiday:
Exemption from taxation for a designated period.
Tax Loophole:
An unintended benefit permitted under the
tax laws of a country when previously the Government unknowingly approved legislation
that encourages a taxpayer to take advantage of a tax reduction or exemption that
the legislators had foreseen.
Tax-Loss Company:
A company
that has accumulated losses, which are not allowed for income tax purposes but
may be attractive to another company so that a takeover or merger of the company
suffering a loss will place the latter on a profitable basis. In this way, the
losses are used to reduce or eliminate the tax liability of the resulting company
when it subsequently shows profits.
Tax Planning: See International
Tax Planning.
Tax Shelters:
The term "tax shelters" is
sometimes employed to refer to those jurisdictions where taxes are levied only
on internal taxable events, but not at all, or at very low rates, on profits from
foreign sources.
In domestic tax law, the term applies to a variety of
devices, which allow taxpayers to deduct certain artificial losses, i.e. losses
that are not economic losses but represent losses that are available as deductions
under the current tax laws. These artificial losses may be offset not only against
income from the investment out of which they arise, but also against the taxpayer's
other income, usually from his regular business or professional activity.
Tax Sparing:
The sphere of application of a tax incentive may
be extended by way of a tax sparing clause in a treaty between a capital importing
country and a capital exporting country. Such clauses allow residents of the capital
exporting country a credit against domestic tax for profits or gains derived in
the developing country in respect of which all or specified taxes are subject
to exemption or reduction in the latter country.
Normally tax treaties
are not concluded between high tax jurisdictions and tax havens. In line with
this approach, certain tax treaties specifically exclude from their scope entities
that benefit from specially favoured tax treatment (e.g. the exclusion of Luxembourg
holding companies from the provisions of tax treaties concluded with Luxembourg).
However, certain colonies or former colonies of the United Kingdom and the Netherlands
benefit from extensions (with or without modification) of treaties concluded respectively
by the United Kingdom and the Netherlands. The existence of such treaty links
may be of considerable value with regard to tax haven operations taking place
in jurisdictions such as the British Virgin Islands and the Netherlands Antilles.
Tax Treaties:
Tax treaties are international agreements
or conventions concluded to eliminate double taxation by the contracting states.
International double taxation may be loosely defined as the imposition of comparable
taxes in two (or more) states on the same taxpayer in respect of the same subject
matter and for identical or overlapping periods. The most harmful effects of double
taxation are on the exchange of goods and services and on the movement of capital
and persons.
Treuhänderschaft:
A Liechtenstein form of
a trust.
Treuunternehmung:
Another Liechtenstein form
of registered trust, designed to undertake commercial activities.
Trust:
The concept of a trust dates back to the time when the Norman's conquered
England in the middle of the 11th century. The trust concept has been developed
over the centuries, and has now become one of the most effective tax and estate
planning techniques available today.
The word "trust" refers to the duty
or aggregate accumulation of obligations that a person (known as the settlor)
rest upon a person described as a trustee by transferring his assets to this third
party. The responsibilities are in relation to property held by him or under his
control. The trustee is obliged to administer the trust property in the manner
lawfully prescribed by the trust instrument (Trust or Settlement Deed, Declaration
of Trust), or in the absence of specific provision, in accordance with equitable
principles or statute law. The administration will thus be in such a manner that
the consequential benefits and advantages accrue, not to the trustee, but to the
beneficiaries.
There are three basic types of trust: 1) an 'Interest
in Possession' trust allows for a particular beneficiary, often the settlor, to
have a distinct right to income from part of the trust's capital assets; 2) An
'Accumulation and Maintenance' trust allows for income to accumulate until a class
of beneficiaries reach a certain age; 3) A 'Discretionary' trust vests discretion
with the trustees to decide how both income and capital are distributed.
It is also possible to appoint an individual who is known as the 'protector'.
The protector's main function is to ensure that the trustees administers and manages
the trust assets in accordance with the trust deed and he is often vested with
the power to appoint and remove trustees.
A trust does not have shares.
Trustee:
Trustees have a fiduciary duty to act in accordance
with a trust deed and for the benefit of the beneficiaries. See trust.
Trust Deed (Settlement Deed, Declaration of Trust or Trust Instrument):
The document that lays down the foundations of how the trustees are to administer
and manage the trust assets and how they are to distribute and dispose of trust
assets during the lifetime of the trust.
Trust Services:
A large number of banks located in tax havens offer trust services. In addition,
there are trust companies specifically offering trust services. Most tax haven
jurisdictions have enacted legislative provisions and set up administrative authorities
to control the activities of such banks and trust companies. Services offered
by banks and trust companies normally include a wide range of trusteeship, management
and related services. The trusteeship services involve not merely acting as trustee
of settlements, but many other services such as acting as trustee for debenture
holders or as custodian trustee for pension funds, attending to statutory requirements
and the maintenance of financial records. Often nominee shareholders, directors
and other officers are furnished. Investment services are normally provided.
URL:
Universal Resource Locator is a means of identifying an exact
location on the Internet. For example, http://www.webtrends.com/html/info/default.htm
is the URL, which defines the use of HTTP to access the Web page default.htm in
the /html/info/ directory on the Web Trends Corporation web site). As the previous
example shows, a URL is comprised of four parts: Protocol (HTTP), Domain Name
(www.webtrends.com), Path (/html/info/), and File Name (default.htm).
UMTS:
Universal Mobile Telecommunications System.
VAT:
Value Added Tax.
Vintage Company: See Shelf Company.
WAP: Wireless Application Protocol - gives your mobile phone access to
the Internet.
Withholding Tax:
Tax required to be deducted
at source by companies paying interest, dividends or royalties, but which may
in certain circumstances be reclaimed by the recipient or be reduced under a double
taxation agreement/tax treaty
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