Secrecy Jurisdictions

A fictional tax which only exists in company accounts and is never paid. Deferred tax does not, as such, exist. But the rules of accountancy generally require that income be matched with expenses. If an expense is recognised for tax purposes more quickly than it is for accounting purposes (which is common with much plant and equipment expenditure) this means that the tax cost for the years when this happens are understated. Conversely, when all the tax allowances have been used on the assets there might still be accounting charges to make and the tax cost would then be overstated. To balance this equation a notional tax charge called deferred tax is charged to the profit and loss account in the earlier years and put on the company’s balance sheet as a liability. The liability is released as a credit to profit and loss account in the later years and in theory over the life of the asset all should balance out.

A firm of accountants: the second largest member of the so-called Big 4 firms. Present in most secrecy jurisdictions.

Taxes on profits, income and gains i.e. the residual benefits that accrue to the taxpayer from a transaction. Examples are income taxes, corporation taxes, taxes on capital gains and taxes on gifts.

Shareholders own limited companies but they do not run them. That job is given to its directors. All limited companies must have at least one director. The directors of limited companies may be other limited companies in many jurisdictions. Directors are responsible for the management of the affairs of a company and its compliance with all laws that apply to it. Directors are usually appointed by the members of the company at General Meetings of the membership.

Most offshore trusts permit payments to be made at the discretion of the trustees, which means that the identity of beneficiaries can remain a secret because those to whom payment of income or capital from a trust might be made is supposedly left to the sole discretion of the trustees. In practice, trustees normally follow a “letter of wishes” provided by the settler instructing them whom they are to pay money to, when and how.

The country identified as a person’s natural country of origin even if that person has not been resident there for extensive periods of time.

Tax relief given by the country in which the taxpayer resides for tax paid in another country on a source of income arising in that other country.

Double tax agreement or treaty: An agreement between two sovereign states or territories to ensure, as far as possible, that income arising in one and received in the other is taxed only once. Includes rules to define Residence and Source, and limits on Withholding Taxes. Also usually includes provisions for cooperation to prevent avoidance, especially information exchange. A form of bilateral information exchange. Considerably more comprehensive than Tax Information Exchange Agreements and usually not made available to tax havens / secrecy jurisdictions for that reason.