A person, call him "Bob," could form a company in Canada (Bob Canada Inc.) and another one offshore (Bob Island Inc.). Whatever money Bob was paid on contract-say, $100,000-could be received by Bob Canada Inc. But Bob could then pay $90,000 to Bob Island Inc. for "consulting services." Bob would have $100,000 in income, but $90,000 in expenses, and so pay tax on only $10,000.
If Bob dealt in hard goods like shoes, he could use Bob Island Inc. to buy shoes from China for $10,000, then sell those shoes to Bob Canada Inc. for $90,000. And Bob Canada Inc. could sell them in Canada for $100,000. So that's $10,000 profit Bob has to pay Canadian taxes on, and $80,000 sitting in a bank offshore. (Bringing any of that offshore money into Canada gets tricky. It might be possible to set up a credit card that would let Bob get cash advances, paid back by Bob Island Inc. But now, by not declaring that money, Bob has slipped over into tax evasion. He's better off using his offshore stash to buy a yacht.)
The CRA is trying to cut off the tax-avoidance avenues for people like Bob by establishing Tax Information Exchange Agreements with various countries, so that it can find out who's keeping how much where. Up to now, it has signed 11 such agreements, several of them with Caribbean jurisdictions. So far, however, the BVI isn't one of them. So when Bob wants to keep his money and his identity safe, he comes here.
In Road Town, you'll find about 80 firms, commonly known as "trust companies," that act as agents in forming and administering offshore companies and trusts. For about $1,500, they'll do the paperwork. (A company named after your grand-niece, with 50,000 no-value shares? Done.) Since there are no taxes to pay in the BVI, there are no books to keep, and no audits of your records. If you wish, many of these firms will provide a person or even another company to act as the "nominee director" of your company, so that your name need not appear on any transactions. And most of them can offer "shelf companies"-that is, companies already incorporated and sitting on the shelf, ready to go. For more money, you can buy a shelf company that has been "aged"-created, say, five or 10 years ago and just waiting, dormant, for someone who suddenly needs to say he's been in business that long.
You can do this online, if you prefer. Many of these firms have websites, and you can download the application forms. (One such firm, Fidelity Corporate Services, provides helpful answers to some common questions about offshore companies. For the most germane of these-"Aren't all offshore companies used by crooks and money launderers?"-Fidelity complains that opinion is part of a government smear campaign, and its answer begins, "Well, aren't domestic companies used by them, too?")
Before I set up meetings with any of these firms, it seemed a good idea to come up with a fake identity. I could go in playing the high-roller, I thought, and even set up a Gmail account under a false name in order to communicate with the firms. That idea dissolved the moment I talked to Jack Blum, a semi-retired former U.S. congression-al investigator and authority on shadowy dealings in the BVI. "They're going to want information about you," he said. "They're going to ask for a passport and some other ID."
So, no fake identity; I'd have to go in as myself. That was probably just as well; I'd never been a very good liar. What about handing over my passport-was that a good idea? I asked the advice of Lincoln Caylor, a fraud lawyer with Bennett Jones in Toronto. "I don't know," he said. "I wouldn't do it." Right.
It also seemed useful, during whatever meetings I could arrange, to at least hint at some underhanded purpose for needing an offshore entity. But what could I, a humble Canadian novelist, be getting up to? After a few more calls for advice, I came up with this: I'd tell them I was about to sign a major U.S. book deal and had a TV development deal in the works, and let the dollars pile up in their minds. As for why might I need an offshore company, I'd mention the fact that my wife was divorcing me, and so...I hoped I could leave the rest to their imagination. Some of this was true-I did have a U.S. book deal and a TV development deal, but for dollar amounts that hardly warranted a sock in a drawer, let alone an offshore company. I was also, as it happened, separated, though between my wife and I everything had long been settled. Exaggeration and implication seemed more within my wheelhouse than out-and-out falsehood.Report Typo/Error
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