PUI. who taxes world wide income
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There is tax evasion (illegal) and tax avoidance (legal, but disliked by IRS), these two are completely different things. I will attempt to talk only about tax avoidance here, not outright tax evasion.
First of all, any foreign entity (let's say for a moment that it is strictly owned by non US citizens) and foreign nationals, do not pay US taxes. This is obvious.
Two, US is the *only* country in the world, where its citizens are subject to income tax, regardless of where they reside. Any other country in the world (Canada, UK, Germany, etc), as long as you declare yourself a "non-resident" of the country, your income (outside of that country) will not be subject to income tax.
Therefore, you see all these British nationals, move themselves to Monaco, Gibraltar, Dubai, etc, often the lower taxes in those places is one of the reasons.
Now let's talk about off-shore companies. A standard way for hedge fund managers to manage non-US citizen's investments, is to create a fund (the "investment vehicle") outside of US, so the non US citizens' income will not even be subject to US tax code (which is, of course, legal). Then the fund managers themselves, would form a "management company", that acts as "advisor" to the off-shore fund. Hence, only the Manager's fees (to themselves) are essentially "flowed on-shore", and therefore subject to US capital gains and income taxes (for the managers only, not the investors). There is nothing illegal here, right?
Now, here comes the complication. Since often a lot of the hedge manager's own income comes as a slice of the fund itself, so what happens to taxes? Enron (hehe), lead a group of fund advisors (which Enron often sees itself as one), convinced the US congress to pass a law (I believe attached to the Derivatives Modernization Act, aka, Jesse Helm's deregulation act), that indicates that fund advisors can *defer* their gains in the fund itself, for up to 10 years, and is only subject to income tax after or once the income is "cashed out", and taken on-shore. This is *huge* for hedge fund managers. Since they can effectively defer the capital gains up to 10 years into the future.
Looking through that list of investors for Carlye, I don't get what the big deal is. Most of the investors are non-US citizens or entities anyways, so they shouldn't be subject to US income taxes. It really is as simple as that.
Take myself as an example. I lived in the US for 12+ yrs, and I have always resisted getting a green card, for the express purposes of future (well current) tax planning. I know of a few couples, where one of the spouses would never get US citizenship for the same reason (and he / she would hold most of the assets), not to mention the almost 1000 person who gives up US citizenship annually. US really have one of the most backward tax code in the world. Sometimes I consider becoming a US citizen make you disadvantaged in wealth creation, even more than ppl from traditionally "socialist enclaves" like Sweden or the UK. And Yes, there is a reason why a lot of ppl go live in Switzerland, but that's another long (and strange) story altogether.
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There is tax evasion (illegal) and tax avoidance (legal, but disliked by IRS), these two are completely different things. I will attempt to talk only about tax avoidance here, not outright tax evasion.
First of all, any foreign entity (let's say for a moment that it is strictly owned by non US citizens) and foreign nationals, do not pay US taxes. This is obvious.
Two, US is the *only* country in the world, where its citizens are subject to income tax, regardless of where they reside. Any other country in the world (Canada, UK, Germany, etc), as long as you declare yourself a "non-resident" of the country, your income (outside of that country) will not be subject to income tax.
Therefore, you see all these British nationals, move themselves to Monaco, Gibraltar, Dubai, etc, often the lower taxes in those places is one of the reasons.
Now let's talk about off-shore companies. A standard way for hedge fund managers to manage non-US citizen's investments, is to create a fund (the "investment vehicle") outside of US, so the non US citizens' income will not even be subject to US tax code (which is, of course, legal). Then the fund managers themselves, would form a "management company", that acts as "advisor" to the off-shore fund. Hence, only the Manager's fees (to themselves) are essentially "flowed on-shore", and therefore subject to US capital gains and income taxes (for the managers only, not the investors). There is nothing illegal here, right?
Now, here comes the complication. Since often a lot of the hedge manager's own income comes as a slice of the fund itself, so what happens to taxes? Enron (hehe), lead a group of fund advisors (which Enron often sees itself as one), convinced the US congress to pass a law (I believe attached to the Derivatives Modernization Act, aka, Jesse Helm's deregulation act), that indicates that fund advisors can *defer* their gains in the fund itself, for up to 10 years, and is only subject to income tax after or once the income is "cashed out", and taken on-shore. This is *huge* for hedge fund managers. Since they can effectively defer the capital gains up to 10 years into the future.
Looking through that list of investors for Carlye, I don't get what the big deal is. Most of the investors are non-US citizens or entities anyways, so they shouldn't be subject to US income taxes. It really is as simple as that.
Take myself as an example. I lived in the US for 12+ yrs, and I have always resisted getting a green card, for the express purposes of future (well current) tax planning. I know of a few couples, where one of the spouses would never get US citizenship for the same reason (and he / she would hold most of the assets), not to mention the almost 1000 person who gives up US citizenship annually. US really have one of the most backward tax code in the world. Sometimes I consider becoming a US citizen make you disadvantaged in wealth creation, even more than ppl from traditionally "socialist enclaves" like Sweden or the UK. And Yes, there is a reason why a lot of ppl go live in Switzerland, but that's another long (and strange) story altogether.
