“Our Boy Adam Scott Wins” read the headlines when the Aussie golfer won the US Masters recently. Finally, one of our own winning the prestigious golfing event! Except that for taxation purposes, our champion is actually Swiss.
Countries that have the reputation as tax havens seem all the rage for Australia’s sporting elite — Pat Rafter is reportedly a resident of Bermuda, Bernard Tomic has moved to Monaco, and Scott resides in Switzerland (though not necessarily just for tax reasons).
But how accessible are tax havens to those who aren’t sporting millionaires?
Avoiding Australian tax was a far easier proposition in the past. A senior figure manager in a prominent finance company told Crikey those days are over. He says the Australian Taxation Office has pursued a series of agreements with potential tax haven countries, which have reduced their effectiveness. There are, however, a few leads for those wanting to keep the ATO in the dark.
According to David Chaikin, an associate professor at the University of Sydney Business School, two elements are crucial for a tax haven: a low tax rate and secrecy laws that prevent the tax authorities of other nations from finding out whether income is being hidden.
Some jurisdictions still allow the wealthy to negotiate personalised tax arrangements, and a few cling to banking secrecy laws that for generations had bedevilled Australian tax authorities. Switzerland is known for its secrecy (although recent reforms have made Swiss banks more transparent). Luxembourg, Panama and the Seychelles are still a financial black-box, but they have either high taxes or stability concerns.
Scott was born in Adelaide, but there are many factors that may have drawn him to Switzerland. Chaikin says proximity to European tournaments and a high-quality cultural and culinary scene may have enticed Scott to his current home, the ski resort of Crans-Montana high in the Swiss Alps. But it doesn’t hurt, he says, that the prevalence of magnificent skiing and 14 Michelin-starred restaurants coincides with the availability of preferential tax agreements. While Switzerland isn’t known for low taxation, it is possible for wealthy individuals to enter into agreements with authorities to pay a lump-sum tax figure — so no matter how much is earned, only the agreed sum will be paid in tax.
Lump sum taxation is available to those who earn over AUD$135,000 (although this varies between cantons, or states) and is calculated not on income but on spending (normally calculated on rent). There is no requirement to report on any assets or income, only to pay the agreed annual sum.
If Scott enters into endorsement contracts, they will be signed there, and no income will be reported in Australia — even if the endorsements are heavily promoted here. And while winnings from tournaments are recorded as income in the country where the event took place, the post-tax pool of money will be reported in Switzerland.
John Passant, a former assistant commissioner at the ATO charged with overhauling international taxation, says favourable capital gain tax arrangements are also important to consider.
“You could be a non-resident in Australia for tax purposes, and so any capital gains you make in Australia will be tax-free, except for those relating to land,” he said. Any gains made on share investments, for example, will not be taxed in Australia but in Switzerland. And Switzerland doesn’t have capital gains tax.
But gaining residency in Switzerland is not easy. Hundreds of companies provide services to foreigners wanting to navigate the maze of Swiss residency requirements. Residency is similarly difficult in Monaco, another low-tax, no-capital-gains jurisdiction.
And tax havens closer to home? Vanuatu once did a booming trade, but new agreements mean the tax department’s eyes extend further into Port Vila’s banks than ever before. Passant says it’s still possible to have undeclared income sitting in Vanuatu’s banks, because the ATO needs to know what to look for before it can find the money, but it’s more risky. Switzerland remains much more a fortress.
So if you’re thinking of a tax haven, you’ll need substantial annual capital gains or enough money to negotiate with the tax authorities in a select few jurisdictions. And an endless patience for bureaucracy doesn’t hurt either.