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Loopholes The Rich Use to Avoid Paying Their Share

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by Kate Brunotts

I don’t know if you’ve seen the movie The Laundromat on Netflix, but I’m not sure I’d recommend it. As it turns out, even if the darling Meryl Streep serves as the main actor, a movie can still fall short. However, regardless of the totally unqualified film critic in me, this film served an important purpose. So important, in fact, that its creators were sued this month by some of the main subjects portrayed in it.

The real versions of these guys are PISSED.

Why? The Laundromat intended to expose the insidious world of shell corporations and tax havens (I know, a tax movie? What’s next, a movie about signing up for Health Insurance?), and some of the real people portrayed in it were less than thrilled.

Essentially, the super-rich have been and will continue to hide large sums of money outside of the country as a way to avoid paying vital taxes. Instead of paying their dues that allow for public goods and services, these people have created “fake” companies- and no one’s holding them accountable. 

What is a “shell” corporation?

A  shell corporation  is a type of company that does not have active business operations. When used legally, these corporations are intended to offshore small amounts of work to other countries from a much larger enterprise. However, they can easily be used as a tax evasion loophole. 

A high earner may set up a shell corporation in an offshore place that doesn’t have the same amount of tax legislation as the United States, like the Cayman Islands. The company can be set up simply by providing a P.O box address, like this one

As you can see, this P.O box alone is connected to 155 separate businesses. While some of these companies could be using the offshore trust in a legitimate way, there’s no doubt statistically speaking that at least one of these “corporations” isn’t there for the most innocent of reasons – and this is just one of the many offshore P.O boxes. 

By funneling money through a shell corporation, an individual can begin to bend his or her money so that it doesn’t have to be counted as personal income. This is crazy significant, as abusers of shell corporations are able to funnel so much money that they end up in completely separate tax brackets than where they should be. 

Where are these tax havens?

Tax havens, defined as offshore countries that offer businesses little to no tax liability, can be found all around the world. Most of these havens do not require residency, so an individual can set up a shell company without so much as visiting the country in the first place.

Some of the most popular tax havens are as follows: Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cook Islands, The Island of Jersey, Hong Kong, Nevis, Mauritius, Lichtenstein, Monaco, and Panama. Watch out for those islands!

The Panama Papers 

In 2015, an anonymous source leaked 11.5 million documents detailing over 200,000 offshore accounts used for funneling money. Among these files, a large number of government officials, famous sports stars, and other one percenters’ names were leaked.

Tiger Woods, David Geffen, Sanford Weill, Emma Watson, Vladimir Putin, and Alfonso Soriano were all named in this list – Although being on the list does not indicate that you used offshore accounts in an illegal way, it goes to show that more people than you may expect have access to this system. 

Despite all of the leaks, the initial arrests and charges mainly targeted the firms that enabled this to happen, and only 4 arrests were made within the United States. A number of Panama Paper-affiliated government officials have stepped down or resigned since 2018, and investigations continue to be conducted, though it definitely seems like more of a backburner issue at this current state and time. 

Gabriel Zucman – Investigator

While there are a few private investigators dedicated to uncovering these hidden streams of wealth, the bulk of these offshore accounts remain largely unchecked. The International Consortium of Journalists continues to report on the papers and subsequent leaking and is collecting donations here

In an age where income equality continues to grow year after year and the gap between the upper and blue-collar class continues to widen, the perversion of offshore accounts becomes an increasingly important issue. 

Not to mention, Trump’s tax plan enacted in 2018 largely benefits the top 1% and leaves a large portion of Americans scrambling to get a fraction of the wealth pie.

It doesn’t take a rocket scientist to figure out that something isn’t right with this picture. Dirty business hits hard and it affects every single one of us.

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