Legality of Offshore Company Formations

Firstly let us consider the legal tax aspect and the view taken by world tax offices (including the IRS and its Australian clone)

A company set up in one of the 200+ tax havens is only subject to the rules/laws/taxes of that haven. If it makes profits from assets, liquid or otherwise, then these profits would be free from tax (assuming that the tax haven had that arrangement, if it didn't then it would not be a very popular tax haven). Some tax havens only allow tax-free overseas investments. Some, tax residents, so careful choice of the tax haven is essential.

Since the offshore company is not a resident in any other state/country then it is not subject to any tax laws of any other authority. Tax implications could arise if the offshore company profited from dealings in countries that do apply tax and on that profit only tax would be payable. Interesting enough this would be at the base or with-holding rate which is frequenfly lower than an individual resident (for tax purposes) who may be paying much higher rates of tax. Of course the offshore company usually buys assets in states or countries which allow tax free profits. These assets include stocks in all world markets, commodities, properties and almost any conceivable investment.

Not surprising then these offshore companies are not the flavour of the month with tax authorities. All authorities have however to accept the sovereignty of these offshore companies. Furthermore there is little that authorities, such as the IRS, can do about them. Offshore companies hold enormous amounts of the world's assets. In turn these assets are invested throughout the various countries' economies. Multi-national companies, essential to the prosperity of markets, trade from such offshore companies. So how do the tax authorities combat the offshore companies?

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