Several high-tax countries such as Australia, Canada and the US have enacted anti-avoidance legislation designed to reduce the appeal of offshore tax haven countries. Tax haven countries are now generally referred to as Offshore Financial Centres (OFCs) and it's interesting to note that their very existence substantially began as an effect of UK and American efforts to reduce aid to specific developing nations. Instead of providing foreign aid, legislation was passed to grant incentives for multinational corporations to invest in target offshore jurisdictions.

Corporations based in an OFC may derive substantial tax benefits from their activities provided they know the rules and follow them carefully. It is important to remember however, that as long as a person remains resident in Canada or the U.S. they are subject to the tax laws of their respective country.
The simple act of setting up an offshore corporation does not automatically or generally reduce tax liability for the individual. For example, were you a U.S. person the implications of your company being designated a Controlled Foreign Corporation (CFC), avoiding Subpart F Income, treatment as a Foreign Personal Holding Company or a Passive Foreign Investment Company are all serious matters that should be addressed by a tax lawyer.

Revenue Canada and the IRS both continue to take the position that when the primary reason an offshore option is invoked is tax deferral, this motivation alone, once articulated, is and of itself sufficient grounds to deny any tax benefit. It is important therefore that anyone considering an offshore business opportunity do so for reasons other than tax issues alone. The tax issue may be a reason for going offshore but it may not be the only or principal reason.

Notwithstanding the above, OFCs have become a critical part of the tax planning strategies of individuals and corporations doing business worldwide. Medium to high net worth individuals are increasingly using the resources of offshore trust companies in order to take advantage of investment opportunities unavailable to them in their home country. The Securities & Exchange Commissions in both Canada and the U.S., for example, require investment companies to provide an exhaustive and extremely expensive prospectus before an investment may be offered to their citizens and/or residents.

There are still some legal ways to defer payment of taxes and in some cases to avoid payment of taxes, but you need to consult with a tax attorney in your country for this. Also be aware, that tax avoidance and tax evasion are now seen in some circles as being one and the same thing, notably in European countries.

Nevertheless, we do describe corporate structures which we believe could benefit our clients in particular situations. However, we leave it to our client to determine the applicability of the structure to his particular situation and to obtain professional independent tax advice where appropriate.