It’s better in the B … er, the Caymans

So, Mitt’s campaign claims that he paid the same US taxes on his Cayman Islands accounts as he would have, had they actually been located in the US.

And — I hope you’re sitting down — this may well not be true. Reports the Wall Street Journal (the news part, the part that Paul Gigot & co never read):

However, tax experts said that had Mr. Romney’s IRA invested in Bain funds in the U.S., he would likely have been forced to pay an obscure levy called the “unrelated business income tax,” also known as UBIT.

This tax, assessed for individuals at a maximum 35% rate, is meant to discourage tax-exempt entities such as an IRA or college endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it. Investing in a partnership such as a Bain Capital fund that uses debt to buy companies would trigger the tax, experts said.

For this reason, the experts said, it is very common for private-equity funds such as Bain to set up vehicles in offshore locales such as the Cayman Islands. Such a structure allows American tax-exempt entities, including IRAs, to avoid paying UBIT.

I mean … just ask the simple question: If he’s paying the same in taxes, why is it located off-shore, in a “notorious tax haven” — the world’s money laundromat, preferred by drug kingpins and gangsters around the globe? What’s the point otherwise? Maybe someone can enlighten me.

Recommended by tblade, pablo.



Discuss

7 Comments . Leave a comment below.
  1. Rich people are rich because...

    Rich people are rich because:

    A.) When they receive large tax cuts, they create American jobs.

    or

    B.) When they receive large tax cuts, they hide their money in offshore accounts that create offshore jobs for foreign accountants and foreign tax lawyers.

    • Tblade

      C.) They believe that their role on earth is to fulfill the goal of collectively preventing the middle class from gaining wealth (inching too close….like a flu virus one does not want to come in contact with-:) or believe that there truly are two sets of rules; including tax brackets and loopholes that favor those with resources.

      Would you kindly provide some kind of credible source for your statements above? Thank you in advance.

  2. Bring out the flags!


    You know how those Tea Partiers always seem to show up with a Gadsden flag? Someone must be making a ton of money selling these things, but a flag is a potent political symbol.

    I just think it would be really fun if people started to bring the Cayman Islands flag to Mitt Romney events.

  3. Enlightenment

    While I certainly don’t know everything there is to know about this, I have been in the investment management business my whole life, have experience with Cayman funds and can provide some info.

    Many private (hedge, private equity, venture capital) funds are organized offshore. The UBIT is one reason. Another is the aversion many non-US investors have to investing money in US partnerships (even though such investments generally would not cause them to be taxable in the US). So if you are marketing a fund to US tax exempts (e.g., college endowments, charitable foundations, pensions, IRAs) or non-US investors you will organize your fund offshore.

    Typically investment managers set up what is referred to as a master-feeder structure. The master fund is usually an offshore corporation (although I have seen offshore and domestic partnerships as well). US tax law allows the offshore corporation to elect to be treated as a partnership for US income tax purposes (important for US taxable investors in the structure). The master fund would have two (sometimes more) investors, known as feeder funds. One feeder fund would be set up as an offshore corporation, the other as a US limited partnership.

    All of the investment activity in this structure occurs at the master fund level. This allows the investment manager to run a single portfolio rather than having to manage two or more parallel portfolios. The product is sold through the feeder funds. US tax exempts and non US investors invest through the offshore corporation, US taxable investors invest through the US LP.

    Cayman is not the only locale for these structures, but it is the most popular. Why? 1) There is no corporate tax in Cayman (which is no different than the other places such funds are set up). 2) The government has invested a lot of energy in promoting the island. 3) They have built up the infrastructure and knowledge to handle this business. 4) As a UK territory their legal system is well developed and easily understood. I don’t get the reference to Cayman as a “notorious tax haven”. I think that is unfair.

    Mitt’s IRA is probably invested in a Cayman feeder fund to avoid UBIT. I strongly suspect he is invested right alongside folks like Harvard, CALPERS, Warren Buffet’s charitable foundation, etc.

    • So it IS about greed, and nothing more noble

      I appreciate the enlightenment.

      I note that absolutely nothing in this description does anything to “create jobs”, “spur innovation” (except perhaps in spreadsheet stunts), or create prosperity for Americans. This is all about taking maximum advantage of a US tax system already heavily optimized towards the interests of the wealthy, in order to move as much additional wealth as possible OUT OF the US economy and INTO the pockets of already-wealthy investors like Mitt Romney.

      This epitomizes the mechanisms by which the 1% (in this case personified by Mitt Romney) have achieved a degree of wealth concentration unparalleled since the Gilded Age, and simultaneously created an economic catastrophe for the 99% unparalleled since the Great Depression.

      This is a display of one of the sophisticated weapons used by the 1% for decades in their on-going class warfare. The foot soldier, in this case, is one Mitt Romney — putative GOP candidate. Mr. Romney is supported in this war on the economic interests of the 99% by the sophisticated chaff of bumperstickers, media manipulation, and breath-taking lies emitted by the 1%.

      If the 99% are so mesmerized by this chaff (and that really is all it is) that this technique works, then the rest of us have lost the war. We, the 99%, are under attack by the 1% and have been for decades.

      The question is whether and when we will belatedly fight back.

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