Bitcoin’s Chance at the $20 Trillion Offshore Tax Haven Market
In polite pockets of society, acceptable and positive crypto talk revolves around its amazing tech and what the future might hold. At least one bitcoiner has tossed aside such niceties, and examined the world’s most popular cryptocurrency as a potential offshore tax avoidance haven. Depending on the study, as much as $20 trillion is hidden […]
In polite pockets of society, acceptable and positive crypto talk revolves around its amazing tech and what the future might hold. At least one bitcoiner has tossed aside such niceties, and examined the world’s most popular cryptocurrency as a potential offshore tax avoidance haven. Depending on the study, as much as $20 trillion is hidden away from government tax farmers. However, loopholes are closing as lawmakers discover them, perhaps creating just the use case bitcoin needs to thrive in the near future.
Can Bitcoin Get a Slice of the $20 Trillion Tax Avoidance Market?
Treasure Islands author Nicholas Shaxson explained what he imagines to be a queer phenomenon. “Governments were short of revenue and seeking new sources; there was huge public anger at bailouts and banking is at the center of the offshore system; and there were rising concerns about inequality when offshore is an inequality machine,” he told The Christian Science Monitor.
Not quite a decade ago, the US in particular used terrorism as a pretext to force notorious Swiss bank accounts to release information on tens of thousands of American customers. Soon after, the Organization for Economic Cooperation and Development urged global standards in this regard. From there, the G20 picked up the cause, and by last year implemented a system of instant accountability between nations and their respective tax authorities.
John Christensen of the Tax Justice Network put it succinctly, “‘Bit by bit, international standards are being created. This is all being extended in the direction’ of secretive jurisdictions such as Switzerland. But activists and journalists investigating fraud, kleptocracy, embezzlement and other financial crimes ‘hit a brick wall when we can’t establish the ownership of a company.’”
“Bitcoin throws a wrench into the traditional monetary system,” sometime bitcoin maximalist @dantwany posted on Medium recently. His assertion is how “parallels exist between traditional tax havens used by the wealthy and Bitcoin,” in an effort to get a “better idea if it will be seen in the future as more of an alternative to the financial system altogether, or play a part in offshore banking services.”
Bitcoin Isn’t Just for the Rich
Tax havens are typically thought to be financial playgrounds of the uber rich. @dantwany details how now “Bitcoin may open the playing field for ordinary citizens who normally could not afford this luxury.” Indeed, “the fact that ordinary citizens are not effectively barred from entry into Bitcoin like in offshore banking makes it likely the potential market may be much larger than current estimates,” though he admits there is scant evidence this is actually happening.
For his purposes, offshore “tax havens have the following four attributes: 1) No or low effective tax rates. 2) No need to generate substantial economic activity in the location to gain tax benefits. 3) Lack of mandated transparency with regards to customer details and other lenient laws that govern financial dealings. 4) A lack of exchange of information.”
He notes how mainstream havens have become, including legacy institutions using oasis/shelter systems. He cites approvingly Jim Omartian in his Panama Papers article, “Do Banks Aid and Abet Asset Concealment,” suggesting for “investors residing in countries with weak property rights, using an offshore entity may prevent government expropriation. Investors buying property or acquiring a firm may want to conceal their identity from the counterpart for an edge in negotiations.”
Bitcoin can be sought for a variety of reasons in the above case: secrecy, of course, and lack of confidence in the integrity of domestic banking institutions. And just as the US bullied its way into Swiss financial arrangements, Americans began closing their accounts in a rush, proving capital will go where it’s treated the best. The Panama Papers affair seems to reveal an economic truism, “when one tax evasion method becomes difficult, it is simply supplanted by another alternative. As data collection improves and more leaks like the Panama Papers continue, there will be no alternative but to turn to encryption and decentralized networks like Bitcoin for true privacy,” @dantwany boldly asserted.
Crackdowns Might Push More Bitcoin Adoption Through Decentralized Exchanges
This year just might see crackdowns push more people toward bitcoin, especially as legal schemes such as the Automatic Exchange of Information take hold. European Union countries in 2018 will exchange customers’ financial information as a matter of course. All over the world, governments are beginning to see what could be around the corner for tax havens. Crypto miners are regularly hectored from Venezuela to Argentina in an effort to slow the phenomenon, to varying degrees of success. Russia is busy passing crypto tracking laws. China famously went after exchanges, only to force trade underground with more peer-to-peer services such as Localbitcoins filling the vacuum.
With an eye toward skepticism, @dantwany writes how it does seem “doubtful that Bitcoin can capture all the money currently in tax havens.” However, those who are stuck in countries where private property rights in particular are less than secure, there “is certainly a case where Bitcoin can find a use and it seems likely that it will tap into this market, if it is not already doing so. In the near future, it may become very possible to use Bitcoin on decentralized exchanges to buy a wide variety of tokenized securities and assets. Using this method, the buyer will be in complete control of the assets they are trading in an anonymous manner.”
He’s also keen to watch where autocrats go, where they put their ill-gotten gains, suggesting as “public backlash, leaks, and political turmoil increase, it seems very likely that even the autocrats themselves may have to turn to alternatives like Bitcoin to conceal and keep their wealth, at the very least as a hedge. It seems inevitable and a matter of when, not if that a percentage of the wealth held in tax havens begins to flow into Bitcoin and the cryptocurrency economy.”
Is crypto the future of tax shelters and havens? Let us know in the comments.
Images via the Pixabay, Twitter.
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