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Telephone +350 42563 Fax: +350 42642 e-mail: info@amp-accountants.com Website: www.amp-accountants.com
AMP & Partners Limited and associated companies are regulated and insured in the United Kingdom to give international tax advice*

THE OFFSHORE REPORT Introduction This report is a global report and provides information about how offshore centres are used for financial trading and other operations. The tax advice is global advice and may not apply specifically to your home country. There are 193 countries in the world and it is not possible to give specific tax advice for each country. References to ‘Western Governments’ include, G 8 countries (but not Russia) and include old EU countries, France, Belgium, Germany, Spain, UK, Ireland, Italy, The Netherlands, Norway, Sweden, Denmark, Finland and USA, Canada, Australia & New Zealand most of which have tax avoidance legislation in place. This report has been written by qualified personnel who have worked in the offshore industry with 40 years of accumulated experience. This includes first hand inside knowledge of what services Chartered Accountants and Lawyers provide for clients from around the world.

What is Offshore ? THE DEFINITION OF OFFSHORE CENTRES (OFC’S) The definition of ‘offshore’ is generally accepted to be as followsAn area or country (usually an island located offshore, near to a major continent) which offers concessionary rates of taxation for, individuals, corporate entities and trusts. The rates of taxation are considered to be concessionary if they are lower than those prevailing in the nearby continents such as Europe, the United States of America, Africa and Australia . The world’s financial industry and international banks were the first users of OFC’s. The Islands of Alderney, Guernsey and Jersey (located off the UK’s mainland) known as the Channel Islands were at the forefront of attracting wealthy individuals to live on the islands. It was not long before International banks and oil companies set up branches and International headquarters in OFC’s. The benefits to international oil companies were advantageous. They deposited cash safely in AAA rated banks and earned interest free of taxes. They set-up offshore vehicles to invest in new projects around the world where profits were tax free. For international banks it was a similar story. Deposits offshore

would earn interest, tax free. International banks could act as a conduits providing capital to other banks and their own ‘on-shore’ bank branches. Recently, the UK Government questioned these practices as possibly being in contravention of transfer pricing regulations, further restrictions on which would be introduced in the next Finance Act. The majority of offshore centres are islands which have their own legal systems, and autonomy to introduce their own laws and the power to introduce their own systems and rates of taxation. Such centres can therefore purposely implement legislation designed to attract foreign investment.

General Uses for Offshore Centres An individual or a company may wish to place their assets in an offshore centre for a variety of reasons• To reduce their international tax liability. This can be from cash savings in a bank to the use of offshore trusts and companies to minimise world-wide taxation. Freedom to exchange currency and carry out financial transactions around the world. To carry out business in total confidentiality. (Use for hostile takeovers and mergers) Protection of assets, liabilities and claims from third parties.

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It has been said that one third of all the worlds money is offshore and without OFC’s• • • there would be restrictions in the ability to invest in other countries around the World. the Worlds cash-flow, otherwise would be slower and the World’s economy would grow at a lower rate. It would not be possible to borrow money easily, and all of us would have less spending power. Imagine the world without credit cards or personal loans?

Why do individuals and companies use OFC’s? Individuals Legislation in most countries can easily target individuals. Most of us have a passport, can be identified easily and we all live somewhere and have an address. Therefore as a person the tax regimes of most countries can easily tax us, usually at quite high rates. Taking into account both income tax and social taxes, these can amount to up to 50% of your income or more. Most individuals just pay this tax and get on with their lives. There is a watershed in each person’s financial circumstances where a decision may be made to start a company, as companies usually pay lower taxes than individuals. You may have decided to start a company in your home country or abroad because you do not because you do not feel that the taxes you pay in your home country give adequate compensating benefits.

Companies Legally a company is not the same as a person, but it is considered as an entity like a person. Even if a company is owned 100% by yourself, in law, the company is a separate entity from you. However as the owner or shareholder you may have some responsibilities and liabilities with this company. This will be dependant on how the company is structured and if you choose to be a director or not. If you choose not to be a director, then your link with the company and its responsibility is lessened. Normally, for your association with the company to be removed, you would need to appoint someone else to take over the responsibility to act as director and there are individuals and companies located in OFC’s that would consider to do this in return for a fee, usually paid annually, in advance. What can you do with a company? You may work for a company or be even a director of a company but may not realise the responsibilities that a company can have or what a company can do. A company can borrow money which can be secured against its assets. This money may allow the company sufficient cash to expand and for example• • • Purchase new equipment open a new overseas branch, take over another company; (maybe one of your suppliers).

There are many family businesses that own their working premises and offices and wonder why they are paying a lot of corporation tax and have no cash to expand their business. With some corporate restructuring, (which can be complex) it may be possible for the same company, legally to pay less tax, open an overseas branch/purchase new equipment, etc. Most local accountants and financial advisors know limited amounts about international corporate laws and many only advise on local issues.

If you feel you are in this position, we can offer you and your business impartial and confidential advice now. E-mail info@amp-accountants.com or go to http://amp-accountants.com/component/option,com_performs/Itemid,40/formid,1/

EUROPE- What the big corporations do, you can do too ? GERMANY Many companies and well-known household names such as VW were thinking of moving their entire production to another country just to stay competitive. This led to the German Government implementing legislation to make it difficult for all German companies to move operations to other countries. However, in 1999 BMW started to manufacture, the 3 series (including the Z3M Coupe) in South Africa, producing around 62,000 per year which

are exported all over the world. So if BMW can open an overseas branch, taking advantage of lower costs and lower taxes, why cant you? UNITED KINGDOM (UK) The UK Government has implemented much legislation to stop businesses (legitimately or not) moving overseas. Historically, London has been an important financial centre for many years and has attracted international companies who have sought to be listed on the London Stock Market. The UK’s treatment of overseas profits has been reasonably flexible and it has been possible to 'mix' highly-taxed profits from the United Kingdom with lower-taxed profits from overseas markets. This, if incorporated correctly, can minimise UK corporation tax liability and retain profits in overseas companies without incurring double taxation. The UK government legislated to halt the above favourable conditions in the form of the Finance Act and the Treasury’s proposed tightening of this Act. This has had an effect that some large UK companies threatened to move their entire operations overseas. The UK treasury is now considering whether to go ahead with new ( tax avoidance) legislation as this may affect the international competitiveness of the UK in general. There are legal ways for your business to remain in the UK and for you to use overseas and subsidiary companies to your advantage. This is a complex area and the structure must be implemented with sound commercial purposes.

THE UNITED STATES OF AMERICA (USA) So how can? and how did? some of the worlds most profitable companies (FORTUNE 500), pay little or no taxes at all during the last decade?

Here are some statistics• Eighty-two of the 275 companies, almost a third of the total, paid zero or less in federal income taxes in at least one year from 2001 to 2003. Twenty-eight corporations enjoyed negative federal income tax rates over the entire 2001-2003 period. (They received rebate checks from the U.S. Treasury, totaling $12.6 billion).

So, how did they do it ? The Sarbanes-Oxley Act was introduced in 2002 to make CEO’s more accountable for their companies and financial reporting. More recently, in 2006 and 2007, the top 500 Fortune companies have paid record amounts in corporation taxes, as the USA enjoys a period of high economic growth. However, there are many reasons why corporations paid low amounts of taxes during certain financial periods . The key major tax-lowering items are revealed in the companies' annual reports. The items that were not always disclosed fully, include:

Accelerated depreciation. The tax laws generally allow companies to write off their capital investments considerably faster than the assets actually wear out. This "accelerated depreciation" is technically a tax deferral, but so long as a company continues to invest, the tax deferral tends to be indefinite. In 2002 and again in 2003, Congress passed and President Bush signed new business tax breaks totalling $175 billion over the 2002-2004 period. These new tax subsidies centred on a huge expansion in accelerated depreciation, coupled with rules making it easier for companies with an excess of tax breaks to get tax rebate checks from the Treasury by applying their excess tax deductions to earlier years and still other new tax subsidies.

In simpler terms, US companies can ‘write in to their accounts’ expenses which distorts the actual profitability of the company, during a financial period, therefore paper losses can be rolled over year on year. The Government gives tax rebate checks back to these companies on taxes they did pay in earlier years.
Note- Sarbanes-Oxley clarifies accounting rules for accelerated depreciation.

Stock options. Most big corporations give their executives and other employees options to buy the company's stock at a favourable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it is worth. But in reporting profits to shareholders, companies do not treat the effects of stock-option transactions as business expenses - based on the arguable theory that issuing stock at a discount doesn't really reduce profits because the market value of a company's stock often has only a very attenuated relation to earnings. In simpler terms, the company sells its stock (shares) at a loss to employees and treats this loss to lessen corporation tax that it otherwise would have paid.
Note- On June 4 2007, US Investigating Sub-Committee, stated that stock options were creating a chasm between Executive and average worker pay.
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Tax credits. The federal tax code also provides tax credits for companies that engage in certain activities - for example, research for certain kinds of oil drilling, exporting, hiring low-wage workers, affordable housing and supposedly enhanced coal (alternative fuel). As credits, these directly reduce a company's taxes. The government allows companies to include as an expense costs which can be large and not easily accountable and may be sub-contracted to third parties (even offshore companies) Offshore tax sheltering. Over the past decade, corporations and their accounting firms have become increasingly aggressive in seeking ways to shift their profits, on paper, into offshore tax havens, in order to avoid their tax obligations. Some companies have gone so far as to renounce their U.S. "citizenship" and reincorporate in Bermuda or other tax-haven countries to facilitate tax-sheltering activity.

Citizens for Tax Justice reported that the top 10 recipients of corporate tax breaks from 2001 to 2003 were General Motors, SBC Communications,

Citigroup, IBM, Microsoft, AT&T, Exxon Mobil, Verizon, JP Morgan Chase and Pfizer. In the era of globalization, it seems that Governments have to offer tax incentives to keep corporations from fleeing to more tax-friendly environments. However, Corporations are still relocating overseas, outsourcing, closing domestic facilities and laying off thousands of employees. ConclusionSmall companies are not likely to get favourable treatment from Governments. Small companies pay their corporation tax and to an extent subsidise larger corporations. In effect, large corporation have the power to blackmail governments with the threat of loss of jobs, in return for paying less taxes. Note- the top 500 Fortune Companies have recently been more profitable (2005 and 2006) and have paid more in Corporation Taxes. However, there are more sophisticated, financially sound and legitimate ways for corporations from anywhere in the world to minimise their tax liabilities. For confidential and independent tax advise please contact AMP & Partners Ltd. E-mail info@amp-accountants.com or Tel +34 620059536 Or complete a short form on-line athttp://amp-accountants.com/component/option,com_performs/Itemid,40/formid,1/

Our own Experiences The authors of this report are UK nationals that have worked for various Chartered Accountancy companies in several jurisdictions including the UK, Bahamas and Gibraltar. For obvious reasons we are not naming any of our former clients that we acted ‘for and on behalf of’ and we have taken the precaution of generalising information about the nature of these businesses. Business people generally go to their financial/professional advisors, in their home country, and seek advice about setting-up additional companies (possibly in foreign jurisdictions) for cost saving purposes or for international expansion. Reasons for wishing to go ‘offshore’ may include the desire to save on the payment of global taxes. Tax being a significant expense and a small increase may make the business become internationally uncompetitive. The answers that business people usually receive for their advisors can be summarised as followsLocal Accountants, do not generally know about the intricacies and legalities of setting–up groups of connected or non-connected companies to carry out international business and whether these companies may or may not be in breach of any laws (usually relating to tax avoidance). Laws passed in many ‘Western Countries’ make it difficult for local Accountants to approve of such structures. Local Lawyers, usually know the legalities of these matters, but in many cases are unable to fully understand the financial intricacies of using offshore structures. Even Lawyers based in offshore centres, in our experience, concentrate on setting-up complex multi-layered structures. Firstly this is costly (incorporation of several companies and trusts) and secondly in our opinion and in the opinion of many tax authorities this is clearly tax evasion and against the law.

Real Offshore structures that work The authors of this report can testify at first hand that they know of many company structures that have been trading for years without any reproaches from any tax authorities, saving the beneficial owners five figure and six figure sums over a number of years. Example Company 1. A German company was and is a successful supplier of automotive components to many car manufactures around the world, owned by a German entrepreneur living in Germany. This company has been in existence for around 50 years and was family owned. The problem was that the company paid significant sums in taxes every year under German law. This, because the company was highly profitable. With few liabilities and running an efficient business the Company and the owners (the family) were paying taxes in 3 different ways. 1. Various family members, as employees, paid income tax. 2. The company paid Corporation Tax. 3. The family as shareholders were paying taxes on receipts of dividends. The company sold the majority of its components overseas and were taxed on these profits in Germany. The company in Germany was the holder of many Patents and carried out research and development for new products. It was decided by the beneficial owner to establish an international office in Gibraltar to hold the patents and shares in the German company. A new company was established in Gibraltar and the shares of the company in Germany were sold (circumventing anti-avoidance legislation) to the Company in Gibraltar. Under the EU Parent/Subsidiary Directive 90/435, a Gibraltar company, holding more than 25% of the shares of another normally-taxable EU company does not pay tax on dividends received; similarly a tax-paying Gibraltar company holding more than 25% of the shares of another EU company does not have to deduct withholding tax on dividends paid to that other company, subject to the status of the Gibraltar company. Qualifying and tax-exempt companies are not covered by this rule. This saved the family considerable sums in personal taxation, they otherwise would have paid in Germany. Example company 2. A successful Italian company, manufacturing and selling furniture, wished to expand into Europe. They wanted to sell their products in Germany, but were surprised to find that Corporation Tax rates were around 40% and it was also expensive and difficult to establish and run a German company. We established for them a UK company, whereby the UK company sold the furniture directly to the German clients. The tax rate in the UK at the time was 22%. The client saved considerable amounts in income tax and with further tax planning, we legally reduced the effective Corporation Tax rate to 8%.

What is a ‘legitimate’ offshore business? Imagine that you are a businessman, for example living in the USA and you manufacture an item, but competition from cheap imports from China is fierce and you are finding it difficult to compete. Your margins are reduced, cash-flow is a problem are you worried that your business may not even survive. However, you have identified that you could subcontract some of your manufacturing to a Chinese company, one of your competitors, which would alleviate many of your problems. But, you have concerns that in the future, your competitor could put up his prices, and put you out of business. So, you suggest starting a joint venture company with your competitor, whereby you would have some control over supply and prices. Investing directly into your competitors company could be risky and you don’t want to incorporate a new Chinese company as you might get wrapped up in red tape and be exposed to high taxation and exchange control fluctuations. So you decide to incorporate an offshore company, where you can open a bank account with a recognised International Bank and you can arrange a suitable trading agreement with your competitor’s company safely. This could be in the form of a share swap or direct investment in the shares of your competitor. Legislation passed by many Western Governments place deterrents against its citizens doing this? These Governments have implemented anti tax avoidance legislation which makes it difficult for you to start a new business abroad. The Government’s line, is- ….. you have lived in their country and built up a business so you should pay tax on all the income you earn whether at home or abroad’. So what if you have a plan to retire and move abroad. Changing your residence or domicile is no longer a pre-cursor to avoiding taxes in your home country. This scenario can be circumvented with careful tax planning. ConclusionAnti-tax avoidance legislation is very complex. If you wish to ‘save tax’ and/or establish a new business outside of your home country, we can advise you. AMP & Partners and associated companies are regulated and insured to give tax advice*. We have implemented many tax saving structures for our clients, all of which are operating successfully, saving on average sums of around €20,000 to €240,000+ per annum, per client. For confidential and independent tax advice please contact Ian Poornan at AMP & Partners Ltd. Tel +34 620059536 or E-mail info@amp-accountants.com

AMP & Partners Limited, 29, Ellesmere House, City Mill Lane, Gibraltar Tel +350 42563 Fax +350 42642 Website: www.amp-accountants.com Email: info@amp-accountants.com

International Consultant: Ian Poornan Telephone +34 620059536
*residents of the USA and Canada are not covered by error and omission insurance