If individual holds stocks and cash in offshore bank accounts and brokers, how to prevent risks of CRS?

[DavidS]

Let's say individual is from EU.

Managed to cash out part of crypto successfully in 2017 via several crypto exchanges (registered in individual name).

Transferred some of this money to individual name registered bank account in USA.

Then transferred that money to US broker account to buy stocks (also on individual).

Diversified and transferred some money to Interactive Brokers EU entity also on individual) to buy more stocks.

Reported NOTHING to local tax man.

Planning on selling more crypto in future.

So apparently lots of this will probably get reported as per CRS. And this might become a HUGE problem.

Specifically:

• Individual US bank account reporting
• Crypto exchange accounts reporting
• US broker account reporting
• EU Interactive Broker account reporting

Need a strategy to MITIGATE RISK (elimination might be impossible) and hopefully transfer the largest amounts to an offshore company.

Can't figure out best strategy.

Here are ideas:
1) Start closing out non-vital accounts and clearing them of balances
2) Before closing mangle the data, so inaccurate data gets reported.

Even if you register an offshore company and then open a brokerage account and crypto exchange accounts... the money institutions (banks, brokers) will require Beneficiary Owner information and that includes address and tax residence.

Then they will note the beneficiary owners tax jurisdiction.

Then the brokers and banks will send that information to the individual BOs jurisdiction.

How to avoid this?

How to make sure that the original residence of the beneficiary owner can't be determined by banks, interactive brokers and crypto exchanges?

Is registering a second passport a solution? And if yes in which country?

But I read that Interactive Brokers will still want to determine your original, actual jurisdiction and require specific proof.

 

[Martin Everson]

I will keep this one quick and simple - move to a tax free country. At the very least seek to become a resident non-domicile in another EU country.

If moving is not an option then you better be prepared for when taxman comes knocking which can be years from now.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[DavidS]

Martin Everson said:
I will keep this one quick and simple - move to a tax free country. At the very least seek to become a resident non-domicile in another EU country.

If moving is not an option then you better be prepared for when taxman comes knocking which can be years from now.
Click to expand...

Thanks so much for feedback.

1) I AM thinking of potentially moving. Any countries you would suggest for EU person to move to or get second passport / residency?
2) Or maybe one can just obscure everything in such a convoluted manner that when tax man comes even if they determine something was reported, they are unable to trace anything, uncover any accounts and basically make you pay a large fine or even charge you, but they can't uncover anything? In this case of course you would need to ensure you hold no property in your name also.
3) Would one need to renounce original citizenship? This is not worth it imo! Rather pay fine than give up EU member state citizenship.

 

[Martin Everson]

DavidS said:
1) I AM thinking of potentially moving. Any countries you would suggest for EU person to move to or get second passport / residency?
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Use your freedom of movement to move to Ireland or Malta for example as a non-dom.

DavidS said:
2) Or maybe one can just obscure everything in such a convoluted manner that when tax man comes even if they determine something was reported, they are unable to trace anything, uncover any accounts and basically make you pay a large fine or even charge you, but they can't uncover anything?
Click to expand...

The taxman makes you trace everything. You will just make more work for yourself and 9/10 times you will end up paying whatever they ask you to pay over some technicality in your record keeping. With taxation your guilty until proven innocent and not the other way around unless you can afford to pay good lawyers.

DavidS said:
3) Would one need to renounce original citizenship? This is not worth it imo!
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No you do not have to renounce any citizenship. Taxation in EU is based on residency and not citizenship like US. There are exceptions however in countries like Spain where capital gains tax is due even years after leaving but they are far and few between currently.

You can just go and live in Ireland for example under freedom of movement.

All EU citizens and their family members have the right to move and reside freely within the EU. This is set forth in Article 21 of the Treaty on the functioning of the European Union.


Treaty on the Functioning of the European Union

The rules on free movement as established in Directive 2004/38 stipulate that

• EU citizens can live in another EU country for up to three months without any requirements other than holding a valid identity card or passport
• In order to stay in another EU country for more than three months, EU citizens have to meet certain conditions depending on their status (e.g. worker, student, etc.) and they may also be asked to comply with administrative formalities
• EU citizens have the right to permanent residence in another EU country after legally residing there continuously for five years. They may be temporarily absent (e.g. for illness, study or posting)
• Family members of EU citizens have the right to accompany or join them in another EU country. They may be asked to comply with certain conditions or formalities

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Silvio]

I will add to what @Martin Everson is writing and say that you need to move to a tax-free country as soon as you possibly can.
Some banks will ask to see your history\CV and all residencies you had in the last 3\7\10 years, the sooner you can sort this out legally, the better. It will only become harder to later explain your source of wealth.
Even if you claim it's from investing in stocks, if you are asked about tax paid on these capital gains you won't be able to show anything. Move ASAP to Cyprus\Malta\Ireland or any other non-dom country, don't bother dealing with complicated structures, nowadays most of them are useless as the UBO will be reported through CRS anyway.

 

[DavidS]

Martin Everson said:
Use your freedom of movement to move to Ireland or Malta for example as a non-dom.
Click to expand...

Do I need to move there or acquire tax residency?

Because I can acquire tax residency in Dubai as well.

What makes those countries better than Dubai?

maxmmm said:
I will add to what @Martin Everson is writing and say that you need to move to a tax-free country as soon as you possibly can.
Some banks will ask to see your history\CV and all residencies you had in the last 3\7\10 years, the sooner you can sort this out legally, the better. It will only become harder to later explain your source of wealth.
Even if you claim it's from investing in stocks, if you are asked about tax paid on these capital gains you won't be able to show anything. Move ASAP to Cyprus\Malta\Ireland or any other non-dom country, don't bother dealing with complicated structures, nowadays most of them are useless as the UBO will be reported through CRS anyway.
Click to expand...

What do you mean by "non dom" country?

Martin Everson said:
The taxman makes you trace everything. You will just make more work for yourself and 9/10 times you will end up paying whatever they ask you to pay over some technicality in your record keeping. With taxation your guilty until proven innocent and not the other way around unless you can afford to pay good lawyers.
Click to expand...

Taxman can't confiscate crypto or can't confiscate wealth if they can't find it.
So they will waste a lot of resources on that and be left with nothing.
I don't have anything in my name in my country.

Martin Everson said:
The rules on free movement as established in Directive 2004/38 stipulate that

• EU citizens can live in another EU country for up to three months without any requirements other than holding a valid identity card or passport
• In order to stay in another EU country for more than three months, EU citizens have to meet certain conditions depending on their status (e.g. worker, student, etc.) and they may also be asked to comply with administrative formalities
• EU citizens have the right to permanent residence in another EU country after legally residing there continuously for five years. They may be temporarily absent (e.g. for illness, study or posting)
• Family members of EU citizens have the right to accompany or join them in another EU country. They may be asked to comply with certain conditions or formalities

Click to expand...

This is interesting. But its not enough to move, I have to claim tax residence there as well? And then claim to my original country that I'm no longer a tax resident there?

What if I don't actually want to live in another country? Can't I just use some Dubai offshore solution and claim tax residency there and visit only 2 a year?

Sorry, my questions must be idiotic. I'm quite confused.

 

[RobertNozick]

I find myself in a similar situation. Italian resident here. I have made a lot of money trading cryptocurrencies but have never reported anything. I find it difficult to report transactions because I have done too many and cannot prove the source of the funds. Now I have everything in the exchanges where I did the KYC. I plan to move to Portugal ASAP where there are no taxes on cryptocurrency trading and find a bank that accepts transfers from exchanges without asking me for other documents (proof of funds or proof of wealth). Can it work?

 

[Martin Everson]

DavidS said:
Do I need to move there or acquire tax residency?

Because I can acquire tax residency in Dubai as well.

What makes those countries better than Dubai?
Click to expand...

Whichever country you want.

DavidS said:
Taxman can't confiscate crypto or can't confiscate wealth if they can't find it.
So they will waste a lot of resources on that and be left with nothing.
I don't have anything in my name in my country.
Click to expand...

They will be left with nothing and you will be left in jail.

DavidS said:
I have to claim tax residence there as well?
Click to expand...

Yes

DavidS said:
And then claim to my original country that I'm no longer a tax resident there?
Click to expand...

Yes

DavidS said:
What if I don't actually want to live in another country? Can't I just use some Dubai offshore solution and claim tax residency there and visit only 2 a year?
Click to expand...

No

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[DavidS]

Thank you for being precise and to the point, Martin!

So as a EU citizen, if I move to another EU member state and stay for 3 months,

1) Then I can claim tax residency there?

2) What happens after 3 months? Do I have to stay there to keep residency?

3) So I reform all the brokerage, bank and exchange information to the new tax residency? What prevents them from sending CRS info BOTH to tax residency AND to citizenship (passport) country?

4) This means I will have to have a postal address there?

5) Would forming a UAE country and transferring all assets from individual to UAE company reduce risk somehow?



I think the information is already sent, so I guess one has to prepare for inevitable consequences either way 🙁

 

[DavidS]

lmilano said:
I find myself in a similar situation. Italian resident here. I have made a lot of money trading cryptocurrencies but have never reported anything. I find it difficult to report transactions because I have done too many and cannot prove the source of the funds. Now I have everything in the exchanges where I did the KYC. I plan to move to Portugal ASAP where there are no taxes on cryptocurrency trading and find a bank that accepts transfers from exchanges without asking me for other documents (proof of funds or proof of wealth). Can it work?
Click to expand...

You will be getting golden visa in portugal?

If you are registered still in Italy, all exchanges, banks and everything probably already reported data in 2020 and 2019 as per CRS.

Question is - what can we do to minimise consequences?

 

[Martin Everson]

DavidS said:
So as a EU citizen, if I move to another EU member state and stay for 3 months,

1) Then I can claim tax residency there?
Click to expand...

Depends on EU country but most you would need to stay majority of their tax year to be considered tax resident.

DavidS said:
2) What happens after 3 months? Do I have to stay there to keep residency?
Click to expand...

See above response.

DavidS said:
3) So I reform all the brokerage, bank and exchange information to the new tax residency? What prevents them from sending CRS info BOTH to tax residency AND to citizenship (passport) country?
Click to expand...

They will send CRS data to both countries if you switch mid year. Then after that only to the new country you are resident in.

DavidS said:
4) This means I will have to have a postal address there?
Click to expand...

Usual proof of address etc as per normal data you give when you open any brokerage or bank account.

DavidS said:
5) Would forming a UAE country and transferring all assets from individual to UAE company reduce risk somehow?
Click to expand...

Don't think most brokers allow thirdparty transfers and no it would not help anyway.

DavidS said:
I think the information is already sent, so I guess one has to prepare for inevitable consequences either way
Click to expand...

IB EU will report so yes.

Last edited: Feb 17, 2021
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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[DavidS]

Well, looks like the fate is sealed and now its only question of time.

The fact that one would change residency now changes nothing as info has already been sent for previous years.


What now?

Just save up for fines or.. ?

Would closing all accounts somehow help?

 

[Martin Everson]

DavidS said:
Well, looks like the fate is sealed and now its only question of time.
Click to expand...

Not necessarily. It could take years before they get to you. Taxman doesn't always act in same year they get info unless case is substantial.

DavidS said:
The fact that one would change residency now changes nothing as info has already been sent for previous years.
Click to expand...

Yes

DavidS said:
What now?

Just save up for fines or.. ?
Click to expand...

Look at your tax code and see what the potential penalties are. Firstly have you even committed evasion of taxes owed to taxman or have you just failed to report stuff on your tax return. In some EU countries capital gains tax does not exist.

Taxman could just request for your assistance to clear up missing info on your tax return (that has come to their knowledge). Or they could claim wilful tax evasion followed by penalties and prosecution. Depends on tax authority. Best to get professional advice from a local tax advisor. Good news is most people settle with tax man without ending up being prosecuted.

DavidS said:
Would closing all accounts somehow help?
Click to expand...

No

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[DavidS]

Martin Everson said:
Look at your tax code and see what the potential penalties are. Firstly have you even committed evasion of taxes owed to taxman or have you just failed to report stuff on your tax return. In some EU countries capital gains tax does not exist.
Click to expand...

Well, they are... not great, but... also not terrible. Not life ending haha

Martin Everson said:
Look at your tax code and see what the potential penalties are. Firstly have you even committed evasion of taxes owed to taxman or have you just failed to report stuff on your tax return. In some EU countries capital gains tax does not exist.
Click to expand...

What is the difference?

What happens if you simply don't do anything? Don't cash out to local banks, don't take money to your country, it just sits somewhere offshore, circulates between accounts, gets invested in stocks, but nothing gets reported and nothing gets "taken out" in the local country.

With all the crypto and stocks boom many people will have this issue actually. It's just some people have it in larger amounts.

 

[Martin Everson]

DavidS said:
What is the difference?
Click to expand...

Penalty versus jail in most countries.

DavidS said:
What happens if you simply don't do anything? Don't cash out to local banks, don't take money to your country, it just sits somewhere offshore, circulates between accounts, gets invested in stocks, but nothing gets reported and nothing gets "taken out" in the local country.
Click to expand...

At some point you risk the account being reported in the future. Your just adding interest to any future penalty.

DavidS said:
With all the crypto and stocks boom many people will have this issue actually. It's just some people have it in larger amounts.
Click to expand...

Yes and you can see the posts from people asking how to cash out without taxman finding out.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[DavidS]

It's a really tricky situation.

Do you come clean with tax man and just say "Hey, here is what happened, I didn't know how to report it, but I want to pay everything now"

vs just sit and wait and hope tax man realises there are shitton of people with unpaid crypto taxes and issues a letter to everyone saying basically: "Pay up now or else".

If it affects a large amount of people they usually will encourage to just report and pay and not fine and not penalise as hard compared to if it affects only one person.

For example, there are stories of people who want to be good boys and report crypto gains to tax man before anyone else and now tax man has some evidence and information to start from and try to take these people for all they are worth.

So how do you balance the risk reward of reporting and coming clean now vs just waiting for a global "invitation" from tax man once they start sifting through? Because there will be a lot of these cases. Doubt they will just put every crypto guy with undeclared income in jail.

Usually its invitation to willingly disclose in certain period of time.

 

[Martin Everson]

DavidS said:
Do you come clean with tax man and just say "Hey, here is what happened, I didn't know how to report it, but I want to pay everything now"
Click to expand...

Personally I would do this to avoid future problems. Especially if you have a lot to lose from getting potentially a criminal record. You want to only ever do this option via your tax advisor however. In some countries they have tax amnesty schemes that a lot of people are generally not aware about.

DavidS said:
vs just sit and wait and hope tax man realises there are shitton of people with unpaid crypto taxes and issues a letter to everyone saying basically: "Pay up now or else".
Click to expand...

You can wait for the proverbial knock on the door which may never come. But it makes for sleepless nights in the long run.

DavidS said:
If it affects a large amount of people they usually will encourage to just report and pay and not fine and not penalise as hard compared to if it affects only one person.
Click to expand...

They would likely do an amnesty like they did in Italy etc for those hiding Swiss accounts. So I can imagine a crypto amnesty being very welcomed by people in your situation.

DavidS said:
For example, there are stories of people who want to be good boys and report crypto gains to tax man before anyone else and now tax man has some evidence and information to start from and try to take these people for all they are worth.
Click to expand...

Again depends how its reported. If you personally walk into a tax office they will nail you to a cross by your nuts. You want to seek professional advice and ensure you have all paperwork before proceeding through a tax advisor who will likely have a better working relationship with tax authority on such situations than yourself.

DavidS said:
So how do you balance the risk reward of reporting and coming clean now vs just waiting for a global "invitation" from tax man once they start sifting through? Because there will be a lot of these cases. Doubt they will just put every crypto guy with undeclared income in jail.
Click to expand...

You are right. An amnesty would be more profitable for the taxman. Perhaps with some a favorable one-off tax rate. After all its the money they want and not you in jail.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[protonalex]

DavidS said:

• Individual US bank account reporting
• Crypto exchange accounts reporting
• US broker account reporting
• EU Interactive Broker account reporting

Click to expand...

Does US bank and broker report via CRS?
Does crypto exchange work with CRS?

Just EU IB.

 

[DavidS]

protonalex said:
Does US bank and broker report via CRS?
Does crypto exchange work with CRS?

Just EU IB.
Click to expand...

US bank and broker do not report via CRS, but via FATCA. I'm not sure if FATCA does automatic reporting.

Crypto exchange do not report according to CRS YET, but its a matter of time.

 

[Cetme308win]

DavidS said:
US bank and broker do not report via CRS, but via FATCA. I'm not sure if FATCA does automatic reporting.

Crypto exchange do not report according to CRS YET, but its a matter of time.
Click to expand...

exactly but Puerto Rico is exempt of FATCA reporting for example 😉