There are many tips and tricks to save taxes. However, some people might feel rather uncomfortable in times of public prosecutor investigations and dubious lists of suspected tax evaders. But especially in the run-up to the final withholding tax, many investors are itching to protect their earnings from the taxman. A model from Liechtenstein with so-called life insurance shell companies should help to avoid the grip of the tax authorities. Does that really work? Where are the dangers and where do the legal pitfalls lurk? In order to circumvent the final withholding tax on investment income, life insurers from Liechtenstein, for example, offer insurance shell companies. The problem: On the outside it says life insurance, but on the inside there is a securities account with securities and a cash clearing account.
Often high fees
In such a model, up to four entities can collect fees: The insurance company, the custodian bank, the asset manager and the fund company. Hardly any customer questions whether this cost multiplication after taxes is effectively profitable. This is because many investors do not know how much goes to the custodian bank and asset manager. In the process, the bundle of costs can depress the return to such an extent that a normal fixed deposit would have been better in the end. Since intermediaries such as credit institutions and financial advisors sometimes set the commission themselves, ten percent of the investor’s assets can easily be lost after one year. The “model contracts” offered usually require legal review and renegotiation. After all, the off-the-shelf product may be easy to convey, but it can be associated with the highest risks. In the worst case, the customer loses all his assets.
Tax investigators quickly make a find
And also the tax investigation has it with this model rather easily: For example with the search of a mediator office the tax officials find fast many millions after-taxed. In this case, the intermediary is usually personally liable for the subsequent taxation, because he is taken into recourse by the customer due to incorrect advice.
When life insurance becomes a taxable investment
A life insurance policy is considered a taxable investment if the client coordinates the investment decisions normally incumbent on the insurer himself with the asset manager or his bank. In this way, the investor never effectively relinquishes control over his assets. There is therefore no deposit with the insurer that could be considered analogous to a premium payment. In addition, numerous shell insurance contracts do not include the assumption of a death risk or other significant biometric risks by the insurer. This is then a normal capital investment, but not a tax-privileged life insurance policy. And finally, the client receives his information on asset performance through the asset manager or his bank. If the insurer does not even implement the investment decisions, but is only informed afterwards about the composition of the capital on the basis of the customer’s dispositions, the suspicion is therefore obvious that it is precisely not the insurer’s assets that are involved, but those of the customer.
Training courses hardly teach any liability-relevant issues
Financial advice requires the plausibility of distribution models to be checked. However, virtually no training in the field of insurance covers such liability considerations. This is because current case law recognizes liability for “intentional immoral damage” in these cases.
Ways out of evasion
First of all, it is obligatory to obtain binding information from the tax authorities in case of doubt. This path is also open to any banker or intermediary. Often this is not done for reasons of cost and time. However, something like this costs money and time and is therefore often seen as a brake on sales. Affected investors can only proceed by way of a voluntary disclosure. As a rule, the customer will then reclaim any tax benefits he has lost from the bank or intermediary. However, affected intermediaries and advisors could also take the path of self-disclosure in order to obtain immunity from prosecution. If the taxes are then paid in arrears from the client’s deposit, it is too late for the client. The public prosecutor is nevertheless at the door and the possibility to make intermediary or bank liable for a failed tax evasion almost hopeless.
Author(s): Dr. Johannes Fiala, Attorney at Law, and Peter A. Schramm, Dipl.-Math.
(all4finance.com)
Courtesy ofwww.all4finance.de.
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About the author
Dr. Johannes FialaPhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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