E-commerce is the way of tax avoiding?

[img_assist|nid=8484|title=|desc=|link=none|align=left|width=67|height=100]There is an old saying—“With the birth of every hero, a new evil is born.” In the context of E-commerce, a new evil is the advent of the tax haven, which is proving to be an evil force in the form of tax avoidance.

This corrupt technique hampers the revenue systems of modern states and undermines its ability to provide the facilities and services to its citizens. Techniques of fund depletion are deployed as sophisticated tools and various financial schemes, taking advantage of liberal privacy laws in various tax havens. This summary presents the most common tax avoidance strategies and how businesses are repatriating offshore e-commerce funds.
The integration of national economies, the economic liberalization and innovation, and the communication revolution have led to businesses and households having better access to global markets and new financial products. While this process of globalization has significantly increased wealth creation and consumer choice, it has also opened up new avenues for aggressive tax planning and avoidance techniques using schemes for tax avoidance with the help sophisticated financial products, tax arbitrage, tax heavens and offshore financial centers.
What are abusive tax schemes?
Abusive tax schemes take the guise of so-called tax saving programs that exploit secrecy laws of offshore jurisdictions in an attempt to conceal assets and income subject to another taxing jurisdiction. These schemes usually create an elusive structure that makes a nonresident alien or foreign entity appear as the owner of the assets and income, where the essence or true ownership remains with the foreign and eluding taxpayer.

The following are different types of entities used in abusive offshore tax schemes:

• Foreign (offshore) partnerships, LLCs and LLPs;

• International Business Companies (IBCs);

• Offshore bank accounts and credit cards;

• Private banking (U.S. and offshore);

• Personal investment companies;

• Captive insurance companies;

• Offshore private annuities;

• Foreign corporations;

• Foreign trusts.


What are the methods used for Tax avoidance in a tax haven?
Taxpayers generally use various methods to conceal their transfers of money or other property to a foreign entity.

The simplest method of diverting income is sending income to an offshore account or entity. In some cases payments, which are deductible in their original jurisdiction, are made to entities controlled by the taxpayer and generally located in a tax haven jurisdiction. Once money or title to property is moved offshore, the taxpayer continues to manage these funds by using the Internet E-commerce channels and electronic fund transfers.

Some banks and legal and financial professionals in tax havens operate virtual factories making false documents to create paper trails to confuse auditors. Fabricated sales are also made by taxpayers to a foreign entity that they themselves control in exchange for a note for which they do not expect repayment. Even purchases of nonexistent equipment are made from tax havens corporations controlled by some related entity. The benefit of depreciation on payments against such purchases is often improperly reflected in their home jurisdiction.

Front or dummy corporations are also created outside the United States to carry out the taxpayer's instructions. These dummy corporations are set up for the purpose of facilitating fraudulent transaction, with no-evidence-funds being credited anywhere traceable. Entirely fictitious representations of foreign entities may be possible in such environment.


What is repatriation of funds and what are the methods of doing it?
In a commercial context, it refers to the process of converting a foreign currency into the currency of one's own country, or transferring the funds invested in a foreign country to the home country.

Repatriation schemes fall into two general categories:

1) Abusive schemes which exploit U.S. taxation rules by taxing foreign persons as opposed to U.S. persons, and

2) Taxpayers who take what they perceive to be a legally defensible position in a "gray" area.

Some of the most popular methods of repatriating funds include:

• Credit cards which simply draw on the U.S. taxpayer's offshore account

• Loans from mystery offshore lenders

• Loans from domestic lenders in amounts beyond the taxpayer's apparent borrowing power—often secured by offsetting deposits of offshore funds

• Use of property titled to offshore entities at zero or below-market rental

• Bogus transactions designed to transfer funds to or from offshore entities

• Gifts

• Scholarships for taxpayer's children

• "Payable Through" accounts


What services are offered by the promoters of these schemes?
Promoters of so called tax saving or tax planning schemes generally offers comprehensive asset management services that include bookkeeping and return preparation. In some cases the promoter simply creates initial documents that create a "paper shield" behind which the taxpayer/client can control everything. Certain promoters acknowledge their clients that the scheme is fictitious arrangement designed to mislead the IRS.

Others unscrupulously justify schemes on the idea that the arrangement legally permits avoidance of tax liability also by showing case law.

The promoter just has to convince the client long enough to make the sale. Once a taxpayer agrees to enter into an abusive scheme, it may be difficult to get out of it. The taxpayers rely to the great extent on the promoter for advice and representation, when confronted with an IRS examination