Friday, June 10, 2011

Are Offshore Credit Cards Legal?

The Legality of Offshore Credit Cards

One of the first questions that people have regarding offshore credit and offshore debit cards is, "are they legal?"

Well, according to none other than the IRS offshore credit cards are NOT illegal, however, there are limitations to their use and the intent of their use.

Some lawyers, weigh in that offshore credit cards are legal as well in this post

Obviously, that's a loaded statement, but at it's core it means this: you cannot use offshore credit cards as a means of evading taxes.

There is more information available at the IRS's website here: OCCP initiative

How Can Someone Evade Taxes with an Offshore Credit Card?

The most common way that one will use an offshore Visa card, or offshore MasterCard to evade taxes is through the use of a ATM, or automatic teller machine. The specifics are like this:

The user of the offshore card has assets or cash in an offshore account -- either a traditional banking account or an offshore account. The money has often been earned in an offshore, tax haven, or low-tax jurisdiction, but the holder of the account lives or does business or resides in a high tax country.

Rather than going through the hassle, cost or scrutiny of repatriating his money through a more traditional source, and often paying hefty taxes or enduring the questions regarding the source of his funds, he simply goes to a domestic ATM and withdraws the money without declaring it.

In another common/related technique is for the bank card holder to use the bank card for large purchases for personal use and consumption.

The IRS, recognizing that offshore cards were being used for offshore tax avoidance or evade taxes created the Offshore Credit Card Program to outline all the ways that cards could be used legally, and also to partner with the major card brands to monitor cards for uses in ways which could be used to 'cheat' them out of taxes due.

Are There Ways to Legally Use the Offshore Card for Legitimate Purposes?

The most common way I've heard of these cards being used legitimately is for procuring items specifically for the purpose of an offshore company that either the holder of an offshore account, the card, or both.

Let me be more specific.

Some people have setup structures, located in low tax havens, or jurisdictions whose reporting requirements suit them. While they reside in a higher tax jurisdiction, while conducting legitimate business on behalf of the offshore company, they can use the card to procure items and services and expense them to the company.

Extreme caution should be exercised in this regard. While travel and entertainment expenses can be part of those expenses, a very well documented and formal arrangement between the employee or consultant buying these goods or services should be in place before attempting this.

How Can I get in Trouble Using My Offshore Card?

The most common way to get in trouble is by repatriating dollars through the use of an ATM. Even 'no name' or 'off-brand' ATMs like those found in gas stations and other non-traditional locations usually have cameras that are taking pictures (or videos) of anyone using the ATM. They are very quick to turn over any footage of users of the bank machine for fear of losing their license to operate and/or losing access to the bank machine network.

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