Tax Strategies and Insights for Navigating International Taxation with Maarten Koper (#05)
Episode Summary
Maarten is an international tax specialist with decades of experience managing the tax affairs of high-net-worth individuals and multinational corporations. His expertise spans navigating complex international tax systems and advising on strategies that optimize tax obligations while maintaining compliance.
Expect to learn about the intricacies of global tax planning, why the ultra-wealthy often pay a lower percentage in taxes than the average person, and how countries like Switzerland strategically compete to attract lucrative businesses with favourable tax policies. Maarten also sheds light on the ethical debates surrounding tax minimisation, the challenges of handling assets for influential clients, and the global dynamics of tax regulation and competition, along with much more…
About Maarten
Maarten Koper is a seasoned international tax expert with decades of experience. He currently serves as the Head of International Tax at Al-Dabbagh Group and previously held the role of Global Head of Tax at Puma Energy for nearly a decade. Before moving into corporate roles, Maarten spent almost 20 years at Ernst & Young, eventually becoming a Partner in International Tax Services. His expertise includes managing the tax affairs of multinational corporations and high-net-worth individuals, offering deep insights into global tax strategies and international business dynamics.
Transcript
Mike: [00:00:00] Maarten, welcome to the podcast. Thanks for joining me. How are you?
Maarten: Hi, Mike. Thanks for having me, I’m great. Looking forward to our discussion today.
Mike: I thought a good place to start would be the difference between the amount of tax that the very wealthy tend to pay versus the middle class. Uh, why is it that the very wealthy tend to pay substantially less tax relative to their wealth than the middle class?
Maarten: I guess the starting point in answering that question is, is that tax systems are designed that way. Basically it’s about each one needs to pay its fair share to society in the contribution in terms of tax and other payments to be made to governments to fund essentially all the programs governments want to have.
I think a lot of, uh, you can do a lot of economic analysis around it. I think it’s a, it’s a fact. That’s wealthy people [00:01:00] pay more tax than like the regular persons. Proportionally. It’s absolutely true that it’s not the case. It’s interesting, by the way, um, take like maybe 20, 30 years ago, there were a significant number of countries which actually text wealthy people and basically text them up to 80, 90, sometimes even a hundred percent of their income.
Classical example, that would be UK and the U S. What happened in fact is that, uh, when they started reducing the rates of tax for their high net worth individuals, actually the total, uh, contribution of tax went up in those countries. Because the reality is also, if people don’t like, uh, paying too much tax, and if you’re wealthy, you have the opportunity and means to relocate.
Simple economic fact, you can relocate. Look at, look, look at Switzerland where we both live. That’s a, there’s a significant number of foreigners. Uh, there’s [00:02:00] more foreigners living in Switzerland than that would be a living say in Norway. So it’s, and that’s a choice. That’s a policy choice by, by design. So that, that, that is the main reason.
The other one, I guess, is that if you’re wealthy, if you’ve got the financial means, uh, you’re able to much be more efficient in terms of your planning. So tax planning actually comes into play. You can do tax planning. Thirdly, usually if you’re quite wealthy, you generate your income not from a single source, from a single country.
Your source of wealth or your source of income is coming from multiple countries. So tax planning usually starts with cross border activities.
Mike: And that’s to, I guess, never earn over a certain amount in any one country?
Maarten: Yeah. The funny thing is though, in terms of essentially to [00:03:00] dig a little bit deeper into that question.
Yeah. When it comes to conscious policy choices by countries, nation states, they tend to tax their citizens higher than non citizens. They’re trying to attract foreign direct investment. They’re trying to attract foreign wealth and rather penalize their own, uh, citizens. And that’s happening all across the world.
It’s a switch to this as a case in point where they, you can get better tax breaks as a, as a former, then as a Swiss, generally speaking, Netherlands, UK,
Mike: business or, uh, just general people, income tax,
Maarten: income tax for individuals, for individuals. This is mostly the range of business businesses. You also want to attract the business.
And if you want to attract businesses, basically you can compete on corporate tax rates. So the lower the corporate tax rate, obviously, the more interesting it would be for an entrepreneur to establish a company there. So the Swiss tax rates are generally, on corporate profits, they’re generally much lower than the [00:04:00] surrounding countries.
Mike: The long term implications of that is things become very expensive and difficult for local people. Uh, I hear that’s beginning to be the case, or is the case in the Netherlands.
Maarten: It is. Yeah. So the, the Netherlands, I mean, in the world of international taxation, there were always a front runner up until like five, maybe, maybe 88 years ago in terms of attracting foreign investors, attracting individuals to their country.
That was a conscious policy decision and the policy, um, has changed somewhat in the Netherlands. So they’re actually not pursuing that anymore. For, uh, for, uh, for, for an expats to live in the Netherlands, there were quite significant and interesting tax facilities, and they basically scaled on all those tax breaks.
Mike: And that is essentially to, that’s a more nationalist approach to sort of help the locals.
Maarten: Well, maybe more, maybe a moral approach. Moral
Mike: approach, yeah.
Maarten: It’s like a moral approach. [00:05:00] Why, why, why, why would you want to do that? It’s, it’s, it’s moral, maybe, maybe political because you do have headlines in the newspapers that the foreigners are paying less tax in our country than, than your local citizens.
Mike: This is probably a not so straightforward answer to give, but do you see that the countries that have lower tax rates? are generally more attractive or do better economically than the ones that have higher tax or it’s just never that clear cut. It depends on the It
Maarten: is not that clear cut, but I think economic studies show that that tax rates and tax is definitely a very useful tool and mechanism.
To basically build your society. So I think, I think the general answer to that question is absolutely. Yes. See it there. Uh, take a classical example. If you, if you, if you wind the clock back 30 years and we were both gonna, I’m going to go to Ireland right now. Passions all around. It’s a, the, uh, and maybe old industry right now, Ireland, uh, [00:06:00] the, the, the actual, uh, uh, wealth generating the, the, the average income for every Irish person has significantly increased over the last, uh, 20 to 30 years.
The main driver of that growth is not because the Irish are doing so much better. No, because the country or the politicians decided to make it very, very attractive to foreign multinationals, mainly U. S. multinationals, Apple, Google, and the likes to establish their base in Ireland. They’re attracted by their very, very low corporate tax rates.
So by having a low corporate tax rate, You start building factories or shared service centers. You need to employ local people. You also get foreign people, but you do need to employ local people. And that’s basically what happened in Ireland.
Mike: Is the low corporate tax rate always correlated with beneficial tax rates for expats?
Maarten: There’s no real correlation. It’s usually a whole toolkit and a number of tax incentives, which countries are considering to provide either to their [00:07:00] citizens or to foreigners coming to that, to that country.
Mike: Okay, then so if you have a high net worth individual who lives in a country with high tax and they come to you and they say, Hey, can you help me?
What should I do? What are some of the what’s what’s the process that you go through with them to figure out what they can do?
Maarten: First of all, I guess how high is it really? You tell me. Second of all, are you able to structure essentially either your, uh, your activities or your wealth in a different way?
Not moving a country because the easy thing will relatively text technically it’s to move country to move say from country A to country B country in high tax rate, country B, low tax rate. You simply need to move from that, from that country to another country. But ideally you would like to avoid it because it has significant repercussions and implications for someone’s personal life.
Looks easy on paper, but the reality oftentimes it’s, it’s more [00:08:00] difficult. And I think what, what you would typically see, say, take an example, uh, a Dutch person living in the Netherlands with a Dutch passport. If he or she was to move abroad to Switzerland or to Belgium, The Dutch Tax Authority would really, really scrutinize what he or she is doing.
Basically checking, and they have the ability to check, whether a certain part of your, uh, your life is not in the Netherlands. Your kids may be in the Netherlands, uh, you may want to have a second house in the Netherlands. Those sorts of things will be scrutinized by basically by your passport country.
So what I, what I’m trying to say here is wait, where you start is look at that passport country, the solution for someone in the Netherlands, maybe a total different solution from someone in Norway or a very wealthy African, uh, or a very era rich Arab person.
Mike: The kind of advice or the kind of angle you would look at someone’s tax position.
Can you [00:09:00] categorize people based on their wealth? So, you know, people under worth, under a million, between a million and ten million, that kind of thing. And then based on this grouping, you can then begin to think about the kind of advice you’d give someone.
Maarten: Yeah, good question. I think below a million net wealth don’t or below like 200k of, uh, of taxable income, whether that be from employment or whether that be from services.
Just stay where you are. It’s this, this usually begins, uh, to me, high net worth for planning begins over, over a million and over 200 K of, uh, of income. So you can also a very, very wealthy individual. So what is the nature of your income? That’s another one. See, if you own a, say you got a high net worth of 10 million and it’s all locked up in, in foreign properties.
investment properties, the country where the property is located, they’ll probably gonna tax you on it. [00:10:00] If you go, if, if that 10 million of wealth is in stock and bonds, investment portfolio, you’re flexible, you can move whatever you want to move. So it’s in a way it is quite tailor made, but for instance, give an example, Swiss example, even if we are both foreigners living in Switzerland, We generate our income in Switzerland.
Uh, we’ve got a certain amount of net wealth. I’m not sure, you’re probably, in which canton do you live, uh, Mike? Zurich. Zurich, uh, not a good canton. I live in the canton of Geneva, even worse. Geneva, Vaud, they’re sort of, well, basically left wing ish social cantons. Zurich, not so much. But the tax rates, both for individuals and corporations, they’re probably the highest in the country.
If you were to move to ZUK as an individual, if we were to both move to ZUK, we pay far less tax. It’s the same country.
Mike: What if you’re living in ZUK but employed in [00:11:00] ZURICH? Is your tax in ZURICH or in ZUK?
Maarten: Uh, you’re being taxed in the country where, uh, where, basically where you live.
Mike: Okay.
Maarten: There may be certain exemption, but the general rule is, is, is like that.
Say if you were to basically also live in Zurich and you spent every day in Zouk, you’re never there in that apartment and your employer is based in Zurich, you’ll probably have to pay the tax in the Zurich tax rate on it.
Mike: I’ve always considered. Because I know nothing about this. Switzerland is pretty famous in terms of low tax rates relative to income.
Would you consider it, relative to some of the other countries in the world, a good place in terms of tax?
Maarten: Yeah, it’s a relatively good place. I think, leaving aside the effective rate of tax on either your income or your wealth, it’s reliable. The tax authorities tend not to harass you here in this country.
I agree. Significant other countries, uh, uh, tax authorities can [00:12:00] be actually quite aggressive.
Uh, the Australian tax authorities are actually quite aggressive. The Italian, uh, within our, uh, within our area, the Italian tax authorities are aggressive and probably the most aggressive tax authorities, uh, across Europe are the Spanish tax authorities. Plenty, plenty of examples, probably. Uh, there’s quite some, uh, quite familiar names like Cristiano Ronaldo, uh, Lionel Messi, Shakira.
They’ve all had their troubles, uh, with, uh, with the Spanish tax authorities. Doesn’t necessarily mean they were wrong in their tax filings, but the tax authorities aggressively pursued them. And what the Spanish tax authorities do, well, actually they threatened to throw you in jail. So, and in Switzerland, uh, even if it’s a tax offence or tax avoidance, it’s, uh, that’s not punishable, uh, through jail time.
The starting point for a Spanish tax lawyer, like I said, they, they, they pursue, especially high net worth [00:13:00] individuals, entertainers, sportspersons. And then they threatened jail time. And why do they threaten the jail time? Uh, the jail time, not necessarily to let them pay the high tax, but to make them settle.
They’ve all, they’ve all settled. The only reason they probably settled, and I’m not an expert on these cases, but I’ve read quite a lot about them. It’s just to make sure. That there’s no Interpol arrest warrant on your name. Because that limits your ability to move around the world. Those sorts of things you don’t see in Switzerland.
Mike: Which, if I was to ask you, don’t worry about my personal life, I want to move to the place with the lowest tax rate relative to the highest income. Where would you tell me to move?
Maarten: Lowest tax rate relative to the highest income? Monaco.
Mike: Monaco? Yeah. You have to be employed still. What do you do in Monaco?
Monaco.
Maarten: Well, you have to be [00:14:00] employed depending what you do. I mean, if you’re, if you’re only doing podcasts, you’re now you’re, you’re doing your podcast from, uh, from your room in Zurich, I’m, I’m sitting in my, in my office here in the Geneva area. We could do the same thing. Both. We, for all, uh, for all intents and purposes, if we could be doing exactly this conversation, but you’re sitting in an apartment in a Monaco and I’m sitting on floor above you having this podcast, if we both have the same income, let’s assume we both make a million bucks,
Mike: surely.
You have to be employed in the country of Monaco.
Maarten: Depends. So you need to make a distinction. If you, if you’re, if you’re an entrepreneur, you’re not employed, you have your own business. And that business could either be, could be online business. You could do podcasts, or you could provide services like tax, international tax service and employment.
Employer relationship is a totally different thing together. An employer tells you what employer tells you what to do and when to do it. An employer, an employer, an employee needs to follow what is being instructed to do. If he doesn’t do it, he will be fired. So the, [00:15:00] the, the nature of the income, if you will, is different.
Also, sometimes tax rates are different. So let’s say employment income is being taxed slightly different in some countries from business income. Lots of other, lots of countries have exactly the same tax rate, but for instance, investment income, dividends, interest, royalties, or gains from selling, uh, selling your, your shares or selling Bitcoins.
It’s taxed differently.
Mike: Hmm. So I guess that’s why if you had a whole, whole spread of, if you’re a business, you would have different parts of your business in different countries depending on the tax rate of particular business in that particular country.
Maarten: Well, first of all, it needs to make economic sense to move that business to, to that other country.
Right. Uh, you, you and I can now both set up a BVI company. And generate a million and book a million profits in the BVI. The fact that it’s, it’s basically that it’s held by a company in the BVI with a bank [00:16:00] account sitting in, uh, with a, with a French bank, uh, just to get it as an example, if you and I are basically generating a profit out of our office or our room in Switzerland.
In fact, the Swiss have the right to tax these profits. Therefore, the fundamental problem of the Swiss tax administration, the old tax administration worldwide, how do you, how are you going to figure this one out? That’s there’s a BVI company. Generating that much money for that. I mean, 20 years ago, 30 years ago, it was relatively easy to do it.
These days, there’s a lot of cooperation between countries, exchanging information on bank accounts on, uh, on foreign companies, which are being held, uh, by, uh, by foreign citizens. So I think the starting point, even when it comes to, to, to planning wealth planning or tax planning, always assume. The tax administrations will know what you’re looking for.
Mike: Now, relative [00:17:00] to, I don’t know, say 20, 30 years ago, is it with, uh, that, you know, new technology changes with things like cryptocurrency, is it easier or harder to pull off tax evasion?
Maarten: Uh, Oh, ha interesting. That there’s two things, huh? Tech tax avoidance and tax evasions are two different things altogether.
Correct. Tax evasion. You want, you, you and I can have say a bank account in, uh, That’s where the Dutch bank and we generate like a hundred K of interest income, that income per the rules and regulations of the country, where you are a resident, you need to report that. So we need to report that interest income in Switzerland, even though it’s a Dutch bank.
If however, we do not report that income that is tax evasion and usually that’s punishable by with jail time. Tax advice on the other hand, could be. That’s, uh, you rather than generating interest income, you’ll start investing into a [00:18:00] company. Probably it’s a company which only generates interest income, but it doesn’t, uh, doesn’t pay out a dividend to you as a shareholder.
Rather, you found the value of your investment increases. So economically, you’re still getting the same yields on your investment, but rather than investing it in a bank deposit, you’re investing into a company who is investing in bank deposits. If you subsequently sell the shares that you hold in that company to another investor, and you realize a gain, basically reflecting the value increase because of the interest that is generated, that gain is not going to be subject to tax in Switzerland.
So that’s a form of tax avoidance or tax planning, which is perfectly legal.
Mike: I want to get back to the tax evasion part, but you’ve just provoked another question. Do you, do you find the, especially as someone who deals in taxes of particularly wealthy people, [00:19:00] do you, do you feel the moral weight of helping people avoid tax whilst it’s nothing?
Illegal about it. It’s still the the ethics of
Maarten: Interesting interesting question as well. Uh, Answer that question. No, no, no, I don’t I have not I I have I have no more issues as long as essentially there’s compliance with with the law You need to comply with the law and everybody needs to know the law, which is already difficult enough.
Uh, but if the law doesn’t allow doesn’t have the means to tax you and if there is a legal way to To or an economic way to generate the same economic yields through a different instrument and have a better tax outcome Absolutely. Yes. I have no problem with that The reason i’m also essentially don’t have a moral issue with that if this happens a lot or too much To, uh, to the view of a government, it’s [00:20:00] very, very easy for the government to change the rules.
And that’s happened in the, in, uh, in the past quite, uh, quite a lot. They have it in UK, in Switzerland, they have it in the Netherlands. If the authorities don’t like what’s happening, they change the law. They have the ability to change the law or they’re going to implement, uh, what is called anti avoidance provisions.
If you’re undertaking a certain structuring. And you’re trying to basically argue towards the tax authorities. Ah, all my money is in, it’s in the BVI and it’s in a US bank account. Uh, I don’t need to report it in, uh, in, in Switzerland. If, however, there’s no economic substance to what that BVI company does.
Everything is being done by yourselves, sitting in your room in Switzerland. What the tax authorities can do and probably will do if they have all the, all the information, they will recalify the transactions. I don’t, uh, basically totally disregard. It’s called piercing the corporate veil. So you can design a structure in such a [00:21:00] way that you do not generate the income yourself.
Meaning, it’s not a bank account in your name. It’s a bank account in the name of a BVI company. What I’m basically trying to say is that tax authorities have a lot, a lot of means to actually target that. They change the law, they have anti avoidance rules and regulations. So, no, I don’t have an issue with that.
But the question itself is, it’s an interesting one. I mean, I’m from the Netherlands, as you know, and I used to be part of what’s called like, uh, like the, the bar of tax advice in the Netherlands, some, some, some 15, 20 years ago, uh, before I was even abroad, but, uh, I was still a member and there, we had a question.
Say you got this client. Who has like a hundred million dollars, but it’s all locked up in, uh, in investments and you struck it in such a way that he doesn’t have to pay any income tax, even though he generates like a significant amount of money out of that, but because he doesn’t generate any income out of [00:22:00] tax, he’s also entitled for rental subsidy.
He is, uh, allowed to basically claim allowance on his dog tax. Would you then assist your client also with claiming rental allowance because he doesn’t have any disposal income? Would you assist him with claiming a reduction on his dog taxes? And that’s, that was quite a, I think, a moral question. How far should tax advisors go in, uh, in getting the absolute optimum position for their clients?
How far would you go? And essentially my answer to that question at the time, well, if, if, if, if the law allow allows you for this, why not?
Mike: Okay. So you essentially remove the topic of fairness from business. Cause I mean, I think the why is. Because these extremely wealthy people have access to people and information that the average person doesn’t and therefore have an unfair advantage.
Maarten: Yep. Well, [00:23:00] that’s an absolute fact. On the other hand, that is maybe something of the past. Because access to that information, anyone having an internet connection can figure this one out. Significant part of what I do, the access to the information, It’s there. If I can find it, uh, through a Google search, you can find it.
Anyone can find it. So I would say like 10, 20, 30 years ago, there was definitely a lot of information, uh, available only to the very wealthy, or they were made aware of that information in this day and age, that information is everywhere.
Mike: That’s true. You can ask Chachapiti for half of your information.
Maarten: That’s right. So in that sense, it’s quite a transparent world out there. Right. They have, they have at least in terms of the information, any, anyone can set up a BVI company structure or a Cypress company structure, a multi company structure, whatever you want, however you want to do it. [00:24:00] The key issue oftentimes is also, if you want to set up a properly maintain your structure like that, which is very, very tax efficient for you as soon as an investor, as an individual.
The cost of setting it up and complying and running it, uh, you need to think at least like 20 to 50 K a year to run a structure like that. Well, if you are, if you are willing to spend 20, 50 K to set up such, such a structure, the benefits need to be at least that much, otherwise you wouldn’t do it. The reality is that’s why if you got an income of say, 100k or 200k, what are you gonna pay 20 percent tax in one country 30 40 percent maybe another country simply not worth it because they’re doing it.
So large numbers actually do make a difference here.
Mike: Going back to now tax evasion. Yes, the tax evasion. Have you been involved in any Interesting, large scale tax evasion cases. [00:25:00]
Maarten: I have to be to be honest. No, I haven’t been involved in any such cases where my clients or the clients of the firms I work with have been trying to evade tax.
I have seen situations where mainly companies were accused of tax evasion. And that’s that’s always a that’s always a difficult one. I started with proper proper accounting records. I can give you one example. And it’s not in Western Europe. It’s the example of quite a large Russian oil group, which was quite famous at the time.
And one of the oligarchs who ran that, who ran that company, uh, uh, he ended up behind bars in, in Russia. But that particular business was accused of tax evasion in Russia.
Mike: How does that start?
Maarten: How did that start? Uh, the start was the, well, the start was obviously in Russia that, uh, the [00:26:00] oligarchs, uh, which, uh, some fans, some quite well known names, which you still know today, they were in a position to acquire strategic assets, oil fields, refineries, man, mining and metal businesses for a fraction of the cost.
What it would have cost them if they were to purchase similar business, uh, in, in Europe. Basically at the, uh, the, uh, when the iron wall fell and the Soviet Union, uh, Soviet Union imploded. There were quite a significant number of businessmen or even politicians in some situations which were, which were able to get their hands on assets in a cheap way.
And then subsequently, even when they got their hands on the assets, they structured essentially their investment through offshore vehicles, through Cyprus or through other countries, the Netherlands also, sometimes through Switzerland. And at some point in time, one and even multiple of these oligarchs, they were accused of evading tax in Russia.[00:27:00]
Whether that was actually the case, yes or no, didn’t really matter. What did matter is that at least some of them, they had political aspirations. So what can the government do? Accuse a business of tax evasion. Because that means jail time. Not only for the, you cannot send a company to jail, but you can, you can send the executives of a company to jail.
So it’s being used. And again, this is the, this won’t happen in Switzerland, but in, uh, in, uh, in certain other countries with, uh, with, uh, autocratic, uh, regimes, this is quite a useful tool and quite often used, uh, by, uh, even by the governments.
Speaker 3: And
Mike: over the, over a long period of time, there’s the countries and cities where it is beneficial to do business change.
Like you said, now Ireland is now a bit of a hub because of the tax rates is for many, many years. Does that shift over time? So eventually something [00:28:00] will happen. Ireland gets too big and naturally the cycle will change. And therefore. Yeah, I
Maarten: think you need to make a distinction here between, uh, the, the taxation of individuals and the taxation of corporates.
So what, what you’ve typically seen is also to, to try to attract foreign direct investments. All countries say started some, some 20 years ago has started to reducing the corporate tax base. Or the corporate tax rates in, in the business world, basically referred to as the race to the bottom countries.
We’re competing for investment by offering low rates of tax. So one country offers 15%. The other country would lower would offer 12%, 10%. That has changed. Definitely for large businesses, there’s now clearly a move to actually move up and even have a minimum bottom level of taxation for corporate profits.
So the pendulum has changed totally. Like, always a race to the [00:29:00] bottom, lower, lower, lower, and now you see it increasing, increasing, increasing.
Mike: Do countries copy each other? So you see a country doing very, very well. Let’s, let’s do what they’re doing because that works.
Maarten: Yeah. Also, depending on, see, depending on the size of the country, the nature of, uh, uh, the economy of a particular country, the Netherlands and Switzerland, they are sort of totally different economies from say Germany and France.
So they have different policies. The U S the powers of the world, totally different policy as well. China, totally different. But if you have like countries with similar sort of economies, especially the countries say, which tried to, uh, to attract, uh, uh, financial services, so becoming a financial service hub, they tend to copy, uh, what other countries are doing case employed.
The classical example is that the 80, 90 percent of the legislation for corporates in Luxembourg was copied from the Netherlands, the way the Netherlands had done that, like some 20, 30 [00:30:00] years ago. Now, the Netherlands is moving away from those incentives and Luxembourg just basically picks up essentially investments because of it.
Mike: Luxembourg and Switzerland would be similar in that regard?
Maarten: Yeah, I think the Netherlands is in a way comparable to Switzerland. They have their own large multinationals. They actually do generate and export products, but they also have quite a large financial service industry. The Netherlands has it and Switzerland has it.
Whereas I think Switzerland tries to protect and maintain it. The Netherlands, they’re sort of, and that’s a, that’s a policy choice by the Netherlands. They were, they, they want to, they don’t want to be perceived to be invoiced international tax avoidance. Uh, so they’re moving away essentially from providing those incentives.
So it’s until the end, still, still, still continues to provide them.
Mike: Is it almost like, is it almost a competition between countries to attract It is. Google opens a new business and they’re looking for a, somewhere to host their new [00:31:00] business and they’re tossing up. Is it?
Maarten: Exactly. And to be clear, tax is just one of the tools, right?
So you need to consider a lot of other factors. So, um, for instance, how, how cheap is it essentially, uh, to, to employ like, like thousands of, uh, of, uh, persons picking up a phone and then, uh, doing, uh, doing calls, call centers. Basically, the cost of running that is much more important than how much tax you’re actually going to pay on the profits.
Or another example, if you want to, say, invest in a country and they have a huge, huge consumer market, you don’t necessarily care if the tax net rate is high. You can generate a lot of profit because there’s a lot of consumers.
Mike: So if a business does want, is looking for a place to set up shop and they’re currently doing their research on the best place, the place in which they can optimize their tax the best, who in a government do they speak to?
I’m thinking about setting up a new bank, maybe Switzerland, maybe [00:32:00] Luxembourg, for example, today is a Swiss authority. They go, Hey, can we have a conversation about
Maarten: especially like the financial, the financial services jurisdictions of which Switzerland is considered to be one, they have foreign investment agencies.
And sometimes these foreign investment agencies, they come to the clients. They do roadshows in other countries where prospective investors are. So they actually, I think the Swiss do the same thing. They go out to prospective, uh, Investors doing roadshows in India, doing roadshows in the U S if a, if a perspective investor was to basically look around, okay, so I want to set up this particular structure, definitely, definitely talk to, um, to the local authorities in the country where you, where you’re considering doing that investment.
And usually it is through your local advisor. So you got, you got, you got a local advisors and while I’m planning to do this, uh, which countries do you believe are, are, are attractive to me? None, you had a short list of number of countries. Once you’ve gone to run through the [00:33:00] short list, you start engaging with the authorities, uh, trying to get, uh, certain breaks, whether that be a tax break or, uh, or other break.
Yeah. Give you another example of, of, of this. For instance, uh, you don’t see a lot of multinationals, large global multinationals having their headquarters in France, France may offer all the tax breaks in the world. Zero tax for people moving to France, still, they wouldn’t come to France. And that the reason is not necessarily tax.
That could be a fantastic tax incentive, but if you hire an employee in France, you can never lay him off. So the employer is extremely protective towards the employees. And if there’s anything like a, like a, like a Chinese multinational or a US multinational, or even a Swiss multinational doesn’t want is to get involved with the local court.
Someone who, or even if it’s a whole [00:34:00] bunch, a bunch of employees. You cannot fire them. You simply can’t. Or it comes at a huge, huge cost. So it’s all, it’s all kinds of elements. Tax is one particular element.
Mike: Then if you’re the Swiss and you’re going on a roadshow to attract certain businesses, are they, I guess they have very particular or ideal profiles in mind, right?
If there is a financial sector, they don’t, I suppose they don’t necessarily want any financial business. Do they have certain?
Maarten: Oh, no, no, no, no. The Swiss have built a reputation. So rightfully so they also only want to attract top top businesses. Top foreign clients. So that’s why they probably want to pursue only those, uh, Those foreign businesses or those foreign investors reputation is everything That that having said when it comes to tax the swiss had a really really bad reputation in the u.
s because they They solved their bankers that they went out with their with their whole board packs [00:35:00] to basically, um to the u. s clients and try to sell, uh Effectively tax tax evasion schemes to u. s nationals That got the Swiss banks into heaps of troubles.
Mike: When was this?
Maarten: Uh, some 10, 20 years ago, they had to pay like billions of dollars, uh, to, um, to the authorities in, uh, to the, uh, to the competition authorities or regulatory authorities in the U S.
So they went, they went to sell tax schemes and those tax schemes, the IRS found to be not appropriate or evasive. What’s an
Mike: example of one of these tax schemes?
Maarten: Uh, probably one of the examples, uh, was to, uh, to, to open the, um, to open a bank account as a US national with a Swiss bank and put that money in, uh, in an insurance wrapper product.
So the money wasn’t held. Directly in the name of [00:36:00] Jack, who is a US national, but it was held in, uh, through an insurance product, basically insurance policy. And the insurance policy was held in the name of, uh, of that person. Well, at the very end of the day, the IRS thought that essentially there was a front.
That wasn’t, that wasn’t evasive behavior. So, so, first of all, they went after the individual. And second of all, they went after the bank promoting their structure. So is
Mike: tax, so tax evasion isn’t clear cut? It’s a real gray area that requires a lot of
Maarten: There, there’s some very, very clear cut examples of tax evasion saying if, if you were to approach the bank and the bank would have said, open a Swiss bank account, uh, for me and do not report it in your US tax return because the US tax authority will never find out.
That is clearly a clear cut tax [00:37:00] evasive, uh, behavior. No way they have ever done that. They will not be involved essentially in that sort of transactions. What is a different matter is if they advised it and they haven’t taken due care and, and indicating to their us clients, you need to report that in your tax return, basically keep your eyes shut.
It’s the responsibility of the client to make sure he or she is fully compliant with the laws in the U. S. And I think definitely 20, 30 years ago, banks didn’t have that duty of care. And that, and that has changed. It hasn’t changed because they want to change, no, it has changed because they had to pay millions if not billions of penalties.
I
Mike: guess the rest of Europe has some sort of rules and regulations under EU law. Does Switzerland also, is there international law that Switzerland needs to follow as well?
Maarten: Yes and no. Clearly, Switzerland is not part of the European Union, but there are a number of agreements in [00:38:00] place between the European Union and Switzerland, whereby effectively they decide to abide by European principles, but they also have access to certain tax, uh, benefits.
Give you an example, mainly in the world of corporate tax, if say, uh, you open up a company And that company has a subsidiary in Germany and you make a lot of profit. The company in Germany makes a lot of profits in Germany. And then subsequently wants to pay out the difference out of that profit to the Netherlands per German law.
There is a tax on that withholding tax. If however, the Dutch company owns at least a certain percentage of the German company. Let’s take a day. They own 50%. then there will not be any tax on making that payments from Germany to the Netherlands. And that’s under an EU directive. The same goes for a Swiss company.
So a Swiss parent company of the German, [00:39:00] uh, subsidiary gets the same treatment. With reference to the European directive. So yeah, it is actually quite, uh, important. On the other end, Switzerland is allowed to basically make, make their own laws. There’s certain other elements in the European, uh, tax legislation, which is not taking over by the Swiss, so they are independent in that way.
Mike: Does Switzerland have any other government bodies like the US or global ones, which they need to pay attention to? Can, can they be pressured to do things to, to behave a certain way by the us?
Maarten: Oh yeah, starting point is, uh, the U. S. regulators, U. S., if you’re making use of the international financial system, basically making payments through dollars, there’s a lot of power actually by U.
S. regulatory bodies to ensure that they comply with U. S. laws. So yes, Switzerland can have its own laws. But they [00:40:00] need to be very, very careful not to be in breach of U. S. laws. And I think that happens in many areas. This is just finance and tax, but I’m pretty sure, uh, there’s all kinds of other, uh, issues.
Like anti competitive behavior, money laundering issues, anti bribery and corruption rules and regulations. They need to abide, essentially, by international rules there.
Mike: Yeah, I guess maybe this is not specifically tax, but I hear that Switzerland is becoming less and less private about some of their wealth management due to pressures from the U.
S. and EU.
Maarten: Yeah, that’s probably true, but basically what it, what it means, the private confidential meant 10 years ago, 15 years ago, they would never divulge or provide any, any information relating to their clients to our U. S. regulator, the U. S. tax authorities. Yeah. So
Mike: besides the general term of benefits for tax, [00:41:00] what’s specifically some of the key features of Switzerland’s tax system that makes it attractive to wealthy, let’s say individuals as opposed to corporates?
Yeah,
Maarten: let’s say individuals. But also the corporates. Stability. Absolute stability. Stability and reputation. You can, you can rely on, on, on the Swiss, uh, Swiss authorities. They don’t, they don’t, they don’t do funny stuff.
Mike: Well, how does the collapse of Credit Suisse change that? Does it change that?
Maarten: Good question to which I do not know the answer because I’m also not sure exactly what caused the collapse of, uh, Credit Suisse and being taken over by, by UBS.
I don’t think it’s, it has any impact essentially on the few that’s investors or high net worth individuals have to watch Switzerland. Think about it this way. At the very end of the day, everything was taken over by UBS. Deposit holders didn’t lose, uh, didn’t lose a dime. Only probably bondholders, [00:42:00] which held shares in, uh, in credit Swiss, lost their, lost their investment.
And I think they even got some sort of a compensation by getting shares in UBS.
Mike: The share price of Credit Suisse is beyond saving for a long time, I think, anyway.
Maarten: So yeah, but like I said, stability, security, it’s still a big thing for international investors.
Mike: Do you see that Switzerland’s tax policies evolving over time?
They’re changing, can you see them going somewhere different in the future or that’s the reason they’re stable is because they’re not going to change?
Maarten: No, if, if they’re not forced to change under foreign pressure, I don’t see them, uh, changing it. I think in, uh, at least in our lifetime, Switzerland will, will remain a very, very attractive country a to do business in and also to, uh, to structure your financial and tax affairs through.
There’s [00:43:00] also other, that doesn’t mean to say that, that are other countries.
Give an example, say the whole, the whole world and it’s dark. They were using Switzerland significantly, basically to avoid tax in their home country. But then you also have Swiss. So how can, would the Swiss then use Switzerland to avoid tax in their home country? You saw that even evade tax, evasion is a thing of the past, but definitely when it comes to avoidance, no, the Swiss didn’t do it.
They went to Liechtenstein. So you, you, you, you, you as you as a Brits will probably want to structure your affairs through Switzerland. You wouldn’t want if you were to live still in uh, you’re Australian, right? Sorry.
Speaker 3: Mm hmm. Yeah, yeah.
Maarten: You wouldn’t, you wouldn’t structure it through an Australian bank and with your, your Australian setup.
Mike: No, I wouldn’t. Tell me about Liechtenstein. I know very little about it other than it’s infamously good for [00:44:00] taxes. How does, how does that exist? And why?
Maarten: Yeah, to be honest, I do not know the answer to the question. But if I was to make a non educated guess, it’s basically what I just told you before. All the foreigners in, uh, starting with the German Nazis, but then probably also the Dutchies and who not, they actually came to open bank accounts with Swiss banks because they would never give that information to foreign tax authorities.
People coming with a truckloads of cash, uh, to deposit it in, uh, in a Swiss bank. But what would the Swiss do? The Swiss wouldn’t, uh, put it in a Swiss bank. So the Swiss also needed a way out. Uh, they wouldn’t go to Germany. So probably that’s why they started talking to some advisors or lawyers in Liechtenstein.
Hey, Why can’t we not, uh, set up these sorts of structures which foreigners are using it to avoid tax in their home country? Why can’t we not do something similar in Liechtenstein? But the [00:45:00] significant part, and we’re talking 20, 30 years ago, that was driven essentially by facilitating foreign, foreign tax evasion.
Liechtenstein did it, Switzerland did it. But that’s, that, that, that, that, that is a thing of the past. Really it is.
Mike: I wanted to ask you about the sort of clients that you have at the moment, your sort of Middle Eastern clients being as Specific as you feel you’re allowed to, what are some of the, what’s the scale?
What’s some of the wealth and assets we’re talking about when you have some of these Middle Eastern customers?
Maarten: Interesting question. Well, first, first of all, I cannot divulge and talk about it. And essentially my clients, what I can talk about is essentially the main client that I work for in a shorter way.
It’s, it’s, it’s a Saudi based family conglomerate. They have businesses all over the world, predominantly in the Middle East. And yes, they are quite, quite wealthy, but they have a very, very diversified investment portfolio. But there’s, uh, [00:46:00] there is quite a lot of very, very significant, uh, wealthy individuals out there in the Middle East.
Mostly they generate their wealth through oil. But also through a wide variety of other services. If you look at probably fortune 500, you can actually have a quick, quick look at it, uh, who are the wealthiest individuals in, in, in the Middle East? They’re not all, they’re not oil people. Cement businesses are car dealers, real estate moguls.
Mike: The fortune 500 richest people in the world. Do you think they’re actually the richest people in the world? Or is a lot of people that is that not on that list
Maarten: on paper? They are probably, but that’s, uh, I would say about hidden truth. There’s a lot of articles and books written about it. Some, uh, some people suggest that Vladimir Putin is the richest person in the world.
He owns a country, but he, uh,
Mike: he doesn’t have
Maarten: any, he doesn’t, he doesn’t have any material assets in his name. So on [00:47:00] paper, he’s definitely not a wealthy person. But if you, if, if, if you, if you control, if you will, 10 percent of the persons in the fortune 500, all the oligarchs, that could make you a very, very wealthy, uh, person in real life.
So yeah, fortune 500, fortune 500, Wouldn’t count into much significant part, by the way, I have fortune 500. Think, I think about it this way, the, the, the large part of the wealth of fortune 500 people, all that wealth is locked up in the businesses. They own, they’re a majority shareholder in listed businesses.
What’s the business worth? Well, you look at the stock price, stock price go up and up. They can also tumble at some point in time. I think Warren Buffett was one of the largest persons in the world. Then it was Bill Gates. Uh, now it’s Elon Musk,
Mike: who famously doesn’t even own a house.
Maarten: He probably doesn’t even have a car, so no, I wouldn’t rely on it, uh, too much.
And I think, I think about it this way. I mean, let’s assume you and I both got like a lot, like [00:48:00] a billion dollars. What are you gonna do with a billion dollars? You’re never gonna be able to spend it in your lifetime. You can leave it to your children.
Mike: I’d like the option, but yeah, okay, probably just
Maarten: Ah, maybe the luxury option, uh, I, I, I have, I know some people who are actually quite, quite wealthy and it could also be really, really wealthy, but they’re extremely secretive and protective about it.
Mike: I can imagine that there’s that level of wealth where people want to show it off. And then there’s a level of super wealth where you no longer want anybody to know.
Maarten: Exactly. But that’s even like a little, a little wealth. It’s, it’s also sort of characteristics and the nature of the beast in certain cultures, it is normal to show off in other cultures.
It absolutely, it’s a cultural thing. So. Russians, generally speaking, they absolutely like to show off if they’ve got the money. You also need to think about [00:49:00] where they were coming from. If you’re coming from communist times, if you had a dollar today, you want to spend your dollar because tomorrow you may not, uh, it may be a different situation.
Uh, so that they’ve never had in their, in their DNA in terms of, uh, dealing with, well, having to think about essentially, should I keep my wealth or should I keep it private now show off. Tomorrow could be in the end of your life. Swiss on the other hand, they tend to show it at all. There’s extremely wealthy Swiss individuals.
Probably half of the people that you and I will meet on the streets. They’re like millionaires or billionaires. We wouldn’t know.
Mike: The statistic is something like 14 or 15 percent of all of Switzerland are millionaires. Some outrageous statistic like that.
Maarten: It’s an outrageous statistic. Yeah. And probably the same thing in Norway.
Norway is probably even, there’s not another country, which was extremely wealthy, a lot, a lot of millionaires and billionaires there. They don’t show off and they’re extremely secretive about it.
Mike: I thought it would be difficult to be a millionaire in the Scandinavian countries due to the high tax brackets.[00:50:00]
Maarten: Yeah. But some of these, uh, the, the, these billionaires, uh, they actually move abroad. They move to Switzerland or other countries. So, but like, like, like probably we start, we started with that one. And, uh, one of those questions, okay, what you would buy, would you advise a client to do? Well, uh, the, the simple thing is emigrate, leave your country.
You can keep your businesses there. But your investment portfolios or the, the, if you’ve got a stock list that, uh, corporation, you can easily hold that. Whilst residing abroad, but that is quite intrusive in terms of making a change in your, uh, in your life. The difficulty is being, yes, you, you do say you’re a Norwegian billionaire.
You want to move to Switzerland, but Say your, your, your father or your mother, they don’t definitely, they don’t want to move to Switzerland. They get old, they get sick. So you need to go, you will go back on a regular basis to Norway. So it depends on the phase of your life you’re in, right? So if you’re, if you’re a multi [00:51:00] billionaire, you’re 25 years old, uh, through a, through e commerce business or whatnot, different, uh, structuring opportunities are available for you, your, your, your, uh, the phase of your life you’re in is totally different from someone who’s in their forties, fifties, or even seventies.
That’s what, that’s what you also need to consider.
Mike: Is tax getting incredibly more complicated as the world gets more global, more digital, and now that there’s all, there’s more and more the introduction of digital assets? I kind of mentioned there are so many new things to have to consider, like you can have someone who’s a full time crypto trader who’s Dutch living in Thailand, like the level of complexity that comes with that tax wise.
Maarten: Uh, I think any, any advisor would tell you, yes, it’s getting more complex, but in reality, no, it was complex 20 years ago. It’s still compact today. It’s just a different form of complexity. So yes, it’s, it’s, it’s, it’s not necessarily getting more complex. No, that’s, that’s what I think. So, but [00:52:00] you need to, you need to be sort of a subject matter specialist on it.
And I’m a very, I’m a generalist. I know bits and pieces of, uh, lots of tax rules and regulations across the world. Basically, I’m a jack of all trades and a king of none.
Mike: Do you think there are any emerging trends that you see in international tax? Like, are there things coming out which are new or different?
Maarten: Yeah, one, one thing which is definitely emerging is the introduction of like digital service taxes. Lots of lots of countries actually starting to tax Payments which are being made by consumers in their country or basically software products provided by foreign service providers so they actually levy a tax there’s no physical presence of say A google or an amazon or betting companies those sorts of businesses you and I can bet now right [00:53:00] now using our swiss bank account on 20 30 different betting sites But if we make a payment for taking that bet, Switzerland doesn’t tax you.
Some other countries are considering introducing a taxation on those payments because effectively what a foreign business, say a betting company is doing, the betting company only makes money out of the consumers in other countries.
Mike: Jeez, that’s rough.
Maarten: Well, economically think about it. Basically the value That’s a betting company is creating, which is registered in Malta.
There’s nothing in Malta. There’s a couple of servers in
Speaker 3: Malta,
Maarten: but if that betting company is actually making a hundred million dollars a year out of all the people betting in India. So there’s 100 million of cash going outside out of India, maybe 200 million. Why would India want to partially tax?
Mike: But it’s a it’s a tax [00:54:00] on the individual who’s betting or is it on the company?
There’ll be a tax on the company.
Maarten: But if you were to ask me, okay, so what trends do you see for individuals? Definitely I think when it comes to the high net worth, high net worth individuals. There will be an increase in that tax rate. There’s a big debate currently ongoing. I think it was driven also, it was mentioned in the World Economic Forum a couple of months back, that the high net worth individuals should actually pay their fair share of tax.
I think that’s the question we started with. Are they paying their fair share? Well, lots of politicians definitely believe that they do not do that. So there is definitely a trend of actually, uh, taxing the rich, but how do you want to tax the rich? I mean, if the, uh, you, you can, you can tax the rich on their income.
You can tax the rich on their wealth. The best way, and that’s, uh, is probably to tax someone. [00:55:00] Everyone dies. There’s two certainties in life, right? You die and you have to pay your taxes. But currently, policy choices, for whatever reason, is that if you die and you leave behind a significant amount of money to your heirs, most countries have decided not to tax that or provide very, very high exemptions.
Just, just start, just start taxing, uh, when you’re, you cannot take your, uh, your wealth into the grave. Right.
Mike: I’ve thought, I’ve thought about this a lot. Actually. I do think that that is probably the fairest way to redistribute wealth is because it’s much fairer to tax what you’ve been given as opposed to tax what you’ve earned.
Yeah. I think, I think France has like 40 or 45 percent of the, uh, inheritance tax. is taxed. I think I was talking to someone. It could
Maarten: be quite high. Most European countries, Switzerland, in Switzerland, actually mostly, uh, doesn’t tax it at all. France could be quite high, but there’s also quite high [00:56:00] exemptions, basically to, to, to, uh, to, to capture, uh, like, like the middle class, the upper middle class, they won’t be significantly penalized for that.
But the really high net worth individuals, the a hundred million dollar plus to a billion, but not our nose of this world. They’re probably going to face a significant amount of tax debt. The fundamental problem from a policy point of view with, with levying tax on, uh, upon death. Think about it this way.
Say, say you’re Bernard, uh, Arnold, you’re, you’re worth 10, 15 billion and the tax rate is going to be 14%. So the French tax government, when he dies, wants 4 billion. All that money is locked away in businesses. So, uh, uh, that, that needs to come basically from the, the implicit value of the business. So you would need to liquidate this entire, uh, business to take the cash out of the business.
The business would go bankrupt and there would be, uh, 50,000, uh, people, uh, out of a job. So , [00:57:00] it’s, it’s easy to think about, okay, let’s, let’s stack the text, the wealthy. It’s not that simple to get the cash in order to pay for that. So that’s what makes it difficult from a policy point of view to start full blown taxing the
Mike: rich.
Have you ever considered working for on the other side, working for governments, trying to find ways to be more efficient in taxing?
Maarten: Not historically, historically, not as to basically no, not, not in the past. But actually now, now, I mean, I’m, I’m 57 years old. So I’m, I’m in the last part of my career. I actually think about it from time to time, but then.
It, it’s just interesting to me from a policy point of view to actually start working for the tax authorities maybe, uh, to, to think about policy options, uh, uh, to have a, a more fair distribution of wealth or income using tax. May maybe yes, maybe may, maybe yes, maybe no. But, uh, yeah. Yes. Uh, from time to time I [00:58:00] think about it.
Mike: One last question. Yeah. Um, sure. So say I’ll ask you for advice, say. I would imagine most people listening to this are probably 30s, 40s, hardworking, living in Switzerland. Getting to that window of a million plus in terms of net wealth. For people beginning to cross that threshold and beginning to start thinking about, Okay, what do I do now to be tax smart?
What are some like resources besides Googling it that you think would be useful for people?
Maarten: That’s Swiss tax advisors.
Talk to a Swiss tax advisor. You probably, uh, that, uh, you probably always know someone who knows a Swiss tax advisor and oftentimes has quite some, some, some expertise in fiduciary businesses. So they’re, and they provide tax administration services, fiduciary service, but they also know their way around, uh, the tax rules and regulations in, in Switzerland.
Or they can call me.
Mike: Oh, I can call you
Maarten: or se or send or send me, [00:59:00] send me an email. Or send you an email.
Mike: All right. Well, thank you very much for your time, Martin. I have luck. This You are very,
Maarten: very welcome, Mike. Uh, great. Speak to you. I hope it was of interest to you and to some of your listeners and let’s, let’s stay in touch.
Mike: definitely. Sounds great.
