Rule #1 For Dealing With Offshore “Experts”: Question Everything

The Trouble With Offshore “Experts”

Like most countries, France charges a transfer tax when you buy a piece of property. It’s paid by the buyer and is a tax on the transfer of the asset to a new owner.

Unlike in the United States, where you can easily re-title property into another name without paying anything other than a small registration fee, this transfer tax poses a problem for anyone wanting to make a change to a title.

And it doesn’t have to be anything to do with the beneficial owner of the property. Any change can trigger the transfer tax.

Say you want to change the title to a property you own in France from your personal name to the name of an entity you own 100%. You’re not changing the ultimate ownership of the property… just the name on the title. Nevertheless, you’ll have to pay the transfer tax in France, as you did when you originally made the purchase.

And this is true in most every country.

However, it’s also true that, in most countries, you can put a property in the name of an entity and change the owners of the entity—that is, sell the company that owns the property, effectively changing the property ownership—without changing the title and thereby avoiding the transfer tax.

France doesn’t allow this.

I spent weeks researching the possibility. At the time, none of the France tax experts I was speaking with had ever thought or heard of the idea.

At first, it looked like it could be done. Then they found an exception to the rule that didn’t require the payment of the transfer tax if you simply sold the company…

The Exception To The Exception

Then they found an exception to that rule and finally an exception to the exception that got us back to the original rule.

The difference in each case was the relevant facts. What got us back to the original rule was the fact that the theoretical entity had only real estate as an asset. Any company whose assets are more than 50% real estate must pay the transfer tax when selling a property.

I’m glad the tax people in France kept digging to get past the various exceptions and exceptions to the exceptions. While we ended up at the same conclusion as the original tax rule, the exercise was worthwhile to be sure we understood the options while analyzing how to title that particular piece of real estate in France.

More recently, I’ve run into a similar situation to do with a tax rule in Panama.

One local expert recently brought a tax rule to my attention, saying it applies to me. I’d really rather it didn’t apply to me… so I began asking around for other opinions.

I’m talking about a tax in Panama that can’t be taken as a credit in the United States or elsewhere. I’ve encountered this tax rule before and was fearing that, indeed, I would have to comply.

Then my CFO did some research online and found an exception to this tax rule. Generally, I’m skeptical of tax information online. Tax rules change regularly. Once online always online and not necessarily updated.

However, in this case the information my CFO found was recent and had been published by Deloitte.

We took that information to our local Panama tax expert and asked for his opinion. He read the law outlining the exception and then spoke with a former government tax auditor… after which conversation he came to the conclusion that we are eligible for the exception.

Again it came down to the facts. It seems I both teach and personally relearn this lesson on a regular basis.

Whether it’s residency rules, tax rules, or even parking restrictions in any given country, the facts can change the outcome from the standard.

That’s why it’s good to ask questions… and to keep asking them if you’re not happy with the responses you’re getting. Laws change, and small details in fact do make a difference.

I was ready to roll over, as it were, on this particular Panama tax issue based on my previous relevant experience in the country. My CFO, however, took the time to do more research. The law outlining the exception is only two years old. Neither my Panama tax advisor nor the tax person who put the supposed tax requirement on my radar knew about the 2015 law. It’s relatively obscure and wouldn’t apply to most people.

Don’t be afraid to question the experts. This means working with professionals who are open to being questioned.

When I told my tax guy about the possibility of an exception to the standard tax rule I was facing, his response was to ask for more details so he could do more research to understand better and confirm or deny. He was open minded and, indeed, intrigued by the facts I was presenting.

That’s why he’s my tax guy.

The tax person for the other side told me simply, “That’s not possible.”

Turns out, it is.

Lief Simon