Among my trust company’s international clients in Nassau 1967-70 were rich and famous authors and movie stars. When they visited, they always had lunch with one or other of our top bosses, and if they were particularly boring some of us young minions had to go along and help entertain them. As Marlon Brando once said, “An actor is a guy who if you ain’t talking about him he ain’t listening.”
Thanks to their agents and tax-lawyers, the famous clients rarely earned much in their own name. Mostly, they were persuaded to commit to exclusive contracts with Bahamian companies owned by the trust company as Trustee of what were called discretionary charitable trusts. It was the companies that signed all the big-money deals with the movie-companies and book-publishers.
In exchange for diverting all his future earnings to “his” Bahamian company, each client would receive a lifetime salary. That made some sense. After all, it’s an uncertain world out there for actors and authors. In those occupations, you’re only as good as your last success, right? Damn right! The lifetime salaries were very modest, and they were taxable in the clients’ home countries. The income from the hugely rewarding contracts was tax-free in the hands of Bahamian companies.
The schemes had to be plausible enough for the tax-man to buy into, in the US or UK or wherever; and they were. That’s how tax-lawyers and tax-haven entities earn their fees. It’s how we young minions earned our salaries, and our occasional free lunches.
Each company-owning discretionary charitable trust contained a list of potential beneficiaries, who were liable to pay tax (in their home countries) on whatever distributions they received out of the trust’s income – namely, dividends received from the companies whose profit came from the fat contracts . Among those “discretionary” beneficiaries were family members of the star, as well as a regular charity, and sometimes the President of the USA or the British Prime Minister.
The companies did pay occasional dividends to their related trusts. But the only distributions ever paid out by the trusts – at the discretion of the trustees – were to the designated charities, and charities don’t normally pay tax. The President and Prime Minister were only ever there as a blind. Hey, Mister Tax Man! If you try to tax any of the named potential beneficiaries, we will distribute some money to those officials. Good luck trying to tax them. (I recall one trust that went so far as to name the Director of the IRS. Heavy manners, as we say here!)
It was a cunning plan, and was probably designed by former Internal Revenue collectors in collusion with domestic tax-lawyers. Trust companies, generally set up and owned by international banks, merely administered the entities in tax-free jurisdictions.
This is all ancient history, now, which is mentioned only to give a taste of what Offshore tax-havens do, for those readers who don't know. I’ve no idea whether discretionary charitable trusts are still used as tax-avoidance vehicles. Linda and I left Nassau in 1970, just ahead of the run-up to the political independence that killed the tax-haven for a generation. I worked in two tax-havens after that, but Nassau was the innovative Daddy of them all.
There were several other standard schemes, which may or may not still be used; the charitable trusts were always my favourite. It wouldn’t surprise me to learn that there are still mansions in Hollywood that are owned by Bahamian companies, and rented out cheaply to rich and famous movie stars. Maybe I even had lunch with one or two of them, back in the day.
