Tax savings via a Channel Islands trust fund

Hi all,

A friend of mine from US is offered a job in Germany for 12 months period. The company says it will pay him half the salary in Germany and rest half will go to his trust fund on channel island and will not be reported as income while in Germany. Does anybody have any experience like this? Could there be a problem with tax authorities in Germany or US?

Thanks

Sounds dodgy to me and I used to work in tax. I'm not sure of the exact tax arrangements here in Germany or the US for that matter. But the general principle is that you should be taxed on the income earned as a result of personal exertion - ie employment income. The whole amount should be taxed, but then again its a question of if and when the authorities find out. The US appear to have quite severe penalties for tax evasion. I've come across similar arrangements in Australia, but ultimately your friend should be paying tax on the whole of his salary. Personally I wouldn't take the risk of working for a company like this, who knows what other dodgy stuff they are up to.

This is not unusual for freelancers working through a management company.

Conceptually they are paid a certain portion directly which they declare for tax purposes, and the rest minus charges goes into a trust fund. This trust fund will be paid to them as a “job well done� bonus when they return to their home country, and in the UK at least there is a provision for somebody who worked overseas for a few years to receive such a bonus tax free.

Of course you also have the possibility to borrow against your trust fund prior to returning home, and the management companies are perhaps not as strict as they could be in making sure that you really have returned home when they pay out your trust fund.

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Well, the said company is a very well known Fortune 500 firm , so i don't think they might be involving in this sort of thing. He might be coming through some consulting company. But I don't know for sure.
In any case, if offered such a deal, who is to be held resposible for tax evasion, the company or the person.

Who is responsible for tax evasion is beyond me. But its generally a bad idea. I stick to axe murdering.

Don't let the word "Fortune" or the number "500" mean anything: haven't we heard about enough corporate money "issues"?

You can be sure that it would be the employees fault if this was determined to not be legit as it is an individual's responsibility to pay their own taxes, NOT the employer's responsibility to ensure that the correct amount was withheld.

sort of right.

a US citizen is obligated to pay tax on your worldwide income. If you pay tax somewhere else, like Germany, you pay less to the US. If you pay none to somewhere else, like the Channel Islands, you'll still owe full US tax. Not paying tax on this income is tax evasion. Unless you have advice (and proof of such advice) from a paid tax advisor that says otherwise. Then the tax advisor is on the hook.

German has a slightly different rule, according to where you live. If you live in Germany, you owe tax on the income you earn while here. You would have to prove to the German authorities that the money in the Channel Islands is not associated with the employment in Germany.

It sounds much like MAM said - your friend will be at best deferring paying tax on the income. Make sure he/she gets written advice on tax consequences from the company's tax advisors.