Hey, now that the Arctic Tuk is gone, I've got some free time, and this lawsuit is right up my interest alley - being a dual-citizen who does my own taxes I know all too well how the recent IRS attempted crackdown on wealthy tax dodgers have made my filing requirements a truly onerous task.
The court document is a very interesting read and IMO shows this is not a smart accounting firm leveraging a loophole, this is out and out tax fraud. Why? I think it comes down to something pretty simple, the Coopers lied about "giving" over $26M to a company they created in the Isle of Man with the help of KPMG. When you "give" money away, it's no longer yours, you have no control over it and you never expect to get it back. Or so you'd think...
Enter the schemes of KPMG - we'll set up a investment company for you in the Isle of Man, where you pay zero in corporate taxes, and structure it in such a way that you'll retain full control over the company, and more importantly the money you've "given" to the company. We'll completely hide your identity as the true owner/beneficiary of the company through the use of corporate service providers on the Isle of Man that can be named as Shareholders of Record for the two classes of shares we'll create. These service providers will also provide the Directors of Record. We'll also set up a non-shareholder member (NSM) that will have veto power and the ability to wind up and liquidate the company, giving your money back. As we'll stipulate that the NSM has to be a trusted non-Canadian resident, we'll setup a shelf company in the British Virgin Islands whose sole purpose is to be the NSM. The sole shareholder and director of the NSM will be your trusted attorney in Sidney BC, but he'll need to be compensated through fees and be completely indemnified by you. And speaking of fees, our fees for setting this up and managing it are based on how much in taxes we save you. In all KPMG collected over $300K in fees between 2002 and 2008.
So the "sham" seems to be the elaborate offshore setup to "hide" the true identity of the beneficiary/owner. The income/distributions the Coopers received from the company, over $4M over eight years, weren't even reported to the CRA. I can hear their argument: hey it was a gift from a company I have no ties to - I'm not on the bank accounts, I'm not a shareholder or a director. No where does it say Cooper so it's not my money - but I'll accept it just the same, and use it to live a nice life.
Lastly, I don't see this as being solely KPMG hawking a sketchy tax dodge. It appears the Coopers had a predisposition to tax evasion as they had previously lived in South Africa in the 80's, yet had a Trust in Liechtenstein, a former world renowned tax haven. Prior to 2008, Liechtenstein's banking was more secretive and allowed bank Trusts to separate the assets from the owners, allowing owners to remain anonymous, thus hiding assets from the foreign tax man. The Trusts were revocable at any time, allowing the owner to be reunited with his money on demand.
Edited by Gary H, 22 September 2015 - 07:08 PM.