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We want to make it clear before continuing with the article: Denationalize.me does not support or promote intentional tax evasion, and we are unable to understand the people who engage in this practice because, after all, it would be easier for them to optimise their taxes legally.

Tax evasion is and will remain a criminal offence. Anyone who lives permanently in a country and actively tries to hide or mask the taxes they have to pay is a criminal, because they are acting illegally (even if what they are doing is legitimate). In the end, taxes are still a theft from citizens.

We can understand to some extent the motives of tax evaders: to give the state less than it takes from you – which is already more than enough. However, the key here is that many people evade taxes on the one hand, but want to receive subsidies, grants, or welfare payments on the other, and that is what is called being a double hypocrite.

Reducing taxes is very interesting, but please do it well: act transparently, decently and using legal methods. This is what is known as “tax optimisation”, and it is something completely different from tax evasion.

There are two types of tax evaders: on the one hand there are the active ones, who deliberately create any devious construct that allows them to reduce their tax burden.

And then there are those who do not even know they are evading tax. You should know that ignorance of the law is no excuse… and it will not save you from the corresponding punishment if you disobey it: The Tax Agency will show no mercy no matter how much you do not know what you are doing. A classic case is the continued use of a business account of a company after personal leave in the country. This gives rise to limited tax liability, as the business continues fictitiously. NEVER use your old business account after deregistration: it is better to set up a proper company with its own business account, such as a USA LLC.

So, before we delve into today’s topic, we encourage you to do some soul-searching, briefly reflect on your situation and then decide which of the two types of tax evader you want to be.

Take a few seconds, we will wait for you.

10…9…8…7…6…5…4…3…2…1…

Hopefully you have decided to be neither of the two types. If so, this article probably will not be of much use to you. If not, stay until the end, because today we will explain, based on more or less famous personalities, how not to become a tax evader. Instead, you will discover that living a legal and tax-optimised life through flag theory and diversification is much more interesting.

Not being famous will not protect you in the long run

The title of the article does not make it clear, but we are going to show you public and high-profile cases of tax evasion that have led to fines, imprisonment or both. In many cases, the conviction has also led to a significant loss of credibility for these individuals, although this is a secondary and rather subjective issue: Cristiano Ronaldo – who you will find on our list – remains one of the most successful and popular footballers on the planet despite being convicted of tax evasion, for example.

What you should not forget is that, even if these cases involve celebrities, not being a public figure does not automatically protect you from the tax authorities: if you are in the public eye, you will be more likely to be scrutinised by the authorities – not surprisingly, where there is suspicion that you are earning a lot of money, the tax authorities are quick to step in. However, anonymous people can also get in trouble. That is why those who “earn little” – compared to the big stars and billionaire businessmen – are not automatically safe from state enquiries.

In fact, all the examples below have one thing in common: they were all resident in a country and had to pay tax there. This is not a bad thing in itself, and it does not mean that there is no room for manoeuvre. Depending on the country you come from, you may even have to prove your future tax residence in order to be relieved of the old tax liability. You just have to pay attention to how the whole system is structured around your taxes. It is precisely this point that the members of this list have completely overlooked, either because they have deliberately and consciously ignored it or because they were simply badly advised.

Uli Hoeneß

Almost everyone is familiar with the case of the self-proclaimed “sausage king” Uli Hoeneß. This case, which was reported in the media, led to Uli Hoeneß being sentenced to three years and six months in prison (although he was eventually released halfway through his sentence). He was accused of having a numbered account in Switzerland since 1975, where he hid money worth hundreds of millions.

Let us explain this in a little more detail: a numbered account is a bank account without reference to a name. Internally, the bank knows to whom the account belongs, but the name does not appear in any accounting management. This contrasts with the usual nominative account, where the owner’s name is associated with the account number. The account number alone must be considered from an administrative point of view and is, of course, used in day-to-day transactions. By the way, numbered accounts no longer exist today, except in the case of old accounts.

Uli Hoeneß used this account for currency transactions worth several million euros. Between 2003 and 2005, Hoeneß is said to have made around EUR 130 million in profits – of which, of course, he did not pay tax on a single cent.

In the end, he was sentenced to three years and six months in prison and fined some 30 million euros.

So, what did Mr Hoeneß do wrong? As mentioned in the introduction, he was obviously obliged to pay taxes in Germany, and he lived there. Hiding such sums of money (or whatever sum, for that matter) in bank accounts in other countries to make huge profits can only go wrong. This is because, at the time, Uli Hoeneß was subject to the German tax authorities, which – naturally – kept a close eye on him. He could have avoided the severe sentence imposed on him if he had deregistered in Germany and organised his finances properly.

With Uli Hoeneß, however, this plan would not have been easy to implement either: even if he had deregistered and transferred all his money abroad, he would probably still be taxed in Germany. He had his own companies in the country, was president of FC Bayern Munich, and had family and social contacts in Germany. Even if he had left the country, his centre of vital and economic interests in Germany would have obliged him to pay the corresponding taxes.

In principle, there was no way to avoid his tax liability, although, with so much money, he could have made tax-free foreign exchange transactions – through a family foundation in Liechtenstein, for example. Even a local asset management company would have been sufficient to avoid paying tax on the profits from the reinvested shares.

Cristiano Ronaldo

In principle, the football superstar already did better than Mr. Hoeneß, because he tried to disguise his income by using corporate constructions. Back then, at the time when the player was evading taxes, such constructions were allowed in Spain due to the Beckham Law – or rather, foreign income was exempt from taxation as long as the foreign companies were not controlled from Spain.

Ronaldo was accused of trying to disguise income from his trademark rights with an offshore company in the British Virgin Islands and another company in Ireland. Cristiano Ronaldo used the Virgin Islands company to sell his trademark rights to his own company, which was then able to generate advertising revenue.

As this advertising income was generated outside Spain, it was in principle tax exempt for him under the Beckham Law. The Beckham Law provided that all income generated outside Spain was tax exempt for elite sportsmen. In addition, the first €600,000 of domestic income was taxed at a reduced rate. Spain amended the Beckham Law even before Cristiano Ronaldo’s conviction and explicitly excluded professional sportsmen from its application. Since that reform, this legislation has become much less attractive, but also more easily applicable to many non-resident entrepreneurs. With it, one can have certain tax advantages for 7 years if permanently resident in Spain.

But let us go back to the case of Cristiano Ronaldo: the Spanish authorities accused him of setting up this construction precisely to evade taxes. There would be no economic reason to justify the existence of these companies other than tax evasion. He and his lawyers denied these accusations and declared that the companies already existed when he was playing for Manchester United. These allegations were later proven to be untrue. According to Football Leaks, it was discovered that the incorporation documents of the companies were backdated to avoid a possible conviction for tax evasion.

In addition, the player’s income of around 75 million euros was transferred tax-free into his private bank account in Switzerland. All this would have been legal under the old version of the Beckham Law. Unfortunately, the effective address of his offshore companies was outside Spain and therefore these companies were taxed in Spain from the very first minute. Nor were they old companies that Ronaldo had “forgotten to declare”: his criminal intent was plain to see.

In principle, the only mistake Cristiano Ronaldo made was to set up and manage the BVI company himself in order to take advantage of Spanish tax law. A proper manager for his company would only have cost him a few tens of thousands of euros per year, instead of a few million euros in penalties.

In 2017 he was fined €18.8 million and given a suspended prison sentence of 23 months and 30 days. In Spain, offenders who have not previously been sentenced to prison and receive a first prison sentence of less than 24 months benefit from a suspended sentence. Therefore, Cristiano Ronaldo did not have to go to prison and “only” paid his fine.

Klaus Zumwinkel

A slightly older case is that of Klaus Zumwinkel: the former Deutsche Post board member and chairman of the supervisory board of Telekom was sentenced in 2009 to two years in prison for tax evasion with the help of a foundation in Liechtenstein.

Zumwinkel was part of Germany’s biggest tax scandal to date: the Liechtenstein tax affair. The motive and trigger for the case was that the German Federal Intelligence Service (BND) bought a CD with the details of foundations set up in Liechtenstein for 4.5 million euros. The scandal caused a great stir at the time, not only because of the data on the CD, but also because of the methods used by the Federal Republic to obtain the information.

At the time, there was debate as to whether the “discovery” of the tax evaders was purely coincidental – and therefore the BND data was used – or whether tax investigation methods supported by the BND were already in place at the time.

Zumwinkel was accused of having evaded about one million euros in taxes through such a foundation. However, he was quite lucky, as the accusations actually amounted to €970,000. If the investigations had come up with a figure of more than one million euros, it would have been highly unlikely that his sentence would have been commuted – suspended prison sentences are rare in such cases.

What did Klaus Zumwinkel do wrong? In principle, he was resident in Germany and a taxable person. At the time, the Liechtenstein foundation was a classic tax avoidance solution because there was no exchange of information with Germany: in Zumwinkel’s time, there was no possibility of legally setting up a family foundation there. It was not until after this scandal that Germany signed a double taxation agreement with Liechtenstein with administrative assistance – one of the basic conditions for Germany to recognise a foreign foundation. Thanks to Liechtenstein’s EEA membership, non-transparent family foundations (which cannot be dissolved or changed) have not been taxed in Germany since the signing of this agreement. Ironically, the number of foundations with German beneficiaries has decreased considerably since the legalisation of these constructions.

The fact that it was Germany that bought the CD with all the data, as well as the fact that Zumwinkel was one of Germany’s most important managers at the time, sat on several German supervisory boards and earned large sums of money, was a sum of unfortunate circumstances. Moreover, his case was most likely used as an exemplary punishment to urge all owners of foundations in Liechtenstein to turn themselves in. In fact, his arrest was broadcast live on television.

Freddy Quinn

Freddy Quinn was a popular pop singer sentenced in 2004 to two years’ probation for tax evasion. Quinn is actually Austrian, but has lived in Hamburg for decades, so he obviously has tax obligations in Germany.

Quinn’s mistake at the time was to claim that he lived in Switzerland when, in fact, he spent most of the year in Hamburg. Had his declaration been true, it would presumably have exempted him from taxation in Germany. In total, Freddy Quinn avoided paying €900,000.00 to the German tax authorities.

This, by the way, is a classic case of tax evasion that many people try to put into practice because they think it is not so easy to prove where they are actually living. Freddy Quinn is not the only one who thought he was smarter than anyone else: if you live in Germany and have your permanent residence there, you are also obliged to pay taxes in Germany, and you should be prepared to do so. Therefore, we advise you to always avoid such constructions. Naturally, Quinn – like everyone on this list – was a public personality at the time, and he was undoubtedly subject to more attacks from the tax authorities than the average German citizen would have been.

However, we see cases like this in the Denationalize.me community too. Members often ask us whether they can live in Germany and at the same time declare that they live elsewhere. Others tell us that they have deregistered but still live in Germany. Both cases lead to the establishment of a centre of vital interests in Germany and, in the worst case, to a tax evasion offence. Investigations and convictions may not be automatic consequences, but the tax offices do not spend all day staring holes in the air either (they also do other things).

That is why we at Denationalize.me always preach that you should unregister, break all ties and turn your back on your country if you want to be sure of what you are doing. There is little point in using a shoddy construction and living in fear that your country’s tax authorities will come knocking on your door. If in doubt, it is always better to get rid of your own flat, take your spouse and children with you and avoid staying in your country for more than 2 months at a time for a total of half a year.

You can easily take control of your life: all you must do is choose the right configuration, plant your flags correctly and dare to take the first step towards a better life. We are there for you.

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