Why does Mitt Romney have money in the Caymans? Two potential reasons.
The Cayman Islands used to be known as a 'tax haven.' That's not necessarily true anymore, but there could be other reasons for Mitt Romney use the Caymans to store his millions.
(Page 2 of 2)
Mr. Shaviro thinks Romney may have invested some of his IRA money in “super high performers.” But Romney wanted to increase his return on investment by getting his IRA to borrow so that he could buy even more of the stocks. However, under IRS rules Shaviro says, nonprofits such as IRAs that borrow to hold investments face something called the Unrelated Business Income Tax (UBIT).Skip to next paragraph
Subscribe Today to the Monitor
Shaviro hypothesizes that to avoid paying that tax, Romney’s lawyers set up a separate Caymans entity, which would borrow and buy the stocks. Romney’s IRA invested in that entity.
“Congress is sort of aware of this but has not changed the law,” says Shaviro. “It is not a top secret tax planning trick but it is a common end-run around the purpose of the law.”
If Shaviro is correct – that the funds are accumulating tax-free – in the Cayman Islands, Romney may have no reason to repatriate them to the US. “It’s not as if he needs the money back here to pay his rent,” says Shaviro. “Plus, if he did the same thing using a US entity, then it would face US corporate tax on the income.”
Shaviro points out that Romney’s Cayman Islands stash is likely to be debated politically. “If I was thinking of working with someone in business and I heard they had done this, I would not be upset,” he says. “You could say he did something that any clever and savvy investor would do.” But, he adds, “If you believe that someone who is running for President should live by a higher standard, then you could take offense at it.”
UPDATE: In response to this article, Romney campaign press secretary Andrea Saul sent the following email:
The Romneys' investments in funds established in the Cayman Islands are taxed in the very same way they would be if the Romneys held their shares of the fund investments directly in the US rather than through a Cayman fund.
Nothing is changed from four years ago in relation to these funds. Governor and Mrs. Romney's assets are managed on a blind basis. They do not control the investment of these assets. The assets are under the control and overall management of an independent trustee.
Furthermore, only the sponsor of the fund decides where it is established. That responsibility is totally outside the control of a passive investor like Gov. Romney or the trustee of this blind trust.
Also, in regards to the Unrelated Business Income Tax: Governor Romney’s IRA is tax deferred, just like the IRA’s of every other American. Its investments are in compliance with rules created to keep it tax deferred, just like it was intended to be.