• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Paulson Parting For Puerto Rico To Prevent Tax Payments?

Tyler Durden's picture




 

Departing a socialist regime to avoid paying taxes is not just a French thing anymore: Bloomberg reports that one of the most famous hedge fund managers of the late 2000s, if not so much recently, John "Boricua" Paulson "is exploring a move to Puerto Rico, where a new law would eliminate taxes on gains from the $9.5 billion he has invested in his own hedge funds, according to four people who have spoken to him about a possible relocation." In moving to Puerto Rico, Paulson would merely be the latest person to avoid paying any taxes associated with Paulson & Company: virtually every other investor in Paulson's hedge funds also has no taxes to worry about, for a far simpler reason: taxes are generally incurred on profits, not three years in a row of relentless losses.

All of this, of course, was to be expected when Paolo Pellegrini, or the brain behind the only truly profitable strategy the former Bear salesman's fund had, departed long ago. As for Paulson's resting on his laurels: he has so far succeeded admirably in doing so for over 5 years, much to the chagrin of what little LPs he has left. Once he hits 6 years, the Phil Falcone 6 year itch hits, and stuff gets from bad to worse. Watch out for Paulson floating impractical ideas about developing satellite companies... or not. Which is perhaps why Paulson is now actively looking to lock in what profits he may have with his fund, but far from America's 50% marginal tax rate.

From BBG:

Ten wealthy Americans have already taken advantage of the year-old Puerto Rican law that lets new residents pay no local or U.S. federal taxes on capital gains, according to Alberto Baco Bague, Secretary of Economic Development and Commerce of Puerto Rico. The marginal tax rate for affluent New Yorkers can exceed 50 percent.

 

The Puerto Rican tax law provides a boon for someone like Paulson, who earns most of his money from investments. The federal rate for top earners in the U.S. is 23.8 percent on long-term capital gains and dividends and 39.6 percent on ordinary income, which includes short-term gains and interest. State and local taxes can push the marginal rate for rich New Yorkers higher.

 

Paulson, 57, recently looked at real estate in the exclusive Condado neighborhood of San Juan, where an 8,379- square-foot penthouse, complete with six underground parking spaces, lists for $5 million. The area is home to St. John’s School, a private English-language academy where he and his wife could send their two children, said the people, who asked not to be named because the discussions were private.

 

“While we have looked at real estate investments in Puerto Rico, we have not made any investments,” Paulson & Co., which oversees $18 billion, said in a statement. The firm is one of the largest holders of Popular Inc., which owns the biggest lender in Puerto Rico, and it runs a $300 million real estate fund that has properties in Florida, Nevada, Arizona, California, Colorado and Hawaii.

Perhaps because what money was available in the petty cash drawer was being used to pay margin on those collapsing gold miner positions?

The Puerto Rico move is not to be confused with other perfectly legal tax-evasion strategies put in place by Paulson and others:

Paulson executives, too, have already taken steps that may allow them to pay lower taxes. Last year, they put about $450 million into a new Bermuda reinsurance company that in turn invested all of its assets in Paulson & Co. funds. The structure positions them to defer any taxes on investment income from the funds for years, and to pay only the lower capital gains rate when they do.

Will other rich and not so patriotic US millionaires jump on the Puerto Rico wagon? Most certainly:

Residents of Puerto Rico, an unincorporated territory of the U.S., typically pay a local tax rate of as much as 33 percent, according to Gabriel. They don’t pay U.S. taxes on income from Puerto Rico, but are taxed on dividends and interest from U.S. companies. They are not subject to capital gains taxes in the U.S. and pay a 10 percent capital gains tax locally, from which new residents are exempt.

 

The preferential treatment for the new residents aims to promote investments in real estate, boost services and consumption, and encourage foreign service providers to move their businesses to the country, said Puerto Rico’s Baco Bague.

 

In addition to the 10 wealthy individuals who have already relocated to Puerto Rico to take advantage of the new laws, 40 more are currently talking to the government about moving and have brought their families to look at housing and schools, said Baco Bague. About 35 percent are hedge-fund managers, he added.

Cue an Obama executive order making it illegal for anyone with a net worth of over $1 billion to move to Puerto Rico.

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Mon, 03/11/2013 - 10:26 | 3319133 francis_sawyer
francis_sawyer's picture

Alotta Alliteration for Hungry Hedgers seeking Juicy Journalism with Tittilating Titles

Mon, 03/11/2013 - 10:27 | 3319146 prains
prains's picture

Didn't Ronnie Raygun try the same thing in Grenada...err wait a minute

Mon, 03/11/2013 - 10:28 | 3319151 francis_sawyer
francis_sawyer's picture

A 'Pledge Pin'?... On your uniform?

Mon, 03/11/2013 - 10:35 | 3319181 Zer0head
Mon, 03/11/2013 - 11:57 | 3319382 Paul Bogdanich
Paul Bogdanich's picture

Personally I am all for this wave of reverse emigration.  So long as it is accompanied by a very restrictive visa policy for those concerned.  If they want to actually spend 300 days a year in Puerto Rico or wherever else will have them let them do it.  However to change ones domicile to Puerto Rico and still functionally operate out of New York should be verboten. 

Mon, 03/11/2013 - 12:14 | 3319427 FeralSerf
FeralSerf's picture

Do you think New Hampshire residents should have a "very restrictive visa policy" to visit New York too?

Are you aware that Puerto Rico is not a separate country  and its citizens are just as eligible for U.S. passports as the New Yorkers are?

Mon, 03/11/2013 - 12:24 | 3319451 DOT
DOT's picture

US passport = The IRS will take from you what the master sez.

Mon, 03/11/2013 - 13:03 | 3319555 kaiserhoff
kaiserhoff's picture

Great idea.  Puerto Rico must be empty.  The whole population seems to have moved to Florida or New York for the welfare.

Mon, 03/11/2013 - 13:15 | 3319588 FeralSerf
FeralSerf's picture

Some of those people of which you speak may be Cubans or even Dominicans (from the Dominican Republic).

Mon, 03/11/2013 - 12:29 | 3319468 DOT
DOT's picture

US passport = The IRS will take from you what the master sez.

Mon, 03/11/2013 - 13:07 | 3319568 Paul Bogdanich
Paul Bogdanich's picture

Puerto Rico is an imperial territory like Guam.  Massachussets is a state as is plainly evidenced by the differing tax treatments.  So thank's for the sophistry but there will come a time to deny the guy's passport application make him apply for visas and then controll his access.  Now of course the current set of corporatist politicians won't do that just like they won't use armed drones in the US.  That said the legal framework they are creating will persist long after they are gone and with a good bit of public anger at say, another banking crisis, all manner of things become possible.  Probable even.     

Mon, 03/11/2013 - 11:57 | 3319383 Paul Bogdanich
Paul Bogdanich's picture

Personally I am all for this wave of reverse emigration.  So long as it is accompanied by a very restrictive visa policy for those concerned.  If they want to actually spend 300 days a year in Puerto Rico or wherever else will have them let them do it.  However to change ones domicile to Puerto Rico and still functionally operate out of New York should be verboten. 

Mon, 03/11/2013 - 10:52 | 3319216 Groundhog Day
Groundhog Day's picture

Borequa Posse Bitchez

Mon, 03/11/2013 - 10:25 | 3319138 Sudden Debt
Sudden Debt's picture

It's where the HOT chicks are...

Mon, 03/11/2013 - 10:29 | 3319156 otto skorzeny
otto skorzeny's picture

if you're stevie wonder

Mon, 03/11/2013 - 10:36 | 3319164 CaptainSpaulding
CaptainSpaulding's picture

The man made Innervisions. Yes Virgina, He is a god

Steviewonder_innervisions.jpg

Mon, 03/11/2013 - 12:43 | 3319502 ParkAveFlasher
ParkAveFlasher's picture

1) The hot ones are underage and they are underdressed because

2) They come from broke-ass families where it's acceptable to gold-dig because

3) They are all on some type of welfare, just like Hank Paulson.

Mon, 03/11/2013 - 10:31 | 3319162 Stoploss
Stoploss's picture

God Dammit!!  We can't all go to Puerto Rico because it might tip over and we will all drown!!

You can only put so many people on an island before it tumps over!!

I mean, Jesus, the congress even knows that!!

 

Mon, 03/11/2013 - 10:40 | 3319192 Transitory
Transitory's picture

Can't let anyone miss the reference. Hank Johnson worried about Guam tipping over. Good stuff.

 

http://www.youtube.com/watch?v=zNZczIgVXjg

Mon, 03/11/2013 - 10:45 | 3319204 francis_sawyer
francis_sawyer's picture

That would be 'The Honourable Hank Johnson' to you, you peon...

Mon, 03/11/2013 - 14:25 | 3319901 IrritableBowels
IrritableBowels's picture

His district needs to be droned.  Try not to hang your mouth open for too long...

http://www.youtube.com/watch?v=3yznX-hOFT4

 

Mon, 03/11/2013 - 11:22 | 3319288 Miss Expectations
Miss Expectations's picture

The trench is actually something to worry about, along with the attendant east coast tsunamis risk:

The Puerto Rico Trench is the deepest part of the Atlantic Ocean, with water depths exceeding 8,400 meters (figure 1). Its depth is comparable to the deep trenches in the Pacific Ocean. Trenches in the Pacific are located in places where one tectonic plate subducts or slides under another one. The Puerto Rico Trench, in contrast, is located at a boundary between two plates that slide past each other with only a small component of subduction.

The Puerto Rico Trench is also associated with the most negative gravity anomaly on earth, -380 milliGal, which indicates the presence of an active downward force. Finally, a thick limestone platform, which was originally deposited in flat layers near sea level, is now tilted northward at a uniform angle. Its northward edge is at a depth of 4,200 m, and its southern edge can be found on land in Puerto Rico at an elevation of a few hundred meters. Many tectonic models have been proposed to explain this geologically fascinating, tectonically active region; however, none have gained acceptance, and the region remains poorly understood, largely because its underwater location makes it difficult to study.

Because of its high population density and extensive development near the coast, Puerto Rico has a significant risk for earthquakes and tsunamis.

http://oceanexplorer.noaa.gov/explorations/03trench/trench/trench.html

Mon, 03/11/2013 - 12:32 | 3319476 DOT
DOT's picture

Yeah, but my Realtortm said it was a good time to buy.

Mon, 03/11/2013 - 12:12 | 3319421 CheapBastard
CheapBastard's picture

Puerto Rico may be the new Cayman offshore hide-away for these folks? Can it be true?

Mon, 03/11/2013 - 12:19 | 3319434 dirtbagger
dirtbagger's picture

Better try Brazil - Hot Chicks and no Extradition Treaties

Mon, 03/11/2013 - 10:30 | 3319145 otto skorzeny
otto skorzeny's picture

another greedy Tribesman leaving the host body

Mon, 03/11/2013 - 10:31 | 3319159 resurger
resurger's picture

The president of Purtorico will welcome him with a passport.

Mon, 03/11/2013 - 10:32 | 3319167 otto skorzeny
otto skorzeny's picture

I hope El Presidente is not dumb enough to invest in Paulson's funds-their performance sucks ass

Mon, 03/11/2013 - 10:39 | 3319188 resurger
resurger's picture

He is a total fraud no doubt but he's the harbinger of bad things to come 100%. He engineered the ABX trade fraud with GS and won big.

He's short the US atm, i dont think Ben, Obama and wallstreet will like this, so will they squeeze him!

Only time will tell...

Mon, 03/11/2013 - 10:33 | 3319172 francis_sawyer
francis_sawyer's picture

Bernardo, Chino, & Anita need a central bank to steal their beauty shop revenues...

Mon, 03/11/2013 - 12:46 | 3319511 ParkAveFlasher
ParkAveFlasher's picture

Krup you, Paulson!

Mon, 03/11/2013 - 15:18 | 3320107 francis_sawyer
francis_sawyer's picture

Officer KRUPke... Nice parry (+1)

Mon, 03/11/2013 - 10:49 | 3319212 Steve in Greensboro
Steve in Greensboro's picture

You got that backwards.  The hosts are shaking off the parasites.

Mon, 03/11/2013 - 10:28 | 3319152 LongBalls
LongBalls's picture

Ironiclly, Puerto Rico is where the REAL IRS headquarters is located. Just sayin'.

Mon, 03/11/2013 - 14:43 | 3319975 IrritableBowels
IrritableBowels's picture

+1

Already have a pretty long list of things to look up after work.  Thanks for adding to it.

Mon, 03/11/2013 - 10:29 | 3319154 resurger
resurger's picture

So he's short USSAX?

Mon, 03/11/2013 - 10:29 | 3319155 Crash Overide
Crash Overide's picture

Do they have drones in Puerto Rico?

FUCK YOU PAULSON!

Mon, 03/11/2013 - 10:31 | 3319161 firstdivision
firstdivision's picture

With his peformance for the past couple of years, he won't have to worry about paying any taxes soon.

Mon, 03/11/2013 - 10:31 | 3319163 digitlman
digitlman's picture

Condado also home to Fluid Colon Hydrotherapy.

 

https://plus.google.com/116533946066861161216/about?gl=us&hl=en

From one asshole to another, let's stay clean!

 

 

Mon, 03/11/2013 - 10:31 | 3319165 medium giraffe
medium giraffe's picture

The tax payer gets ripped off again?  Must be a Monday.

Mon, 03/11/2013 - 10:33 | 3319170 otto skorzeny
otto skorzeny's picture

or a day ending in "y"

Mon, 03/11/2013 - 10:35 | 3319175 Non Passaran
Non Passaran's picture

How is that?

And how is something "OK" for a guy who has 900K while it's immoral for a guy who has 9 billion? From each according to his net worth, is that it?

If one is suspected to have stolen, he should be held accountable. But that has nothing to do with saying "FU" to the government...

Mon, 03/11/2013 - 10:39 | 3319187 medium giraffe
medium giraffe's picture

So he's made all of his money in the US and wants to take that money out of the US economy, spend it abroad and not pay any tax on it, meaning that the only tax, yet again being paid in the US is by people in normal jobs that don't have luxury of being able to piss off to some tax haven at the drop of a hat.  That's how.

Mon, 03/11/2013 - 10:55 | 3319227 FeralSerf
FeralSerf's picture

Puerto Rico is not "abroad".  It is a U.S. territory.  It was captured booty, like Guam, in America's war with Spain in 1898.  Its residents are U.S. citizens.  It does have different tax rules since it's a territory and not a state.

Mon, 03/11/2013 - 11:07 | 3319246 medium giraffe
medium giraffe's picture

I stand corrected, you are absolutely right, so at least he is still spending within the 'US'.  I imagine with 'AmSoc' in the White House Puerto Rico will be incorporated as a state to close this little loophole asap.

Mon, 03/11/2013 - 11:25 | 3319297 medium giraffe
medium giraffe's picture

Cheers Mags, I got to about 0:33 and was sick in my mouth and had to stop!

Mon, 03/11/2013 - 11:30 | 3319310 magpie
magpie's picture

Why, it was an awe inspiring prediction. You didn't get to the spanish and the cheering.

Mon, 03/11/2013 - 11:48 | 3319358 medium giraffe
medium giraffe's picture

Gawd, so cheesy.  In UK we suffered many long years under the socialists, they're a predictable bunch.  I ilke the bit where El Prez checks that he said his Spanish part correctly.  At least he didn't pull a JFK and say 'Estoy un Churro'...

Mon, 03/11/2013 - 12:20 | 3319438 Sean7k
Sean7k's picture

Puerto Rico being a teritory is actually in the "federal zone", a legal distinction that makes it a creature of the government, without Constitutional protections. It is subject to whatever Congress wishes to legislate and the Supreme Court is powerless to interevene. Their citizenship is with a small "c" and not equal to that provided to non alien resident Citizens of the various states. It is a little understood distinction with huge ramifications. Just saying...

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