Tuesday, March 10, 2009

Dancing with the IRS - Part 2

Two-time Indy 500 winner and Dancer with Stars, Helio Castroneves allegedly helped to pull off an elaborate tax fraud scheme involving unusual financial instruments in Panama and the Netherlands. According to Sports Illustrated, a conviction would ruin his career. He would face up to six and a half years in prison and, as a non-U.S. citizen, possible deportation. He could also lose his contracts with Penske Racing and product endorsement contracts.

He has been accused of using a Panamanian bearer share corporation to hide taxable income. These use of such a corporation routinely triggers suspicion.

Under Panama law a bearer share corporation can be formed that is owned by the possessor of the physical certificates of stock with no recorded owner on record anywhere. The government of Panama does not even know who the owner of the offshore corporation is. Shares for a Panama Corporation do not have to have the owners name on them and they do not have to be kept in Panama. The books and records do not have to be kept in Panama either. If the offshore corporation is Panamanian, banks in Panama, has a resident address in Panama yet has offshore derived income it pays no Panama taxes and does not even need to file a Panama tax return. This is a true bearer share corporation.

There is no Corporation Ownership Registry in Panama and transfers do not have to be reported making trails extremely difficult to follows. Panama has no tax treaties of any sort with any country. A person sets up a corporation for someone else and then submits resignation letters and transfers the certificates privately with no record of sale.

Seven Promotions was created and controlled by at least one member of Castroneves' family, but possibly not by Castroneves himself according to Sports Illustrated. The legal privacy afforded to bearer share corporations makes untangling Seven Promotions' true ownership and control difficult.

The prosecution contends that Castroneves, his sister, and at least one other family member created and controlled Seven Promotions to camouflage about $480,000 in taxable income. The defense insists that Castroneves' father, Helio Castroneves, Sr. created and controlled the company not the son.

Another charge is that Castroneves, his sister, and his attorney devised a way to mislead Penske Racing into depositing Castroneves income into a Dutch company without any withholding. With his $5 million tucked away in the Netherlands, Castroneves would eventually move from the United States to a tax-haven country where residents pay no income taxes.

Can the government prove that Castroneves had a material role in Seven Promotions? The cloaked nature of the bearer share corporation may make it difficult to prove. However according to WEAR-TV ABC, an Attorney testified yesterday that he was involved in contract talks with Castroneves in 1999. He claims the race car driver told him at that time he wanted his money to go to a Panamanian entity that he owned. The case also includes charges of improper business deductions and failure to report in-kind gifts. Trial is expected to last several weeks.

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