It's used for money laundering, wealth transfer and tax avoidance. You buy and sell art, especially art that permanently resides in freeports, with cash, with shell companies that don't declare their ultimate beneficiary. You then avoid anyone knowing that you paid criminal X or criminal X paid you with the proceeds of crime. You avoid your government knowing that you have $XXX,XXX,XXX of assets stashed away that you're not declaring. You don't pay capital gains tax on it. And so on.
Governments around the world have been passing legislation in the past few years, and putting diplomatic pressure on governments of other tax havens, to tighten scrutiny of these international financial transactions.
You're providing evidence that crime exists, not that art as a whole is "predominantly a tax evasion and racketeering scheme". Where is the evidence that this represents the majority of art purchases?
It's also weird to even call this a tax dodge. If you make money in New York and not London then you should be paying taxes to New York and not London because your operations are using New York streets and New York sewers and hiring kids from New York schools etc., and that's what those taxes are paying for. You haven't used any of London's infrastructure to do it so they don't get any of the money.
If you make money in some free port or <unspecified location> which is so un-tied to any other jurisdiction that you have no meaningful operations in any of them, why should any of them have a claim to the money? None of them have done anything to earn it.
Art is definitely used as a tax dodge by the wealthy, but to suggest that the entire ecosystem is nothing but that is not correct. People that say this usually lack a deeper understanding of contemporary art.
I'm still not clear how this is even supposed to be tax evasion. If you're not operating in a jurisdiction then you shouldn't owe them any taxes. Which jurisdiction is even alleged to be owed the money, and on what basis?
Well, presumably the whole concept of a Freeport is kind of a “hack” against the tax system. These items are treated as if they’re in transit, but they are stored indefinitely.
They're treated as if they're outside of the jurisdiction, because they are. It's not a hack, it's just a fact. It's not even weird. The weird expectation is that areas outside of a given country's jurisdiction wouldn't exist.
US citizens owe the US government taxes on their income regardless where it was earned, barring some specific exclusions. At any rate, where a company is registered or where an asset is held doesn't necessarily have much bearing on where work is done or what infrastructure is used and to what extent.
> US citizens owe the US government taxes on their income regardless where it was earned, barring some specific exclusions.
That seems like the flaw here, not the other thing. Why should the US government have any entitlement to tax activity that occurs entirely outside their jurisdiction?
> At any rate, where a company is registered or where an asset is held doesn't necessarily have much bearing on where work is done or what infrastructure is used and to what extent.
But that's the point. They're meant to tax in the places where this sort of thing happens. If you have a building somewhere, there is property tax. If you make sales somewhere, there is sales tax or VAT. If you have employees somewhere (or are an employee and perform work somewhere), there is payroll tax.
Storing art can be done most anywhere, so naturally it happens in the places that allow it under the most favorable terms, but what's the problem there? It's the same as companies putting their facilities in some other jurisdiction because it has lower taxes. It's the normal and expected thing and one of the rare incentives for governments to improve their cost efficiency through competition.
>That seems like the flaw here, not the other thing. Why should the US government have any entitlement to tax activity that occurs entirely outside their jurisdiction?
Tax evasion doesn't cease to be tax evasion because you don't feel like you owe the government taxes.
Whereas it does cease to be tax evasion when it literally isn't tax evasion, it's tax avoidance. And then people are complaining about this as if it shouldn't be possible, when it should be the default. To owe a jurisdiction taxes you should have to be doing something in it.
Governments around the world have been passing legislation in the past few years, and putting diplomatic pressure on governments of other tax havens, to tighten scrutiny of these international financial transactions.
https://www.artsy.net/article/artsy-editorial-freeports-oper...
https://news.artnet.com/market/switzerland-freeport-regulati...
https://safehaven.com/markets/markets-other/How-The-Ultra-We...
https://en.wikipedia.org/wiki/Panama_Papers