Offshore Portfolio Investment Strategy (OPIS)

What Was the Offshore Portfolio Investment Strategy (OPIS)?

The Offshore Portfolio Investment Strategy (OPIS) was an abusive tax avoidance scheme sold by KPMG, one of the Big Four accounting firms, between 1997 to 2001. This was when fraudulent tax shelters had proliferated across the global financial services industry. OPIS was one of many tax avoidance products offered by accounting firms.

Figuring out the Offshore Portfolio Investment Strategy (OPIS)

Offshore Portfolio Investment Strategy (OPIS) utilized investment swaps and shell companies in the Cayman Islands to make fake accounting losses that were utilized to offset taxes on genuine taxable income and swindle the Internal Revenue Service (IRS). A portion of these fake accounting losses were essentially more than the real financial loss.

Many tax shelters depended on legal tax-arranging methods. In any case, they turned out to be such big business that the IRS started a crackdown on abusive tax shelters and their undeniably complex structures, which had denied the U.S. government of $85 billion somewhere in the range of 1989 and 2003, as per the Government Accountability Office.

The Design of the Offshore Portfolio Investment Strategy (OPIS)

Accounting firms that audit companies made financial losses utilizing an assortment of accounting practices. These losses were then used to offset genuine profits from operations or from capital gains, bringing about a lower reported profit and in this way a lower amount taxed.

For instance, on the off chance that a company reported $20,000 in profits before taxes and needed to pay 10% tax on those profits, they would owe $2,000 ($20,000 x 10%) and their profits after taxes would be $18,000 ($20,000 - $2,000). Presently, on the off chance that an accounting company had the option to generate extra losses through false accounting practices, say, in the amount of $5,000, the company's profits before taxes would be $15,000 rather than $20,000.

The tax the company would now pay would be $1,500 ($15,000 x 10%), which is $500 ($2,000 - $1,500) not as much as what they ought to legally be paying. This was $500 that was ransacked from the government and added to its pockets, or to the pockets of the accounting firm on the off chance that the company didn't know about the fraudulent practice, which by and large they weren't, bringing about the payment of back taxes owed.

How an accounting firm would conduct this tax avoidance scheme was through the creation of a shell company. The shell company would record various transactions and investments, all that would bring about losses. These losses were not of course real as the transactions and investments were not real. These fake losses were then used to offset the real profits of a company.

The KPMG-Deutsche Bank Tax Shelter Scandal

The IRS officially announced OPIS and comparative tax shelters unlawful in 2001-2002, on the grounds that they had no authentic economic purpose other than diminishing taxes. Notwithstanding, email messages showed that KPMG had subsequently talked about selling new shelters that were like the restricted rendition and that they failed to cooperate with specialists.

The U.S. Senate Permanent Subcommittee on Investigations started an investigation in 2002. Its report, in November 2003, found that various global banks and accounting firms had advanced abusive and illegal tax shelters. Alongside KPMG's OPIS products, it singled out Deutsche Bank's Custom Adjustable Rate Debt Structure (CARDS) and Wachovia Bank's Foreign Leveraged Investment Program (FLIP) products. Banks like Deutsche Bank, HVB, UBS, and NatWest had given loans to assist with arranging the transactions.

In 2002, PricewaterhouseCoopers arrived at a settlement for an undisclosed amount with the IRS while Ernst and Young concluded their $123 million settlement in 2013. Meanwhile, KPMG ended up conceding unlawful conduct and paying a $456 million fine in 2005. Part of the settlement Attorney General Alberto Gonzales negotiated was KPMG's guarantee to avoid the tax shelter business. Be that as it may, nine people, including six partners, were arraigned for making $11 billion in false tax losses and denying the U.S. government of $2.5 billion of tax revenue.

Subsequently, a considerable lot of the firms which had helped sell these tax shelters were sued by clients who needed to pay the IRS back taxes and punishments. Investors who sued Deutsche Bank brought to light that it had assisted 2,100 customers with avoiding taxes, reporting more than $29 billion in fraudulent tax losses somewhere in the range of 1996 and 2002. It admitted criminal bad behavior in 2010 and settled for $553.6 million.

Features

• The companies associated with the tax outrages needed to pay a large number of dollars in damages.
• Offshore Portfolio Investment Strategy (OPIS) was a tax avoidance product offered by the accounting firm, KPMG.
• These accounting schemes would make shell companies and record fake transactions and investments that would bring about losses. These losses were utilized to offset the profits of a company, bringing about a lower amount of taxes owed.
• OPIS was one of many tax avoidance schemes offered by accounting firms during the 1990s.
• The Internal Revenue Service (IRS) in the long run made these tax schemes illegal, as they filled no need but to bring down taxes and denied the government of tax revenue.