KISS

My wife doesn't like the tax evasion plan I came up with yesterday. It's too elaborate and contrived, and I agree. There has to be something more straight forward that we can do.

This touches upon a general principle when it comes to systems and schemes: Keep It Short and Simple. That's KISS for short.

A good plan deviates only marginally from the truth, and it involves as few people as possible. Ideally, only a single person is at risk of interrogation, and that person should be the one who has thought up the scheme in the first place. That would be me in my case.

My original plan was not KISS. However, this alternative plan falls into this category:

The first thing to recognize is my overall goal which is to avoid a 10% transaction tax on money that is already taxed in Norway. The simplest way to do this is to refuse to see the money as a gift in the first place.

The next thing to recognize is that only gifts require recipients to report to tax authorities. Since the money coming from Norway isn't a gift, nothing needs to be declared. It isn't up to me to report my private affairs to them. It's up to them to start an investigation into whether or not the money can be categorized as a gift.

Since we know that taxmen are in the business of extracting as much money as possible from their subjects at as low a cost to them as possible, we know that they are unlikely to investigate anything that isn't either easy to verify or involving a lot of money with a high potential pay-out for them.

Ten percent of the money coming to me from Norway is a lot of money for me and my family, but hardly worth an investigation from the perspective of the tax authorities. Hence, the most likely outcome of doing nothing on my part is that there will be no investigation and the money will flow unhindered.

However, there has to be a story that I can present in the off chance of an investigation. We can't have a situation where we struggle to explain what's going on.

If there is an investigation, I imagine that it will start with a quick call and grow from there until they either give up or come to the conclusion that I have to pay the ten percent. However, I don't think I'll be fined for my conduct because my story is sufficiently close to the truth to argue that I misinterpreted the law with no ill intent.

This is how I imagine an investigation by the taxman may evolve:

1. My wife receives a phone call related to the money coming into her account from Norway. She tells them that the money isn't hers, it's mine. I'm a Norwegian, taxing to Norway, and the money is merely transferred to her account for convenience. The taxman can now choose to talk to me or give up, satisfied that the money is not a gift.
2. The taxman decides to talk to me. I tell him that the money comes from the accounts of my children in Norway because I don't have a personal account there anymore. However, I have capital income, taxed in Norway, that flows through my children's accounts for convenience. The taxman can now choose to talk to Norwegian tax authorities or give up, satisfied that the money is not a gift.
3. The taxman decides to talk to Norwegian tax authorities. He learns that I have no registered income or capital in Norway, and that I owe them money. It appears that the money may be a gift from my children. He decides to call me again.
4. I tell the taxman that it's true that I technically don't own anything in Norway, because I have passed ownership to my children against a private agreement that they pay me money every year.
5. The taxman tells me that this looks like a gift rather than a payment. I tell him that I think he's wrong and that I'm prepared to hire lawyers to prove my case. The taxman can now choose to call my bluff or give up.
6. Seeing that the money in question is flowing into Portugal as opposed to out of Portugal, the taxman will most likely give up, because a victory in court by the taxman may stop the flow and produce no benefit.

Keeping in mind that the above exchange is unlikely to take place, and that the outcome is unlikely to be more severe than a slap on my wrist, I see no reason to report anything to anybody related to my fixed income coming from Norway.

Schloss Vaduz

By Michael Gredenberg - Own work, CC BY-SA 3.0, Link