The Importance of Ethical Financial Management: A Whole New Side of Asset Protection

The world of asset protection comprehends many elements, but it goes beyond them. When mentioning this concept, we immediately think about trusts, and also foundations, LLCs, and banking. 

Nonetheless, we can't have a consistent approach to asset protection without understanding its concept. There's a whole side to asset protection that is closely related to how we think, how we view our finances, what we choose to do for a living, and what sources of income we turn to. In a way, we can say that asset protection is a way of living.

When seeing asset protection from a broader perspective, business ethical questions arise, at least for some. In this article, we analyze how they have been addressed in the past decades and should be addressed in the present.

Asset Protection and Business Ethical Questions

In the '90s, when the term offshore was commonly used, financial and legit tools like trusts, foreign incorporation of companies, and foreign bank accounts were seen by many as shady. It is important to consider this when trying to address business ethical questions.

In essence, the above-mentioned tools were conceived to improve a business's profitability and to optimize finances. However, for many, this alone raises an ethical question as to whether this is right or wrong.

Every human being looks after himself/herself and his/her family, so why would it be wrong to want our finances to be as optimized as possible? In simple words, if there's a legal possibility to pay lower fees in any foreign jurisdiction, why not take it?

There is nothing about this that would lead us to business ethical questions if everything is done legally, or is it?

The Ethical Question: Right or Wrong?

It's worth noting that banking and incorporating abroad requires meeting certain standards and complying with rules on local legislation. If that legislation is more flexible and nicer to the client, that's a different matter. 

For those concerned about ethical financial management and ethical questions regarding asset protection, it’s great news that we have powerful tools to make sure businesses are conducted ethically and legally. 

In the corporate world, actions have been taken to avoid BEPS (base erosion and profit shifting), which is a practice that is centered on abusing the opportunities available for international investors. These actions help prevent multi-nationalities from lowering the tax basis by registering in places with low or nonexistent economic activity. The abuse of those practices raised critical business ethical questions because companies operating domestically found themselves at a great disadvantage.

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Business Ethical Questions Addressed Through Special Measures: Economic Substance

The possibility that was available 15 or 25 years ago of shifting a company to a country with low activity is almost nonexistent now. This is thus thanks to initiatives like economic substance requirements. 

What was the problem and what was the ethical question? Many companies started to abuse legal asset protection tools and incorporate headquarters in jurisdictions with zero taxation. These were the traditional IBCs that didn't apply any tax to companies operating abroad. For many, this was the perfect loophole.

But now even IBCs have what is called “economic substance requirements”. In plain English, this means that companies need to have some level of activity in the country where incorporated. This translates to offices, personnel, employees, and proof such as invoices or transactions. How and at what level will depend on the country's legislation. Similar approaches have been made in the banking world by incorporating FATCA and CRS.

Diving Deeper into Ethical Financial Management

The bright side of it all is that we all get to enjoy a healthier and more transparent corporate world in which international transactions become easier. This kind of ethical financial management and corporate operations makes us all safer, without a doubt. On the other side, there are more requirements and processes have more red tape than they used to.

The Importance of Ethical Financial Management and Asset Protection

At the end of the day, the ethical question is not whether we should find ways to optimize finances, but how we do it and to what extent. The OECD has reported that BEPS by multinationals costs countries between 100 and 240 billion a year and poses unfair competition. Nonetheless, this doesn't mean that we can't use the available tools within legal frameworks to optimize one's financial plan. 

The matter of taxation raises eternal debates. Whether we should or should not pay taxes is not the question here. Taxes are mandatory, and there's no escape. Even territorial taxation countries apply taxes on domestic income and funds that are transferred to the country. What we can do, however, is use the tools that we have to optimize the tax burden while still contributing to helping the state, all of this with careful consideration of ethical financial management, within a reasonable scope, and applying common sense.

Disclaimer: this article is not based on formal research, therefore, it doesn't constitute financial or tax advice. This article doesn't take a position on taxation, asset protection, or the moral aspects of the matter. Before making any decision regarding asset protection, always consult with certified professionals.

Mundo Supports Ethical Financial Management

As ambassadors of financial freedom, we can't stress this enough: all approaches and tools must be applied within a legal framework and be under ethical financial management. We can help you open banks account abroad, establish trusts, and incorporate companies, all of this legally and in full compliance with the law.

We have a dedicated team specialized in banking, corporate, real estate, and investment migration and we are lucky to have a network of reliable partners and associates across different jurisdictions. If you're interested in expanding your financial plan to new horizons and in full compliance, send us a message. 

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