Every day, fine art, jewelry, watches, wine, and other luxury items are auctioned and sold in various parts of the world. The funds that move through the art market are especially large.2013In 1949, Leonardo da Vinci is said to have paintedSalvator Mundi.but by Swiss businessman Yves Bouvier.US$80 millionThe next day, he purchased the painting in Freeport. The next day, he had the painting installed in Freeporttax exemptionto Russian businessman Dmitry Rybolovlev at the100 million2,750Millions of U.S. dollarsThe company sold the property at And the4Years later.2017In 2006, a buyer believed to be working on behalf of Saudi Crown Prince Muhammad bin Salman at an auction house in New York City,400 million5,030Millions of U.S. dollarsI purchased this painting in It is still in the world today.mostThe painting is known to have been purchased at a high price.

The painting's whereabouts attracted much attention. The painting, which was to be exhibited at the Louvre Abu Dhabi, was never displayed there and disappeared. Since the sales tax on the purchase of the painting was not paid to the State of New York at the time, some have speculated that it may have been moved to Freeport.rumorWhat kind of place is Freeport? What kind of place is Freeport?

A free port is a "port" where goods stored are considered in transit and are not subject to customs duties. The term "port" here refers to the gateway to a country or region and is not limited to ports on the sea. In the world there areabout3,500It is believed that the freeport of And it is the world'smostLuxembourg, a wealthy country, was also set up in 2014 by Bouvier, mentioned at the beginning of this article. What purpose does Freeport serve, who does it benefit, and what problems does it face? This article takes a closer look at Freeport, with a particular focus on Luxembourg.

Christie's painting auction in Hong Kong in the fall of 2011 (photo:manhhai / Flickr [CC BY-NC 2.0])

What is Freeport?

First, let us explain what kind of place a freeport is. A freeport is usually a loading port or airportvicinityThe warehouse is built on a site that is ready for immediate storage of goods arriving from other countries. Goods in storage are stored both in transit andbe regardedTherefore, they are only subject to taxation when they leave the freeport premises and officially enter that or another country. As a result, art and other luxury goods can be traded and stored indefinitely at some freeports without incurring any duty or other tax liability while they remain therestructureis created. This mechanism can be used to legally avoid taxes.

So what are the benefits of freeports and who do they benefit? Freeports temporarily store not only luxury goods in transit, but also resources and equipment parts. In addition to storing them, the company also provides onsitemachiningThe product can also be exported after the export of the product.

This will benefit businesses. of economic activity.globalizationIn the midst of the progress of the world economy, the international division of labor and relay trade are often used to maximize profits. Freeports are useful for companies in such cases. For example, machinery parts manufactured in one country and destined for another country can be stored, assembled, and processed tax-free to avoid taxes if there is a free port in the stopover country.

Why, then, would the state allow the establishment of a tax-exempt place to store goods? The purpose is to provide temporary storage for goods in transit so that manufacturing, trade, and other economic activities on the land can bepromotionThe goal is to attract more trade to Freeport, which will lead to employment and investment in Freeport. By attracting more trade to Freeport, economic activity in Freeport will lead to employment and investment, and in turn, businesses and other entities in the vicinity of Freeport will become more active to support that economic activity.claimis the background.

Freeport of Malta (Photo:nicotinamide adenine dinucleotide (NAC) / Wikimedia Commons [CC BY-SA 4.0])

Why, then, do users store their luxury goods in Freeport? Generally, the profit made from the sale of art is the seller's income and is subject to taxation as determined by the respective country. However, in Freeport, there is no taxation system.preferential treatmentis taken, and when transactions take place within the facility, goods can be bought and sold tax-free without informing the fiscal authorities of the buyer's or seller's country of origin. Thus, storing and trading luxury goods within Freeport can lead to tax savings. Although it can be said that storage alone limits the scope of its use, in reality, one can not only store luxury goods in the Freeport, but also hold wine tasting events or display art works as if it were one's own personal museum.useIt seems that it is also possible to do so.

Freeport History

How Freeport came into being remains a matter of debate.one theory (opinion)It developed in what is now Italy during the decline of the Renaissance, according to the It is said to have begun when several states opened their ports to foreign merchants in a race to attract trade from the then burgeoning Atlantic region. Eventually, these ports became known as places where merchants could do business with minimal interference from state authorities. It then spread to other parts of Europe,18century to the Caribbean,19From the century to the20In the 19th century, it spread to the rest of the world.

Freeports began to be opened in this way, but as mentioned above, many have now been transformed into storage facilities for luxury goods. How in the world did the purpose of use change?

The world's first freeport for art was the Freeport of Geneva (Port FrancIt is believed to have originated in the1888.It goes back to the In its originalObjective.was to temporarily store goods in transit, especially grain, tea, and industrial products, in a tax-free location. However,Late 20th centuryIn the 1960s, art collectors, lawyers, and investors began to change the form of their use, taking note of the unlimited time that goods could remain in transit. Thus, Freeport was born as a tax-free luxury goods warehouse that could store and trade goods indefinitely while increasing the value of alternative assets such as art, jewelry, and wine. Offering storage without expiration dates, freeports found uses outside their original purpose of temporarily storing goods in transit.

Freeport of Geneva (Port Franc) (Photo:Guilhem Vellut / Flickr [CC BY 2.0])

Today, the largest and oldest freeport in Geneva is located here,1.2 million pointsThe collection contains works of art from "the largest collection of art that no one has ever seen" andIt's called.And of the assets gathered there.total amountschool (e.g. of ikebana)800~ (after a number N)1,000It is estimated to be around US$100 million. The Louvre Museum in Paris has380,000 pointsThe collection includes works of art from the30,00051000 pointsWe can recognize how large this freeport is when we consider that it exhibits a

Subsequently, the number of freeports in the world1975In 2006, about79and to2023In 2006, about3,500through (e.g. a river, pond)growthThe company has been in business for more than 20 years. Today, Freeport is present in various countries and regions, including Luxembourg, Singapore, the United Arab Emirates, and Hong Kong, in addition to Geneva, Switzerland.

Problems Lurking in Freeport

So what problems does Freeport face? While the act itself is legal, tax avoidance means a reduction in tax revenues for national governments. In addition, its beneficiaries will be the wealthy. The value-added tax within Freeport, introduced as a measure to promote trade (VAT) (*)1and capital gains tax*.2), why exemptions such as sales tax apply to semi-permanent storage and trade of luxury goods.doubtis given.

And the freeport mechanism is used not only for tax avoidance but also for crimes such as tax evasion and money launderingpossibilityIt has also given rise to As mentioned above, in freeports, buyers and sellers can buy and sell goods without informing the fiscal authorities of their countries of origin. Therefore, the secrecy of the transaction allows individuals and importers to falsify invoices and other records, manipulate prices, and engage in tax evasion and money laundering.easybecomes.

Freeport corridor in Luxembourg (Photo:Bdx / Wikimedia Commons [CC BY-SA 4.0])

money launderingis the concealment of the source of criminal profits for the purpose of disguising their illegal origin or to make it appear as if the profits were obtained through legitimate transactions. There are a wide variety of money laundering techniques. Among them, the most likely to take place in Freeport is trade-based money laundering (TBML(a).TBMLis "the process of using trade transactions to disguise the proceeds of crime and to move value in order to justify their illicit origin or to finance activities," according to the Working Group on Financial Action, an international organization (FATFBy.Definition.The goods are being Freeport simply records the name of the agent responsible for disposing of the inventory when the goods are brought into Freeport, without disclosing the true owner of the goods.custodyThe company can do this. Taking advantage of this and the fact that transactions can be conducted in the freeport without the knowledge of the fiscal authorities, art purchased with funds obtained through crime or other means can be brought into the freeport and sold to others without having their identities recorded, making it difficult to determine their provenance.

So, are measures being taken against such crimes?2018The European Union, which was introduced inEU) of the Fifth Anti-Money Laundering Directive (AMLD5) is the previous directive.revisionand expanded the scope of institutions that must comply with its rules. As a result, Freeports are now included in that scope. As a result, Freeport is now required to manage customers, report suspicious transactions, and record beneficial ownership information. AllEUMember countries are,2020counter for years (following a number in the hito-futa-mi counting system)1month10Replace that requirement with national law by the datenecessaryThere was a

Luxembourg and Tax Havens

We now turn to Luxembourg, where large freeports have been introduced, as a case study. Luxembourg has an area of2,586 square kilometersPopulation634,730 personsand is a very small country. However, the per capita gross domestic product (GDP) (*)3In terms of the world, Luxembourg is the world'smostIt will be a wealthy country. Why are they so wealthy?

The factors that contribute to this1The first is as a tax haven with preferential tax treatment. First,tax havenis a country or region that generally applies a tax-free or low corporate tax rate to foreign companies. Tax havens are countries or regions where the movement of large amounts of money in the land results in the accumulation of small taxes and fees paid by companies, which in turn results in large revenues. In tax havens, many foreign companies and individuals, taking advantage of tax exemptions and low tax rates, create paper companies and branch offices to transfer money earned in other countries topour intoLuxembourg is a well-known tax haven. Luxembourg is a well-known tax haven for1The funds poured in from abroad are as much a part of the income actually generated in Luxembourg as it is a part of the income generated in Luxembourg, since Luxembourg is one of theGDPcontained inpossibilityThere is a

In addition, Luxembourg has a high percentage of workers who commute across the border from other countries.on the high sideThey are the ones who contribute to creating wealth in Luxembourg, though,GDPis not included when dividing by population. The combination of these factors results in Luxembourg's per capitaGDPis a high value.

Now, I would like to explain why Luxembourg is considered a tax haven. Luxembourg has a withholding tax (*)4) and no stamp tax (*).5The company does not need to issue a prospectus (*6) and does not need to issue a bond.popularityThere is a However, Luxembourg's effective tax rate (*)7is2022As of the year21.8%and isEUwhich is a member of the27.. countries all over the worldninthThe tax rate is high in the United States. Why, nevertheless, do multinationals flock to the region? One of the reasons is,LuxLeaks.It was revealed by the

2014Year, Pepsi, Ikea, FedEx, etc.340International companies have signed secret agreements with the Luxembourg government that allow them to significantly reduce taxes, according to the International Consortium of Investigative Journalists (ICIJBy leaking to thedetectionThe companies have done so. By shifting profits from the higher tax rate countries where these companies are headquartered or do much of their business to Luxembourg, where the tax rate is lower, theyBillions of U.S. dollarsIt appears that the company was saving taxes on the2009Since the year2014The effective tax rate in Luxembourg through 2006 averagedabout25%However, according to leaked records, the effective tax rate on profits transferred by companies to Luxembourg wasLess than 1%In some cases, it was.

ICIJ's website on LuxLeaks (Photo by Nozomi Kishibuchi)

Leaked.documentAccording to the World's Four Big Four accounting firms1PricewaterhouseCoopers, one of thePwC(the "client") would prepare a proposal requesting a special tax ruling on a corporate structure or transaction that would allow the requesting company to save taxes, which was then negotiated through closed-door meetings with Luxembourg tax officials. The review of the proposals, which could take up to six monthsone day(*8).

Luxembourg and Freeport

Luxembourg has been on the radar as a country that can avoid taxes in this way, though,2014counter for years (following a number in the hito-futa-mi counting system)9Freeport opened in May. Luxembourg has always had a financial industry.GDP(at sentence-end, falling tone) indicates a confident conclusion35%This was a very large proportion of the total. However,2008With the financial crisis in 2008, people realized that they could lose the money they had deposited in banks if they failed, and the effect of this was to increase demand for physical assets such as art and goldIncrease.The Luxembourg government has been seeking to diversify its economic base away from dependence on the financial sector. Against this backdrop, the Luxembourg government aims to diversify its economic base by moving away from dependence on the financial sector, and to create an artsI've got my eye on him.The first of its kind in the world, Freeport was built in 1929. This led to the construction of the Freeport, which brought together not only works of art but also luxury goods from all over the world and had an economic impact. In addition to the financial sector, Luxembourg also has a logistics industry.flourishThe fact that the Freeport was built to provide safe and convenient transportation was also a factor in the construction of the Freeport.

The construction of this building was undertaken by Mr. Bouvier, a Swiss businessman and former president of the Geneva-based art transportation company Natural Le Coultre, who spent a large sum of money to build the building.investmentHe has done the following. He is an influential figure in the freeport world, having worked on freeports in Singapore and Shanghai. Negotiations between Bouvier and the government resulted in the enactment of a law to the effect that no tariffs would be imposed within the facility. This allowed the government to build the Freeport site, although it did not disburse public funds.free of chargeThe tax system was provided in the following manner. In this way, the Freeport project in Luxembourg proceeded.

So what are the characteristics of the completed Luxembourg Freeport? This freeport was initially named Le Freeport, though,2021Year,Luxembourg High Security Hub (Luxembourg)HSH)indicates such things as location of person or thing, location of short-term action, etc.name changeThe area was approximately a soccer field. Approximately a soccer field3Four bullion vaults in this freeport, about the size of one,75 Can accommodate 10,000 bottles of winespace (room, area, outer space)and others. There are only a few entrances and exits,1One is for human use and the other is for stored goods. Totalabout300counter for machines, incl. vehiclesSecurity is tight, with as many as 1,000 CCTV cameras installed. The facility is also adjacent to the runway of Luxembourg Findel Airport, which is used for private jets and special cargo planes. The advantages of this freeport for clients includeAdvantagesis an import tax on anything stored or sold within its scope,VATor capital gains tax (*).9(See Section 2.1.2.).

So, what measures are being taken in Luxembourg Freeport against abuse? Currently, in Luxembourg, to prevent illegal activities,3Two customs officers are stationed at the Freeport and all arriving goods are listed in the stolen goods database andcollationIt is believed that the company is doing this. This may contribute to preventing money laundering through the sale of stolen goods within the facility. However, while it is possible for customs officials to detect stolen goods in their investigations, it is not possible for them to identify art purchased with illicit funds, to determine the identity of the owner, or to investigate whether price manipulation is taking place.limitIt is also true that there are

Bouvier is also suspected of manipulating the sales prices of dozens of art works, including the paintings mentioned at the beginning of this article, and deceiving Mr. Rybolovlev, a Russian businessman,2015in the yeararrestThe company was This alleged fraud by a major investor in the Luxembourg Freeport has shaken confidence in the company and led to the suspicion that crimes are being committed in the Luxembourg Freeport.suspicionwas further heightened. Bouvier denied all charges,2019In the courtroom in Monaco in 2006.winning a lawsuitHowever, after the uproar, the Luxembourg government tightened its anti-money laundering regulations.2015Luxembourg since 1949HSHLogistics companies authorized to operate in3The company is responsible for recording and retaining the beneficial owners of the property stored in the warehouse.obligationIt is attached.

As a result, the anti-money laundering measures that would be established in a financial institution are available to Freeport.obligationIt is said that Luxembourg is the only country that has it attached. With the introduction of these laws, one of the characteristics of Freeport, its secrecy, has faded, and LuxembourgHSHis placed at a competitive disadvantage with other Freeports, with up to30Luxembourg that two customers have moved on to other Freeports.HSHOne of the logistics providers in theclaimDo.

summary

This article has focused on Luxembourg, explaining the tax avoidance mechanism and the characteristics of freeports and the fraud and crime risks they pose. While there is controversy over whether or not crime is being committed in Luxembourg's freeports, the European Parliament has stated that Luxembourg's freeports remain at risk of money laundering andI'm thinking.It appears that. On the other hand, Luxembourg government officials and Freeport officials have been working to ensure that the Luxembourg Freeport is in compliance with the law.claimThe company is doing so.

Inside the Luxembourg HSH (Photo:Bdx / Wikimedia Commons [CC BY-SA 4.0])

Freeport, which has the advantage of secrecy, requires a transparency that is incompatible with it. And it is not only criminal activity that is seen as problematic. As noted above, the question remains whether the exemption of various taxes extends to luxury goods and their trade, which are kept semi-permanently, is contrary to the original purpose of facilitating trade. Companies and individuals try to avoid taxes by all possible means, but this results in taxes that should have been paid not being paid to the state. The loss of tax revenues is not limited to Luxembourg, but is also believed to be suffered by countries around the world. We will keep a close eye on future developments.

note (supplementary information) symbol1　Value-added tax (VAT):EUVAT is an indirect tax imposed on purchases of goods and services in the EU, Asia, and other countries. The tax rate varies from country to country; all EU member states are required to introduce VAT.

note (supplementary information) symbol2　capital gains taxTax imposed on income from the transfer of stocks, real estate, and securities.

note (supplementary information) symbol3　GDP: The total value added of goods and services produced domestically within a given period of time.

note (supplementary information) symbol4　tax withholding at the sourceA tax that is "paid directly to the government by the employer by deducting it from the employee's gross wages."

note (supplementary information) symbol5　stamp duty: A tax imposed by the government on legal documents related to the transfer of real estate or other assets.

note (supplementary information) symbol6　prospectusThe term "Securities offering document" means a document that is delivered to investors when offering or selling securities and soliciting subscriptions for the acquisition of the securities, and that explains the issuer of the securities and the details of the securities to be issued. Whenever an issuer sells securities, it must prepare and deliver this document to investors."

note (supplementary information) symbol7　effective tax rate: The corporation's effective income tax burden.

note (supplementary information) symbol8　Luxembourg's Ministry of Finance said that prior negotiation of tax decisions is also done in many EU member states, including Germany, France, the Netherlands, and the United Kingdom, and that as long as this continues to be the case, it is not in conflict with European law.claimThe company is doing so.

note (supplementary information) symbol9　It also features reduced premiums for insuring luxury items within the Luxembourg Freeport. The freeport was assessed by the French insurance company AXA in its Global Risk Assessment Platform, which evaluates buildings around the world for high safety and security,2017In the year99.6%The company scored as high as It allows customers to cut their premiums in half. In addition, the artworkrepairIn this case, the specialist will come to the freeport to do the work, so there is no need to transport the equipment out of the freeport.

Writer: Nozomi Kishibuchi

Graphic: Yudai Sekiguchi

Follow @GNV_tweets