Endless meadows, once the land of the Sioux. With its agriculture that produces corn and soybeans in industrial quantities, South Dakota displays a very agricultural identity. But this state of 843,000 inhabitants, five times the size of Switzerland, has developed a rather unexpected industry in the midst of rural Midwest.
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The American tax anomaly has lasted too long
Like neighboring Wyoming, it presents itself as one of the new tax havens capable of attracting wealth from around the world. In the United States, he holds the absolute record: 84 trust companies with a mass under management of $ 225 billion, according to Bret Afdahl, director of the banking division of the Labor Department. A local lawyer even estimates it at 336 billion. Most trust companies are concentrated in Sioux Falls, although Pierre, the capital, and Rapid City host a few.
South Dakota is not a tax haven, it is an information paradise, soon to be perhaps one of the last bastions of the client’s privacy.
The Sioux Falls financial boom is a success story American style. This Midwestern city has grown from 81,000 residents in 1980 to 169,000 in 2016. In this early spring, the streets of the center are not crowded. A few businessmen in tie suits, the briefcase aside, pass by stealthily. Hipsters frequent the trendy Coffea café. Opposite, at 201 Philipps Avenue, the South Dakota Trust Company (SDTC) sign is misleading. From the outside, the gray blinds suggest for a moment that this is an abandoned building. In the historic Kresge building, dating from 1928, around thirty trust companies are domiciled. On the second floor, in the muffled offices lined up one after the other, there was no crowd. The SDTC deals only with administrative stewardship. The only requirement for trust managers is to participate in two boards of directors per year in Sioux Falls.
Welcome to Virtus Trust
Among the trusts domiciled at this address is Virtus Trust, co-founded by Roderick Balfour, fifth earl of the same name and descendant of British Minister Arthur Balfour author of the famous eponymous Declaration on Palestine in 1917. He immediately warns: “The South Dakota is not a tax haven, it is an information paradise, and may soon be one of the last strongholds in the client’s privacy. ”
On the Internet, Virtus offers customers shelter in the United States by evading the automatic exchange of information
The secrecy of a trust can only be lifted by order of justice. About a hundred yards away on the same central street, lawyer Bradley Grossenburg can describe the extraordinary success of this new promised land better than anyone. He sits on the South Dakota Governor’s Trust Task Force. This body evaluates once a year the relevance of the laws governing trusts and the possible need to adapt them to a very competitive environment.
“Over the past six years,” says the lawyer, “interest in trusts here has become international. Customers from Latin America, Europe and Switzerland come to store their goods there. ”
Count Balfour adds: “Among the approximately seven million Americans living abroad, some decide to place their assets in South Dakota, because most Swiss banks and a good number of foreign establishments no longer want to do anything. with American citizens. “
No Brussels “diktats” or OECD
This Midwestern state has no personal, corporate, capital gains, dividend or interest taxes, or estate taxes. While many states restrict the life of a trust, South Dakota has no limits. The trust can be “perpetual”. With its laws to establish dynasty trusts, families can pass on their possessions from generation to generation without fear of prohibitive tax rates. “The federal inheritance tax hits only fortunes of more than $ 5.45 million or $ 10.9 million for both spouses,” said Bradley Grossenburg. But beyond these sums, there are a thousand and one ways to create structures to avoid the 40% tax burden imposed by the federal state.
Lawyer Grossenburg sees the South Dakota tax framework as “an opportunity.” We don’t hide anything. We follow the rules. If politicians don’t like them, they can change them. ” In a British accent worthy of his pedigree, Roderick Balfour specifies: “The United States is, so to speak, fifty different countries. According to many lawyers, the prospect of Congress imposing new laws on each of them seems remote to say the least. What is extraordinary with the United States is that such matters are debated in parliament. It has nothing to do with the dictates of Brussels and the OECD imposed through supranational laws. “
South Dakota outperforms New York with $ 2.9 trillion
In South Dakota, a very republican state, few are feeling international pressure for more tax transparency. The OECD standards governing the automatic exchange of information seem an abstraction.
“We have a lot of international clients placing their goods in the United States because of the growing instability and the lack of security in the world,” continues Bradley Grossenburg. Vice-president of the Cornerstone trust, Anthony Botticella confirms this. The state governor, parliament and the judiciary have a good understanding of business. He couldn’t say it better. Ten years ago, a trust wanted to leave Massachusetts to settle in South Dakota. It took the justice of the first state two years to authorize this change of domicile. It only took two weeks for the second to approve it.
It is impossible to understand the success of Sioux Falls and South Dakota without mentioning a key date: 1981. It was that year that CitiBank, the third largest bank in the country, had its headquarters there. The affair had caused a stir. Other banks followed, including Wells Fargo and USBank. According to Slater Barr, president of the Sioux Falls Development Foundation, funds under management in the state total $ 2.9 trillion. No other state, not even New York, can boast of hosting so many. South Dakota, a primarily agricultural state? If the money is “wheat”, maybe …