Why hubris meets its nemisis. As the Wimbledon tennis championships commence today (27 June) David Lesperance says the Ancient Greeks always had the right words for every tragedy, in this case the lure of tax evasion running aground on the shoals of technology.

A perfect illustration is Boris Becker, the former German tennis star. He was recently in the headlines when he was convicted of bankruptcy fraud. However this conviction follows a prior 2002 conviction for tax evasion in the early 1990's.

At that time, his tax evasion was only brought to light by a super fan secretly photographing him, in Germany rather than his claimed tax home of Monaco. Rather than a rabid today's tax evaders are instead being stalked by their own technology…their cellphone.

"Hybris" (the original spelling of Hubris) indeed! Boris lived as he wanted: "Nemesis" only arrived because the tax evasion had become so blatant, he could no longer cover it up.

At the height of his career, Becker declared that he was leaving his native high tax Germany and becoming a resident of low tax Monaco. However, for such a tax plan to be successful specific rules had to be followed, including severely limiting his future physical presence in Germany.

In a fit of hubris, Becker decided that these were not rules but rather suggestions, that he could ignore. Unfortunately, while claiming to live in Monte Carlo, the three-time Wimbledon champion was found to still be residing in Germany and was accordingly charged and convicted of tax evasion.

Over the years, many others have treated the rules relating to changing tax homes as suggestions that could be ignored. They have also increasingly paid heavily for their hubris. This includes UHNW Belgians also claiming a Monaco residence and US fund managers and crypto enthusiasts attempting to take advantage of Puerto Rican tax schemes.  

Recently famous pop singer Shakira ran afoul of the same issue, when Spanish courts determined that she did not have the Bahamian tax home she was claiming. The Spanish Court announced in May that evidence suggested Shakira was "a habitual resident of Spain" and that her documentation indicated "sufficient evidence of criminality" for the €14 million case to go to trial.

When Boris Becker originally engaged in tax evasion in the 1990's there were already many ways that tax authorities could discover that he was being dishonest about where he was spending his time.  Over the ensuing decades, the trip wires have exponentially increased. Social media accounts, credit card statements, cellphone records, and even Uber Eats receipts will be enough to tell any court exactly where you've been. 

The Boris fan photos were the entry point of what became a pandora's box of evasion. His hubris extended beyond lying about physical presence and included (and I quote the prosecution's list of hidden assets) … "undeclared Wimbledon trophies, assets worth €426,930.00 from his bankrupt estate and a hidden €825,000 bank loan."

Shakira's approach, however, showed the opposite of hubris. Her PR firm said in late May that the singer had immediately paid what she owed, once the debt had been confirmed by Spain's Tax Office. According to the statement, Shakira's legal team will continue to "defend her innocence." However, she still faces a possible fine if found guilty.

The most recent high profile example of hubris is US cryptocurrency billionaire Brock Pierce when he announced his potential run for a Vermont Senate seat. Unfortunately his flirtation with a US senate run could cost him a fortune in saved taxes down in Puerto Rico - to the schadenfreude of both friends and enemies.

According to Vermont newspaper VTDigger, his location problem appears insoluble. The Federal Election Commission requires that candidates for the Senate from Vermont reside there for 183 days a year. However, Pierce is currently benefitting from a Puerto Rican tax program designed to coax wealthy Americans to the island. This allows US citizens to maintain their citizenship if living there at least 183 days each year and to pay no taxes on passive income from capital gains, interests or dividends.  

It's the days that count, Mr. Pierce! Because 183 (Vermont) + 183 (Puerto Rico) adds up to, er, 366. As the VTDigger sagely pronounced: "…let's get out our calculators here, beep, boop, zzzrt - means that he can't be a resident of both."

Pierce has issued splendidly vague statements about his plans - but has potentially been hoisted himself on his own tax petard.

In today's world, nothing is as secret as it may seem. Private jets still clear customs, boats are tracked, and cryptocurrency is not traceless.  Fertile audit soil can be found when residents of New York try to claim tax residence in zero state tax Florida. The frequency of individuals being dishonest about their primary location has led to an almost guaranteed audit for those who claim non-residence in New York. 

Prior to the UBS scandal, my legal tax planning strategies were rejected by people saying they were "just going to meet with some Swiss banker they met at Art Basel Miami". Then for years, I met people who didn't want to renounce their US citizenship because they could just lie about having to spend six months in Puerto Rico. 

In a modern world of cellphones constantly pinging off local towers; children posting about dinner last night on instagram; and exchange of travel information as a result of Covid, lying about physical presence is a recipe for disaster.

The bottom-line is that in order to benefit from tax strategies which require a change in tax home, one must recognise the requirements as iron-clad. If they cannot or are unwilling to live the plan, then they should not attempt to execute the strategies. Along with paying the tax and enormous financial penalties, the loss of reputation and freedom is just too high a price.

By David Lesperance, founder and principal of international tax and immigration advisers, Lesperance & Associates.