I like to think of it as an investment bank. You pay me a percentage of your new business and then after a year or so, I give you the money back. That’s how I invest my money.
The reason this is so interesting is because Abboud has been in business for so long that it’s become a kind of invisible company. Like a company you don’t really think of as a company at all, but you know it when you hear about it. You know it when you see it in the news, or when you read about it in the business press.
The company was founded by a French businessman who wanted to make a hedge fund. When he made the first trade, he found that the risk was too high. So the company found a partner, and the partner invested a lot of money in the company. The company grew so fast that its almost impossible to trace the original founder. All the while, the partners and Abboud’s investors made money. Then they made a trade that made them a lot of money.
Abbouds investors wanted a way to get their money out faster, so they found a way to pay the cost of the trade with interest and then reinvest it in some other company. So the profits of the company are taxed, but they don’t have to pay tax on the interest they earn on the money they made before the trade.
The exchange has the same effect on Abbouds investors and the original founder. The original founder reinvesting in the company, and the company reinvesting in other companies that are taxed on their profits, and eventually the company and the original founder are both taxed on the profits they make from that trade. It’s a little confusing because the tax rate on the initial investment is basically the same as the tax rate on the interest they earn on the money they made before the trade.
Abboud Trading has been around since the mid-90’s. The founders (Mike and Jim) were always buying and selling stocks, and the money they made from the trade was reinvested back into the company. They were always buying and selling some other company, too.
When the founder is in the US, you can avoid income taxes by converting cash into US dollars then putting it in a tax-free bank account. When they are abroad, you have to pay taxes on the money you made before you converted it into dollars. In the US, the founder can invest the money in a tax-free bank account, and if he or she wants to reinvest it in a different company, they have to pay income tax on the amount they put in.
We should probably not talk about the tax-free bank accounts any time soon, but it’s a useful example. For the record, a lot of companies actually do pay taxes when they convert their cash into American dollars. But in the US, if you convert your cash into dollars then invest it in a tax-free bank account, you don’t pay income taxes on that money.
In the case of abboud, the money in their bank account might be money that is tax-free (or tax-deferred) because it was put there by the owner of the bank account. For example, if you owned a condo and put $100,000 in your bank account for a tax-free year, you might not pay any Federal income tax on that $100,000.
But in the US, if you invest your money in a tax-deferred bank account and you don’t pay income taxes on it, you would be taxed on your 100,000 as income. No, in the US, you are taxed on that 100,000 as income, and you can’t put it in a tax-free bank account.