How does the local tax office impose tax on an offshore company with local PE

[flyingadventures662]

Suppose your local tax office claims your offshore company is taxable not only with dividend, but also with corporate tax (due to CFC/PE rules or whatever).

Provided the fact they can't inspect the book records (can they?), how to they impose the corporate tax in this case:

1) The expect you "blindly" for them to estimate it based on the corporate profits this year, as if indeed it was a local company, just declare a number as a corporate tax an pay it, + pay the dividend on what you withdraw (the only thing visible for them)

OR

2) They expect you to pay corporate tax + dividend tax on the dividend you withdraw.

 

[Sols]

The neat thing about being a tax authority is you often don't have to prove‌ anything. You just make an assumption (usually based on previous rulings, guidelines, or templates) and‍ leave it up to the tax payer to fight back and prove otherwise.

 

[flyingadventures662]

But but but sir, this is cruel and unfair!

 

[JohnnyDoe]

pastet89 said:
But but but sir, this is cruel and unfair!
Click to expand...

This is life. So you better play by their rules or move your back elsewhere

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@JohnnyDoe ”“ Your #1 Source for Guidance in Different Offshore Fields​

 

[algotrader]

Search for judicial precedents for your country and you will have an answer to‌ your question.

 

[Mike Forman]

This is correct and believe me, their only intention is to get⁤ significant amounts of money once they start looking into your structures by use of false⁣ statements. Tax authorities only care about what taxes you pay in their country, even if⁢ your outside structure / establishment is legit and you paid taxes there.

This often ends︀ in a battle, where either an agreement is found between the tax payer and tax︁ authorities about a negotiated amount or a becomes a legal case that depending on the︂ complexity can easily cost a few hundred thousands usd legal fees.

They operate very simple,︃ they just send you the tax assement bill on which you have 30 days to︄ dispute or pay. Disputing it doesn't make a difference to the bill, you still are︅ considered to own that amount and they can / will block meanwhile your assets during︆ the period of dispute (block real estate, money on Bank accounts).

The advice that is︇ always given here, if you want to avoid / reduce taxes in the country you︈ live by setting up other structures or residence, make sure you are out of there︉ and have cut all ties. Even you structured everything correctly and have proof of substance,︊ once you are on their radar they won't let you go until they have got︋ a considerable amount of money out of you or they have lost in court. They︌ are often bad losers so even you lose they will often go appeal, meanwhile further︍ draining you with more legal feeds and years of litigation.

If you have such a︎ structure /establishment which is legit you can better ask a ruling in advance from the️ authorities where they agree this is legit.

 

[flyingadventures662]

Honestly in this particular case︍ I am asking for the opposite reason - not to try to do something shady.︎

I know for sure that if I have an offshore company with a remote Nominee️ Director, I will declare it's not managed from here and I will not pay any‌ corporate tax.

But it's so hard to find a Nominee Director which in the same‍ time to verify crypto exchanges etc... So I am a bit pissed about it. And⁠ I am starting to consider to do it without a DIrector.

My lawyer told me⁤ that, frankly speaking, even without a Director the tax office could not find out that⁣ I don't have a Director.

But as I want to be completely fair with them⁢ (if I do it without a Nominee Director), and I still want to go offshore︀ to forget about all the accounting/administrative hell, I would be happy to pay both the︁ corporate AND dividend fee, openly saying: yes, I am the Director, the company is managed︂ from here.

So I want to know what to expect. I was told by one︃ accountant it works the other way around: I pretend it to be offshore and the︄ company not managed from here, I pay only the dividend, then they get angry and︅ say: now we force you to pay both the corporate tax and the dividend and︆ I say "OK".

But the thing is if I want to do it voluntarily how︇ to do it. And if they will ask me to pay both taxes on the︈ dividend I distribute (which is fine) or will expect me to pay the corporate on︉ the real profit (which is unacceptable but also not traceable AFAIK).

 

[Sols]

Have you considered just hiring your own director? Either a seasoned professional (expensive) or someone fresh⁠ out of university or early in their career with a somewhat relevant background on a⁤ part time basis (cheap).

Depending on the tax laws and tax authorities in your country, you have⁣ a few options:

1. Do nothing and wake up to a tax bill, with burden of⁢ proof on you to convince the tax authority or the courts they're wrong.
   
2. File proactively,︀ the way you think it should be.
   
3. File proactively, but get a legal opinion and︁ written tax advice first. The legal opinion and written tax advice can you in case︂ of a dispute with the tax authority.
   
4. Get an advance ruling from the tax authority.︃ Where this is accepted practice, it works well so long as the structure you use︄ in reality matches the ruling.
   

But it's highly dependent on where you live, and under︅ what circumstances you are being questioned (if at all).

Aside from high profile cases, I︆ have never seen a tax authority sit down and study the inner workings of an︇ offshore company to give a fair calculation of how much taxes are owed. They'll just︈ invoice you a number and leave it up to you to prove them differently.

It can indeed be difficult to︊ prove the taxable profit of a company, especially if the accounts aren't audited.

That's precisely︋ why many (most, if not all) tax laws have situations where the burden of proof︌ is reversed. It's not on them to prove what the tax base is. It's up︍ to you to prove that their guess is wrong and provide an alternative number, backed︎ up with convincing evidence.

It sounds like your local tax authority is very lax. A️ local expert would know better what to expect from them. What I've mentioned here is‌ based on tax authorities broadly.

 

[flyingadventures662]

I am currently hunting.

BBCIncorp was asking for 450$ per year for this service which was great, but I couldn't⁠ use them for other reasons.

Also, if the ND is not from the same country⁤ where the company is incorporated it adds another layer of complexity as you need to⁣ care for one more jurisdiction and if the ND residency won't make the company tax⁢ liable in his country.

BTW if you have any suggestions please PM me.

 

[Sols]

Depending on your budget and where you've incorporated, one option would be to just find‌ some local online job boards and post a ads there for a company manager. Screen‍ some applicants, interview them, and hire someone to be the director of the company. A⁠ lot of people are happy to collect a few thousand a year to basically do⁤ nothing.

 

[flyingadventures662]

Well the problem is that I am not happy⁣ to pay a few thousand lol.

But I might try a few hundred in Georgia⁢ or Philippines.

How about the risks? Are they for them or for me? What is︀ the worst thing that may happen if they do something terrible... Or just disappear (the︁ latter being very likely).

As an owner, can I just fire them and replace with︂ another direction any time I wish?

 

[Sols]

Then you have three options: hope someone is willing to do it for that⁠ little, use more nefarious methods, or go back to the drawing board and see if⁤ this offshore venture is really worth it or if you're maybe premature in your plans⁣ or can structure it differently to save on costs.

Both have risks.

Complete loss of company funds. For︂ example, the director could open a bank account for the company without your knowledge or︃ consent, transfer all the assets there, and run away.

Generally speaking, yes. There might be specific circumstances under which director can't be dismissed︆ right away.

 

[flyingadventures662]

I am not that scared about that to be honest.⁠

My crypto is in my own crypto wallets.

I was rather wondering if the Director⁤ disappears if I can clean the administrative mess.

 

[clemens]

Exactly how it works. They can do whatever they want to do,⁤ the burden the the responsibility lies with you. It's and insane world after all.

 

[Sols]

The point is they can do whatever a director can do.

As an aside, if‍ you retain control of the crypto and some particularly difficult compliance officer gets wind of⁠ it, that could make you a director or account signatory. I don't think I've ever⁤ seen that happen, but I have seen companies take precautions by making sure UBO at⁣ least does not have exclusive ability to effect transactions (i.e. multi signatory wallets).

Yes, you can than easily dismiss them and appoint someone else.

 

[JohnLocke]

Very normal in larger companies and organizations. In one of my other companies we do⁠ the same, UBO can't execute any transactions higher then X amount!

 

[flyingadventures662]

I am not concerned about this. I have discussed it with my lawyer. One POA‌ and I'm fine to do whatever I want. I guess it depends on the country‍ and tax office specifics.

 

[CyprusLawyer101]

Apportionment of profits in cfc rules and PE are totally different and shouldnt be confused.‌ For PE rules on attribution of profits, have a look at Article 7 of the‍ double tax treaties.