CFC Rules and loopholes?

[cryptodefi]

Individual in Country A:

1. The individual is not from US, nor Europe, but from a tier2 or 3 country
2. Country A does not have Controlled Foreign Corporation (CFC) rules or Common Reporting Standard (CRS) requirements but does have Permanent Establishment (PE) rules.
3. Country A does not tax passive income or dividends unless it involves financial activities.
4. Country A levies income tax if the income is managed within the country.

Company 1 in Country B:

1. Country B does not have CFC or PE rules.
2. Country B does not impose any form of tax on corporations.
3. Company 1 is 100% owned by Company 2.

Company 2 in Country C:

1. Country C does not have CFC or PE rules.
2. Company 2 is a holding company and owns Company 1 (100%).
3. Individual owns this holding company.

Transactions:

• Company A pays dividends to Company B.
• Company B holds all the funds.

Questions:

1. Should the Individual pay any tax if the funds are not distributed?
2. If a distribution occurs, would the Individual need to pay any tax since it might be considered passive income?
3. What could be the potential risks and issues of this structure?
   
   Important to say that I'm not trying to evade but avoid tax, legally, playing under the rules. In this case, the territorial tax treaty and no CFC rules

 

[Marzio]

If company 1 and company 2 are managed by you from country A, both are tax resident in country A.

 

[Forester]

Just to clarify. What do you mean by this:

cryptodefi said:
Transactions:

• Company A pays dividends to Company B.
• Company B holds all the funds.

Click to expand...

==
Company 1 pays dividends to Company 2.
Company 2 holds all the funds.
==
I guess?

Generally, @Marzio is correct, IMO. Of course, there can be some specifics in the Country A regulations which are impossible to take into account whithout the information what Country A is.

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I am just a simple countryman. Anything I say is only a personal opinion, not a certified advice 🙂

If you think it makes sense, you can like it; if opposite, please, tell me, why I am wrong...

 

[cryptodefi]

Yes, if company 2 holds the funds, will be they be paying corporate tax?

 

[EliasIT]

Don't make such a secret about which countries we are talking about. I know the monkeys in tax offices have AI but they can't locate where you are just because you tell us what countries you questioning!

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[Forester]

EliasIT said:
Don't make such a secret about which countries we are talking about. I know the monkeys in tax offices have AI but they can't locate where you are just because you tell us what countries you questioning!
Click to expand...

cryptodefi said:
Yes, if company 2 holds the funds, will be they be paying corporate tax?
Click to expand...

Really, lacking the knowledge what country A is, it is not much possible to give a valid answer. Regulations differ.

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I am just a simple countryman. Anything I say is only a personal opinion, not a certified advice 🙂

If you think it makes sense, you can like it; if opposite, please, tell me, why I am wrong...

 

[cryptodefi]

Haha sorry. It is a Latin American island in the Caribbean. Should be enough