Substance over form law and structures

[Revoltec]

I mentioned this in another thread so I thought about creating a new one.

I see a lot of examples of structures where the only benefit is achieving lower tax. But, there is also a 'substance over form' law in many countries. How can it be legal to structure companies in these ways?

For instance, Estonia doesn't tax undistributed profits but taxes individuals on investments immediately. How can it be legal to create a company that only invest and trade stocks in order to lower taxes?

 

[cuno]

Legal is only a question if you do not comply with your local tax regulations. If you ensure substance for your company it is fully legal because the company operate in a different company than where the owner lives.

 

[sebastian]

Why would it not be legal? I don't understand your question.

 

[Revoltec]

sebastian said:
Why would it not be legal? I don't understand your question.
Click to expand...

Because you are using a structure to lower your taxes if your company got no other activities than investing into the stock market for you

 

[Don]

Revoltec said:
I mentioned this in another thread so I thought about creating a new one.

I see a lot of examples of structures where the only benefit is achieving lower tax. But, there is also a 'substance over form' law in many countries. How can it be legal to structure companies in these ways?

For instance, Estonia doesn't tax undistributed profits but taxes individuals on investments immediately. How can it be legal to create a company that only invest and trade stocks in order to lower taxes?
Click to expand...

Actually, in Estonia, there is also an investment regime for individuals where there is no capital gains tax, but you only pay tax when you withdraw money from your investment account (which is a bank account).

In some countries, it is completely legal to trade securities tax-free. Cyprus, for instance, does not tax profits from the sale of company shares with income tax.

 

[Revoltec]

Don said:
In some countries, it is completely legal to trade securities tax-free. Cyprus, for instance, does not tax profits from the sale of company shares with income tax.
Click to expand...

But here the problem is the same. You sell company shares but did you just create a company in order to achieve this tax benefit? In that case the 'substance over form' law can be used against you if the company got no substance.

 

[sebastian]

If you build substance for the company and do it right now discounted version of substance I can't see where it would go wrong. There are so many things you still able to do to avoid any tax servant to tell you he refuse the structure and tax you.