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.

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This is the probably the answer to your question.

 

[flyingadventures662]

But but but sir, this is cruel and unfair!

 

[JohnnyDoe]

pastet89 said:
But but but sir, this is cruel and unfair!
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This is life. So you better play by their rules or move your back elsewhere

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[algotrader]

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

 

[Mike Forman]

Sols said:
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.
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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 ends in a battle, where either an agreement is found between the tax payer and tax authorities about a negotiated amount or a becomes a legal case that depending on the 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 to dispute or pay. Disputing it doesn't make a difference to the bill, you still are considered to own that amount and they can / will block meanwhile your assets during the period of dispute (block real estate, money on Bank accounts).


The advice that is always given here, if you want to avoid / reduce taxes in the country you live by setting up other structures or residence, make sure you are out of there 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 got a considerable amount of money out of you or they have lost in court. They are often bad losers so even you lose they will often go appeal, meanwhile further draining you with more legal feeds and years of litigation.

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

 

[flyingadventures662]

Mike Forman said:
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 ends in a battle, where either an agreement is found between the tax payer and tax authorities about a negotiated amount or a becomes a legal case that depending on the 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 to dispute or pay. Disputing it doesn't make a difference to the bill, you still are considered to own that amount and they can / will block meanwhile your assets during the period of dispute (block real estate, money on Bank accounts).


The advice that is always given here, if you want to avoid / reduce taxes in the country you live by setting up other structures or residence, make sure you are out of there 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 got a considerable amount of money out of you or they have lost in court. They are often bad losers so even you lose they will often go appeal, meanwhile further draining you with more legal feeds and years of litigation.

If you have such a structure /establishment which is legit you can better ask a ruling in advance from the authorities where they agree this is legit.
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Honestly in this particular case 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 Nominee 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 offshore to forget about all the accounting/administrative hell, I would be happy to pay both the corporate AND dividend fee, openly saying: yes, I am the Director, the company is managed from here.

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

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

 

[Sols]

pastet89 said:
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.
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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).

pastet89 said:
So I want to know what to expect.
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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 and written tax advice first. The legal opinion and written tax advice can you in case 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 use in reality matches the ruling.

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

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

pastet89 said:
or will expect me to pay the corporate on the real profit (which is unacceptable but also not traceable AFAIK).
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It can indeed be difficult to prove the taxable profit of a company, especially if the accounts aren't audited.

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

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

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This is the probably the answer to your question.

 

[flyingadventures662]

Sols said:
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).
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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.

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This is the probably the answer to your question.

 

[flyingadventures662]

Sols said:
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.
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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 is the worst thing that may happen if they do something terrible... Or just disappear (the latter being very likely).

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

 

[Sols]

pastet89 said:
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.
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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.

pastet89 said:
How about the risks? Are they for them or for me?
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Both have risks.

pastet89 said:
What is the worst thing that may happen if they do something terrible... Or just disappear (the latter being very likely).
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Complete loss of company funds. For example, the director could open a bank account for the company without your knowledge or consent, transfer all the assets there, and run away.

pastet89 said:
As an owner, can I just fire them and replace with another direction any time I wish?
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Generally speaking, yes. There might be specific circumstances under which director can't be dismissed right away.

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This is the probably the answer to your question.

 

[flyingadventures662]

Sols said:
Complete loss of company funds. For example, the director could open a bank account for the company without your knowledge or consent, transfer all the assets there, and run away.
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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]

Sols said:
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.
Click to expand...

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.

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[Sols]

pastet89 said:
I am not that scared about that to be honest.
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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).

pastet89 said:
I was rather wondering if the Director disappears if I can clean the administrative mess.
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Yes, you can than easily dismiss them and appoint someone else.

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This is the probably the answer to your question.

 

[JohnLocke]

Sols said:
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).
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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!

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[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.