Please tell my why this particular strategy won't work!

[Educate]

Let's say you register two companies:

1. Company A in Caymans or another 0% tax jurisdiction that you are sole beneficiary of.
2. Company B in your local country that you are sole beneficiary of.
3. Offshore bank account for Company A.
4. Local bank account for Company B.

Your local Company B "buys" services or patents from the offshore Company A, showing losses or reporting 0$ profit and what not.

Then Company A later "loans" local Company B money and you still don't pay profit for it since it is a loan.

Ok, so let's say this gets reported by CRS. So what? Technically it is a legal structure.

Kind of like a simplified Dutch-Irish sandwich.

Criticisms?

 

[Nyep]

The main (but not only) problem is CFC rules. In most countries Company A will be viewed as a local company by the tax authorities, since it is fully controlled from the local country.

Some backward countries still haven't jumped on the CFC wagon, may want to check there.

 

[Martin Everson]

This abusive practice won't work because of CFC rules firstly. Secondly Transfer Pricing in OECD Anti Base Erosion and Profit Shifting Initiative (BEPS, see actions 8-10). You see both companies have common ownership and hence are associated companies and any transaction i.e loan won't be in accordance with an arms length principle. You will be deemed to to be using an artificial profit shifting construct to avoid taxation so it falls under BEPS.

Oh and add the use of a tax haven like Cayman island and the taxman will go through a whole tub of vaseline with you alone 🙁.

Bottom line is profit shifting will not work. Some basic reading below thu&¤#

Base erosion and profit shifting - Wikipedia
Transfer pricing - Wikipedia

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Educate]

CFC? Chlorofluorocarbon?

What are these CFC rules? What is CFC?

If it won't work for me, why does it work for Apple, Google and others? They are doing it somehow with the whole Ireland Dutch thing.

 

[Nyep]

Educate said:
What are these CFC rules?
Click to expand...

New to the internets? Try here.

 

[Martin Everson]

Educate said:
If it won't work for me, why does it work for Apple, Google and others? They are doing it somehow with the whole Ireland Dutch thing.
Click to expand...

Yes they have been doing it and some are still doing it but are being challenged in court. The OECD, EU ATAD, CFC rules and BEPS ends this practice. Unless you have access to a substantial team of expensive lawyers, accounts and tax specialists to find some obscure technicality in local tax law in court don't think you can copy what Amazon, Google or Apple are doing.

Multinationals typically have pre-agreed tax arrangements with the states they move to. i.e Apple had agreement with Ireland where it basically paid hardly any taxes and in return it invested in Ireland creating well paid jobs etc. Those well paid jobs generate substantial tax from salaries and cash into the economy via rents, restaurants etc etc. Unfortunately the EU found this arrangement illegal and Apple was forced to pay 14bn euros in back taxes.

Ireland collects more than €14bn in taxes and interest from Apple

You will find the same happened in France with Google (even though Google appealed and won) and is happening everywhere even in US with Caterpillar who tried this nonsense via a Swiss entity.

Caterpillar's $2 billion tax fight with the IRS could change how US companies do business

Don't think Apple, Google etc are getting away with it as the net is closing and their practices are under close scrutiny with regular audits etc. Many multinationals have voluntarily ended using aggressive tax avoidance practices as the laws are changing and public opinion over how much tax big companies should pay has changed....ask Starbucks 😉.

Fury as Starbucks pays just £4.5m tax on £162m profits

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Educate]

Nyep said:
New to the internets? Try here.
Click to expand...

Yeah, I literally did that and got Chlorofluorocarbon.

This abusive practice won't work because of CFC rules firstly. Secondly Transfer Pricing in OECD Anti Base Erosion and Profit Shifting Initiative (BEPS, see actions 8-10). You see both companies have common ownership and hence are associated companies and any transaction i.e loan won't be in accordance with an arms length principle. You will be deemed to to be using an artificial profit shifting construct to avoid taxation so it falls under BEPS.
Click to expand...

OK, then what if Company A is owned by one beneficiary and Company B is owned by another? My mom for example?

 

[Reboot]

Educate said:
Let's say you register two companies:

1. Company A in Caymans or another 0% tax jurisdiction that you are sole beneficiary of.
2. Company B in your local country that you are sole beneficiary of.
3. Offshore bank account for Company A.
4. Local bank account for Company B.

Your local Company B "buys" services or patents from the offshore Company A, showing losses or reporting 0$ profit and what not.

Then Company A later "loans" local Company B money and you still don't pay profit for it since it is a loan.

Ok, so let's say this gets reported by CRS. So what? Technically it is a legal structure.

Kind of like a simplified Dutch-Irish sandwich.

Criticisms?
Click to expand...

Where will be company B located?

 

[Martin Everson]

Educate said:
OK, then what if Company A is owned by one beneficiary and Company B is owned by another? My mom for example?
Click to expand...

The taxman will say where is the management and control taking place as that is where the company will be taxed. Where the company is incorporated or who the beneficiary is matters not in 2019. You need to examine your CFC laws - if they exist, otherwise I can tell you failure is always the best teacher in life 🙁.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Reboot]

I guess it will also depend on the amounts in question to get attention from the taxman.

 

[Educate]

Martin Everson said:
The taxman will say where is the management and control taking place as that is where the company will be taxed. Where the company is incorporated or who the beneficiary is matters not in 2019. You need to examine your CFC laws - if they exist, otherwise I can tell you failure is always the best teacher in life 🙁.
Click to expand...

Mm, what is CFC? I don't understand what you are talking about.

Are those OECD regulations?

Also, if this strategy does not work in 2019 anymore why is Google, Amazon, Caterpillar and other giants using it?

 

[Reboot]

CFC stands for controlled foreign corporation and it's the exchange of information between country A and B

 

[Educate]

So which are international CFC laws?

 

[Reboot]

Which country are you located?

 

[Educate]

Reboot said:
Which country are you located?
Click to expand...

I don't want to reveal this. But can you answer which are international CFC laws? Are they mandated by OECD ,EU, whom?

 

[Reboot]

Educate said:
I don't want to reveal this. But can you answer which are international CFC laws? Are they mandated by OECD ,EU, whom?
Click to expand...

Unless you live in a country with 2 inhabitants I don't see a problem doh948""

Yes OECD

 

[Educate]

Reboot said:
Unless you live in a country with 2 inhabitants I don't see a problem doh948""

Yes OECD
Click to expand...

Which OECD law is it specifically? Is it CRS? Can you point out law and specific paragraph? I am trying to find it, but cannot.

 

[Reboot]

Common Reporting Standard (CRS) - Organisation for Economic Co-operation and Development

 

[jakonda]

Are you going to try this setup ? BTW why you want to "loan" the money from offshore company A to company B ? What happen if company B default on a loan ?

 

[Martin Everson]

Educate said:
Mm, what is CFC? I don't understand what you are talking about.

Are those OECD regulations?

Also, if this strategy does not work in 2019 anymore why is Google, Amazon, Caterpillar and other giants using it?
Click to expand...

Not to be rude but I don't think you can be helped judging by your response. You asked the same questions now twice skipping the answers you were given by two people. If you can't google "CFC rules" and understand what they are or read what I wrote about what is happening to companies using this sort of aggressive tax planning then,..good luck with whatever you decide to do thu&¤#.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.