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> 2) How to prevent corporations from paying individuals/employees to manage property? How should managing the property make them tax exempt? Do they transfer

by yokaze 6y ago

> 2) How to prevent corporations from paying individuals/employees to manage property? How should managing the property make them tax exempt? Do they transfer the ownership?

dsr_ 6y ago
Let's say that BigCo wants to buy a $50M office building on the outskirts of the capital city of Taxis, where corporate owners of real estate are taxed at 8% of the market value of the property each year but individual owners are taxed at 1% per year. BigCo writes a contract with Jane Schmidt, a citizen of Taxis. BigCo will loan Jane $50M to buy an office building, and Jane will lease the building only to BigCo. At the end of thirty years, Jane will have paid back the loan via the payments that BigCo has made, including necessary maintenance (handled by a BigCo subsidiary) and insurance (handled by BigCo's main insurance company). BigCo will also pay all reasonable and actual legal fees arising from Jane's ownership of the building. The contract provides that at any three year boundary or in the event of Jane's death, BigCo can direct Jane or her estate to sell the building to an entity of BigCo's choosing; Jane will get a fee but owe the remainder of the sale price to BigCo. Jane is happy because she makes some money for the next three to thirty years. BigCo gets to avoid 7/8ths of the tax burden in exchange for a much smaller sum going to Jane. BigCo doesn't show the building as an asset but as a rent expense plus an income-generating loan. At the end of the contract, BigCo directs Jane to sell the office building to Steve Jones for the current market price of the building, Steve having a similar deal in place with another company.
- a1369209993 6y ago
  > BigCo will loan Jane $50M to buy an office building, and Jane will lease the building only to BigCo. Jane is a corporate owner of [this particluar piece of] real estate, and is taxed at 8%. > The contract provides that at any three year boundary or in the event of Jane's death, BigCo can direct Jane or her estate to sell the building to an entity of BigCo's choosing Also (seperately from the previous bit), Jane doesn't actually own the building.
- yokaze 6y ago
  First off, I agree with you on principle. I do think it is too prone for circumvention. Whatever criticism is thrown at you in detail, it can likely be adjusted in the contract accordingly. So, keeping that in mind, (and that IANAL) lets develop it further. I have trouble seeing that as being a legal contract, as all the rules are in favour/at will of the BigCo. I believe that renders such passages void in some jurisdictions. E.g. It is hard to claim that you can sell at market-rate, if there is no free market, since the buyer is at BigCo's choosing. Assuming it is legal, it leaves Jane completely at the risk of deprecation and the will of BigCo to make use of it, and leave Jane with the debt of the difference. Selling a property is usually accompanied by a property sale tax (at least in Europe). One of the reasons a lot of private people found companies to actually own their property. Worst problem though I see is, that BigCo is here at risk that there could be a regulatory change, which renders parts of the contract invalid, making Jane not only owner in name, but also in fact.
  - lumost 6y ago
    These contracts are private, as long as neither party seeks to break the deal - then no regulatory agency will intervene. Jane would be fighting a long battle with BigCo. In terms of economic bindings in the contract. It's possible to require Jane to have a nominal loan equal to the market value of the property due to BigCo. Jane would need to both claim ownership (hard), break out of the loan (harder), or go bankrupt.
    - yokaze 6y ago
      > These contracts are private, as long as neither party seeks to break the deal - then no regulatory agency will intervene. Not sure about the US, but in many parts of Europe, contracts are subject to law, and cannot override it. But new laws can override existing contracts. I assume it is the same in the US, because all US contracts I saw contained an "Invalid Clauses"-clause: https://www.lawinsider.com/clause/invalid-clauses https://www.lawinsider.com/clause/invalid-clauses Aren't there any rules on loans in the US too? To my knowledge, there are strict limitations as to bundling of services. > Jane would be fighting a long battle with BigCo. Or not. If the case is clear cut.

by yokaze 6y ago

> 2) How to prevent corporations from paying individuals/employees to manage property? How should managing the property make them tax exempt? Do they transfer the ownership?

dsr_ 6y ago

Let's say that BigCo wants to buy a $50M office building on the outskirts of the capital city of Taxis, where corporate owners of real estate are taxed at 8% of the market value of the property each year but individual owners are taxed at 1% per year. BigCo writes a contract with Jane Schmidt, a citizen of Taxis. BigCo will loan Jane $50M to buy an office building, and Jane will lease the building only to BigCo. At the end of thirty years, Jane will have paid back the loan via the payments that BigCo has made, including necessary maintenance (handled by a BigCo subsidiary) and insurance (handled by BigCo's main insurance company). BigCo will also pay all reasonable and actual legal fees arising from Jane's ownership of the building. The contract provides that at any three year boundary or in the event of Jane's death, BigCo can direct Jane or her estate to sell the building to an entity of BigCo's choosing; Jane will get a fee but owe the remainder of the sale price to BigCo. Jane is happy because she makes some money for the next three to thirty years. BigCo gets to avoid 7/8ths of the tax burden in exchange for a much smaller sum going to Jane. BigCo doesn't show the building as an asset but as a rent expense plus an income-generating loan. At the end of the contract, BigCo directs Jane to sell the office building to Steve Jones for the current market price of the building, Steve having a similar deal in place with another company.

a1369209993 6y ago
> BigCo will loan Jane $50M to buy an office building, and Jane will lease the building only to BigCo. Jane is a corporate owner of [this particluar piece of] real estate, and is taxed at 8%. > The contract provides that at any three year boundary or in the event of Jane's death, BigCo can direct Jane or her estate to sell the building to an entity of BigCo's choosing Also (seperately from the previous bit), Jane doesn't actually own the building.
yokaze 6y ago
First off, I agree with you on principle. I do think it is too prone for circumvention. Whatever criticism is thrown at you in detail, it can likely be adjusted in the contract accordingly. So, keeping that in mind, (and that IANAL) lets develop it further. I have trouble seeing that as being a legal contract, as all the rules are in favour/at will of the BigCo. I believe that renders such passages void in some jurisdictions. E.g. It is hard to claim that you can sell at market-rate, if there is no free market, since the buyer is at BigCo's choosing. Assuming it is legal, it leaves Jane completely at the risk of deprecation and the will of BigCo to make use of it, and leave Jane with the debt of the difference. Selling a property is usually accompanied by a property sale tax (at least in Europe). One of the reasons a lot of private people found companies to actually own their property. Worst problem though I see is, that BigCo is here at risk that there could be a regulatory change, which renders parts of the contract invalid, making Jane not only owner in name, but also in fact.
- lumost 6y ago
  These contracts are private, as long as neither party seeks to break the deal - then no regulatory agency will intervene. Jane would be fighting a long battle with BigCo. In terms of economic bindings in the contract. It's possible to require Jane to have a nominal loan equal to the market value of the property due to BigCo. Jane would need to both claim ownership (hard), break out of the loan (harder), or go bankrupt.
  - yokaze 6y ago
    > These contracts are private, as long as neither party seeks to break the deal - then no regulatory agency will intervene. Not sure about the US, but in many parts of Europe, contracts are subject to law, and cannot override it. But new laws can override existing contracts. I assume it is the same in the US, because all US contracts I saw contained an "Invalid Clauses"-clause: https://www.lawinsider.com/clause/invalid-clauses https://www.lawinsider.com/clause/invalid-clauses Aren't there any rules on loans in the US too? To my knowledge, there are strict limitations as to bundling of services. > Jane would be fighting a long battle with BigCo. Or not. If the case is clear cut.