5 ms·

This begs the question of what purpose the shell companies serve.

applepple 5y ago
Maybe revenue laundering using borrowed credit? I wouldn't be surprised if some day we discover that many corporations the tech space have been engaged in some kind of global credit laundering scheme using shell companies as a filter to systematically separate credit from debt in order to generate artificial revenue for big tech corporations... Money extracted straight from the big banks. They should refer to this scheme as a 'Clam farming' because they just load up the shell companies with bank loans then extract the meat and toss away the shell.
- KirillPanov 5y ago
  What kind of bank makes business loans without encumbering any collateral?
  - applepple 5y ago
    Why not just create intangible collateral out of thin air? E.g. crypto? Then you just use some of the credit to pump up the value of the collateral to meet the bank's expectation.
    - KirillPanov 5y ago
      That's called fraud. You would need to find an especially stupid bank. You can certainly do that, but if you're wiling to commit crimes there are much easier ways to make money.
      - deleted 5y ago
        [deleted]
MattGaiser 5y ago
Maybe they don’t make a loss in every jurisdiction.
ABCLAW 5y ago
Shell companies are just companies without offices. You can use corporate entities to organize assets, create trusts, hold certain obligations, create joint ventures, provide equity to align interests, etc. All of these things are beneficial. If you treat this like a game and try to win it, though, the 'building block' of legal personhood can be broken. The mechanics aren't perfect. You can book profits to one entity, then losses to another by creating 'fake' intercompany transactions, despite the fact that your organization as a whole is net even. We have rules that attempt to deal with these problems in arms-length transactions - regulators get to check if the contract payment amounts make sense. If you do this with IP, which is hard to value, tax offices have significant issues disputing the value of the inter-company contracts. You use this issue to toss losses between various national corporations to take advantage of problems with individual tax regimes. The double irish/dutch sandwich technique is a great example. But eventually the chickens need to come home to roost, right? Well, not really. Tax haven jurisdictions basically allow you to park money which you've obtained via your tax avoidance system in an account nearly indefinitely. You'll generally need to pay for a resident or residents to sit on the board of your tax haven jurisdiction corporation board, which lets them scalp 50-250k a year from you, but if you're hoarding billions, it's irrelevant. IF you're a normal joe, however, the accounting, legal and director fees kill you. Oddly, if you look at the leadership structures in place in most tax havens, they look a lot like a bunch of banker expatriates from various financial hubs (hi London!) took over a country that has good weather and nothing else going for it. The locals receive the windfall of money via directorships and other ancillary financial services, the rich get to hide their money, the companies get to defer tax payments for as long as they want. The only people who don't benefit are the people left holding the tax bag. Oh wait, that's most of us.
- teleforce 5y ago
  Thank you, this is one of the most insightful explanations on the subject of shell companies in less than 300 words! Based on your name handle, are you happen to be one of the lawyers for these oversea tax heavens ;-)
- rocho 5y ago
  So the profits would go to the offshore corporation, while the losses would go to the US one? But wouldn't the IRS grow suspicious of seeing losses every year?
nichol4s 5y ago
My understanding is as follows: the Dutch shell company is a parent (holding) company which basically holds shares in a subsidiary. If the holding company owns more than 95% of the shares of its subsidiary it acts as a single fiscal unit, allowing it to be taxed as one. Now, if the parental company has multiple subsidiaries it enables the holding to settle costs of the one, with the profits of the other. But, the main thing that the Dutch tax system enable, is that you can sell the shares of a subsidiary and hold the profits within the parental company (for the purpose of re-investing) without the need to pay taxes. This enables companies to quickly 'move' subsidiaries around the world without any tax consequences. This opens up an enormous amount of opportunity for creative tax lawyers who thrive in this grey area. International tax rules are so complex and the stakes so high that in the end they can just negotiate an 'acceptable' tax rate on a government level. Where, in the end, if the government does not agree, they can just 'move' their business somewhere else.

Maybe revenue laundering using borrowed credit? I wouldn't be surprised if some day we discover that many corporations the tech space have been engaged in some kind of global credit laundering scheme using shell companies as a filter to systematically separate credit from debt in order to generate artificial revenue for big tech corporations... Money extracted straight from the big banks. They should refer to this scheme as a 'Clam farming' because they just load up the shell companies with bank loans then extract the meat and toss away the shell.

KirillPanov 5y ago
What kind of bank makes business loans without encumbering any collateral?
- applepple 5y ago
  Why not just create intangible collateral out of thin air? E.g. crypto? Then you just use some of the credit to pump up the value of the collateral to meet the bank's expectation.
  - KirillPanov 5y ago
    That's called fraud. You would need to find an especially stupid bank. You can certainly do that, but if you're wiling to commit crimes there are much easier ways to make money.
    - deleted 5y ago
      [deleted]

MattGaiser 5y ago

Maybe they don’t make a loss in every jurisdiction.

ABCLAW 5y ago

Shell companies are just companies without offices. You can use corporate entities to organize assets, create trusts, hold certain obligations, create joint ventures, provide equity to align interests, etc. All of these things are beneficial. If you treat this like a game and try to win it, though, the 'building block' of legal personhood can be broken. The mechanics aren't perfect. You can book profits to one entity, then losses to another by creating 'fake' intercompany transactions, despite the fact that your organization as a whole is net even. We have rules that attempt to deal with these problems in arms-length transactions - regulators get to check if the contract payment amounts make sense. If you do this with IP, which is hard to value, tax offices have significant issues disputing the value of the inter-company contracts. You use this issue to toss losses between various national corporations to take advantage of problems with individual tax regimes. The double irish/dutch sandwich technique is a great example. But eventually the chickens need to come home to roost, right? Well, not really. Tax haven jurisdictions basically allow you to park money which you've obtained via your tax avoidance system in an account nearly indefinitely. You'll generally need to pay for a resident or residents to sit on the board of your tax haven jurisdiction corporation board, which lets them scalp 50-250k a year from you, but if you're hoarding billions, it's irrelevant. IF you're a normal joe, however, the accounting, legal and director fees kill you. Oddly, if you look at the leadership structures in place in most tax havens, they look a lot like a bunch of banker expatriates from various financial hubs (hi London!) took over a country that has good weather and nothing else going for it. The locals receive the windfall of money via directorships and other ancillary financial services, the rich get to hide their money, the companies get to defer tax payments for as long as they want. The only people who don't benefit are the people left holding the tax bag. Oh wait, that's most of us.

teleforce 5y ago
Thank you, this is one of the most insightful explanations on the subject of shell companies in less than 300 words! Based on your name handle, are you happen to be one of the lawyers for these oversea tax heavens ;-)
rocho 5y ago
So the profits would go to the offshore corporation, while the losses would go to the US one? But wouldn't the IRS grow suspicious of seeing losses every year?

nichol4s 5y ago

My understanding is as follows: the Dutch shell company is a parent (holding) company which basically holds shares in a subsidiary. If the holding company owns more than 95% of the shares of its subsidiary it acts as a single fiscal unit, allowing it to be taxed as one. Now, if the parental company has multiple subsidiaries it enables the holding to settle costs of the one, with the profits of the other. But, the main thing that the Dutch tax system enable, is that you can sell the shares of a subsidiary and hold the profits within the parental company (for the purpose of re-investing) without the need to pay taxes. This enables companies to quickly 'move' subsidiaries around the world without any tax consequences. This opens up an enormous amount of opportunity for creative tax lawyers who thrive in this grey area. International tax rules are so complex and the stakes so high that in the end they can just negotiate an 'acceptable' tax rate on a government level. Where, in the end, if the government does not agree, they can just 'move' their business somewhere else.