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What I see here is tax evasion. But done in a roundabout legal loopholish kind of way. 1. Establish profitable company in your home country. 2. Establish 2nd

• Iv 5y ago
  Several EU countries (France and UK) have, IIRC, made very clear that fictive debt or fictive licensing fees are fraud an would be judged as such.
  • earnesti 5y ago
    How can you say what is fictive and what not? Licensing fees and loans exist on market anyway.
    • kemitche 5y ago
      The existence of valid licensing fees does not mean all licensing fees are valid. Surgeons are allowed to legally cut people, that doesn't mean we can't figure out when someone was illegally stabbed. Let's not give up without even trying.
    • burnished 5y ago
      "oh no, our publicly very profitable company actually doesn't make any money because of all the.. license fees we pay, that we are clearly in a position to bargain for better, yet mysteriously do not! oh its such a coincidence that everyone in the C-Suite still makes money off the the shell company." You can obfuscate fraud. But don't try that post-modern horseshit "what is being, man" on us.
    • nabla9 5y ago
      You figure out what the intent is. If the same owner is behind both, and there seems to be no other reason that avoiding taxes, guilty.
    • travoc 5y ago
      Any time legislatures have a hard time defining the line between legal and illegal behavior, courts tend to take a “we’ll know it when we see it” approach. Justice might be served but rule of law is diminished.
      • kazen44 5y ago
        a major difference between continental law and common law is the intent of the law though. If the court can prove that they did not handle with the intent of the law, it can still be decided that this is fraud. In a common law system this is not possible.
        • bryanrasmussen 5y ago
          Common law is based on precedent and common sense application of the law, so it is generally common law systems which are described as being open to interpretation.
          • salawat 5y ago
            Common sense has nothing to do with common law after a couple generations morph any type of sense a law could have made into something nigh unrecognizable. Go digging through case law in different jurisdictions and marvel at the contradictory interpretations that arise. This is why strategic changes in jurisdiction are a valuable part of litigative strategy.
      • tshaddox 5y ago
        Not really. “Fictive” just means “not real,” and courts have processes for judging whether things are real or not. The fact that courts still have to judge the actual facts of the matter doesn’t mean the legislature isn’t doing its job or that rule of law is diminished. It’s no different than courts judging the truth value of claims in a murder case or a fraud case.
    • Iv 5y ago
      If a profitable company is making a loan it does not need to a subsidiary it controls, that's a fictive loan used to disguise a transfer. When licensing costs are paid to a shell company with 3 employees in a country that is neither the place where the HQ are or where the company originates from, that's fictive.
  • deleted 5y ago
    [deleted]
  • deelowe 5y ago
    That’s the thing about laws. It’s up to the courts to decide.
  • sva_ 5y ago
    Pretty sure Ikea does it this way, and numerous others for sure.
    • oneplane 5y ago
      Once a company becomes big enough it turns into 'yet another big one' that inherits the branding and the original activities but simply starts doing whatever else is doing to min-max everything beyond human ethics. It's like having a very small company with only a few people. There won't be any HR because that kind of overhead isn't something you can afford or make use of. So you work 'for the boss' and if you need something your boss is also the person who makes the decisions. But when the company gets bigger, you now get HR between you and the boss, and suddenly you are insulated. You work for the company, and are beholden to HR. Every step after that is just more insulation, more min-maxing and just making things worse for the sake of scale. Usually.
      • jacquesm 5y ago
        HR does not get between you and the boss, but middle-management (hence the name) does. HR gets between the company and you if there is a chance of you damaging the company, other than that it is mostly (regulatory) window dressing and to save some cost on recruiting and onboarding.
    • laurent92 5y ago
      Movies too. The studio charges the movie, so the studio is positive while the movie is in debt. Actors get a lumpsum and a percentage on the movie benefits. In this case, it’s not shell companies, the studios actually have in-house expertise (=shooting most of the movie) while the movie mostly drives the scenario and the actors, so it’s harder to define what is illegal. McDonalds also has a franchise system, although it’s easier to control whether the pricing offered to the franchisees is constant or proportional to benefits.
  • rich_sasha 5y ago
    The UK shouldn’t really raise its voice here, easily half the tax havens are UK dependencies: Cayman Isles, Virgin Isles, Jersey, Guernsey, Isle of Man, Gibraltar. It is inconceivable to me that the UK lacks influence to stem these activities, so the only conclusion is that it willingly accepts status quo.
    • jacquesm 5y ago
      There is a reason that London was the financial headquarters of the EU while it lasted. They are going to try to do what they can to attract EU capital now that the last of these rules no longer apply to them, and will be the de-facto tax haven for the rest of the world except for the five-eyes.
      • rich_sasha 5y ago
        Well, the UK is well suited to finance in many ways, most of the legit. The way courts work for example. Maybe a bit like France and Italy have a natural talent for couture, say. But the shady stuff is sure there, and shady. UK high end property market seems to be a Monopoly-esque money laundering machine, with the extra inconvenience of having physical real estate attached to it. Maybe one good replacement market for NFTs.
        • nextaccountic 5y ago
          > The way courts work for example. What do you mean?
          • rich_sasha 5y ago
            IANAL but I understand UK courts have a reputation for being quick, pragmatic, fair and unbureaucratic. Finance often turns on 'legal innovation', or introducing entirely new financial constructs, and where on the Continent a more prescriptive legal system is in place, UK law is more interpretation-based. Possibly not a concern with many EU countries, but with some for sure: the legal system is also stable, doesn't change on the whims of the politicians, and appears to be genuinely un-politicised. Since Finance heavily relies on parties promising huge contingent payments to each other, having a trustworthy and reliable arbiter is key. If I enter into an agreement where I pay upfront, and I'm guaranteed insurance-type payments for 20 years into the future, the legal apparatus is the backstop to my claims.
  • moffkalast 5y ago
    Ireland: chuckles "I'm in danger" This is literally their entire economy lmao.
    • OliverM 5y ago
      It literally isn't.
      • moffkalast 5y ago
        > In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force (paid 50% of Irish salary tax), and created 57% of Irish OECD non-farm value-add. As of 2017, 25 of the top 50 Irish firms were U.S.–controlled businesses, representing 70% of the revenue of the top 50 Irish firms. (Wikipedia) Are you sure about that? If the EU enforces what they preach and Ireland loses its tax haven state they could lose a huge chunk of their GDP.
• chrismcb 5y ago
  Sighs a lot like Hollywood accounting
• raxxorrax 5y ago
  Problem is that if some companies employ these strategies, their competitors are forced to do the same as otherwise they would not be able to compete. Not true for Apple of course... but an appeal to ethics won't work either, the laws need to be adapted. Business ethics itself is a funny term anyway.
• londons_explore 5y ago
  The step here that is illegal is the moment company 1 takes out a high interest loan from company 2. Company 1's directors have to do what is in the best interests of the company. If they choose to sign up to a high interest loan which will take all their profits, that isn't decision-making in the best interests of company 1. That's the point they can be put in prison. I just don't quite understand how nobody is prosecuting them...
  • toddmatthews 5y ago
    When they save of bunch of taxes they have done what’s in the best interest of the company
    • londons_explore 5y ago
      They need to make decisions in the best interest of Company 1 and Company 2 separately. An action done on behalf of Company 1 which slightly hurts company 1 but provides large gains to company 2 would be illegal (unless they can argue that it was part of a larger strategy to benefit company 1).
      • croon 5y ago
        I assume the owners of Company 1 would need to bring the case, and if they're also the owners of Company 2 they would never want to.
• koolba 5y ago
  > Once you set up a way to make it look like you owe the 2nd company tons of money, now your 1st company no longer is "profitable" and actually in debt losing money, which means it doesn't need to pay taxes on the massive profit it's making. It’s called “transfer pricing” and it’s been going on for decades: https://en.wikipedia.org/wiki/Transfer_pricing https://en.wikipedia.org/wiki/Transfer_pricing Short of a revenue (as opposed to income) corporate tax or VAT, it’s a very tricky problem to address. Maybe an excise tax on foreign remittances to match the highest corporate bracket. Or you just scrap corporate tax entirely because it’s a terrible idea anyway.
  • pkaye 5y ago
    > Or you just scrap corporate tax entirely because it’s a terrible idea anyway. If you scrap corporate tax would rich people hold all their wealth in corporations so as not to pay any personal income tax?
    • draugadrotten 5y ago
      The best way to "tax" the rich is to make them spend all their money. The more the rich consume, the more the less rich benefit. It's turtles all the way down after that. So please order that custom yacht now, all you HN unicorns.
      • bsanr 5y ago
        What if the point of taxes is not simply to redirect and redistribute funding, but also to reduce economic activity and, by extension, emissions and inflation?
      • durnygbur 5y ago
        > The best way to "tax" the rich is to make them spend all their money. What a catastrophic idea. Do you want economy tuned to the tastes of the vain, wasteful, and capricious? In such economy there is no car, real estate, mobile phone, or clothes for you.
      • matkoniecz 5y ago
• dataflow 5y ago
  What I never understood is, (how) does the money get transferred to the home country eventually? Doesn't it need to do that to have some utility? Otherwise, what's the point of just accumulating money offshore that you can't eventually use where you actually are?
  • underdeserver 5y ago
    There's a lot you can do, such as borrow against it as collateral, transfer it to other offshore companies in return for services (the entire deal happening in the tax haven - therefore not taxed), or even have it hold property which you can then use.
    • dataflow 5y ago
      But if you use it to pay someone else offshore, presumably you get something in return at the home country, right? And you didn't pay for it there, right? So isn't the fair market value (or something along those lines) of whatever you eventually receive in the home country therefore taxable income? I don't understand how the value loop can legally close without taxation one way or another.
      • toyg 5y ago
        Offshore entities can own properties in most open economies. They don't typically get taxed where they own the property or good, but where a profit is realized or an action takes place. For example, in TFA it's mentioned that the Blairs bought an offshore company that owned a building in London; they really bought the building, but doing it this way allowed them to avoid property taxes in the UK that relate to ownership transfers ("stamp duty"). They could then hire out offices, and if they do that through the offshore company that "taxable income" would similarly disappear. Her Majesty's Revenues & Customs might eventually object to the arrangement, but if the offshore owners are not known, what are they going to do, bulldoze a historical central London property? Obviously not.
        • slavik81 5y ago
• fragmede 5y ago
  Step 4 glosses over a ton of details but is sufficiently correct in Apple's case, which pioneered the Double Irish. That was supposed to stop in 2020, but unless you keep up with the world of corporate finance and global tax law, things keep shifting. Apple's easy to pick on, they're one of the richest companies in the world and should pay more taxes. But for companies that are less successful, it's entirely possible that the second company is actually losing money. Without an appropriately sized army to track through the 200th company (tracking transactions between two companies is simplified to make the tax evasion easy to understand. Real world tax evasion is dramatically more complicated.)
• opportune 5y ago
  It is technically tax avoidance. Tax evasion = not paying taxes you legally owe, is a crime. Tax avoidance = using legal means to reduce the amount of tax you owe, not a crime (by definition). This is why I support taxes such as those that France levies on digital revenue originating within their country. I also think it makes sense to wholly eliminate corporation taxes (which are not only avoidable, but are a form of double taxation) and replace them with these revenue taxes.
  • throwawaythekey 5y ago
    Australia has specific laws to stop the abuse of tax avoidance [1]. While at a high level they seem reasonable they haven't resulted in us getting the desired amount of income from multinationals [2]. The article I linked relates to big tech though, and maybe that's a separate argument when very little of the innovation happens in Australia, mostly just sales. [1] https://www.ato.gov.au/general/tax-and-corporate-australia/a-strong-domestic-tax-regime/#Generalantiavoidancerule https://www.ato.gov.au/general/tax-and-corporate-australia/a... [2] https://www.smh.com.au/politics/federal/tech-giants-pay-record-tax-but-budget-still-relies-on-miners-and-banks-20201210-p56mh8.html https://www.smh.com.au/politics/federal/tech-giants-pay-reco... DISCLAIMER: Not a tax expert
• csomar 5y ago
  Does this actually work in practice? I think most legitimate countries now impose a withholding for any payment to a tax heaven.