How do companies become tax-free
It is best for tax savers to be welcomed with open arms in a country and told how to proceed. The so-called patent or license boxes are among the most popular “welcome packages”. A company stores its patents in it and only has to pay a minimal tax rate for the patent fees it receives from all over the world. Ireland, for example, wants to attract companies with a tax rate of 6.25 percent. More than a dozen countries are now doing this in Europe. The same works with licenses.
A company like Ikea or Starbucks collects a fee from subsidiaries or franchisees for the use of the name or concept, and the money then flows to countries that offer a super cheap license box.
A similar scam runs through corporate loans. A subsidiary in a low-tax country A grants a loan to its sister company or the parent company in a high-tax country B. In country B, this operating expense lowers the taxable profit, which is diverted by means of the loan to country A and charged there at a low rate. However, a certain amount has to be adhered to, exorbitant interest rates are suspect and meanwhile regularly call the tax authorities to the scene.
Panama Papers, Bahamas List and now Paradise Papers
“Treaty shopping” is also popular among international corporations. Behind this is the exploitation of different tax systems. An example: In country A, a subsidiary pays a dividend which, according to state law, is not taxable locally but in the target country. In country B, where the dividend goes, exactly the opposite applies, namely taxation based on the country of origin principle. As a result, the dividend is not taxed in any country, "white income" is generated.
According to the "Panama Papers", journalists have come across other huge data sets in connection with tax havens, in which, according to the information, high-ranking politicians, corporations and celebrities also appear.
Anyone who invests in real estate is reluctant to pay real estate transfer tax. It is fitting that there is a gap in Germany. If no more than 95 percent is sold to an investor, a property is not considered to be transferred for tax purposes. That is why large apartment sales in Germany regularly take place as “share deals”, where companies only buy a part (“share”) of just 95 percent. The treasury has the damage, it amounts to an estimated one billion euros annually in Germany. Private individuals who cannot exploit this loophole and have to pay up to 6.5 percent real estate transfer tax also look into the tube.
Those who submit applications in good time, plan expenditure wisely and exhaust tax allowances can minimize their tax burden. There are still a few things to do for the 2018 tax return this year.
Customs evasion in online trading
An increasing threat to the (German) tax authorities is the strong growth in online purchases. Most of the Chinese sellers who cavort on the well-known Internet platforms are not registered at all with the responsible tax office in Berlin-Neukölln and do not pay any VAT. In order to avoid the import duty, the total value of a shipment is often given as a maximum of 22 euros.
Shell purchases with book losses
Taxes can also be saved with losses. Companies produce losses themselves or buy them up from others who are actually done for. There have been cases in Germany where companies acquired up to 50 million book losses for a handful of euros, thereby reducing current profits to zero for the next few years. In Germany, however, these “shell purchases” from quasi-dead companies have been banned since 2008.
Anyone who offers digital services like Apple, Amazon or Google pays great attention to where the added value occurs. They steer clear of Germany, where apps are often given away so that neither value added tax nor income tax is incurred. Rather, the profits come from advertising sales, which the digital corporations prefer to acquire in low-tax countries such as Ireland.
Profits stay abroad
For American corporations, Washington still has a great blast in store. Apple and Co. do not have to pay tax on foreign profits in the US as long as they do not repatriate the money. The US giants are said to be bunkering far more than two trillion dollars off the coast, money that they can make untaxed work for them. Europeans have been protesting for years against this type of tax deferral that distorts competition, but the criticism is dripping off at the USA, which does not allow foreigners to say anything about tax advantages - even in the tax haven of Delaware.
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