How to Legally Avoid Taxes Like Big Corporations

If you remember, we published an article about the town of Crickhowell, which brand itself as the Fair Tax Town due to its decision in trying to follow suit what big corporations are doing with their taxes.

In short, small businesses in the Welsh town aren't happy knowing the fact that their bigger counterpart are having a leeway, while the local coffee shops, butcher and department store are paying their taxes in full - almost in a religious way.

So what the business people of Crickhowell are trying to do is to see whether they can do what Starbucks, Facebook, and the likes can - pay near-zero taxes legally.

1. Where to incorporate your company?

Your first step is to determine the right offshore jurisdiction for your company. Every jurisdiction has its own rules and regulations, so be sure that you understand what you can or can't with your offshore company.

From the BBC program, the business owners of Crickhowell chose the Isle of Man, because it's still in British jurisdictions. And here's an interesting information: There is one registered company for every three residents - for a total of 30,000 registered companies. As expected, the Isle of Man offers zero corporate tax – pretty much like Belize and Ras Al-Khaimah (RAK).

2. Contact a corporate service provider

A legitimate corporate service provider like ICO Services teaches clients about planning and company structuring, helping clients in choosing the best setup. Not only those, but a corporate service provider also help clients to set up the company. Remember, a cheap service is not a good idea - here's why.

3. Create and umbrella company to hold your intellectual property

The umbrella company in an offshore jurisdiction serves its purpose as a company structure that helps you to reduce your business profits generated onshore - again, legally.

So, what to hold in the umbrella company? It's intellectual property: Branding, slogan, methods, etc.

Sounds easy? Unfortunately, it's not as easy at it sounds. Your lawyer and corporate service provider should inform you that there are tax rules that prevent companies to take their profits offshore legally. And that is often achieved by involving several offshore jurisdictions.

In the program's case, the British companies aren't able to move their profits directly to the Isle of Man - that would cause the businesses to pay a corporate withholding tax, which amount is larger than the corporate tax.

To avoid the tax, a tactic called the Dutch Sandwich in put into effect: Setting up a company located in the Netherlands in between of the companies onshore in the UK and the new offshore location at the Isle of Man. This setup will avoid the withholding tax legally.

Here's an interesting fact: If you think this tactic is obscure and not typical, think again: In the Netherlands, there are nearly 15,000 multinational companies set up for the tax purposes, which involve a total currency flow of EUR 8 trillion annually. There's no one working at the companies - there are only addresses.

It's a 'common' thing to do: Google set up using a similar structure that's called Double Irish, Dutch Sandwich. Another example: Facebook, for example, creates a complicated structure, involving several offshore jurisdictions which funnel Facebook's profits at the final destination, Cayman Islands. Both corporations pay minimal taxes, legally.

Following the three steps, now you're ready to restructure your business taxes.

Takeaway

The whole thing looks like a scam, but it's not. You can do so legally capitalizing on tax loopholes. However, the big question remains: Is it the right thing to do?

Depending on your attitude toward the onshore-vs-offshore situation, all is coming back to what you'd call moral. Is not paying taxes so that roads, schools, and other public facilities won't get proper financial support wrong? Yes. However, is printing money at a ridiculous rate and 'steal' citizens' money via inflation wrong, too? Yes. Is letting the big corporations report their losses when they generate a humongous amount of profits while small businesses are paying their taxes in full wrong? Yes.

You see, it's not easy at all to make sense of things. What we believe in is personal freedom to protect our assets, because we can't trust anybody else to do it on behalf of us.

In all fairness sake, we should definitely contribute to the society because we're a part of it. However, if our contribution is not viewed as important (by letting big corps do whatever they like with their taxes), we shouldn't stay idle.

So, what's your view in this? We know that it's a controversial topic to talk about, but a healthy discussion is what we all need moving forward. Please share your thoughts.