Creating substance for a disregarded US LLC

[heaven]

I want to prepare for an audit from an EU tax agency that might never come. Let's say they ask about the substance of a disregarded US LLC you own.

I have no problem renting a small office or shared office space for that company in the US and maybe making it seem on the website that some employees are located there.

However, how can you show or create substance of your disregarded US LLC if the US might consider it an ETBUS and tax you accordingly when (or it looks like) you have actual substance?

Or is it possible to have substance and management outside the US and outside the country where you live? This way you can show the company is owned by you in country X, established in Y and managed in Z.

 

[Marzio]

You can’t have substance without paying taxes where you create substance.

 

[MarkusCostigan]

You can’t have substance without paying taxes where you create substance.

Indeed. Have you ever declared your LLC in your country of residence? Each country has its own "customs and unwritten rules".

 

[heaven]

You can’t have substance without paying taxes where you create substance.

I get that, but in what situation would you not have to pay taxes on the US LLC and not in your country if you don't take the money out? The country where I live doesn't see a US LLC as a transparent entity.

But I think when they check they do a check, I'll probably get asked to show substance for this company. Or is it possible to have substance and management outside the US and outside the country where you live? This way you can show the company is owned by you in country X, established in Y and managed in Z.

 

[Marzio]

in what situation would you not have to pay taxes on the US LLC and not in your country

This is valid only if your tax residency is in a tax haven like UAE.

The country where I live doesn't see a US LLC as a transparent entity.

This could allow you to defer indefinitely the payment of taxes because "theorically" you should declare and pay tax only when you'll receive income from the US LLC.

The problems is that in case of a check the US LLC will be immediately considered tax resident in your country and you would need to pay taxes + social security + probably fines.

This way you can show the company is owned by you in country X, established in Y and managed in Z.

This can be done but US LLC will be considered tax resident in Z so will pay Z corporate income taxes and you would only pay capital gain taxes on profits received from US LLC taxed in Z.

 

[Mike Forman]

Substance proof will need more then only rent of an office.
As others mentioned you will have to proof :

1) rent office space with rental contract indicating office size and preferable some payments proofs
2) proof of the staff employed during these periods including annual taxes and contributions paid
3) proof of operations and taxes paid, e.g. some emails sent by the employed people.
4) since you assume an EU authority request this, it means either there is a link between you (EU resident?) or one of your EU businesses (same director or UBO?), you will need to provide a transfer pricing contract and solid substance proof as above.

Having no substance is considered a shell company and will be disregarded and taxed in the country the operations take place (in this case highlikely the EU jurisdiction since they only would ask proof of substance on suspicion of tax shifting)
Not paying or limited taxation such as in UAE or any low tax will be considered tax shifting and you will still need to pay taxes+interest+fines, unless you have solid substance proof and a good tax lawyer.

It is therefor best to have your setup checked by a good tax lawyer, they will recommend what proof of substance is sufficient.

Tax authorities in some EU countries are very aggressive these days and even you believe you have all substance proof provided, you will still receive a tax bill. So a good tax lawyer will be required.

 

[European]

I get that, but in what situation would you not have to pay taxes on the US LLC and not in your country if you don't take the money out? The country where I live doesn't see a US LLC as a transparent entity.

But I think when they check they do a check, I'll probably get asked to show substance for this company. Or is it possible to have substance and management outside the US and outside the country where you live? This way you can show the company is owned by you in country X, established in Y and managed in Z.

@heaven
Do you happen to have any list/info on how countries in the EU see US LLCs (transparent vs non-transparent entity?