Low tax/High Tax Structure - Thoughts welcome

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Hi there!

I wanted to get some thoughts on the below structure:

*Company A is based in a high-tax EU jurisdiction. Ownership is 50/50 between Matteo (director living in the same high-tax jurisdiction) and Enrique (no involvement / not tax resident in the same jurisdiction).
*Company B is based in a low-tax EU jurisdiction. Ownership is 100% Enrique (who is the director and a tax resident in the same low-tax jurisdiction).
*Company C is based in a different low-tax EU jurisdiction. Ownership is 50/50 between Matteo (no involvement) and Enrique (director yet not living in the same low-tax jurisdiction but travelling frequently to visit)

Company B is Enrique's consultancy company, with which it invoices Company A for its consultancy services. It meets substance requirements and has a rented office.

Company C is a customer support services company that invoices Company C for its customer support services. It has the appropriate substance (employee + company owned office).

Company A continues to operate in the high-tax EU jurisdiction and continues to pay corporate tax. However, it now faces two sizable outflows to Company B and Company C (which in total represent about 10% of Company A's annual turnover).

All companies pay yearly dividends to Matteo & Enrique.

Any thoughts welcome!


Mentor Group Gold

You may need to consider transfer pricing, CFC and ADAT.

In essence, if Company’s B owner has cut ties from the high tax country, and his personal income tax affairs and tax residency is where company B resides then I do not expect any exposure here.

The only exposure is at the company level:

(1) You need to consider whether the consultancy income in Company B is at arms length. Transfer pricing requirements are imposed between related parties. This is envisaged in the structured above and regardless if one shareholder does not actively manage the company the voting power is what counts.

Hence, companies A, B and C are considered related parties under tax regulations and subject to transfer pricing.

(2) CFC rules - this may apply for Company C

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