Risk of using an employer of records (EOR)

[tomboy]

Hi everyone,

I'm a business owner with a company based in the U.S., but I currently reside in Europe. I'm exploring the possibility of using an EOR (Employer of Record) to help manage my employment status in the European country where I reside.
I would like to hire myself to have a local contract and payslip from a Spanish company (the EOR) and not disclose to the authorities here that I own a company abroad.

A few questions I have in mind:

1. Can I be transparent with the EOR about my ownership of the U.S. company? Or would it be more appropriate not to mention this detail?
2. Does the EOR typically conduct due diligence to understand the company's background that's seeking their services?
3. Is there any disclosure from the EOR to local European authorities regarding the company that's partnering with them to hire local employees?

I'm trying to navigate the complexities of managing businesses in multiple jurisdictions and appreciate any advice or insights. For clarity, when managing tax and business affairs in the U.S., I've always ensured compliance with local regulations, with using a residency in a third country where I hold citizenship.

Thank you in advance

 

[Marzio]

not disclose to the authorities here that I own a company abroad.

This is dumb and will get you in troubles.

You can't live in Spain and pretend not to pay spanish taxes.

 

[Don]

Hi everyone,

I'm a business owner with a company based in the U.S., but I currently reside in Europe. I'm exploring the possibility of using an EOR (Employer of Record) to help manage my employment status in the European country where I reside.
I would like to hire myself to have a local contract and payslip from a Spanish company (the EOR) and not disclose to the authorities here that I own a company abroad.

A few questions I have in mind:

1. Can I be transparent with the EOR about my ownership of the U.S. company? Or would it be more appropriate not to mention this detail?
2. Does the EOR typically conduct due diligence to understand the company's background that's seeking their services?
3. Is there any disclosure from the EOR to local European authorities regarding the company that's partnering with them to hire local employees?

I'm trying to navigate the complexities of managing businesses in multiple jurisdictions and appreciate any advice or insights. For clarity, when managing tax and business affairs in the U.S., I've always ensured compliance with local regulations, with using a residency in a third country where I hold citizenship.

Thank you in advance

More important is the effective management and control. Are you a director of this US company? If this is the case, then the US LLC might trigger corporate residence in Spain and be subject to CIT on its worldwide income in Spain, depending on the level of substance. Alternatively, Spain might tax the permanent establishment of the US LLC in Spain and not double-tax the US profits.

 

[tomboy]

This is dumb and will get you in troubles.

You can't live in Spain and pretend not to pay spanish taxes.

I does not relate to Spain, but does not matter we can take it as an example.

how would they know?

More important is the effective management and control. Are you a director of this US company? If this is the case, then the US LLC might trigger corporate residence in Spain and be subject to CIT on its worldwide income in Spain, depending on the level of substance. Alternatively, Spain might tax the permanent establishment of the US LLC in Spain and not double-tax the US profits.

you are right, this is in case the country where I live know about this company.

 

[Marzio]

how would they know?

This is the wrong question.

How do you know that IRS will not start sharing tax informations retroactively with your country?

They are collecting form 5472 every year, i guess someday they will use all of that pile of data.

Are you willing to risk your business based on temporary lack of enforcement?

 

[tomboy]

You are right, let's assume the IRS starts sharing tax information retroactively. As I mentioned in my initial post, they will share it with a third country where I hold citizenship but don't live. This is the address I give when filling 5472.

does it make more sense now?

 

[Marzio]

This is the address I give when filling 5472

IRS > Hey Spain here's tax information we have on file
Spain > Hey uncle Sam, Tomboy doesn't live here
IRS > False information on form 5472? Amazing, lets get some lubricant

 

[JackAlabama]

IRS > Hey Spain here's tax information we have on file
Spain > Hey uncle Sam, Tomboy doesn't live here
IRS > False information on form 5472? Amazing, lets get some lubricant

Do you know this works like that? otherwise dont scare that poor fella like that.

 

[Don]

 

[JackAlabama]

View attachment 5548

lol guys, lets keep that at least somewhat serious.
Thats not a supporting source of the claims of affairs.

 

[Marzio]

Do you know this works like that?

No i don't but the problem is that nobody knows if it works like that.

Nobody knows if / when US will share data.

Nobody knows what citizenship country would do with non residents informations.

Will do they disregard entirely not relevat information or maybe some overzealous monkey will actually write back and say "we don't have that resident here".

All those variables should make clear enough that if your business relies on lack of enforcement and gaps in communications between countries sooner or later you'll be screwed.

 

[Cloudbanck]

Well, there is a list of like 50 countries the US can share information with. The remaining 140 countries or so, which is most of the world, the US doesnt consider up to standards, and doesnt share information with. Spain is among the 50 though.

Also the US explicitly says you dont have to file a new W-8BEN if you switch from one foreign country to another, just if you switch to the US.

So I guess from the IRS point of view, a foreigner that moves from one foreign country to another isnt a big deal. But if you become tax resident in the US , and say you live in Spain on your 5472, then you are in trouble.

 

[JackAlabama]

No i don't but the problem is that nobody knows if it works like that.

Nobody knows if / when US will share data.

Nobody knows what citizenship country would do with non residents informations.

Will do they disregard entirely not relevat information or maybe some overzealous monkey will actually write back and say "we don't have that resident here".

All those variables should make clear enough that if your business relies on lack of enforcement and gaps in communications between countries sooner or later you'll be screwed.

Sure, we can agree that all affairs should be made as proper and clean as possible.
From a traders perspective, everything is arbitrage

Well, there is a list of like 50 countries the US can share information with. The remaining 140 countries or so, which is most of the world, the US doesnt consider up to standards, and doesnt share information with. Spain is among the 50 though.

Also the US explicitly says you dont have to file a new W-8BEN if you switch from one foreign country to another, just if you switch to the US.

So I guess from the IRS point of view, a foreigner that moves from one foreign country to another isnt a big deal. But if you become tax resident in the US , and say you live in Spain on your 5472, then you are in trouble.

A logic and clear assessment of the issue outlined in this thread.