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the reality of living a trifecta and avoiding PE/CFC

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taoasher

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#1
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Let's say I was a resident of UAE with UAE FZ company - 0% tax.
Then I chose 2/3 countries to live in during the year for just 3 months each (rest of the year in UAE)

E.G

Canada
Italy


PE/CFC would be triggered. But in reality would this ever become a problem?

Has anyone seen a country take action against an online business like this, and pursue the owners?

Let's say the business is an education/consulting business with clients mostly in the US that does multiple 7-8 figures in rev
 
#4
When you get into the details, each situation is so unique that comparing them on such a high level as this isn't useful.

In the cases I'm aware of, there have been additional circumstances (big and small) that contributed to being pursued. It's rarely down to "Person A spent three months in France, three months in Australia, six months in Dubai, and a couple of days in transit." Those things can and do matter. But it also matters what they do during those three months, what connections they establish, how the business operates, who is involved in the company, good/services sold, and so on and so forth. It also matters where you're spending time. Some jurisdictions are more gung-ho than others about dishing out tax residence at unsuspecting foreigners.

As an example, someone might've gone for a setup very similar to what you're proposing. But they have kids and found a daycare that caters to expats, and so they sent their kids there for three–four months. In some jurisdictions, that's enough for the tax authority to potentially look into you.

In another example, someone met, liked, and hired a local person to join their business as a contractor. Should you pay social security contributions? Did you perform a meaningful business transaction locally within the local economy? Does your business have a significant presence there now and be liable for tax going forward?

Then we have the people who post on social media flaunting their wealth in the wrong place at the wrong time. Not exactly enough to make you tax resident, but it can draw attention.

Medical procedures, property ownership, property rentals, unexpected police involvement, and other things that are more or less predictable can also matter.

So even though you have your structure in common with these people, the real life scenario plays out differently.

Also worth keeping in mind that just because the tax authority claims something and tries to come after you, doesn't mean they are right and would win if you actually fought them. But it's a lot of work to fight a tax authority.

And for everyone that's caught, there are usually many who aren't caught — either because they did nothing wrong or because they simply slipped through the cracks.

Be aware of and manage your risks. Seek legal advice for the relevant jurisdictions. In your case, I'd say it's very unlikely you'll get caught (and less likely you'll actually be tax resident) if you don't get too involved in the society.
 
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#6
Do I get it correctly that CFC/PE rules usually apply only to tax residents? So the main concern for taoasher is to not become a tax resident (which would have more implications than just CFC/PE, i.e. also personal income taxes on worldwide income)?
 
#7
PE and POEM rules are about the tax residence of the business. Usually if you have the power to and exercise the concluding of contracts/sales in a country and/or make high level business decisions then you'll trigger PE/POEM and be liable in said country.
I do think this is pretty hard to actually track unless under scrutiny. And even then, the risk can be mitigated with substance and staff to almost nil.
Is only really a concern for solopreneurs for example.
 
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#8
taoasher said:
PE and POEM rules are about the tax residence of the business. Usually if you have the power to and exercise the concluding of contracts/sales in a country and/or make high level business decisions then you'll trigger PE/POEM and be liable in said country.
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Yeah. I'm just wondering what is the case to trigger them:
1) This guy is a tax resident of our country and signs contracts/makes decisions for the business, so PE/POEM rules apply and the business is considered to be tax resident.
or
2) This guy visited for a week, but still signed some contracts/made some decisions for the business, so PE/POEM rules apply and the business is considered to be tax resident.
The second way would be a real nightmare while the first one is manageable. Both are not enforced in most cases I guess.
 
#9
As I tried to express in my previous post, it's almost never down to just one detail. You have to look at the greater picture and take everything into account when establishing where what is taxable.

It's not likely that signing a couple of agreements while on vacation in Spain would be enough to get your Norwegian company back home tax resident in Spain. But if there are other circumstances that strengthen your business ties to Spain, that agreement being signed in Spain could be what tips the scales. Doesn't mean that if you get a tax bill from the hacienda that it's lawful (if they find out and if they bother with you). You can still dispute it and take them to court, where many tax authorities often have a poor success rate.
 
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#10
What would you advise, what company could give professional advise in such situations? or what a tax advisor in each of the countries you resident in have to be consulted?
 
#11
Sols, do you mean that it is not one of the two options I outlined above ("tax resident" and "physically present at that moment"), but basically another set of rules distinct from the tax residency rules? Just opinion of tax authority basically? Whoah, tax residency rules are already complex enough! Where can one find more information about that?
 
#12
koohl said:
What would you advise, what company could give professional advise in such situations? or what a tax advisor in each of the countries you resident in have to be consulted?
Click to expand...
Depends on your situation. Bigger companies usually have multinational firms helping them out, like Deloitte, Grant Thornton, BDO. Local tax advisers might suffice for most businesses.

Remoddy said:
Sols, do you mean that it is not one of the two options I outlined above ("tax resident" and "physically present at that moment"), but basically another set of rules distinct from the tax residency rules? Just opinion of tax authority basically? Whoah, tax residency rules are already complex enough! Where can one find more information about that?
Click to expand...
No, I mean that tax residence cases are rarely as easy as the residence rules alone. When someone proposes a theory like "I'll only spend three months in France so I definitely won't be tax resident" that is probably correct and going to be work out just fine. But people have been deemed tax resident even after only spending very little time in a country. That's where the broader context comes in.

It would be unsustainable if business travel created taxable events, or if signing a couple of agreement on vacation would make your company tax resident there. But if you start spending a lot of time there or creating other ties, those ties can be used by some jurisdictions in some cases to make you tax resident.

In this case, OP has a clear home base in UAE which is better than people who try to go for a present day PT arrangement.
 
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#13
Oh yes I see. Tax residence rules are often confusing/unexpected. My favorite is Switzerland with its clear but surprising "30 days in a year if it's related to business".
 
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