Tax Planning for a group of companies
Group tax rates, BEPS (Base Erosion and Profit Shifting) and the future
We keep reading the same pieces of news in the press all the time: Amazon, Starbucks, Microsoft and other US groups pay little tax. The group tax rate is very small, as clever tax experts have found legal loopholes. Usually, companies, which are based in countries with none or very little taxes (tax havens) hold valuable patents. These companies then assess high royalties on the operative companies in other countries in which the products are sold. In this way, the operative companies hardly get any profits and the companies holding the patents pay very little taxes. As per US taxation law, this is still permissible. This is called BEPS (Base Erosion and Profit Shifting), i.e. erosion of the taxable basis of assessment and the shifting of profits to countries with lower taxes. The OECD (Organization for Economic Co-operation and Development) has come out with its diverse BEPS action plan and wants to prevent such type of tax planning in the future. Many countries have already pledged to implement the new rules in their national taxation laws.
Use the legal tax planning – Plan for profit transfer
There will always be legal tax plans, which can help companies operating internationally to save taxes, in spite of the efforts of the tax administrations. Among other things, our task is to identify and use this to your advantage to reduce your group tax rate.
We calculate the tax expenditure of the existing group structure and compare it to the expected tax expenditure after changes in the group structure. If new units are added or the existing units cease to exist, prior knowledge about where and how these changes can be implemented for tax optimization is helpful. While planning the profit transfer to the shareholders, we check which of the following types is most favorable for tax purposes – distribution of profits/dividends, interests on loans, royalties for the patents or rights or fees for the management or technical services.
Is withholding tax incurred?
We will inform you in advance whether withholding tax is retained and more specifically, under certain prerequisite conditions, whether you do not have to pay it at all or can get a tax credit. We explain the tax implications right before the sale of assets, properties or companies, e.g. sales revenue. We know the Foreign Tax Act and the double taxation treaties very well.
We know the regulations for the prevention of tax abuse of many countries and can explain the same in advance so that you do not fall into a trap. CFC (Controlled Foreign Corporations) regulations, shareholder debt financing, interest barriers or transfer pricing. We can assist you in all of these.
International information advantage: for your tax planning
In order to obtain information, we use various sources other than the internet where free information is available. Our information sources are generally tax programs and databases updated regularly. We work with the four-eye principle (at least two certified tax advisors are involved). Usually, in order to safeguard your interests, we also consult a tax expert in the concerned country. Above all, we have excellent contacts with tax experts across the entire world thanks to GGI.
We thus ensure that errors are avoided or minimized and future developments are identified at the right time.
Planning with you for the long-term and with a long-lasting perspective
There are tax saving models, which seem very promising– and which can cost a lot of money for companies being tempted to make use of those tax saving methods, because:
- What is the point in using a particular selected tax planning method that doesn’t work anymore merely a year later because of changed tax legislation? Shouldn’t this be identified earlier?
- What is the point of using a holding company in a tax haven, but that holding company does not fulfill the necessary substance requirements to be recognized for tax purposes in Germany?
- What is the point of making income in a low-tax country if there is no double taxation treaty with this country in place and all income needs to be taxed at a high tax rate in the home country?
- What is the point of selling products in another country, not being willing to pay taxes there, and not even realizing that by selling products there, a permanent establishment has already been established?
Duty to register or to notify for tax arrangements
Since 25 June 2018, an EU directive has entered into force according to which cross-border tax arrangements must be reported. Implementation in Germany is planned for 2019 and entry into force for 2020, but with retroactive application in accordance with the EU Directive.
This reporting obligation also applies to so-called intermediaries. This is any person who conceives, markets, organises or makes available for implementation a cross-border design subject to mandatory reporting or who manages the implementation of such a design. We can therefore also be intermediaries if these conditions are met.
However, due to the special relationship of trust between us as tax consultants and auditors and our clients, we are not permitted to pass on any information from the client relationship to third parties. Therefore, we are not a notifiable intermediary. However, we would like to point out that our clients are not exempt from the duty of disclosure and expressly recommend that you fulfil these obligations.