Monday, 11 August 2014

TAX MINIMISATION STRATEGIES FOR OFFSHORE COMPANIES CASE STUDY

 
 
There are many traditions that offshore companies can be used as part of a plan to minimise tax on International Trade and Investing.
 
Here are a few practical examples:
 
1.      Advertising and marketing service based businesses
 
Some of the more popular activities conducted from offshore include service based activities such as advertising and marketing, as well as the sale and distribution of information-based products. Take Facebook for example. Australia is one of Facebook’s most successful markets with 11 million users, or about 68 per cent of the internet population.
 
The media buying consortium Group M estimates this year Facebook will earn $55 million in advertising revenue from Australian users. But the vast majority of that will be billed via Facebook Ireland, where the commercial tax rate is less than half that of the 30 per cent levied in Australia.
 
Google also bills Australian users of its advertising system via its Irish subsidiary. That has allowed it lawfully to pay $74,176 in tax on revenue of $201 million – a figure industry sources say might be as little as a tenth of its real revenue.
 
Once the revenue from selling merchandise and currency for gaming apps such as FarmVille is taken into account, marketing industry sources say the true figure of Facebook’s Australian business could be closer to $100 million.
 
Because Facebook does not file its accounts in Australia no one but the company knows how much, if any, tax it should pay to the Treasury.*
 
The key to the successful use of Offshore Companies for such activities centres on the service being seen to be provided from Offshore (+ the service must be billed at a commercially realistic rate). This requires particular attention to be paid to the wording of sales and other commercial agreements.
 
Additionally, it is vitally important to ensure that the Offshore Company is not seen to be operating from onshore. For example it would not be advisable for the Offshore Company in this instance to have a permanent physical office in any of the countries where its customers are based.
 
Regards
 
Winston Wambua
 
 

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