|
We get a lot of calls from people saying "I'd like you to form an offshore company to receive my income for me. I want the company to keep most of the income and pay me a small percentage of what is left, so that I don't have to pay income taxes on the full amount."
Of course this is everyone's dream, to be able to avoid paying income tax, while allowing the money to accumulate tax-free in a secure offshore bank account. It's easy to do - but only if you know how - because unless it's done professionally, it can amount to tax evasion, which is illegal, rather than tax avoidance, which is absolutely legal.
There are numerous ways in which an offshore company can be employed to reduce or avoid UK tax-liability, and Transfer-Pricing is just one example. To understand the principles of transfer-pricing is to comprehend the principles of offshore trading.
Transfer pricing is most often used by companies whose main business is importing goods, whether for resale or their own use, and it is easy to understand. It is a device that allows as much profit as desired to be deposited, tax-free, in an offshore bank account.
It works like this. An importer might be buying textiles for 50p per piece and retailing them in the UK for £5. Obviously, his profit amounts to £4.50 on each item and he will be taxed accordingly. Now, imagine the effect on his taxes if he were buying in the textiles at, say, £3 each: obviously, his profits and taxes would fall.
International Business Company (IBC)
So, instead of buying direct from his supplier, he creates an International Business Company (IBC) in a tax-haven, which buys the goods at 50p, reselling them to him at whatever price he chooses. The IBC, acting as an intermediary, having marked-up the price during the transfer (hence, transfer-pricing), banks the proceeds. Because the IBC is based in a tax-haven, it pays no tax on its profits and its owner can allow the proceeds to accumulate, paying no tax on bank interest.
Of course, no one knows, or can establish that the IBC really belongs to the UK import business, and it continues to supply him for as long as he likes. Pretty well all offshore schemes employ these kinds of principles, the most important feature of which is anonymity.
|
