What is a Tax Information Exchange Agreement?

A Tax Information Exchange Agreement (TIEA) provides for the exchange of information between 2 countries on request relating to a specific criminal or civil tax investigation.


Let’s assume that you set up a Tax Free Offshore Company in a country which has a TIEA with your home/taxing country.


How it works in practice is, if your home state becomes suspicious of your connection to or involvement with an Offshore Company (ie if they think an Offshore Company is being used by you to avoid domestic tax obligations), the Tax Authorities of your home country can request of the Tax Haven Country Government, as of right, (ie if there is a TIEA entered into between the 2 countries) that they give up the name and address of the “underlying beneficial owner” of the company in question.


Although the information isn’t publicly filed this information must/will be kept by the Tax Free Offshore Company’s local Registered Agent who is obliged by law (as a condition of its International Corporate Service Provider’s License) to hand over this information upon request by/to the local Financial Services Authority (who then pass ownership details to the Tax Haven’s Attorney General’s Office who then pass it down the line to the requesting country).


It goes without saying of course but if you want to minimize the chances of anyone ever discovering that you own a Tax Free Offshore Company ideally you will want to incorporate your Offshore Company in a jurisdiction which does NOT have a TIEA with your home/taxing state.



How To Run a Tax Effective Consulting Business From Offshore

I’m often asked “Can I use an Offshore Company to own/operate a Consulting Business?” 


I’m guessing in most cases what the inquirer would really like to know is how to do it tax effectively from Offshore.


Essentially how it works is:


  1. A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated
  2. The IBC owns/operates the consulting business
  3. An Offshore account is set up in a nil tax banking centre
  4. Customers/clients contract with and pay the IBC. The IBC Invoices the clients from offshore. Payment for invoices rendered will be banked free of tax in the first instance
  5. You or your local company would be sub-contracted by the IBC to actually perform the services
  6. You would invoice the IBC periodically (eg monthly) for this work which income would be assessable income in your home country – though a smart Tax Accountant should be able to assist you to claim a series of expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.
  7. The rest of the income earned by the IBC can held (and potentially invested) offshore tax free.


Note local law can have unique impact on your situation. Hence we always advise that you seek local legal/tax advice before embarking on such a venture.



The Double Irish To Be Abolished


After years of debate over tax breaks that have helped lure big multinational corporations to Ireland, the Irish government said Tuesday that it would phase out a measure used by technology companies including Google to reduce their bills.


The tax provision, which has attracted the scrutiny of European Union regulators and is known as “double Irish,” will end next year, although companies already using it will be able to do so until the end of 2020.


Despite the long phase-out period, the move reflects the growing pressure from regulators, international organisations and consumers to get more tax revenue from multinationals adept at exploiting different nations’ tax laws.


“Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries,” Michael Noonan, Ireland’s finance minister, told the Irish Parliament on Tuesday.


“I am abolishing the ability of companies to use the ‘double Irish’ by changing our residency rules to require all companies registered in Ireland to also be tax resident,” he added in a budget speech.


The “double Irish” provision allows corporations with operations in Ireland to make royalty payments for intellectual property to a separate Irish-registered subsidiary. The subsidiary, though incorporated in Ireland, typically has its tax home in a country with no corporate income tax.


One example is Google, whose Dublin headquarters is its main hub outside the United States and employs more than 2,500 people. A Dublin-based subsidiary for Google generates the revenue, mostly from online advertising, and then pays it in royalties to a separate Google unit in Ireland, which is resident in Bermuda for tax purposes.


“As we’ve always said, it’s for governments to decide the law and for companies to comply with it,” Google said in a statement. “We’re deeply committed to Ireland and will work to implement these changes as they become law.”


Meeting in Luxembourg, EU officials gave the Irish announcement a cautious welcome. The European Commission, the executive arm of the European Union, “will have to look at the details and how it will work in practice,” said Algirdas Semeta, the bloc’s tax commissioner. “But the intention is a very good one.”


Crawford Spence, an accounting professor at Warwick Business School in Coventry, England, saw the move Tuesday as an “apparent capitulation by the Irish government.”


“However, I am skeptical as to how big a deal this really is,” he said. “Ireland, along with other countries such as Luxembourg and the Netherlands, are at the lunatic fringe of corporate tax regimes. Cleaning up the more extreme tax arrangements that these countries have permitted in recent years does not necessarily solve the wider issue of base erosion. In general, corporations don’t see much legitimacy in corporation tax, and Western countries don’t appear that interested in making them pay it either.”


With growing political debate about the tax payments made by multinationals, defending the “double Irish” provision was becoming steadily more difficult.


Joe Tynan, tax partner at PricewaterhouseCoopers in Dublin, said it was impossible to know how much the tax arrangement was worth to big corporations, but he estimated that its value ran into several billions of euros.


“I think this is part of an overall drive to try to get international companies to pay more tax,” Tynan said. “Ireland wants to be very competitive, but it has to do that within international rules, and there was a feeling that this was at the boundaries of those rules.”


“There was pressure from the European Union,” he added. “I think their arm was being twisted, but I don’t think there was a gun to their head. Looking at how things were developing they thought it was better to move first rather than to wait.”


The European Commission has also started to take a closer look at how countries use local taxes to attract large international companies.


This year, Europe’s antitrust authorities opened investigations into the tax practices of Ireland, Luxembourg and the Netherlands over whether they gave preferential treatment to certain companies, including the American technology giants Apple and Amazon.


While these antitrust cases are not linked to Ireland’s decision to end the “double Irish” tax provision, the investigations represent the latest efforts by the European authorities to clamp down on irregular tax agreements between countries and large companies.


Noonan’s announcement Tuesday came after years of sniping at Ireland’s low official corporate tax rate of 12.5 percent. Within the 28-nation European Union?, setting tax rates is a matter for national governments. But several other EU countries have long complained of being undercut by Ireland’s tax policies.


Noonan said the tax rate was not up for discussion.


Edward D. Kleinbard, a professor at the Gould School of Law at the University of Southern California and a former chief of staff to the Congressional Joint Committee on Taxation, said, “If Ireland offers up its ‘double Irish’ structure, it’s a canny strategic move because there is already tremendous friction between Ireland and the other members of the EU over its extraordinarily low corporate tax rate.”


“In the long term,” he said, “what’s most important to Ireland is to preserve its low corporate tax rate, not artificial structures that reduce a firm’s tax burden even further.”


The low corporate rate has helped the government lure foreign investment crucial to Ireland’s now rapidly rebounding economy?. The foreign operations provided support as the Irish construction sector collapsed? amid the global financial crisis,? sending the wider economy into a downward spiral.


Ireland had about 161,000 workers at almost 1,100 international companies ?in 2013. Roughly half of those companies are American, while around 60 percent of all the combined employees work in industries linked to computer services.


By announcing a final phase-out of the “double Irish” rule in December 2020, companies have been given enough time to see what new international rules will be proposed by the Organization for Economic Cooperation and Development, Tynan of PricewaterhouseCoopers said. The OECD is working on a project called “Base Erosion and Profit Shifting” to eliminate unfair loopholes and ensure that profits are taxed where economic activities occur.


After 2020, corporations will have to decide where to move companies owning intellectual property. On Tuesday, Ireland announced plans to try to compete with other European nations as a destination.


Noonan said an Irish plan for intellectual property called the “Knowledge Development Box” would be “the best in class” and would offer a “low, competitive and sustainable tax rate.”

Managing Onshore with Offshore

Recently I was asked “How do I structure the commercial relationship between me and my Offshore Company?


Here’s how the more intelligent/savvy clients manage their financial/billing affairs:


  • The client (or his onshore/local business/company) is appointed via written agreement as a Consultant to the IBC
  • The agreement sets out what fees the Consultant is entitled to claim each month/pay period and what expenses the Consultant is entitled to be reimbursed for
  • In the month/period prior to billing the Consultant (or his onshore business/company ie whoever has been appointed as Consultant to the IBC) pays all expenses incurred with respect to supplying the Consulting services (ie/eg including rent, travel, internet, phone, IT costs, stationery supplies, license/govt fees etc as applicable)
  • At the end of the month/billing period the client (or his onshore business/company as the case may be) invoices the Offshore Company (a) seeking reimbursement for expenses it has paid in connection with supplying the Consulting services) + (b) for Consulting fees as agreed.


Yes you could use the IBC’s Debit/Credit card to cover those expenses but that may not be the wisest choice. With current technology you can’t assume that local tax authorities will not notice if you use, onshore, a debit or credit card issued by an Offshore Bank.


Most clients usually only use the Offshore Company’s card purely for business/company expenses or when they are outside the country of tax residence (though technically even such withdrawals/payments, unless spent on business expenses, would be classified as “income” declarable in the country where you are resident for tax purposes).