Re-invoicing is the using the lowest or no tax company to behave as an intermediary from a business established in a single jurisdiction, typically an increased tax jurisdiction, and it is customers outside its home jurisdiction. The domestic business sells its products, having a small profit, on the non-or low taxed company which intern marks the product or service up towards the original price tag, and sells the item for the customers not in the onshore company’s jurisdiction. Profits of the intermediary accumulate at zero or low tax rate while the small profits with the onshore business are taxed at its jurisdictional rates.
International re-invoicing strategy, for example
An onshore business sells $1,000,000 of products annually to some company established beyond your jurisdiction where the onshore company is established, as a British company sells to a Spanish company. Assuming that operating expenses and the price of products are $500,000, the British company earns $500,000 on its sales before taxes. Taxes average say 45% or $225,000 thus reducing net profits to $275,000.
To utilize a worldwide re-invoicing strategy the British company would utilize a non taxed company, like a company established in Belize, Panama, or other tax haven location, to serve just as one intermediary involving the British company and its particular Spanish customers. The British company sells its goods to the Belize company on credit for $600,000. The Belize company, therefore, sells the products for the Spanish customer for $1,000.000. The Belize company thus earns $400,000 in profits. Since there are no taxes in Belize on international transactions, the $400,000 of profits doesn’t have any taxes imposed on it.
The British company shows a tiny profit of $100,000; an income of $600,000 less than the cost of goods sold of $500,000. Assuming a 45% tax, the British company would pay …Read more