What Are Offshore Tax Shelters?

Offshore tax avoidance refers to tax avoidance offshore. Offshore companies are constantly fabricating the myths of evading taxes, listing overseas, curtailing restrictions on foreign industries, capital operations, cross-border mergers and acquisitions, global trade, and asset transfers, which are causing headaches for regulators in various countries.

Offshore tax avoidance

Offshore tax avoidance refers to tax avoidance offshore. Offshore companies are constantly crafting evasion

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By buying high and selling low, the profits are made to offshore companies and the losses are left to domestic companies, which avoids domestic VAT collection.

Offshore tax avoidance transfer pricing

Transfer pricing is an important technique for tax avoidance.

Tax avoidance is always the goal pursued by most offshore companies. In August 2010, the State Taxation Bureau of Luohe, Henan Province revealed that Goldman Sachs had transferred foreign shares of Henan Shuanghui Investment Development Co., Ltd. (hereinafter referred to as Shuanghui Development), and obtained substantial profits. Corporate income tax is 420 million yuan. In March 2006, Goldman Sachs and CDH registered companies in the British Virgin Islands, Shine B Holdings I Limited (hereinafter referred to as Shine B). Shine B Company wholly controls Rotex (a joint venture established by Goldman Sachs and CDH in Hong Kong in February of the same year), and Rotex controls Shuanghui Development Corporation. Through the Virgin Company Shine B, Goldman Sachs realized the actual reduction of Shuanghui Development outside China. By the end of 2009, the stake in Shuanghui Development fell to 3.3%. Compared with the 31% indirect development of Shuanghui held by Goldman Sachs in 2006, this is quite different. According to Shuanghui Development's annual reports in 2006, 2007 and 2008, Goldman Sachs' earnings may reach 2.1 billion yuan. According to the newly revised "Enterprise Income Tax Law" and other provisions in 2008, corporate capital operation items including equity transfers and non-resident corporate income tax management have been included in the key scope of tax collection and management in China. This is a typical tax avoidance case using overseas indirect equity transfer. ^[1]

A company in Hebei and the M Group (Overseas) of a country jointly invested in the establishment of a Sino-foreign joint venture A company at the end of 1990, with a registered capital of 250 million yuan and a total investment of 300 million yuan. It is mainly engaged in the production and sales of automobiles and related spare parts. However, company A's annual report data has been in a low profit state. The investigation of Hebei National Taxation Bureau and Shijiazhuang National Taxation Bureau found that Company A had transfer pricing in importing raw materials from related parties (M Group) and exporting products to related parties. After importing raw materials from M Group through high prices and processing products, Exported to M Group at low prices. "One high and one low" has reduced the profit of Company A and reduced the corresponding tax. In December 2008, Company A paid a taxable amount of RMB 43.75 million to the tax authorities. Zhu Guangjun is a researcher at the Institute of Taxation Science of the State Administration of Taxation. He has been a tax director at the grassroots level and is very familiar with the practice of using offshore companies to avoid tax. Zhu Guangjun said that because Virgin, Cayman and other offshore places have no taxes, therefore, by buying high and selling low, the profits are made to offshore companies and the losses are left to domestic companies, which avoids domestic value-added tax. In 2007, the research group of the National Bureau of Statistics "Research on the Use of Foreign Investment and Foreign Investment Enterprises" completed a research report that showed that about two-thirds of the loss-making foreign investment companies investigated were abnormal losses. "Transfer pricing" and other methods to avoid taxation amounted to more than 30 billion yuan.

Offshore Tax Avoidance Mailbox Company

Mailbox companies are also an important way to avoid taxes.

The so-called "mail box company" is to register an offshore shell company to achieve the purpose of tax avoidance through the operation of documents.

Mei Xinyu, a researcher at the Ministry of Commerce, gave such a case. A domestic company registered a company in the British Virgin Islands and engaged in the production of electrical parts. The actual production business is located in China, the unit cost price is 5 dollars, and it is sold to Virgin at a very similar price, and then sold to the American company for approximately 7 dollars, and the American company is sold to China for 7 dollars. .

The entire buying and selling process just went through the book once and did not actually happen. However, China and the United States have almost zero income, so the value-added tax in both countries cannot be collected. Virgin is exempt from income tax, and the company s total global taxes are greatly reduced, saving operating costs.

Before December 1, 2010, when China s super national treatment for foreign capital reduction and exemption of corporate income tax was not cancelled, many domestic capitals flocked to Cayman, Virgin and other places to set up offshore companies, and then returned as foreign capital. When you are in China, enjoy the "foreign investment" treatment.

Preferential measures such as "export tax rebates" set up by the government to encourage exports are often "taken" by offshore companies. Some enterprises use "fake exports" to obtain tax benefits. After going through the relevant export formalities, the goods are transported to the high seas and then shipped back to China. They then go through a customs import procedure and get tax-free treatment. Even some companies did not ship the goods to the high seas, and placed them directly in some bonded warehouses in China. After completing the relevant export procedures, they obtained the "profit" of tax refund.