S&A has significant expertise in providing tailor-made material substance solutions.
We aim to ensure that your Cyprus structure has the proper level of substance, and that all risks are properly identified and communicated.
Current Reality of International Tax Planning
Multinational companies operate in a global environment where tax systems differ widely from country to country. Frequently the tax authorities intentionally create differences between tax systems in order to attract foreign investors. Multinationals use these differences to their advantage in an effort to achieve a low effective tax rate and increase shareholder value.
Most International tax planning however is driven by the need for legal or financial (re)structuring without any change to the operational structure of the company. This often results in a lack of economic substance at the Holding / Financing / IP company level. We cannot overemphasize the importance of substance in international tax planning. We are seeing a large number of structures which are considered to be artificial under ever increasing scrutiny by tax authorities and even the press.
Companies such as Google, Dolce & Gabbana, and Exxon Mobil have been vilified in the press for making use of tax loopholes to avoid paying their “fare share” of tax, as part of their International tax planning. One recent article published accused Exxon Mobil of using a Spanish holding company with one employee as a tax shelter to avoid paying tax on billions of Euro's. Such articles can result in reputational damage to the companies involved and increased scrutiny on these companies by the relevant tax authorities.
It should come as no surprise that many companies today are facing queries from tax authorities on their tax structures and particularly the "substance" of their structures. Due to the economic downturn governments are facing budget pressures and any tax revenue is a welcome source of relief. Tax structures reducing national revenue are therefore increasingly targeted by tax authorities all over the world. Tax authorities are increasingly demanding economic rationale behind international tax planning structures. Recent high profile court cases in a number of countries are a result of this increased scrutiny. The Vodafone court case in India is a prime example.
Our View on Substance
We are of the opinion that setting up or maintaining Holding, Finance or IP companies in any jurisdiction without proper substance (i.e. functions, risks, employees, decision making powers and assets) should be avoided. International tax planning strategy should be aligned as much as possible with business strategy and sufficient substance should be present at the level of the foreign company.
We are often asked to provide a generic list of the necessary substance requirements for a certain jurisdiction. Although general guidelines are available, we feel that a cookie cutter approach should not be taken. We tailor substance to the business strategy and the tax requirements of the source jurisdiction as well as the Holding, Finance or IP company jurisdiction. An empty letter box company in a tax haven may be a short term cost efficient solution but may prove costly in the long term.
Savva & Associates aims to work with North Americans to ensure their Cyprus structures are established and administered to the highest level of international standards. We aim to ensure that your structures contain the appropriate level of substance, and that all risks are clearly identified and communicated.
We can assist you to enhance your company image by setting up a Cyprus Office, complete with the following key features:
- Qualified directors which have expertise in your area of business
- A prestigious Cyprus business address with mail forwarding
- Fully furnished office
- Business telephone line
- Phone answering/call forwarding
- Dedicated fax line
- Cyprus website
- PO BOX
- Full-time or part-time employee(s)
- Utility bills
- Property taxes
For a fee quotation regarding our comprehensive Virtual Office services, please contact us at c.savva@savvacyprus.com
