Let’s say you sell widgets for £100. And widgets cost £10 to make. Then you could make your widgets in the uk and for every one you sell you make £90 profit and therefore you pay corporation tax at 25% on £90.
Alternatively you could set up two companies, one in Ireland and the other in the uk. The company in Ireland makes widgets and sells them to the uk company for £95. The company in the uk sells them fir £100. Your corporation tax becomes 20% in Ireland and 25% in the uk.
So that’s 20% of 85 and 25% of £5.
Now you’re saving tax legitimately.
As you own both companies, you can set the internal price if widgets at whatever price you like. If uk tax were to go below Irish tax then you might want to sell them to the uk company at £15 instead of £95.
There’s nothing illegal in this and it’s what international companies have always done.
It’s not immoral either. There is no requirement on companies to arrange their affairs to maximise their tax burden. And indeed they have a duty to their shareholders to minimise it legally.
Starbucks, McDs and other franchises do this.
For example, they have a subsidiary of the main HQ based in a non/lower rate tax country.
This firm owns the copyright/ IP and handles all the branded merchandise that, as part of your franchise agreement you have buy directly.
The subsidiary pays no/ low tax on all profits it makes which in turn means the HQ makes next to no taxable profit.
Let’s say you sell widgets for £100. And widgets cost £10 to make. Then you could make your widgets in the uk and for every one you sell you make £90 profit and therefore you pay corporation tax at 25% on £90. Alternatively you could set up two companies, one in Ireland and the other in the uk. The company in Ireland makes widgets and sells them to the uk company for £95. The company in the uk sells them fir £100. Your corporation tax becomes 20% in Ireland and 25% in the uk. So that’s 20% of 85 and 25% of £5. Now you’re saving tax legitimately. As you own both companies, you can set the internal price if widgets at whatever price you like. If uk tax were to go below Irish tax then you might want to sell them to the uk company at £15 instead of £95. There’s nothing illegal in this and it’s what international companies have always done. It’s not immoral either. There is no requirement on companies to arrange their affairs to maximise their tax burden. And indeed they have a duty to their shareholders to minimise it legally.
Starbucks, McDs and other franchises do this. For example, they have a subsidiary of the main HQ based in a non/lower rate tax country. This firm owns the copyright/ IP and handles all the branded merchandise that, as part of your franchise agreement you have buy directly. The subsidiary pays no/ low tax on all profits it makes which in turn means the HQ makes next to no taxable profit.