Reply With QuoteThis is all hypothetical fellas by the way . Nothing dodgey going on and I won't hold anyone's opinion against themOriginally Posted by Mr.D
Hello
Here's a hypothetical situation. I do have people in both India and the UK investigating this. One of the problems I face is that whenever I've been to an advisor in India they seem to think I'm a meal ticket and can't see past that.
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I set up two companies. One is UK based , the other is Indian based.
I get awarded contracts through the UK company.
The UK company then subcontracts to the Indian company.
The Indian company does the work , pays the staff including all their taxes etc .
The Indian company then invoices UK company for exactly the same amount that the work took hence they show no profit and are not liable for any tax.
The UK company makes its profit on the initially awarded contract being worth more than it cost to get done in India.
The UK company pays tax on its end of year profits. I'm paid a nominal salary from the UK company and profitshare through the company dividend.
Both companies have me as a 50% owner.
Is any of this illegal?
This is all hypothetical fellas by the way . Nothing dodgey going on and I won't hold anyone's opinion against them
A little bit like Bob did?
Er no. The people that work for me in India have been trained up by me and worked with me for 6 years. They actually want me to employ them as they figure its their best opportunity. I've rejected it for years but now I'm looking into it.
They earn way more and have been promoted since I became their boss.
It seems to me that there's little point asking here unless an expert in cross border corporate taxation (and especially Indian taxation) happens to be passing. ;-)
It all seems perfectly legitimate at first glance, doesn't it, but that's the problem: Unless you happen to know the relevant tax codes well you could run into problems. Being cynical, it wouldn't surprise me if there were some amazingly bureaucratic rules, especially on the Indian end, that made what you are doing illegal as it stands.
Good luck: I hope the advisors you have looking into it can come up with some authoritative advice!
Bob is like Ricahrd Pryor in Superman that finds all the 1/2 cents are just milling about.
I don't think in principle there is anything illegal about it. The alternative is to setup a branch in India which carries limitations of trade and a 45% taxation penalty.
My big problem is finding Indian advisors I can trust , I've been through 3 already..useless and worse. One guy wanted £500 off for offering advice on soemthing I had already said was not what I wanted. Ironically the best advice I've had so far is from an American aquaintance who has a company in Goa.
In principle, no. To the best of my knowledge, many businesses do similar across jurisdictional boundaries.
But...
What would worry me is that at some point an Indian tax inspector might note that the Indian company was intentionally being run to make no profit whilst all the profit (and thus potential corporation tax) was in effect (as some might choose to see it) being expatriated to another jurisdiction. Pointing out that nothing was really being expatriated (i.e. the initial contract never 'touches' India) and that the Indian company was paying local employment taxes and was generating local employment could very well fall on deaf ears.
So the questions I would have for expert advisors are: Is there currently anything in the Indian tax code that could penalise this business structure or are there any potential social concerns (as there in fact are in the UK in relation to totally legal and legitimate tax avoidance by certain international businesses) that might lead to laws being introduced to penalise such a structure? Saying that you do not intend to avoid any tax won't necessarily help in such a social/political/legal context.
See what I mean? It all seems fine to me as it stands (and I don't think it's even unusual in general) but it's what you don't know that can bite you. But as you observe, finding competent local advisors to rule out such risks is very difficult.
Last edited by markrlondon; 6th March 2016 at 00:13.
Certainly not illegal, from Indian perspective.
However, from the little I know, there might be tax on the Indian entity, determined by ' arms length transaction value' ( it will be unbelievable that a company exists to charge on actuals without making a profit).
However, a lot of this depends on the structuring of the companies and the contracts, their relationships, ownerships( including citizenship status of the large shareholders), voting rights etc etc. With proper advice, it will be possible to minimise tax, and take advantage of double taxation treaties ( which might mean that the total tax is not significantly higher than if all profits were taxed in UK). Impossible for anyone, even a proper tax lawyer, to advice based on what has been said.
Lots of reputable tax advisors in India, but quality advice does not come at Southall prices. A cursory glance at the Annual report of reputed companies will reveal names of reputed tax advisory companies; not to mention indian subsidiaries of the big 4. Even the internet might come handy.
Last edited by UJJWALDEY8165; 6th March 2016 at 04:10.
Ah, this is exactly the kind of possible wrinkle that I was worried about in my message above. Sounds like I was right about my guess about there being this sort of legislation.
Hehe!
Just don't ask Roy Subrata........
From his posts on previous threads involving tax, I thought this guy was an expert?
Who's an expert? Me? I know the basics but I'm far from an expert on compliance , even less so when it comes to international stuff.
Fundamentally I want to offer a group of my colleagues a better place to work with more pay ( they are the ones primarily pushing me to do it , it means I have to walk away from a permanent senior position with a good wage).
I also want to make sure I can get my own money back out the profit without upsetting the authorities and without it all being destroyed by taxation. I'm not about to commit a scam or something.
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