Tivot Sandwich: Difference between revisions
→Mechanisms of the Tivot Sandwich
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==Mechanisms of the Tivot Sandwich==
===First layer===
A legal person will establish a holding company in Tivot. This company will take ownership of a controlling stake in an onshore child company. The child company is the main company that operates in an onshore jurisdiction. The holding company will make some form of loan to the child company. The value of this loan will be greater than or equal to the total profits that the child company has made. The loan repayments by reducing the profit also reduce the taxable income. Thus, this reduces the total corporate income tax paid by the child company to the tax authorities of the onshore jurisdiction. Because the holding company is located in Tivot it is charged taxes in Tivot despite the fact that the "interest income" it made from its child company originates from an onshore destination.
This is where the "no double tax" rule comes into effect. Only one jurisdiction enforces the tax. Because the holding company is located in Tivot, it pays taxes to the Tivot tax authorities. Because Tivot charges low taxes, the holding company pays very low taxes on the income generated from the child company.
===Second layer===
The child company may undertake research and development activities in the onshore jurisdiction which generate intellectual property (IP). This IP is then filed at a patent office. If the patent office recognises the IP, then it is also recognised in Tivot. The child company can then use the IP to create goods and services for sale. Furthermore, it can also rent the IP to other companies for royalties or it can outright sell the IP to other entities.
The problem is that if it sells the IP, the child company will get income. This income will be charged capital gains tax. If the child company gets royalties from the sale of this IP, they will be charged corporate income tax. Thus, the child company can pay the holding company for the loan in the first layer of the sandwich using IP instead of cash.
This fulfills two functions. Firstly, all the rent and capital gains from the IP will go to the holding company which will boy very little tax on both. Secondly, the child company will incur two expenses: the loan repayment expense and the rent for using the IP. These expenses will reduce the taxable income in the onshore jurisdiction, lowering the tax obligations of the child company.
This second layer only works for companies that generate a high amount of IP. Most companies will only use the first layer, but the second layer is usually used by STEM companies. This is the same structure that is used by [[Café Pay]]. Café Pay generates income in the Oan Isles that it shifts to the Safe Pay Holding Company. Safe Pay is in turn owned by various companies. The biggest sharehokders is Quicksilver Holdings. Quicksilver Holdings is located in a sink OFC specifically [[Blueacia]]. Tivot law hides the details of the owners of the Tivot company, but information regarding Quicksilver Holdings
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