Tivot Sandwich: Difference between revisions
→Mechanisms of the Tivot Sandwich
Line 65:
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.
===Third layer===
Companies that are capital intensive, i.e. That use a lot of machinery and physical property etc., can take advantage of a third layer of the Tivot Sandwich. The holding company can own all of the property, plant and equipment of the child company. The child company then rents the PPE from the holding company. This is incurred as an expense which lowers the taxable income and thus lowers the taxation paid. Again, capital gains from selling the PPE go to the holding company. Depreciation and impairment of the assets is recognised on the holding company's income state as an expense, lowering the holding company's taxable income, further lowering its effective tax rate. Coupled with the fact that the Tivot tax rates are so low. At this point the holding company is paying next to nothing in taxes.
===Fourth layer===
In the fourth layer, a trust is set up. The shares of the holding company are owned in whole or part by the trust. The trust is then managed for the benefit of the beneficiaries. The trustee can be the investor or a trusted ally. A beneficiary can be either the investor (if they are jot the trustee) or a trusted ally (such as a relative. Trusts pay no taxes. Thus, investors who use this structure pay no taxes for the income generated from the child company.
This fourth layer has some challenges. Trusts are limited into the payments that they can make to beneficiaries. A trustee cannot also be a beneficiary. Thus, this layer is used by investors as a way of preventing their dependants (usually their children) from spending all the money when they die and they place the family's assets under a trusted person. Investors who are willing to forego the benefits of the income generated by the trust may find trusts useful as a barrier against taxes, but the fourth layer is only advisable for investors with dependants or who want their money to support a charitable cause.
==Case studies==
[[Café Pay]] is a financial services company from [[the Oan Isles]] that provides mobile and online payments. 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. This takes advantage of UNAC laws allowing companies in different member states to own companies in other member states. The biggest shareholder is Quicksilver Holdings. Quicksilver Holdings is located in a sink OFC specifically [[Blueacia]]. This shows how Tivot acts as a conduit for the final destination of the money which is a sink OFC.
Tivot law hides the details of the owners of the Tivot company, but information regarding Quicksilver Holdings was leaked through an investigation by [[Oan News]] in 2015. This demonstrates how Quicksilver took advantage of the Tivot law allowing companies to hide details about their owners.
Because Safe Pay is located in Tivot, the IP is recognised by Tivot authorities even though it is registered in the Oan Isles. This builds on the UNAC rule recognising IP from member states. The royalties and capital gains from the IP go to the Safe Pay Holdings Company in Tivot. Thus, Café Pay's income sheet does not show royalties and capital gains as income.
| |||