Tivot Sandwich
Tivot Sandwich is a base erosion and profit shifting (BEPS) corporate tax tool. This is an accounting and finance term that refers to the legal framework enabling companies to reduce their tax burden by exploiting the legal framework of Tivot and the United Nations of the Auroran Continent more broadly. It was originally developed by Governor Eliri Drzevili of Tivot following independence from Salovia and Edwin Ita of the Ita Marama audit and accounting agency originating from the Oan Isles as an adviser to the government of Tivot to help the country become a major financial center.
Originally it built on the core strengths of Tivot as a nation such as political stability, proximity to major markets and its strong transshipment industry. Furthermore, through the Auroran Continental Assembly, the country was able to gain greater access to the markets of the Auroran continent. Although Aurora experienced tumultuous situations namely the Auroran-Pacific War, the treaties and laws of the Auroran Continental Assembly were carried over to the UNAC, enabling the country to become a major financial centre and it turn cement the Tivot Sandwich. Although other countries have BEPS tools, they do not have the geography, history, politics and legal system and geopolitical clout to accomplish what Tivot achieved with the Tivot Sandwich.
Overview of tax, company and property law
The Tivot Sandwich makes use of a combination of company, tax and property law. This law arises both through domestic legislation as well as through bilateral or multilateral treaties between nations.
Although the nations of the world are diverse and have many differing legal systems, almost all of them possess some of the basic features described below. The first is that most nations charge taxes especially the following to generate revenue for their governments and to regulate sectors of their economy:
- Personal income tax is charged on the income made by natural persons.
- Corporate income tax is charged on the profit generated by for-profit companies.
- Capital gains tax is charged on the profit made from selling an asset.
Different countries charge different amounts of these taxes and have different rules for how they are to be paid. Some nations offer exemptions on the above taxes depending on the situation.
In most nations there are at least two class of legal persons: natural and juristic. Whereas natural persons refer to living sapient creatures, juristic persons refer to organizations of natural persons. These are typically characterized by perpetual succession and they can exercise all the rights of a natural person unless explicitly barred or it is not feasible for them to do so. Most countries have the following juristic persons:
- Companies are commercial entities. They have shareholders who have control over the company in terms of its founding rules. Shareholders control the equity of a firm and get paid in dividends according to the number of shares they have in the business.
- Personal liability limited companies are those in which the shareholders are not personally liable for the debts or actions of the businesses.
- Unlimited liability limited companies are those companies whose shareholders are personally responsible for the debts and actions of the company.
- Trusts are legal entities in a similar fashion to companies. They are distinct in that new shares cannot be created. Usually a trustee manages the assets controlled by the trust for the benefit of a closed list of beneficiaries. There are usually restrictions on how the money can be used because in most cases are not taxed on their income. It cannot directly generate income through conducting business but only the passive influx of income through owning assets.
Property rights refer to the right of a legal person to dispose (or alienate), acquire, use, modify and enjoy an asset. Intellectual property (IP) rights allow legal persons to own their original ideas and creations. This means that original ideas, inventions and discoveries of a legal person can be protected from exploitation by others, and creators can generate revenue and recognition from their creations. Income from intellectual property includes rent through the payment of royalties by other companies using the intellectual property, income generated through using the IP by oneself or capital gains from the sale of the IP asset to others.
Overview of UNAC law
The UNAC succeeded the ACA and the Auroran Union in 2017 following the passage of the Charter of the UNAC at the Auroran Reunification Summit which was held in Aura, Emberwood Coast at the invitation of President Nimona Poole. In that process, laws and directives passed under the AU and ACA were incorporated into the Auroran statute books insofar as they were not repugnant to the new treaty. Furthermore, treaty obligations referring to taxation, companies and IP rights remained in force despite disruptions caused by the APW. Furthermore, through the passage of laws by the Council of the UNAC and Auroran Parliament, the taxation, company and IP laws of the continent have matured.
The basic tenets of the shared law of the member states of the UNAC is as follows:
- Double taxation: A company originating in one UNAC member state and conducting business in another cannot be taxed in both jurisdictions for the same transaction.
- Corporate freedom: Natural and juristic persons of member states should not be arbitrarily restricticed from establishing or owning shares in member states. Juristic persons in one country that are lawfully registered shall be recognised as valid entities with respect to domestic and UNAC law.
- Cross-national roperty rights: The right of juristic and natural persons to own property in different member states shall be respected and cannot be violated unlawfully or arbitrarily by member states.
- Cross-national recognition of IP: Patents and other relevant forms of IP registered in one member state shall be recognised insofar as a novel creation of similar nature has not been registered in another member state. Natural and juristic persons shall have the right to exercise and enjoy property rights with respect to IP in member states as long as that IP is lawfully registered.
These basic tenets are exploited by the Tivot Sandwich to create the regulatory framework allowing companies to use Tivot to escape taxation.