Case study: EU alternatives for offshore and tax havens

An owner of a privately owned multinational group of companies was determined to optimize his tax expenses. He wanted Consilue to review the existing tax optimization strategy and present own views.

Addressing the pain: EU tax optimization schemes

In the first step, Consilue gained detailed understanding of the business, gathered some preliminary data (incl. owner’s personal tax residency, expectations, limitations) and performed an analysis of the current tax-related expenses.

Then tax consultants analyzed the existing tax optimization strategy. The approach involved tax havens and offshore companies and truly lacked transparency. It also had several significant flaws and drawbacks. The strategy was classified as risky and inappropriate by Consilue. Since the client was risk-averse by nature, tax consultant advise the client not to proceed with its implementation and rather seek for safer EU alternatives.

The work continued with further in-depth analysis. The goal was to find the approach which would on one side result in maximum tax savings and on the other side be as simple and transparent as possible. Together with the client, tax consultants came up with optimal solution to minimize overall tax expenses.

Tax consultants realized that corporate income taxes could be further optimized already within the existing tax environment of one of the companies in the group (Slovenia, EU). In order to do so, the case company would have to acquire a proper growth strategy, which is in fact more business-related measure. Why so? Existing tax environment promotes companies’ investments in selected tangible assets in the form of tax reliefs. Since the client’s business is investment intensive, this is in fact a superb base for the client to optimize taxes. Currently the company sales were stagnating. Investments were on the level of depreciation & amortization (D&A). However, reaching for higher growth rates of sales would result in the need for additional investments and as such further decrease taxes paid. Consilue realized that only with some business restructuring activities within the group of companies in the neighbor countries the client could be in fact paying effectively 0% CIT. It is literally the undeclared tax haven in the heart of EU for corporate income tax optimization when it comes to fast growing investment intensive businesses. The client realized that from the perspective of value generation and value-based-management on the group level, it would also be more rational to move the headquarters and base his future business developments in the given tax environment. Despite the fact that the client liked the idea of CIT optimization for the case company, Consilue proceed with the analysis of best practice of comparable businesses Europe-wide and the effect on value generation. One should be aware that taxes are to be understood in the wider context (corporate income taxes or CIT, dividend taxes or DIV, capital gains or CG, witholding taxes or WHT etc.) and analyzed in line with the group presence and future development.

Tax consultants’ efforts were focused also on the optimization of owner’s personal taxationdividend taxes and capital gain taxes. The owner expressed willingness to sell the company in the future and was well aware of the importance of personal tax optimization as well. Consilue found the approach aligning with his personal interests, limitations and expectations. The tax rates drop and consequently the total tax savings are to be significant, especially due to the fact that the transaction value expected is significant.

Results: Reaching tax savings in a safer way

The tax optimization strategy resulted in significant savings in taxes paid. What is most important, the strategy was tailored to the client and its needs. It is safe, transparent and simple to understand. It also has no negative image on the corporate brand, since no tax havens and other countries on the so called tax authority black list were involved. The client is comfortable with it and that is the most important.

 

Taxes paid as competitive advantage

I have to admit. Firstly, I was a bit skeptical about Consilue. Tax experts normally have two or three solutions developed and they stick to this. I was looking for a transparent and safe way to optimize taxes. A business partner recommended me Consilue and I am really glad. Consilue definitely delivered it! The approach was tailored to my business and personal needs. In fact, we transformed tax environment into our competitive advantage. The growth strategy is in my case definitely the right way to go. Tax credit logic and the approach to optimize personal taxes are straight forward and I feel 100% comfortable with the solution. The funny thing is that the approach is scalable and it is actually generating more savings on taxes paid as those risky strategies initially considered with companies in tax havens – offshore company system.

Advisor’s thought: Be comfortable with taxes

Despite the fact that nowadays majority of the world capital runs through tax havens, there are many underlying risks related to it. In case of SME, the cost-value-risk ratio plays important role. Things like complex operation schemes, high costs of legal, accounting and other services, risks of changing the regulation and other critical topics normally cause the clients to prefer straight-forward and transparent tailor-made tax optimization strategies over the offshore company and tax haven alternatives.