The subsequent examples are
based on the assumption that the company of the client is installed in
the EU, in our example in Sweden, and that the company to be installed
for reduction of domestic tax load is also a company in the European
Union, in our example an English Limited company.
The freedom of establishment
in the European Union is applicable as legal consequence, there are
double taxation agreements between the countries, and the EU directive
on parent companies and their subsidiaries is to be applied. The
examples may also be implemented with e.g. a Danish Limited company
and a Cypriot Limited company.
The Swedish entrepreneur has a total tax load of approx. 60%. He would
like to reduce the tax load as far as legally possible. The
entrepreneur offers services in the area of web design.
The Swedish entrepreneur founds an English Limited company with sole
tax permanent establishment in England. The permanent establishment
concept is legally defined according to the double taxation agreement:
1. Place of management:
An English person must hold the general management of the company, at
least on the outside. The entrepreneur may either shift his centre of
life to England, or he may employ an English person as director, or
one of our English attorneys will act as nominee director of the
Limited company (to the outside), and internally transfers all rights
and obligations to the actual beneficiary/founder.
2. Regular registered
office in England:
A mailbox does not constitute a regular registered office. On the
other hand, the English Limited company does not require any office in
England because of the freedom of establishment in the European Union,
and does not have to demonstrate that the Limited company transacts
active business in England. We will install the regular registered
office: company sign, availability by telephone, deliverable postal
circumstances: Either we provide the nominee shareholder of the
Limited (a legal person resident in England acts as shareholder to the
outside), or the Swedish entrepreneur becomes shareholder himself,
whereas the Articles of Association stipulate that all relevant
business decisions are made at shareholders’ meetings, which
exclusively take place in England, and at which the Swedish
shareholder must be present (place of management).
Therefore the clients conclude
any contracts with the English Limited company, and make payments to
the English Limited company. In Sweden only consulting takes place, so
according to the double taxation agreement this does not constitute a
permanent establishment according to taxation law.
Only England is entitled to the right of taxation, Sweden will miss
out. This procedure is usually possible for all services, since it
cannot be determined where the service is rendered. In addition,
according to the double taxation agreement, services do not result in
a permanent establishment according to taxation law in the home
country, which is Sweden in this example.
As under 1., however, the Swedish entrepreneur exports business items,
which – according to the double taxation agreement – result in a
permanent establishment according to taxation law in Sweden, for
example industry or retail shops.
In such a case, there are
different proposed solutions:
2.1. The English Limited
company with permanent establishment in England sends invoices to the
Swedish company, so that profits in Sweden are reduced.
2.2. The English Limited
company acts as a Holding, and/or is shareholder of the Swedish
company. Legal consequences: The profits of the Swedish company flow
into the Limited company. Due to the European directive on parent
companies and their subsidiaries, no withholding tax is imposed in
Sweden, and the inflow into the English Limited company remains
tax-free (distributions of profit between Limited companies). Within
the framework of the Holding, the English Limited company may send
additional invoices to the Swedish company before determination of