In a recovering economy revenues might be on the rise, but profits are still the key to success.  Global structuring continues to hold its place as a one method of increasing profits.  U.S. tech companies implement the most aggressive global structuring position.  Tech companies, in particular, can easily operate across borders, locating the head office in low tax jurisdictions.  According to the Organization for Economic Cooperation and Development (OECD), 37 of the top 50 U.S. tech companies use a global structure that effectively realizes greater profits in countries with lower than average corporate tax rates.

Both low tax jurisdictions and no-tax jurisdictions can be considered tax havens.  Surprisingly, low tax jurisdictions often result in a lower combined corporate tax rate than, no-tax or zero tax jurisdictions.  The busiest tax havens currently are Ireland, Switzerland and the Netherlands.  I predict this will change, perhaps before the end of 2014, but more likely significant changes are at least five years out.  One reason for the change will be plans by the OECD to redefine the “permanent establishment” concept.  It is expected that any revision of the attribution of profits rules including permanent establishment will impact other areas of global structuring, including transfer pricing.

So will no-tax jurisdictions, the true “offshore” countries create competition for low tax jurisdictions?  The answer is “yes.”  Tax free jurisdictions will gain in popularity as low tax jurisdictions are forced to adopt the changes the OECD has in mind.  International companies will once again tweak their structures to reduce overall tax burdens.  Tax free jurisdictions tend to have a lower population and lower tax base.  These jurisdictions need to attract business to create jobs and boost their economy, which can be accomplished without imposing income tax liability.

Need assistance with your global structuring?  Contact me at wkcantab@cantab.net