Reply to post: Re: Solution made by beancounters

Google to offer users a choice of default search engine on Android in the EU – but it's pay to play

SImon Hobson Silver badge

Re: Solution made by beancounters

there'll be a tax paid on it

No there won't - and that's not tax avoidance either.

Even if there is an inter-company hcarge & payment, the tax effect is nil. Whatever comes in as income (and hence would be taxable profit) is also an expense either to the same company or another in the same group (and hence allowable against tax as a business expenditure). Thus there's a saving in corporation tax on one end which exactly balances the extra corporation tax at the other end. This is quite basic knowledge about taxation that should be known by most people (and anyone in business).

However, what is normally done as a tax avoidance measure is to base one end of the transaction in a low tax location - so the tax on the income is lower than the tax reduced as a result of the expense at the other end. The classic example of this is where ${WellKnownBrand} sets up a subsidiary in a tax haven which just happens to own the worldwide rights to ${WellKnownBrand}. Said brand identity is then licensed to other business units around the world in return for a payment. These other units therefore reduce their profits (and tax) due to the legitimate expense, while the brand holding company makes all the profit but pays little tax due to being based in a low tax location. Or rather than a brand licensing system, it could be a requirement for each country's subsidiary to buy it's coffer beans from one other subsidiary - at a priace which is "a bit above" market value.

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