Repatriation and Reinvestment of Benefits

The legitimate purpose of any entrepreneur or investor is to obtain the highest return on investment. The investment process concludes once the benefits after taxes produced by their investments are obtained.

The repatriation of Earnings should not be understood nor treated as an isolated action of the investor, but rather a link at the end of a long process, starting with the investment Project, the effective realization of the investment, the business development and the achievement of surpluses or profits from operations.

Repatriation of earnings embrace a wide range of financial practices, before Income Tax, designed to allocate funds to its parent company operating in the country of origin.

Such common practices are the payment of royalties, commissions and interest, provide services and the supply of raw materials and equipment. Payments for these concepts are profusely regulated by the tax authorities of countries where the subsidiary or branch of the parent company operates; therefore, there are legal boundaries to prevent the abuse of transfer of funds into the parent company.

Among the most widespread regulations for transactions between parent and subsidiary, the demand for fixing the transfer price and not exceed certain percentages of income, may be considered abusive or not correlated with the activity or size of the subsidiary; in addition, to the taxation supported and the non-deductibility as expenses when computing the Income Tax.

On the basis of the above, the actions to plan by the investor or entrepreneur, must take no connection between the parties involved. In the case of international trade operations, companies can resort to centralizing procurement, distribution and logistics, based in low tax jurisdictions.

Repatriating profits

The process to obtain a net profit subjected to be repatriated is complex and ends, apparently, with the corresponding tax clearance that determine the % of the benefits that it has to be paid to the government, remaining the net income for the owner of the company. However, foreign-owned companies are subject to an additional tax on those net profits before allowing the earning repatriation.

Therefore, it implies that those benefits are eligible to be taxed again, once they return to the country of origin if a Double Taxation convention among the countries does not apply. Throughout different stages, the benefit decreases as it meets the subsidiary tax authorities’ requirements until it gets to the status of disposable for the investors.

The planning of business and investment activity has to be done very precisely from the beginning. The legal and tax framework of the country of the subsidiary has to be studied so the legislation requirements are rigorously meet.

Furthermore, we look for the corporate structure that offers the best tax treatment for the parent company´s revenues from dividends.

It is also needed, the study of the corresponding INTERNATIONAL DOUBLE TAXATION CONVENTION (TDC) that the host country has subscribed with the country chosen for the establishment of the subsidiary. The TDC is of great significance in order to reduce the tax burden, since it constitutes the Government agreements to avoid pay taxes on income twice in different countries. Choosing the location will take into account all these factors that directly affect business profit, the ultimate objective of all economic activity.

Reinvestment of benefits

Having determined the net benefit available and repatriable, is appropriate to study its use so that the new production cycle of these funds benefit from the planned financial and tax optimization.

In this phase, it will be crucial to design the most appropriate corporate structure (ex. Holding or an investment fund based in a low tax jurisdiction) to channel the flow of capital into the country of origin, in the form of investing or financing, that is as capital or loan, avoiding the payment of dividends when they are heavily taxed in the headquarters of the subsidiary and the parent.

The Planning oriented to financial and tax optimization is a sophisticated set of measures to reduce the tax burden of profits.

Such actions are “tailored”, varying substantially depending on the type of activity (manufacture, import, export, brokerage, provide services, operations in securities markets, etc..) as well as countries of origin and destination of the investment or business activity.

CAPITAL GAINS AND HEREDITARY SUCCESSION

May not be forget when tax optimizing, forecasting the future taxation of capital gains obtained by the transfer of shares in the case of disinvestment. Planning the hereditary succession of the owner of the business, so that gathers the will and produce the lowest tax cost for the heirs.

The most appropriate corporate structure, so that the final transfer of ownership of the company occurs by the simple transmission or endorsement of the holding´s securities, so is implemented in titles that do not have the status of public document, consequently, is not require the intervention of a notary. The most appropriate jurisdiction for this, the Anglo-Saxon Britain and the U.S.

To conclude, the catalog of solutions to apply is wide and requires personalized study by our technicians.

Optimization and Tax Planning

Arrange business activity, investment and heritage formation so that it incurs the lowest possible tax burden in order to maximize the return on investment.

To ensure this, we study the tax and legal framework in the different countries, choosing those that provide the investor a greater set of benefits, seeking a balance between profitability, legal certainty and tax burden on corporate profits, dividends and capital gains.

Tax optimization is achieved through a combination of legislation (civil, commercial and fiscal) of the selected countries.

Enable the investor to access the benefits of investing in countries with lower taxation, channeling business and investment overseas (import, export, creating and controlling shareholder of companies, equity investment) throughout the countries that offer better tax treatment.

Prevent profits, dividends, income or capital gains on foreign investments or in Spanish investments to be taxed in different countries at the same time.

The aim of Tax Optimization and Planning is to reduce taxation on businesses, professionals and investors.

Key feature of tax optimization is the compliance of the legislation of the countries through which it operates.


Tax Amnesty in Spain

It is a fundamental principle of State of Law the obligation of all citizens and residents to help support the expenses of the state, a principle enshrined in Title I, article 31 of the Spanish Constitution: « All shall contribute to sustain public expenditure according to their economic capacity through a fair tax system based on the principles of equality and progressiveness ».

Entrepreneurs, savers and workers contribute with their contributions to support the needs of their society organized as a State (deducting the marginal sectors linked to the picaresque).

A different matter is the requirement of a fiscal policy or revenue collection that is logical, efficient and fair, to fund political action that is based on knowledge, discipline, honesty and ethics, all this together with the demand for a small size  state machine which does not absorb the financing needs of private business.

Therefore, a government incurs in a serious contradiction when it promotes a partial tax amnesty with unpredictable effects, while announcing harsh measures for prosecuting fraud. Without questioning the good faith of the executive and the legislator and with recognition of their pragmatism, to which a critical situation of public finances is compelled to take various measures of tax collection indubitable.

The measures of “tax amnesty” contained in the RDL 12/2012 issued by the Spanish Government, show the extreme weakness of the economic policy based on the inefficiency of spending and repressive collection process.

LEGAL SECURITY

Before going into further detail on these measures, it should be emphasized a previous incident, happened by the presentation of a constitutional motion to the Constitutional Court (CC), by the Socialist Party.

It is reasonable to fear that the taxpayer regularized under the legal umbrella of the Act, would be unprotected at the mercy of the repressive action of the Administration or of justice, becoming a perverse effect not contemplated or intended by the legislature.

Therefore, it is required a comprehensive and clear legal framework, devoid of improvisation and broad of political support legislation, as well as a fast and clear statement by the CC, at least in terms of interim suspension, in whole or part of the Act. Leaving the mechanism of the interim suspension as a role for the legal certainty.

An important aspect to consider in the analysis of this legislative initiative is the strict circumscription of these measures to Taxes on Income and Corporation, so that, depending on whether the adjustment will emerge, no doubt, fiscal responsibilities on other taxes, like VAT, ITP, Stamp Duty and Inheritance and Donations, intimately connected with the regularized operations and those that eventually will not be prescribed, being that a logical action as in that way the responsibilities on Taxes ( Income and corporation) would have been prescribed, which would render meaningless qualify for the voluntary adjustment.

Moreover, although the legislator, to facilitate the success of his purposes, acquitted of criminal responsibility to those who were voluntarily regularized, is arguably the scope of the power of criminal liability exemption under this regulation having the force of “Royal Decree law” in collision with Article 86 of the Spanish Constitution, which states that the Royal Decree shall not affect”….. the rights, duties and freedoms of citizens contained in Title One …. “(in this case, referred to in Article 31 CE); and due to lower-level regulations to Law, with no legal capacity invasive criminal justice field.

Moreover, this Royal Decree Law explicitly refers to the Tax Crime exclusively so in the field of money laundering offenses, the regularized will be at the mercy of the interpretation between the fine line that separate the wide fiscal Crime criminalization money laundering and the potential liability of professionals in information.

All this, is unbounded.

REAL DECRETO LEY 12/2012

The measures known as “tax amnesty” are contained in Royal Decree Law 12/2012 and its development by ministerial order.

Remain in effect from 4 June 2012 until 30 November 2012.

Such measures can be grouped into 3 blocks:

  1. REGULARIZATION WITHOUT MANDATORY REPATRIATION

The holders of overseas accounts, deposits, property or rights of any nature undeclared, prior to December 31, 2010, shall be eligible for voluntary regularization paying 10% of its value. Repatriation is not enforceable under the free movement of capital.

  1. REPATRIATION OF NON DISTRIBUTED SUBSIDIARY PROFITS TO ITS PARENT COMPANY

The subsidiaries of Spanish companies that are ineligible for the benefits of International Double Taxation Treaty(DTC), because the territory or country in which they are located (generally considered to be tax havens) may distribute the dividends to its parent, with a cost of 8%, reducing the tax burden from 30% normally taxed at 22%.

This assumption does not apply in the case of Spanish subsidiaries in Hong Kong or China as they work under the DTC

  1. REGULARIZATION OF INTERNAL CASH MONEY

In relation to the money generated in the Spanish State, is allowed to regularize it with a tax cost of 10%, being the only condition to manifests withhold of that money prior to 31 December 2010. It can be regularized by electronic means.

To conclude, the tax adjustment, known as “tax amnesty” is a delicate and complex matter that requires the intervention of our tax experts nationally and internationally.

 

Amkal with GTA Spano at Top Marques. Monaco

El Salón Top Marques de Mónaco, considerado como la feria del lujo más importante del mundo, es el lugar de reunión de los mejores y más espectaculares superdeportivos, lanchas rápidas, jets privados, firmas de moda exclusivas o joyas

En su décima edición, Alberto Pérez Pardo, CEO de Amkal Hong Kong estuvo presente junto con GTA Spano , el principal reclamo del evento como demuestra su protagonismo en el cartel principal del salón.

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