When we say, an aged company has had no activity, which means that it can be sold to any person to start a new company without going through all the procedures. You must be aware of the advantages of purchasing a shelf corporation, such as it qualifies instantly to bid on government contracts. It helps you protect the assets from the creditors, and it helps create a solid corporate credit profile. But, do you know that these shelf corporations can help you save the taxes as well?
For legitimate businesses, these aged companies act as vehicles for tax avoidance, for example, the United Kingdom-based Apple’s corporate entity. These aged companies are often set up at offshore venues where very few taxes are imposed, for instance, Switzerland and Panama. These companies can help tax evasion because the corporations can park their assets in the shelf company to escape from paying taxes on those assets.
A domestic company can set up a shelf corporation for realizing tax heaven abroad. This process makes the advantage of looser tax codes in other areas. Now, the American companies can set up the shelf corporations in those foreign countries in which they are offshoring the work to be within the legal bound internationally. Notably, offshoring is a practice to move jobs and profits offshore to benefit from the lower tax rates. This practice is absolutely legal in the United States. It comes under the United States tax code itself, which forces the domestic companies to set up the shelf companies abroad.
It is estimated that more than 10% of the total output of all the world’s economies is parked in the offshore centers or tax heavens held by aged corporations.
Shelf Company only exists on paper, which means that the person can use it to funnel money to avoid paying the taxes. This type of company does not provide essential services or products but has a legal existence. The owner can buy and sell through this company, and he doesn’t require to report international operations conducted through the aged company. Thus, the owner can avoid all the taxes on the profits.
Things you must know about Tax Heavens:
- Although there is no universal definition of tax heaven, these are usually the countries with literally nil or low corporate taxes allowing the outsiders to set up businesses easily.
- These may also be called secrecy jurisdictions because the information is often hard to extract.
- These tax havens can be found all over the world, such as Panama, Alta, the Netherlands, Cayman Islands, and the U.S. state of Delaware.
- A country decides to become a tax haven because of the significant income from the fees paid by those companies who create the shelf companies.
How exactly do the companies benefit from offshore centers or tax heavens?
Businesses can enjoy a considerable amount of savings on tax by routing the payments and the profits through the subsidiaries in the tax heavens. For instance, a pharmaceutical company can set up a new entity in the Netherlands and sell the patent for a profitable drug. The offshore company can get a substantial licensing fee from the parent company, which allows it to record the lower profits at home and paying a lower tax bill. According to the data, many drug companies have avoided taxes in billions of dollars in this way.
Does an aged company come with a Tax Return?
These Shelf corporations do not have the Tax ID issued until any client purchases these, i.e., and they don’t come with the Tax Returns. This is because the Tax IDs are not sequential numbers, and these must be attached to the business owner. Issuing the Tax ID would mean that the corporate entity needs to file the Tax Returns each year even if it has no income, which would add to the cost of the aged company.
Sometimes, tax avoidance is seen as a loophole because these corporations might be used in some black market activities, and it is pretty normal to be suspicious of a shelf company. Therefore, it is always crucial to understand the different scenarios for which they are created.