tax-law european-union
Is this true? &quot;Thanks to GDPR laws, EU country A cannot check/investigate a corporate structure of a company incorporated in EU country B&quot;
<p>Not sure how to describe it better but I'll try my best.</p>
<p>According to someone I talked to this is 100% legal and 100s of people do this. Here's the setup.</p>
<p>You are a tax resident in EU country A. This country is normally high tax country but they have a <strong>temporary</strong> tax regime for foreigners (you) that doesn't tax foreign dividend income.</p>
<p>You set up a company in EU country B. Here corporate taxes are super low for less than $1M turn over.</p>
<p>If you do work for this company or manage it from country A, that makes this company subject to local <strong>high taxes</strong>.</p>
<p>So you hire two <strong>local</strong> directors, as contractors, from country B. On the contract signed, they oversee the day to day operations and work for you as advisor since you're the only shareholder. So their existence, the contract and the structure show that the company is managed in country B, run in country B and has economic substance in country B.</p>
<p>This way the offshore company isn't taxed in country A. This allows you to get dividends from the company <strong>tax free</strong> (after paying corporate taxes in country B) to your account in country A.</p>
<p>Thanks to GDPR laws, tax office of Country A can't go around checking everything company B workers do in country B. They also cannot put a camera in your bedroom and watch you 24/7 in case you work for the company. They also cannot put a monitoring software on your computer in case you work for the company.</p>
<p>There's nothing that stops you from working in tech or have a SaaS business through your company. As long as you have proper invoices.</p>
<p>In case country A develops an interest in your business, you show them the corporate structure, contract with directors, invoices and relevant documents you got from the country B tax office. Everything is kosher.</p>
<p>Is this actually true?</p>

<blockquote>
<p>Is this actually true?</p>
</blockquote>
<p>Not really although there may be figments of truth woven in.</p>
<p>First, the GDPR does not prevent tax authorities from determining layers of corporate ownership or investigating tax fraud.</p>
<p>Second, your substantive tax liability depends upon the tax laws of the countries in question. If you owe taxes under a country's tax laws but the country can't find it, that makes you a tax criminal, and doesn't mean you don't owe the tax.</p>
<p>Third, the exact rules on what triggers tax liability in mixed country fact patterns are highly technical and not fully uniform. If you actually do business abroad within the meaning of a country's tax laws in a way that is not subject to its taxes, then it is legal. But this scheme probably doesn't meet that standard under most country's tax laws.</p>
<blockquote>
<p>So you hire two local directors, as contractors, from country B. On
the contract signed, they oversee the day to day operations and work
for you as advisor since you're the only shareholder. So their
existence, the contract and the structure show that the company is
managed in country B, run in country B and has economic substance in
country B.</p>
<p>This way the offshore company isn't taxed in country A. This allows
you to get dividends from the company tax free (after paying corporate
taxes in country B) to your account in country A.</p>
</blockquote>
<p>A few thoughts on this specific example.</p>
<ol>
<li><p>If you truly are nothing but a passive source of funding for a company, then owning shares in this company is no different from owning shares in a public held company (e.g. BMW). The notion that dividends from the company are tax free in county A in that situation is very likely incorrect. Usually, dividends and other intangible income is taxable income in the country where they are received. Most likely, the dividends are income subject to taxation in country A.</p>
</li>
<li><p>There is a concept in tax law which U.S. tax lawyers call the &quot;Economic Substance Rule&quot; which is also true, but with different names (most of these countries don't have English language tax terminology anyway) which means that when someone is going through the motions of conducting a transaction in a tax favored form when in substance, something different is really going on, the tax authorities can choose to tax the substance rather than the form of the transaction. So, if the really valuable work is being done by the shareholder without visible compensation, rather than by the local directors and managers, you the shareholder might be taxed on &quot;imputed income&quot; representing the fair market value of the services rendered, or treated as the true manager of the company in country B. Similar issues can arise when valuable intellectual property is transferred to the company without being duly reflected in a fair market value purchase of equity interests, a sale at fair market value, or a licensing agreement for royalty payments.</p>
</li>
<li><p>Tax officials aren't limited to looking at paperwork. They can and do interview the human beings involved in interviews that those human beings are legally obligated to attend and cooperate with and to provide truthful information in with legal consequences for lying in those interviews.</p>
</li>
</ol>
<p>Even if no official documentation or public statements would tip off tax officials, a significant share of tax evasion cases are driven by whistleblowing by disgruntled former employees, ex-spouses, jilted significant others, mistreated business partners, and revengeful angry children who feel that they have been mistreated by their parents. Nothing in the GDPR prevents whistleblowing to tax authorities.</p>
<p><strong>Background</strong></p>
<p>In E.U. countries, closely held company ownership must be declared and recorded in a notary public's &quot;public records&quot; or a corporate register (unlike, for example, the United States, where, this information was only contained in the internal records of the company in most cases, although a <a href="https://www.natlawreview.com/article/corporate-transparency-act-your-beneficial-entity-ownership-disclosure-now-required" rel="noreferrer">new law called the Corporate Transparency Act effective January 1, 2022</a>, or later if initial regulations aren't adopted, changes this status quo).</p>
<p><a href="https://www.jonesday.com/en/insights/2012/10/public-disclosure-requirements-for-private-companies-us-vs-europe" rel="noreferrer">E.U. directives expressly requires much more public disclosure by private companies</a> than the U.S. more generally.</p>
<p>For example, a <a href="https://www.loyensloeff.com/media/479500/the-dutch-ubo-register-for-corporate-and-other-legal-entities.pdf" rel="noreferrer">recent Dutch overhaul of its rules for disclosing beneficial ownership of companies</a> is a model of contemporary modern European legislation on the subject. This affords access to this information as follows (UBO is the Universal Beneficial Ownership registry and FIO is the Fiscal Intelligence Agency, an anti-money laundering agency):</p>
<blockquote>
<p>The public can only access the publicly accessible UBO-information
with a valid registration and in exchange for a fixed fee. The
identity of those persons that access the UBO-register will be
registered with the Dutch Chamber of Commerce and UBOs may inquire as
to how often their information has been consulted.</p>
<p>The Chamber of Commerce may register the Citizen Service Number
(Burgerservicenummer) of persons who access the register. The FIU and
other competent authorities will, upon request, have access to that
information.</p>
<p>The FIU and other competent authorities may perform a search in the
UBO-register based on the name of an individual, thus listing all
connections of that individual, while the public will only be able to
search the UBO-register for the UBO(s) of a specific entity (and not
for the name of an individual). Even though this limitation to search
options was presented as a measure to protect the privacy of UBOs, it
is generally expected that commercial platforms that register company
information will enable searches based on the name of individuals.</p>
<p>The FIU and competent authorities have access to both the publicly and
not publicly accessible UBO-information.</p>
<p>In the Netherlands, the following institutions are, amongst others,
qualified as competent authorities with unlimited access to the
UBO-information:</p>
<ul>
<li><p>the Dutch Central Bank;</p>
</li>
<li><p>the Authority for the Financial Markets;</p>
</li>
<li><p>the Financial Supervision Office;</p>
</li>
<li><p>the Dutch Gaming Authority;</p>
</li>
<li><p>the Tax &amp; Customs Authorities;</p>
</li>
<li><p>the National Police;</p>
</li>
<li><p>the Public Prosecutor’s Office;</p>
</li>
<li><p>the Dutch intelligence agencies; and</p>
</li>
<li><p>the Tax Intelligence Agency.</p>
</li>
</ul>
</blockquote>
<p>As this example illustrates, taxing authorities are given express statutory authority to gather information pertinent to tax collection.</p>
<p>The Dutch situation, prior to the recent reform, collected essentially similar information, but at a decentralized basis in the offices of the notary handling the incorporation of the entity in question, with similar parties having access to the information.</p>
<p>The E.U.'s <a href="https://gdpr-info.eu/" rel="noreferrer">General Data Protection Regulation</a> generally, affirmatively extends to the provision of a good or service to an E.U. person subject to the regulation, something that would not include tax collection. <em>See</em> Article 3(2).</p>
<p>Also, <a href="https://en.wikipedia.org/wiki/General_Data_Protection_Regulation" rel="noreferrer">mutual assistance treaty obligations</a> between E.U. countries to share information, which would include many tax treaties between E.U. countries, and criminal investigations (which would include criminal tax fraud cases) are expressly exempted from its scope.</p>

<p>GDPR does not generally pre-empt other Union or Member State laws.</p>
<ul>
<li><p>Processing of personal data is legal if it is necessary for a legal obligation that stems from Union or Member State law. So the company would be allowed by GDPR to provide whatever tax-relevant information it is required to provide under other laws. It cannot withhold tax-relevant data to EU authorities by claiming GDPR as a reason. See: Art 6(1)(c) GDPR.</p>
</li>
<li><p>Tax authorities are also allowed by GDPR to exercise their official authority, such as by investigating businesses or sharing tax information with other EU tax authorities. The GDPR merely requires that these activities are grounded in Union or Member State law. See: Art 6(1)(e) and Art 6(3) GDPR.</p>
</li>
</ul>
<p>So when it comes to taxes, GDPR changes absolutely nothing.</p>
<p>All of this also doesn't affect whether your tax structuring scheme is legal. If it is legal, you and the business will have no problem with providing all relevant information to tax authorities. You might want to actively document that your setup is clearly legal, but what evidence would be convincing for a tax authority is a question for a local tax specialist.</p>
<p>The authority bestowed by country A's laws onto country A's tax authority might not cover investigations into matters located in country B. But that is unrelated to GDPR – see the above discussion. Such a limitation is also of little effect in practice, since tax authorities from different EU countries practice mutual assistance and routinely share information with each other. In addition to tax authorities, authorities concerned with social security payments or workers' rights also have experience with cross-border investigation.</p>
