What Is an International Re-Invoicing Strategy?

Re-invoicing is the utilization of a low or no tax company to act as an intermediary between a business established in one jurisdiction, typically a high tax jurisdiction, and its customers outside its home jurisdiction. The domestic business sells its products, with a small profit, to the non-or low taxed company which intern marks the product up to the original selling price, and sells the product to the customers outside of the onshore company’s jurisdiction. Profits of the intermediary accumulate at zero or low tax rate while the small profits of the onshore business are taxed at its jurisdictional rates.

 

International re-invoicing strategy, example

 

An onshore business sells $1,000,000 of goods annually to a company established outside the jurisdiction where the onshore business is established, for example a British company sells to a Spanish company. Assuming that operating expenses and cost of goods are $500,000, the British company earns $500,000 on its sales before taxes. Taxes average say 45% or $225,000 thus reducing net profits to $275,000.

 

To utilize an international re-invoicing strategy the British company would use a non taxed company, such as a company established in Belize, Panama, or any other tax haven location, to serve as an intermediary between the British company and its Spanish customers. The British company sells its goods to the Belize company on credit for $600,000. The Belize company in turn sells the goods to the Spanish customer for $1,000.000. The Belize company thus earns $400,000 in profits. Since there are no taxes in Belize on international transactions, the $400,000 of profits has no taxes imposed on it.

The British company shows a small profit of $100,000; gross sales of $600,000 less cost of goods sold of $500,000. Assuming a 45% tax, the British company would pay $45,000 in taxes, while making a $55,000 profit. This strategy allows the British business to show an economic rational to its taxing authority for its business practices.

 

Is this legal?

 

The attack on using this strategy consists primarily of attempts by various taxing agencies to “prove” that the onshore company and the non-taxed company are in fact one in the same, claiming that the entire strategy is nothing more than a sham attempt to create the legal fiction of separateness where it does not exist. Attacks also include the claim that there is no business purpose to the non-taxed company other than avoidance of taxes.

The primary defense of the strategy is that the non-taxed company must operate with sound business purpose at every level. Thus the strategy must be implemented in substance rather than just written form. It is vitally important that the non-taxed company actually conducts business and is not a “shell” company. It must have an economic rational and must perform an economic function independent of the on shore company. Documentation is an absolute requirement with written records to substantiate business transactions.

 

In addition to the non-taxed company having an economic rational the on shore company must also have a viable economic rational. Since the primary economic principle for any business is making a profit, the on shore company should make a profit and pay taxes on this profit to its home taxing authority. The size of the profit can be flexible but a profit non-the-less should be made.

 

These points are the bases of legality of the strategy and no short cuts can be taken. Therefore, in the final analysis all entities should have a good economic rational for existence and both substance and form are import to the effective utilization of an international re-invoicing strategy.

The Ultimate Strategy For International Air Freight Shipping

Gone are the days when physical boundaries and geographical locations created barriers. It’s the age of innovative transportations where businesses have the opportunity to reach out to potential consumers. Whether it’s a bulky electronics item or documents, you can opt for air-freight shipping solutions and get them delivered to exact locations. If you are running a business, all you need to do is develop a unique strategy for such transportations. That will help you send all the products to their desired addresses.

Identifying your needs

Do you know what are the prime requisites involved in International Air Freight Shipping? If you don’t, it is the high time to develop crystal clear ideas of the process. While looking for these services, make sure you know your needs and understand your requirements. It’s highly imperative to comprehend the technicalities as that is the key to executing critical operations.

Things to note

Before devising the strategies and implementing them, make sure you take note of the crucial factors involved in these projects. What’s your requirement in an overseas transportation project? Here are some of the factors that matter a lot when you plan to associate with the best International Air Freight Shipping service providers:

Services and solutions

Does your chosen partner offer 24*7 support assistance? Overseas shipping and deliveries require profound attention, care, and professional handling. You must take a look at the services offered by the top companies before finalizing the associations!

Cargo deliveries

Your cargo should reach on time as that will prove your service excellence. Timely cargo deliveries are of paramount significance for a company and it instills trust and reliability to a great extent. When it boils down to executing cargo transportations, make sure your chosen partners have the right resources in place.

Cost factors

Choosing the top companies can be affordable too. Most of the people think that partnering with a reputed freight shipping firm can be expensive, but that’s not the truth. It’s imperative to check the service costs and their solutions. That will give you a complete idea of their services.

Finding the leaders

Always look for the top service providers, as they always come up with a host of solutions for clients. Check their experience, market reputation, and several other factors that make them the true leaders. The best companies will have services for one and all. That’s what makes them the pioneers.

Factors to consider

If you are planning to get in touch with leaders, here are some of the factors to care about:

Experience: Always get in touch with experienced companies as they have in-depth knowledge of the market.

Expertise: Professional expertise is of huge importance and you shouldn’t compromise in this regard. Check whether your chosen partners are aware of the technicalities.

Services: When the international shipping, you should opt for the perfect solutions. Know about the services offered by the chosen companies and then take the final decision.

Parting thoughts

Once you analyze these aspects, you will surely get in touch with the top shipping and transportation partners.