Companies which operate foreign permanent establishments (PE’s) have to create and keep two sets of books for these PE’s:
1) a calculation of the taxable income of the PE under the tax laws, regulations and profit determination principles of the country of the home office;
2) a similar calculation under the tax laws, regulations and profit determination principles of the country of the branch office (PE).
Mismatches between the two calculations are bound to occur, which may lead to (some) double taxation or to (some) double exemption or to (some) double tax credits. However, it is possible to increase these mismatches considerably with the result that substantial amounts of income are neither taxable in the head office nor in the PE!
These structures are normally only available against a success fee: you pay a part of your tax savings as long as the structure is tax effective. The percentage will depend on the size of the invested amounts and is generally between 33% of tax savings (relatively small investments) down to 10% (relatively large investments).
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