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agency of undisclosed principle and LLPs

Hi,

So how does the Agent of Undisclosed Principal work and can it be substituted by an LLP with a UK partner owning a 5% share and the non UK partner/s owning the rest?

Let's start with the directors and shareholders: How does their place of residence affect the operation of this structure? Need they all be UK resident, non UK resident or does it not matter?

If the agent does not "carry on a trade in" the UK (which means sells into the UK as far as I can fathom, am I right?) the principal is not taxed in the UK. What if the principal is not from a jurisdiction with a UK DTT?

The LLP is fiscally transparent it is claimed. Does that mean that (assuming not trading in UK) a single uk corporate partner would pay CT on its share of the profits only and the offshore partner(s) would not, or would they have to pay CT and offset it against tax in their home jurisdiction and if that is lower how can that be recovered if at all?

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10th Apr 2012 07:00

mmm

i would have thought it would be preferable not to be in an undisclosed situation because of the potential of taking on unintended liabilities.

 

more than that it is difficult to say because your question is unclear - you mention a LTD co is that the UP?

 

companies are normally resident where theyre are registered and the position/ residence of the directors can be entirely different.

 

all will depend on how the profits , if any , arise - is there a transfer prciing issue here

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11th Apr 2012 18:28

Unintended liablities not an issue. The UP would be in a low tax jurisdiction or a us LLC type thing. Residence of directors is a "place of ownership and control" issue that determines the country of residence of the company and therefore the sort of taxation it is due to pay

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By Hansa
10th Apr 2012 10:57

Why use a UK structure at all?

If only 5% of the ownership is UK, and the business trades elsewhere why make any part of the structure UK based?   As carnmores mentions, this kind of structure can have unintended consequences unless properly thought through, and with current UK "anti avoidance" fever in high gear, I would be inclined to look elsewhere.

Two possible alternatives: -

1. If an EU "presence" is required, Cyprus (as agent) has only 10% Corporate tax (and DTT's all over the place) and the undisclosed principal could be (say) a non EU entity with zero tax.   

2. If an EU presence is not required, the same thing but using HK or Singapore.

Either way the UK based partner can openly declare his dividend/remuneration as received.

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11th Apr 2012 18:32

A UK structure looks better than Cyprus and is cheaper and simpler at the start for us

 

The issue I'd like to address is surfing the: UK "anti avoidance" fever

Two possible alternatives: -

1. If an EU "presence" is required, Cyprus (as agent) has only 10% Corporate tax (and DTT's all over the place) and the undisclosed principal could be (say) a non EU entity with zero tax.   

A: Would Ireland not be better even though the CT is 12% it is cheaper to operate and less burocratic than Cyprus

Actually an IOM would beat the lot if we didn't want a better "commercial" image.

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By Hansa
11th Apr 2012 19:24

Cyprus v IE v IoM

wildgoose - You'll make your own choice, and I'm not trying to influence you ... but I feel I must correct one or two of the comments made.

(1) Cyprus.  Where did you get the idea it is bureaucratic?   Au contraire, we find it one of the easiest jurisdictions to get on with anywhere eg 

VAT registration - always in a week or two,

Accounts, most things allowable (including, for example consultancy fees from BVI companies, salaries paid to non resident employees) and not filed at the registry! 

Audit - think UK c. 1985 and you have the idea 

... I can only think you must have been tied up with a crappy local accounting firm who were trying to generate fees because the Cyprus IR is a dream to deal with for the simple reason they know 90% of their corporate tax payers are ultimately foreign and will leave if pushed too hard. 

(2) IE & IoM  

(a) IE - cost of the bond for a non resident director is pushing €3k and IE is very close to home (in terms of information exchange) - nothing to do with EU, this dates back to the days of the "lump" (building trades) but does make IE a bit too close for my taste.  However if this is not an issue, yes IE is fine.

(b) IoM - Is and is perceived as a tax haven pure and simple, but with a VAT system that is effectively a satellite of HMRC (Revenue sharing arrangements).  Very little privacy for the last few years so I tend to avoid it.  However if 0% tax appeals (as well it might) and privacy is not an issue, go for it.

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12th Apr 2012 15:33

re LLP

why use an LLP as disclsoure of members is required  you may be better off with a limited partnership - the UP must be declared to HMRC somwehere alomg the line - why the secrecy anyway it always invites questions

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13th Apr 2012 01:10

 

 

OptionsThanks Hansa

Would Cyprus issue a VAT number to a UK company? (for distance sales for example) If so must there be a branch present? That should not be the case I think

The accounting firm is not yet up to steam but I think they are open to learning

(2) IE & IoM  

Information exchange is not an issue for the agency company, the Principal would not  be in that loop. One could always reside in Ireland could one not? Or does that put the blinkers on the whole business? As a non dom.resident things should be easier on the resident than in the UK.

(b) IoM - same as IE but the added benefit of not paying CT on the agency fee either.

There is some confusion as to what "carrying on a trade in the UK" means in general. I understand that to mean sales being made in the UK, but in our case with the UK company we shall avoid selling into the UK. And we do not buy in the UK either as yet and if that is not adviseable we can avoid that as well, though the UK is much easier to run an ecommerce business from for logistical purposes and range of businesses to buy specialised products from.

As for the LLP, again disclosure is not an issue, the UK Ltd partner would make the company tax resident, I understand and the offshore partner(s) would allow most of the profits to be channelled away. That said, my accountant (after attending several seminars) said something about the LLP and even the Agent of the undisclosed principle in both cases would be consiedere "foreign companies" by HMRC and would not allow deduction of operating expenses not incurred in the UK and would charge CT on all entities involved including the offshore ones which would be offset against tax in the offshore jurisdictions by application of a relevant DTT. Which seems like saying the same as: "Whatever you do you have to pay all UK taxes and not be able to claim expenses if you use agency or LLP". Which defeats the purpose of the exercise and would cause any business to move straight to anywhere else where such structures are not subject to such nonsense. Can anyone comment on this? 

 

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By Hansa
13th Apr 2012 21:13

Cyprus Branch & LLP/Agency

1. Cyprus.   

Yes, with a "fiscal representative" it is always possible to register for VAT in any other EU country without having a presence there (indeed you are theoretically obliged to once certain t/o thresholds are reached when selling B2C).  However, I don't see the advantage in simply having a CY VAT number.  It might be better to register a branch as all profit originating in Cyprus (less costs of doing business) would be taxed at 10%.  Although I'm familiar with establishing a Cyprus branch of a UK Ltd company, I'd need to double check the rules for an LLP.  As this is going beyond the general nature of these forums, I'll continue this by PM.

2. LLP and undisclosed agency agreement 

I begin to lose the plot on this.  The UK end (the LLP) would typically be retaining (say) 10% of the gross with 90% going back to the principal as being the principals funds.  Why would you therefore expect the UK end to have anything more than (UK) administrative expenses to offset against UK declared profit?  I completely fail to understand the references to foreign companies. We have used undisclosed agency agreements for years (albeit with companies not LLPs) and have never come across this.  Again, this is perhaps getting to be more than a forum response and I will continue this by PM. 

VAT    As an aside, if you advise HMRC that you are neither going to buy or sell in the UK, I doubt whether they will allow VAT registration, the same applies to the IoM (being effectively UK VAT) ... Not sure about IE but they take their cue from the UK in many areas.

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16th Apr 2012 00:19

Time for Hans to send a bill?

This discussion is all very well but without looking at the particular detail of this clients needs and aspirations I think it would be difficult to give more specific advice.

It would however be interesting if Wildegoose could feed back in general terms how this works out in the end.

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14th Apr 2012 19:10

Although this query is about a real situation, I am very interested as to the background as a mental exercise also. Why for example are not-for-profit guarantee companies (purpose: providing VAT management free-ish and providing fiscal benefits) not used as agents? They could justify a 0,5% commission as they are not-for-profit and could also declare a zero balance at year end and not be queried by HMRC. "Arms length" for not-for-profit could even be cost+0%, or am I losign some concept?

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By Hansa
14th Apr 2012 21:16

specialist advice in a general forum?

Chris Smail wrote:

... but without looking at the particular detail of this clients needs and aspirations I think it would be difficult to give more specific advice....

I agree with Chris Small, I suspect that this is about as far as we can go in a general accountancy forum.  Wildgoose probably needs to instruct a specialist and provide that specialist with the full details of the who, why, and what.

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15th Jul 2013 13:54

Academic exercise

This is really an academic exercise to allow one to flex one's neurons as you can tell form the Guarantee Company query... That is what fora are for are they not?

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14th Apr 2012 23:50

Comunity benefit

I do think that since "thousands" of like structures have been set up over the last decades, and since this is of interest to many many traders all over Europe, it is a good idea to inform members of the forum especially accountants like mine, whom obviously are not fully aware of how these devices work, the forum being a community. Specialist advice is advice that takes a real fully detailled and explained business situation ("How do I ... ?) and provides a solution and the relevant service. Requesting opinions regarding partial situations and multiple ones at that for the purpose of understanding and inviting comment on the basic premises of agency law as applied to undisclosed offshore principals and concepts like "carrying on a trade in the UK" (one that remains unanswered and it being hairy when it is answered satisfactorily will show the members whom to retain, for example, should they require retaining an adviser) and the legitimacy or not of HMRC's presumed action of requiring witholding of CT of companies NOT "carrying on a trade with the UK", is still in the realms of "general information". "Do I charge VAT from my Maltese VAT account on a service generated by my UK company that only has a Maltese VAT number if the service was provided materially from the UK to a non VAT registered entity in Germany?, or "How do I arrange my VAT in Italy for my Czech company so that I do not have to request a refund from the long winded Italian authorities, if I do B2B and B2C business, given that I cannot claim input VAT on zero rated VAT invoices issued by me where some bills are for goods from Italy and are sold to Italy in a B2B scenario but only if my B2C turnover exceeds the input VAT paid in Italy all wothout accidentally instituting a PE?" THOSE are the sort of specialist enquiries which, with respect, Chris Small might consider acting as agent for the good Hans about...

242 views to date (after 4 days) on this thread proves it is of general interest and deserves thrashing out for the benefit of the community.

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16th Apr 2012 00:23

Goose. It all depends on what you mean by...

Wildgoose, there are too many underlying assumptions that need to be clarified at this stage for any discussion to be meaningful. Each country has their own thresholds and criteria.

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16th Apr 2012 12:43

it certainly is of general interest

and we are commenting perhaps without full detail of all the facts - i cannot understand your reluctance to go to a tax professional which appears to be the most appropraite route for you now that you are better informed :-)

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17th Apr 2012 15:18

Advice is had, paid for and is acted upon.

Understanding the finer points for personal edification ad community benefit is the idea. Unless this is not a real forum and just a fishing pond... Which is sort of legitimate but it would be welcome if we of the curious ilk were informed of the real purpose of the forum in that case.

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17th Apr 2012 18:55

if I had a biscuit
You have certainly taken it

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18th Apr 2012 21:13

Biscuits

I'll take that as a compliment! BTW I did not pay for the advice, I am just curious as to how the setup works. Please read the original headline... Indeed one day I might even consider something of the sort if it is still allowed by law, whether some parties approve of it or not.

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18th Apr 2012 21:43

lol
Taken in the correct spirit

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19th Apr 2012 19:55

Lest we forget
"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"
Law Lord Clyde, (Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Cas 754, at 763,764)

"There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; all do right. Nobody owes any public duty to pay more than the law demands; taxes are enforced exactions not voluntary contributions!"
US Judge Learned Hand

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