Is this legal?

Is this legal?

Didn't find your answer?

I am actually a Canadian resident, and for business purposes I require a UK business.

Now, I know HOW to set up a UK corporation (I have a friend who lives in the UK and will probably purchase a pre-set company from duport.co.uk)
but in regards to the accounting and tax, is the following legal:

Let us suppose there are two companies, Company C (in Canada) and Company U (in the UK).
Company U has revenue of £5000 from various activities.
Company U then pays £4500 to Company C for a service that Company C provided (which was necessary for Company U to make that money).
Company U then reports £500 in profit, and dutifully pays taxes on that money.

Is that allowed? Or would I get into trouble with the UK IRS (or whatever its called) or Canada Revenue Agency?
Jamal

Replies (4)

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By User deleted
03rd Nov 2008 12:19

Patrick is correct
Sound though much of the advice on Accountingweb is, it is no substitute for proper professional advice.

My tuppenceworth, though - transfer pricing may or may not be an issue depending on the size of the company(ies) and the terms of the UK-Canada DTT. But I would expect to have to pay (more than tuppence) for further advice on those aspects.

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By User deleted
31st Oct 2008 16:56

two points
1 I have no idea if 95% of the revenue is a "market price" for U to pay to C - but you will know (or be able to find out) if that is so. If it is keep the evidence. If it is not either find some evidence that supports it or use a figure that is supportable.

2 "with the shares owned by a friend of mine". So that is who owns the shares, but who controls the company? And when you tell me it is your friend I will say "Oh really?.

And what happens when your friend isn't your friend any more?

The fact that you have to say "they can show everything is legit" makes it sound as though it isn't.

This may be no great deal for a few thousand but it could look very different and dangerous if the figures where mega.

What is the tax rate in Canada and how does it compare with the UK tax rate?

You need to dig deeper and get some sound advice that covers all the angles

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By User deleted
31st Oct 2008 14:22

OK but.....
There is nothing wrong with what you propose, but if the two companies are controlled by "connected persons" then you must consider the transfer pricing legislation which basically means that the charge from C to U must be at what is demonstrably market rate.

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By User deleted
31st Oct 2008 12:00

.
On the face of it, it sounds perfectly fine. As long as returns are filed and tax paid etc.

But more information would be needed for a definite answer. For example what are the activities? Will you be doing work for only one or a few clients? Is it buying/selling, consulting etc..?

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