One of the most successful ways in which to mitigate both taxation and corporate efficiency is by separating marketing from delivery functions.
For example, if one were to invest in Spanish villas with a view to renting them out to Northern Europeans, it would be inappropriate from a tax planning perspective to conduct the marketing of the rental villas using a Spanish sociedad limitada (SL) although such a decision may make sense for the initial acquisition and perhaps VAT reclamation relating to the said properties. The reason is that if the client base is in northern Europe and the properties in Spain, there is no reason to conduct marketing through the Spanish SL. In fact, there is no reason why a tax efficient company could not be used to carry out the marketing provided, as is always emphasised by SCF, there is proper and genuine management and control carried out in the tax efficient jurisdiction and that such activity can be deemed to have a good neutral business reason/logic. Of course, this is just one example of how marketing offices can be used to mitigate tax but there are many more potential ‘creative’ examples.
Diagram: An Irish company wishes to purchase a number of investment properties in Spain with a view to generate rental income from them – The advice that may be given is that an EU company company should be set up to give a market rate loan to the Spanish SL (This means that Spanish withholding taxes will not apply but repayments can be deducted from potential profitability) using EU Directive 03/49 which allows interest payments to be made without being subject to any withholding taxes. The Spanish SL could then use these funds to develop the properties and of course reclaim back VAT in the normal way provided property development is the normal business of the company. However, when it comes to marketing the separate Irish but properly managed company should be used to market and promote the villas to the future cliental in northern Europe and hence further reducing the potential tax exposure of the Spanish SL.