Legal Question in Tax Law in California

Re: Mulitiple International Corps and Tax Evasion

The issue you raise is known as "transfer pricing" and there are complicated rules governing it. The short oversimplified answer is that the IRS already knows about this trick and that it's not going to work if the inter-entity price isn't commercially reasonable. You might try searching Google with the term "international transfer pricing" to learn more.

This is a very complicated area of law and is not really susceptible to amateur experimentation or free question & answer topics on a web-board - if you're really thinking of doing something like this, you ought to find yourself a good international tax attorney. (Not me, by the way - I don't do international work.) Strategies like this can work, but they work in the context of entities earning millions of dollars who are prepared to pay tens or hundreds of thousands of dollars in advisors' fees to avoid hundreds of thousands of dollars in taxes. Small entities with small incomes can't justify the cost to set up & operate, for example, seven corporations in three different jurisdictions.

Also, "tax evasion" is illegal - what you want to be doing is called "tax avoidance", which is legal.

Re: Mulitiple International Corps and Tax Evasion

Well, technically not. You owe a fiduciary duty to conduct business for profit -- not your profit, the company's. However, if you are the sole owner of the company your theory would be, "well who is going to complain about the breach of fiduciary duty? Right?" Well, the IRS will, because its a tax shelter. They may not spot it, but if they do, you are toast. They will red flag the expense for the product as being too high and that may cause an audit. They will then investigate the Cayman and then the Chinese corporations. Presuming the Cayman is a completely confidential jurisdiction you may gain some insulation, however, the truth is that if they want to find out who owns a company down there, they can just pay $100 to the monkey in charge and find out. I believe China is not and that they have a treaty with the U.S. Therefore, they can see you through them if they check. Even if you could get away with it, wouldn't you end up paying tax in China? Is the rate way better? Is it worth the risk? Pay tax here, God Bless America, right?