Telecoms tax: De-centralised networks

A holding company is set-up with underlying subsidiaries or Local Business Units (LBUs) which own switches, handle local operations, employ local staff and sign contracts locally.  The LBUs perform local marketing.  It is preferable to use subsidiaries (limited companies) rather than risk the presence of equipment or staff becoming a permanent establishment of the holding company.

Some of the tax considerations in setting-up LBUs include:

  1. Is there a wide tax treaty network in the proposed jurisdiction of the LBU?
  2. What are the local transfer pricing regulations?
  3. Are there “thin capitalisation” or debt/equity considerations in funding the LBUs?
  4. IP licensing considerations regarding withholding tax on royalties payable to the holding company?
  5. Capital taxes & stamp duty considerations, etc?

The above is not an exhaustive list but an indication of some main tax factors that might need to be considered.