At the beginning of any new year, tax planning opportunities arise anew. We are inspired by the agility of tax authorities to develop creative means of collecting taxes and the corresponding innovations by business and investors to take full advantage of what is lawfully theirs. Tax planning, compliance and mitigation are an important part of the outsourcing relationship. Accordingly, we explore some incongruities in taxation (which is just another way to say there is competition for your resources). We compare and contrast clauses for “tax savings” (tax mitigation), double taxation and “double dipping.” Taking a leaf from Jonathan Swift’s A Modest Proposal, we extrapolate into a revolutionary “Yukos tax savings” clause.
“Tax Savings” (or “tax mitigation”) Clause,
n. Sometimes also referred to as a “tax sparing” clause. (1) a provision in a law or bilateral income tax convention between nations in which a sovereign nation grants the taxpayer the right to avoid paying double tax on the same income; (2) a contractual provision in an outsourcing, joint venture or strategic alliance contract for mutual efforts to minimize each other ‘s taxes and aggregate taxes (if they can agree on how); (3) a condition or contractual provision allowing a party to negate a transaction if it would generate unfavorable tax results; (4) a governmental incentive favoring savings in lieu of spending, such as for pensions.
“Double Dipping” Clause
, n. (1) the design of a business or investment transaction that entitles a taxpayer to enjoy tax benefits in two jurisdictions for the same business or investment activity; (2) a promise to deliver an ice cream cone with two scoops; (3) a contractual guarantee of multiple business benefits from the same business or investment transaction.
Double Taxation, n.
(1) the result of paying two taxes on the same activity; (2) the result of having a special taxing district and a general taxing district, but you get both special and general benefits from the money spent.
“Tax Apportionment” Clause
, n. (1) a formula honored by two taxing jurisdictions for apportioning the tax jurisdiction over the activity being taxed, so that the activity is taxed only to the extent of 100% and not more, (2) in New York, a 100% apportionment of employment taxation to New York based on whether the employee resides outside New York for the employee’s convenience, and not simply because the employee resides outside New York.
The “Yukos Tax Savings” Clause
, n. (1) the contractual and legal commitment of every service provider to pay all taxes due on its conduct of business for its own account; (2) the right of every sovereign nation to nationalize a taxpayer by declaring a tax liability in excess of gross revenue, foreclosing on inflated tax liens, incarcerating executives and harassing their defense lawyers, auctioning the foreclosed assets to a small “unknown” company and then acquiring the small unknown company after the acquisition for under one third of the fair market value of the assets, (3) the bankrupt protection, as a clause implied by law, by a court in Houston to deny the validity of such auction, thereby saving corporate assets from nationalization, (4) the insurable event of creeping or actual expropriation or nationalization; (5) a special “Yukos-like” event of default in an outsourcing contract; (6) a form of identity theft practiced in Russia.