1. The company created a subsidiary network in Tuong to take advantage of its lower 16% corporate tax rate compared to the 35% rate in the US. 2. The network includes three tiers of subsidiaries stemming from the original US-based company. Profits will be taxed at 12% in Tuong due to deductions for intangible property. 3. This structure avoids US federal income taxes by removing the US company from the sales process and conducting business through the Tuong subsidiaries instead.

1. The Bad Assets
Anshuman Parikh, Natalie Lewis, Mara Rosenstock, Brad Wolters
Overview
1. Replacement country chosen
2. Created subsidiary network to reduce federal income liability
3. Offered profit deductions for purpose of tax decreases
Best Country: Tuong
Comparisons: Tuong Khayali
Corporate Tax Rate 16% 18%
Economic State One of the regions most
rapidly growing
economies. Weathered
the recession with
stimulus package.
Declining exports and labor
shortages.
Currency High inflation: 5.2% Lower inflation: 3.4%
Workforce High-skill labor available Labor shortages, especially
among citizens of Khayali
Tax on Dividends from
foreign countries
No Yes
Required staff from country >51, with 85% citizens 25% citizens employed
Extra benefits in Tuong:
For annual sales < $7.25 million
- Accelerated depreciation of certain fixed assets.
- Deduction of 25% of the value of gross income attributable to intangible property – all
of our sales are attributed to intellectual property, which is an intangible.
Why the high inflation rate in Tuong is not an issue:
- The high inflation rate is due to a stimulus package of $16 billion they recently
deployed. This should be curbed in the near future.
We will create a three-tiered
structure of subsidiaries stemming
from the original Pandemonium
Corporation. All of the subsidiaries
will be based in Tuong, however the
original company will continue to
be located in the US. Round Island
Two will be fully owned by
Pandemonium US, and will in turn
own two companies, PACS Holdings
and Pandemonium Operations
Tuong.
PACS Holdings: PACS will pay the majority of the R&D costs that are incurred by the
company, and will enter an intellectual property sharing agreement with Pandemonium
USA. This gives PACS the right to sell licenses for selling the apps. They will sell this to
Pandemonium Operations Tuong, who will pay PACS for the license, and then sell the
product under its own name.

2. Pandemonium Operations Tuong: This Company will buy the license to sell the app from
PACS and then proceed to sell the app on the app store and collect revenue.
Tax: The revenue will be taxed by the federal government in Tuong at a rate of 16%, as
opposed to the US federal government’s corporate income tax rate of 35%. In addition, our
profits will be diminished by 25% for tax purposes, because all of our income is due to
intangible property. This means that in relation to the US, the corporate tax rate is actually
12% on our income, or 23% lower.
How this works: The IRS does not tax the various transactions that occur between these
companies, because (according to the check-the-box rule in Subpart F, the transfer pricing
regulations, of corporate tax code) these are not technically separate entities. The reason
for having two companies on the lowest tier of this structure is so that we can avoid
having Pandemonium USA involved in the process at all, and therefore avoid having to pay
US federal income taxes.
Extra options to diminish tax liability given tax statements:
A) Use R&D tax credits recently upped by Obama for all US-based R&D spending
B) Use accelerated depreciation (double-declining method) to apply highest expenses to
our apps now.
Alternative relocation options: Puerto Rico (4% corporate income tax rate),
Ireland/Singapore (tax codes designed for subverting US federal income tax).