Companies take advantage of loopholes in tax treaties between different countries to avoid high taxes, usually in the following situations: 1. **Exploiting the difference in the definition of "tax residency" (tax residency arrangement)**: - Companies may register their headquarters or subsidiaries in countries with lower tax rates or countries with preferential tax treaties, so that their profits are regarded as tax residents in these countries, thereby enjoying lower tax rates or tax exemptions. 2. **"Transfer Pricing" strategy**: - Multinational companies adjust the prices of goods or services through internal transactions to transfer profits to subsidiaries with lower tax rates. For example, the sales price of high-profit products is overvalued in subsidiaries in low-tax countries, thereby transferring profits to these countries and reducing the overall tax burden. 3. **"Dual residence" or "dual permanent establishment"**: - Companies may be recognized as tax residents in two or more countries at the same time, thereby taking advantage of the provisions in the tax treaties of different countries to avoid double taxation in high-tax countries and even achieve tax benefits. 4. **"Edge" or "Shell Company" Arrangement**: - Companies set up shell companies in tax-friendly countries and use these shell companies to transfer funds or distribute profits to avoid paying high taxes in high-tax countries. 5. **"Interest Deduction" or "Financing Arrangement"**: - Companies set up financing entities in low-tax countries and use high interest payments to transfer profits, thereby reducing taxable profits in high-tax countries. 6. **"Capital Gains" Utilization**: - By taking advantage of the special treatment of capital gains in certain tax treaties, such as tax exemption or tax reduction clauses, companies can maximize the tax benefits of capital gains through asset transfers or reorganizations. 7. **Tax Haven Utilization**: - Companies transfer profits or assets to tax havens, which usually have tax treaties with multiple countries and minimize tax burdens through loopholes in the treaties. **Notes**: - **Legality and Compliance**: Although some tax arrangements comply with tax treaties in form, if they lack economic substance, they may be regarded as "abusing" tax treaties, leading to legal risks. - **Anti-tax avoidance regulations**: Many countries and international organizations (such as the OECD) continue to strengthen anti-tax avoidance measures and implement the BEPS (Base Erosion and Profit Shifting) project to plug loopholes in tax treaties and prevent companies from avoiding taxes through illegal or unethical means. - **Reputation risk**: Exploiting loopholes in tax treaties may bring negative public image and reputation risks, affecting the long-term development of the company and public trust. When conducting cross-border tax planning, companies should carefully evaluate the pros and cons of various tax strategies on the premise of legality and compliance, ensure compliance with the requirements of national and international regulations, and avoid potential legal and financial risks.