Using expenses rather than Royalties?

I would like your opinion on a tax optimisation technique.

I don't understand why big companies always use royalties for tax planning and not expenses. In fact, if you use several companies and bill different companies, it is more anonymous.

In fact, i was an IT consultant for a worldwide company and i have seen that in their bookkeeping, 100% of the money we earned was transferred to a Finance entity of the company at the end of the month. I called it a black box. This black box was located in the UK. I was located in Continental Europe.

Do companies are invoiced by Panama or Belize companies for instance? There are enough people there to consider that some jobs could outsourced there.

i do understand that paying royalties is a simple process but it is not discreet. On the other hand, if you pay consultancy services, maintenance services, hotline services then it is more normal for business activities.

What do you think?

auric said:

Don't you think it has something with the very complicated transfer pricing regulations to do. Royalities can easely be priced while expenses alway can be questioned.

Thank you, what you say is very true. Compared to that, laws around royalties are very simple. On top of that it is totally legit. There is nothing that can be done against a Royalty agreement between two entities. Furthermore, it is extremely cheap solution. There is no need to have any office, website, employees. A PO box is sufficient. I get it now.