| Imagine person A invoices person B for services delivered. In such case, it is always possible to get A invoice C and then C invoice B. C would just be a middleman. There is nothing wrong with that. Then, you could easily "chainify" the concept: A -> C1 -> C2 -> C3 -> B Now you turn C1 into a reservoir. It does not pay out to A, because A prefers to save his revenue inside C1. Therefore, A never gets taxed on income that remains in C1. Also, whenever reasonable, C2 and C3 pay for A's spending. That money does not hit A either, and not even C1. Therefore, A actually needs little actual money to be paid out to him. His expenses are taken care of by C2,C3, ..., while his savings are held up in the C1 reservoir. Even though B could pay millions for A's services, in terms of taxation, A makes almost no money at all. The money remains legally stuck in the C chain. Even though A is a real person, the C chain is not. It is a chain of virtual persons: "incorporations". They used to exist only on paper. These days they only exist on a computer screen. Moving nodes in the chain to another state or to countries, pretty much amounts to just updating a field in a database. Depending on what you fill out in that database field, you pay more or less tax. Hence, the reason why they consistently fill out the cheapest choices on the screen. In other words, there is never a valid reason to pay income tax for a "chainified" income stream. Therefore, income tax is in reality not a tax on income but on the inability to "chainify" income. |