[witoldc]

Is there any effect on taxes?

Yes, the shell company makes $0 thanks to phantom expenses, but the main company gets all that money and that is profit.

So the shell has 0 tax liability and the main company faces all the tax liability.

It may screw the crew, but it doesn't matter for tax reasons. Correct?

[djloche]

The larger company will have losses from unsuccessful ventures, which will offset the profits.

[beagle3]

But that's not a tax cheat - that's how the tax system is supposed to work. If the total sum of losses is greater or equal to the sum of profits, they haven't actually made any money, and shouldn't be taxed.

It's just people who are promised "net points" that get screwed, not the tax man.