system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: How are shell companies used in tax avoidance?

If Company A operates in Country A and all of their income is generated through Country A, why is it that them sending money to Shell Company B in Country B means they get lower/no tax due to tax loops? Technically they still received the money and therefore is income, even if it's immediately sent to Country B, correct?
gpt
Company A is in a country where profits are taxed at 30%. Company B is in a country where profits are taxed at 5%.

Company A has 1 million profit. Company A owes the government 300k

Company A buys fictitious services from company B for 1 million. Company A now has 0 profit, so no taxes. Company B has 1 million profit and owes the government 50k in taxes.

Company saved 250k.

I don’t know if it’s the same in all countries but at least in Portugal you can’t operate at a loss more than X years in a row or you pay more taxes, regardless of profit. Exactly to avoid abuse.