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Attorney Arcadier
Attorney Arcadier, Attorney
Category: Business Law
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Experience:  Contract questions and Incorporation questions answered.
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Hello, My brother and I own a small company in Hong Kong

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Hello, My brother and I own a small company in Hong Kong selling DVDs (let's call this Company A). I am planning to open a LLC in US to start selling DVDs on Ebay and Amazon (let's call this Company B). Since Company B will operate in US, Company B will report all profits made on Ebay and Amazon to the IRS. Now, my question is: Since Company B cannot buy directly from the wholesaler (Company A has exclusive rights as a distributor), can Company B buy DVDs from Company A? Let's say Company A buy DVD from a wholesaler at $10 a piece, and Company A sell the DVD at $15 a piece to customers in Hong Kong. Can company B buy DVD at $15 a piece from Company A, sell them at $17 a piece on Amazon, and report a profit of $2 to IRS. I'm just afraid there is a conflict of interest since I am a partner in Company A and will be a sole owner of Company B. If Company B gets audited by IRS, would they consider the cost of each DVD to be $10 instead of $15. Thank you for your help. I just want to make sure I get all the facts straight before opening an Ebay account. Thank you. Let's say,

Attorney Arcadier :

Assuming company A has resale rights from its wholesalers, and Company A permits its owners to enter into related business relationships, then this is a good strategy. Company B pays taxes, but its profit is controlled by what A charges. The more A charges, the less taxes B pays. The more B pays, the more profits A makes and A will only be liable for the taxes where it transacts business and B and A will consumate their agreement outside of the U.S. This strategy works.

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