The infamous "split solution"

The second most popular way for contractors to operate their overseas contracts is to use the infamous “split solution”.  This is where the gross contract income is split, every month, with part paid into the host country and the remainder into another of the contractor’s individual, personal bank accounts.

Risk
Whether the monthly remainder is paid out disguised as a “non-declarable” ‘dividend’ or ‘profit share’ or ‘expenses’, the contractor has “economic ownership” of all monies paid to him or to her.  Unless all monies are properly declared, he or she is entangled in tax evasion which, as everyone knows, is illegal.

Outcome
These accounts become known to inquisitive tax authorities who force banks to provide details under international anti-money laundering regulations. This information is then shared with other tax authorities.  In the country of work, this situation could unravel during a standard tax office audit when there is too great a gap established between the amount paid by the client at the top of the contract chain and the amount declared on a tax return by the contractor.  This exposes the contractor (and, where chain law exists, the agency and/or client) to back tax payments and  penalties.