While operating in multiple jurisdictions, the company must obey all the laws including tax laws of those countries. This means if the company operates in more than one country, it must pay the appropriate taxes from these countries. For companies, the tax issue is a financial headache and can be real legal and international tax issues are even more.
Globalized business world of this era, many businesses are dealing with the extremely complex issues related to international taxation. When the profits are derived and commercial activities occur in abroad, then the company or business owe taxes in all those locations. International tax law or ignorance does not exempt the company from paying taxes and applicable penalties (civil and sometimes criminal) for not obeying the tax duties. To learn more about international tax implications go here.
What Actions Subject to foreign Taxes
There are various cooperate actions that could be subjected to international taxes. What these actions exactly include depends on the country where the business is operating. The following corporate activities make the company responsible for the taxes in countries outside of the United States if the company:
- Selling the products abroad.
- Have employees outside of the United States.
- Having business office located other than the United States.
- Maintain Offshore bank accounts.
- Finalizing the large deal in the country other than the United States.
- Owing to the property outside the United States.
Minimizing the International Tax Liability
Whether it is a small international startup or a giant multinational, every business must be responsible for paying the international taxes and can force the international tax treaties and laws to lessen the tax burden that they pay ultimately. To minimize the international tax liability of the company, international tax planning is very important. Discussion of tax options that are related to the other countries is also included in the international tax planning. These options include the location where the company is operating and aligning the business decisions and interests with those requirements. In many businesses, it is considered that savings can be significant if the international tax plan is implemented carefully.
It’s a very increasing and common controversial way to minimize the international tax burden of the company through transfer pricing. It refers to special lower (often lower) used while assigning the profit of the company to several tax jurisdictions where its subsidiaries are operated using the range of intra-company transactions. Today, this is often done by companies to transferal the income to low tax or no tax jurisdiction. Thus reducing the overall tax liability.
This can be considered abuse when transfer pricing is done in steps to the intercompany transaction which has no economic reasoning but just to make sure that maximum profit is made in the low-income tax jurisdictions. Some foreign tax entities and IRS use this to recover taxes “saved” and penalties as well. Prior to using the transfer pricing as an international tax planning, it’s better to discuss all the legal issues involved with the international tax lawyer.
International Tax and M&A
International acquisitions and mergers include a number of complicated legal issues, but implications of international tax rank as the most important one. In fact, even sometimes such tax considerations may make or break the deals.