Establishing and maintaining an effective tax strategy for an internationally active business — or a business preparing to expand across borders — has never been easy. It requires the foresight to adapt tax strategies that fit the organization’s future plans, as well as its current operational needs.
The right international tax structure must balance the flexibility needed to adjust to the constant changes inherent in operating internationally, with the predictability and sustainability necessary to run a business.
Ideally, a cohesive international tax strategy accomplishes the following goals:
Once that strategy is established, it requires careful attention to ensure continued alignment with both the constantly shifting international tax landscape and the organization’s corporate strategy.
Across the globe, international tax planning strategies and processes are subject to heightened scrutiny as a number of jurisdictions are increasing their tax bases and limiting certain deductions.
The foundation for this rapidly changing landscape is the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) project, which identified 15 Action Items aligned along three fundamental pillars:
While countries are moving at varying speeds to implement BEPS, this initiative is driving the most significant changes in international taxation in decades and will affect virtually all internationally active middle-market companies. It will drive heightened reporting requirements and will almost certainly mean increased compliance costs and higher effective global tax rates for most international enterprises.
But external changes are not the only concern when it comes to maintaining tax strategies. Significant organizational changes such as entering new markets or cross-border mergers or acquisitions can affect the company’s international tax position, and should trigger a re-evaluation of strategy.
Of course, these changes can be beneficial for many organizations, as U.S. companies often find new markets, lower costs and less regulation overseas. So, while the idea of establishing — and then maintaining — an international strategy may be daunting, it’s well worth the effort.
Fortunately, there’s no need to start from scratch. Here are seven international tax questions to answer before entering a foreign market.
Taking a business or selling its products overseas can present great opportunities for growth. Business executives that address key potential tax issues in advance can minimize potential tax risks and maximize bottom-line profits.
Jim Carter, CPA, is a Lead Tax Partner for RSM US LLP in San Antonio. He has more than 30 years of experience in public accounting and leads the firm’s International Business Services team. RSM US is a leading provider of audit, tax and consulting services focused on the middle market.