Although being familiar with international tax laws is one of the more difficult areas of conducting business abroad, comprehending the fundamentals, having a clear strategic plan and consulting experts is essential to avoiding unnecessary tax burdens and optimising taxing strategies. By grasping the fundamentals, planning strategically, learning from the experiences of others and consulting professionals entrepreneurs can minimise their tax burden, whilst maximising their tax strategies.
Understanding reporting requirements in each country is paramount for avoiding penalties and fines.
Basic Concepts
Broadly speaking, international tax law determines how businesses pay taxes on income earned in capital other than their home country: an especially important consideration when we remember just how much of a company’s global operating strategy – including where it locates operations, and the way it structures international transactions and deals – depend on the tax haven. So, the firm had better have a good grip on these laws if they want their operations strategy to succeed.
The manager of international tax affairs thus needs to keep in mind a myriad of variables, from tax rates, treaty considerations and their application in multiple jurisdictions, to the magnifying factors of non-compliance, alongside penalties and fines against such default. Penalties, fines and bad publicity – these and other reasons should prompt the design of effective tax planning, into company’s operational framework.
Participants will learn international tax regulations and rules, the US tax treaties, international agreements to limit or alleviate double taxation in the US for individuals and companies performing their activities cross-border. International tax rules pertain to residency rule, permanent establishment and limitation on benefits and will help develop opportunity to minimise tax payments for individuals and companies. This course is designed for professionals desiring to understand and learn international tax rules in business settings.
Tax Treaties
International tax treaties could help businesses trading around the world, to avoid double taxation, facilitate inter-country information exchange and provide means of international disputes settlement.
These treaties specify which profits might be taxed when and where, and they stipulate credit or exemption arrangements aimed at mitigating taxation while maximising the efficiency of the tax rules.
That’s a lot of research and understanding of tax rules both domestically and internationally, from the basics of general classification of taxes to the specifics of each particular category of taxes and whether whether they are covered by any particular treaty. For instance, only some taxes are covered by the complex US-France treaty: it excludes wealth taxes but covers income and consumption taxes – information that might well be needed to figure out whether the tax on digital services enacted by France violates the US-France treaty.
Residency Rules
residence is where an individual can go if he wants to work in another country (this makes sense since you would have to know where you live in order to work across a border), and we know this business happened across a border. Residence may determine what kind of taxes you have to pay in a country, so you need to know where you live to know whether you’ll have to pay any penalties, or even pay twice on the same transaction. Business people need to know the rules about residence to decide on the best strategy about how to structure their operations.
All countries have the right to tax their residents in accordance with specific laws that vary by country. Some countries use definitions of residency – for example, being physically present in their country for at least 182 days in any rolling 12-month period; others use factorial tests, weighting accommodation, family ties, economic connections, social connections when considering the question of residency.
A tax residence certificate is an official document provided by the national tax administration confirming an individual or legal entity is tax resident in that country. Tax residence certificates are often supporting evidence against claims under tax treaties with other countries; obtaining a certificate can differ significantly from nation to nation. Boundless can assist you in obtaining your tax residence certificate efficiently and effectively.
Tax Compliance
The tax rules that govern the activities of multinationals are myriad: international corporate taxes must be paid in every jurisdiction where the company staffs or does business; transfer pricing must pass muster with national and supernational tax bureaucracies; corporate employee taxes must be withheld and paid to national treasuries as dictated by multinational tax treaties.
They include bilateral tax treaties that eliminate or mitigate double taxation, in house trading blocs such as the European Union that establish broader tax principles for their members, and new international laws and regulations that governments are levelling against multinationals.
For example, the OECD’s new BEPS infrastructure proposes rules requiring profits to be taxed where the relevant economic activity is performed, including methods for identifying the ‘ultimate consumer’ in long supply chains, and rules assigning profits in thin-margin industries on the basis of macroeconomic data.
A large part of managing international tax is simply staying on top of how the rules change from year to year. This lessens the shock of having to play catch up later if the rules change. Managers should not make decisions about changing their business internationally without thinking about the tax implications. They might want to think about the international tax implications of their plans beforehand, to avoid potential noncompliance penalties that follow when actually implementing changes.
