Explore these seven elements of international tax
International tax can be exceptionally complicated for mid-market businesses. Knowing where to focus your attention can keep you in compliance and avoid costly penalties.
In today’s global market, companies enjoy vast business opportunities outside their home countries. With these opportunities come the challenges of tax planning and compliance. As you grapple with these complexities—from the implementation of structures and strategy development to ensuring tax compliance and contending with audits—knowing what international tax questions to ask your tax advisor is half the battle. Keep these elements of international tax top of mind when looking at your corporation:
1. U.S. tax compliance
Multinational companies face complex U.S. compliance rules for the timely and accurate filing of returns, certifications and statements. With ever-changing rules, more rigorous audits, and potentially high penalties, it is more important than ever to correctly report international transactions and activities.
2. Inbound and outbound tax planning
U.S. and foreign companies with cross-border activities must navigate the widely diverse tax rules imposed by different jurisdictions. Companies must also face a variety of nontax factors, such as currency fluctuations, interest rates and political influences. When analyzing the tax consequences of cross-border investments, consider factors such as these:
- Repatriation planning – determining tax-efficient alternatives for repatriating funds or using cash within the global structure
- Entity structure analysis – analyzing appropriate entity structures, taking into account current and future business needs, while also considering applicable tax ramifications
- Permanent establishment analysis – considering the unique facts and circumstances of a business to determine if in-country activities create a taxable presence
- Foreign tax credit analysis and planning – determining foreign taxes eligible for the U.S. foreign tax credit, as well as identifying opportunities to optimize their utilization
3. Subpart F analysis
Although U.S. taxpayers are subject to tax on worldwide income, the U.S, generally defers tax on profits earned in foreign corporate subsidiaries until the profits are distributed. Deferral is lost, however, if the subsidiary earns certain types of passive or “moveable” income, as defined in subpart F of the Internal Revenue Code. This would result in an immediate deemed repatriation. Interpreting the complex subpart F rules is not an easy task, especially when applying them to your unique global structure.
4. Export incentives
By establishing an IC-DISC, companies that export U.S.-made products can achieve permanent tax savings on the sale of these products overseas. Look at all stages of IC-DISC planning, including initial analysis, establishment, commission calculation and annual compliance.
5. Transfer pricing
To ensure operational efficiencies and obtain cost efficiencies, businesses often engage in intercompany cross-border transactions. Constantly changing transfer pricing rules, coupled with heightened audit enforcement, have made transfer pricing a challenging issue. Proper transfer pricing planning, documentation and audit support can help reduce compliance costs, mitigate tax risks and help you to achieve better overall economic results.
6. FATCA compliance
The Foreign Account Tax Compliance Act (FATCA) generally requires U.S. taxpayers to report information regarding foreign assets and cross-border payments subject to withholding. You must identify and satisfy your FATCA reporting obligations, including the completion or review of W-8BEN forms.
7. Earnings & Profits studies
Earnings & profits (E&P) measure a corporation’s economic ability to distribute dividends. A comprehensive and up-to-date E&P calculation is important for any corporate repatriation or restructuring. It is also critical in determining the impact of subpart F inclusions.
Schenck’s knowledgeable and experienced international tax professionals can help. We offer efficient, cost-effective tax compliance services to meet these demands, including Form FinCen 114 for reporting foreign bank accounts, assistance calculating E&P and determining the corresponding taxes, and more.
For more information or to discuss international tax planning, please contact Lonnie Hampton, Jenny Chapman or your Schenck account director.
Jenny Chapman, CPA, is a senior manager with nearly 25 years of experience in international tax research, planning and compliance. She is a member of Schenck’s International Tax team and advises clients on global entity structuring and foreign tax credit maximization.