Moving into foreign markets can be costly, but expansion can be very profitable and necessary. With astute planning your business can avoid pitfalls that will undermine the<\/b> overall economy brought by the structure. <\/b>\u00a0Be prepared to examine all possibilities.\u00a0 Think long term, how will the business grow over time, what markets will be the most profitable, then make informed and considered decisions.\u00a0 <\/b><\/p>\n
1.\u00a0 Tax Havens vs. High-Tax Jurisdictions<\/b>
\nWhile it might seem logical that inclusion of corporate entities, in your overall structure, in countries that impose no income tax can achieve the greatest tax economy, it is not necessarily true.\u00a0 Using high tax jurisdictions with a network of treaties can often achieve better results.\u00a0 The use of tax-effective structures in, for example, European countries and effective use of tax optimization principles, including correct transfer-pricing, group taxation regimes and hybrid structures, all of which are not deemed as tax avoidance or abuse of treaty rules in their host countries can provide for an overall more efficient structure.\u00a0 This is true even considering the costs of creating such a structure.<\/p>\n
2.\u00a0 Anti-Avoidance Rules<\/b>
\nAvoidance and\/or minimization of taxation is of growing importance to many jurisdictions.\u00a0 To address this concern many countries have enacted anti-avoidance rules, designed to prevent taxpayers from creating business structures with no purpose other than obtaining tax benefits.\u00a0 Anti-avoidance rules generally deny tax benefits, including expensed deductions, tax credits, exemptions, and lower tax rates, if the transfers are made through a network of companies with no connection to the business activity of the taxpayer.\u00a0 The underlying transaction being deemed artificial with no commercial goal or purpose.\u00a0 Carefully consider implementation of a business structure from the standpoint of its connection with the business activity of the taxpayer and the existence of a commercial purpose.<\/p>\n
3. Transfer Pricing<\/b>
\nThe transfer price is the price at which related companies transact business with each other, including the supply of services, supplies, product or labor.\u00a0 Transfer pricing is a valuable tool for cross-border tax planning. Tax authorities worldwide carefully scrutinize transfer prices between related companies more than any other pricing arrangements.\u00a0 Many countries allow related companies to set prices for transactions between them in any manner, but to the extent those prices are not equivalent to an amount an unrelated third party would charge for the same or similar services, the tax authorities adjust the transfer price and may impose penalties.<\/p>\n
4. VAT<\/b>
\nValue-Added Tax (VAT) and any other sales and\/or use tax is complex and challenging and can result in significant, and often, unrecoverable costs.\u00a0 In planning a business structure in addition to the general scope of VAT aspects, take into account VAT treatment of supply of goods and services in both the supplier and customer\u2019s country.\u00a0 Avoid structures which result in VAT payable both in supplier\u2019s and customer\u2019s country of residence, and whether there is any VAT credit.\u00a0 The VAT liability for online transactions is still in flux, changes in legislation regarding whether the delivery of services or intangible property delivered over the Internet is VAT-able in countries where the vendor has no Permanent Establishment much be watched closely.<\/p>\n
5. Permanent Establishment<\/b>
\nOnce a business has created a physical presence (\u201cPermanent Establishment\u201d) in a particular jurisdiction it is subject to income tax in that jurisdiction.\u00a0 A Permanent Establishment will be found where there is a fixed place of business.\u00a0 A number of countries have determined that a single server owned by a company and located that jurisdiction creates that taxable presence.\u00a0 Thus, if having a server in that country is desirable, consider leasing a server or using a local service provider.\u00a0 The risks of recognition of PE have significantly increased since the introduction of new rules regarding agency and service PEs.\u00a0\u00a0 Such rules have not yet been tested and create uncertainty.<\/p>\n","protected":false},"excerpt":{"rendered":"
Moving into foreign markets can be costly, but expansion can be very profitable and necessary. With astute planning your business can avoid pitfalls that will undermine the overall economy brought by the structure. \u00a0Be prepared to examine all possibilities.\u00a0 Think long term, how will the business grow over time, what markets will be the most … Continue reading Top Five Considerations When Structuring Your International Business.<\/span>