If you are operating across borders, complying with local tax laws, competing in multiple jurisdictions, then you need to work full-time for your tax department for reporting requirements, statutory filings, and not to mention to stay on the top of new legislative developments.
In a world of intensified global competition, one of the key factors for business success is to keep your tax strategy agile and aligned with the firm strategy while being familiar with the worldwide effective tax rate.
The current U.S. system of international corporate taxation encourages United States multinational companies to report and earn profits in foreign countries with low-tax, mainly by allowing them to defer U.S. tax on the source of foreign income until the profits are repatriated. This and some of the other incentives also stimulate corporates to locate production, physical assets, and employments in those countries.
The various differences in the taxation between countries give multinational corporates an incentive to modify their transfer prices from what a non-affiliated client would be charged. Just for an example; Corporates can easily shift the reported profits to the countries by under-pricing sales to their affiliates in low-tax foreign countries and overpricing the purchases from them, thus reducing the tax.
To deal with such practices, most governments requires corporates to use an “arm’s length” standard for tax reporting purposes, keeping the transfer prices equal to the prices that would induce if the transaction were between completely independent entities. Still corporates can alter transfer prices, because arm’s-length prices are usually difficult to establish for various goods and services that includes intangible, like patents, which are unique to the corporate.
Other provisions of U.S. tax law also stimulate corporates to transfer the profits to low-tax countries. Moreover, the American Jobs Creation Act has recently imposed a temporary tax break on the repatriations of foreign income from the low-tax foreign countries.
MNCs can transfer their income among their affiliates in different countries in other ways. The tax incentive to reserve profits in low-tax jurisdictions also influences decisions on the location of abstract property, the timing of profit repatriation, and the payment of royalties.
U.S. multinational corporates appear to reserve a disproportionate share of the profits in low-tax countries. Out of ten countries, seven with the largest shares of non-United States profits earned by U.S. multinational corporates in 2003 had effective tax rates under 10 percent. As per the studies, the financial decisions of multinational companies are sensitive to international differences in corporate tax rates.
Our international tax professionals have 20 years of experience, resources, and local competencies to make sure that companies like yours meet cross-border needs. With our knowledge, skills, legal, tax controversy, transfer pricing, and indirect tax teams, we are superlatively qualified to help you out with all the aspects of your international taxation needs. Moreover, our global geographic networks can assist you with the up-to-date analytical tax insight you require to meet your business goals, both globally and locally.
Our Areas of Focus:
- Foreign Account Tax Compliance Act (FATCA) Advisory
- Asset Management, Private Equity and Investment Funds
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- Mergers, Acquisitions, Divestitures and Spin-Offs
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- Securities and Financial Products
- Real Estate Transactions
- Partnerships and Joint Ventures
- Tax Advisory Services
- Bankruptcy and Restructurings
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