International Taxation: Key Considerations for Global Businesses

In the past few years, our global economy has experienced rapid growth. This has encouraged cross-border buying and selling. Global businesses can now target customers way beyond their national boundaries and diversify their operations. Most companies today consider selling in the US a strategic growth opportunity. However, the companies also need to know how exactly they are going to navigate the US tax landscape.

There are various key considerations that your company needs to make in terms of taxes if you are planning on expanding to the US. Here are some of the crucial considerations:

Select the Appropriate Global Entity Structure

You need to choose the right entity structure to support your various overseas operations. This is mainly important for tax planning purposes. A foreign company can be considered as:

• Limited liability company
• Disregarded entity
• Unincorporated branch
• Uncontrolled foreign corporation
• Controlled foreign corporation
• Foreign partnership

Whether you choose a corporation or a limited liability company, each structure comes with its tax implications. So, consider all these factors and then choose the right structures for yourself.

Utilize Available Tax Incentives and Credits

The US tax law offers different credits and incentives to encourage business growth and investment. Global companies must explore all these opportunities to reduce tax burdens. Some of the incentives offered on international taxation include:

• Investment tax credit
• Research and development credits
• Deductions for qualified business expenses
• Export-related tax benefits
• Job creation or retention programs

Understand State, Local and Sales Tax

Global companies that are planning to expand their presence in the United States may also have to pay state income tax in their state of incorporation as well as other states. They also need to opt for a tax audit. When a company has people or property in a state even temporarily, a state tax nexus is formed. This means that the company is subject to state income tax in multiple states. The state income tax base differs from state to state. Global companies should assess their sales tax obligation and then proceed to carry out their business operations.

Monitor Global Tax Provisions and Tax Reform

Most countries across the globe support a two-pillar solution to global tax reform. In addition to the various reform components, Pillar Two ensures that multinational companies pay a minimum of 15% effective tax on their worldwide income. This is regardless of where the companies are headquartered. Countries like Canada, the United Kingdom, and the European Union have already implemented the two-pillar legislation. However, the US is yet to introduce this new law. It still makes use of various international tax rules for calculating tax.

Base Erosion and Profit Shifting (BEPS): In this case, multinational companies shift profits to low or no-tax locations where they have little or no economic activity. They also erode the tax base through deductible payments like interest or loyalties.

OECD Guidelines: To ensure that international tax transparency is maintained, the OECD has developed several initiatives that are meant to promote international tax compliance. This includes standardised international tax transparency frameworks and guidance on best practices.

Minimum Global Tax: The global minimum tax is an international tax reform which is an initiative led by the OECD. It consists of two pillars that are aimed at ensuring fair taxation for multinational companies that operate globally.

The pillar one allocates a portion of the company’s profit to the market. Pillar two establishes a global minimum effective tax rate of 15% on a country-by-country basis. It is applied to multinational companies with global revenue exceeding INR 6,500 crore.

Address Compliance With International Tax Treaties

Most countries including the US have various tax treaties in place. These treaties are meant to prevent double taxation. They also help promote cross-border trade and investment. Under these treaties, the residents of foreign countries may be taxed at a reduced or exempted rate. Most US tax treaties have various qualification requirements in place. So, global companies must assess the eligibility for these treaties and ensure compliance with the various ongoing rules and regulations.

Seek Professional Tax Advice

You can't be aware of all the complex rules and regulations that are currently prevailing concerning global taxation law. So, in such a case the best option would be to involve an expert like BC Shetty & Co. The chartered accountants at BC Shetty & Co. will take care of all your international taxation requirements and will ensure that your business needs are well addressed. This will allow you to remain compliant with all the rules and regulations. Your business operations can also be carried out smoothly and effectively. You may also reach out to the chartered accountants at BC Shetty for income tax e-filing and they will take care of everything on your behalf.

Conclusion

So, if you are looking for the best CA firms in Bangalore for queries related to international taxation, then you may reach out to the chartered accountants at BC Shetty & Co. They will carefully assess your business needs and offer you the best services based on your business requirements.