Editor’s note: This sponsored article was produced on behalf of Aprio as part of the firm’s partnership with Global Atlanta. Film credit: Steve Toutoute, Aprio LLP
Tax considerations are often not top-of-mind for companies as they expand their businesses internationally. But tax compliance, tax benefits and after-tax returns are important considerations, according to Aprio LLP international tax partner Jed Rogers.
International businesses face considerable challenges with tax compliance, due to the sheer complexity of tax laws across jurisdictions, the myriad of regulations and the cost of remaining compliant. Not only do multinational companies have to deal with a breadth of U.S. international tax rules, but they must also keep abreast of local tax considerations. Engaging the right tax adviser is key, Mr. Rogers asserts.
“At Aprio, we help our clients find a holistic solution that brings the U.S. and local considerations together to create the most effective global tax profile possible,” he says, adding that Aprio works with tax partners in dozens of countries to provide expert advice wherever a company operates, as part of a global tax strategy.
International tax reporting for multinational organizations is no small feat. The Internal Revenue Service and tax administrations in other countries require disclosure of business activities, even if there is no tax cost to those activities. If informational disclosure forms are not filed correctly, companies can incur significant penalties. It takes an adviser with the expertise, experience and time to get it right, Mr. Rogers asserts.
“We understand that clients are trying to run a business, and not everything’s about tax, tax planning and tax compliance. But it’s a necessary evil,” he comments.
In addition to being complex, global tax regulations are in constant flux. The U.S. Tax Cuts and Jobs Act of 2017 provided for favorable rates of tax on foreign derived intangible income (FDII), and the “GILTI rules” made foreign earnings subject to U.S. tax irrespective of the locality of the outbound investment. These measures were congressionally intended to encourage onshoring or reshoring, as companies now have less incentive to select international locales based on tax rules.
Mr. Rogers suggests companies always seek tax guidance when expanding internationally, as tax considerations vary by not only region, but also by country within those geographies.
The European Union, for example, has a favorable treaty jurisdiction with the U.S. and a more-defined legal landscape than other regions. India, conversely, has challenging transfer pricing rules that require specific profit margins that are very different from what is expected in the U.S.
While treaties with North American partners make Canada an attractive destination for U.S. companies, the country’s tax administration is “quite aggressive” in terms of audits, Mr. Rogers says. Tax regimes in Asia tend to be rigid and can make for slow transactions; clients can be surprised at how long it takes to effectuate even internal activities like reorganizations, he asserts.
Location has a significant impact on companies’ tax liabilities, but so does a company’s structure. Some opportunities could present themselves based on legal structure, including domestic international sales corporation (DISC) structures that still may offer rate benefits on income with respect to exports of goods and services, Mr. Rogers notes.
Any time a company is expanding internationally, they should be prepared to spend some time, effort and money so their profile is protected in terms of compliance, Mr. Rogers says. Even if a company is not currently tax optimized from a rate perspective, they should think about future dispositions, IRS audits and the potential need for financial statement audits down the road, he adds.
Mr. Rogers says clients are often taken aback by the tax implications of certain international business decisions and wish they had gotten tax advice from the beginning of a venture.
Whatever their capital or treasury and liquidity needs, Mr. Rogers’ team has been able to assist clients with declaring and making distributions, assessing and minimizing withholding taxes under treaty networks, handling transfer pricing, cleaning up inter-company payables and receivables and other tax methodologies. Advance planning to arrive at a global tax strategy helps cross-border entities avoid overpaying taxes.
Mr. Rogers has seen an uptick in outbound clients repatriating funds to the U.S. when they’ve experienced liquidity events or significant earnings in foreign operations.
Recent client success stories include the efficient repatriation of hundreds of millions of dollars that companies either redeployed into their businesses, used to pay down debt or returned to investors.
Aprio is uniquely positioned to help international companies be prepared for any tax situation, Mr. Rogers asserts. Many of the firm’s advisers are senior-level experts with backgrounds at large accounting firms, but they offer more hands-on client care than the “big four.”
“There are very few, if any, services we’re not capable of providing – but it’s with a much more personal touch,” he says.
Learn more about Aprio’s Outbound Tax Planning & Advisory Solutions.
