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Corporate tax changes could be in the works for international businesses

October 16, 2014

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For companies founded here in the U.S., the allure of international business can be strong. Expanding into another country opens up new opportunities and exciting markets, not to mention the ability to both earn and save money, provided the correct tax structures are in place.

That is why a number of corporations are looking into doing business overseas, such as through a merger, like Burger King did by recently acquiring Canadian-based Tim Hortons, or by simply expanding foreign operations in a different country. However, with these growth avenues come additional complications that require attention, especially related to tax planning.

Here at Clark Schaefer Hackett, we have intimate knowledge of the tax considerations surrounding foreign operations, and we understand what you need in place to successfully operate abroad. One effective way to begin is through careful analysis of global trends, including new tax developments that could soon impact your business.

To help shed some light on current events related to international business, we’ve compiled several recent reports that may be of interest to you:

Corporate inversions fall under spotlight
As you look into expanding your foreign operations, you’ll quickly realize that different countries have unique tax rules and regulations. In some cases, you may see one country with more favorable rates compared to the U.S. – but be careful, as setting up a tax-compliant multinational corporation is complicated.

One tax strategy that has recently gained more attention is the process of the “corporate inversion,” or when a U.S.-based company, for example, acquires a smaller foreign organization to transfer corporate headquarters abroad – earning tax benefits in the process. The Tim Hortons-Burger King deal has the potential to be a corporate inversion, but the firms’ executives argue that the move isn’t related to this in any way.

According to the International Business Times, the U.S. Department of the Treasury has passed new rules to dissuade local corporations from using inversions for tax gains. While still possible, there is hope among lawmakers that this change would make such a move less profitable.

One impetus for these regulations is lost revenue here in the U.S. The Joint Committee on Taxation estimated that corporate inversions could cost the country as much as $20 billion over the next 10 years, the media outlet reported.

OECD recommends global tax changes
Bending the rules for improved international tax benefits has been something that is on the minds of many countries, and a recent report from the Organization for Economic Cooperation and Development (OECD) outlined new recommendations for preventing this type of activity in the future, according to The New York Times.

The changes that have been agreed upon by the U.S., as well as several other major economic nations in Europe and Asia, would close tax loopholes and ensure that multinational corporations can no longer exploit elements of international tax law. The OECD recommendations target the use of subsidiaries and offshore companies to funnel profits and minimize the tax burden, the media outlet reported. While legal in most cases, the OECD hopes to limit the practice and keep organizations more honest about their finances.

Shift would address technological innovations
The desire expressed by the OECD and a number of countries across the world to prevent corporations from gaming the tax system could alter many different economies, according to The Guardian.

Any changes to international tax rules could stop multinational companies from creating deductions and other favorable conditions, instead contributing revenue back to their respective nations. The Guardian reported that much of this push by the OECD is due to technological innovations, as new developments provide new avenues for corporations to stack the cards in their favor.

Overall, the tax methods previously used by multinational corporations will now likely have to change, and that may soon lead to a new climate for organizations looking to expand their operations abroad. Our experts at Clark Schaefer Hackett remain up-to-date with current events and trends, so we can ensure you are in compliance and utilizing every tax structure to your best advantage.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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