It would be so much easier if moving a business abroad was as simple as getting on a plane with a few employees and taking out a lease on a new office. But alas, this is far from the case, with seemingly a million and one different factors that business leaders need to take into account in order to expand overseas.
Tax obligations are one of the many unavoidable hurdles over which companies will need to leap if they are to execute a successful expansion strategy.
What does international tax planning cover?
Tax planning covers all manner of financial sins. Transfer pricing, managing cross-border finance to minimise tax burden on interest, forex issues, managing expat tax issues and returns, repatriation of profits, and VAT and Customs Duty issues all fall under the remit of international tax planning.
More than just compliance
As Rich Stovsky – US leader of private company services at PwC – explains in a report ‘Growing globally: Aligning your tax and business strategies’, a well-informed and well-executed international tax management strategy is not just a case of compliance. It could also help a company both to increase its growth capital and to bolster its liquidity.
Ken Esch, partner with PwC’s Private Company Services group, highlights how a company’s tax affairs in one country may well impact their goings-on in another, further illustrating how tax planning must be an integral part of any expansion project.
By managing an “integrated global structure”, he explains, companies will find they are far more able to reap the benefits of lower effective tax rates, which will ultimately help their business in both the long and short term – hence the need for meticulous understanding and planning.
In order to ensure that international tax planning becomes a fundamental part of your expansion strategy, it is necessary to treat it as far more than just another task on the to-organise list. Accordingly, it may pay to bring in international finance professionals who know what they’re doing.
The long and short of the issue is that globalisation is veritably transforming the business landscape and it would be fair to say that it is affording companies opportunities and challenges in equal measure. While you may know what the opportunities are, do you have the competences in-house to navigate the challenges?
This is where experts – such as international financial advisors, and interpreting and translation services – may prove to be nothing short of a godsend, as they plug the skills gap needed to make your dealings overseas a resounding success.
Effective tax planning is the perfect example of how companies need to broaden their minds in terms of the future. It is no longer enough to know where a firm is heading in the short term. Business leaders must have their sights firmly set on the long-term evolution of an enterprise, if it is to be a global success.
PwC experts describe this as the need to approach global business through a “wide-angle lens” in order to achieve sustainable results.
For example, if a company sells – or is planning to sell – a great deal of products or services in a particular market overseas, then it might make sense to place ownership of certain assets in that particular market in a bid to ease operations and defer taxation on foreign earnings by keeping them offshore, for example.
Nevertheless, it is paramount to respect the distinction – a very fine line indeed – between effective tax management and attempts to play the system, which are understandably looked upon very unfavourably indeed.
How international are you?
According to the PwC report, many firms may actually be more international than they think they are. Even if your headquarters are based in one country, as are most – if not all – of your direct employees, do you sell products abroad or perhaps source services from overseas? Asking these questions might make you realise you are more of an internationally-minded company than it first appeared.
The article cites one particular client of the multinational professional services firm, which considered itself to be a domestic enterprise with $1.5 billion (£0.9 billion) in total revenue and therefore decided against an integrated global structure. Nevertheless, after PwC experts had their way, they managed to reduce the company’s annual tax cost by 25 per cent by realigning its tax structures.
This is just one example. Is it time you reconsidered how international you really are?