Spring 2015 issue of Horizons

CONSTRUCTION

Before Going Overseas, Consider These Tax Issues by Kirk Wonio, CPA

I n today’s world, international commerce is quite common. While exploring international expansion can be exciting and beneficial to your company, you should be aware of the tax issues that come along with multi-national operations. Tax Treaties When expanding outside the U.S., consider the effects of tax treaties. Their main purpose is to minimize double taxation – that is tax by the U.S. and the foreign jurisdiction. However, tax treaties have several other beneficial functions as well. They provide a degree of certainty for tax treatment of cross-border transactions and activities, which reduces potential disputes, making the process more efficient. They encourage international trade and investment by removing or mitigating tax as a barrier.

When dealing with tax treaties, it is very important to review the relevant treaty and understand its implications. While most follow a standardized or Model Tax Convention, each treaty is unique, and it is possible that the treaty may have been recently updated. Additionally, if a treaty partner is a member of the European Union (EU), remember to take into account the impact of the EU law on tax rules, not just country specific laws and treaties. Permanent Establishment Permanent establishment is a very important concept within tax treaties that should be considered when expanding abroad. The creation of a permanent establishment is generally the trigger that causes you and/or your company (and potentially, employees) to have to file income tax returns with the foreign jurisdiction.

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