Cross-border business brings great opportunity. If you operate distribution channels overseas, plan to expand into emerging markets, trade in the global economy, it’s important to understand international tax systems.
Start planning early to help enhance your returns and align with your future multinational business planning. Of particular note as you begin to tackle tax planning: export incentives, such as global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) incentives, cash repatriation, and transfer pricing.
GILTI affects US persons who own 10% or more of a controlled foreign corporation (CFC). These US shareholders may be required to include in their taxable income all or a portion of the foreign corporation’s taxable income in each year. This tax is especially relevant to technology companies, which often are less capital intensive.
The FDII deduction, meanwhile, is a benefit for C corporations that make sales from the United States to foreign persons. The deduction is based on qualifying foreign sales made or services provided and is reduced by profit deemed attributable to tangible production assets located in the United States.
Cash repatriation planning must balance financial, operational, and tax considerations. An effective strategy will benefit a company’s worldwide tax burden while furthering the company’s goals and getting cash to where it’s needed.
The best time to understand the impact of transfer pricing on your business, tax footprint, and financial statements is before you’ve committed to expansion or restructuring.
Companies with related-party transactions that cross tax boundaries—country, state, or local— are confronted with increasing levels of scrutiny from taxing authorities and are burdened with an increasing number of transfer pricing-related compliance requirements. At the same time, these companies face pressures to reduce their global effective tax rate, improve their earnings per share, and move cash where it’s needed for operations.