For businesses who trade and operate in more than one country, the value of carrying out an international tax review cannot be denied, bringing together the complexities of:
- international tax legislation, including ongoing changes
- developments within your business and future planning
- commercial and political changes worldwide
International tax legislation
Any company who operates across international borders must maintain an up-to-date knowledge of the tax regime in any country they conduct business in as worldwide tax authorities become increasingly stringent in their attitude towards ensuring tax law compliance.
The ongoing discussion of exactly how internationally trading big business is taxed has made regular appearances in the news over the last few years, with organisations such as Amazon, Apple and Google featuring heavily. More and more, international authorities seek to change their legislation and handling of cross border businesses to ensure the expected tax contributions are made and tax avoidance is alleviated.
While these well-known business brands are the most noticeable in the public eye and an obvious target for international authorities, any company dealing across borders must keep up to date on the resulting tax regime changes, how these will affect their business, and what changes the company is required to make to their operations to maintain tax law compliance.
It is therefore recommended to carry out regular reviews of your business, certainly on an annual basis, to ensure that your company does not come under the scrutiny of international tax authorities.
While keeping track of tax legislation in one’s own country can be a complicated matter, especially in the light on ongoing updates to tax law, carrying out the same evaluation for tax legislation across all the other countries your company does business in can massively increase the complexity of the task.
For instance, the tax implications for any business operating across borders could merit consideration of indirect taxation, transfer pricing, base erosion and profit shifting, or outsourcing.
Carrying out a regular international tax review allows a business to gain a clearer picture on:
- tax benefits, incentives and reliefs available in different countries
- the implications of capital movement, within areas of the business and across borders
- changes in tax legislation, whether in the business’ home country or a foreign country that the business deals with
- possible clashes between the requirements of tax regimes in different countries
- future tax planning aims and requirements
- business goals
Tax legislation doesn’t only apply where a business has a physical base in a country, of course. Any business operation within a country’s borders will activate taxation. This is one more reason to remain vigilant about your company’s international tax position and liabilities.
The tax function
Increasingly, the tax function in any business is becoming more complex and involved, growing to include consideration of the increasingly complicated tax laws, changes to legislation, and the ongoing monitoring required to achieve and maintain compliance.
In the context of international business, the tax function must ensure that not only is the company meeting their home tax liabilities, but also tax liabilities to international authorities, and that payment is made during the correct time period for each country.
One answer to this growing complexity for many businesses operating across borders is to centralise the tax function. Regional finance managers report to a centralised finance director at the business’ headquarters, so for instance, where a business HQ is based in the UK but the company also operates in Spain and the Netherlands, the finance managers at the Spanish and Dutch bases would report to the UK.
Whether a business operating across borders takes on a centralised tax function or not, it is imperative that all positions within the overall tax function are:
- clearly defined – knowing exactly which role is responsible for what task
- on the relevant areas of home and international tax legislation and any changes to that legislation
- on the interplay between the roles, including lines of communication and reporting
- on changes to the tax function itself
- on developments within the business and international links, and any tax-related implications
For any business operating internationally, the role of the tax function must look towards global compliance and not simply the tax situation at home.
The need for the tax function to grow beyond the standard accounting role, especially in the case of cross border businesses, has a positive implication in the ability to inform business objectives.
Tax planning cannot be entered into on a stand-alone basis. It must always be approached with business objectives in mind.
Developing an understanding of how the business is to be developed will lay the path for future tax plans, for instance:
- Does the business wish to expand into a new country? What are the tax implications for that move?
- Is there likely to be a change in tax legislation, at home, internationally or globally?
- Does the business wish to expand into new sites? Will this require the purchase of property and if so, could this be alleviated financially through available tax relief?
- Does the business wish to enter into a merger, or acquire another business? What implication will this have for the business’ tax position?
A key part of considering any business move, be that expansion, merger or moving into a new area of industry, is to take advantage of professional advice so that you can consider the tax implications of any change to your business, discover which available tax reliefs and legislation can assist the process, manage any risk to your tax position, and find out how best to achieve and maintain tax efficiency.
Carrying out an international tax review, when informed by professional tax advice and an awareness of your current business operation, can highlight whether your tax position is helping your business to achieve its future commercial objectives.
With this knowledge, a business can identify where change is needed and clarify where the business sees itself in the future.
Technology in relation to international tax
Technology is evolving at a speed to match, if not overtake, changes in the tax function and legislation and must therefore be an ongoing consideration for any business.
So what role can technology play in handling international tax, and what are the main considerations to bear in mind?
Firstly, there is the raw data itself. How is the required data sourced, stored and processed?
How can technology assist the accounting and tax handling processes? Are these two processes, and the relevant technology, working together smoothly?
Once the need for technology or automation in a certain process has been identified, which can be a challenge in itself, what technological solutions are available, and which of these are affordable?
Operating across borders, in numerous countries, is likely to require the need to work to different critical dates when it comes to taxation. Any accounting and taxation process must therefore be flexible enough to handle such variances.
Wherever technology is utilised for accounting and taxation purposes, it will be necessary to train the relevant personnel or attract individuals who already have the related knowledge and expertise. Either of these options has financial implications for the business.
The question of technology can again be addressed as part of an international tax review.