International tax services
Companies conducting transactions with entities outside the U.S., including investing, purchasing services or goods, holding assets (property or cash) or employing staff outside the U.S.
Companies whose revenues generated outside the U.S. are taxed by a foreign country
Companies with significant export sales
Companies with facilities and operations in multiple countries who transfer products, services or intangibles across borders within the company or with related entities, such as subsidiaries and commonly owned entities
Help avoid significant penalties for noncompliance
Minimize or offset the effects of foreign taxation on income generated outside the U.S.
Potential for wealth transfer to next generation or to reward key employees
Minimize tax liability in both U.S. and foreign entities
Understand tax-related benefits and barriers to doing business overseas vs. domestically
Provide more accurate and consistent financials companywide and globally
How AGH's international tax services can help your organization
AGH’s experienced tax team members work with clients whose operations span the globe. Our professionals help with issues ranging from optimizing tax liabilities to awareness of boycott country risks to documenting transfer pricing. While AGH’s experience is deep, our team members may also call on additional global knowledge through our association with PrimeGlobal, one of the top five largest associations of independent accounting firms in the world, which provides a wide range of tools and resources to help firms furnish superior accounting, auditing and management services to clients around the globe.
Companies don’t need to own a factory outside of the U.S. to incur international tax reporting requirements. Activities as simple as opening a bank account, hiring an employee, buying services or investing outside of the U.S. can result in international compliance requirements. Before globalization, only the largest multinational companies were affected; now, it’s common for middle-market or smaller entities to need to report their activities.
AGH international tax team members have the experience to help business owners minimize global tax liability, fulfill international compliance requirements, avoid penalties for noncompliance and recognize potential issues such as boycott countries. Team members will review cross-border transactions for required reporting and recommend and help implement strategies for profit improvement.
Foreign tax credit planning
U.S. companies are taxed on income earned both in the U.S. and in other countries. However, if another nation has already levied its own taxes on revenue earned within its borders, the entity may be able to claim a foreign tax credit to offset the first tax bite. This avoids double taxation on the same income.
This straightforward tax credit is made more complex in certain situations, such as when the other nation taxes income not normally subject to tax in the U.S., or when a U.S. company owns a foreign entity. However, the potential tax benefits are significant enough that if a business pays any foreign taxes, it is worthwhile to review for possible foreign tax credits.
Interest-charge domestic international sales corporation (IC-DISC)
Creation of an interest-charge domestic international sales corporation (IC-DISC) is a tax strategy that allows companies with significant export sales to realize tax savings. In this fully IRS-approved structure, the exporter forms a “paper company” which is the IC-DISC. The producer/exporter pays a tax-deductible commission to the IC-DISC on export sales. This commission revenue is not taxable, but can be used by the owner of the IC-DISC in several beneficial ways: as a source of ready capital to loan the producer/exporter or as a distribution to shareholders which is taxed at the dividend gains rate of 20 percent (a significant savings over the top tax rate of 37 percent), and as a way to transfer wealth to next generations or key employees at lower tax rates.
IC-DISCs incur annual administrative costs, but companies with significant export sales will reap benefits well above the administrative expense.
International business structuring
One of the most important decisions a company with significant operations outside of the U.S. can make is how the foreign entity will be structured. That decision will have major tax implications for the organization in both the U.S. and the foreign nation. A complex set of factors must be considered, including the foreign nation’s tax rates and laws compared to US rates and laws, international tax treaties in place and compatibility with the U.S. entity’s structure.
The right time to consult an AGH tax professional is when a company is first considering international operations, so that a business owner can understand the various tax issues for each type of entity. While tax issues need not be the most important factor for a new entity type or overseas location, a business owner can make a more informed decision with a full understanding of the tax environment.
Any company which transfers goods, services or intangible property across national borders within the company or to related entities must establish an accurate “transfer price.” The price of these transferred items affects the company’s tax liability in both the sending and receiving country, so countries are aggressively enforcing transfer pricing regulations to protect their tax revenues. Getting the value of a transferred good wrong can cause substantial penalties both in the U.S. and in other countries.
Companies engaged in transferring goods, services and intangible property need a tax professional experienced in developing the rigorous documentation required to prove appropriate values have been assigned. AGH’s tax professionals understand how to evaluate the tax consequences globally to help minimize tax liabilities both in the U.S. and abroad. Creating transfer pricing documentation that will withstand an audit and help avoid onerous penalties is a critical part of doing business internationally. This documentation is now even more important as it is used to complete required filings in the U.S. and most other countries.