- You export and you have never heard of an Interest Charge Domestic International Sales Corporation – An interest charge domestic international sales corporation (IC-DISC) can be a powerful tax savings opportunity for certain companies that export or otherwise do business internationally. The IC-DISC regime provides tax incentives meant to encourage U.S. businesses to export and results in very little, if any, change to business operations. This incentive allows U.S. manufacturers, distributors of U.S. manufactured property and certain service providers, namely architectural, engineering and construction firms working on foreign-based projects, to reduce the tax rates on these earnings.
- You are a C corporation with income from foreign customers and you think FDII pronounced “fiddy” is a rapper. The 2017 Tax Cuts and Jobs Act initiated a new provision that effectively reduces the tax rate on domestic C corporations serving foreign markets. The provision reduces the tax rate to 13.125% from 21% on foreign-derived intangible income (FDII). The tax benefit is broad as it applies to qualified foreign sales and service activities. It is meant to entice U.S. corporations to increase new investments in the U.S.
- An overseas customer has withheld foreign taxes on your earnings. Now what? Certain U.S. persons may be eligible to claim a refund on foreign taxes withheld. The U.S. has income tax treaties with a number of foreign countries. Under these treaties, U.S. citizens and U.S. resident taxpayers may be exempt from or receive a reduced rate on income taxes on certain income received from non-U.S. sources. Ideally, the reduced tax rate or the exemption is communicated through the appropriate channels to the foreign customers before the foreign tax withholding occurs.
- You have no idea how to price transactions with foreign related parties. A company’s transfer pricing policy can have a significant impact on its global effective tax rate because pricing determines how much income falls within a particular tax jurisdiction. Under U.S. and international tax law, companies must use arm’s length prices for related party transactions based on specific permitted methodologies. A transfer pricing study can support an intercompany pricing policy which lowers the overall effective tax rates. Such support is vital in the event of a challenge by the U.S. or foreign taxing authority.
- You have business activity in a foreign country and are terrified you might have to file a foreign tax return. U.S. tax returns are hard enough! As a company expands into foreign markets, it must consider whether its activities give rise to a taxable presence outside of the U.S. Most income tax treaties define the minimum level of business activity that gives rise to a taxable presence referred to as a permanent establishment (PE). For non-treaty countries, local law defines the PE threshold. Any company with growing foreign business activities should focus closely on whether its activities constitute a PE and look for planning opportunities to reduce PE exposure and minimize the global tax burden.
If this all sounds like a foreign language to you, let PBMares translate.
Businesses now more than ever are reaching beyond U.S. borders to exploit opportunities in foreign markets. This results in uncharted territory where expert advice in the international tax arena is vital to help your global business thrive.