BASIC PRINCIPLES OF INTERNATIONAL TAX

LEVELS OF TAX IMPACT
TAXES WHERE PROFITS ARE EARNED
WITHHOLDING TAXES ON REPATRIATION OF PROFITS OR CAPITAL FROM HOST COUNTRIES
CORPORATE AND WITHHOLDING TAXES IN INTERMEDIARY (IF USED)
TAXES ON PROFITS REPATRIATED TO HOME COUNTRY

SOME BASIC CONCEPTS
ACHIEVE EFFECTIVE FOREIGN TAX RATE EQUAL OR LESS THAN HOME COUNTRY
MAXIMIZE AFTER-TAX RESULT (NOT JUST TAX)
COVER ENTIRE ROUTING OF MONEY FLOWS FROM HOST
NEED FOR FUNDS REPATRIATION OF RETENTIONS ABROAD
COST-BENEFIT ANALYSIS
LIMITLESS OPPORTUNITIES

PLANNING OPPORTUNITIES
ARISE DUE TO
SCOPE OF TAXATION E.G. DEFINITIONS, TREATMENT OF FOREIGN EARNINGS, ETC.
DISTINCTION BETWEEN REVENUE AND CAPITAL AND TYPES OF INCOME
TAX TREATMENT AND RATES APPLICABLE ON VARIOUS PERSONS AND TYPES OF REVENUE OR CAPITAL
EXTENT OF BENEFIT DEPENDS ON HOME, HOST OR INTERMEDIARY TAXATION

FIVE BASIC PLANNING OBJECTIVES
TAX LIABILITY = TAX BASE x TAX RATE FOR A TAX YEAR
ALL TAX PLANNING IS BASED ON:
TAX EXEMPTION
TAX DEDUCTION
TAX RATE REDUCTION
TAX DEFERRAL
TAX CREDIT

HOW TO REDUCE TAXES
AVOID TAXES LEGALLY
INCENTIVES, TAX CONCESSIONS, ETC.
REDUCE TAX BASE
ALLOWANCES AND DEDUCTIONS, BASE EROSION, PROFIT DIVERSION, TAX LOSSES, DEBT/EQUITY, ETC.
REDUCE TAX RATE
TAX TREATIES, TREATY SHOPPING, ETC.
DEFER TAXES
LEGAL FORM, USE OF INTERMEDIARIES, ETC.
USE OF FOREIGN TAX CREDIT
OVER TWENTY TECHNIQUES

TAX PLANNING CONSIDERATIONS
BASED ON THE FOUR PILLARS
DOMESTIC LAW AND PRACTICES
BILATERAL TAX TREATIES
USE OF INTERMEDIARY ENTITIES
NON-TAX FACTORS

GENERAL PLANNING CONSIDERATIONS
FRONT END PLANNING
ANALYSIS OF ENTIRE TRANSACTION FLOW
CHECK ANTI AVOIDANCE RULES
USE OF SPECIALIST PROFESSIONALS
MUST HAVE COMMERCIAL SUBSTANCE
ENSURE BENEFITS EXCEED COSTS
AVOID COMPLEX STRUCTURES
GET RELIABLE/CURRENT TAX DATA AND ASSISTANCE
DO OWN RESEARCH

TAX PLANNING TECHNIQUES (1)
DOMESTIC LAW AND PRACTICES
TAX DEDUCTIONS/ALLOWANCES
TAX INCENTIVES
TAX LOSSES
ECONOMIC DOUBLE TAXATION
PROFIT DIVERSION (PRE-TAX)

TAX PLANNING TECHNIQUES (2)
BASE EROSION (PRE-TAX)
TAX DEFERRAL
FOREIGN TAX CREDITS
EXCHANGE RISKS
CONNECTING FACTORS
LEGAL FORM
DEBT OR EQUITY
TREATY PLANNING

TAX PLANNING TECHNIQUES (3)
TREATY SHOPPING
ADVANCE RULINGS
TAX ARBITRAGE
HOLISTIC PLANNING
TAX ADVISORS
TAX AVOIDANCE
EFFECTIVE TAX STRUCTURES

A TAX PLANNING METHODOLOGY
ANALYZE EXISTING DATA BASE
DESIGN TAX PLANNING OPTIONS
EVALUATE THE PLAN
THE PLAN IS NOT ADOPTED
THE PLAN IS ADOPTED AND SUCCEEDS
THE PLAN IS ADOPTED AND FAILS
DEBUG THE PLAN
UPDATE THE PLAN

A PLANNING APPROACH
PLANNING MUST BE HOLISTIC I.E. INCLUDE ENTIRE TRANSACTION FROM HOST TO HOME WITH
KNOWLEDGE OF TAX LAW AND PRACTICES IN ALL JURISDICTIONS
KNOWLEDGE AND INTERPRETATION OF TREATIES
KNOWLEDGE OG NON-TAX FACTORS
REVENUE INTERPRETATIONS
COMMERCIAL AND TAX OBJECTIVES

INTERNATIONAL TAX STRUCTURES
DISTRIBUTION OF GLOBAL ACTIVITIES AND FUNCTIONS
SUITABLE LEGAL FORM
DEBT OR EQUITY
EXTENT OF OWNERSHIP
USE OF TAX HAVENS
RESIDENCE/SOURCE RULES
AVOID COMPLEX STRUCTURES

SOME TAX BENEFICIAL STRUCTURES
FRACTURE THE CONNECTING FACTORS
BE A NONRESIDENT
ENSURE NO TAXABLE SOURCE
BE TAX EXEMPT
FOREIGN PRESENCE WITHOUT FOREIGN TAXES
USE OF INTERMEDIARY ENTITIES IN TAX HAVENS
BASE HAVENS
TREATY HAVENS
SPECIAL CONCESSION HAVENS

TAX PLANNING EXAMPLES
HIGH TAX SOURCE
DIVERT PROFITS THROUGH CHARGES
USE DEDUCTIONS AND ALLOWANCES
USE INCENTIVES
BASE HAVEN
ACCUMULATE PROFITS AND LEND
DEFER CAPITAL GAINS
TREATY HAVEN
REDUCE WITHHOLDING TAX
CHANGE NATURE OF INCOME
MIX DIVIDENDS

INTERNATIONAL TRANSACTIONS
INTERNATIONAL TRADE AND FINANCE
TRANSFER OF TECHNOLOGY
INWARD INVESTMENTS
OUTWARD INVESTMENTS
MERGERS AND ACQUISITIONS
DISPOSALS OF FOREIGN ASSETS

SOME ISSUES IN INTERNATIONAL TAX PLANNING
FORMS OF FINANCING OF THE BUSINESS
EQUITY OR DEBT(SOURCE OF FUNDS)
BACK TO BACK LOANS
TYPE OF ENTITY
COMPANY V BRANCH
USE OF HOLDING COMPANY
INTERNATIONAL CASHFLOWS
REPATRIATION OF PROFITS AND CAPITAL
ACQUISITION AND MERGERS
ASSET OR SHARES

INTERNATIONAL TAX PLANNING – SOME CONCLUSIONS
REQUIRES DETAILED KNOWLEDGE OF LAWS AND PRACTICES
COMPLEX BUT FLEXIBLE
RISKY ANC COSTLY
MATCH RISKS WITH REWARDS
CAN BE VERY COST EFFECTIVE AND WORTHWHILE
NECESSARY TO BE COMPETITIVE

FORM OF LEGAL ENTITY
DIRECT SALE
AGENCY
REPRESENTATIVE OFFICE
BRANCH
COMPANY
SERVICE COMPANY
PARTNERSHIP
LICENSING OR FRANCHISE

FINANCING OF OVERSEAS ENTITY
DEBT OR EQUITY? HYBRIDS?
DEBT-EQUITY RATIO
IF DEBT -
OFFSET AGAINST RELATED INCOME FLOWS
WHO SHOULD PROVIDE THE DEBT?
CURRENCY OF DEBT? FEGLs?
WITHHOLDING TAXES
ANTI-AVOIDANCE RULES
IS DEBT PREFERABLE ALWAYS?

INTERNATIONAL TAX PLANNING PITFALLS
PRACTICAL AND COMMERCIAL CONSIDERATIONS
COSTS
JURISDICTION CHANGE IN FUTURE
NON-TAX FACTORS
FRONT-END PLANNING
RELIABLE TAX DATA
PROFESSIONAL ADVICE
RESIDENCE AND SOURCE RULES
ANTI-AVOIDANCE RULES

CROSSBORDER TRANSACTIONS
INTERNATIONAL TRADE
TRANSFER OF TECHNOLOGY
CROSSBORDER INVESTMENTS
MERGERS AND ACQUISITIONS
DISPOSALS OF ASSETS/COMPANY
PROFITS/CAPITAL REPATRIATION
BRANCH INTO COMPANY

TAX PLANNING FOR INDIVIDUALS
EXPATRIATES
DEPENDENT PERSONAL SERVICES
INDEPENDENT PERSONAL SERVICES
IMMIGRANT/EMIGRANT
OTHERS E.G. HNW OR RETIREES
TAX ISSUES
NON TAX ISSUES
TAX PLANNING TECHNIQUES
SPECIAL TAX CONCESSIONS

POSSIBILITIES IN TAX PLANNING
EXEMPTION
PROFIT DIVERSION
UPSTREAMING
DEDUCTIONS
PROFITS EXTRACTION
DOWN STREAMING
REDUCE THE TAX RATE
DEFER THE TAX LIABILITY

COORDINATION CENTRE EXPENSES (i)
PLANNING
COORDINATION OF GROUP ACTIVITIES
BUDGETARY CONTROL AND FINANCIAL ADVICE
ACCOUNTING, AUDITING TAX AND LEGAL
FACTORING
COMPUTER SERVICES
CENTRAL BUYING OFFICE
DISTRIBUTION AND MARKETING
RECRUITMENT AND TRAINING

CORDINATION CENTRE EXPENSES (ii)
RESEARCH AND DEVELOPMENT
ADMINISTER AND PROTECT INTANGIBLES
FINANCIAL SERVICES
TREASURY MANAGEMENT
SUPERVISION OF CASH FLOWS
CAPITAL INCREASES
LOAN CONTRACTS
SWAPPING INTERCOMPANY DEBT
SOLVENCY NORMS

COORDINATION CENTRE EXPENSES (iii)
OTHER SERVICES
TRANSPORT
MANAGEMENT
ADVERTISING
ARCHITECTURAL SERVICES
QUANTITY SURVEYOR
MARKETING

CONSOLIDATION OF TAX RETURNS
LEVEL OF CONSOLIDATION
NATIONAL
INTERNATIONAL
MOVE ASSETS WITHOUT CAPITAL GAINS TAX
BALANCE PROFITS AND LOSSES
EXAMPLES: UK, US, DENMARK, SPAIN

METHODS FOR AVOIDING DOUBLE TAX
EXEMPTION
FULL
WITH PROGRESSION
CREDIT
FULL
ORDINARY
TAX SPARING
INDIRECT
DEDUCTION
TAXABLE INCOME
TAX PAID