International Tax Planning
Nowadays, business world is becoming increasingly international. Though multinational corporations have existed for a long time, today the number of average or even small business on the international scene is increasing in terms of globalization and the Internet usage.
It very important to understand, that that different countries not only have very different natural, labor and financial resources, but also may have radically different tax systems. It is not just about the rates. Tax systems can vary even in the principles of levying taxes. Besides of national legislations tax issues, global commerce are regulated by international agreements between individual countries.
The entrepreneur desire to reduce the production costs of their products is natural. Therefore, for example, the production of consumer electronics is rapidly moving from developed countries to China and Malaysia, where labor cost is lower (Dahlman, n.d). As one of advantages, the benefits of the national tax system of some countries may be a kind of resource as useful as cheap labor or a mineral deposit, which attract business from all corners of the earth. This is especially useful for the mobile types of commerce, such as international trade and finance.
While constructing scheme of work international business always takes into consideration the tax attractiveness of countries, where it will act. Moreover, in certain cases, tax considerations play a decisive role for the choice of activities of various departments of the company. It happens, that the corporation completely rebuilds its global structure based on tax considerations. This is called, in fact, the international tax planning, that is a legitimate tax minimization activities in international business.
The simplest way for the company sometimes is to move its activity to a neighboring country, where the tax rate is lower. Moreover, there are much more challenges in international tax planning. For example, a modern multinational corporation may have head office in London and manufacturing facilities in Singapore, a subsidiary of the company for a patent on the Jersey, the financial center in the Netherlands, a holding company in Luxembourg, a trading firm in Gibraltar, the insurance company for insurance of own risks - in Bermuda, etc. Of course, it is necessary to be familiar with the corporate and tax laws in the various jurisdictions, as well as international tax agreements for international business structures.
There are number of tax planning tools to optimize the international business activities. Naturally, the basic elements for the construction of corporate structures are companies registered in different countries. In order to reduce taxes, international company can use companies operating in low-tax or tax-free. This can be as off-shore companies and companies from the "average" countries, but having certain tax benefits. For example, some countries exempt tax for the company's...