Outbound business tax planning should form part of every outbound business transaction, whether it is in technology transfers, export of goods or an investment overseas. In this article, I would like to discuss the main goal of the outbound business tax planning and identify the overall “global” (i.e. looking at the entire genre of outbound transactions) strategies which are utilized to achieve this goal.
The Main Purpose of the Outbound Business Tax Planning
The main goal of the outbound business tax planning is not difficult to discern – legal reduction of tax burden and, thereby, maximization of profits. What is important to understand is that the outbound business tax planning seeks to optimize the after-tax financial return from a transaction by reducing the taxes paid. It is not concerned so much with the pre-tax business details of the outbound transaction (although, these details may play a very important role in tax planning, but as a strategy and not a goal).
In other words, instead of treating taxes as just another cost of doing business, a business can significantly increase its real return from an outbound transaction through careful business tax planning.
Three Global Strategies to Achieve the Main Goal of the Outbound Business Tax Planning
How can the goal of after-tax financial return be achieved? There are three main strategies that can be utilized by an international tax attorney. The first strategy is to avoid the existence of any taxing jurisdiction in the destination country (i.e. the foreign country that is the object of the outbound business transaction). In other words, the transaction is structured in such a way as to avoid (or, at least, significantly reduce) the taxation of profits overseas.
The second strategy is to postpone for a significant period of time the US taxation of foreign profits until these profits are repatriated into the United States. Since US businesses are taxed on their worldwide income, the focus of this strategy is on deferral of US income tax, rather than its complete avoidance. The economic benefits of such deferral can be very significant, because the profits can be either reinvested tax-free, accumulate interest (also tax-free) or serve as a collateral for borrowing in the United States.
What happens if the income taxation in the destination country cannot be avoided? Does the outbound business tax planning have anything to offer in this case?
The answer is yes – the prevention of significant double-taxation of foreign income in the United States. This is the third main strategy of the outbound business tax planning. A prominent example of such strategy is the utilization of foreign tax credit to offset US tax liability.
Contact Sherayzen Law Office for Help with Your Outbound Business Tax Planning
If you are planning to expand your business overseas, contact Sherayzen Law Office for professional help. We will thoroughly analyze your planned business transaction, create a tax plan for you and implement it. Moreover, our firm will also provide you with the annual US tax compliance support with respect to US tax compliance requirements that may arise as a result of the tax plan (such as Form 5471 or 8865 compliance).