International tax planning: how to do it
International tax planning: how to do it, Are there any investment strategies that are also advantageous from a tax point of view? What are the limits within which these operate? Is it possible to reduce the tax burden on your business?
If you are an entrepreneur and are interested in knowing the possibilities you have available to obtain tax relief , I invite you to continue reading this article. We will discover all the advantages inherent in international tax planning and what are the optimal strategies to achieve them.
First of all, tax planning is the tool with which the taxpayer reduces his tax base with a so-called reorganization of the sources of income.
Basically, the taxpayer examines the various possibilities available to him and opts for those that appear to be less onerous for tax purposes.
Generally, thanks to this reorganization of the sources of income, it is possible to obtain a maximization in terms of benefits such as the application of subsidized tax regimes, a greater deduction of charges, or the distribution of income over several years, in order to obtain a reduction in the tax base for each fiscal year.
This is a fully legitimate investment strategy, not to be confused with the completion of avoidance or evasive tax offense.
It is a tool that companies use very often, even at an international level.
International tax planning, in fact, by operating between different legal systems allows the entrepreneur to have even greater opportunities for saving on the tax burden.
Let’s see how it works together.
1. International tax planning
This is how the distribution of a taxpayer’s sources of income between the borders of different states is defined.
It is usually multinational companies that resort to this kind of planning; the objective is to obtain a reduction in the overall tax burden, by resorting to lawful operations made available by the various legal systems.
In fact, since these are legitimate operations, there will be no disputes by the Tax Authorities present in the various States.
Each state has its own discipline but despite this there are so-called shared tax conventions, to coordinate taxation on taxable bases that are formed in several jurisdictions.
Precisely in consideration of the complexity of the matter, it is advisable to contact a professional who, with international tax advice, will be able to guarantee optimal tax planning for your business. He will indicate the most suitable way to obtain the greatest benefits with risk containment.
There are various instruments that the taxpayer can use to obtain a reduction in the tax base.
Let’s see what they are and how they work.
1.1. The location of the business
While there has been a reduction in the use of this tool by multinationals in recent years, it may be the tax strategy that best suits your needs.
By resorting to the location of the business, the latter decides to move its headquarters to another state.
Basically, after having examined the various tax opportunities present in the various states, even with the help of a professional, the company decides to carry out its business in the most fiscally advantageous one.
Clearly, opting for a low-tax country will ensure greater profitability for your business.
Periodically, the World Bank draws up a ranking of the best countries to invest in. In the most recent rankings Singapore and New Zealand occupy the first places.
Among the many aspects to consider in the decision to locate one’s business elsewhere, it is also important to consider the kind of bureaucracy required by the States.
In some cases, in fact, the convenience of a State fails due to the disadvantageous bureaucratic practices to be respected.
1.2. The distribution of income
Another international tax planning tool consists of the distribution of one’s business activity in multiple states.
In this case, there is no displacement of the entire business activity in a single legal system, but advantages present in multiple tax regimes are obtained.
In fact, by operating in several states, the entrepreneur will concentrate the tax base in countries with subsidized taxation while allocating business costs to countries with a strong tax burden.
To accomplish this distribution, you can use several tools.
Among these, some allow for the deduction of interest expense, thus obtaining a reduction in tax revenue. This is what happens with leverage which consists in investing the capital object of a loan and obtaining advantages in terms of deductibility.
Others, on the other hand, such as the so-called transfer pricing, allow risks to be shifted to countries with low tax burdens.
With the use of this tool, the taxpayer will be able to obtain the maximization of the advantages present in different tax regimes.