Research all the legal, tax and transfer pricing implications when taking your team offshore.
Growing your business offshore in 2017 is one New Year’s resolution that will need careful consideration.
At this year’s Christmas Party – whether it was the additional champagne or the joy of the Season, but the managing director announced, “We were going global!” To rapturous applause she sat down.
The goal is laudable and from a macro perspective necessary. We live in a globalised economy, entry into new markets diversifies risk, scaling up presents opportunities but it also presents significant challenges.
The guiding principles for all discussions about taking your business overseas need to concentrate on the operational and commercial needs of the company. But you will also need to address the following questions:
What legal structure is required in the foreign jurisdiction?
What substance (people) must I have in the foreign entities?
What contracts do I need to put in place?
How do I avoid Australia’s Controlled Foreign Company rules?
What debt/equity ratio am I allowed?
How will I get my profits back to Australia?
What transactions will be subject to withholding tax?
What additional facts do I need to disclose in my Australian tax return?
What are the tax rates overseas are there any concessions?
What is my exit strategy?
What transfer pricing documentation and disclosures are required both overseas and in Australia?
For those not familiar with the latter terminology, all international transactions between group entities must take place as if they were independent third parties – documented and justified accordingly.
The reality of going offshore involves a multitude of legal, tax and transfer pricing issues that need to be addressed prior to taking the plunge. These issues are extremely difficult to address after the fact. Overlaying this is the different cultural and social approaches adopted in different countries. You need to learn to do things their way, not your way!
Going offshore is a complex rubic cube with no one answer that fits all situations. The answers to the above questions will depend on your company’s individual circumstances. One thing that is uniform, however, is that if you are going offshore you will require expert advice both domestically and overseas. However, if offshore aspirations are structured correctly it can augment your commercial goals and deliver significant shareholder benefit.
Anthony Hayley, Associate Director – Tax and Transfer Pricing, BDO