"You definitely want to optimize the value of your investment in other countries," says Joe Bernot, international tax partner with Deloitte & Touche. "Taxes paid in foreign countries may reduce your U.S. tax liability, depending on the situation. If foreign taxes you pay are not creditable, you may be subject to double taxation, which erodes the return on your investment."
And pay attention to potential benefits obtained through tax treaties the United States has made with other nations.
"There are 40 to 50 treaties that can help minimize the tax burden," says Bernot.
Bernot cites the example of an individual or company that makes a loan to a company in the United Kingdom.
"The general rule there is that the interest on the loan is subject to U.K. withholding tax," says Bernot. "The treaty between the U.S. and the United Kingdom reduces that tax to zero."
Companies must also pay attention to where the profit from their activities is earned,.
"Let's say you set up a wholly owned subsidiary in Canada," he says. "The product is manufactured in the U.S. and sent to Canada for distribution. The price you charge the Canadian subsidiary determines how the profit is split between the U.S. and Canada, and determines which country gets the tax revenue."
According to Bernot, where the profit is taxed is important because Canadian taxes are generally higher than U.S. taxes.
Confused? Global tax considerations can be intricate and confusing, which is why Bernot recommends companies consult with an international tax professional prior to setting up business outside the United States.
"If a company ends up with a bad tax structure, it can be costly to unwind and clear up," he says. "If the company does its homework up front, it should be in a good position going forward." How to reach: Deloitte &
Touche, (614) 221-1000