Expansion offshore: Key Tax Issues. Simon Thorp, Partner KPMG

Transcription

1 Expansion offshore: Key Tax Issues Simon Thorp, Partner KPMG

2 Introduction Increasingly SMEs are having international dealings or transactions, whether it is expanding operations offshore or transacting with other parties based outside of Australia. What tax issues can arise for an SME in respect of expanding offshore? What are the tax planning opportunities that SMEs can use to enhance their business expansion? What safe harbours does the ATO offer to make compliance for SMEs easier with respect to dealings with foreign parties?

3 Tax tail wagging the business dog? How do tax outcomes support what is sought to be achieved from a business perspective? Where is the best location for certain operations and should certain functions or assets be separately located? What the form of return is sought by the ultimate shareholders and whether franked dividends feature? How can foreign taxes be minimised or the time at which they are triggered and remitted be deferred? To the extent that foreign taxes are suffered, is an offset available under the Australian tax system?

4 Tax issues on expanding offshore 1. Tax footprint/ permanent establishment Representative office Concluding contracts 2. Branch v subsidiary (or something else?) Attribution of profits: how to ring-fence a branch? Repatriation 3. Residency Companies Trusts Individuals

5 Tax issues on expanding offshore 4. Funding Branch v subsidiary Thin capitalisation 5. Double tax agreements Avoidance of double taxation Concessional withholding rates 6. Foreign source income Determination of source Withholding taxes Foreign income tax offsets: properly applied

6 Tax issues on expanding offshore 7. Foreign currency Assessable income/ allowable deductions Realisation events 8. Transfer pricing International related party dealings International dealings schedule Documentation requirements

7 Tax issues on expanding offshore 9. Controlled Foreign Corporations provisions Australian control Attributed income: Australian tax Listed countries

8 Operating a business offshore 1. Profit repatriation Non-assessable, non-exempt Branch v subsidiary 2. Ultimate shareholder Discretionary trusts Interposed entities

9 Operating a business offshore 3. Disposal & exit CGT participation exemption CGT discount 4. Conduit foreign income Preservation of characterisation Ultimate non-resident beneficiaries

10 Safe harbours 1. Thin capitalisation: $2m threshold 2. Transfer pricing Non-core activities International dealings schedule trigger 3. CGT participation exemption valuation methodologies Book Market Default 4. Foreign income tax offsets: $1,000 de minimus

11 Future 1. Base erosion profit shifting Changes to treaties Law changes to hybrid rules: unilateral or bilateral? 2. Revenue authority information sharing 3. Other Australian law changes MAAL Diverted Profits Tax 4. Australian tax reform?

12 Case Study Distributor model Sales and marketing model 100% 100% Aus Hold Co Aus Hold Co Physical goods 100% Payment for goods ($) / contract Cost plus remuneration for sales and marketing 100% US Distributor US Sales and Marketing Physical goods Payment for goods ($) / contract Physical goods Payment for goods ($) / contract US Customers US Customers

13 Case Study Foreign subsidiary: distributor model US Distributor Aus Hold Co Shareholders US profit $ US tax (40%) ($32) - - Dividend to Aus Hold Co $ US dividend withholding tax (5%) ($2.40) Net NANE dividend in Australia $45.60 $ Australian profit from sale of goods - $20 Australian tax (30%) - ($6) - Dividend to Australian individual shareholders - ($59.60) $59.60 Shareholder tax (49%) - - ($32.14) Franking credits - - ($6) Net cash received - - $33.46

14 Case Study Foreign subsidiary: sales and marketing support model US sales and m arketing co Aus Hold Co Shareholders US profit (based on cost plus 10%) $ US tax (40%) ($8) - - Dividend to Aus Hold Co $ US dividend withholding tax (5%) ($0.6) Net NANE dividend in Australia $11.40 $ Australian profit from sale of goods - $80 Australian tax (30%) - ($24) - Dividend to Australian individual shareholders - ($67.40) $67.40 Shareholder tax (49%) - - ($44.79) Franking credits - - $24 Net cash received - - $46.61

15 Concluding remarks Don t lose sight of the key question: How do tax outcomes support what is sought to be achieved from a business perspective? Plan ahead: think through the issues Once established, monitor and retain flexibility

16 Thank you Please remember to complete your evaluation forms via the App. Hard copy forms please return to the registration desk.

17 Simon Thorp, KPMG 2016 Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.