International tax planning: how does it work?

In the context of increasing globalisation, heightened competitiveness prompts companies to look with interest at optimising their business strategies; different choices may involve relocating branches of business to countries that offer investment-supportive tax policies, seeking more favourable economic conditions in other countries in order to reduce operating costs and increase profitability. This has generated tax competition between different jurisdictions, with many countries offering favourable tax regimes to attract foreign investment. However, the absence of a single supranational tax system has created challenges related to double taxation and the complexity of international tax regulations.

 International tax planning has become a crucial component for companies operating on a global scale, as it allows them to efficiently manage their tax burden, seeking to maximise profits while ensuring compliance with the tax laws and regulations of the various countries in which they operate.

 Let us now look at how international tax planning works.

International tax planning: best practices

Companies adopt various strategies to optimise their international tax position. These include relocating business to jurisdictions with favourable tax regimes, distributing income to concentrate the tax base in low-tax countries, and applying bilateral conventions to avoid double taxation. It is crucial that these strategies are implemented wisely and in accordance with international tax regulations to avoid disputes with tax authorities.

Aspects to consider regarding international tax planning

International tax planning brings with it various benefits, but entrepreneurs must also take into account the risks of this practice. Problems with international tax planning can mainly result from practices that are considered abusive or elusive and do not comply with existing tax regulations. These include the risk of being subject to tax disputes by the competent authorities, which could result in fines and reputational damage for the company. That said, particular attention must be paid to the application of the Controlled Foreign Company (CFC) Rules, a tool used by EU tax systems to avoid possible tax avoidance. I refer to a tax discipline created to counter the fictitious location of significant income in foreign subsidiaries resident in countries with privileged taxation.  

The adoption of aggressive tax strategies may increase the likelihood of being subject to scrutiny by national and international tax authorities, especially following the implementation of more stringent anti-avoidance measures. In some cases, the misinterpretation or misapplication of international tax regulations could lead to complex and costly litigation, with potentially negative financial consequences for the company.

Therefore, it is crucial that companies adopt tax planning strategies in compliance with international tax regulations and take expert advice to mitigate the associated risks.

Conclusions

International tax planning has become an essential element for companies operating on a global scale, enabling them to optimise their tax burden and maximise profits. 

To ensure effective international tax planning, companies need to work with experienced international advisory firms and constantly monitor regulatory changes. Only through a proactive approach and close supervision of international tax transactions can companies maximise the benefits of international tax planning and maintain their competitiveness in the global market.

With more than 22 years of experience in wealth management and corporate banking in several international banks, Aeffe Capital and its partners advise clients with an international perspective, identify their needs to find efficient solutions in compliance with current regulations, and support them in achieving their strategic objectives.”