The world is increasingly shrinking to a ‘global village’. This has led companies to do business with clients from different geographies. From an accounting point of view, it is important that accounting norms of both countries are complied with. The key implication is the issue of cross-border taxation. Even with regulated norms and business practices, a few issues still exist. Global operational transactions, capitalisation & repatriation issues, and transfer pricing are some areas where each country has their own tax implications.
The handling of legal disputes is one such key issue. The standard regulations are inconsistent especially when it comes to handling and resolving legal disputes. The courts of different countries operate in a different manners; resulting in varied passing of judgements.
Also, every country has its taxation slab and different VAT, GST, and sales tax rate. For example, In Albania, the standard rate is 20% and other taxes imposed is 6%, and in India, we have 5%,12% 18%, 28% (GST rates) and other tax rate is 3% and 0.25%. So, the challenge remains what tax structure needs to be adopted?
In addition to this, certain cross-border financing arrangements take place outside the purview of the Indian taxation law. For example, take the case of Vodafone International holdings which acquired the share capital of CGP Investments (a company that started its operations in Hong Kong) for an estimated value of $11 billion from Hutchinson Telecommunication International Ltd. CGP Investments controlled around 67% of the share in Hutchison Essar Limited, which was an Indian company. This acquisition meant the merger of Hutch and Vodafone Essar, but the route adopted by Vodafone during this merger and acquisition process was a point of the question. The company had paid the whole amount in foreign currency with no tax liability required in India. But the deal was made in such a manner that it was outside the purview of Indian tax laws; hence, this attracted the discord between the two state laws.
The Expert Role?
Experts have multi-jurisdictional and multi-disciplinary teams in place. These professionals help share insights to help you build integrated tax strategies to avoid cross border taxation issues and capitalise on taxation opportunities. They provide inbound tax advisory services and outbound tax services.
Inbound tax advisory services may include tax efficient company structuring, selection of apt jurisdiction to meet the tax and business goals, tackle issues like ease of funding & tax optimisation, optimise cross-border treasury, finance, cash repatriation and upstreaming, and structuring IP transfer in a tax efficient manner
Outbound tax services may include expertise on gauging the applicability and mitigation of withholding taxes on cross-border payments like royalties and dividends. Experts can also assist with the assessment of foreign tax credits and provision of expenses principles. Companies can also get their expertise on the business arrangement between two entities that have additional tax implications for the offshore company.