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From the OECD to You

Following up to our last blog on “Tax Tactics from the Big Players”, this final blog to our “Overseas But Not Out of Mind” series focuses on how international tax laws and regulations can be managed by small-medium growth companies.

The playing field of international tax is in constant flux. All we know for certain is what we have right now—an at times conflicting set of laws, regulations and interpretations.  In that light, a true tax professional responds to their company’s needs like a strategist—always adjusting their client’s tax position to reflect an ever-changing market and tax environment.  So what is a tech-based company with overseas sales or operations to do?

Let’s start big picture. The OECD is well-aware of the tax idiosyncrasies that affect their member countries. Last July the OECD released the “OECD Action Plan on Base Erosion and Profit Sharing”, a culmination of how the digital economy has exceeded traditional understandings of “taxable nexus”/”PE”, or how a company’s presence and activities in a country/state can be taxed.

U.S. MNCs must not only navigate inconsistent sets of laws between countries, but inconsistent attitudes among those countries’ lawmakers as well. The same lawmakers who provide discounts on tax rates to MNCs who set up business within their borders are often the same ones accusing the companies of cheating governments out of their rightful dues.

The OECD Action Plan coincides with a large push for congressional tax reform in the US, drafts of which could be introduced in the House of Representatives this fall. (Ernst & Young) US political factions disagree over many points, the biggest being whether to have the reform plan generate revenue or be revenue-neutral. Disagreements aside, the pressure is on to pass considerable tax reform as part of a larger fiscal package to also answer questions around government funding and debt limits.

Lending support to each other, this truly is a “once-in-a-century move to patch up holes in international tax rules.” (The Guardian) This kind of action is in reality inevitable given the monumental changes brought about by the digital economy.

Many of our clients are fast-growing, cloud-based startup and growth companies with international operations and sales. We are part of the same digital economy giving the congressional committees and OECD tax-induced headaches, and our clients will face many challenges moving forward.

Our largest value to our clients is helping them structure their company to withstand the shocks of tax overhaul, while leaving plenty of room to scale up and evolve.  

How can you plan your tax strategy when you’re not even sure what you’re up against?

There is nothing new under the sun. While the fine points will change, your strategy should always include these best practices:

·      Be Proactive – It’s less costly and time consuming to prevent tax crises. Get your tax foundation set so that you are reporting accurately.

·      Know Yourself – Be honest with your team about past, present, and future business decisions and opportunities--they all have tax impacts.

·      Plan Accordingly – Document your structures and procedures, then adjust to ensure you are efficiently managing your tax position.

·      Repeat – Part of addressing your tax needs strategically is understanding that there is no one-solution fits all. Regularly re-asses your tax position.

An outsourced tax consultant can help throughout this process. Let me know if you have any questions on navigating these tax waters, or check out our resources section.