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International tax reform under discussion

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If your business is engaging in international transactions or you’re considering the expansion of your operations overseas, you should be aware that Congress is considering a major overhaul of the federal income tax law. It is also studying changes in how the United States taxes international commerce.

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A tax reform discussion paper focusing on international taxation has been released by The Senate Finance Committee. In its prelude, the discussion draft acknowledges that U.S. companies are now, more than ever, competing with foreign companies for business in foreign markets. Yet the U.S. international tax rules have not been substantially reformed since 1962.

Fifty years ago, exports as a share of gross domestic product were 5 percent. Today, exports are 14 percent of GDP.
Tax reform is viewed by the Finance Committee staff as an opportunity to strengthen the competitiveness of the United States in the global economy and to improve the tax system by making it more fair, efficient, clear and simple.

Some potential broad principles provided by staff members for reform in this area include:

  • Increasing U.S. competitiveness and job creation by reducing tax barriers to U.S. and foreign multinationals investing in the U.S.
  • Reducing tax incentives for multinationals to be foreign-based – either by incorporating abroad or being acquired by foreign multinationals
  • Reducing tax incentives for U.S. multinationals to keep foreign earnings abroad, rather than bringing them back for U.S. investment

Two other areas under consideration for reform by the Finance Committee staff include:

  • Preventing base erosion and profit shifting to low-taxed foreign entities lacking relevant business substance
  • Reducing complexity, uncertainty and compliance burdens

Here are 10 questions to ask yourself before expanding your business overseas:

  1. Do you have a solid business operation at home?
  2. Do you have the in-house management talent to support international expansion?
  3. How will you find the talent you need overseas?
  4. Do you understand the cultural implications of doing business in another country?
  5. What are the strengths and weaknesses of the local competition?
  6. Do you need an international partner?
  7. Are you financially able to sustain overseas expansion?
  8. Where is the potential red tape?
  9. Are you better off just expanding your online presence?
  10. What are the tax implications of doing business in the targeted location?