International taxation is one of the most complex and challenging aspects of doing business across national borders for New York companies. There are plenty of big advantages to going international, but dealing with the taxes is more than just a matter of accounting; getting it wrong can result in fines and other penalties.
The parties involved
International taxes are, in a sense, a competition between companies looking to minimize taxes and governments trying to collect them. Arcane procedures to shuttle income or losses through international transactions and subsidiaries can reduce tax burdens, leading to large savings. However, governments want to use international tax rules and treaties to capture as much tax revenue as they can.
Navigating the many rules
Understanding not only the tax codes of national governments but also the treaties that connect those tax codes together is a key part of minimizing international taxes. Sometimes, regional authorities like the European Union have their own tax rules as well, which interact with the tax rules of their member states. Trying to illegally hide income to avoid paying taxes on it can lead to investigations and penalties, so the benefits, as well as the consequences for errors in managing international taxes, are significant.
Understanding where to place lines of business, how to structure income and loss flows, and where to locate production for a business depends on many things, but taxes play a large role in these decisions. Grappling with international tax law can absorb a lot of time and resources for a company, but the risks of getting it wrong are too great. It’s important for companies to follow laws to the letter to avoid legal issues.