January 2010

Cross-Border Tax Issues

From the Journal of Accountancy

CFOs can exercise reasonable diligence to ensure that they have procedures in place to deal with some of the more common shortcomings in cross-border tax compliance. The following are some routine tax compliance situations that U. S. companies ($500 million or less in sales) with outbound activities are most likely to encounter:

• Ensure that intercompany working capital accounts to the parent company and among foreign affiliates are settled every 120 days or that market interest is charged on overdue receivables. Buildups of intercompany payables to a foreign parent or affiliate, without regular and ongoing settlement, can cause the IRS to impute interest income to the creditor for U.S. tax purposes.

• Document foreign payments at reduced or zero rates of withholding tax. The payer is liable for withholding tax that it fails to withhold and bears the burden of proof that the proper amount has been withheld. Prudent CFOs will periodically test to ensure that their accounts payable personnel are familiar with foreign withholding tax rules and are maintaining proper documentation for payments made overseas.

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Have cross-border tax issues? Contact our International group.