Many businesses are now considering operations in a foreign country. Many issues should be discussed and processes initiated before deciding to move offshore. Here are three of the more essential things to think about:
1. Intangible property transfers: Intangibles include customer lists, use of patents and processes, etc. Suppose these types of property are transferred to a foreign subsidiary, the foreign sub is expected to pay the US parent company for these items at their fair market value. The US company will have to report this as taxable income, which may be an unwelcome surprise at tax time.
2. Compliance issues: Each country has separate filing requirements over and above what you file with the IRS, your state, and possibly city or county governments. Tax treaties may help, but there are many countries that the US doesn’t have a treaty with, and in most cases, a treaty will lower but not eliminate tax in the other country.
3. Transfer pricing: Transfer pricing policies must be created and followed if the US company plans to sell or buy from a foreign subsidiary. Typically, this starts with a transfer pricing study that documents the accuracy of arm’s length pricing from one entity to the other. The initial study should be reviewed yearly to ensure that economic changes are recognized and prices are updated as needed.
An LSL advisor can be instrumental in working with you and your company to avoid the problems of going offshore.
Posted 12/6/11
By Sherry Radmore, CPA
