Are you utilising offshore taxation losses?
Most tax payers are familiar with the benefit of using their tax losses to offset their tax payable. Surprisingly though, there is a remarkable number of companies that lose sight of this concept when managing their tax obligations across borders.
Regardless of the size of an Australian company’s footprint overseas, chances are many untapped opportunities for greater tax efficiencies exist. The best way to unearth them is through a structured and tailored approach to international tax planning.
I want to focus on the first principle and explain how taking a holistic view of a corporate group’s tax position can deliver a tax structure that’s not only fit-for-purpose, but flexible enough to accommodate future growth.
Any group that is paying tax in Australia with overseas subsidiaries that have unused tax losses is not operating at 100% tax efficiency.
Principle #1 – Don’t pay tax in a jurisdiction where there are losses in another
If tax losses incurred by a parent company’s overseas subsidiaries are permitted to build up year-on-year, chances are the cash flow leakages that result will crystalise into a permanent difference (eg if the offshore subsidiary with losses is wound up).
Rectifying the situation starts with three actions:
- Identify why the subsidiary is trading at a loss.
- Review intercompany transactions and pricing.
- Devise a solution taking into consideration commercial and taxation issues.
Most solutions to tackling tax losses across borders contain some level of transfer pricing risk, so it’s imperative that any course of action is crafted with this in mind.
Chris Ball is partner of taxation at BDO
For more information go to BDO’s eBook International Business: Managing overseas tax losses when you are paying tax in Australia