The majority of businesses now have an international context to their operations. This may comprise simply of having suppliers or customers overseas and can extend to having a full global outreach with substantial operations in several different countries. A typical first step in expanding overseas is for a UK company to set up a branch in the foreign jurisdiction. Prior to last year, corporation tax was payable in the UK on a company’s worldwide profits. It is now possible to elect for the overseas branch profits to be exempt from UK corporation tax. Whilst this seems a straightforward position, complications arise where the branch is or has been in a loss position and the timing of the election is critical to ensure the tax benefit is optimised.
The international growth of a business brings new and different tax risks to your business that require a change in the mindset of your finance team. Many businesses do not realise simple things like a badly worded agreement can create a branch or taxable presence in a different country, leaving themselves exposed to additional tax charges and penalties.
Turning this on its head, however, overseas expansion generates new tax opportunities. By thinking global and aligning your commercial objectives with a tax efficient structure, your overall tax liabilities can be reduced. The UK government has gone to great lengths to make the UK tax regime internationally competitive by introducing new reliefs or relaxing the existing rules, but very few companies are taking full advantage of the available reliefs.