International Tax and You

What is international tax?  

International tax is a broad term that encompasses many different areas of tax. In its simplest form it is the application of a certain set of tax rules to transactions which involve people, companies or assets in more than one country.

The application of these rules is complicated by the fact that each country that is party to a transaction applies its own set of tax regulations to such transaction.

These rules are also often not harmonized as countries generally seek to maximize the amount of tax revenue that they can collect without consideration for another country’s role in a particular transaction. Thus, the more countries involved, the more complexity there is.

Luckily, there are mechanisms such as tax treaties, foreign tax credits and domestic exemptions in place to manage and mitigate these tax liabilities. However, specialized knowledge is required to understand the general rules of application and how they may affect a particular transaction.

Further complicating the application of these rules is that countries often have specific regulations, outside the scope of their normal tax rules, which govern transactions involving nonresidents or transactions involving overseas assets.

For example, many countries, including the US, have specific rules that govern that taxation of real estate purchased by nonresidents. These rules are intended to insure that any tax due by the nonresident is collected by the IRS. Furthermore, tax treaties generally do not protect gains derived from real estate transactions.

So, what is one to do if they are in a situation where they are engaging in an international transaction?

Well, they should probably call their accountant. The problem is their accountant, who may otherwise provide them with exceptional service and normally has a good understanding of general tax rules, may not fully understand all the various international tax implications associated with the particular transaction. Hopefully, their accountant recognizes that and advises them to seek out international tax advice. However they may not. In such case, clients should have a frank discussion with their accountant to ensure they are able to advise appropriately. If the client is still unsure, they should seek out independent advice from a qualified professional.

Riverside TACS is a boutique professional services firm that specializes in international tax. We can advise you and work with your accountant to optimize your tax position in light of your international activities.

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