How to Avoid Double Taxation and Membership in the “100 % Club”

Many experienced entrepreneurs, investors and business owners who have successfully operated in the past in their local environment are unaware of the tax pitfalls involved in cross-border transactions. It is easy to fall prey to serious missteps and to pay tax to more than one government for the same dollar of earnings. By not taking the appropriate steps to avoid double taxation a business can easily find itself with an effective tax rate much higher than the US maximum corporate rate of 35%. In certain outrageous cases, the tax rate can be as much as 100% of profits earned!

Alternatively, an internationally savvy entrepreneur can obtain the maximum use of his foreign tax credits and grow his business with “before tax dollars” by taking advantage of deferral provisions that is to say, not paying either US or non-US taxes currently on income earned. Can this be accomplished and is it legal?

The answer is “yes” to both questions - but there are many complexities.

Clearly, the skillful application of the US Foreign Tax Credit can result in substantial reduction of tax liability for companies doing business overseas. But there are many pitfalls. Subpart F restrictions are difficult to understand, and if missed, they can negate the positive effects of the credit. In the worst case scenario, the start-up may wind up owing a double tax and paying out all if not most of its profits in taxes, thus becoming a member of the 100% club!

A full service accounting firm with international experience can assist entrepreneurs developing global start-ups by developing effective strategies to minimize tax liability in global operations. Such a firm can and should be engaged to work alongside your legal team.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jeanne Goulet, Marks Paneth & Shron LLP Certified Public Accountants & Consultants | Attorney Advertising

Written by:


Marks Paneth & Shron LLP Certified Public Accountants & Consultants on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.