Question

Imagine you are the Chief Financial Officer (CFO) of a U.S. multinational corporation. Create a plan to reduce the tax impact on foreign sourced income. Provide at least one (1) example to support your plan.

Answer 1

We shall first analyze and understand all the various foreign sourced incomes and the tax slabs, shelters, and advantage of the domestic and international taxation of all the products and services in various countries.

1. The company can enter into DTAA(Double taxation avoidance agreement) and can avoid the impact of the taxation on the income earned
2. The company should incorporate a permanent establishment which means the controlling and significant influence and decision making should be there in the foreign country.
3. The export subsidy, usually most of the countries provide the benefits of the tax-free or low rate of taxes on the goods/ services exported from such country, so planning for the exports is also a good way to reduce the tax impact.
4. Choosing the product or the service, many of the benefits of customs and duty drawbacks schemes and rebates are given for few goods/ service, hence choosing such type of eligible goods/ services is also a kind to reduce the tax impact
5. Income from the investments,   in taxation usually we have an exemption on the investments if those are held for particular locking period after such locking period the income from such source are exempted and it reduces the impact
6. Government policies, sometimes the government provide the zones and areas for free of tax for a particular period after considering the local development and such times its an opportunity to establish a unit in such countries during such period to reduce taxes.
7. Example: Walmart is a US origin company, which has now many units across the world in retail markets and gain the advantage of maintaining permanent establishments and its business is of mainly had tax impacts on MRP taxation irrespective of the value added for a product or service as usually all retail business has such advantage.