Common International Issues
Transfer Pricing
Companies are subject to transfer pricing scrutiny by the US tax authorities (IRS) if they have any transactions with their parent company or other related party companies. Such transactions include:
- Purchases or sales of inventory, tooling, or equipment
- Royalty fee charges
- Technology fee charges
- Management fee or consulting fee charges
- Interest expense.
These types of transactions are subject to significant scrutiny by taxing authorities on both sides of the transaction in an effort to protect income tax receipts for each country. Obtaining a transfer pricing study for the German or Korean taxing authorities is not considered sufficient for purposes of the US income tax authorities. For companies under tax examination, the US income tax authorities will ask for a transfer pricing study which compares profit margins on these transactions to other similar companies in the US. Without such a transfer pricing study to evaluate, the income tax authorities may recalculate income taxes using whatever profit margins they consider appropriate.
Our experienced transfer pricing team is very familiar with the US documentation requirements and consults with our clients so they can maintain appropriate documentation. We have performed transfer pricing studies for dozens of clients to analyze their pricing methods and actual margins as compared to third-party databases. Our transfer pricing team is a valuable resource to represent our clients in communicating and defending transfer pricing policies when subject to income tax audits.
IFRS / HBII
Our expertise in financial reporting under the guidelines of International Reporting Standards (IFRS) allows us to help clients implement those standards, or perform annual (or quarterly) conversions from U.S. GAAP to IFRS. While already utilized by many companies in Europe and Korea, financial reporting under IFRS is not yet commonly used for financial reporting in the US (and probably will not be for several more years). As leading economies of the world have embraced the IFRS reporting standard, Rödl Warren Averett has reacted to our clients' needs and developed significant expertise in understanding, interpreting and being able to provide financial reporting under IFRS. We also are familiar with and provide attestation under International Auditing Standards. Additionally, our audit teams are backed by constant access to the most recent updates and proposed updates to the IFRS pronouncements.
Thin Capitalization
A U.S. subsidiary is often funded by the foreign parent company with an initial capital funding (equity) and possibly additional funds advanced in the form of a loan (debt). If the debt to equity ratio is considered insufficient by judgment of the U.S. income tax authority (Internal Revenue Service, or IRS), the IRS can make adjustments to recalculate your tax liability. Their conclusion would assume that some of a company's debt to its parent company was actually an equity contribution and the related interest expense must be excluded from the taxable income calculation.
Rödl Warren Averett has considerable experience in consulting with our clients to determine the appropriate combination of debt and equity to reduce the risk for an uncertain income tax position.
Request for Statutory Incentives
The deadlines to request certain statutory incentives in the U.S. are often determined according to state law and do not necessarily coincide with filing dates for the corresponding tax forms (corporate income tax, property tax, and sales tax). A late submission of a request form can result in loss of a significant tax credit or abatement. Rödl Warren Averett assists our clients with the procedures and forms required for submission to state and local taxing authorities in order to assure our clients receive all the statutory incentives to which they are entitled.
Tax Withholdings on Repatriation Payments
Payments from a U.S. subsidiary to its foreign parent company may require federal income tax to be withheld and submitted by the U.S. subsidiary to the U.S. Government. Such requirements are governed by the respective tax treaties between the U.S. Government and the home country of the parent company. Rödl's tax specialists are very familiar with the treaty contents and advise when these payments are necessary to avoid possible penalties that can be assessed when the requirements are ignored.