International Tax Minimization and Optimal Corporate Structuring

Learn why international tax minimization and optimal corporate structuring can help businesses to avoid increased costs and additional risks.

With the rapid pace of globalization, there’s an increased need for companies to reduce the impact of international taxation over their operations. Bussines owners are increasingly seeking to reduce their costs associated with generating income and optimize the provision of profits for their shareholders.

What’s international taxation?

International taxation refers both to the implications of local tax dispositions in the global context, as to the international agreements and conventions that regulate international matters for tax purposes.

Calculator depicting international taxation
International taxation refers to treaty provisions relieving international double taxation.

As defined by OECD, ‘International taxation refers to treaty provisions relieving international double taxation. In broader terms, it includes domestic legislation covering foreign income of residents (worldwide income) and domestic income of non-residents.’ International taxation must not be confused with global taxation. The latter involves taxes that people are required to pay for receiving an income, regardless of the source.

Multinational Enterprises (MNE’s) and international conglomerates are some examples of entities with international tax duties and implications. However, even smaller or single jurisdiction companies must deal with international taxation when interacting with foreign clients or providing services abroad.

It is important to note that every activity developed towards international tax optimization must be executed in compliance with the relevant applicable dispositions to avoid additional risks or incurring in penalties or additional costs.

Optimal Corporate Structuring

Corporate structuring refers to how entities are organized internally and externally as individual companies within a specific industry. Working towards the optimal corporate structuring improves the conditions for international taxes minimization and must be a goal of every company aiming to compete in an international context.

Each entity must adapt its model for its own needs. Nevertheless, some premises may be transversal into setting the optimal corporate structuring as shown below.

  • Transparency: A proper corporate structure must be easy to understand and to operate. Shareholders must understand how it works and how the components fit with each other. 
  • Advantages of rates differences between jurisdictions: Having an international operation allows executives to take advantage of the rates that greatly differ from one country to another.
  • Optimizes intercompany transactions: It rewards internal players who participate in the generation of income and controls the flow of capital.
Woman using her laptop to search information about international tax minimization
Optimal corporate structuring promotes international taxes minimization.

Additional opportunities for International tax minimization

International Taxation also covers the local taxation dispositions with global implications. Companies must understand and make use of the opportunities that local tax systems offer to reduce the overall taxation levels. These opportunities may come in the form of tax credits, deductions, benefits, or extensions. 

Likewise, it’s important to consider international agreements and conventions that may be of relevance. Understanding and applying these dispositions will promote cost cuts and savings.

Understand international tax minimization with the help of an expert

Any International Tax Minimization activity or corporate structuring project must comply with every relevant regulation. Not doing so may result in harsh penalties, increased costs, and additional risks. 

Our team of multilingual professionals understand and have extensive experience concerning international tax dispositions and applicable laws in Latin America. Engage with a local tax advisory specialist who can provide guidance and advice to avoid risks when dealing with international operations.

Contact us now to receive personalized assistance on how your organization can optimize tax burdens.

Learn more about our team and expert authors.

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