Page 14 - TACC 2025 Program

Going Global: Common Issues

When Expanding Internationally

Challenges abound for companies when they acquire businesses in foreign countries or expand their
existing businesses internationally. This article highlights issues that such companies should consider,
including tax compliance; environmental, social, and governance (ESG) requirements; financial reporting;
and data privacy and cybersecurity.

Tax Compliance

With acquisitions of international entities or expansion of existing business lines internationally, the
complexity of tax structuring and filings can increase significantly. Understanding the tax laws of that
country is crucial for maintaining smooth operations and avoiding penalties. Below are some of the primary
tax issues that U.S. companies face when expanding internationally:
Value-Added Tax (VAT) – VAT is a major tax difference for U.S. companies that also conduct business
outside the United States. It is a tax on goods and services sold and each country has its own rates and
rules. U.S. companies need to: 1) register for VAT in each country where they do business, 2) collect VAT
on sales, and 3) pay it to tax authorities.
Customs Duties – When U.S. companies import goods and services into another country, customs duties
and taxes may be due. These vary based on the types of goods and services and their origin. Correctly
classifying goods and services is essential for determining correct duty rates, and accurately valuing
goods and services for customs is crucial to avoid paying too much or too little in duties.
Income Tax – U.S. companies are subject to income tax in both the U.S. and abroad, leading to complex
tax planning. Issues to watch for include:

■ Entity Choice & Selection: If conducting business ■ Transfer Pricing: Ensuring transactions between
outside the U.S. through a foreign entity, consider U.S. and other countries meet the arm’s-length
whether the foreign LLC equivalent or foreign transfer pricing standards. Documentation is
corporation equivalent is used and how that entity required.
is taxed for U.S. purposes. This has significant ■ Tax Treaties: Bilateral income treaties can help
implications in the U.S. and abroad.
mitigate double taxation. Only qualified companies
■ Basis Step-Up: Beneficial depreciation and are eligible for benefits.
amortization deductions may be recognized when
acquiring the stock of a foreign corporation with ■ Expatriates: When sending U.S. employees abroad,
a special election under Internal Revenue Code both employers and employees have foreign income
Section 338. tax, payroll, and social tax consequences.

■ Permanent Establishment: Determining if a U.S.
company directly has a permanent establishment,
i.e., nexus, in another country.