Working internationally? What about your tax responsibilities?

Our experience suggests that many UK businesses performing work internationally are still unaware of, or ignore, the tax responsibilities that they or their employees may have in those foreign countries. ‘Surprise’ tax liabilities, interest and penalties often arise later which, when accompanied by expensive professional fees and management time to fix the position, and because the business is unable to recover such costs from their customer, significantly erodes profits.

Main objectives

When advising clients working overseas, we always try to impress upon them our key objectives of being ‘proactive’ and ‘commercial’. Proactive in the sense that, ideally, our involvement is required as early as possible, i.e. at the bidding stage before any contract is signed, allowing us to be commercial in our approach to advising them. So how do we go about achieving this?

• Understanding the project

Firstly, we ask our client to provide us with a detailed description of the project. What is being supplied − goods, services, equipment rental, personnel or a combination? Where in the foreign country will it be supplied − onshore, offshore, both? How long is the duration of work overseas? Who will perform the work there − employees, consultants, both?

• Reviewing the draft contract

This is critical for two reasons: firstly, the contract is the key document often used to defend the company against challenges by any tax authority and therefore our review ensures, as far as possible, that the contract appropriately describes what is being supplied. Secondly, most contracts contain tax clauses which need to be understood, and amended or deleted, if any are onerous to the client.

• Understanding resultant tax consequences

Armed with the above information, we can then properly research, understand and explain the specific overseas tax consequences affecting both our client’s business and their employees.

• Factoring in additional tax costs

Assuming overseas taxes are payable, if these are likely to exceed the home/UK tax payable, resulting in incremental tax costs for the company, or its employees, then these additional costs can be factored into our client’s pricing model, and passed on to their customer, so that they don’t erode our client’s profit margins. Estimated overseas professional costs can also be factored in. Together, these achieve our key ‘commercial’ objective.

• Avoiding tax compliance failures

Finally, we ensure that both our client and their employees fulfil all of their tax reporting and paying responsibilities in the overseas country, and also that maximum double taxation credit relief claims are made against their home/UK tax liabilities. We manage, internally, all the reporting requirements for many countries, however, where we are unable to do so, we call on the expertise of our extensive global networks to assist. Using the above approach as a ‘process map’ means we can successfully manage all of our clients’ international tax obligations, proactively and commercially, and avoid nasty, and costly, tax surprises later.

Our international tax team is armed with the knowledge and experience to guide you properly, ensuring a successful and cost effective outcome for your business and employees.

For further information please don’t hesitate to contact us.