Why You Should Hire A Tax Professional To Review Your Foreign Legal Structure
U.S. parented corporations that have foreign operations conducted through a foreign legal structure have significant U.S. tax filing and reporting obligations. The U.S. international tax rules and regulations that apply to U.S. parented structures are voluminous and complicated. Whether the parent corporation is a start-up company establishing offshore operations for the first time or a mature business with pre-existing offshore operations that is considering certain international tax planning, the parent corporation’s foreign legal structure may be able to be optimized for tax efficiency. In addition to the abundance of sticks in the tax code, it also contains many tax benefits that uncounseled taxpayers may not be fully utilizing. A thorough review and analysis of a parent corporation’s organizational structure may uncover unutilized tax benefits that coupled with international tax planning could increase the foreign legal structure’s tax efficiency.
Additionally, reviewing the organizational structure ensures that the parent corporation and each of the entities in its foreign legal structure are complying with U.S. tax reporting obligations and are filing required information returns. Failing to comply with these U.S. tax reporting obligations and information returns may result in significant tax penalties, keeping the statute of limitations open indefinitely, and even criminal tax penalties in extreme cases. Early identification of any deficiencies in the parent corporation’s U.S. tax reporting obligations or information returns is critical to mitigating issues and limiting any tax and penalty exposure. Thus, reviewing a parent corporation’s organizational structure serves dual purposes: (1) it can ensure that the parent corporation and its foreign legal structure are benefiting from the available tax benefit provisions of the Code and (2) it can identify any deficiencies in its tax reporting to avoid costly and significant tax penalties.
As a corporation grows and evolves, a tax professional should be consulted prior to executing an international tax planning transaction to identify and consider any unforeseen tax impacts. However, at the very least, a tax professional should be consulted to periodically review its organizational structure and tax reporting with these dual purposes in mind. Below, are some of the benefits to having a tax professional review a parent corporation’s organizational structure and offshore operations as well as some of the commonly overlooked U.S. tax reporting obligations and filings.
Tax Benefits Under The Code And U.S. Tax Treaties