It’s not hard to understand why the IRS pays so much attention to intercompany pricing on transactions between related companies, particularly those involving cross-border transactions. If you could increase your selling price, by say 10 percent, without increasing your costs at all, imagine the impact that would have on your bottom line. The IRS looks at this the same way, but instead of focusing on the bottom line, they look at it from the perspective of increasing multinational companies’ tax liabilities.

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Olaf Barthelmai, a Partner with CB&H’s International Tax Group, will be speaking at an upcoming seminar, International Transactions: Increasing Profitability and Avoiding Pitfalls. Topics covered over the day-long seminar include:

• Minimizing Legal & Tax Penalties
• Reducing Taxes through IC-DISC
• Managing Export Finance Risk
• Best Practices for International Transactions
• Practical Export Contract Strategies
• Promoting Your Business Overseas

When: Friday, May 18, 2012 from 8:45 a.m. until 3:30 p.m.

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Any profitable taxpayer that exports at least $1 million in products manufactured, grown or extracted in the United States, or even less with high profit margins, should consider using an Interest Charge Domestic International Sales Corporation (IC-DISC). Many taxpayers may not realize they qualify because they only export indirectly by selling to a U.S. distributor or another domestic customer who then exports their product. But in most cases, the exporter knows or suspects that their product is being exported, which would enable the utilization of an IC-DISC.

Moreover, since the enactment of the American Jobs Creation Act of 2004¹, taxpayers can also take advantage of the 15-percent capital gains rate on dividend distributions, which provides a permanent tax benefit of 20 percentage points compared to the highest individual tax rate, and up to 35 percent if the exporter is a dividend-paying C corporation.

Taxpayers could save as much as 35 percent on net income from export transactions. For example, if the export sales of a C corporation are $1 million and the profit percentage² is 40 percent, export profits are $300,000. Combined taxable income (CTI)³ is $200,000 and federal tax savings alone will be at least $70,000. Usually profits from export transactions are significantly higher than from domestic sales.

Why is this tax benefit so underutilized? In my opinion, the reasons range from lack of integration of federal government resources for exporters to complicated technical aspects requiring specialization on the part of tax advisors. I recently attended an export summit in Richmond, Va., that aimed to educate exporters about the many government agencies and services available to help them “go global.”

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Cherry Bekaert & Holland L.L.P. (CB&H), one of the nation’s largest accounting and consulting firms, is pleased to announce the addition of James W. Dawson as Partner and the Firm’s National Director of International Tax.

In his new role at CB&H, Jim will direct the specialized international tax services of the Firm, including global tax strategies, transfer pricing, indirect tax, expat tax, and general international consulting and compliance services. In addition he will be responsible for directing the global resources of the Firm, through Baker Tilly International, to meet the international tax needs of clients worldwide.

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The IRS has reopened the Offshore Voluntary Disclosure Initiative (OVDI) with no final deadline by which taxpayers must apply. Two previous iterations of the program in 2009 and 2011 resulted in the collection of $4.4 billion in unreported income from undisclosed foreign accounts and other foreign assets.

Also known as the Offshore Voluntary Disclosure Program (OVDP), the program is designed to help taxpayers who may unknowingly violate federal tax laws by failing to report income from foreign assets or accounts. Failure to comply with these requirements can result in substantial civil penalties and sometimes criminal charges.

What Needs To Be Reported

Whether taxable or not, all U.S. citizens are required to report the existence of foreign bank and investment accounts if their aggregate value exceeds $10,000. Taxpayers are also required to report certain interests in and transactions with foreign trusts, corporations and partnerships.

The Benefits of Voluntary Disclosure

Volunteering offshore account information provides three significant benefits:

1. It generally eliminates the risk of criminal prosecution.
2. It reduces the severity of civil penalties.
3. It enables you to calculate, with a reasonable degree of certainty, what it will cost you to become current with your federal tax obligations.

Even if your failure to comply was inadvertent, taking your chances with an IRS civil or criminal investigation can be risky.

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Companies of all sizes are developing paths to global markets and supply chains that reach across continents. No longer are markets in Asia and South America just for Fortune 1000 companies. Our panel of experts from Dubai, Singapore, Luxembourg and Netherlands will explore various structuring best practices that can make the management of intellectual, human and financial capital more efficient.

This is a roundtable discussion that will allow you to understand the drivers that give Google a 2.4% tax rate, and Microsoft a 5% tax rate. It provides a unique opportunity to hear first-hand, up to date overviews of the incentives for basing your company’s international operations in Luxembourg, Netherlands, Dubai or Singapore. Each provides incentives that are better suited for different types of business models and activities. We will also discuss how these jurisdictions can complement each other. We will demonstrate how the legal and regulatory environments in these countries can be combined to provide efficient, sustainable, flexible, global treasury and operational models. We have brought together experts in tax incentives and best practices from Dubai, Luxembourg, Singapore and Netherlands to discuss how their regimes best fit your business models.

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With insurance premiums constantly on the rise, many organizations, including nonprofits, have turned to exploring lower-cost alternatives to standard commercial insurance to fund and manage risk. Paramount among the options has been using the alternative legal structure of a wholly owned offshore captive insurance subsidiary for either a pooling of risks, re-insurance, or lower premiums. A captive is generally an insurance company that is wholly owned by the organization or organizations for which it provides insurance coverage.

So-called “mini” or “small” captive insurance companies (fully sanctioned under U.S. tax laws since 1986) can be used to obtain reduced premium payments by enabling a parent to eliminate costs incurred by commercial carriers, such as overhead, claims administration, and brokerage fees. There can be greater control by effectively controlling and managing risk, thereby reducing loss claims.

These Mini-Captives can be used to “insure up,” providing base insurance up to a certain claim level, so long as “gross written premiums” ceded (transferred) to the captive do not exceed $1.2 million annually, so long as a “Domestic Company Election” provided for under U.S. law is timely filed. For tax purposes, U.S. income tax law treats the captive as a U.S. property and casualty insurance company.

A separate, supplemental policy through a commercial carrier would cover claims beyond that amount, up to a much higher ceiling. This two-policy approach can yield substantial savings, as the supplemental coverage is often appreciably less expensive when base level claims are covered with a captive.

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On February 8, 2011, the IRS announced that it was implementing a 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) modeled after the 2009 OVDI (although the terms of the 2011 OVDI are less favorable) for those taxpayers with unreported income or other missed filings related to offshore accounts or investments. The 2011 OVDI established an original deadline of August 31, 2011 for taxpayers to enter the program and remit all required filings.

Due to Hurricane Irene, the deadline has been extended to September 9, 2011.

Like the 15,000 offshore account owners who came forward under the first program, those seeking leniency won’t get IRS approval if federal investigators have already started probing the applicants’ accounts. Like the earlier program, those approved won’t face criminal prosecution.

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E-commerce opens even the smallest retailers to a world of buyers. However, the tax implications of oversees transactions for an enterprise can quickly stack up and easily create loss situations and double-taxation. In a recent article published by Business Finance magazine, CB&H’s Bill Elliott breaks down the key factors businesses should be aware of as they move to international commerce online:

Residence of an e-commerce enterprise, for tax purposes, depends on the laws of individual countries and on tax treaties. A country may consider an enterprise to be a resident of that country by reason of incorporation in that country or based on other factors, including the enterprise’s place of control or management. Where a company is determined, under local law, to be a resident of two different countries, there is a significant potential for double taxation. Tax treaties are intended to mitigate this double tax potential.

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U.S. taxpayers with a financial interest in or signature authority over a foreign financial account are generally required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) with the Department of the Treasury each June 30 if the aggregate value of all of the U.S. person’s foreign financial accounts exceeds $10,000 at any time during the year.

A financial account includes any bank, securities, derivatives, foreign mutual fund, or other financial instruments account (including any savings, demand, checking, deposit, annuities, life insurance contract or other account maintained with a financial institution).

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