International Tax Planning for Dummies

While the precise design of international tax planning schemes is driven by specific features of national tax systems, common strategies include:

• Shifting profits to low tax jurisdictions - abusive transfer pricing is often raised as a concern, but there are many other devices too: these include the direct provision of services from, and location of intellectual property rights in, low tax jurisdictions;
• Taking deductions in high-tax countries… - by, for example, borrowing there to lend to affiliates in low-tax jurisdictions;
• …and as many times as possible - passing on funds raised by loans through conduit companies may enable interest deductions to be taken several times (without offsetting tax on receipts);
• Exploiting mismatches - tax arbitrage opportunities can arise if different countries view the same entity, transaction, or financial instrument differently;
• "Treaty shopping" - treaty networks can be exploited to route income so as to reduce taxes;
• Delay repatriating earnings - countries operating worldwide systems defer taxing business income earned abroad until it is paid to the parent.

A wide range of counter-measures are also deployed by tax authorities. 'Controlled Foreign Corporation' rules, for instance, enable them to bring into tax 'passive' income retained abroad; general anti-avoidance / abuse rules can be deployed; and 'limitation of benefit' provisions aim to limit treaty shopping.