Advice for Edinburgh firms on how to navigate international tax audits

Overseas authorities are looking at company books in greater detail than ever before, says Kevin Meaney

With increased globalisation, and information sharing agreements in place between countries, firms working internationally are facing global tax headaches as governments aggressively attack companies using tax audits and assessments.

Overseas authorities are focusing on direct taxes, such as personal taxes of globally mobile employees or corporation taxes on intercompany transactions.

Attention is also paid to indirect taxes, ensuring companies have correct processes dealing with customs duties, VAT invoices, payments and returns.

Companies often receive significant demands for tax from overseas authorities, with little time to review and appeal, and often must pay the tax before appealing.

We have experienced tax audits tackling various group structures, intercompany transactions and arrangements, and if not planned properly from the outset, they can result in a UK company becoming liable to tax in a foreign country, which could have been avoided.

For example, if a UK company assigns employees to work for an overseas subsidiary and doesn’t have correct visa or secondment agreements in place, this can trigger permanent establishment issues within the overseas jurisdiction, depending on numbers of days spent in the country and whether there exists any double tax agreement between the UK and the overseas country.

It can also trigger payroll withholding obligations in the overseas country, which could lead to double taxation of the employees’ salaries.

Crucially, companies should ensure a strategy is in place to deal with overseas tax risks such as tax audits and investigations.

This strategy should be communicated and understood by key stakeholders within the business.

Often the local operations or finance team receive the assessment and it is critical this is passed immediately to the tax team to action within the appropriate legal timeframe.

Proactively planning is vital and can avoid unexpected disputes, liabilities and risks in future. However, if defending a large tax audit or investigation, it is vital to ensure properly experienced tax people are involved in advance, and there is a process and plan to handle responses.

If audits and investigations are not handled properly, it can lead to financial and reputational damage for the company.

For companies already operating in overseas jurisdictions, now is a good time to review tax risks there ensuring no nasty surprises are discovered.

An international tax health check can identify such risks, develop an action plan addressing any weaknesses and ensure a compliant position going forward.

We would recommend companies receiving tax assessment or audit letters take immediate action, and, if operating overseas, regular reviews or health checks of overseas tax compliance obligations are undertaken. Anderson Anderson & Brown has vast experience managing overseas tax assessments, audits and investigations, and assisting and facilitating with local advisers to ensure these are dealt with in a timely and efficient manner with a successful defence and outcome for the client.

Kevin Meaney is a tax partner at Anderson Anderson & Brown, chartered accountants and business advisors

Anderson Anderson & Brown is holding a free international tax lunchtime seminar on Tuesday 26 June in Edinburgh. If you would like to attend please contact Kevin Meaney, [email protected]

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