Our team of professionals has extensive experience in providing highly qualified services in international taxation, which distinguishes us to advise our clients in their cross-border transactions.
What does International Taxation involve?
The opening of markets and the insertion of Chile in this business logic have boosted the national economy dynamism. At the same time, local and international regulations have been adapting to the new business models to regularize and, of course, protect the countries’ interests. Both for the businesses that occur within and outside their borders.
It is increasingly common for Chile to receive foreign investors from Latin America, North America, and Europe, as well as for companies with residence in Chile to do business outside the national borders. This point is very important to clarify International Taxation and how to take advantage of all the existing tax benefits for a real profitable business.
Why is the International Taxation important?
Global companies require global tax planning. It is not enough for a multinational company to adapt separately to each of its local operating environments. Local, regional, and national factors must be considered to make a successful multinational company thrive and adapt to all its environments. Tax is one of the most important variables due to its determining function to select what type of corporate structure is appropriate, where intellectual property should be located, and how global supply chains should be configured to help mitigate global effective tax rates.
Basic Principles of International Taxation
There are two basic principles. These are the residence principle (defended by the world’s rich countries or capital exporters) and the source principle (defended by developing countries or capital importers). Both are negotiated in agreements to avoid double taxation.
- Residence principle: The specialist argues that “income tax must be paid in the country where the companies operate, where they are incorporated or where they reside”. In addition, companies based in a territory receive the services of the State: internal security, legal security, among others.
- Source principle: “Non-resident organizations in a given territory must pay income tax in that country. This occurs in the specific case where their wealth is generated in the same place where they operate.”
On the other hand, it is possible to mention some basic principles with which the State and the companies must be consistent to improve international business or transactions in markets around the world. Among the main ones are:
- Equity between governments: The States have the ethical and fair management as regards the distribution of the tax. The objective is the permanence in the country of the major part where the income is generated.
- The principle of neutrality: Taxation does not have to function as an absolute criterion for the company or investor when defining where they will finally invest. States should promote investments that bring positive results for their territories and not hinder them. On the other hand, there should be no favors or differences for one organization or another.
- Mechanisms to prevent tax evasion: This is one of the most important due to the dictation of specific rules to prevent the use of legal loopholes used by some companies to avoid taxes. There are rules and measures for governments and regulatory institutions to work together.
- Promotion of mutually beneficial trade relations: A country’s policies, standards, practices, and communication models should be oriented to favor investment. Especially that which can create jobs, infrastructure, and generating development.
Finally, it is worth mentioning that International Taxation principles may change, although not constantly, and adapt to new governmental or business trends. Countries adjust their rules to help companies invest fairly and profitably, but without neglecting local development.
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