Are you utilising offshore taxation losses?

17 March 2016

Chris Ball , Partner, Tax |

Most tax payers are familiar with the benefit of using their tax losses to offset their tax payable. Surprisingly though, there is a remarkable number of companies that lose sight of this concept when managing their tax obligations across borders.

Regardless of the size of an Australian company’s footprint overseas, chances are many untapped opportunities for greater tax efficiencies exist. The best way to unearth them is through a structured and tailored approach to international tax planning.

I’ve already outlined the Five Principles to International Tax Planning, so I won’t go over them again. Instead, I want to focus on the first principle and explain how taking a holistic view of a corporate group’s tax position can deliver a tax structure that’s not only fit-for-purpose, but flexible enough to accommodate future growth.

Any Group that is paying tax in Australia with overseas subsidiaries that have unused tax losses is not operating at 100 per cent tax efficiency.

Principle #1 - Don’t pay tax in one jurisdiction where there are losses in another

If tax losses incurred by a parent company’s overseas subsidiaries are permitted to build up year on year, chances are the cash flow leakages that result will crystalise into a permanent difference (e.g. if the offshore subsidiary with losses is wound up).

Rectifying the situation starts with three actions:

  1. Identify why the subsidiary is trading at a loss
  2. Review intercompany transactions and pricing
  3. Devise a solution taking into consideration commercial and taxation issues.

Working through these actions ensures a company can make their tax losses work for it, instead of detracting from its tax effectiveness.

In our eBook International Business: Managing overseas tax losses when you are paying tax in Australia we get you on the path to achieving a full view of your company’s international tax losses and determining possible courses of action. Of course, most solutions to tackling tax losses across borders contain some level of transfer pricing risk, so it’s imperative that any course of action is crafted with this in mind.

Click here to download this resource.

If your company is managing its tax position in a range of jurisdictions, I encourage your views about the issues you’ve faced. To find out more about how you can tailor a solution to your company’s needs please connect with me.