Page 34 - Strategic Tax Planning for Global Commerce & Investment

Cross Border Tax Planning Strategies

from low effective tax rate. The following important points
should be noted in setting up a special purpose finance
company:

 If the parent is located in a country that
taxes dividends from foreign subsidiaries,
then in principle the low-tax finance com-
pany achieves, at most, a tax deferral ra-
ther than a permanent tax saving,
however, in some cases a multinational is
able to achieve repatriation of cash from
the finance company and synthetic genera-

tion of the distributable profits that would
have been generated if a dividend had
been paid.
 If the parent had borrowed to finance an
injection of equity into the finance compa-

ny, then the parent will need to check
whether the interest expense is deductible
under its home country rules.
 If the interest paid to the finance company
is subject to withholding tax, depending on
the applicable withholding tax rate, the tax
benefit may be reduced or eliminated.

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