The Challenge
A mid-sized manufacturing group operated across Asia and Europe, with profits being taxed in multiple jurisdictions. Key issues included:
- Double Taxation Exposure: Revenues were taxed both in the operating countries and in the home jurisdiction due to weak treaty utilisation.
- Permanent Establishment Risk: Overseas distribution arrangements unintentionally created taxable presence in certain markets.
- Excessive Repatriation Costs: Profit repatriation attracted withholding taxes, eroding group profitability.
- Compliance Complexity: Multiple tax filings across borders increased costs and created risks of penalties.
Our Solution
1Financial designed and implemented a comprehensive tax restructuring strategy:
- Jurisdictional Review: Analysed current tax obligations across all countries of operation.
- Holding Structure Creation: Established a centralised holding entity in a tax-efficient jurisdiction with access to favourable double tax treaties.
- Profit Allocation Models: Designed transfer pricing and allocation policies aligned with international standards to reduce double taxation risks.
- Repatriation Planning: Structured dividend and royalty flows to reduce withholding taxes and optimise cash movement across borders.
- Ongoing Compliance Monitoring: Built a compliance framework with central oversight to ensure timely filings in all jurisdictions.
The Outcome
- Reduced Tax Burden: Significant reduction in overall effective tax rate by eliminating double taxation and optimising treaty benefits.
- Compliance Confidence: Lower regulatory risk through consistent and timely filings.
- Improved Cash Flow: Easier and more tax-efficient repatriation of profits.
- Strategic Flexibility: Group now has a scalable structure to support further international expansion.
