If you want to succeed in the world of business today, you’ve got to be two steps ahead of your competitors.
That’s why many companies make the decision to expand into new markets to continue growth. And since almost everything is online, doing business is becoming an increasingly global affair.
But there’s a catch for Canadian companies: They have to act before their US counterparts because the market here is smaller. However, doing so can cause a lot of issues for your business if you fail to prepare.
Expanding to new markets
Operating a business in 2018 is an increasingly complex task and business owners face an ever-evolving regulatory and tax environment that can be difficult to navigate. In his role, Marshall Willows helps business leaders see through the complexity to understand the challenges and opportunities facing their business.
“The most common way for a business to start operating internationally is to set up a subsidiary in another country. For example, as a Canadian company, you might set up a subsidiary in the US to sell your products for you. The price you charge your subsidiary for the products it sells is called a transfer price. Tax authorities are concerned companies may manipulate the transfer prices between their subsidiaries in order to pay less tax in a certain jurisdiction, and so they have put various transfer pricing rules in place.
“The transfer pricing rules deal with how much you should charge your subsidiary for your products and how much each country is allowed to tax your business. If you’re not careful, you can end up being taxed too much in one country or even worse, you may pay tax on the same income in both countries,” said Marshall Willows.
At KPMG, the transfer pricing team helps businesses structure their cross-border transactions with their affiliates to “minimize the potential tax risks and hazards of operating in multiple countries.” This allows you to focus on the priority – growing your company.
Canadian companies and the need to act faster than US firms
According to Willows, a Canadian company often doesn’t have the opportunity to grow as much as a similar US company by only serving its home market.
“As a result, Canadian companies must become global sooner than their US counterparts. This means that even small Canadian companies can very quickly face “big business” tax issues. KPMG’s transfer pricing team can help make “dealing with the relatively complex tax implications of setting up subsidiaries in other countries easier for entrepreneurs.”
Willows notes that setting up transfer pricing policies correctly from the start has a number of benefits. “You ensure that you are complying with the relevant tax rules and thus avoid penalties from the tax administrations. The “second and probably most important benefit is cash management,” said Willows. Transfer pricing advisors help you ensure you “don’t end up in a double tax or transfer pricing audit situation where the cost (in time and money) to resolve a dispute may be high.”
Complications that can arise
The period when you’re waiting to set up your transfer pricing policies can lead to “headaches” and this is because “most jurisdictions in the world have rules that don’t allow taxpayers to amend or change their transfer pricing after the fact.”
As Willows reports, this makes it difficult for companies to correct their transfer pricing later down the road and dealing with the consequences as a result. “Consulting early with a transfer pricing advisor, and working with the other tax advisors can help you establish sustainable tax policies that can scale with your business,” he added.
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Waiting too long to establish your transfer pricing policies also increases “the likelihood of disputes with the tax administrations.” Willows states how getting tied up in in a transfer pricing audit “takes a lot of your time, ties up a lot of your cash, and takes your attention away from developing the parts of your business that matter most to you.”
How the Greater Vancouver Board of Trade’s LOT program helped shape this tax analyst’s career
The Greater Vancouver Board of Trade offers a mentorship program for undergraduate students who are transitioning into the beginning stage of their careers, and one of the key parts of this program is networking. Marshall Willows notes how the program had a “distinct impact” on his career.
“Through the networking opportunities provided by the program, I was exposed to many different industries. This eventually led me to discover transfer pricing, which is a field of work that I had not heard of but was a perfect fit for my skills and interests. I was able to leverage the program to meet people in the industry, including my current team at KPMG.”
But the greatest benefit of the program, according to Willows, is the mentorship element. “My mentor helped me clarify my career goals, develop my confidence, and recognize my unique strengths. This relationship contributed significantly to my personal and professional growth and is one of the most lasting impacts that the program had on me,” he adds.
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