Cross-border Tax Rules

Cross-border tax rules become critical any time you trade, invest or work in more than one country.

If you get it right, it will save you money. If you get it wrong, it will cost you money – simple as that.

Here’s why businesses and individuals cannot afford to ignore them—and the key implications you need to plan for:

1. Avoiding Double Taxation

• Many countries claim the right to tax the same income.
• Double-tax treaties (based on the OECD Model Tax Convention) allocate primary and secondary or sole taxing rights—so you don’t pay twice.
• Example: Dividends, interest or royalties paid abroad often carry 5–30% withholding tax at source. A treaty can reduce this to zero.

2. Permanent Establishment (PE) Risk

• If you have a “fixed place of business” (office, agent, server) abroad, local law may deem you to have a PE—and tax all your profits there, in accordance with the local tax reliefs, allowances and exemptions.
• In some countries this risk can extend to Place of Effective Management (PoEM) and the location of your Core Income Generating Activities (CIGA).
• UK Law: Income Tax (Trading & Other Income) Act 2005, s.185; OECD Model Convention, Art.5.

3. Transfer Pricing

• Group companies must price intra-group supplies at arm’s-length.
• Non-compliance can trigger profit adjustments, interest and penalties in multiple jurisdictions.
• Reference: OECD Transfer Pricing Guidelines.

4. Indirect Taxes (VAT/GST)

Cross-border sales of goods or digital services can require registration for and the collection of VAT or GST in the customer’s country.
Missing these rules risks late-filing penalties and interest.

5. Reporting and Disclosure

Countries demand detailed information (Country-by-Country Reporting, FATCA, Common Reporting Standard).
Failure to comply can result in substantial fines.

Key Implications

• Cash-flow: Withholding taxes can lock up working capital.
• Compliance costs: You’ll need specialist advice, systems and detailed documentation.
• Legal risk: An audit in one country can trigger secondary assessments elsewhere.
• Strategic structuring: Many groups use treaty-friendly holding companies or IP-licensing vehicles to reduce global tax bills—always ensuring transfers are at arm’s-length.

For example: TechCo UK sells software to German customers through TechCo IE (an Irish subsidiary).

• If paid directly to the UK, Germany would withhold 15% royalties.
• Under the Ireland–Germany treaty, royalties routed via Ireland are tax-free.
• However, if TechCo IE has staff or servers in Germany, it risks creating a PE—and Germany could tax all German profits at ~30%.
• Proper transfer-pricing documentation must support the royalty rate as arm’s-length.

How SAIL International Can Help

1. Treaty analysis and withholding-tax planning.
2. Permanent-establishment risk reviews.
3. Transfer-pricing policy and documentation.
4. VAT/GST registration and compliance.
5. Holistic structuring advice to optimise your global tax position.

Cross-border tax touches every aspect of international business and investment. Getting the rules right protects you from double taxation, penalties and unexpected liabilities—while unlocking treaty reliefs that can materially improve your bottom line.

For tailored advice on your specific situation, please book a call with our team here.

Indemnity
This is general guidance only and does not constitute personalised tax advice. Individual circumstances vary and SAIL International gives no warranty as to any outcome. Readers rely on this information at their own risk.