Up until within the past ten to twenty years, most college’s accounting curriculums did not include classes for international tax accounting. Some believe that international tax accounting is a brand new field of business, but it is not. In reality, it is the largest facet of business in existence that dates back thousands of years. There is archaeological evidence and transcripts showing how different ancient societies traded with one another, and detailing their own forms of taxation. Even then, it took someone with knowledge of these taxation laws to keep track of them and ensure fair bartering.
Much like today, each nation has its own tax laws, and in some nations localities can have different tax laws as well. International tax accounting is the act of following and researching laws, as well as currency exchange rates, so that due taxes are lawfully paid. Every business in the United States that does business outside of the US is affected. International tax accounting also impacts foreign businesses that do business in the United States. The rise of ecommerce and advertisements on the web bringing in worldwide consumers is bringing this topic of accounting to the forefront, as many small and medium size businesses are now involved.
The way business is conducted and the laws regulating it vary from country to country. It takes international tax accounting to track it and audit the variations. Example being that in the United States a high debt to asset ratio is generally looked down upon and unaccepted, yet in a country such as Korea or Japan, it is both desirable and expected. It takes someone with a vast familiarity with international tax accounting to recognize and understand the cultural and environmental differences in order to fully analyze the financial statements of a company that is based multinational. It goes as far as how auditing is done, as the laws vary from each country. Some countries also have treaties in which it is decided who taxes what, when it’s done, and how it is done. It is critical to have someone dependable that is knowledgeable about the treaties and the laws behind them.
Many companies are US based, but they do the vast majority of their product manufacturing in other countries, such as China or Korea. This is due to wage differences, availability of resources, tax laws, and many other factors. It takes a professional with experience in international tax accounting to avoid making big mistakes and to help work through complications that arise based on tax laws. Problems ranging from the fluctuation of currency exchange rates from day to day, to transfer pricing decisions, and many other topics, can be handled by an educated international tax expert.
“With any system of taxation, it is possible to shift or recharacterize income in a manner that reduces taxation.” – Wikipedia
“Jurisdictions often impose rules relating to shifting income among commonly controlled parties, often referred to as transfer pricing rules.” – NewAccountantUSA.org
Fluctuation of currency exchange rates can be a huge issue because the rate may change in between the time of creating an accounts payable transaction and the date the payment clears. Since the rise of outsourcing work and the internet purchases have increased so much, international tax accounting has had an increasingly higher demand. It affects everything from how paperwork is transcribed to how accounts are paid. International tax accounting can seem like a confusing world for the average Joe, but someone with the proper training and knowledge can remove the complications.
Are you looking for an international tax accounting firm? Our international tax services group provides tax consulting and compliance services to businesses that are based in the U.S. and currently have foreign operations, or are planning to expand internationally. To know more about accounting, you may also visit Wiki.answers.