Strategizing Multinational Tax Risks

Withholding taxes: Cash efficiencies

Withholding tax rates are increasing in many developing countries, creating additional timing and/or permanent cash inefficiencies.  To the extent withholding tax payments, receipts and documentation are viewed from a Best Practice process perspective, immediate cash savings may be realized.  The following points may be considered in this process:

• How are payments attracting withholding taxes identified?
• Identify internal/external responsibility for tracking changes in withholding tax rates and communication to the business payor.
• Are higher payments being made due to contemporaneous documentation (i.e., certificates of residence) not received timely?
• What integration is in place for Tax and/or Treasury to manage the withholding tax process?
• For shared service centers, how are changes in withholding rates communicated for timely implementation?
• Has an internal and/or external review of withholding taxes been performed in the last year?
• How are withholding taxes considered for new intercompany loans?
• Who reviews withholding tax considerations for legal entities in new jurisdictions?
• For taxes that are not ultimately creditable, is there a process to identify and quantify such payments?
• Is there a review process for proper characterization of “withholding” taxes that may or may not be creditable?
• Is there specific responsibility within the business to ensure withholding taxes are properly characterized and paid timely?
• Should a withholding tax flow chart be used for internal governance and global consistency in methodology?
• Is there a governance process for collection of receipts when withholding taxes are paid?
• Identify a process for physical/electronic receipt retention to ensure timely and accurate documentation is maintained for audits.
• Are different payment flows in place for similar services where withholding taxes apply?
• Is there a variance analysis performed on a recurring basis to identify significant changes?
• Are internal governance principles established for withholding taxes?
• Is the business aware of the importance for efficient mechanisms re: withholding taxes?

Withholding, and similar, taxes are being legislated by many countries, especially in developing markets.  Accordingly, Best Practice processes should be in place to maximize cash efficiencies.