For many British fashion brands, export sales are important. But care needs to be taken. If it is not, the tax consequences can be extremely unwelcome. Unexpected overseas taxes may arise and this may only become clear some time later when taxes have already been accounted for to HMRC.
Whether a brand has taxable presence in another country will depend in large part upon that country’s local tax rules. Typically, a company may have an overseas taxable presence if it has a fixed place of business in the relevant country – such as a place of management, a retail unit, a sales office, a factory or a workshop. But it may also have a taxable presence if it has an agent in another country who habitually concludes contracts on its behalf. These are not the only circumstances, however, in which a taxable presence can arise. In certain countries it is sufficient to simply have a representative office registered in that jurisdiction.
Any or all of the following may in certain cases give rise to overseas taxation:
- selling goods over the internet;
- selling the brand through branded areas or “concessions” within overseas department stores;
- having personnel present overseas to provide direction, supervision, and control over a manufacturing process – what exactly are your people doing in, for example, Bangladesh?;
- regularly attending trade fairs (for example, Micam or Who’s next) at which sales are made;
- employing third party overseas agents who are permitted to negotiate and agree pricing (including bulk discounts) or other contractual terms with customers, fulfil orders, or deliver direct to customers (or both);
- purchasing, processing and onward supply of goods;
- employing senior sales persons overseas with authority to conclude contracts;
- acquiring or having a right to use particular premises whilst overseas (and including overseas addresses on website on advertisements);
- carrying on business overseas in partnership.
However, the mere storage, display or delivery of goods overseas or the carrying on of activities of a preparatory or auxiliary character are unlikely to give rise to a taxable presence.
As such, if a brand is (or is considering) carrying on activities overseas it is important to give thought to the tax consequences at an early stage. Planning will focus on either avoiding any taxable presence altogether, or, if this is not possible, minimising the profits attributable to that taxable presence and/or ensuring no double taxation in the UK and overseas. In some cases, it may even be beneficial for a brand to create a taxable presence overseas, particularly where overseas tax rates may be lower than the UK!