Avoid tax pitfalls: how to prepare for international growth

Vilde Wettergreen
30/10/2024

You may have established yourself in the Norwegian market and now want to look beyond the borders of Norway. How do you prepare your startup for internationalization?

EY Helga Aune, Anthon Søegaard and Lise Bruland were responsible for the academic content of the ESSE The masterclass «Organization and corporate structure in international expansion». The topic? How can Norwegian companies build a robust corporate structure when internationalizing, with a particular focus on how to avoid tax pitfalls. Pitfalls include, for example, double taxation and reporting, and discussions with other countries’ tax authorities.

Inspired by EY’s masterclass, we have compiled the most important «Do’s and Don’ts» startups should consider when planning to expand internationally:

Tax adjustment – «Do’s»

Adapting the operational structure: Ensure that the company’s operational structure is aligned with the actual activities of the business in each country. This reduces the risk of mis-taxation and creates a clear overview of where revenues are generated. For example, if a Norwegian company opens an office in Sweden, the structure must be adapted to Swedish tax regulations. To avoid double taxation, in some cases it would be best to register a Swedish subsidiary.
R&D incentivesIdentify opportunities for tax incentives related to research and development. In Norway, for example, SkatteFUNN to be such a solution.
Flexible transaction structureFor easier financial management, create a routine for internal pricing and transactions between production and sales units in different countries. This also helps the company comply with tax regulations without unnecessary complexity.
Standardized corporate structureA standardized corporate structure makes it easier to open new offices and adapt to new markets. A holding company that owns all the subsidiaries in different countries can provide a streamlined structure and reduce the risk of double taxation.

Typical pitfalls in international expansion – «Don’ts»

Unnecessary tax leaksBe careful with structures that create unnecessary tax leaks, such as excessive use of withholding taxes (taxes on dividends or income sent out of a country). Consider whether it is possible to obtain a tax credit, so that the company avoids double taxation on income from multiple countries.
Permanent establishment: Ensure to reduce the risk of «Permanent Establishment» in countries like the USA and other countries, where the tax authorities may consider the company to have established operations. This can trigger higher tax demands and challenging tax reporting. For example, a Norwegian company that has employees who frequently travel to the USA to work on projects may risk the USA considering the company as «permanently established» there, which can lead to higher tax demands in the USA. Familiarize yourself with the relevant country’s criteria for permanent establishment.
Complex internal pricing (Transfer Pricing)Keep pricing structures between companies within the same group simple and clear. Complex structures can create confusion, increase the risk of tax inspections, and lead to high costs for auditing.
Loans across bordersAvoid excessive use of international loans across borders within the group, among other things due to currency risk and reporting complexity.

For more tips on internationalization, see also: 5 things you need to consider when expanding internationally with your company.

Do you want help building a good structure for growth in new markets? Contact us In Aggrator for more information about how we can assist your business on the path to international success!

Photo, top from left: Anthon Søegaard (EY), Bjarne Tvete (Aggrator), Vilde Wettergreen (Aggrator), Salvador Baille (Aggrator) and Lise Bruland (EY).

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