Sample interview questions: Can you explain your knowledge of the tax implications of cross-border franchising and licensing agreements?
Sample answer:
- Withholding taxes: Cross-border franchising and licensing agreements can trigger withholding taxes in the country where the franchisee or licensee is located. These taxes are imposed on the royalty or other payments made by the franchisee or licensee to the franchisor or licensor. The amount of withholding tax depends on the tax treaty between the two countries and the specific provisions of the franchising or licensing agreement.
- Transfer pricing: Cross-border franchising and licensing agreements can also give rise to transfer pricing issues. Transfer pricing is the practice of setting prices for goods or services that are transferred between related parties, such as a franchisor and franchisee or a licensor and licensee. Transfer pricing can be used to shift profits from one country to another in order to minimize taxes. Tax authorities may challenge transfer prices that are not at arm’s length, and they may adjust the prices to reflect what would have been charged between unrelated parties.
- Permanent establishment: A franchisor or licensor may be considered to have a permanent es… Read full answer