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*This presentation is offered for informational purposes only, and the content should not be construed as legal advice on any matter
SEIZING OPPORTUNITIES:What You Need to Know When ConsideringInternational Expansion
A COMMON SCENARIO
You want to hire 2 developers in the U.K. and a sales person inChina.
Here are some of the questions you should ask:
Which entity will sell the products (software or services) to thecustomer?
Do we need an entity in each country? If so, what are our options andhow quickly can we get operational?
How do we run payroll? Can we pay them from the U.S.?
What are the local benefits and tax requirements?
Are we issuing stock options?
What sort of employment contracts do we need? What are the otheremployment requirements and pitfalls?
How do we effectively protect our intellectual property?
2Seizing Opportunities
SUBSIDIARY, BRANCH, OR “JUSTPAYROLL?”
Step 1: Determine the appropriate entity structure
Determine appropriate level of corporate “registration” incountry
Subsidiary or branch? What are your plans for the future?
Representative office – limited in scope to marketing and non-salesactivities In practice, representative offices often do more than permitted scope
Just payroll registration (possible in UK, not possible in China)
“Activities” in-country can trigger a corporate tax PermanentEstablishment (“PE”)
Difference between revenue generating activities vs. purely marketing,non-revenue generating activities
PE is a grey area and is open to interpretation by different fiscalauthorities in different countries
Understanding “triggers” allows for proactive management andcompliance
3Seizing Opportunities
BRANCH VERSUS SUBSIDIARY
Branch Office
A branch office is an extension of another company
A branch office is not a separate legal entity - no legal liabilityprotection
Branch office of U.S. parent company could expose Parent’s profits totax in branch country and also to legal liability
Consider forming a separate Delaware LLC to house foreign employees andcontractors
Subsidiary
A subsidiary is a separate legal entity
Provides a layer of protection between the parent company and theactivities of the entity
Generally a better vehicle to manage tax and legal liability risks
4Seizing Opportunities
5
AgencyWorkers
• permissible?
• limitations ontime or type?
• equal payobligations?
• equitycompensation?
Employees
• local corporatepresence required?
• payrollregistrations?
• benefits?
• fixed term?
• equitycompensation?
PEOEmployees
• are jointemployees andneed to complywith all applicableemployment laws
• permissible?
• equitycompensation?
EMPLOYMENT / HR PLANNING:ENGAGEMENT OPTIONS
IndependentContractors
• what quacks like aduck is a duck
• withholdingobligations (VAT,GST)?
• registrationobligations
• sales agent rules?
• equitycompensation?
Seizing Opportunities
Step 2: Get employment and global equity right
EMPLOYMENT / HR PLANNING:OTHER CONSIDERATIONS
6
Payroll• Local hires• Expat employees
Benefits• Mandatory (law, CBA)• Optional
OnboardingRequirements• Workers’ compensation
equivalent• Pre-hire medical tests• Background tests
EmploymentAgreements• Required?• Language?• PIIA• Specific terms?
Policies• Required work rules
and internalregulations
• “Global” policies (e.g.,code of conduct)
• Local policies (e.g.,disciplinary &grievance procedure)
Exit Strategy• No at-will employment
internationally• Probationary periods
and performancemanagement
• Redundancies andperformanceterminations
Seizing Opportunities
GLOBAL EQUITY COMPENSATION PROGRAMS
7Seizing Opportunities
INTERNATIONAL TAX PLANNING:KEY CONSIDERATIONS
Step 3: Consider your international tax structure
Early expansion stage – basic items
Keep it simple and manageable as complexity produces marginal benefits andreduces future flexibility
Define intercompany relationship based primarily on business rationale Intercompany agreement – defines the relationship between affiliates Transfer pricing – pricing of goods, service and IP between affiliates based on the
intercompany agreement
But, keep an eye out on potential for more sophisticated internationalstructuring opportunity and timing (as it could be sooner than you think) E.g., building an R&D team in Ireland; or acquisition of a Dutch target with product
and sales infrastructure; or raising Series C or going IPO at high valuation Valuable to company but also to potential acquirer
High growth stage – comprehensive international structuring
Understand the value of planning by modeling out the timing and potentialbenefits whether future as stand alone entity or acquisition target
Note that value of intangibles increases over time, thus balancing of timingand operational readiness becomes key
8Seizing Opportunities
TAX PLANNING SUMMARY
Overall message: Allocate, Protect, and Facilitate
Allocate
Allocate income to lower-tax jurisdiction(s) where feasible
Protect
Plan for both US and foreign “long arm” statutes
US long arm statutes
Foreign long arm statutes
Withholding Tax
Permanent Establishment
Facilitate
Reduce tax and legal friction on cash movement or redeployment(including repatriation)
Seizing Opportunities 9
OVERALL CONSIDERATIONS
Proper, practical planning for international expansion is critical
Develop a checklist and bring in advisors early
Scope out timing & costs
Involve key players within your organization
Need to think long-term
Impact to share value upon an exit event -- M&A, IPO
Potential tax reserves, once valuation allowances are released
10Seizing Opportunities
Business today spans borders
70%U.S. companiesthat makecross-borderpayments
Portion of totalsales U.S.companiesgeneratedoverseas
Executives whobelieve long-term growthrequiresinternationalexpansion 46%
80%
Sources: Wells Fargo International Business Indicator, March 2015; AFP Electronic Payments Survey, 2013;Standard & Poor’s, 2013 S&P 500 Global Sales Report, August 2014
Increasing centralization can help you become
more strategicTre
asury
activitie
s
Level of centralization
In-house bank managesenhanced treasuryactivities including: Pay-on/receive-on behalf
of (POBO/ROBO) FX Intercompany lending
Shared service center created tohandle centralized/ regionalized: Payments Collections Liquidity
Global tax structure set upwith transfer pricing agreements Liquidity managed
centrally/regionally Local subs still manage local
operations
Formation of in-house bank Subsidiary runs day-to-day HQ has visibility/access to
activity
Each subsidiary runsseparately, autonomously
Many adopt a centralized
treasury structure to improve
visibility and efficiency
Organization Legal structure Tax structure Organizational structure Policies and procedures
Operations Payments and collections Liquidity Risk management
Technology ERP and treasury integration Standards and protocols Straight-through processes Systematic controls
Go global with confidence and efficiency
Manage global and domestic activity side-by-side,using the same tools and single sign-on to accounts
Choose the right payment methods to quickly andsecurely pay trading partners and employees worldwide
Accelerate your cash flow from foreign receivables—without adding more work for staff
Process payments efficiently, regardless of currencyor country
Increase your visibility to your global cash position,to better control your working capital and liquidity
GLOBAL REFERENCE MATERIALS:YOUR INTERNATIONAL EXPANSION PARTNER ANDGLOBAL EXPANSION CHECKLIST
Provides high-level questions forcompanies considering growth byacquisition or expansion into newcountries
Includes Corporate Set-up andGovernance, Regulatory, Tax,Commercial and Compliance,Employment, Global Equity, DataPrivacy/Information Law and IPTmatters to be considered
15Seizing Opportunities
GLOBAL REFERENCE MATERIALS:GUIDE TO GOING GLOBAL SERIES
Guide to Going Global series helps companies navigatethe challenges of global expansion
Designed for companies expanding into new countries, thesecomplimentary guides cover critical business and legalissues. The first releases in the Guide to Going Globalseries underscore business-relevant intellectual propertyand technology, employment and equity laws in key jurisdictions around the world. Thesecond releases include corporate and tax laws.
Corporate: Covers corporate basics, across 30 key jurisdictions, relevant to companies expandinginternationally
Employment: Covers all of the employment and labor law basics in 44 key jurisdictions across theAmericas, Asia Pacific, and EMEA
Global Equity Compensation: Summarizes the legal, regulatory and tax issues faced bymultinational companies issuing stock options, purchase rights andrestricted stock units in 46 countries
Intellectual Property and Technology: Outlines crucial aspects of IPT laws in 29 jurisdictions thatare particularly relevant to businesses seeking to expand their operations globally
Tax: Summarizes the key features of tax laws and addresses common tax questions in over 20popular jurisdictions
16Seizing Opportunities
PRESENTERS
17Seizing Opportunities
Forouz Firoozi, International Treasury Management, Wells FargoForouz covers middle market & Technology clients in Southern California. She has over 14 years of domestic and internationaltreasury experience at Wells Fargo and Bank of America prior to that. Before becoming a banker, Forouz worked in businessdevelopment, sales & marketing at AT&T/Avaya Communications and Ericsson Inc.
Marilyn Lobel, Controller, Oblong Technologies, Inc.Marilyn is responsible for all aspects of financial planning, tax strategies and international expansion for Oblong, a development stagecompany that develops, manufactures and sells business media systems to Fortune 100 and Global 500 companies. Prior to Oblong,Marilyn was the Chief Financial Officer of Glaical Energy, Vice President and Chief Accounting Officer for Fisker Automotive and theChief Financial Officer for United Fuel & Energy Corporation.
John Lomoro, Senior Vice President of Finance, Kyriba CorporationJohn manages the financial operations including all of the accounting practices, tax and operating policies and procedures for thecommercial and corporate operations for Kyriba in North America. Prior to Kyriba, John was the Chief Financial Officer and Secretaryor Transdel Pharmaceuticals.
Ben Olivas, Partner, International Tax, DLA PiperBen Olivas concentrates his practice in international tax and operational structuring, global transfer pricing strategy and documentation,cross-border mergers, acquisitions, dispositions and joint ventures, post-acquisition integration and tax controversy.Ben has worked extensively with US companies doing business in various parts of the world, as well as foreign companies expandingtheir US operations.
Sara Sluder, International Treasury Management, Wells FargoSara works with corporate/finance leaders to develop global cash management solutions for companies expanding internationally. Sheprimarily focuses on middle market companies in the Greater Los Angeles region.
Lily Zheng, Associate, International Employment, DLA PiperYin “Lily” Zheng is experienced in counselling employers on global and US workforce management issues, as well as defendingemployers in US litigation matters. Lily advises multinational companies on overseas and global employment issues, includingemployment agreements, global policies and procedures, non-compete and proprietary information agreements, workforcerestructuring, employment termination and severance issues. She also advises employers on issues that arise in cross-bordertransactions. Lily is a native speaker of Mandarin Chinese and has a particular focus on employment issues in Asia Pacific.