© 2010 PIASCIK & ASSOCIATES, P.C.. © 2010 Piascik and Associates, P.C. TAX ISSUES U.S. COMPANIES...

© 2010 Piascik and Associates, P.C.

TAX ISSUES U.S. COMPANIES FACE WHEN CHOOSING TO DO

BUSINESS ABROAD

Presented by:

Ryan L. Losi, CPA Executive Vice President

Piascik & Associates, P.C.

Agenda/Outline• Introduction• Where will you transact business• What business will you transact• How will you transact business • Which business form will you transact through• Compliance requirements• Cash flow and treasury requirements• Social issues to address• Other tax issues to address• Brief example


THE MARKET

• Determine which Region(s) of the world the Company’s products and/or services should be offered

• Determine which Country(ies) within each Region the Company’s products and/or services should be offered


THE TAX SYSTEM

• Obtain a thorough understanding of the type of income tax system the foreign country employs which will generally be one of the following:• Territorial System – based on the connection between

taxpayer’s income and that country (many European Countries)

• Credit System – based on the connection between taxpayer and the taxing country (U.S. System)


THE BUSINESS ACTIVITIES

• Based on having a thorough understanding of the country’s income tax system, determine WHAT and how the Company will do business in the foreign country. Will there be the following activities:• Sales and/or Distribution Activities

• Use of independent Sales Force• Use of Company Sales Force

• Use of local or U.S. Expatriates or combination

• Manufacturing & R&D Activities??• IP/Entrepreneurial Activities – Who will own this?


THE STRUCTURE• Determine which business form the Company will use to transact

within the foreign jurisdiction (i.e., foreign branch, foreign partnership, or foreign corporation)

• To determine the best business form the Company should:• Have five (5) year revenue and profit/(loss) projections• Determine its long term strategy regarding its profits (i.e., reinvest

vs. repatriate)• Determine which section of the Internal Revenue Code the

Company will be subject to• Analyze and plan how this impacts other countries of interest

• Determine the compliance requirements for each business form for the following:• Local foreign jurisdiction• U.S.


THE COMPLIANCE

• Determine where the books and records will be maintained and the following:• Is a local accountant necessary to maintain the books and

records as well as satisfying the local compliance requirements• Who in the U.S. will be responsible for maintaining this

relationship and collecting the required information for U.S. reporting

• What process(es) or procedures will be initiated in order to ensure that the information that is required from the U.S. side is obtained and that it is accurate

• In what currency denomination will the books and records be maintained


THE CASH

• Understand and determine how the U.S. Company intends to get cash into the foreign location(s) and/or get cash out of the foreign location(s)

• Obtain a thorough understanding of the income tax withholding laws/requirements that the foreign country employs

• Thoroughly understand the Income Tax Treaty(ies) (assuming one exists) between the U.S. and foreign country


THE WORKERS• Obtain a thorough understanding of the type of social system that

the foreign country employs• Determine if your company will fall under its jurisdiction• Determine what type of Company representatives you will have on

the ground• Independent representatives/consultants• Employees (U.S. or foreign or combination)

• Determine if Company representatives be treated and paid as employees of the U.S. company or the foreign entity, and how will that impact the business from a tax and legal standpoint

• Determine the employee withholding requirements for each foreign jurisdiction


THE WORKERS (CONTINUED)

• Obtain a thorough understanding of the labor laws that the foreign country employs

• Determine who will administer Payroll• Thoroughly understand the Social Security

Treaty(ies) (assuming one exists) between the U.S. and foreign country

• Develop a Formal Expatriate/Foreign National Compensation Program in order to prevent undue negative issues


OTHER TAX ISSUES

• Determine if there are any Transfer Pricing Agreements that need to be put into place between the U.S. and the foreign jurisdiction

• Obtain a thorough understanding of any other taxing systems a foreign jurisdiction may employ such as the following:• Value Added Tax (VAT)• Goods and Services Tax (GST)• Tax Holidays• Foreign Economic/Enterprise Zones


THE ADVISORS

• Understand the competencies and responsibilities of each outside advisor(s) your Company employs:• International Tax Accountant(s)• International Tax Attorney(ies)• International HR Advisor(s)• International Business Advisor(s)• International Banker(s)


EXAMPLE

• Value Added Tax (VAT) - In general, in a B2B transaction, value added tax is charged to the end user of most products or services. The place of supply of services determines where the supply is subject to VAT.• Under current rules, the place of supply of service is generally at the location of

the service provider. However, for telecommunications services the location of the supply of service is the location of the recipient of the services.

• If the service supplier is located in the EU and is located in the country where the recipient is located, then the service supplier is required to collect VAT on services. If the telecommunication services are provided to a recipient in another EU country then the recipient is required to account for the VAT tax and the supplier is not obligated to collect the VAT.


EXAMPLE

• VAT tax changes in 2010 • The EU Council of Ministers recently adopted a VAT Directive that makes major

changes to the rules governing the place of supply of services to ensure that VAT on services accrues to the country where the services are used.

• The new rules will require the charging of VAT on business-to-business services at the place where the customer is located.

• The new rules may require companies providing services in EU countries to collect VAT for customer based on the VAT rate for those services at the customer’s location.

• How will VAT be collected and distributed to various countries? This issue will need to be determined by the EU Council of Ministers.


THE PLAN

• Develop a plan that is flexible and friendly that allows your Company to grow internationally while at the same time allowing you to effectively manage your GLOBAL TAX RATE and risk of doing business in each jurisdiction



INTEREST CHARGE DOMESTIC INTERNATIONAL SALES CORPORATION

(IC-DISC) – THE LAST REMAINING EXPORT INCENTIVE

Presented by:

Ryan L. Losi, CPA Executive Vice President

Piascik & Associates, P.C.

An IC-DISC as a subsidiary of an S corporation or another flow-through entity

IC-DISC(Tax

Exempt)

Exports

Commission

U.S.

Foreign

U.S.

S Corp

Qualified Dividends at Reduced Tax Rate


An IC-DISC as a brother-sister entity of an S corporation or another flow-through entity

IC-DISC(Tax

Exempt)

Exports

Commission

U.S.

Foreign


U.S.

S Corp


An IC-DISC should only be a brother-sister entity of a C corporation

IC-DISC(Tax

Exempt)

Exports

Commission

U.S.

Foreign


U.S.

C Corp


An IC-DISC shares can be provided to a key employee who is not an owner of the operating company

IC-DISC(Tax

Exempt)

Exports

Commission

U.S.

Foreign


U.S.

S or CCorp

Export Sales Director/Man

ager


An IC-DISC shares could be owned by an IRA

IC-DISC(Tax

Exempt)

Exports

Commission

U.S.

Foreign

Qualified Dividends Tax Deferred

U.S.

S or CCorp

IRA


Although a listed transaction, a Roth IRA’s ownership of an IC-DISC shares can significantly reduce tax

IC-DISC(Tax

Exempt)

Exports

Commission

U.S.

Foreign

Qualified Dividends Tax Free (NO TAX)

U.S.

S or CCorp

Roth IRA


© 2010 PIASCIK & ASSOCIATES, P.C.. © 2010 Piascik and Associates, P.C. TAX ISSUES U.S. COMPANIES...

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Transcript of © 2010 PIASCIK & ASSOCIATES, P.C.. © 2010 Piascik and Associates, P.C. TAX ISSUES U.S. COMPANIES...