Mary Nyhan scaling internationally - Enterprise Ireland · Brexit •€1.2 billion trading between...
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International
• Brexit and the UK
• HR and people issues
• General principles and strategies
• Structures abroad: Subsidiaries, agents, new businesses abroad
• Operating in the US
• Ireland remains the base
• Case studies

Brexit
• 2 year timing
• EFTA, EEA, Canada, Switzerland, WTA
• G20
• Philip Lane

Brexit
• €1.2 billion trading between Ireland and UK weekly (goods and services)
• 41% of Ireland’s agri-business exports to the UK - €4.1 Billion per annum
• Number of Irish start-ups trading in UK doubled in the last 4 years
• Irish companies working with Enterprise Ireland increased exports to the UK
by 20% from 2008 to 2012
• Half of Ireland’s clean tech and electronics exports to the UK.

Brexit
• Irish engineering companies increased exports to UK by half a billon last year
•We are UK 5th largest export market - £17 billion goods and services in 2012
• UK companies employ 6,000 people in Ireland
• 200,000 jobs in Ireland as a result of exports to the UK

Brexit – Data
• Financial times on 5 September
• Cars/houses and retail – beg October
• Business investment end of November
• Services including financial services end of October
• 80% of economy is service based:
- 65% of GDP in 2015 (Ireland: 38%)

Brexit
• Pricing Worker Mobility – visas, EU labour law
• Currency fluctuations – change in model?
• Ireland/UK trade corridor – Customs/tariffs
• Trade agreements

Brexit
• R&D: joint projects with colleges
• Foreign Direct Investment
• Legal implications
• Northern Ireland

Brexit - Tax
• Pressure on Irish model
• Profits in UK more attractive
• VAT and customs
• No change to pensions and social security
• Cross-border workers always a challenge between Ireland and the UK

Brexit - Agrifood
• Currency
• UK suppliers in Ireland
• NI competition
• Future UK agri-policy
• FDI into Ireland
• Talent movement

Brexit – Financial Services
• Regulation and passporting
• Immediate aftermath – 8% off UK funds

Brexit – Energy and Cleantech
• Energy prices
• Previous over-reliance on UK for oil/gas for electricity
• Agreement now signed with France – November 2015
•Smart Grids, energy efficiencies, renewable energies, marine energy
• Focusing us to look elsewhere

Brexit - Construction
• Currency
• Confidence

Brexit – M&A
• Slow down did happen before Brexit due to currency
• Exit strategies
• Fund-raising
• Saleable, scaleable business
•Not price sensitive and hence, withstand external pressures

Brexit – M&A
•Top 10 deals (€50-824 m)- 1 UK acquirer – wind-farm
• Deal for H1 2016 in €5-€25 million – 19-15 (21%)

Brexit – M&A – H1 2016
• 15 < €25 m
•6: €25-100 m
•4: €100-200 m
•2: €250-500 m
•2: > €500 m
•29 undisclosed

Brexit - Suggestions
• Less effect for more global companies
• Continue to penetrate markets
• Moving along the UK spectrum at a faster pace
• Pricing – specialised products, less price sensitive, innovation
• Increase number of international trading countries
• Important businesses have their say to push timing of agreements

International HR

International HR Issues
• Importance of a written policy
• Gives consistency
•Manages employer risk
• Greatest “risk” area

Overseas Income Tax
• > 183 days and costs borne by local entity
•Who is responsible for the taxes – employee or employer
• Corporate governance perspective
• Local payroll providers

Overseas Income Tax
• Due to modern commuting and shorter-term projects, risk of
Irish tax continuing to remain.
• Clear communication.
• Employee agreement
• Critical to have a procedure to collect the second layer of
taxation applying and ensuring that this amount is refunded back
to the company

Illustrative Example
• Joe works for an Irish company but works from the company’s UK branch.
• He leaves Ireland every Monday morning and returns to Ireland on Friday
evening to spend the weekend with his family.
• On average, Joe is in Ireland for 160 days each year.
• Joe’s salary will be subject to Irish PAYE although cross-border relief is available
on submission of his returns.
• Joe will be subject to UK tax as he is working in the UK

Illustrative Example
Irish Salary 100
Irish Tax 45
UK tax 35
Individual receives 55
Company pays additional 35
Income tax return required to claim refund 35/45

Illustrative Example – Solution?
• Change employer to UK company
• Irish PAYE does not apply
• No double withholding
• Cash-flow position improved
• Split contracts?
Employee position can influence corporate structure

UK Tax Residence
Change from 6 April 2014
Based on ties to the UK - accommodation, work > 40 days, family, > 90 days
Treaty override still applies
4 ties:46 days
3 ties: 91 days
2 ties: 121 days
1 tie: 183 days
Still 60 day test and cannot be part of greater period

HR Policy
• Policy on equalisation:
- Same as never left Ireland?
- Company gets benefit of overseas tax rates?
- Individual gets benefit of lower tax rates

Social Security
• Irish Social security
• E101 procedure to remain on the Irish system: Irish employer
• Factor when deciding on a branch or a subsidiary
• Transferability of benefits between EU only but subject to restrictions
•Poland/Sweden – 40%

Pension
• Retention on Irish pension schemes
•Continues to be employed in Ireland
•Or under control of Irish company
• Subject to right to make personal contributions
•Watch life cover

Reimbursement of Expenses
• Tax compliance risk
•Actual-v Irish civil service rates
• Away from “temporary” place of work
• Affects company-v-branch decision
• Greater than 6 months, day civil service rate reduced by 50%
• £26 is 50% for London
• Records are key

Reimbursement of Expenses
• Local rules
• Some local rules do not reimburse temporary expenses e.g. Poland
• Need to factor into package to the employee

Reimbursement of expenses – UK
• Similar criteria to Ireland
•Working rule agreements for particular sectors and in terms of norms
• No specific flat rate
• 24 month definition of temporary

Other Employee Issues
• Visas
• Labour law
• Health insurance & benefits

XS Direct
UK Brokers
Capacity providers in Gibraltar
Eridge
UK
26% ownership and right to own more
Almost 95% of our
business is written
in UK
100% of capacity
coverage
Broker relationships in Ireland
Would the UK
really exit?
XS Direct

International Developments
& General Principles

International – Apple
• Appeal
• Issue has now being closed down in legislation
• Rate is 12.5%
• Relates to profits
• Not recurring
•More of a level playing field for Irish owned companies

International Holding Companies
• Benefits of the Irish regime
• Avoid unnecessary layers of taxation
•Match companies to country of trading
• Separate group for international operations – to manage risk?
•Same group to build value preferred

Financial Structure
• Keep it simple
• Dutch financing structures are not for everyone!
• One tax relief for interest sufficient

International Allocation of Profits
• Keep it simple
• Arms’ length
• Risk linked to profit
• Transfer pricing reports – benchmarking requirements

General Principles
• Know your goals and strategy
• Rationale
• Servicing an existing customer-v-penetrating a market
• Key decision to be made
• Pricing of the contract – extra margin to cover risk - costs, tax, travel, exchange
risk
• Contractual terms – language risk
– warranties/guarantees that you cannot control
– JV parties?

General Principles
• Time spectrum
• Keep it simple
• Tax should not solely dictate your structure/approach
• Leverage off Irish support bodies and other Irish companies
• Don’t start from scratch

General Principles
• Do background research and know your goals/problems before speaking with
external advisers - price for time but make sure you manage their time
• Local face to face knowledge is key
•Balance the additional revenue-v-costs of overseas location
• Be aware of constant changes

Financial Implications
•Withholding taxes (usually on Revenue and effects low margin businesses)
•Specific local taxes
• Foreign exchange risk to the extent we cannot match

Financial Implications
• Evaluate cash-flow on after-tax basis
• Tax benefits should not turn an overseas project from loss-making to profitable
• Temporary VAT and Payroll VAT costs
• Allow margin for changes to tax regime such as Sales Tax


Corporate Structure
(1) Initial
• Initially marketing and business development
• No fixed place of business
•Low overheads
• Independent agents
• No corporation tax or Sales Tax presence
• If not broken, don’t fix unless you wish to register for Sales Tax
•Contract refers to use tax payable by the customer

Corporate Structure
(2) An office or warehouse
• No Corporation tax but Sales tax presence – only in that State
•Still have no employees
•Customs issue
• Still no US company

Corporate Structure
(3) Remote servicing
• Constant change
• Presence of server/website not sufficient
• Credit card sales processed in Ireland
• Limited human presence
• Risk of sales tax changes in your pricing model

Corporate Structure
(4) Cost plus C Corporate
• Independent agents become employees
•Start incurring US costs
• Registration

Corporate Structure
(5) US Company with Revenue recognised
•Fully open for business
• Transfer pricing between Ireland and the US
• Use of IP

Corporate Structure
(6) Agency agreement with local partner
• Key benefit evaluated
• Read the small print
• Testing the waters
• Agreement is key
• Exit arrangements

Corporate Structure
(6) Agency agreement with local partner – cont’d
• Restrictive covenants
• Common brand
• Guarantees and risk

Corporate Structure – well established
(7) Acquiring overseas business
• Evaluate benefit
• Historic Risk
• Joint contribution preferred
• Deferred consideration, if any
• Charge into JV for Irish time, IP and materials – mark-up

US Sales Tax
• Exemption if product is onsold to the customers in the same form -
Sales to retailers – exempt - reseller certs
•Avoid double layer
• Vendor or customer
•Not recoverable
• Presence in the State – vendor
•Warehouse creates presence
•Elect to register

US Sales Tax
• Amazon: New York
•New Mexico & Oklahoma: where no nexus
• Rate varies per state
• Be aware of sales tax and effect on cash-flow

Visas
• Visas tend to drive formation of US company and tax model forward
• Requirement for US team in addition
•Limited for specialised person only
• Right person for VISA application

US income tax
• Subsistence allowances not as available
•Only for 12 months and even then, intention is to remain in the US for less than
12 months

Your recommendations on:
US corporation tax structure
Other US issues company is likely to be facing
Case Study 2Irish technology company
US Independent commission agents in
US to develop business.
No warehouse or other place of
business in the US.
Irish contracts with the customers
Customers are all retailers other than
some online sales from Ireland.
Product is supplied from Ireland.

Your recommendations on:
US structure
Additional relevant US issues to be considered.
Case Study 3
Irish Software company
Sales from Ireland to US companies
Decisions in relation to all sales made
from Ireland.
Some US employees.
Goods mainly transported from Ireland
to the US. Subsequently warehoused in
the US until transported to the
customer. In some cases, goods
purchased in the US and resold.

Your recommendations on:
Case Study 4
As for Case study 3 but sales are now to US government bodies. Also a number of Irish
executives are sent to the US to oversee the US operations and a US office is opened
US Structure
Other relevant US issues
In particular, whether a US company to
be formed
Basis of allocation of profits between
Ireland and the US
Optimal ownership of the IP
Company to recognise the US contracts.

Where to now?

Countries by GDP – ease of doing business also listed in the numbers USA - 7
EU excluding UK
China – 84
UK – 6
India – 130
Canada – 14
Australia – 13
Norway -9

Ease of doing business – World Bank – top 10
Singapore
New Zealand
Denmark
Korea
Hong Kong
UK
US
Sweden
Norway
Finland

Ease of doing business – World Bank
Germany – 15
France – 27
Netherlands – 28
UAE – 31
Japan – 34
Italy – 45
Russia - 51


Ireland Remains The Base
• Get benefit of Irish 12.5% rate
• Technology and IP in Ireland
• Licensing arrangements
• R&D tax credits in Ireland
•Knowledge Development Box – 6.25%
• UK – 20%/15%
• US – 35% plus
•Infrastructure, Language etc.

Case Study 5Irish Construction Group
Constructions projections in over 12
countries, mainly are developing
countries
Mainly local sub-contractors
However, Irish workers also assigned
abroad
All projects last for more than 12 months
The local corporation tax rates are
generally higher than 12.5%
Your recommendations on:
Whether to form a company in each or any of the overseas jurisdictions?
Whether to operate the international projects in the same group as the Irish group – issues to consider from both a corporate and
employee perspective?
Other financial and tax issues to be addressed?

Questions

Thank you!