Exporting Product and Talent · Exporting Product and Talent . Upstate NY Trade Conference Page 2...

Going Global:

Mengel Metzger Barr & Co. LLP

EFP Rotenberg LLP BDO Expatriate Tax Services

Burt Speer Kevin Hill Jim Cassidy

Exporting Product and Talent

Upstate NY Trade Conference Page 2

Upstate NY Trade Conference

Interest Charge Domestic International Sales Corporation (IC-DISC)

Upstate New York Trade Conference June 18, 2015 Rochester, New York Burton Speer, Partner, Mengel Metzger Barr & Co. LLP



What is an IC-DISC?

• Brief history if DISC/FSC to IC-DISC • Basic rules



How does and IC-DISC work?

• Commission creates deduction at corporate tax rate “C” Corp • or, individual tax rate for “S” Corps • IC-DISC is tax exempt • Shareholders of IC-DISC (individuals) pay dividend tax rates • Savings of 15 percentage points • Deferral opportunities, with interest charge to IRS

- The reason it’s called an IC-DISC



Is it really that easy?

• Export Receipts Test • Asset Test



What else needs to be done to

qualify? • Election Form 4876-A

- Timing of existing corporation, or new corporation - Inter-company sales/commission agreement - Par or stated value of common stock ($2,500)



What kinds of Exports Qualify for

an IC-DISC? • Sales of export property

- Manufactured, produced, grown or extracted in US - Held for sale or consumption outside of the US - Maximum 50% foreign content



What is meant by “manufactured”?

• Conversion costs are at least 20% of COGS • Substantial transformation in the US



Does the property need to be new?

• Used (or even scrap) can qualify



What else qualifies?

• Rents for use of export property • Includes warrantee, maintenance, repair and installation services • U.S. architecture and engineering on foreign construction projects



What about sales to a U.S. distributor who then ships

overseas?

• The export rules apply - Use of a freight forwarder - Sales that purchaser ultimately ships to foreign destination, provided no additional manufacturing

is done



How can you support these sales as

export property?

• The US purchaser will need to provide the company with documentation of the

final destination, which can include a copy of the export bill of lading, export declaration, or other support.

• Remember, that this rule works both ways. Certain “export” sales may in reality be US sales if a foreign purchaser ships the product back to the US.



What is the benefit? How is the

commission computed?

• There are 3 basic methods:

- 4% of export receipts - 50% of the combined taxable income, or - Arm’s length transfer pricing



Which method is the best to use?

• Very few companies use the last method as it generally produces the least

amount of commissions • If the pre-tax margin is >8%, the combined taxable income method is generally

best, otherwise, use the simpler 4% method. • There are ways to further maximize the commissions by marginal costing or

various groupings. You can use different methods for different product lines.



Structuring the IC-DISC for an S-

Corporation

• Subsidiary, or brother/sister



What about a regular C-

Corporation?

• Not Subsidiary, only brother/sister

- No dividends received deduction or preferential rates



C-Corporation with multiple

shareholders where shares are sold more frequently

• Use Trust, with terms identifying the beneficiaries as S/H of Corp



What other alternatives can you

think of to help leverage the benefits of an IC-DISC?

• The IC-DISC ownership doesn’t have to mirror the ownership of the Corporation: - Can be used to provide incentives to Key Employees - Can be used as part of Succession Planning - Can be used to Transfer Wealth to younger generations - May be used an element in retirement planning

- IRA can be owner, but Roth IRA is a listed transaction



Any closing thoughts?

• Remember Canada and Mexico are foreign countries • Follow all the requirements, such as having intercompany agreements, and

minimum capitalization • File the election timely.



CONTACT INFORMATION

Contact: BURTON SPEER Partner Mengel Metzger Barr & Co. LLP 100 Chestnut St., Suite 1200 Rochester, NY 14604 Phone: (585) 423-1860 Email: [email protected]



Increasing trend towards exporting Goods…

Source: The U.S. Department of Commerce

http://www.efprotenberg.com/



…Jobs…

Graphic Source: The Wall Street Journal




…And People

Weichert 2014 Workforce Mobility Survey

• Snapshot of the state of workforce mobility across North America - “Talent Shortage” ranked among highest reasons driving agile workforce - 92% of companies expect relocation volume to remain the same or increase in 2015 Critical strategy for business growth

- Temporary domestic assignments on the rise - Flexible assignments appeal to ever broadening labor pool - Short-term assignments becoming more common




Questions to consider when sending employees abroad

• What are the additional costs incurred? • Are we abiding by host country labor laws? • What characteristics should an assignment policy contain to attract, develop,

and retain employees? • What are the individual income tax issues? • Are there any corporate tax issues? • What incentives or allowances should an employee receive? • How will compensation be delivered?


BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Tax Implications of a Global Workforce Driving Your Success While Managing Risk Upstate New York Trade Conference June 18, 2015 Rochester, New York James Cassidy, Senior Tax Director – BDO USA LLP



Managing International Assignments

Overview Global Mobility Issues Assignment Planning Tax Issues Equity Compensation Issues Questions



Driving Your Success

Meet Financial Goals Minimize Administration Satisfied Employees Satisfied Clients



Managing Risk

Minimize corporate tax costs in host country Minimize individual tax costs in home/host country Avoid immigration & employment tax penalties



Global Mobility Issues

Assignment Planning Compensation Cost Budgeting Host Country tax & labor laws



Concerns for International Assignees

Maintain home country compensation Maintain home country benefits Risk of double taxation Duplicate living costs Family relocation/visits Tax compliance



Human Resource Considerations

Attract & retain global talent Short-term Assignment Secondment Arrangement Localization Global Employee Organization Compensation Policy Assignment Policy



Assignment Planning

Short-term Assignments ( < 1 year) Evaluate duration of assignments – Avoid corporate presence Evaluate number of assignees – Tax exemption possible Determine work visa requirements Determine host country employment tax exemptions/requirements Delivery of tax-exempt living costs Evaluate application of income and social security (totalization)

agreements



Assignment Planning

Long-term Assignments / Secondment Arrangement

Maintain home country employment Maintain home country pension/benefits Loan employee to host country employer Minimizes risk of permanent establishment Host country payroll may be required Relocation allowances Repatriation provisions Generally for assignments > 6 months



Assignment Planning

Localization – Host Country Employment

Terminate home country employment Home country labor laws/severance Local employment arrangement Minimizes risk of permanent establishment Host country pension/benefits May result in reduced compensation/ administration costs Generally for assignments > 1 year



Assignment Planning, cont.

Global Employment Organization (GEO)

Employment is transferred to GEO Terminate home country employment Separate pension/benefits for global assignees Provide consistent policies for global assignees May result in better control/allocation of costs Equitable employment law protections Minimizes risk of permanent establishment for operating entities



Compensation Planning

Maintain home country employment/salary Foreign employment –local compensation/benefit issues Away-from-home tax rules Per-diem allowances Host country housing costs Home leave Costs for family members Relocation costs Local transportation costs Host & Home country tax reimbursements



Corporate Tax Issues

Permanent establishment issues Reimbursement of compensation costs Employment / labor tax costs Transfer pricing issues Tax compliance issues



Individual Tax Issues

Host country taxation of salary & allowances State residency issues Foreign tax payments Foreign social security Tax reimbursement policy

Upstate NY Trade Conference Upstate NY Trade Conference

Action Plan

Evaluate assignment/project parameters Consider implementation of an international assignment policy Prepare assignment cost projection Consult a professional tax advisor

Page 39

Upstate NY Trade Conference Upstate NY Trade Conference

Case Study

A Rochester based company is planning to transfer 5 US employees to a UK subsidiary located in London. Maintaining US benefits for the assignees is preferred. How can the assignment be structured to minimize costs? What are the tax implications for the assignees? Loan (second) US employees to UK subsidiary Possibly minimize days of presence (<183) to achieve tax exemption Maintain US pension and benefits due to continued US employment Obtain UK social security (NIC) exemption (CoC) under totalization

agreement Consider equalizing assignees to “at-home” US and NYS liabilities

Page 40



Questions

? ? ?



CONTACT US

Contact: JAMES CASSIDY KEVIN C. HILL Senior Tax Director Chief Executive Officer BDO USA LLP EFP Rotenberg LLP 100 Park Avenue 280 Kenneth Drive, Suite 100 New York, NY 10017 Rochester, NY 14623 Phone: (212) 885-7310 Phone: (585) 340-5168 E-mail: [email protected] Email: [email protected]

mailto:[email protected]



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