April 30, 2015
*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 Considering International Expansion
A COMMON SCENARIO
You want to hire 2 developers in the U.K. and a sales person in China.
Here are some of the questions you should ask:� Do we need an entity in each country? If so, what are our options and
how 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 other
employment requirements and pitfalls?� How do we effectively protect our intellectual property?� What else is involved?
� Develop a checklist and bring in advisors early� Scope out timing & costs� Involve key players within your organization
2Seizing Opportunities April 30, 2015
SUBSIDIARY, BRANCH, OR “JUST PAYROLL?”
Step 1: Determine the appropriate entity structure
� Determine appropriate level of corporate “registration” in country
� Subsidiary or branch? What are your plans for the future? � Representative office – limited in scope to marketing and non-sales
activities� 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 Permanent Establishment (“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 fiscal authorities in different countries
� Understanding “triggers” allows for proactive management and compliance
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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 liability
protection� Branch office of U.S. parent company could expose Parent’s profits to
tax in branch country and also to legal liability� Consider forming a separate Delaware LLC to house foreign employees and
contractors
Subsidiary� A subsidiary is a separate legal entity� Provides a layer of protection between the parent company and the
activities of the entity� Generally a better vehicle to manage tax and legal liability risks
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Agency Agency Agency Agency
WorkersWorkersWorkersWorkers
• permissible?
• limitations on time or type?
• equal pay obligations?
• equity compensation?
EmployeesEmployeesEmployeesEmployees
• local corporate presence required?
• payroll registrations?
• benefits?
• fixed term?
• equity compensation?
PEOPEOPEOPEO
EmployeesEmployeesEmployeesEmployees
• are joint employees and need to comply with all applicable employment laws
• permissible?
• equity compensation?
EMPLOYMENT / HR PLANNING:ENGAGEMENT OPTIONS
Independent Independent Independent Independent
ContractorsContractorsContractorsContractors
• what quacks like a duck is a duck
• withholding obligations (VAT, GST)?
• registration obligations
• sales agent rules?
• equity compensation?
April 30, 2015Seizing Opportunities
MOBILE EMPLOYEES AND EXPATRIATE ASSIGNMENTS – HOW DOES IT WORK?
Alternative #1: Direct contract with host country employer (‘localization’)
Home Country, Inc.
Host Country, Inc.
Transferemploymentrelationshipthroughtermination &hire
Alternative #2: Secondment
Keep existing employment with home country employer and second or loan to host country employer
Home Country, Inc.
Host Country, Inc.
Seconded
Service Fee
Alternative #3: Transfer followed by Secondment
Transfer employment relationship through termination & hire and then second or loan to host country employer
Home Country, Inc.
Host Country, Inc.
SecondedService Fee
Global Employment Company (“GEC”)
Home Country, Inc. (dormant)
Host Country, Inc.
Maintain dormant employment relationship with home country employer; enter into active employment relationship with host country employer
Alternative #4: Transfer with dormant home country employment relationship or dual employment
6April 22, 2015Seizing Opportunities
EMPLOYMENT / HR PLANNING: OTHER CONSIDERATIONS
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Payroll• Local hires• Expat employees
Benefits• Mandatory (law, CBA)• Optional
Onboarding Requirements • Workers’ compensation
equivalent• Pre-hire medical tests• Background tests
Employment Agreements• Required?• Language?• PIIA• Specific terms?
Policies• Required work rules
and internal regulations
• “Global” policies (e.g., code of conduct)
• Local policies (e.g., disciplinary & grievance procedure)
Exit Strategy• No at-will employment
internationally• Probationary periods
and performance management
• Redundancies and performance terminations
April 30, 2015Seizing Opportunities
GLOBAL EQUITY COMPENSATION PROGRAMS
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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 and reduces 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 international structuring 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 potential
benefits whether future as stand alone entity or acquisition target� Note that value of intangibles increases over time, thus balancing of timing
and operational readiness becomes key
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TRANSFER PRICING
10
b
Country 1 Country 3Country 2
Routine Profit
IPprofit
RiskBased profit
Routine Profit
IPprofit
RiskBased profit
Routine Profit
IPprofit
RiskBased profit
Old Structure
$100 $100 $100
$20
$45
$35
Inventory RiskInventory Risk
Foreign Currency RiskForeign Currency Risk
Advertising and MarketingAdvertising and Marketing
Bad Debt RiskBad Debt Risk
Entrepreneurial Business RiskEntrepreneurial Business Risk
Brands
Formulas & Recipes
Patents
Marketing Rights
Know-how
Proprietary Processes
Limited Risk Distribution/Logistics
Back Office Operations
Sales Solicitation
Manufacturing
New Structure
Country 1
Routine Profit
Low Taxed Country
IPprofit
RiskBased profit
IPprofit
RiskBased profit
Country 2
Routine Profit
Country 3
Routine Profit
$20 $240$20 $20
IPprofit
RiskBased profit
Seizing Opportunities April 30, 2015
DEFERRAL STRUCTURES – BIG PICTURE
Financial Reporting (GAAP)
Foreign DeferralStructure
U.S. Group
Foreign DeferralStructure
U.S. Group
Cash Tax
General Rule: Foreign income deemed distributed to US Group
Exception: APB 23 – permanent reinvestment
General Rule: Foreign income not subject to US tax until distributed
Exception: US “Long Arm” Tax Statutes
US Income
Foreign Income
US Income
Foreign Income
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COST SHARING
Seizing Opportunities 12
Foreign Sub(IPCo)
Cost SharingAgreement
Buy-In Payments for Existing Intangibles License
Existing Intangibles License
Funds
US Rights
Funds
Non-US Rights
US Rights toExisting and Future
Intangibles
US Co
Non-US Rights toExisting and Future
Intangibles
Future Intangibles
� US Co and IPCo enter into a “buy-in” licensing agreement with respect to historic/existing intangibles related to non-US markets, which requires payment(s) from IPCo to US Co.
� Thereafter, US Co and IPCo enter into an R&D cost sharing agreement to share in the costs and bear the proportionate risks of future intangible development based on each party’s expected share of the benefits.
April 30, 2015
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)
April 30, 2015Seizing Opportunities 13
INTERNATIONAL EXPANSION:KEY CONSIDERATIONS
Step 4: Avoid Pitfalls when Expanding Through Acquisitions� Initial Structuring Considerations
� Asset vs. Stock Acquisition – effective utilization of tax attributes� Treaty-based holding company structures – holding company may provide tax
efficiencies in relation to withholding taxes on dividends and taxes on capital gains.
� Ensuring Comprehensive Due Diligence� Bring in competent local jurisdiction subject matter experts early on so existing
and contingent liabilities can be understood, quantified and priced into the purchase price.
� Drafting and Negotiation of Acquisition Agreements� Based on diligence report, agreements should reflect proper allocations of
liabilities and risks related to such liabilities.� Agreements should clearly delineate seller’s and purchaser’s responsibilities
with respect to the filing of various tax returns, payments of associated taxes, ownership of refunds and allocation of attributes as well as controlling of tax controversies.
14Seizing Opportunities April 30, 2015
GLOBAL REFERENCE MATERIALS:YOUR INTERNATIONAL EXPANSION PARTNER AND GLOBAL EXPANSION CHECKLIST
� Provides high-level questions for companies considering growth by acquisition or expansion into new countries
� Includes Corporate Set-up and Governance, Regulatory, Tax, Commercial and Compliance, Employment, Global Equity, Data Privacy/Information Law and IPT matters to be considered
15Seizing Opportunities April 30, 2015
GLOBAL REFERENCE MATERIALS:GUIDE TO GOING GLOBAL SERIES
� Guide to Going Global series helps companies navigate the challenges of global expansion
� Designed for companies expanding into new countries, these complimentary guides cover critical business and legal issues. The first releases in the Guide to Going Global series underscore business-relevant intellectual property and technology, employment and equity laws in key jurisdictions around the world. The second releases include corporate and tax laws.
� Corporate: Covers corporate basics, across 30 key jurisdictions, relevant to companies expanding internationally
� Employment: Covers all of the employment and labor law basics in 44 key jurisdictions across the Americas, Asia Pacific, and EMEA
� Global Equity Compensation: Summarizes the legal, regulatory and tax issues faced by multinational companies issuing stock options, purchase rights and restricted stock units in 46 countries
� Intellectual Property and Technology: Outlines crucial aspects of IPT laws in 29 jurisdictions that are 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 20 popular jurisdictions
16Seizing Opportunities April 30, 2015
UTE KRUDEWAGEN
Ute Krudewagen focuses on providing multinational companies with solutions to the challenges presented in managing a global workforce. In addition, she counsels companies on employment issues triggered by cross-border transactions.
Ute advises international and cross-border clients on a broad range of complex global employment matters, serving as trusted advisor and managing international counsel for a broad range of multijurisdictional and multidisciplinary projects.
Ute also counsels global employers on the issues associated with transactions, including cross-border mergers and acquisitions, outsourcing, post-acquisition integrations and tax restructurings. She has successfully addressed employment issues in transactions with workforces in more than 60 jurisdictions in one transaction, with deal values ranging from US$2 million to US$8 billion, including negotiation and drafting of the deal agreement, employee transfers, consultations with unions and works councils, benefits harmonization, interim operating models and acquisition-related downsizings.
RECENT MATTERS
� Advised on employment matters in more than 100 US and cross-border transactions and post-acquisition integrations, covering more than 60 jurisdictions in one transaction
� Counseled multinational companies in various industries on compliance with local employment laws, worldwide strategic human resources initiatives and global mobility programs in more than 80 jurisdictions
� Counseled US multinationals on employment law considerations in entering new jurisdictions, including engagement options and documentation, across up to 25 jurisdictions each
� Counseled publicly traded and private US multinational corporations on global cost-cutting strategies, including salary reductions, temporary shutdowns and reductions in force across more than 60 jurisdictions
RECOGNITION
In 2015, Ute was selected by the Silicon Valley Business Journal among its "Women of Influence." This honorrecognizes the top 100 women in the region with various backgrounds who are making an impact in the local business community. Ute was also named to the Daily Journal's 2013 list of "Top Women Lawyers," which recognizes the top 100 female lawyers in California. She has also been recognized as one of Northern California's Outstanding Young Lawyers by Top Attorneys and named as a Rising Star by Super Lawyers of Northern California (2011, 2012 and 2013).
April 30, 2015Seizing Opportunities 17
Ute KrudewagenPartner
T: 650 833 2245
2000 University AvenueEast Palo Alto, California 94303
TRINA OETTINGER
Trina Oettinger concentrates her practice in tax planning and legal and operational structuring serving a broad spectrum of multinational companies.
Trina's experience encompasses a range of cross-border matters involving multiple jurisdictions, including global business restructurings, post-acquisition integration, intangible property tax planning, transfer pricing policy and documentation, and tax controversy. Representative industries include high-tech (semiconductor, networking and software), life sciences, manufacturing and education.
PROFESSIONAL EXPERIENCE
Prior to joining DLA Piper, Trina was a senior attorney with the Internal Revenue Service (IRS), Office of Chief Counsel, where she advised IRS Examination Agents and Appeals Officers on a broad range of partnership, corporate, research credit and international tax matters. She was the principal author of several regulations, notices and a revenue procedure involving cross-border tax matters and was a member of the US delegation that renegotiated the income tax treaty between the United States and the Republic of Italy. She was also employed by KPMG LLP.
April 30, 2015Seizing Opportunities 18
Trina OettingerOf Counsel
T: 650 833 2477
2000 University AvenueEast Palo Alto, California 94303
JOHN WOLF KONSTANT
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John “Wolf” KonstantCorporate Counsel
Turn, Inc.
T: 646 213 9732
71 West 23rd Street12th Floor
New York, NY 10010
John Wolf Konstant is Corporate Counsel for Turn Inc., a leading company in the advertising technology sector that provides digital advertising data, planning, activation and analysis from a single platform. At Turn, Wolf provides legal advice and support to all aspects of the business, with an emphasis on commercial and strategic transactions for Turn’s worldwide operations.
Prior to joining Turn, Wolf worked as Associate General Counsel for APCO Worldwide Inc., a communications consulting firm based in Washington, DC.
Before joining APCO, Wolf was an associate at the New York and Brussels offices of Cleary Gottlieb Steen & Hamilton, where he represented clients on complex corporate transactions, with a particular focus on cross-border private M&A.
JULIA LE
April 30, 2015Seizing Opportunities 20
Julia LeSenior Counsel
Tough Mudder, Inc.
T:
15 MetroTech Center7th Floor
Brooklyn, NY 11201
Julia currently serves as Senior Counsel at Tough Mudder, Inc. a position she began in early 2014. Prior to this, Julia served as Corporate Counsel at MongoDB, Inc. as the company grew from 40 to 350 employees.
Julia began her career as an attorney at Google, Inc., where she was responsible for supporting commercial transactions and global product development for Google's ads products. Julia received an Operating Committee Award for her contributions to Google’s Search On campaign.
Julia has served as a legal advisor to several companies, including Forbes Media.
Julia holds a Bachelor of Science degree from MIT and a Juris Doctor from Santa Clara University School of Law.
