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Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
Us flip up presentation   january 2013 v3
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Us flip up presentation january 2013 v3

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  • Disclaimer: general discussion only. Although the process is quite simple, minor complexities can have serious adverse consequences.
  • Disclaimer: general discussion only. Although the process is quite simple, minor complexities can have serious adverse consequences.
  • Disclaimer: general discussion only. Although the process is quite simple, minor complexities can have serious adverse consequences.
  • Please note that the new shareholders/owners of the US Holding Co do not have to reside in the US.
  • Please note that the new shareholders/owners of the US Holding Co do not have to reside in the US.
  • Transfer pricing – model the projected profits of both entities and calculation intercompany charges to strike a balance between desired outcomes and transfer pricing rules.
  • Transcript

    • 1. US flip up: overview & tax issuesDate: February 2013Presenter: Cole Wilkinson
    • 2. US flip up: overview & tax issues • Common early stage venture structure Overview • Why flip up? • What is a flip up? • Issues with transferring IP? Tax issues • Market value of IP? • Tax consequences pre concessions. • Scrip for scrip roll-over Tax • Residency issues concessions • Ongoing IP management Other • Transfer pricing matters • Questions?
    • 3. US flip up: overview & tax issues • Common early stage venture structure Overview • Why flip up? • What is a flip up? Tax issues Tax concessions Other matters
    • 4. Overview: common structure Employee stock Founders options? Angel investors? Aust Co
    • 5. Why flip up?Australia US US Venture Employee Capital firm stock options? Angel Founders investors? Requirement for investment Aust Co US Holding Co A requirement of the terms sheet set out by the Venture Firm is to enforce the interposition of a new US parent company (US Holding Co) such that the US venture capital firm will hold shares in a US company.
    • 6. What is a flip up?Australia US Employee Aust Co owners stock options? Angel establish US Founders investors? Holding Co Aust Co US Holding Co All ownership in Aust Co is to be ‘flipped up’ and transferred to the US Holding Co. As a result, the US Holding Co will own 100% of Aust Co. All intellectual property will remain with Aust Co.
    • 7. What is a flip up?Australia US US Venture Employee Founders Capital firm Angel stock options? investors? Investment Aust Co US Holding Co 100% ownership Ownership of US Holding Co must be exactly the same proportions as the ownership of Aust Co (pre VC investment). Share and option holders receive shares in US Holding Co in exchange for shares in Aust Co.
    • 8. US flip up: overview & tax issues Overview • Issues with transferring IP? Tax issues • Market value of IP? • Tax consequences pre concessions. Tax concessions Other matters
    • 9. Tax Issues with transferring IP US VentureAustralia US Capital firm Employee stock options? Angel 100% Founders investors? ownership Aust Co US Holding Co Intellectual Property Transfer @ MV= $1m Tax = $300k IP deemed to be sold for market value by the Aust Co. Easily valued by the ATO based on term sheet issued by VC (pending transaction) eg. $200K VC investment into Aust Co for 20% stake will effectively value the company (and the IP) at $1m.
    • 10. Tax consequences pre concessionsAustralia US Disposal of Shares @ MV = $1m Capital Gain Employee = $230K tax to stock options? Angel shareholders Founders investors? Aust Co US Holding Co The disposal of shares in Aust Co and the acquisition of new shares in US holding Co will give rise to a capital gain event. This will result in a $230k tax liability in the hands of the shareholders.
    • 11. US flip up: overview & tax issues Overview Tax issues • Scrip for scrip roll-over Tax • Residency issues concessions Other matters
    • 12. Scrip for scrip roll-over relief - Shares CGT Roll-over relief under Sub Div 124G Shareholders interests in Aust Co replaced by shares in US co – same % & terms Shareholders Aust Co US Holding Co 100% Aust Co shares transferred to US Co Aust Co shares transferred to US Co – must be 100% and ordinary shares Shareholders must own US Co shares in same proportions and same terms as Aust Co holdings Cost base of shareholders interests carried over - i.e. deferred capital gain
    • 13. Scrip for scrip roll-over relief - Options CGT Roll-over relief under Sub Div 124M Option holders Existing options or rights cancelled in exchange for new options in US Co Aust Co US Holding Co US Co must acquire at least 80% of Aust Co Existing option or rights holders Aust Co options cancelled in exchange for options in US Co All share/option holders must be able to participate in the exchange US Co must acquire more than 80% of Aust Co Special rules apply (under Sub Div 83A) for employee options that have not had a tax event
    • 14. Residency Issues • In the case that the US Holding Co is initially in Australia and subsequently moves to the US at a later time, a capital gain event will be triggered. • This is why the residency status of the company is critical in determining the outcome of whether a capital gain will occur or not. • Section 104-160 of the 1997 Act deems there to be a disposal of US Holding Co’s assets (being shares in Aust Co) at market value at the date of the change for Australian CGT purposes.
    • 15. Residency Issues • According to s 6-1 of the 1936 Act, a company is an Australian tax resident if: • It carries on business in Australia; and • Has either its central place of management and control or voting control in Australia. • To ensure that US Holding Co is not an Australian tax resident, it is suggested the following measures be taken: • That the board meets in the US (Australian directors can join by telephone); and • If there is a CEO appointed it be someone who lives in the US
    • 16. US flip up: overview & tax issues Overview Tax issues Tax concessions • Ongoing IP management Other • Transfer pricing matters • Questions?
    • 17. Ongoing IP Management US US Venture Founders Capital firm Employee stock Angel options? investors? Aust Co US Holding Co Licence Agreement Royalties • Arm’s length royalties paid • Likely to be 5% withholding tax on royalties • Ensure some profits in Aust Co to utilise withholding tax credits
    • 18. Questions? Contact details Cole Wilkinson E: cwilkinson@pitcherpartners.com.au Ph: 07 3222 8445

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