LEGAL ASPECTS OF IT INDUSTRY                INVESTMENTS IN THE UNITED STATES                                             T...
THE U.S. MARKET• 3.7 Million Square Miles• GNP - $12 Trillion• Free Trade Agreements  - NAFTA, CAFTA, WTO, OECD, APEC, OAS...
U.S. STRATEGY   Non-US Parent     Company         3
U.S. STRATEGYUS Investor              Non-US InvestorUS Company                Non-US ParentNon-US Parent                 ...
GENERAL CONSIDERATIONS                                Accounting         Employees                                  TaxLia...
REGULATORY ENVIRONMENTOpen Competition vs. Consumer & Employee Protection     Interstate Commerce vs. Intrastate Commerce ...
INTELLECTUAL PROPERTY PROTECTION• Trademark• Copyright• Patent• Trade Secret                 7
ACCOUNTING• Tax Accounting• Financial Accounting• US GAAP vs IAS                         8
US BRANCH VS. US INCORPORATION     US Branch           US Incorporation    Foreign Entity         Foreign Entity     US Br...
PERMANENT ESTABLISHMENT• Fixed place of  business• Agents and Officers                         US PE                    10
WHERE TO INCORPORATEDelaware                        California           vs.            vs.                 Nevada        ...
CHOICE OF ENTITY• Limited Liability Company (LLC)• Limited Partnership (LP)• C Corporation• S Corporation• Statutory Trust...
TRANSFER PRICING•   Code section 482•   “Controlled" entities•   Arms length standard•   Understatement penalties – 20% or...
TRANSFER PRICING                       BUY-SELL MODEL Parent                   • Buy SellCompany                          ...
TRANSFER PRICING                  COMMISSION MODEL       Parent      Company                                    ProductsSa...
IP HOLDING COMPANIES                   Technology and Parent                Intellectual PropertyCompany                  ...
CAPITALIZATION ParentCompany                   • Debt                              • Deductible interest, but must        ...
EMPLOYEES                        • Secondment Agreement       Parent      Company                        • Limitations on ...
FOREIGN PERSONNEL• VISA Requirement    •B-1    •H-1B    •EB-5    •EB-6 (pending)• Non-Resident Alien or Resident for Tax  ...
EMPLOYEE RIGHTS• Minimum Wages & Maximum Hours• Non-Discrimination• Pension Rights – ERISA & Social Security• Health and S...
INTER-COMPANY AGREEMENTS• Shipping Terms• Payment Terms• Risk of Loss & Title Passage• Insurance• Most Favored Nation Clau...
REAL ESTATESECTION 897 – FOREIGN INVESTMENT IN REAL  PROPERTY TAX ACT OF 1980 (FIRPTA)                   22
WITHHOLDING TAXES                   TREATY EFFECT• Dividend• Interest• Royalties• Service Income                         23
TREATIES                     OTHER•   Permanent Establishment•   Information Exchange•   Competent Authority•   Non Discri...
ANTI-DEFERRAL REGIMES     SubPart F                                                   Effectively(Controlled Foreign      ...
INTERNATIONAL E-COMMERCE                             Transfer PricingWitholding                                           ...
IP HOLDING COMPANY STRUCTURES                          US Company                                                         ...
STATE TAX ISSUES•   Income Tax Nexus•   Sales Tax Nexus           California•   IaaS, PaaS, SaaS           Parent•   IP Ho...
ACQUISITIONTaxEmploymentSecuritiesCorporate/FiduciaryRegulatory Issues (Exon-Florio, Hart Scott Rodino)Business issues (e....
APPENDIX   30
APPENDIX   31
32
PALO ALTO               LOS ANGELES               SAN FRANCISCO1717 Embarcadero Road    11150 Santa Monica Blvd.,       13...
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Legal aspects of it industry investments in the united states slovakia march 7

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Legal aspects of it industry investments in the united states slovakia march 7

  1. 1. LEGAL ASPECTS OF IT INDUSTRY INVESTMENTS IN THE UNITED STATES The Ambassador of the United States of America in Bratislava, Slovakia and Roger Royse Royse Law Firm, PC California, USA March 7th, 2012IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication,including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penaltiesunder the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein.
  2. 2. THE U.S. MARKET• 3.7 Million Square Miles• GNP - $12 Trillion• Free Trade Agreements - NAFTA, CAFTA, WTO, OECD, APEC, OAS 2
  3. 3. U.S. STRATEGY Non-US Parent Company 3
  4. 4. U.S. STRATEGYUS Investor Non-US InvestorUS Company Non-US ParentNon-US Parent 4
  5. 5. GENERAL CONSIDERATIONS Accounting Employees TaxLiability Protection US Business Transfer Pricing Capitalization Intellectual Regulatory Property 5
  6. 6. REGULATORY ENVIRONMENTOpen Competition vs. Consumer & Employee Protection Interstate Commerce vs. Intrastate Commerce 6
  7. 7. INTELLECTUAL PROPERTY PROTECTION• Trademark• Copyright• Patent• Trade Secret 7
  8. 8. ACCOUNTING• Tax Accounting• Financial Accounting• US GAAP vs IAS 8
  9. 9. US BRANCH VS. US INCORPORATION US Branch US Incorporation Foreign Entity Foreign Entity US Branch US Sub 9
  10. 10. PERMANENT ESTABLISHMENT• Fixed place of business• Agents and Officers US PE 10
  11. 11. WHERE TO INCORPORATEDelaware California vs. vs. Nevada 11
  12. 12. CHOICE OF ENTITY• Limited Liability Company (LLC)• Limited Partnership (LP)• C Corporation• S Corporation• Statutory Trust 12
  13. 13. TRANSFER PRICING• Code section 482• “Controlled" entities• Arms length standard• Understatement penalties – 20% or 40%• Adequate documentation (i.e. a transfer price study) 13
  14. 14. TRANSFER PRICING BUY-SELL MODEL Parent • Buy SellCompany • Just-in-Time Inventory System$ Products Services US Customers $US Profit 14
  15. 15. TRANSFER PRICING COMMISSION MODEL Parent Company ProductsSales ServicesSupportServices US Customer Sales & Product Support 15
  16. 16. IP HOLDING COMPANIES Technology and Parent Intellectual PropertyCompany • Deferral IP Holding • Worldwide Tax Company Rate Royalty • Withholding Tax Issues License 16
  17. 17. CAPITALIZATION ParentCompany • Debt • Deductible interest, but must pay or accrue • Must be repaid Debt • “Deep Rock Doctrine”$ Equity • Equity • Not required to be repaid • Dividends are nondeductible • Thin Capitalization Rules • Earnings Stripping 17
  18. 18. EMPLOYEES • Secondment Agreement Parent Company • Limitations on AuthorityFee Employees • Tax Withholdings Services • Tax Gross-Ups • Totalization 18
  19. 19. FOREIGN PERSONNEL• VISA Requirement •B-1 •H-1B •EB-5 •EB-6 (pending)• Non-Resident Alien or Resident for Tax - Green Card - Substantial Presence Test - Treaty Definitions• Estate and Gift Tax - Domicile 19
  20. 20. EMPLOYEE RIGHTS• Minimum Wages & Maximum Hours• Non-Discrimination• Pension Rights – ERISA & Social Security• Health and Safety• Unemployment• Sexual Harassment• Mass Layoffs (WARN Act) 20
  21. 21. INTER-COMPANY AGREEMENTS• Shipping Terms• Payment Terms• Risk of Loss & Title Passage• Insurance• Most Favored Nation Clauses• Price Protection• Indemnity• Warranty• Trademarks & Marking 21
  22. 22. REAL ESTATESECTION 897 – FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980 (FIRPTA) 22
  23. 23. WITHHOLDING TAXES TREATY EFFECT• Dividend• Interest• Royalties• Service Income 23
  24. 24. TREATIES OTHER• Permanent Establishment• Information Exchange• Competent Authority• Non Discrimination• Limitation of Benefits 23
  25. 25. ANTI-DEFERRAL REGIMES SubPart F Effectively(Controlled Foreign Connected Income Corporations) Passive Foreign Transfer Pricing Investment Company 25
  26. 26. INTERNATIONAL E-COMMERCE Transfer PricingWitholding Super Roylaty Anti-Deferral Regimes 26
  27. 27. IP HOLDING COMPANY STRUCTURES US Company Domestic Company US Sales Holds Technology Contract R&D Product sales Local 100% Technology License Distributors 100% Tax Haven ProductsLocal Sales Service Fees Contract Manufacturer Manufacturing (or License) 27
  28. 28. STATE TAX ISSUES• Income Tax Nexus• Sales Tax Nexus California• IaaS, PaaS, SaaS Parent• IP Holding IP License Transfer Back Nevada IP Holding Co. Services Income 28
  29. 29. ACQUISITIONTaxEmploymentSecuritiesCorporate/FiduciaryRegulatory Issues (Exon-Florio, Hart Scott Rodino)Business issues (e.g. earnouts) 29
  30. 30. APPENDIX 30
  31. 31. APPENDIX 31
  32. 32. 32
  33. 33. PALO ALTO LOS ANGELES SAN FRANCISCO1717 Embarcadero Road 11150 Santa Monica Blvd., 135 Main Street, Palo Alto, CA 94306 Suite 1200 12th Floor Los Angeles, CA 90025 San Francisco, CA 94104 www.rroyselaw.com www.rogerroyse.com E-mail: rroyse@rroyselaw.com Skype: roger.royse 33

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