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  • 1. NEW BUSINESS OPPORTUNITIES IN THE UNITED STATES The United States Commercial Service of The American Embassy in Bucharest, Romania and Roger Royse Royse Law Firm, PC California, USA March 5th, 2012IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in thiscommunication, 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 penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein.
  • 2. GENERAL CONSIDERATIONS Payroll Employees TaxLiability Protection US Business Transfer Pricing Capitalization Intellectual Regulatory Property 2
  • 3. THE U.S. MARKET• 3.7 Million Square Miles• GNP - $12 Trillion• Free Trade Agreements - NAFTA, CAFTA, WTO, OECD, APEC, OAS 3
  • 4. REGULATORY ENVIRONMENTOpen Competition vs. Consumer & Employee Protection Interstate Commerce vs. Intrastate Commerce 4
  • 5. INTELLECTUAL PROPERTY PROTECTION• Trademark• Copyright• Patent• Trade Secret 5
  • 6. ACCOUNTING• Tax Accounting• Financial Accounting 6
  • 7. US BRANCH VS. US INCORPORATION US Branch US Incorporation Foreign Entity Foreign Entity US Branch US Sub 7
  • 8. WHERE TO INCORPORATEDelaware California vs. vs. Nevada 8
  • 9. CHOICE OF ENTITY Which one is right for you?• Limited Liability Company (LLC)• Limited Partnership (LP)• C Corporation• S Corporation• Statutory Trust 9
  • 10. EFFECTIVELY CONNECTED INCOME• Income effectively connected with a US trade or business• Dependent agent US PE• Effects? 10
  • 11. TRANSFER PRICING• Code section 482• “Controlled" entities• Arms length standard• Understatement penalties – 20% or 40%• Adequate documentation (i.e. a transfer price study) 11
  • 12. TRANSFER PRICING BUY-SELL MODEL Parent • Buy SellCompany • Just-in-Time Inventory System$ Products Services US Customers $US Profit 12
  • 13. TRANSFER PRICING COMMISSION MODEL Parent Company ProductsSales ServicesSupportServices US Customer Sales & Product Support 13
  • 14. IP HOLDING COMPANIES Technology and Parent Intellectual PropertyCompany • Deferral IP Holding • Worldwide Tax Company Rate Royalty • Withholding Tax Issues License 14
  • 15. CAPITALIZATION ParentCompany • Debt • Deductible interest, but must pay or accrue • Must be repaid Debt • “Deep Rock Doctrine”$ Equity • Equity • Not required to be repaid • Dividends are nondeductible • Thin Capitalization Rules • Earnings Stripping 15
  • 16. EARNINGS STRIPPING Parent Interest Company Loan Payments• Loans from the foreign parent to the US Sub requiring the payment of deductible interest back to the foreign parent 16
  • 17. EMPLOYEES • Secondment Agreement Parent Company • Limitations on AuthorityFee Employees • Tax Withholdings Services • Tax Gross-Ups • Totalization 17
  • 18. FOREIGN PERSONNEL• VISA Requirement• Non-Resident Alien or Resident for Tax - Green Card - Substantial Presence Test - Treaty Definitions• Estate and Gift Tax - Domicile 18
  • 19. EMPLOYEE RIGHTS• Minimum Wages & Maximum Hours• Non-Discrimination• Pension Rights – ERISA & Social Security• Health and Safety• Unemployment• Sexual Harassment• Mass Layoffs (WARN Act) 19
  • 20. INTER-COMPANY AGREEMENTS• Shipping Terms• Payment Terms• Risk of Loss & Title Passage• Insurance• Most Favored Nation Clauses• Price Protection• Indemnity• Warranty• Trademarks & Marking 20
  • 21. REAL ESTATESECTION 897 – FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980 (FIRPTA) 21
  • 22. WITHHOLDING TAXES TREATY EFFECT• Dividend• Interest• Royalties• Service Income 22
  • 23. TREATIES OTHER• Permanent Establishment Required for Tax on Business Profits• Information Exchange• Competent Authority• Non Discrimination• Limitation of Benefits 23
  • 24. COST SHARING US Company Buy In Ownership Payment of Intangibles Foreign Operations Company 24
  • 25. ANTI-DEFERRAL REGIMES SubPart F Effectively(Controlled Foreign Connected Income Corporations) Passive Foreign Transfer Pricing Investment Company 25
  • 26. INTERNATIONAL E-COMMERCE Transfer PricingWitholding Super Roylaty Anti-Deferral Regimes 26
  • 27. INTERNATIONAL E-COMMERCE OPERATIONS US or Cost Foreign Sharing Company License Deemed Sale International Holding Company LocalCustomer Server License/RoyaltyFees/Sales Company Company Royalties Commission/Fees 27
  • 28. IP HOLDING COMPANY STRUCTURES Founder Preferred Optionees Shareholder US Sales Foreign Company US Holds Technology Company Contract R&D 100% Service Fees Service Local Products Tax Haven Fees [PRC]Distributors Company Contract Manufacturer Manufacturing 28
  • 29. IP HOLDING COMPANY STRUCTURES Founder Preferred Optionees Shareholder US Sales Foreign Company US Holds Technology Company Contract R&D 100% Service Fees Service Local Products Tax Haven Fees [PRC]Distributors Company Manufacturer Contract Manufacturing 29
  • 30. 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) 30
  • 31. STATE TAX ISSUES• Employees• Admin, legal and commercial California• Registrations, enforcement Parent• R&D, commercialization IP License Transfer Back Nevada IP Holding Co. Services Income 31
  • 32. CALIFORNIA “ECONOMIC” NEXUSRevised Section 6203 of the CA Revenue and Taxation Code• Taxpayers “doing business” in California are subject to tax in California. California• “Doing business” includes when a taxpayer: (1) - engages in any transaction for financial or pecuniary gain within California; or (2) - is organized or commercially domiciled in California; or (3) - has annual sales in California that exceed the lesser of $500,000 or 25% of total sales; or (4) - has real and tangible personal property in California with a value exceeding the lesser of $50,000 or 25% of total property; or (5) - has payroll in California that exceeds the lesser of $50,000 or 25% of the total payroll.• Activities of partnerships and LLCs are attributed to their owners for purposes of determining whether the owner is “doing business” in California.• Amount of tax still depends on apportionment. 32
  • 33. EXON-FLORIO REVIEW BY CFIUSCommittee on Foreign Investment in the United States (CFIUS):• The Exon-Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988 provides the President of the U.S. with authority to suspend or block transactions that would allow a foreign person to a control a U.S. business when there is “creditable evidence” that such transaction may “impair the national security”• CFIUS, an inter-agency cabinet level committee performs the review.• To determine whether a transaction is covered, ask: (1) - does the transaction involve a foreign person acquiring a U.S. business? (2) - does the transaction involve a “change of control”? (3) - does the transaction impair U.S. national security interests?• Review process could take up to 90 days. 33
  • 34. APPENDIX 34
  • 35. APPENDIX 35
  • 36. 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 36