The document presents an international tax update emphasizing the growing trend of U.S. companies expanding globally, with a forecast indicating that over 50% of firms expect more than a quarter of their sales to come from overseas. It outlines the complexities and challenges of international business, including compliance with varying tax laws, structuring options, and emerging market dynamics. Various country-specific tax updates and challenges are addressed, highlighting the importance of effective tax planning in a globally competitive environment.

1. Insero & Company presents
International Tax Update
Grace Jahng
JPMorgan Chase & Co.
Rick Krucher, CPA
Insero & Company CPAs, P.C.
November 20, 2013

2. INTERNATIONAL BANKING
November 2013
INTERNATIONAL BANKING
Grace Jahng
Executive Director – International Banking
J.P. Morgan

3. The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Grace Jahng and may differ from those of
other J.P. Morgan employees and affiliates. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not
guarantee their accuracy or completeness.
INTERNATIONAL BANKING
This presentation was prepared exclusively for the benefit and internal use of the Chase customer or potential customer to whom it is directly delivered and/or
addressed (the “Company”) and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion
purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, any oral briefing provided by or other discussions with
Chase. Neither this presentation nor any of its contents may be duplicated, published or disclosed (in whole or in part) or used for any other purpose without the
prior written consent of Chase, which may be withheld in its sole discretion.
(c) 2013 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase &
Co. and its subsidiaries worldwide (collectively, “JPMC”) and if and as used herein may include as applicable employees or officers of any or all of such entities
irrespective of the marketing name used. Products and services may be provided by commercial bank affiliates, securities affiliates or other JPMC affiliates or
entities. In particular, securities brokerage services other than those which can be provided by commercial bank affiliates under applicable law will be provided by
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provide such services under applicable law. Such securities are not deposits or other obligations of any such commercial bank, are not guaranteed by any such
commercial bank and are not insured by the Federal Deposit Insurance Corporation.
This presentation does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services.

4. Companies are becoming more global
What percent of your total sales comes from overseas?
What percentage do you expect in five years?
24%
3%
6%
15%
3%
8%
5%
7%
17%
18%
5%
17%
51%
29%
76100%
76%
71%
71%
49%
51-75%
INTERNATIONAL BANKING
2011
2012
2013
2018*
*Respondent five year projection
 Five-year projections foresee overseas sales accounting for more than a quarter of total
sales at 51% of companies – double the number from two years ago
Source: Chase Middle Market Business Leaders Outlook
1

5. Why Companies are going global
Key drivers
 Pursue higher growth markets
 Diversify from U.S. base
 Follow major clients overseas
 Reduce costs
INTERNATIONAL BANKING
 Locate closer to end markets
2

6. Why Emerging Markets matter
Key drivers
 95% of the world’s consumers live outside the U.S.
 Over 80% of growth in consumption between now and 2020 will be outside No. America &
Europe
Emerging Markets account for:
 36% of global GDP, rising to 55% in 5 years
 More than half of global oil and steel consumption
 46% of world retail sales
INTERNATIONAL BANKING
 52% of all motor vehicle sales
 82% of mobile phone subscriptions
But for growing into a $30 trillion market
 A middle class that isU.S. companies, EM is only 7% of total revenues today
Source: Council on Foreign Relations, Global Cities
3

7. Changes in global consumption: Rise of the Emerging Markets consumer
Global consumption share (1990 – 2012)
% of global
EM
38.9%
40
35
30
US
26.5%
INTERNATIONAL BANKING
25
20
90
95
00
05
Source: JPMorgan Economic Research
4
10

8. Divergence of growth around the world
GDP growth
10.0%
China 7.4%
5.0%
EM Asia 6.1%
LATAM 2.9%
US 2.4%
Eurozone 1.2%
0.0%
INTERNATIONAL BANKING
-5.0%
Expansion Recession Improving
1Q02-3Q07 4Q07-2Q09 3Q09-4Q10
Concerns about growth
2011
2012
Source: JPMorgan Economic Research forecast (11/8/13), % oya
5
2013F
2014F

9. Complexity of doing business globally
World Bank rankings
Ease of doing business
1
Starting a business
4
Hong Kong
2
6
United States
4
13
United Kingdom
7
19
Australia
10
2
Canada
17
3
Germany
20
106
Japan
24
114
Mexico
48
36
China
91
151
Brazil
INTERNATIONAL BANKING
Country
Singapore
130
121
India
132
173
Source: The World Bank’s “Doing Business 2013” report. Covers 185 countries
6

10. Challenges operating globally
Key issues that companies need to address
 Navigating regulatory and legal environment
 Improving transparency and control of overseas cash
 Mitigating foreign currency and interest rate exposures
 Managing a global supply chain
 Accessing financing for exports and overseas needs
INTERNATIONAL BANKING
 Managing trapped cash overseas
 Leveraging best practices and getting practical, local advice
7

11. Insero & Company presents
International Tax Update
Rick Krucher, CPA
Insero & Company CPAs, P.C.
November 20, 2013

12. International Tax - Topics
1. General “Rules” of International Tax.
2. What Are the Structuring Options from U.S.
Perspective?
3. What Kind of Foreign Taxes Are Possible?
4. Current Updates from Various Countries.
5. Tax Challenges of Doing Business Internationally.

13. General “Rules”
1. Accomplish the business objective.
2. Comply with the tax law in both the U.S. and the
foreign country.
3. Avoid double-tax.
4. Use a structure that is flexible now and in the future.
5. If possible, use lower rates around the world to
decrease the overall effective tax rate.

14. Rule 1: Accomplish the Business
Objective
1. Tax is a very important expense but if you can’t
meet the business objective what’s the point?
2. “The tax tail should not wag the business dog”
3. Often the original business structure can be
revised and still meet the business objective.

15. Rule 2: Comply with the Tax Law
1. Penalties for noncompliance can be severe.
•
Canada - $2500 penalty for not filing a corporate
return (Form T-2) even if no tax is due.
•
U.S. penalty for not filing an international form is
$10,000 per year per form.
2. Don’t be surprised by a foreign tax you didn’t
know existed.

16. Rule 3 : Avoid Double Tax
1. Goal – pay no more tax than if the same amount
of income was generated in the U.S.
2. U.S. tax law provides for a foreign tax credit.
3. Foreign tax credit is very complicated and often
doesn’t “work.”

17. Rule 4: Use a Flexible Structure
1. Think “long-term” right from the start.
2. Is this truly a one-time or one country event or will
the Company need additional foreign
corporations later?
3. Example – do you want to use a Dutch holding
company to own the new foreign business or just
have the U.S. Corporation own the foreign entity
directly?

18. Rule 5: Attempt to Reduce
Worldwide Tax Rate
1. This is the highest level of international tax
planning.
2. Very sophisticated.
3. Only makes sense when a great deal of money is
involved.

19. Topic 2 – What Are the Structure
Options from a U.S. Perspective?
1. Basic International Operation – just ship goods
into the foreign country.
2. If a Company needs a more substantive presence
there are only two real options:
•
Branch of the U.S. Company in the foreign country.
•
Form a foreign corporation.

20. Foreign Companies
1. Each country has several types.
2. “Private Limited Companies.”
3. How is a Foreign Company Treated for U.S.
Purposes?
• “Controlled foreign corporation.”
• Can sometimes elect to treat the foreign company
as a flow-through for U.S. tax (i.e. “check-the-box”
election).

21. Topic 3: What Kind of Foreign
Taxes?
1. Income Tax.
2. Value Added Tax (aka GST) – “national sales tax.”
3. Withholding Tax - i.e. the foreign country withholds on
payments to the U.S. Company.
4. Other taxes – the China website lists 19 different
types of taxes.

22. Topic 4: Updates from Various
Countries
1.
2.
3.
4.
5.
6.
7.
8.
Canada.
China.
India.
Ireland.
Mexico.
Mozambique.
Mozambique.
United Kingdom.

23. Canada
1. Canada Revenue Agency (CRA) is putting more
audit resources to catch cross-border business
travelers.
2. Three important filing requirements.
• Corporate Tax Return (Form T-2) to Claim
Treaty Benefits.
• Waiver request to avoid Canadian income tax
withholding (Reg 102).
• Get a refund of 15% withholding for services
performed in Canada (Reg 105).

24. Canada - Filing Requirements
1. U.S. company must file a Canadian Corporate Tax
Return (Form T-2) even if they have no permanent
establishment.
2. If a U.S. employee goes into Canada to perform
any kind of service for any length of time the U.S.
Company must withhold Canadian income tax
even if the apportioned wages will be exempt via
the tax treaty with the U.S.
• Waiver is available (Form 102-J) but it must be
done 30 days before the employee goes into
Canada.

25. Canada - Filing Requirements
•
For treaty protection, the salary income allocable
to Canada must be less than CDN 10,000.
•
Employee must obtain a Canadian individual
income tax number (ITN).
•
CRA has announced that it is denying these
waiver applications if it has reason to believe that
the U.S. Company may have permanent
establishment.

26. Canada – Filing Requirements
3. If your company performs services in Canada the
payor must withhold 15% of the amount paid for the
services performed in Canada (Reg 105).
• There is a waiver but a waiver must be filed for
every single episode.
• Can get the refund if you file a Canadian
Corporate Tax Return.

27. China
1. Chinese wages have been rising hurting its
ability to compete with other countries.
• 12.3 % rise in 2011.
• 14% in 2012.
2. Formed a new government agency (SAFE) to try
to make it easier to deal in foreign currency and
to make some payments out of China.
3. Still has strict exchange controls.

28. China
4. VAT Reform was effective August 1, 2013.
5. VAT is 17% but the reform changes what items
are subject to VAT.
6. 5% Business Tax is also being changed.

29. India
1.
World Bank Group rated India 134th out of 189
countries with respect to ease of doing business.
2.
The tax rates on royalties and technical services
paid to nonresidents increased from 10% to 25%.
3.
Trying to force nonresident companies to get into
their tax system by requiring the nonresident
companies to apply for a Permanent Account
Number (PAN).
4.
India trying to force nonresident companies to file
tax returns in India even if there is withholding on
payments out of India.

30. Ireland
1.
Ireland has suffered through the European financial
and banking crisis that started in 2008.
2.
In October 2013 the Minister of Finance announced
that Ireland is committed to retaining its low 12.5%
corporate tax rate.
3.
Claims that it will crack down on multinational tax
avoidance such as the “double Irish Dutch
sandwich.”
4.
This is the structure that saved Apple $44 billion.

31. Mexico
1.
New legislation eliminated the “flat tax” (IETU).
2.
Restricts the deductibility of some intercompany
payments made to nonresident parent companies.
3.
Some changes that affect Maquiladoras.
What is a Maquiladora?

32. Mexico - Maquiladora
1.
It is not a type of Mexican corporation but is a
program with the Mexican government.
2.
Allows a U.S. company to put equipment in
Mexico, ships raw materials there for assembly and
then bring it back into the U.S. for ultimate sale.
3.
Better have good accountants in Mexico.

33. United Kingdom
1.
“Government aim to have the most competitive tax
regime in the G20.”
2.
Corporate tax rates continue to decrease (20% in
2015).
3.
Have established a new 10% on income from
patents.
4.
Cracking down on transfer pricing issues.

34. Topic 5: Tax Challenges of Doing
Business Internationally
1.
2.
3.
4.
5.
6.
Language barriers with foreign accounting
departments.
Cultural differences.
Controllers are not tax people but are heavily
involved in tax compliance.
Foreign currency controls make it difficult to get
your cash out (e.g. China).
Many countries have “statutory audits” that are
required as part of the tax compliance.
Ownership of a foreign company is public
information in some countries.

35. Tax Challenges of Doing Business
Internationally
7.
Value Added Tax (VAT) compliance and registration
can be difficult to get correctly set up.
8. Costs to set up a foreign corporation can be
expensive.
9. Often too little data for proper U.S. tax reporting.
10. U.S. international tax forms are not simple.

36. Questions ?

37. Thank You
Thank you for your attendance at
today’s program.
For more information regarding the topics
discussed today, please feel free to contact:
Rick Krucher, CPA
richard.krucher@inserocpa.com
585.697.9604
Insero & Company CPAs, P.C.
www.inserocpa.com

38. Insero & Company CPAs, P.C.
Certified Public Accountants
Business & Financial Advisors
Rochester >> 585.454.6996
Corning >> 607.973.2075
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