GOING GLOBAL: Key Considerations for Successful International Expansion. October 14, 2015

Transcription

1 GOING GLOBAL: Key Considerations for Successful International Expansion October 14, 2015 *This presentation is offered for informational purposes only, and the content should not be construed as legal advice on any matter

2 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: Which entity will sell the products (software or services) to the customer? 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? 2

3 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 3

4 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 4

5 EMPLOYMENT / HR PLANNING: ENGAGEMENT OPTIONS Step 2: Get employment and global equity right Employees Independent Contractors Agency Workers PEO Employees local corporate presence required? payroll registrations? benefits? fixed term? equity compensation? what quacks like a duck is a duck withholding obligations (VAT, GST)? registration obligations sales agent rules? equity compensation? permissible? limitations on time or type? equal pay obligations? equity compensation? are joint employees and need to comply with all applicable employment laws permissible? equity compensation? 5

6 MOBILE EMPLOYEES AND EXPATRIATE ASSIGNMENTS HOW DOES IT WORK? Alternative #1: Direct contract with host country employer ( localization ) Alternative #2: Secondment Home Country, Inc. Host Country, Inc. Transfer employment relationship through termination & hire Home Country, Inc. Seconded Host Country, Inc. Service Fee Keep existing employment with home country employer and second or loan to host country employer Alternative #3: Transfer followed by Secondment Alternative #4: Transfer with dormant home country employment relationship or dual employment Home Country, Inc. Global Employment Company ( GEC ) Seconded Host Country, Inc. Service Fee Transfer employment relationship through termination & hire and then second or loan to host country employer Home Country, Inc. (dormant) Host Country, Inc. Maintain dormant employment relationship with home country employer; enter into active employment relationship with host country employer 6

7 EMPLOYMENT / HR PLANNING: OTHER CONSIDERATIONS 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 7

8 GLOBAL EQUITY COMPENSATION PROGRAMS 8

9 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 9

10 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) 10

11 OVERALL CONSIDERATIONS Proper, practical planning for international expansion is critical Develop a checklist and bring in advisors early Scope out timing & costs Involve key players within your organization Need to think long-term Impact to share value upon an exit event -- M&A, IPO Potential tax reserves, once valuation allowances are released 11

12 TREASURY IS A KEY FUNCTION FOR GLOBAL COMPANIES Treasury s top challenges 1. Cash repatriation 2. FX volatility 3. Visibility into global operations, cash, and financial risk exposures Almost 3 months Time spent annually on manual tasks by organizations that rely on spreadsheets for forecasting 50% more time than those with an automated process Over 90% Companies that use a central treasury organization to support their global operations Treasury Strategies / Reval Benchmarking Study Deloitte, 2015 Global Corporate Treasury Survey, January 2015 Kyriba & Association of Corporate Treasurers, The Changing Role of the Modern Treasurer, 2015

13 EVERY COUNTRY IS UNIQUE The U.S. reports with BAI files while Europe prefers SWIFT Paper checks are nearly non-existent in Sweden SEPA, covering the entire EURO zone, is one of the world s largest cross-border networks for low-value payments Only Brazil uses the Boleto, a paper payment method Germany uses its own electronic payments network, called ELV Japan can transfer funds in real time with its Zengin system

14 CORE COMPONENTS TO A CENTRALIZED TREASURY STRATEGY Organization Operations Technology Legal structure Tax structure Organizational structure Policies and procedures Payments and collections Liquidity Risk management ERP and treasury integration Standards and protocols Straight-through processes Systematic controls

15 CREATE A TAILORED GLOBAL TREASURY SOLUTION Optimize your control Review your global footprint Identify locations Align tax structure Define your payment needs Review volume, timing, and destinations Which currencies Establish your accounts Assess in-country needs Review funds flow Designate controls, signers Integrate your systems Transact globally from one platform Connect directly to ERP Improve your work flow Automate, consolidate, and expedite transactions Implement industrystandard tools Establish accurate cash positioning Optimize idle cash

16 BENCHMARKS TO MEASURE SUCCESS Centralized control, agnostic of location Geographical standardization among processes Decreased transaction costs Scalability to support continued growth Transparency for local tax needs Consolidated banking relationship management

17 PRESENTERS Michael Bratsafolis Senior Paralegal Twilio, Inc. Since January 2015, Michael has managed the corporate logistics of Twilio s international expansion in Europe, South America and Asia. Michael has spent the past ten years working as a paralegal in both in-house and traditional law firm settings. Michael received a BA from Coastal Carolina University, and is currently pursuing an MS in Applied Economics at Johns Hopkins University. Ben Olivas Partner, International Tax DLA Piper ben.olivas@dlapiper.com Tyler Chapman VP Finance /Corporate Controller Lumos Labs Lumosity Albert Hwu Vice President International Treasury Wells Fargo Ben Olivas concentrates his practice in international tax and operational structuring, global transfer pricing strategy and documentation, cross-border mergers, acquisitions, dispositions and joint ventures, post-acquisition integration and tax controversy. Ben has worked extensively with US companies doing business in various parts of the world, as well as foreign companies expanding their US operations. Tyler Chapman oversees the Lumosity s accounting, tax and treasury functions and is also heavily involved in corporate FP&A. He joined the company in 2014 and brings more than 10 years of corporate and public accounting experience to Lumosity. Tyler is a CPA and holds an M.S. in Taxation from Golden Gate University and both an M.S. in Accounting and a B.S. in Accounting from the University of Montana. Albert works with corporate/finance leaders to develop global cash management solutions for companies expanding internationally. He primarily focuses on middle market companies in the Bay Area including the technology and life sciences sectors. Elise Leung Director of Legal, Corporate & Secutities AppDynamics, Inc. As Director of Legal, Corporate & Securities, Elise represents AppDynamics, Inc. in all legal matters, including corporate governance, strategic transactions, commercial agreements, IP, litigation, compliance, employment law and equity administration. 17