Brexit. 2 year timing EFTA, EEA, Canada, Switzerland, WTA G20 Philip Lane

Transcription

1

2 International Brexit and the UK HR and people issues General principles and strategies Structures abroad: Subsidiaries, agents, new businesses abroad Operating in the US Ireland remains the base Case studies

3 Brexit 2 year timing EFTA, EEA, Canada, Switzerland, WTA G20 Philip Lane

4 Brexit 1.2 billion trading between Ireland and UK weekly (goods and services) 41% of Ireland s agri-business exports to the UK Billion per annum Number of Irish start-ups trading in UK doubled in the last 4 years Irish companies working with Enterprise Ireland increased exports to the UK by 20% from 2008 to 2012 Half of Ireland s clean tech and electronics exports to the UK.

5 Brexit Irish engineering companies increased exports to UK by half a billon last year We are UK 5 th largest export market - 17 billion goods and services in 2012 UK companies employ 6,000 people in Ireland 200,000 jobs in Ireland as a result of exports to the UK

6 Brexit Data Financial times on 5 September Cars/houses and retail beg October Business investment end of November Services including financial services end of October 80% of economy is service based: - 65% of GDP in 2015 (Ireland: 38%)

7 Brexit Pricing Worker Mobility visas, EU labour law Currency fluctuations change in model? Ireland/UK trade corridor Customs/tariffs Trade agreements

8 Brexit R&D: joint projects with colleges Foreign Direct Investment Legal implications Northern Ireland

9 Brexit -Tax Pressure on Irish model Profits in UK more attractive VAT and customs No change to pensions and social security Cross-border workers always a challenge between Ireland and the UK

10 Brexit - Agrifood Currency UK suppliers in Ireland NI competition Future UK agri-policy FDI into Ireland Talent movement

11 Brexit Financial Services Regulation and passporting Immediate aftermath 8% off UK funds

12 Brexit Energy and Cleantech Energy prices Previous over-reliance on UK for oil/gas for electricity Agreement now signed with France November 2015 Smart Grids, energy efficiencies, renewable energies, marine energy Focusing us to look elsewhere

13 Brexit - Construction Currency Confidence

14 Brexit M&A Slow down did happen before Brexit due to currency Exit strategies Fund-raising Saleable, scaleablebusiness Not price sensitive and hence, withstand external pressures

15 Brexit M&A Top 10 deals ( m)-1 UK acquirer wind-farm Deal for H in 5-25 million (21%)

16 Brexit M&A H < 25 m 6: m 4: m 2: m 2: > 500 m 29 undisclosed

17 Brexit - Suggestions Less effect for more global companies Continue to penetrate markets Moving along the UK spectrum at a faster pace Pricing specialised products, less price sensitive, innovation Increase number of international trading countries Important businesses have their say to push timing of agreements

18 International HR

19 International HR Issues Importance of a written policy Gives consistency Manages employer risk Greatest risk area

20 Overseas Income Tax > 183 days and costs borne by local entity Who is responsible for the taxes employee or employer Corporate governance perspective Local payroll providers

21 Overseas Income Tax Due to modern commuting and shorter-term projects, risk of Irish tax continuing to remain. Clear communication. Employee agreement Critical to have a procedure to collect the second layer of taxation applying and ensuring that this amount is refunded back to the company

22 Illustrative Example Joe works for an Irish company but works from the company s UK branch. He leaves Ireland every Monday morning and returns to Ireland on Friday evening to spend the weekend with his family. On average, Joe is in Ireland for 160 days each year. Joe s salary will be subject to Irish PAYE although cross-border relief is available on submission of his returns. Joe will be subject to UK tax as he is working in the UK

23 Illustrative Example Irish Salary 100 Irish Tax 45 UK tax 35 Individual receives 55 Company pays additional 35 Income tax return required to claim refund 35/45

24 Illustrative Example Solution? Change employer to UK company Irish PAYE does not apply No double withholding Cash-flow position improved Split contracts? Employee position can influence corporate structure

25 UK Tax Residence Change from 6 April 2014 Based on ties to the UK -accommodation, work > 40 days, family, > 90 days Treaty override still applies 4 ties:46 days 3 ties: 91 days 2 ties: 121 days 1 tie: 183 days Still 60 day test and cannot be part of greater period

26 HR Policy Policy on equalisation: -Same as never left Ireland? - Company gets benefit of overseas tax rates? - Individual gets benefit of lower tax rates

27 Social Security Irish Social security E101 procedure to remain on the Irish system: Irish employer Factor when deciding on a branch or a subsidiary Transferability of benefits between EU only but subject to restrictions Poland/Sweden 40%

28 Pension Retention on Irish pension schemes Continues to be employed in Ireland Or under control of Irish company Subject to right to make personal contributions Watch life cover

29 Reimbursement of Expenses Tax compliance risk Actual-v Irish civil service rates Away from temporary place of work Affects company-v-branch decision Greater than 6 months, day civil service rate reduced by 50% 26 is 50% for London Records are key

30 Reimbursement of Expenses Local rules Some local rules do not reimburse temporary expenses e.g. Poland Need to factor into package to the employee

31 Reimbursement of expenses UK Similar criteria to Ireland Working rule agreements for particular sectors and in terms of norms No specific flat rate 24 month definition of temporary

32 Other Employee Issues Visas Labour law Health insurance & benefits

33 XS Direct Broker relationships in Ireland Capacity providers in Gibraltar UK Brokers XS Direct Almost 95% of our business is written in UK 100% of capacity coverage 26% ownership and right to own more Would the UK really exit? Eridge UK

34 International Developments & General Principles

35 International Apple Appeal Issue has now being closed down in legislation Rate is 12.5% Relates to profits Not recurring More of a level playing field for Irish owned companies

36 International Holding Companies Benefits of the Irish regime Avoid unnecessary layers of taxation Match companies to country of trading Separate group for international operations to manage risk? Same group to build value preferred

37 Financial Structure Keep it simple Dutch financing structures are not for everyone! One tax relief for interest sufficient

38 International Allocation of Profits Keep it simple Arms length Risk linked to profit Transfer pricing reports benchmarking requirements

39 General Principles Know your goals and strategy Rationale Servicing an existing customer-v-penetrating a market Key decision to be made Pricing of the contract extra margin to cover risk -costs, tax, travel, exchange risk Contractual terms language risk warranties/guarantees that you cannot control JV parties?

40 General Principles Time spectrum Keep it simple Tax should not solely dictate your structure/approach Leverage off Irish support bodies and other Irish companies Don t start from scratch

41 General Principles Do background research and know your goals/problems before speaking with external advisers -price for time but make sure you manage their time Local face to face knowledge is key Balance the additional revenue-v-costs of overseas location Be aware of constant changes

42 Financial Implications Withholding taxes (usually on Revenue and effects low margin businesses) Specific local taxes Foreign exchange risk to the extent we cannot match

43 Financial Implications Evaluate cash-flow on after-tax basis Tax benefits should not turn an overseas project from loss-making to profitable Temporary VAT and Payroll VAT costs Allow margin for changes to tax regime such as Sales Tax

44

45 Corporate Structure (1) Initial Initially marketing and business development No fixed place of business Low overheads Independent agents No corporation tax or Sales Tax presence If not broken, don t fix unless you wish to register for Sales Tax Contract refers to use tax payable by the customer

46 Corporate Structure (2) An office or warehouse No Corporation tax but Sales tax presence only in that State Still have no employees Customs issue Still no US company

47 Corporate Structure (3) Remote servicing Constant change Presence of server/website not sufficient Credit card sales processed in Ireland Limited human presence Risk of sales tax changes in your pricing model

48 Corporate Structure (4) Cost plus C Corporate Independent agents become employees Start incurring US costs Registration

49 Corporate Structure (5) US Company with Revenue recognised Fully open for business Transfer pricing between Ireland and the US Use of IP

50 Corporate Structure (6) Agency agreement with local partner Key benefit evaluated Read the small print Testing the waters Agreement is key Exit arrangements

51 Corporate Structure (6) Agency agreement with local partner cont d Restrictive covenants Common brand Guarantees and risk

52 Corporate Structure well established (7) Acquiring overseas business Evaluate benefit Historic Risk Joint contribution preferred Deferred consideration, if any Charge into JV for Irish time, IP and materials mark-up

53 US Sales Tax Exemption if product is onsold to the customers in the same form - Sales to retailers exempt - reseller certs Avoid double layer Vendor or customer Not recoverable Presence in the State vendor Warehouse creates presence Elect to register

54 US Sales Tax Amazon: New York New Mexico & Oklahoma: where no nexus Rate varies per state Be aware of sales tax and effect on cash-flow

55 Visas Visas tend to drive formation of US company and tax model forward Requirement for US team in addition Limited for specialised person only Right person for VISA application

56 US income tax Subsistence allowances not as available Only for 12 months and even then, intention is to remain in the US for less than 12 months

57 Case Study 2 Irish technology company US Independent commission agents in US to develop business. Customers are all retailers other than some online sales from Ireland. No warehouse or other place of business in the US. Product is supplied from Ireland. Irish contracts with the customers Your recommendations on: US corporation tax structure Other US issues company is likely to be facing

58 Case Study 3 Irish Software company Sales from Ireland to US companies Decisions in relation to all sales made from Ireland. Goods mainly transported from Ireland to the US. Subsequently warehoused in the US until transported to the customer. In some cases, goods purchased in the US and resold. Some US employees. Your recommendations on: US structure Additional relevant US issues to be considered.

59 Case Study 4 As for Case study 3 but sales are now to US government bodies. Also a number of Irish executives are sent to the US to oversee the US operations and a US office is opened Your recommendations on: US Structure Basis of allocation of profits between Ireland and the US Other relevant US issues Optimal ownership of the IP In particular, whether a US company to be formed Company to recognise the US contracts.

60 Where to now?

61 Countries by GDP ease of doing business also listed in the numbers USA -7 EU excluding UK China 84 UK 6 India 130 Canada 14 Australia 13 Norway -9

62 Ease of doing business World Bank top 10 Singapore New Zealand Denmark Korea Hong Kong UK US Sweden Norway Finland

63 Ease of doing business World Bank Germany 15 France 27 Netherlands 28 UAE 31 Japan 34 Italy 45 Russia -51

64

65 Ireland Remains The Base Get benefit of Irish 12.5% rate Technology and IP in Ireland Licensing arrangements R&D tax credits in Ireland Knowledge Development Box 6.25% UK 20%/15% US 35% plus Infrastructure, Language etc.

66 Case Study 5 Irish Construction Group Constructions projections in over 12 countries, mainly are developing countries However, Irish workers also assigned abroad Mainly local sub-contractors All projects last for more than 12 months The local corporation tax rates are generally higher than 12.5% Your recommendations on: Whether to form a company in each or any of the overseas jurisdictions? Whether to operate the international projects in the same group as the Irish group issues to consider from both a corporate and employee perspective? Other financial and tax issues to be addressed?

67 Questions

68 Contact Details Mary Nyhan Tel:

69 Thank you!