Global Business Expansion Key Strategies for Conducting Business in Foreign Jurisdictions ACC SoCal Orange County and Los Angeles Roundtables September 2015 Nicole J. Simonian Asia Coordinator Asia Employment Coordinator Partner Evan Y. Chuck International Trade Practice Leader Shanghai Office Liaison Partner 1
Overview Planning the Cross-Border Matter Operational/In-Country Issues The Ripple Effect: Hedging & Turbulent Business Environments 2
The Life Cycle of a Company Planning Formation Operational Dispute Exit Tax Planning Foreign Regulatory Government Relations Outsourcing Offshoring Joint Venture M&A Licensing US/Foreign Customs Valuation Classification Investigation Seizures Export Controls and Economic Sanctions Antiboycott FCPA UK Anti-bribery Local Antibribery Arbitration Litigation U.S. Trade Remedies Bilateral Agreements -NAFTA -Multilateral -WTO US/Foreign Bankruptcy M&A Sale IPO Exit 3 IP Protection Foreign Regulation Labor Environmental Food & Drug
Section 1 PLANNING THE CROSS- BORDER MATTER 4
Entering the Market Step 1: Identify right time to consider an in-country entity. Step 2: Understand legal and regulatory factors that affect your choice of entity structure. Step 3: Determine the best structure type to optimize entity and minimize risk. 5
Issues to Consider Acquisition vs. entering the market from ground zero Level of presence you will need How much investment your company can commit Your revenue model How management will support the local structure When to reconsider your present in-country structure Changes to foreign investment laws and further developments New Foreign Investment Law enacted in China in 2015 6
Special Tax Issues Who are the owners? (U.S. and foreign tax) Wanda Dalian and AMC Where is the intellectual property? Licensing and tax implications Private equity buyers and passive income 7
Using Tools to Reduce Taxes Tax treaties can provide favorable tax treatment of royalties paid on IP. Be careful though Transfer pricing Limitations of benefits on anti-treaty misuse provisions 8
Example of a Tax Reduction Structure for IP 9
Section 2 OPERATIONAL/IN-COUNTRY ISSUES 10
Section 2 Roadmap Asia Pacific Regional Employment Trends Global Mobility Regulatory Compliance International Contracting Data Privacy FCPA and Anti-Money Laundering Sanctions, Anti-Boycott, and Export Controls Going Online: From Retail to e-commerce 11
Asia Pacific Regional Employment Trends Movement toward middle-income societies 12 Higher wages; more protective of worker rights Development of welfare systems, especially in China, Korea, and Thailand Developing economies and evolving legal regimes New legislation being passed in many countries, especially China reflecting existing protections elsewhere Uncertainty in terms of compliance and enforcement Large variability in employee protections Some countries are less restrictive following common law traditions (e.g. Singapore, Hong Kong, Australia); others are becoming increasingly pro-employee (e.g. Korea, China)
Global Mobility in a Nutshell No one size fits all approach for global employment law issues Company policies and procedures can guide, but local laws and practices must dictate Avoid dangerous assumptions, such as: APAC is one place U.S. law concepts apply everywhere A company can terminate employees at will The cost to employ an individual may be greater than just wages and benefits Consider taxes and other payments 13
Global Mobility Options Fly-in/fly-out generally no host employment issues, but beware of PE or local nexus issues Short-term (usually no more than 2-3 years) home country employment and its variation most common (a.k.a. secondment) Long-term or permanent localization and host country employment 14
Tax Considerations for Global Mobility Engage tax counsel Permanent establishment (PE) or nexus Avoidance of double taxation treaties define PE and when a foreign entity may be taxed Conducting business operations, e.g. concluding contracts, providing services to an entity in host country, having employees working in-country PE or nexus deemed If no treaty, possibility of double taxation Tax equalization for expats 15
International Contracting Importance of using a term sheet Substance over form Choice of law and local law overrides International standards Tomato vs. tomahto Same words, different meaning Best efforts Suing on the contract Arbitration vs. litigation Do you have a workable remedy? 16
Asian Data Privacy Laws: What Concerns You Laws govern what is considered private data (e.g. employee records), how you may collect, process, and use such data, and how such data may be transferred across borders. Regional laws share similar principles, but have unique approaches to protecting personal data, including: 17 Different exemptions to consent requirement Different approaches for transferring data to third parties/internationally Other unique features, e.g. the appointment of a data protection officer, special provisions for sensitive personal data Penalties can include civil fines and criminal punishment.
FCPA and Anti-Money Laundering FCPA Don t bribe a government official and don t lie about it in the accounting. Common flashpoints Market access Customs Tax authorities Highly regulated environments (e.g. pharmaceuticals, medical devices, state-controlled economic sectors) Anti-Money Laundering U.S. concerns: anti-terrorism financing, OFAC Non-U.S. concerns: evasion of foreign exchange controls 18
Sanctions, Anti-Boycott and Export Controls Sanctions Be aware of restrictions that affect where your goods or services may go (e.g. Iran, North Korea, Russia, Cuba). Constantly changing Anti-Boycott Be careful of hidden clauses that discriminate against Israel and violations of the anti-boycott law in the U.S. (e.g. Malaysian contracts). Export Controls Export of goods, components, and information about such goods may be controlled and special licenses may need to be obtained. 19
Cross-Border e-commerce Introduction to e-commerce Customs implications Common pitfalls 20
Comparative e-commerce Market Statistics: China China already leads the world in B2C and C2C purchases, and its market is predicted to be larger than the U.S., Britain, Japan, Germany, and France combined by 2020. By the end of 2015, e-commerce transactions in China are projected to hit US$540 billion (approximately 10% of total retail transactions). China's Ministry of Commerce reveal that total online sales increased to CNY1.85trn (US$296.96bn) in 2013. 21
Comparative e-commerce Market Statistics: Indonesia Indonesia s current online spending is low (less than 1% of total spending), but is believed to be on target for growth from $2 billion to $8 billion in the next few years (projected to jump from this year's US$2.6 billion to US$4.49 billion in 2016). By the end of 2016, Indonesian e- commerce expected to grow by 300%. Indonesia still faces significant poverty, but expected growth is likely to improve living conditions and increase consumer spending as the middle class continues to develop. 22
Comparative e-commerce Market Statistics: Indonesia Indonesia has the highest number of online users in Southeast Asia. Expected to rise to over 93 million by the end of 2015 Expected 71 million smartphone mobile internet users by end of 2015 Region specific issues Slow home internet, leaves majority of e-commerce buyers to shop primarily from office 23
Regulations that Encourage e-commerce The China E-Commerce Association (CECA) released the Standards for Online Transaction Platform Services (2005) to clarify general standards for e-commerce: Online transactions: Transactions concluded through online communications, including business to business (B2B), business to consumer (B2C), and consumer to consumer (C2C) transactions. Online transaction platform: An online system that provides the space, technology and transaction services for various types of online transactions. Online transaction platform provider: A legal person that operates an online transaction platform and provides transaction services to transaction parties. Online transaction services: Information distribution and conveyance, contract signing, storage and maintenance, and other services necessary for transaction parties to conclude contracts for online transactions. Online transaction auxiliary services: Services that improve the transaction environment and promote online transactions, including secure authentication, online payment, and transaction insurance services. 24
The Customs Implications of e-commerce Transactions E-Commerce Models B2C Start-ups and small businesses Stores run by Yahoo/eBay/Amazon Larger companies Direct shipment by courier on behalf of company Use of third party providers Examples: Border Free, i-parcel 25
The Customs Implications of e-commerce Transactions Other Issues Affecting Importing/Exporting Product labeling/marking Language Standards (care instructions, fiber content, sizing) Capacity of foreign customs authorities to process entries 26
Common Pitfalls to Avoid Terms and Conditions Returned merchandise Tracking of goods for duty-free return Costs associated with returns Value of goods vs. cost of return Liability for incorrect entries for returned merchandise 27
Section 3 THE RIPPLE EFFECT: HEDGING AND HANDLING TURBULENT BUSINESS ENVIRONMENTS 28
Circumstances for Restructuring and Shutting Down Employee Transfer Shutdown Common in a group company Change of employer Winding-up Dismiss all employees Mass Layoffs Relocation Reduction of a large number of employees Legal entity remains Relocation of the manufacturing center For business reasons (e.g. favorable policies) 29
Worst Case Scenario Example Company A (500 employees) planned to relocate its plant to another region. Company A sought to transfer 20% of its experienced employees to the new plant. The remaining employees were to be laid off. Company A will remain operating after the relocation for tax purposes. Early announcement, but communications plan failed. Employees started a strike that lasted over two months and caused substantial economic losses. No back-up plan for emergencies. Key Points Complex mission needs considerate planning. What is the best legal pathway? Must plan for the worst situation. 30
Recent Client Example MNC client was winding down a factory located in China. The factory workers held the management staff hostage during termination process. The factory workers basically formed a human shield around the staff and held them in the factory for over 3 days. May not actually hurt you, but will intimidate you to do what they want. While this is worst case scenario, this type of thing is relatively common. Key Takeaway Be sure to notify the local governmental authorities in the event of a factory shutdown may provide further on-site assistance, police Recommendation Have terminations take place at any location other than the factory or in a more open environment 31
Thank you! Nicole J. Simonian Asia Coordinator Asia Employment Coordinator Partner nicole.simonian@bryancave.com 310-576-2117 Evan Y. Chuck International Trade Practice Leader Shanghai Office Liaison Partner evan.chuck@bryancave.com 310-576-2126 32