CROSSING THE ATLANTIC

Roger RoyseRoyse Law Firm, PC

California, USA

IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication, 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.

The Slon Hotel March 9th, 2012

U.S. Commercial Service of The American Embassy

in Ljubljana, Slovenia

and

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THE U.S. MARKET

• 3.7 Million Square Miles• GNP - $12 Trillion• Free Trade Agreements- NAFTA, CAFTA, WTO, OECD, APEC, OAS

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U.S. STRATEGY

Non-US Parent Company

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U.S. STRATEGY

US Investor Non-US Investor

Non-US Parent

US Company Non-US Parent

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GENERAL CONSIDERATIONS

US BusinessLiability Protection

Capitalization IntellectualProperty

Transfer Pricing

Employees

Accounting

Tax

Regulatory

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REGULATORY ENVIRONMENT

Open Competition vs. Consumer & Employee Protection

Interstate Commerce vs. Intrastate Commerce

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INTELLECTUAL PROPERTY PROTECTION

• Trademark

• Copyright

• Patent

• Trade Secret

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ACCOUNTING

• Tax Accounting• Financial Accounting• US GAAP vs IAS

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US BRANCH VS. US INCORPORATIONUS Branch US Incorporation

Foreign Entity

US Branch

Foreign Entity

US Sub

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PERMANENT ESTABLISHMENT

• Fixed place of business

• Agents and Officers

US PE

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WHERE TO INCORPORATE

Delaware

Nevada

California

vs.vs.

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CHOICE OF ENTITY

• Limited Liability Company (LLC)• Limited Partnership (LP)• C Corporation• S Corporation • Statutory Trust

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TRANSFER PRICING

• Code section 482• “Controlled" entities• Arm's length standard• Understatement penalties – 20% or 40%• Adequate documentation (i.e. a transfer price study)

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TRANSFER PRICINGBUY-SELL MODEL

US Customers

US Profit

• Buy Sell• Just-in-Time Inventory

SystemProductsServices

$

ParentCompany

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TRANSFER PRICINGCOMMISSION MODEL

Sales & Product Support

Sales Support Services

US Customer

Products Services

ParentCompany

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IP HOLDING COMPANIES

License

Technology and Intellectual Property

Royalty

• Deferral• Worldwide Tax

Rate• Withholding Tax

Issues

ParentCompany

IP Holding Company

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CAPITALIZATION

• Debt• Deductible interest, but must

pay or accrue• Must be repaid • “Deep Rock Doctrine”

• Equity• Not required to be repaid• Dividends are nondeductible

• Thin Capitalization Rules• Earnings Stripping

$DebtEquity

ParentCompany

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EMPLOYEES

Fee EmployeesServices

• Secondment Agreement

• Limitations on Authority

• Tax Withholdings

• Tax Gross-Ups

• Totalization

ParentCompany

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FOREIGN PERSONNEL

• VISA Requirement• B-1• H-1B• EB-5• EB-6 (pending)

• Non-Resident Alien or Resident for Tax- Green Card- Substantial Presence Test- Treaty Definitions

• Estate and Gift Tax- Domicile

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EMPLOYEE RIGHTS

• Minimum Wages & Maximum Hours• Non-Discrimination• Pension Rights – ERISA & Social Security• Health and Safety• Unemployment• Sexual Harassment• Mass Layoffs (WARN Act)

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INTER-COMPANY AGREEMENTS

• Shipping Terms• Payment Terms• Risk of Loss & Title Passage• Insurance• Most Favored Nation Clauses• Price Protection• Indemnity• Warranty• Trademarks & Marking

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REAL ESTATESECTION 897 – FOREIGN INVESTMENT IN REAL

PROPERTY TAX ACT OF 1980 (FIRPTA)

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WITHHOLDING TAXESTREATY EFFECT

• Dividend

• Interest

• Royalties

• Service Income

TREATIESOTHER

• Permanent Establishment• Information Exchange• Competent Authority• Non Discrimination• Limitation of Benefits

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ANTI-DEFERRAL REGIMES

SubPart F (Controlled Foreign

Corporations)

Passive Foreign Investment Company

Transfer Pricing

Effectively Connected Income

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INTERNATIONAL E-COMMERCE

Super Roylaty

Tran

sfer

Pric

ing

Witholding

Anti-DeferralRegimes

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IP HOLDING COMPANY STRUCTURES

US Sales

US Company

Contract R&DProduct sales

Tax Haven

Technology License

100%Products

Service Fees

ContractManufacturing(or License)

Manufacturer

100%LocalDistributors

Local Sales

Domestic Company Holds Technology

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STATE TAX ISSUES

CaliforniaParent

Nevada IPHolding Co.

IP Transfer

LicenseBack

Services Income

• Income Tax Nexus• Sales Tax Nexus• IaaS, PaaS, SaaS• IP Holding

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ACQUISITION

TaxEmploymentSecuritiesCorporate/FiduciaryRegulatory Issues (Exon-Florio, Hart Scott Rodino)Business issues (e.g. earnouts)

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APPENDIX

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APPENDIX

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PALO ALTO1717 Embarcadero Road

Palo Alto, CA 94306

LOS ANGELES11150 Santa Monica Blvd.,

Suite 1200Los Angeles, CA 90025

SAN FRANCISCO135 Main Street,

12th FloorSan Francisco, CA 94104

www.rroyselaw.comwww.rogerroyse.com

E-mail: rroyse@rroyselaw.comSkype: roger.royse