International

1. Brexit and the UK

2. HR and people issues

3. General principles and strategies

3(a). Structures abroad: Subsidiaries, agents, new businesses abroad

4. Operating in the US

5. Other countries

6. Going forward

•Case studies

Brexit

• 2 year timing from 29 March 2017

•October-December 2017 to agree principles with Barnier

•October 2018 – Barnier deadline

•WTA – unknown?

Brexit

• July/August – citizens and then financial

•Security

6 Alternatives

• No Deal – Hard Brexit – German: or else a fudge

•Divorce only agreement

•Limited tariff-free Deal

•Far-Ranging trade deal

•Customs Union

•Single Market

Brexit/Switerland

• Member of EFTA

• Free movement of goods

•Some service restrictions – professional services/banks

•Free movement of people

•Contribution to budgets/recipient of grant-aid

•Access to terrorist database

•Swiss/China – not as strong as if EU deal?

EEA Countries

• Norway, Iceland, Liechtenstein

•Access to single market

•Not EU members

Brexit

• €1.2 billion trading between Ireland and UK weekly (goods and services)

• 41% of Ireland’s agri-business exports to the UK - €4.1 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.

Brexit

• Irish engineering companies increased exports to UK by half a billon in 2015

• We are UK 5th 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

Brexit –Data

• 80% of economy is service based

Brexit

• UK consumer spending lowest since 2013

•Fell for Third month in a row in July 2017

•.8% reduction in July 2017

Brexit

• Pricing Worker Mobility – visas, EU labour law

• Currency fluctuations – change in model?

• Ireland/UK trade corridor – Customs/tariffs

• Trade agreements

Brexit

• R&D: joint projects with colleges

• Foreign Direct Investment

•Price of goods and price of imports

•Northern Ireland

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

•Inward Investment

Brexit - Agrifood

• Currency

• UK suppliers in Ireland

• NI competition

• Future UK agri-policy

• FDI into Ireland

• Talent movement

Brexit – Financial Services

• Regulation and passporting

•8% off UK funds

•35% increase on others

•Relocation to Ireland

Brexit – Energy and Cleantech

• Energy prices

• Previous over-reliance on UK for oil/gas to

• Agreement now signed with France – November 2015

•Smart Grids, energy efficiencies, renewable energies, marine energy

• Focusing us to look elsewhere

Brexit - Construction

• Confidence and uncertainty

•House prices still increasing but rate has reduced – 2% increase for 2017

•Taking on fewer workers

•“flirting with recession”

•Drop in commercial buildings

•64% of materials in UK sector come from o/s UK

•UK does not have capacity for normal construction needs

Brexit – M&A

• Slow down did happen before Brexit due to currency

• Exit strategies

• Fund-raising

•Wait and See

•Shift towards mid market

•UK better value to international buyers

• Expansion by acquisition

Brexit – Suggestions – A

• Less effect for more global companies

• Continue to penetrate markets

• Moving along the UK spectrum at a faster pace

• Expansion by acquisition

• Increase number of international trading countries

Brexit – Suggestions – B • Pricing

• Quoting in Euros

• Margin of error on price

• Matching of income and expenses

• Innovation

International HR

International HR Issues

• Importance of a written policy

• Gives consistency

• Manages employer risk

• Greatest “risk” area

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

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

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

Illustrative Example

Irish Salary 100

Irish Tax 45UK tax 35Individual receives 55Company pays additional 35Income tax return required to claim refund 35

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

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

HR Policy

• Policy on equalisation:

- Same as never left Ireland?- Company gets benefit of overseas tax rates?

- Individual gets benefit of lower tax rates

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

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

Reimbursement of Expenses

• 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

Reimbursement of Expenses

• Local rules

• Some local rules do not reimburse temporary expenses e.g. Poland

• Need to factor into package to the employee

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

Other Employee Issues

• Visas

• Labour law

• Health insurance & benefits

XS Direct

UK Brokers

Capacity providers in Gibraltar

EridgeUK

26% ownership and right to own more

Almost 95% of our business is written in UK

100% of capacity coverage

Broker relationships in Ireland

Would the UK really exit?

XS Direct

International& General Principles

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

Financial Structure

• Dutch financing structures are not for everyone!

• One tax relief for interest sufficient

International Allocation of Profits

• Keep it simple

• Arms’ length

• Risk linked to profit

• Transfer pricing reports – benchmarking requirements

General Principles

• Know your goals and strategy

•Globalisation

• Servicing an existing customer-v-penetrating a market

•Pricing of the contract – costs, tax, travel, exchange risk

• Contractual terms – language risk

• warranties/guarantees that you cannot control – JV parties?

General Principles

• Time spectrum

•Tax should not solely dictate your structure/approach

• Leverage off Irish support bodies and other Irish companies

• Don’t start from scratch

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

Financial Implications

• Withholding taxes (usually on Revenue)

• Contract terms

• Specific local taxes

• Foreign exchange risk to the extent we cannot match

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

Corporate Structure

(1) Initial

• Initially marketing and business development

• No fixed place of business

• Independent agents

• No corporation tax or VAT presence

• If not broken, don’t fix

Corporate Structure

(2) An office or warehouse

• Corporation tax or VAT/Sales tax presence?

• Less than 6 months?

• Limited human presence

• Employees but not concluding contracts

• Customs issue

Corporate Structure

(3) Remote servicing

• Constant change

• Presence of server/website not sufficient

• Credit card sales processed in Ireland

• Limited human presence

Corporate Structure

(4) Branch

• Independent agents become employees

• Start concluding contracts

• Fixed place of business with non-ancillary activities

• Registration

• Losses against Irish corporation tax

Corporate Structure

(5) New Company

•Fixed place of business with non-ancillary activities

• Registration

• Independent agents become employees

•Fully open for business

Corporate Structure

(6) Agency agreement with local partner

• Key benefit evaluated

• Read the small print

• Testing the waters

• Agreement is key

• Exit arrangements

Corporate Structure

(6) Agency agreement with local partner – cont’d

• Restrictive covenants

• Common brand

• Guarantees and risk

Corporate Structure – well established

(7) Acquiring overseas business

• Evaluate benefit

• Historic Risk

• Set up new JV company

• Joint contribution preferred

• Deferred consideration, if any

• Charge into JV for Irish time and materials – mark-up

US Sales Tax

• Exemption if product is onsold to the customers in the same form Sales to retailers – exempt

• Vendor or customer

• Presence in the State – vendor

• Warehouse creates presence and possibly local independent agent (affiliates)

• Not recoverable

US Sales Tax

• Amazon: New York

• Illinois: Favour of retailer

• New Mexico & Oklahoma: where no nexus

• Rate varies per state

• Be aware of sales tax and effect on cash-flow

Visas

• Visas tend to drive formation of US company and tax model forward

• Requirement for US team in addition

• Right person for VISA application

US income tax

• Subsistence allowances not as available

Your recommendations on:

US corporation tax structure

Other US issues company is likely to be facing

Case Study 2Irish technology company

US Independent commission agents in US to develop business.

No warehouse or other place of business in the US.

Irish contracts with the customers

Customers are all retailers other than some online sales from Ireland.

Product is supplied from Ireland.

Your recommendations on:US structure

Additional relevant US issues to be considered.

Case Study 3Irish Software company

Sales from Ireland to US companies

Decisions in relation to all sales made from Ireland.

Some US employees.

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.

Your recommendations on:

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

US Structure

Other relevant US issues

In particular, whether a US company to be formed

Basis of allocation of profits between Ireland and the US

Optimal ownership of the IP

Company to recognise the US contracts.

Trump Tax Plan

• Visas

•Sales Tax

•Corporation tax rate reduction to 15%

•One time 10% rate of repatriation of overseas profits

•Customs duty

Where to now?

Countries by GDP US Sales Tax

USA - 7 EU excluding UK

China – 84 UK – 6

India – 130 Canada – 14

Australia – 13 Norway -9

Ease of doing business – World Bank – top 10

SingaporeNew Zealand

Denmark Korea

Hong Kong UKUS

Sweden NorwayFinland

Ease of doing business – World Bank

Germany – 15 France – 27

Netherlands – 28UAE – 31

Japan – 34Italy – 45

Russia - 51

Germany

• Unemployment 4.6%

• Inflation 0.1%

• FDI $31.7 Billion

• Population 81.4 million

• GDP $3.8 Trillion

Germany

• Employee Social security rate 39.95%

• Corporation tax 15%

• Solidarity tax 5.5%

• Trade tax min 3.5%

• Municipal varies

• Overall – 28-35%

Germany Industries

• Automobile

• Energy

• Health Care

• Industrial Products

• Pharma MedTech

• Technology

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%

•Infrastructure, Language etc.

Case Study 5Irish Construction Group

Constructions projections in over 12 countries, mainly are developing

countries

Mainly local sub-contractors

However, Irish workers also assigned abroad

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?

Questions

Contact Details

Mary Nyhan

Tel: 01 5240294

mary.nyhan@nyhantaxadvisers.com

Thank you!