1

Global Business ExpansionKey Strategies for Conducting Business in Foreign Jurisdictions

ACC SoCal Orange County and Los Angeles Roundtables

September 2015

Nicole J. SimonianAsia Coordinator

Asia Employment CoordinatorPartner

Evan Y. ChuckInternational Trade Practice Leader

Shanghai Office LiaisonPartner

2

Overview

• Planning the Cross-Border Matter

• Operational/In-Country Issues

• The Ripple Effect: Hedging & Turbulent BusinessEnvironments

3

The Life Cycle of a Company

Planning Formation Operational Dispute Exit

Tax Planning

ForeignRegulatory

GovernmentRelations

IP Protection

OutsourcingOffshoringJoint VentureM&ALicensing

Export Controlsand EconomicSanctionsAntiboycott

US/ForeignCustomsValuationClassificationInvestigationSeizures

FCPAUK Anti-briberyLocal Anti-bribery

U.S. TradeRemedies

ArbitrationLitigation

US/ForeignBankruptcy

M&A SaleIPO Exit

BilateralAgreements

-NAFTA

-Multilateral

-WTO

ForeignRegulationLaborEnvironmentalFood & Drug

4

PLANNING THE CROSS-BORDER MATTER

Section 1

5

Entering the Market

• Step 1: Identify right time to consider an in-country entity.

• Step 2: Understand legal and regulatory factors thataffect your choice of entity structure.

• Step 3: Determine the best structure type to optimizeentity and minimize risk.

6

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 furtherdevelopments

– New Foreign Investment Law enacted in China in 2015

7

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

8

Using Tools to Reduce Taxes

• Tax treaties can provide favorable tax treatment ofroyalties paid on IP.

• Be careful though…

– Transfer pricing

– Limitations of benefits on anti-treaty misuse provisions

9

Example of a Tax Reduction Structure for IP

10

OPERATIONAL/IN-COUNTRYISSUES

Section 2

11

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

12

Asia Pacific Regional Employment Trends

• Movement toward middle-income societies– Higher wages; more protective of worker rights

– Development of welfare systems, especially in China, Korea, andThailand

• 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 becomingincreasingly pro-employee (e.g. Korea, China)

13

Global Mobility in a Nutshell

• No “one size fits all” approach for global employmentlaw issues

• Company policies and procedures can guide, but locallaws 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 thanjust wages and benefits– Consider taxes and other payments

14

Global Mobility Options

• Fly-in/fly-out – generally no hostemployment issues, but beware ofPE or local nexus issues

• Short-term (usually no more than2-3 years) – home country

employment and its variation mostcommon (a.k.a. secondment)

• Long-term or permanent –localization and host countryemployment

15

Tax Considerations for Global Mobility

• Engage tax counsel

• Permanent establishment (PE) ornexus

– Avoidance of double taxation treatiesdefine PE and when a foreign entity maybe taxed

– Conducting business operations, e.g.concluding contracts, providing servicesto an entity in host country, havingemployees working in-country – PE ornexus deemed

– If no treaty, possibility of double taxation

• Tax equalization for expats

16

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?

17

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 betransferred across borders.

• Regional laws share similar principles, but haveunique approaches to protecting personal data,including:– Different exemptions to consent requirement

– Different approaches for transferring data to thirdparties/internationally

– Other unique features, e.g. the appointment of a “data protectionofficer,” special provisions for “sensitive personal data”

• Penalties can include civil fines and criminalpunishment.

18

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

19

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.

20

Cross-Border e-Commerce

• Introduction to e-commerce

• Customs implications

• Common pitfalls

21

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.

22

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.

23

Comparative e-Commerce Market Statistics:Indonesia

• Indonesia has the highest number of online users inSoutheast 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

24

Regulations that Encourage e-Commerce

• The China E-Commerce Association (CECA) releasedthe 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), andconsumer 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 onlinetransaction platform and provides transaction services to transaction parties.

– Online transaction services: Information distribution and conveyance, contractsigning, storage and maintenance, and other services necessary for transactionparties to conclude contracts for online transactions.

– Online transaction auxiliary services: Services that improve the transactionenvironment and promote online transactions, including secure authentication,online payment, and transaction insurance services.

25

The Customs Implications of e-CommerceTransactions

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

26

The Customs Implications of e-CommerceTransactions

Other Issues Affecting Importing/Exporting

• Product labeling/marking

– Language

– Standards (care instructions, fiber content, sizing)

• Capacity of foreign customsauthorities to process entries

27

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 returnedmerchandise

28

THE RIPPLE EFFECT:HEDGING AND HANDLING TURBULENT BUSINESSENVIRONMENTS

Section 3

29

Circumstances for Restructuring andShutting Down

Employee Transfer

• Common in a group company

• Change of employer

Mass Layoffs

• Reduction of a large number

of employees

• Legal entity remains

Shutdown

• Winding-up

• Dismiss all employees

Relocation

• Relocation of the

manufacturing center

• For business reasons (e.g.

favorable policies)

30

Worst Case Scenario Example

• Company A (500 employees) planned to relocate its plant to anotherregion.

• Company A sought to transfer 20% of its experienced employees to thenew 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 causedsubstantial 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.

31

Recent Client Example

• MNC client was winding down a factory located in China.

• The factory workers held the management staff “hostage” duringtermination process.

• The factory workers basically formed a human shield around the staff andheld 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

32

Thank you!

Nicole J. SimonianAsia Coordinator

Asia Employment CoordinatorPartner

nicole.simonian@bryancave.com310-576-2117

Evan Y. ChuckInternational Trade Practice Leader

Shanghai Office LiaisonPartner

evan.chuck@bryancave.com310-576-2126