international · pdf file•case studies. brexit ... £17 billion goods and services...
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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
Thank you!