Doing business outside the U.S.? Here are some key questions that need to be asked to maximize your profits and avoid unpleasant surprises.

1. Maximize Profits- Tax Considerations for
Companies Operating Outside the U.S.
CalCPA San Francisco Chapter ITAX
February 20, 2014
Harry-Todd Astrov
Astrov P.C.
©2014. Astrov P.C. All Rights Reserved.

2. Introduction
• Conventional wisdom- when should
“international” tax planning begin?
• In context of planning for international
expansion, non-U.S. taxes are much more than
income tax and preparing tax returns.
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3. Introduction (cont’d)
• Businesses need to plan for taxes well before
they decide to set up new entity in foreign
country (FC).
• Unlike U.S., most of the world has a national
sales tax– VAT.
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4. Introduction (cont’d)
• To plan properly, must look at proposed
(ongoing?) activities.
–What types of transactions are occurring?
–Look at this from revenue and cost
perspectives.
• Understanding direct (income) and
indirect (e.g., VAT) are key to projecting
cash flow and avoiding surprises.
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5. Key Questions
1. When customer pays me, will I receive whole
amount? In other words, will there be
withholding?
Example: $100,000 contract to provide services to
Chilean company. Business receives $65,000. Why?
Chile imposes 35% withholding on services rendered
abroad.
 Treaty or non-treaty country?
What is character of the income? Labels not
necessarily controlling. Royalty vs. service?
What is optimum outcome? Can we support that?
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6. Key Questions
1A. When I pay non-U.S. vendor (or other
party), do I need to withhold?
Do I have the correct documentation (e.g., W-8BEN,
W-9) to be excused from 30% withholding?
As withholding agent, payor is responsible.
Treaty or non-treaty country?
What is character of the income? Labels not
necessarily controlling. Royalty vs. service?
What is optimum outcome? Can we support that?
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7. Key Questions
2. How will I operate in FC and do my
operations require me to file income tax
returns?
• Treaty or non-treaty. If non-treaty, local law controls.
• Have I opened an office or established a fixed place of
business? Tests and exceptions for “permanent
establishment”
• Can an agent sign contracts in my name? Does agent
habitually exercise that authority?
• How much time are my U.S.-based employees spending
in FC and what are they doing?
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8. Key Questions
3. Will I have to pay or be liable for indirect
taxes such as VAT?
– VAT is tax on consumption; imposed based on
place where goods and services are supplied.
– Imposed on seller (or importer); passed on to
buyer.
– Exports are typically zero-rated (i.e., zero VAT).
• But who is exporter? Watch out for supply-chain
changes.
– VAT and the cloud??
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9. Key Questions
3A. Will I have to pay or be liable for indirect
taxes such as customs duties?
– Imposed on importer of record. Where does title
transfer?
– Principal liable for actions- and decisions- of
customs broker.
– Free Trade Agreements (FTA’s) come with
conditions.
• Need to certify origin of goods.
• Need to maintain records.
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10. Key Questions
4. Do my activities qualify me for any tax
incentives? If so, what are the conditions?
5. Do my written contracts with customers,
suppliers and other non-U.S. counterparties
support the specific tax position I want to take
and protect me from tax surprises?
» For example, does a contract with a customer provide that they
will “gross up” payments to cover any withholding?
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11. Key Questions
6. Do I regularly review my activities to make
sure that original tax planning remains
relevant?
• Have facts evolved or changed?
• Have laws changed?
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12. Thoughts on establishing a FC entity
• Learn local recordkeeping and (tax) reporting requirements. These
may be expensive.
• Special rules for invoicing.
• Global Mobility. Will U.S. based employees be transferred to FC?
Make sure these are documented properly (e.g., secondment
agreement)
• Plan ahead for related-party transactions (“transfer pricing”). Will
likely need TP report with tax return, signed off by accountant
• Audits (and administrative appeals) take significantly longer than in
the U.S.
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13. Thoughts on establishing a FC entity
• Local executives and managers can be held
“personally accountable” for routine
understatements.
• They can face criminal charges. These typically get
favorably resolved.
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14. Conclusion
• Every country and fact pattern is unique. Don’t assume
that model used in [France] will work in [China].
• Avoid “smallness”– Don’t assume that business is too
small to worry about these types of issues questions
• When considering the costs of non-compliance, early
and regular tax planning adds value to business activity.
This presentation is intended for general information only. Talk to a tax advisor for specific
questions.
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15. If questions . . .
Harry-Todd Astrov
Astrov P.C.
505 Montgomery Street, Ste. 1100
San Francisco, CA 94111
Tel: 415-580-2415
4695 Chabot Drive, Ste 200
Pleasanton, CA 94588
Tel: 925-828-2415
Web site: www.astrovlaw.com
Email: htod@astrovlaw.com
Fax: 866-633-9292
Twitter: @astrovlaw
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