Download - PwC final project 2012
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By: Team Prestige Worldwide (PwC representatives)
Team members: Danielle Bonner Chen Chen Patrick Meehan Tram Nguyen James Parisi
PtP, LLC Analysis &
Recommendations
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AgendaFactsTerminologyAssumptions3 issues to address:
Proposed timelineMelawia vs. NiawanIncentive package = Yes/No
RecommendationsQ&A
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Summary of FactsUS based LLCTaxed as corporationPossibility = Locating intangible property
in a foreign country2 available options
Melawia Incentive packagePresidential election – tax reform
Niawan
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Summary of FactsImportant tax information
Melawia Niawa
nAlan Crites
Pierre Sampson
Incentive package
Deduction of gross income 0% 50% 25% 0%Corporate tax rate 15% 10% 14% 18%Tax on dividends from foreign subsidiaries No No No YesTax on intangible property transferred to foreign subsidiaries
No Yes Yes No
Deduction of gain on intangible property transferred to foreign subsidiaries
N/A 0% 25% N/A
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TerminologyForeign subsidiary
Wholly or partly owned by parent companyA separate business entity
Tax on dividends from foreign subsidiariesDividends = Retained EarningsDividends received deduction => Decrease tax
amountTax on intangible property transferred to
foreign subsidiariesIntangible property = Peer-to-peer software
systemGain = Market value – Book value
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Assumptions100% ownedIntangible property
No increase in value when transferredPartial transfer = Possible
Melawia’s presidential electionOnly two candidatesElection will occur in 2012Presidential term = 5 years
Incentive packageNo expiration dateDefer the starting date = Yes
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Country Term lengthThailand 4 years
Taiwan 4 years
Japan 4 years
Malaysia 5 years
Indonesia 5 years
Vietnam 5 years
South Korea 5 years
Hong Kong 5 years
Singapore 6 years
Phillipines 6 years
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Issue #1 – Proposed timelineRecommendation:
Stay in the US until 2014Move starting from 2015
Argument:Net losses in 2012 and 2013Losses can be used as tax benefits in 2014Election happening in 2012 => Uncertain
situation
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Issue #1 – Proposed timeline (cont.)
“A net operating loss for any taxable year— (i) shall be a net operating
loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.”
- IRC 172 (b)(1)(A)2012 2013 2014 2015 2016
-200.00
0.00
200.00
400.00
600.00
800.00
1000.00
Net income/loss
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Issue #2 – Melawia vs. NiawanRecommendation:
Melawia
Argument:Lower tax amount to be paidLess expensive laborHealthy foreign exchange reserves
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Issue #2 – Melawia vs. Niawan (cont.)Calculation steps
Calculate income taxes
• Taxable income = Gross income - Deduction• Tax amount (1) = Taxable Income * Corporate tax rate
Calculate tax on gain
when transferred
• Total increase in value = Market Value – Book Value• Gain on transfer = Total increase in value * %
transferred• Tax amount (2) = (Gain – deduction)* corporate tax rate
Calculate total tax amounts
• Total tax = Tax amount (1) + Tax amount (2)
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Issue #2 – Melawia vs. Niawan (cont.)
MelawiaNiawanCrites Sampso
n Incentive
Income (2015-2016) 1095 1095 1095 1095Deduction 0 547.50 273.75 0Taxable Income 1095.00 547.50 821.25 1095.00Tax Rate 15% 10% 14% 18%Tax Amount (1) 164.25 54.75 114.98 197.10Net Income 930.75 1040.25 980.03 897.90
Total increase in value of intangible property 0 0 0 0
% transferred 100% 100% 100% 100%Gain on transfer of intangible property 0.00 0.00 0.00 0.00
Deduction 0 0 0 0Taxable Gain 0.00 0.00 0.00 0.00Tax Rate 15% 10% 14% 18%Tax Amount (2) 0 0 0 0
Total Tax Amount 164.25 54.75 114.98 197.10
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Issue #2 – Melawia vs. Niawan (cont.)
Crites Sampson Incentive Niawan0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Total Tax Amount
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Issue #2 – Melawia vs. Niawan (cont.)
Crites Sampson
Incentive Niawan
0 164.25 54.75 114.975 197.1
50 164.25 59.75 120.225 197.1
100 164.25 64.75 125.475 197.1
150 164.25 69.75 130.725 197.1
200 164.25 74.75 135.975 197.1
250 164.25 79.75 141.225 197.1
300 164.25 84.75 146.475 197.1
350 164.25 89.75 151.725 197.1
400 164.25 94.75 156.975 197.1
450 164.25 99.75 162.225 197.1
500 164.25 104.75 167.475 197.1
Total tax amount
010
020
030
040
050
00
50
100
150
200
250
CSIN
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Issue #2 – Melawia vs. Niawan (cont.)
Niawan
Melawia
Lower tax amount
Less expensive labor
Healthy foreign exchange reserves
More stable
High-tech hub
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Issue #3 – Incentive Package Response
Incentive
No incentive
Pierre wins => Lower tax amount than incentive ($60.23)
Pierre is favored to win
Freedom to move
No employment requirements
Lower tax amount than Crites ($49.27)
100% certain
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Recommendation SummaryMove in 2015MelawiaNo incentive package
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Questions & Comments
Thank you!