NEW BUSINESS OPPORTUNITIESIN THE UNITED STATES

Roger RoyseRoyse Law Firm, PC

California, USA

IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication, including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein.

March 5th, 2012

The United States Commercial Service of The American Embassy

in Bucharest, Romania

and

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GENERAL CONSIDERATIONS

US BusinessLiability Protection

Capitalization IntellectualProperty

Transfer Pricing

Employees

Payroll

Tax

Regulatory

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THE U.S. MARKET

• 3.7 Million Square Miles• GNP - $12 Trillion• Free Trade Agreements

- NAFTA, CAFTA, WTO, OECD, APEC, OAS

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REGULATORY ENVIRONMENT

Open Competition vs. Consumer & Employee Protection

Interstate Commerce vs. Intrastate Commerce

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INTELLECTUAL PROPERTY PROTECTION

• Trademark

• Copyright

• Patent

• Trade Secret

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ACCOUNTING

• Tax Accounting

• Financial Accounting

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US BRANCH VS. US INCORPORATIONUS Branch US Incorporation

Foreign Entity

US Branch

Foreign Entity

US Sub

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WHERE TO INCORPORATE

Delaware

Nevada

California

vs.vs.

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CHOICE OF ENTITY

Which one is right for you? • Limited Liability Company (LLC)• Limited Partnership (LP)• C Corporation• S Corporation • Statutory Trust

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EFFECTIVELY CONNECTED INCOME

• Income effectively connected with a US trade or business

• Dependent agent

• Effects?

US PE

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TRANSFER PRICING

• Code section 482• “Controlled" entities• Arm's length standard• Understatement penalties – 20% or 40%• Adequate documentation (i.e. a transfer price study)

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TRANSFER PRICINGBUY-SELL MODEL

US Customers

US Profit

• Buy Sell• Just-in-Time Inventory

System$ Products

Services

$

ParentCompany

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TRANSFER PRICINGCOMMISSION MODEL

Sales & Product Support

Sales Support Services

US Customer

Products Services

ParentCompany

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IP HOLDING COMPANIES

License

Technology and Intellectual Property

Royalty

• Deferral• Worldwide Tax

Rate• Withholding Tax

Issues

IP Holding Company

ParentCompany

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CAPITALIZATION

• Debt• Deductible interest, but must

pay or accrue• Must be repaid • “Deep Rock Doctrine”

• Equity• Not required to be repaid• Dividends are nondeductible

• Thin Capitalization Rules• Earnings Stripping

$DebtEquity

ParentCompany

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EARNINGS STRIPPING

• Loans from the foreign parent to the US Sub requiring the payment of deductible interest back to the foreign parent

LoanInterest Payments

ParentCompany

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EMPLOYEES

Fee EmployeesServices

• Secondment Agreement

• Limitations on Authority

• Tax Withholdings

• Tax Gross-Ups

• Totalization

ParentCompany

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FOREIGN PERSONNEL

• VISA Requirement• Non-Resident Alien or Resident for Tax

- Green Card- Substantial Presence Test- Treaty Definitions

• Estate and Gift Tax- Domicile

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EMPLOYEE RIGHTS

• Minimum Wages & Maximum Hours• Non-Discrimination• Pension Rights – ERISA & Social Security• Health and Safety• Unemployment• Sexual Harassment• Mass Layoffs (WARN Act)

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INTER-COMPANY AGREEMENTS

• Shipping Terms• Payment Terms• Risk of Loss & Title Passage• Insurance• Most Favored Nation Clauses• Price Protection• Indemnity• Warranty• Trademarks & Marking

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REAL ESTATESECTION 897 – FOREIGN INVESTMENT IN REAL

PROPERTY TAX ACT OF 1980 (FIRPTA)

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WITHHOLDING TAXESTREATY EFFECT

• Dividend

• Interest

• Royalties

• Service Income

TREATIESOTHER

• Permanent Establishment Required for Tax on Business Profits

• Information Exchange• Competent Authority• Non Discrimination• Limitation of Benefits

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COST SHARING

USCompany

Foreign OperationsCompany

Buy InPayment

Ownershipof Intangibles

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ANTI-DEFERRAL REGIMES

SubPart F (Controlled Foreign

Corporations)

Passive Foreign Investment Company

Transfer Pricing

Effectively Connected Income

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INTERNATIONAL E-COMMERCESuper Roylaty

Tran

sfer

Pric

ing

Witholding

Anti-DeferralRegimes

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INTERNATIONAL E-COMMERCE OPERATIONS

ServerCompany

License/Royalty

Commission/Fees

CustomerFees/SalesRoyalties

DeemedSale

LocalCompany

InternationalHolding

Company

US or Foreign

CompanyCost

Sharing

License

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IP HOLDING COMPANY STRUCTURES

OptioneesFounder Preferred

Shareholder

Foreign Company Holds Technology

US Sales

US Company

100% Contract R&DService Fees

LocalDistributors

Products Tax HavenCompany

Service Fees

ContractManufacturing

[PRC]Manufacturer

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IP HOLDING COMPANY STRUCTURES

OptioneesFounder Preferred

Shareholder

Foreign Company Holds Technology

US Sales

US Company

100% Contract R&DService Fees

LocalDistributors

Products Tax HavenCompany

Service Fees

ContractManufacturing

[PRC]Manufacturer

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IP HOLDING COMPANY STRUCTURES

US Sales

US Company

Contract R&DProduct sales

Tax Haven

Technology License

100%Products

Service Fees

ContractManufacturing(or License)

Manufacturer

100%LocalDistributors

Local Sales

Domestic Company Holds Technology

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STATE TAX ISSUES

CaliforniaParent

Nevada IPHolding Co.

IP Transfer

LicenseBack

Services Income

• Employees• Admin, legal and commercial• Registrations, enforcement• R&D, commercialization

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CALIFORNIA “ECONOMIC” NEXUS

California

Revised Section 6203 of the CA Revenue and Taxation Code• Taxpayers “doing business” in California are subject to tax

in California.• “Doing business” includes when a taxpayer:

(1) - engages in any transaction for financial or pecuniary gain within California; or

(2) - is organized or commercially domiciled in California; or

(3) - has annual sales in California that exceed the lesser of $500,000 or 25% of total sales; or

(4) - has real and tangible personal property in California with a value exceeding the lesser of $50,000 or 25% of total property; or

(5) - has payroll in California that exceeds the lesser of $50,000 or 25% of the total payroll.

• Activities of partnerships and LLCs are attributed to their owners for purposes of determining whether the owner is “doing business” in California.

• Amount of tax still depends on apportionment.

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EXON-FLORIO REVIEW BY CFIUSCommittee on Foreign Investment in the United States (CFIUS):• The Exon-Florio Amendment to the Omnibus Trade and Competitiveness Act of

1988 provides the President of the U.S. with authority to suspend or block transactions that would allow a foreign person to a control a U.S. business when there is “creditable evidence” that such transaction may “impair the national security”

• CFIUS, an inter-agency cabinet level committee performs the review.• To determine whether a transaction is covered, ask:

(1) - does the transaction involve a foreign person acquiring a U.S. business?(2) - does the transaction involve a “change of control”?(3) - does the transaction impair U.S. national security interests?

• Review process could take up to 90 days.

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APPENDIX

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APPENDIX

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PALO ALTO1717 Embarcadero Road

Palo Alto, CA 94306

LOS ANGELES11150 Santa Monica Blvd.,

Suite 1200Los Angeles, CA 90025

SAN FRANCISCO135 Main Street,

12th FloorSan Francisco, CA 94104

www.rroyselaw.comwww.rogerroyse.com

E-mail: rroyse@rroyselaw.comSkype: roger.royse