Developing Your Legal Playbook for Global Expansionweb1.amchouston.com/flexshare/001/Laura/ACCW... · Our experienced team of global practitioners works hand-in -hand to guide you

Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.

© 2014 Baker & McKenzie LLP

Developing Your Legal Playbook for Global Expansion

September 16, 2014 Association of Corporate Counsel Seattle, WA


Panelists Keenan Conder Tableau Software VP & General Counsel

Tracy Neighbors Microsoft Corporation International Tax Counsel

Regine Corrado Baker & McKenzie Corporate & Securities

Lothar Determann Baker & McKenzie International Commercial

Valerie Diamond Baker & McKenzie Global Equity Services

Susan Eandi Baker & McKenzie Global Employment & Labor Law

Gary Sprague Baker & McKenzie Tax

Kerry Weinger Baker & McKenzie Global Mobility

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© 2014 Baker & McKenzie LLP 3

Baker & McKenzie: Our Global Reach

Baker & McKenzie covers the world over. With our expansive global footprint, our clients tell us they rely on our ability to provide a deep level of local expertise while ensuring a global perspective to their business and legal needs.

Baker & McKenzie Facts

76 offices in 47 countries

More than 4,100 lawyers admitted to practice in over 250 jurisdictions and fluent in 75+ languages

We are in markets that matter 37 of the world’s 50 largest economies 13 of the top 15 global financial centers 13 of the 15 most resource-rich markets Geographic initiatives

Africa Drawing upon our global Africa expertise, regional African offices and long-standing local counsel relationships, we are able to service our clients across the entire African continent

Asia In addition to our decades on the ground in key jurisdictions across Asia, we have well established initiatives to support clients on projects and opportunities in India and Mongolia


Agenda − Welcome Remarks − Best Choice of Entity to Establish in the Country Given Your Business

Operations and Employment Needs IP options Export controls Data privacy Distribution Incorporation

− Tax Considerations in Light of Short and Long-Term Business Objectives − Tax strategy for going international

− Employment Factors to Ensure a Winning Team Hiring Equity awards Global mobility

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Going Global - Solving the Puzzle Expanding internationally? Baker & McKenzie can assist with solving the puzzle by providing all the necessary pieces to ensure a successful launch of your business in a new country. Our experienced team of global practitioners works hand-in-hand to guide you through the process and provides practical and up-to-date solutions tailored to your business. Serving our clients with more than 4,000 lawyers in 46 countries, Baker & McKenzie has a deep understanding of the culture of business the world over and is able to bring the talent and experience needed to navigate complexity across practices and borders with ease.

Employment Preparation of offer letters, employment contracts, secondment and consulting agreements, as well as bonus, commission and other compensation plans. Assistance with implementation of work rules, handbooks and global codes of conduct and ethics. Advice on discrimination, harassment and retaliation matters, redundancies and workplace safety.

Incentive Compensation Advice on tax treatment and compliance/regulatory issues related to offering of all forms of equity and other incentive compensation to local service providers as well as expatriate or other transferring service providers. Assistance with completion of any tax or regulatory filings necessary for implementation of incentive plans. Preparation of award documents for local service providers designed to mitigate company exposure under local labor and other laws.

Foreign Incorporation/Corporate Maintenance Advice on the choice of corporate entity best suited to achieve client’s goals, taking into account tax, employment and other business considerations, commercial registry laws as well as regulatory issues, such as foreign exchange and export control regulations. Assistance with the incorporation of subsidiaries, registration of branches and provision of company secretarial services where applicable, as well as ongoing maintenance of such entities around the world.

Immigration & Mobility Advice on all requirements for inbound and outbound immigration of service providers. Assistance with implementation of expatriate assignments, including related benefits and tax planning. Management of visa, residence or work permit applications and continued maintenance of visas and permits obtained for service providers.

Tax Advice on tax strategies for minimizing U.S. and foreign taxes. Advise on cross border licenses, supply chains, payment flows, and cash repatriation. Plan and implement transfer pricing strategies, including economic analysis. Representation in various forms of dispute resolution including Advance Pricing Agreements, Mutual Agreement Procedures, audits, administrative appeals, and tax litigation.

Privacy Advice on global data privacy compliance, electronic commerce and legal issues related to Internet and other new media businesses, including content distribution to mobile devices, social networking websites, user-generated content and virtual worlds. Assistance with necessary local registrations of databases and data transfer agreements between entities.

Compliance Advice on export controls, customs regulations, anti-boycott regulations, anti-bribery and corruption laws, e-commerce, advertising regulations, product requirements (incl. RoHS, WEEE, REACH) as well as antidumping and unfair import trade practices.

For more information on our international expansion practice, please contact: [email protected] 5

mailto:[email protected]


– Growing on the Gridiron:

Best Choice of Entity

– Regine Corrado – Lothar Determann – Keenan Conder, Tableau Software

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=7btZtnBLIObloM&tbnid=lv-gCiYpjiKf_M:&ved=0CAUQjRw&url=http://www.surreyfootball.com/football/coaches-corner/&ei=4-J3UsanBIyX0QWqqIDwDA&bvm=bv.55819444,d.d2k&psig=AFQjCNGSAtcRd6VTXiIuRkBcyYMJGnBGFQ&ust=1383674879264628


First Down:

IP Options


1. Intellectual Property – Have You Secured It? − Documenting IPR Assignments from inventors, founders.

contractors, employees Does “Work Made for Hire” “work” abroad? Best approaches

− Choosing the name (existing or new) to be used in new market Clear and register early Domain names

− Patent Rights − Protecting trade secrets and know-how? − Appropriate entity to own your IPR

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The Top 9 IP Mistakes

1. Choosing a non-distinctive brand 2. Choosing a brand that does not translate 3. Failing to secure key domains / social tags 4. Disclosure of patentable ideas too early 5. Not securing employee inventions 6. Thinking patents are all that matters 7. Relying on open source / third party code 8. Not planning for the complexity of multinational rights licensing 9. Not being able to prove title

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The Top 9 13 IP Mistakes

10. Giving your crown jewels away without adequate protection 11. Leaving it too late to start enforcement 12. Overcooking / undercooking global IP protection 13. Not getting the formalities right

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An IP Strategy to Go Global Pick a distinctive brand, plan early / take advantage of the Madrid Protocol where possible

Secure relevant gTLDs, key country-code domains and social tags

Understand the relevant copyright landscape

Always use NDAs before disclosing and ask around about foreign partners

Know what IP you own and be able to prove it

Be vigilant and suspicious - watch and enforce

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Second Down:

Taking orders as they come


Contract Terms

− Shifting burdens to foreign buyer − Choice of law − Dispute resolution provisions − Battle of forms − Incoterms

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United States Export Control Regulatory Programs − International Traffic in Arms Regulations (“ITAR”)

Impose controls on the export, reexport and retransfer of “defense articles”, related technical data, and “defense services”

− Export Administration Regulations (“EAR”)

Impose controls on the export, reexport and (in some cases) in-country transfer of “dual use” commercial commodities, software and technology

− OFAC Economic Sanctions Regulations

Implement the United States Government’s commercial and financial embargoes and other sanctions on certain countries, and economic sanctions imposed on certain persons and entities (as listed on the OFAC SDN List)

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Third Down:

Going Global Online


©2003, 2010

Baker & McKenzie

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− Regulatory Restrictions Is your product / service legal? Homologation, notices Online sales, cancellation rights, consumer warranties

− Contracts Electronic contract formation Localization, translations

− Taxes VAT, GST, income tax withholding Data privacy, security

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Going Global Online


− Who is in charge?

− What do you do to keep data secure?

− Do you have notices and consents as needed, accurate and up to date?

− Are DPA filings up to date?

− Do have international data transfers covered?

− Are your whistleblower hotline and monitoring programs legal?

− Are your marketing activities in compliance?

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Privacy Compliance Program Checklist


Fourth Down: Signing Up Suppliers & Distribution Partners


©2003, 2010

Baker & McKenzie

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Selling Direct, With Agents / Sales Reps, Resellers? Control, Risks and Opportunities − Dealer Termination Compensation − Permanent Establishment − Competition Laws on Vertical Restraints − Risk, Chances, and Control − Enforceability of Shrink-wrap Agreements − First Sale Doctrine − Revenue Recognition

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Dispute Resolution Clauses – Managing the International Dispute − Governing law clause − Forum selection clause − Arbitration clause − Attorney fees clause

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Touchdown:

Incorporation Options


Traditional Growth – Formation of Subsidiaries, Branches and Other Presences − Subsidiary – legal entity separate from parent company

Stock Corporations (e.g., SA, AG, SpA, KK) Limited Liability Companies (e.g., SARL, GmbH, AB, S.r.l., GK)

− Branch - extension of main company, fully operational − Representative/Liaison Office – limited to non-income generating

activities (e.g., “preparatory and auxiliary”)


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Drivers for Choice of Presence

− Tax considerations (e.g., permanent establishment, utilization of projected losses, “check-the-box” entities, transfer pricing)

− Business considerations (e.g., legal restrictions on scope of activity)

− Market place perception − Management structure − Ongoing cost of maintenance − Timing constraints − Employment


Incorporating Subsidiaries − Bottlenecks that may delay formation of subsidiary

Name clearance Registered address/office Choosing an appropriate management structure Bank accounts Deposit of initial capital Nominee shareholders Apostille/legalization requirements (Brazil) Translation requirements KYC requirements (privately held companies) Shelf companies

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Elements of an Effective Global Corporate Maintenance Program − Fix past problems

− Plan for the future

− Stay in control of the process

− Smart choices to make life easier for yourself

− Compliance

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– Getting to the Red Zone:

Tax Opportunities and Pitfalls

– Tracy Neighbors, Microsoft – Gary Sprague



Four Key Phases of Going International: Tax

1 2 3 4

Get the basics right

• VAT and customs compliance

• Maximize home country tax incentives (e.g. R&D credits)

• Check your terms and conditions to make sure they are flexible enough for you to change structure to local contracting entity in future

Keep it simple

• Payroll compliance for local employees

• Localise equity incentive plan

• Minimize PE exposure for home country operating co

• Keep structure and transfer pricing arrangements simple and low cost

• Maximise local incentives/subsidies

Start to plan

• Consider local customer contracting

• Investigate more substantive local incentives (e.g. patent/innovation box)

• Optimize IP ownership structure

• Review legal entity structure and consider holding company planning

Implement

• Execute more sophisticated IP planning

• Consider greater functional centralization

• Review group compliance and exposure

Sales to International Customers

"Boots on the Ground"

First Employees / Local Entity

Multiple Local Entities /

International Profitability

Established International

Structure

International Revenues Profits Internationally

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An Effective Tax Strategy Gauges and Mitigates Risks

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EU tax climate and OECD BEPS project

Possible changes in US tax law

Start up losses and path to profitability

Local presence but not too much local tax

Cash management and financing offshore operations

Tax planning vs. operational flexibility


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Stage 2 – Cleats on the Ground − Personnel

Using contractors vs. employees

− Local taxable presence (“permanent establishment”)

Home office

Employees using other person’s premises

Company office

“Preparatory or auxiliary” activities

− Legal entity

Branch vs. subsidiary


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Stage 3 – Designing a Structure − Two fundamental elements guide much tax planning

World wide tax regime of US law Taxable income follows functions, assets & risks

− Challenges faced by US MNCs under worldwide system Tax on repatriated foreign earnings traps cash offshore Highest rate in the OECD Subpart F Is there an alternative?

− Transfer pricing Goal is to maximize value-creating activities in appropriate

places International tug of war currently underway on relative

contributions of functions, assets & risks (and markets)


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Dealing With Tax Authorities − Incentives − Rulings − Audit practices − Dispute resolution procedures − Impact on choice of operational locations?


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Other Items to Watch Out For… − Withholding tax − VAT − Employment taxes


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Stage 4 – Centralized Base Company Structures − Base company established in tax favored jurisdiction − The key is transferring “economic ownership” of the

company’s valuable intangible assets to base company IP migration has been popular among technology based

companies Patents, copyrights, etc. can still be registered in the US and

owned by a US company Core development team will not need to move to outside the

US (unless, of course, they want to) − Also critical to establish appropriate business / operational

substance in that location


Deferral Structure – Illustration

USP, Inc.

Foreign Customers

US HoldCo

Customer revenue

Foreign HoldCo

Foreign Incorporated

Entity

Low rate of local tax

Fee for admin and other services

Buy-in payment / cost sharing payments

Royalty

Holds non-US IP rights

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− Cost sharing − Contract R&D − License − Phased approach: license

now, perhaps cost share later

− IP partnership


– Team Huddle:

Employment Factors to Ensure a Winning Team

– Valerie Diamond – Susan Eandi – Kerry Weinger



Draft Day:

Hiring Employees

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Play No. 1: Which Team? Pick the Right Engaging Entity What are the options? • “Foreign” employers

• US parent company or US / non-local holding company

• Local employers • Local subsidiary, branch or

representative / liaison office • Third party entity

• Manpower-like companies, PEOs, partners / distributors

• Individual • Independent contractors

Key Considerations • US tax consequences / local

country tax consequences • Taxable presence or

permanent establishment • Doing business requirements • Employment law requirements • Eligibility for equity grants • Local country pension issues

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Play No. 2: Preparing for the Draft – Who is Being Hired / Engaged? − Director / manager v. non-manager − Employee v. independent contractor

Ensure the nature of the relationship is properly classified, i.e., reality v. the “label”

Continued / extensive use of independent contractors globally raises misclassification risks worldwide

− Employee through third party employer − Employee on expatriate assignment / secondment / TCN

Immigration considerations


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Play No. 3: Equipment Check – Payroll, Benefits, CBAs − Local payroll and benefits provider? − Do application forms comply with local non-US

requirements? − Limits / requirements on pre-employment checks? − Do documents require translation? − National Collective Bargaining Agreements? − Additional government filing requirements? − Local country issues with split and dual compensation

Caution: Data privacy laws


Play No 4: Game On! Documenting the Hire Employment Contract • Offer letter vs. employment

contract? • Must be compliant with local laws • Changes may require express

consent or be unenforceable, avoid binding statements re: bonus/commission or benefits

• Cultural differences • Key terms

PIIAs • Included in employment contracts

vs. free-standing • Intellectual property protection • Confidentiality • Non competition / solicitation • Enforceability of restrictive

covenants

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Key Policies • Handbooks, work rules, internal

regulations, etc. • Variable compensation /

commission / bonus plans • Codes of Conduct


Play No. 5: There’s Always Next Season – Know Your Exit Strategy Going In − Plan for flexibility in hiring

types of hires depending on short / long term plans

− Plan for notice, severance and consultation obligations

statutory notice and / or severance can be “hidden” costs

− Trap for the unwary – nonsolicit / noncompetes

rapidly changing laws on enforceability (and costs) of noncompetes

− Be prepared for business change

Understand compliance obligations from the outset

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Player Contracts:

Global Equity Services

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1. Equity is Not Employment Income US Issuer Program – Not “compensation” paid by employer, but special benefit paid by

parent company issuer – Not a term of local employment agreement / offer letter

Use of side offer letter Governed by US state law Grants subject to approval of comp committee/board Agree to execute grant documents Not translated

– If you need sample side letter, let us know

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Global Form of Agreement to Minimize Entitlement and Mobility Issues – One agreement covering terms for US and non-US

employees with country-specific appendix Equity not an annual benefit or ongoing rights

Equity not part of severance indemnities

Governing Law is US state law

Translations are almost always unnecessary (and possibly harmful)

Mobile employees should be considered

– Special Labor Laws (Denmark), avoid Works Councils – Contractor vs. employee considerations

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2. US Equity Grants are Subject to Non-US Securities and Exchange Controls

− Securities Laws – generally territorial, usually exemption available (but understand thresholds and/or necessary disclosure) & typically applies at grant (but may be applicable at issuance) Key problem countries: Australia, Japan (options/ESPP), EU

(ESPP), Italy (financial intermediary), Malaysia, New Zealand, Philippines, Saudi Arabia

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2. Equity Grants are Subject to Non-US Securities and Exchange Controls

− Exchange Controls – generally based on residency, may restrict funds or shares, usually an employee (not company) obligation & be careful about repatriation Key problem countries: Argentina, China, Ukraine, Vietnam

also India and Russia (repatriation)

− See 50 country matrix / app

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3. US Issuer Equity Grants Do Not Escape Local Tax and Social Security – 6 Key Points 1. Not all countries tax awards at the same time, in the

same manner or based on the same value as US Key countries: Australia (options taxed at vesting),

Belgium (options taxed at grant), Denmark, India (valuation), Malaysia

2. Both Income and Social Taxes (at high uncapped rates) typically apply Key countries: Sweden (31.42% uncapped), UK (13.8%

uncapped) 3. Know where your withholding and reporting obligations

exist Key countries: China, India, France, Germany, Malaysia,

Taiwan, UK 47


3. US Issuer Equity Grants Do Not Escape Local Tax and Social Security – 6 Key Points 4. Special Annual Reporting Exists for Equity That Differs

from Compensation Key countries: France, Japan, Switzerland, Taiwan, UK

5. Tax Favored Plans Available to Avoid or Minimize Social Taxes Key countries: Canada (50% options), France, Israel, UK

6. Beware of Penalties and Bad Press Related to Tax on Equity Key countries: France, Japan, Korea, Taiwan, UK 48


Coaching to Win:

Managing Global Mobility

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Types of Mobile Employees – Cross-border travelers – Short-term international assignments – Expatriate assignments – Indefinite/permanent transfers – Others:

Rotators Virtual assignments Global nomads Business commuters Don’t forget about those working from home

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Major Issues to Consider for the Mobile Employee

– Who should be the employer? – Immigration compliance – Income tax and social security compliance – Benefit plan issues

– Documenting the assignment / relationships


Who Should be the Employer?

– Answer depends on circumstances – Typically, answer is driven by benefits and tax concerns,

more than by employment law concerns – Alternative employment structures:

Termination & rehire by host country employer Secondment Termination & rehire by global employment company

followed by secondment Dual employment Dormant home employment; active host employment

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Immigration Law Requirements – “What work permit requirement?”

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Remember… – It all takes time!

– You may be transferring the family as well as the employee!


Income Tax and Social Security – Individual Income Tax Withholding / Reporting:

Applicable tax treaty?

Home location withholding / reporting required?

Host location withholding / reporting required?

Tax equalization / protection?

– Social Security Withholding / Reporting:

Applicable social security agreement?

Home location withholding / reporting required?

Host location withholding / reporting required?

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Benefit Plan Issues – Mobile Employees – Can the employee continue participation in home country

private benefit plans if so, what are the implications?

– Can the employee participate in host country private benefit plans, if any, and if so, what are the implications?

– Type of plans to consider:

Retirement plans

Welfare benefit plans

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Documenting the Assignment / Relationships – Letter of understanding / assignment letter

– Employment transfer consent

– Secondment / intercompany agreements

– Local employment agreement

– Repatriation letter

– Repayment agreement

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Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.


Developing Your Legal Playbook for Global Expansion

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Developing Your Legal Playbook for Global Expansionweb1.amchouston.com/flexshare/001/Laura/ACCW... · Our experienced team of global practitioners works hand-in -hand to guide you