1. NEW BUSINESS OPPORTUNITIES
IN THE UNITED STATES
The United States Commercial
Service of The American Embassy
in Bucharest, Romania
and
Roger Royse
Royse Law Firm, PC
California, USA
March 5th, 2012
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.

2. GENERAL CONSIDERATIONS
Payroll
Employees Tax
Liability Protection US Business Transfer Pricing
Capitalization Intellectual
Regulatory Property
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3. 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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4. REGULATORY ENVIRONMENT
Open Competition vs. Consumer & Employee Protection
Interstate Commerce vs. Intrastate Commerce
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5. INTELLECTUAL PROPERTY PROTECTION
• Trademark
• Copyright
• Patent
• Trade Secret
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6. ACCOUNTING
• Tax Accounting
• Financial Accounting
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7. US BRANCH VS. US INCORPORATION
US Branch US Incorporation
Foreign Entity Foreign Entity
US Branch US Sub
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8. WHERE TO INCORPORATE
Delaware California
vs. vs.
Nevada
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9. 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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10. EFFECTIVELY CONNECTED INCOME
• Income effectively
connected with a US
trade or business
• Dependent agent
US PE
• Effects?
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11. 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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12. TRANSFER PRICING
BUY-SELL MODEL
Parent • Buy Sell
Company
• Just-in-Time Inventory
System
$ Products
Services
US Customers
$
US Profit
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13. TRANSFER PRICING
COMMISSION MODEL
Parent
Company
Products
Sales Services
Support
Services
US Customer
Sales & Product Support
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14. IP HOLDING COMPANIES
Technology and
Parent Intellectual Property
Company
• Deferral
IP Holding • Worldwide Tax
Company Rate
Royalty • Withholding Tax
Issues
License
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15. CAPITALIZATION
Parent
Company • Debt
• Deductible interest, but must
pay or accrue
• Must be repaid
Debt • “Deep Rock Doctrine”
$
Equity • Equity
• Not required to be repaid
• Dividends are nondeductible
• Thin Capitalization Rules
• Earnings Stripping
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16. EARNINGS STRIPPING
Parent
Interest Company Loan
Payments
• Loans from the foreign parent to the US Sub requiring the
payment of deductible interest back to the foreign parent
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17. EMPLOYEES
• Secondment Agreement
Parent
Company
• Limitations on Authority
Fee Employees • Tax Withholdings
Services
• Tax Gross-Ups
• Totalization
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18. 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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19. 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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20. 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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21. REAL ESTATE
SECTION 897 – FOREIGN INVESTMENT IN REAL
PROPERTY TAX ACT OF 1980 (FIRPTA)
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22. WITHHOLDING TAXES
TREATY EFFECT
• Dividend
• Interest
• Royalties
• Service Income
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23. TREATIES
OTHER
• Permanent Establishment Required for Tax on
Business Profits
• Information Exchange
• Competent Authority
• Non Discrimination
• Limitation of Benefits
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24. COST SHARING
US
Company
Buy In Ownership
Payment of Intangibles
Foreign
Operations
Company
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25. ANTI-DEFERRAL REGIMES
SubPart F Effectively
(Controlled Foreign Connected Income
Corporations)
Passive Foreign Transfer Pricing
Investment Company
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26. INTERNATIONAL E-COMMERCE
Transfer Pricing
Witholding
Super Roylaty
Anti-Deferral
Regimes
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27. INTERNATIONAL E-COMMERCE
OPERATIONS
US or
Cost Foreign
Sharing Company
License
Deemed
Sale International
Holding
Company
Local
Customer Server License/Royalty
Fees/Sales Company
Company
Royalties
Commission/Fees
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28. IP HOLDING COMPANY STRUCTURES
Founder Preferred
Optionees Shareholder
US Sales
Foreign Company
US
Holds Technology
Company
Contract R&D
100%
Service Fees
Service
Local Products Tax Haven Fees [PRC]
Distributors Company
Contract
Manufacturer
Manufacturing
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29. IP HOLDING COMPANY STRUCTURES
Founder Preferred
Optionees Shareholder
US Sales
Foreign Company
US Holds Technology
Company
Contract R&D
100%
Service Fees
Service
Local Products Tax Haven Fees [PRC]
Distributors Company Manufacturer
Contract
Manufacturing
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30. IP HOLDING COMPANY STRUCTURES
US Company
Domestic Company
US Sales Holds Technology
Contract R&D
Product sales
Local 100%
Technology License
Distributors
100% Tax Haven
Products
Local Sales
Service
Fees
Contract
Manufacturer Manufacturing
(or License)
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31. STATE TAX ISSUES
• Employees
• Admin, legal and commercial California
• Registrations, enforcement Parent
• R&D, commercialization
IP License
Transfer Back
Nevada IP
Holding Co.
Services Income
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32. CALIFORNIA “ECONOMIC” NEXUS
Revised Section 6203 of the CA Revenue and Taxation Code
• Taxpayers “doing business” in California are subject to
tax in California. 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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33. EXON-FLORIO REVIEW BY CFIUS
Committee 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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34. APPENDIX
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35. APPENDIX
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36. PALO ALTO LOS ANGELES SAN FRANCISCO
1717 Embarcadero Road 11150 Santa Monica Blvd., 135 Main Street,
Palo Alto, CA 94306 Suite 1200 12th Floor
Los Angeles, CA 90025 San Francisco, CA 94104
www.rroyselaw.com
www.rogerroyse.com
E-mail: rroyse@rroyselaw.com
Skype: roger.royse
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