International Trade Business Surgery
Wednesday 18th May 2011
• Jim Fanshawe, Suffolk International Trade Group and UKTI
• Alex Davey, Birketts LLP
• Gordon Hopkins, PKF LLP
• Graham Coker, NatWest
International Trade Business Surgery
Wednesday 18th May 2011
• Should I be an exporter
• Developing you export business
Increased sales
Increased profits
Enhanced innovation
Economies of scale
Exporters
Exploiting
technology and
expertise in foreign
markets
Minimising the
effect of seasonal
sales fluctuations
Overcoming low growth
in the domestic
marketplace
Am I ready to export?
Resources
and
Strategy
• Time
• Knowledge
• Money
• International included in overall growth
plan
• Well developed sales and marketing plan
Am I ready to export?
Product
or
Service
• Competitive advantage
• International Standards
• Product adaptability
• Sufficient protection
• Support
Am I ready to export?
Market
• Target markets selected objectively
• Routes to market
• Potential customers
• Language and culture
• Price
Am I ready to export?
Business
Capacity
• Operational capacity
• Skills capacity
• Financial & cash flow
• Procedures & IT
Developing your export business
vs
Consider your time and personnel resources
Developing your export business
Market
•
•
•
•
What makes an attractive market
How many can you realistically handle
Alter route to market
ROI timescale
Developing your export business
Route to
Market
•
•
•
•
•
•
Agents / distributors
Sales office
Direct exporting
Own sales force
JV
M&A
Developing your export business
Agent
Principal
Customer
Developing your export business
Distributor
Principal
Customer
Developing your export business
How to
find a
good
partner?
• KOMPASS and other directories
• Trade publications (news and adverts)
• Trade Associations
• UKTI - Overseas embassies (OMIS reports)
• Chambers of Commerce
• Word of mouth
• Ask end-users
• Ask other companies in your sector
• Internet
• Trade shows
Developing your export business
Questionnaires
• Plan and be thorough
• Can impress potential
distributors
• It’s a two way exercise
Developing your export business
Practicalities
• How many per territory
• Exclusivity
• Balance of Power
• Regular input
• Incentives
• Language and culture
Developing your export business
• Something in writing
Agreement • Purpose?
• Key points / Clauses
Developing your export business
Agreement
•Branding
•Product Mix
•Promotional programme
•Their sales channels
•Local approvals and standards
•After sales support and warranties
•Law – UK or local
•Targets linked to promotional programme &
termination clause
Are Your Contracts Watertight?
Alex Davey - Partner
About Birketts
Corporate
Private
Client
Corporate/
Commercial Banking/
Finance
Wills
Employment
Property
Tax
Agriculture
Commercial
Residential
&
Trust
Contentious
Support
Litigation
Shipping and
Logistics
Health &
Safety/Transport
Regulatory
Corporate
Immigration
Competition Law
Construction
Topics
1. Why is a contract important?
2. Contents of Contracts
3. Incorporation of Terms
4. Conclusions and Tips
Why is a Contract Important?
• Relationships change
• Regulates rights and responsibilities in law
• Risk management
• Time and costs
International Trade Contracts
• Sale Contracts
• Payment
- Letters of Credit
- Guarantees
- Factoring/invoicing Agreements
• Transport contracts
• Insurance contracts
What sort of Contract?
• Full bespoke signed contract
• Signed Agreement and signed T & C’s
• Signed Agreement plus T & C’s
• Quote plus T & C’s
• Quote
• Verbal Agreement
• No Contract
A “good” contract?
• Clear written record of the deal
• Should be relevant to the transaction
• Easily understood
• Record essential terms to minimise risk of dispute
Potential Pitfalls
• Identify Parties
• Liabilities/Limits and Exclusion of Liability
• Terms and Termination
• Law and Jurisdiction
• Agents & Principals (Carriers and Forwarders)
• Incorporation of Terms and Conditions
Agent or Principal
Customer (a)
Principal (b)
Sub- Contractor (c)
Customer (a)
Agent (b)
Contractor (c)
Incorporation of Terms
•
Introducing your contract at the right time in the transaction (i.e. the
beginning)
•
Making sure your terms, not the other party’s, apply
•
Individual onerous or unused provisions.
Conclusions
• Why a contract is important?
• Contents of a contract
• Incorporation of terms
• Tips
-
make sure you understand your contract and standard
terms
-
amend stationery
Alex Davey
24-26 Museum Street
Ipswich
Suffolk , IP1 1HZ
Tel: 01473 406234
Fax: 01473 416915
Maximise Your Tax Efficiency
Cross Border
Insert client logo here
(or delete box)
Gordon Hopkins
Senior Manager
PKF (UK) LLP
gordon.hopkins@uk.pkf.com
www.pkf.co.uk
© PKF (UK) LLP
Trading Overseas
•
Will the profits be taxed overseas?
– What triggers this?
•
•
•
•
•
•
www.pkf.co.uk
Can the profits be taxed overseas and in the UK?
– Relief for overseas taxes?
Business structures
Losses – any relief?
Repatriating profits to UK
Other taxes?
Changes in taxation of cross border activities
© PKF (UK) LLP
Will the profits be taxed overseas?
•
•
Key is whether the activities give rise to a taxable
presence in the overseas country
Has a ‘Permanent Establishment’ been created?
– First consider domestic tax law; then
– Double tax agreement
www.pkf.co.uk
© PKF (UK) LLP
Permanent Establishment (PE)
•
Relevant Double Taxation Agreement will usually say
what does and does not amount to a PE.
– Often specifically included
•
•
•
•
Place of management – ability to conclude contracts
Branch
Office
Factory/workshop
– Common exclusions
• Facilities solely for
– Storage and/or Delivery
– Display
– Purchasing of stock or goods
– Advertising
– Activities of preparatory nature
• Business carried on through an independent broker/agent
www.pkf.co.uk
© PKF (UK) LLP
Permanent Establishment (PE)
•
•
Definitions of a PE vary so always check relevant DTA
Advantages & Disadvantages of having a PE
– Vary from country to country
– No PE then subject to UK corporation tax only – good
if UK tax rate lower but does this override commercial
considerations?
– If no PE it can mean that other taxes apply instead i.e.
withholding tax, state taxes say in US
www.pkf.co.uk
© PKF (UK) LLP
Structures (1)
•
What vehicle to operate through?
– Branch
– Subsidiary
– Other
•
Others might include:
– Partnerships
– LLCs
•
How treated in UK?
– UK look for similarities in structures e.g. share capital
– Does not have to be consistent with overseas
treatment
www.pkf.co.uk
© PKF (UK) LLP
Structures (2)
•
Profitable?
– If tax rate lower than UK may favour company
•
Loss making?
– Losses of a branch available for offset against UK
profits
– Losses of a company potentially ring fenced in that
company subject to residence status
– Could incorporate the branch once profit making
www.pkf.co.uk
© PKF (UK) LLP
Company Residence
•
Where is the company resident for tax purposes?
– Central management and control
• High level decisions rather than day to day
• Not automatically where the parent company is
resident
– HMRC taking an increasing interest – think they are
missing out!
www.pkf.co.uk
© PKF (UK) LLP
Future Intentions
•
•
•
What are the longer term objectives – possible sale?
Where do you want the proceeds to go?
Ownership
– By individual shareholders
• Gain potentially taxable at 10%
– As a subsidiary of the UK company
• Gain potentially exempt under Substantial
Shareholdings Exemption
www.pkf.co.uk
© PKF (UK) LLP
Measuring overseas profits
•
•
Pressure on respective governments to maximise tax take
Can lead to differences of opinion as to the profit made by
the business in the overseas country
– Apportionment of profit margin
– Level of deductible management charges
– Finance cost (whether more appropriate to view loan
as share capital)
•
www.pkf.co.uk
Mutual agreement clause in DTA
© PKF (UK) LLP
Measuring the profit
•
Anti avoidance
– Transfer Pricing
• Documentation requirements depending on size of
business
– Controlled Foreign Companies
• Low tax jurisdictions
• Attribute profit back to UK
www.pkf.co.uk
© PKF (UK) LLP
Repatriation of profits
•
Dividend from overseas company potentially exempt from
UK
– Rules different depending on size
•
www.pkf.co.uk
Withholding taxes
– On exempt dividends = permanent tax cost
© PKF (UK) LLP
VAT
•
www.pkf.co.uk
Recent changes to the Place of Supply rules have
reduced the risk/potential cost of compliance in the
overseas country on some transactions.
•
B2B – now falls on the customer to reverse charge &
account for VAT.
•
B2C – Supply of goods in EU country - subject to normal
UK VAT charged under Distance Selling rules but watch
for the limits (eg France €100,000).
•
B2C – Supply of services in EU country – subject to
normal UK VAT.
•
Exceptions – land related supplies
© PKF (UK) LLP
Other taxes
•
Payroll
– Short term visitors
• Different rules for tax & NI
– Check local requirements
•
Withholding taxes
– Not just applied to dividends
– On management charges, services etc
•
Admissable taxes
– Not all taxes can be offset against UK tax e.g. tax on
sales
www.pkf.co.uk
© PKF (UK) LLP
Changes to tax rules
•
Foreign branch exemption
– New rules coming in that will allow a company to elect
for its foreign branch to exempt from UK tax
– Forego relief for branch losses (includes those for
earlier years)
•
Controlled Foreign Companies
– Complex rules to be simplified
www.pkf.co.uk
© PKF (UK) LLP
PKF International - Publications
•
Number of Doing Business in … publications
– Cover more than just Business Tax including:
• Types of legal entities
• Imports and exports
• Grants etc
•
www.pkf.co.uk
www.pkf.com/publications/doing-business-in
© PKF (UK) LLP
Summary
•
•
Scale of overseas operations
Awareness
– Don’t let unforeseen tax eliminate your profit margin
•
•
www.pkf.co.uk
Getting the paperwork right
Getting the structure right – maximise your return
© PKF (UK) LLP
This document is prepared solely for the use
and benefit of Suffolk Chamber of Commerce.
Neither the authors nor PKF accept or assume
any responsibility or duty of care to any third
party.
www.pkf.co.uk
© PKF (UK) LLP
Graham Coker
Trade Director
Global Transaction Services UK
NatWest
RBS00000
Low Risk
High Risk
Open A/C
D/A Collection
Exporter
Importer
D/P Collection
Unconfirmed L/C
Confirmed L/C
Low Risk
Cash in Advance
High Risk
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Supplier/ExporterFlowchart
of a Typical Documentary Credit
Buyer/Importer
Sales Contract and Agreement to settle by L/C
Requests
L/C
Documents
Goods shipped
L/C
advised
As stipulated
by L/C
Advising/Confirming
Bank
Issuing Bank
Issuing Bank
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Documents
Flowchart of a Typical Documentary Collection
Supplier/Exporter
Buyer/Importer
Sales Contract and Agreement to settle by Collection
Documents
Goods shipped
Remitting
Bank
Document
s
Documents
Collecting Bank care
D/P or D/A?
Issuing Bank
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BASIS OF PRICE
INCOTERMS 2000 (www.incoterms.org)
Ex-Works
FOB
CFR
CIF
DDP
Who pays:
• transport?
• Insurance?
• Customs/duties/import taxes?
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BASIS OF PRICE
Sight
• no credit period offered
• payment upon presentation of documents
• is this what competitors offer?
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BASIS OF PRICE
Term
• credit period give e.g. 180 days from date of shipment
• payment not made until the end of the term
• high price if credit given?
• Possible to discount?
• Include discount costs in price?
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WHAT ELSE?
Pre-shipment finance
Invoice Finance
Open account debtor collection
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HOW CAN BANKS HELP?
Guidance and advice
Letter of Credit country risk appetite
Indication of deal specific pricing
Letter of Credit Suggested terms proforma
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QUESTIONS?
Any Questions?
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CONTACT
Graham Coker
NatWest
Global Transaction Services UK
07789 922537
graham.coker@rbs.co.uk
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