RIBA / UK TI
Conference ‘Working
Internationally’
Getting Paid
Martin Kelly, KPMG LLP
Ruth Adams, KPMG LLP
23rd March 2012
Agenda
Challenges to “Getting Paid”
Risks of not “Getting Paid”
Payment risk framework
Transactional payment risks
International tax tips and impact on
payment
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
1
Challenges to getting paid
Strategic level
Prevention rather than cure
Transactional level
Financial instruments
Taxation issues
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
2
What are the risks of not getting paid
Project risk
Client risk
Country risk
■ Project viability
■ Political
Shareholders
Parent
■ Changing market
■ Economic
■ Impact on viability
■ Currency
■ Project financing
Client
Funder
■ Repatriation
■ Culture
D&B
Architect
Professional
team
■ Enforcement
UKTI
Delivery team and supply chain
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
3
Payment risk framework
Understand payment
risks
Mitigations /
protections
Monitoring
■ Project
■ Project accounts ■ Credit risk
■ Design / IP
■ Milestones
■ Funding risk
■ Client
■ PCG’s
■ Programme risk
■ Supply chain
■ Bonds
Contractual /
commercial
levers
When can you take
some action:
■ KPI or
fundamental
breach?
■ Advanced
payment
■ Rights over IP
■ Physical location
of IP
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Layered
contingency
planning
What action will you
take at each level of
concern:
■ Link payment to
key deliverables?
■ Be prepared to
stop work?
■ Be prepared to
take enforcement
actions?
4
Transactional payment risk
Currency risk
Accept risk
Spot market
■ Holding cash in various currencies may provide some protection
Manage known risk
Forward exchange contract
■ Need certainty over amounts and dates
Payment
instruments
Manage less
certain risk
Currency options
Advance payment
■ Difficult for client to fund
Guaranteed payment
Letter of credit
■ Series of instruments designed to minimise risk and maximise upward benefit
■ Risk taken on by clients bank (or joint)
UK Export Finance
Apply assistance – many forms:
ECGD Export Credits ■ Supplier credit
Guarantee
■ Export insurance
Department
■ Bond insurance
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
5
International tax tips and impact upon payment
■ What taxes will you suffer ?
– Will the customer withhold tax ?
– What about VAT and sales taxes?
– Employee taxes
– Obligation to pay local corporate taxes
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
6
Tax – why you should care ?
UK Contract
Contract price
Direct costs
Foreign contract
1,000
500
Overheads
250
Profit
UK tax
Net profit
250
63
188
Contract price
Direct costs
Overheads
Withholding tax at 15%
Profit
UK tax
Net profit
1,000
500
250
150
100
25
75
■ What can you do about it ?
– Treaty relief
– Contractual protection
– Understand impact of sub contracting
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
7
Thank you
Presentation by:
Martin Kelly, KPMG LLP
Ruth Adams, KPMG LLP
© 2012 KPMG LLP, a UK limited liability partnership,
is a subsidiary of KPMG Europe LLP and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
The KPMG name, logo and "cutting through
complexity" are registered trademarks or trademarks
of KPMG International.
