International Tax UpdateGrace JahngJPMorgan Chase & Co.

Rick Krucher, CPAInsero & Company CPAs, P.C.

November 20, 2013

Insero & Company presents

November 2013

I N T E R N A T I O N A L   B A N K I N G 

Grace Jahng Executive Director – International Banking J.P. Morgan

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Grace Jahng and may differ from those of other J.P. Morgan employees and affiliates. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.

This presentation was prepared exclusively for the benefit and internal use of the Chase customer or potential customer to whom it is directly delivered and/or addressed (the “Company”) and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, any oral briefing provided by or other discussions with Chase. Neither this presentation nor any of its contents may be duplicated, published or disclosed (in whole or in part) or used for any other purpose without the prior written consent of Chase, which may be withheld in its sole discretion.

(c) 2013 JPMorgan Chase & Co.   All rights reserved.  Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”) and if and as used herein may include as applicable employees or officers of any or all of such entities irrespective of the marketing name used.  Products and services may be provided by commercial bank affiliates, securities affiliates or other JPMC affiliates or entities.  In particular, securities brokerage services other than those which can be provided by commercial bank affiliates under applicable law will be provided by registered broker/dealer affiliates such as J.P. Morgan Securities LLC, J.P. Morgan Institutional Investments Inc. or by such other affiliates as may be appropriate to provide such services under applicable law.  Such securities are not deposits or other obligations of any such commercial bank, are not guaranteed by any such commercial bank and are not insured by the Federal Deposit Insurance Corporation.

This presentation does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services.

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

Companies are becoming more global

What percent of your total sales comes from overseas?What percentage do you expect in five years?

What percent of your total sales comes from overseas?What percentage do you expect in five years?

2011 2012 2013 2018*

76% 71% 71%49%

15% 18% 17%

29%

6% 8% 7% 17%

3% 3% 5% 5%

76-100%51-75%26-50%1-25%

Source: Chase Middle Market Business Leaders Outlook

24%51%

*Respondent five year projection

Five-year projections foresee overseas sales accounting for more than a quarter of total

sales at 51% of companies – double the number from two years ago

1

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

Why Companies are going global

Pursue higher growth markets

Diversify from U.S. base

Follow major clients overseas

Reduce costs

Locate closer to end markets

Key driversKey drivers

2

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

Why Emerging Markets matter

95% of the world’s consumers live outside the U.S.

Over 80% of growth in consumption between now and 2020 will be outside No. America &

Europe

Emerging Markets account for:

36% of global GDP, rising to 55% in 5 years

More than half of global oil and steel consumption

46% of world retail sales

52% of all motor vehicle sales

82% of mobile phone subscriptions

A middle class that is growing into a $30 trillion market

Key driversKey drivers

But for U.S. companies, EM is only 7% of total revenues todayBut for U.S. companies, EM is only 7% of total revenues today

Source: Council on Foreign Relations, Global Cities

3

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

20

25

30

35

40

% of global

90 95 00 05 10

EM38.9%

US26.5%

Changes in global consumption: Rise of the Emerging Markets consumer

Global consumption share (1990 – 2012)Global consumption share (1990 – 2012)

Source: JPMorgan Economic Research

4

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

GDP growth GDP growth

Divergence of growth around the world

Expansion 1Q02-3Q07

Recession 4Q07-2Q09

Improving 3Q09-4Q10

2011 2012 2013F 2014F-5.0%

0.0%

5.0%

10.0%

Eurozone 1.2%US 2.4%LATAM 2.9%

EM Asia 6.1%

China 7.4%

Concerns about growth

Source: JPMorgan Economic Research forecast (11/8/13), % oya

5

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

Country Ease of doing business Starting a business

Singapore 1 4

Hong Kong 2 6

United States 4 13

United Kingdom 7 19

Australia 10 2

Canada 17 3

Germany 20 106

Japan 24 114

Mexico 48 36

China 91 151

Brazil 130 121

India 132 173

World Bank rankingsWorld Bank rankings

Source: The World Bank’s “Doing Business 2013” report. Covers 185 countries

Complexity of doing business globally

6

I N

 T E

 R N

 A T

 I O

 N A

 L   

B A

 N K

 I N

 G 

Navigating regulatory and legal environment

Improving transparency and control of overseas cash

Mitigating foreign currency and interest rate exposures

Managing a global supply chain

Accessing financing for exports and overseas needs

Managing trapped cash overseas

Leveraging best practices and getting practical, local advice

Challenges operating globally

Key issues that companies need to addressKey issues that companies need to address

7

International Tax Update

Rick Krucher, CPAInsero & Company CPAs, P.C.

November 20, 2013

Insero & Company presents

International Tax - Topics

1. General “Rules” of International Tax.

2. What Are the Structuring Options from U.S. Perspective?

3. What Kind of Foreign Taxes Are Possible?

4. Current Updates from Various Countries.

5. Tax Challenges of Doing Business Internationally.

General “Rules”

1. Accomplish the business objective.

2. Comply with the tax law in both the U.S. and the foreign country.

3. Avoid double-tax.

4. Use a structure that is flexible now and in the future.

5. If possible, use lower rates around the world to decrease the overall effective tax rate.

Rule 1: Accomplish the Business Objective

1. Tax is a very important expense but if you can’t meet the business objective what’s the point?

2. “The tax tail should not wag the business dog”

3. Often the original business structure can be revised and still meet the business objective.

Rule 2: Comply with the Tax Law

1. Penalties for noncompliance can be severe.

• Canada - $2500 penalty for not filing a corporate return (Form T-2) even if no tax is due.

• U.S. penalty for not filing an international form is $10,000 per year per form.

2. Don’t be surprised by a foreign tax you didn’t know existed.

Rule 3 : Avoid Double Tax

1. Goal – pay no more tax than if the same amount of income was generated in the U.S.

2. U.S. tax law provides for a foreign tax credit.

3. Foreign tax credit is very complicated and often doesn’t “work.”

Rule 4: Use a Flexible Structure

1. Think “long-term” right from the start.

2. Is this truly a one-time or one country event or will the Company need additional foreign corporations later?

3. Example – do you want to use a Dutch holding company to own the new foreign business or just have the U.S. Corporation own the foreign entity directly?

Rule 5: Attempt to Reduce Worldwide Tax Rate

1. This is the highest level of international tax planning.

2. Very sophisticated.

3. Only makes sense when a great deal of money is involved.

Topic 2 – What Are the Structure Options from a U.S. Perspective?

1. Basic International Operation – just ship goods into the foreign country.

2. If a Company needs a more substantive presence there are only two real options:

• Branch of the U.S. Company in the foreign country.

• Form a foreign corporation.

Foreign Companies

1. Each country has several types.

2. “Private Limited Companies.”

3. How is a Foreign Company Treated for U.S. Purposes?

• “Controlled foreign corporation.”

• Can sometimes elect to treat the foreign company as a flow-through for U.S. tax (i.e. “check-the-box” election).

Topic 3: What Kind of Foreign Taxes?

1. Income Tax.

2. Value Added Tax (aka GST) – “national sales tax.”

3. Withholding Tax - i.e. the foreign country withholds on payments to the U.S. Company.

4. Other taxes – the China website lists 19 different types of taxes.

Topic 4: Updates from Various Countries

1. Canada.2. China.3. India.4. Ireland.5. Mexico.6. Mozambique.7. Mozambique.8. United Kingdom.

Canada

1. Canada Revenue Agency (CRA) is putting more audit resources to catch cross-border business travelers.

2. Three important filing requirements.• Corporate Tax Return (Form T-2) to Claim

Treaty Benefits.• Waiver request to avoid Canadian income tax

withholding (Reg 102).• Get a refund of 15% withholding for services

performed in Canada (Reg 105).

Canada - Filing Requirements

1. U.S. company must file a Canadian Corporate Tax Return (Form T-2) even if they have no permanent establishment.

2. If a U.S. employee goes into Canada to perform any kind of service for any length of time the U.S. Company must withhold Canadian income tax even if the apportioned wages will be exempt via the tax treaty with the U.S.

• Waiver is available (Form 102-J) but it must be done 30 days before the employee goes into Canada.

Canada - Filing Requirements

• For treaty protection, the salary income allocable to Canada must be less than CDN 10,000.

• Employee must obtain a Canadian individual income tax number (ITN).

• CRA has announced that it is denying these waiver applications if it has reason to believe that the U.S. Company may have permanent establishment.

Canada – Filing Requirements

3. If your company performs services in Canada the payor must withhold 15% of the amount paid for the services performed in Canada (Reg 105).

• There is a waiver but a waiver must be filed for every single episode.

• Can get the refund if you file a Canadian Corporate Tax Return.

China

1. Chinese wages have been rising hurting its ability to compete with other countries.• 12.3 % rise in 2011.• 14% in 2012.

2. Formed a new government agency (SAFE) to try to make it easier to deal in foreign currency and to make some payments out of China.

3. Still has strict exchange controls.

China

4. VAT Reform was effective August 1, 2013.

5. VAT is 17% but the reform changes what items are subject to VAT.

6. 5% Business Tax is also being changed.

India

1. World Bank Group rated India 134th out of 189 countries with respect to ease of doing business.

2. The tax rates on royalties and technical services paid to nonresidents increased from 10% to 25%.

3. Trying to force nonresident companies to get into their tax system by requiring the nonresident companies to apply for a Permanent Account Number (PAN).

4. India trying to force nonresident companies to file tax returns in India even if there is withholding on payments out of India.

Ireland

1. Ireland has suffered through the European financial and banking crisis that started in 2008.

2. In October 2013 the Minister of Finance announced that Ireland is committed to retaining its low 12.5% corporate tax rate.

3. Claims that it will crack down on multinational tax avoidance such as the “double Irish Dutch sandwich.”

4. This is the structure that saved Apple $44 billion.

Mexico

1. New legislation eliminated the “flat tax” (IETU).

2. Restricts the deductibility of some intercompany payments made to nonresident parent companies.

3. Some changes that affect Maquiladoras.

What is a Maquiladora?

Mexico - Maquiladora

1. It is not a type of Mexican corporation but is a program with the Mexican government.

2. Allows a U.S. company to put equipment in Mexico, ships raw materials there for assembly and then bring it back into the U.S. for ultimate sale.

3. Better have good accountants in Mexico.

United Kingdom

1. “Government aim to have the most competitive tax regime in the G20.”

2. Corporate tax rates continue to decrease (20% in 2015).

3. Have established a new 10% on income from patents.

4. Cracking down on transfer pricing issues.

Topic 5: Tax Challenges of Doing Business Internationally

1. Language barriers with foreign accounting departments.

2. Cultural differences. 3. Controllers are not tax people but are heavily

involved in tax compliance.4. Foreign currency controls make it difficult to get

your cash out (e.g. China).5. Many countries have “statutory audits” that are

required as part of the tax compliance.6. Ownership of a foreign company is public

information in some countries.

Tax Challenges of Doing Business Internationally

7. Value Added Tax (VAT) compliance and registration can be difficult to get correctly set up.

8. Costs to set up a foreign corporation can be expensive.

9. Often too little data for proper U.S. tax reporting.10. U.S. international tax forms are not simple.

Questions ?

Thank You

Thank you for your attendance attoday’s program.

For more information regarding the topics discussed today, please feel free to contact:

Rick Krucher, CPArichard.krucher@inserocpa.com

585.697.9604

Insero & Company CPAs, P.C.

www.inserocpa.com

Insero & Company CPAs, P.C.Certified Public AccountantsBusiness & Financial Advisors

Rochester >> 585.454.6996Corning >> 607.973.2075

DisclaimerThese materials were prepared solely for the purpose of continuing professional education. They are distributed with the understanding that Insero & Company CPAs, P.C. and its employees are not engaged in rendering legal, accounting, or other professional service as part of this CPE presentation. If advice or other expert assistance is required, the services of a competent professional person should be sought. Please contact an Insero & Company team member with any questions.

The information contained herein is general in nature and based on authorities that are subject to change. Insero & Company CPAs, P.C. guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission, or for results obtained by others as a result of reliance upon such information. Insero & Company CPAs, P.C. assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situation. Circular 230 Disclosure: Any information contained herein, or on any website or email link associated with this document is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

Insero & Company CPAs, P.C. is an integral part of the McGladrey Alliance, a premiere affiliation of independent accounting and consulting firms in the United States, with more than 90 members in 42 states and Puerto Rico. McGladrey Alliance member firms maintain their name, autonomy and independence and are responsible for their own client fee arrangements, delivery of services and maintenance of client relationships. McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest U.S. provider of assurance, tax and consulting services. McGladrey, the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP. McGladrey, the McGladrey logo, the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP. Correspondent of the RSM International network of independent accounting, tax and consulting firms.