Why expand abroad?

1. International Risk Management Making the Most of Worldwide BusinessManuel RajunovManaging PartnerInternational Tax Services

2. Why expand abroad? • Remain competitive • Domestic cushion • Broaden base • Build market share • Extend life cycles • Inventory/capital • Tax incentives

3. GREENLAND RUSSIA CANADA EUROPE USA MIDDLE EAST ASIA AFRICA SOUTH AMERICA AUSTRALIA ANTARCTICA Developing an international business plan • What is the goal for your business internationally? • What should you incorporate in the international business plan?

4. Factors to consider in going global • Domestic success • Domestic sales trends • Domestic market share • Product modifications • Financial/Human resources • New venture vs. marketing operations • Cost of foreign market entry • Commitment - foreign time frame • Commitment - sustained efforts • Absorb additional duties • Mindset of management

5. Polycon example Domestic Manufacturing Company Polycon Lens Company Country A

6. Polycon example Overseas Representation Office/Agent B Country B Polycon Lens Company Country A

7. Polycon example Overseas Representation Office/Agent B Country B Polycon Lens Company Country A Foreign Sales Subsidiary Luna Technics Co. Country C

8. Polycon example Overseas Representation Office/Agent B Country B Polycon Lens Company Country A Foreign Sales Subsidiary Luna Technics Co. Country C Foreign Manufacturing Plant Polycon Mfg. Co. Country D

9. Polycon example Office/Agent B Country B Polycon Lens Company Country A American Sales Subsidiary Polycon Sales (U.S) Country H Luna Technics Co. Country C European Sales Subsidiary Polycon Sales (Europa) Country G Polycon Mfg. Co. Country D Middle East Sales Subsidiary Polycon Sales (Middle East) Country F Far East Sales Subsidiary Polycon Sales (Far East) Country E

10. Polycon example Acquisition of Foreign Co. Visitec Corp. Country I Office/Agent B Country B Polycon Lens Company Country A Polycon Sales (U.S) Country H Luna Technics Co. Country C Polycon Sales (Europa) Country G Polycon Mfg. Co. Country D Polycon Sales (Middle East) Country F Polycon Sales (Far East) Country E

11. Polycon example Polycon Lens Co. Country A Overseas holding co. Polycon (Holdings) Country J Polycon Mfg. Co. Country D Visitec Corp. Country I Polycon Sales (U.S.) Country H Polycon Sales (Europa) Country G Polycon Sales (Middle East) Country F Polycon Sales (Far East) Country E Luna Technics Company Country C Flow of dividends

12. Polycon example Polycon Lens Co. Country A Polycon (Holdings) Country J Overseas finance co. Polycon Finance Country K Polycon Mfg. Co. Country D Visitec Corp. Country I Polycon Sales (U.S.) Country H Polycon Sales (Europa) Country G Polycon Sales (Middle East) Country F Polycon Sales (Far East) Country E Luna Technics Company Country C Flow of interest

13. Real estate investment co. Polycon Investments Country L Polycon example Polycon Lens Co. Country A Polycon (Holdings) Country J Polycon Finance Country K Polycon Mfg. Co. Country D Visitec Corp. Country I Polycon Sales (U.S.) Country H Polycon Sales (Europa) Country G Polycon Sales (Middle East) Country F Polycon Sales (Far East) Country E Luna Technics Company Country C Flow of interest Flow of dividends

14. Polycon example Polycon Lens Co. Country A Polycon Investments Country L Polycon (Holdings) Country J Polycon Finance Country K Patent Holding Co. Visimatic (Holdings) Country M Polycon Mfg. Co. Country D Sublicensing co. Visimatic Franchise Co. Country N Visitec Corp. Country I Polycon Sales (U.S.) Country H Polycon Sales (Europa) Country G Polycon Sales (Middle East) Country F Polycon Sales (Far East) Country E Luna Technics Company Country C Flow of interest Flow of dividends Flow of royalties Flow of rental income

15. Polycon example Polycon Lens Co. Country A Polycon Investments Country L Polycon (Holdings) Country J Polycon Finance Country K Patent Holding Co. Visimatic (Holdings) Country M Captive insurance co. Baskerville Assurance Co. Country O Polycon Mfg. Co. Country D Sublicensing co. Visimatic Franchise Co. Country N Visitec Corp. Country I Polycon Sales (U.S.) Country H Polycon Sales (Europa) Country G Polycon Sales (Middle East) Country F Polycon Sales (Far East) Country E Luna Technics Company Country C Flow of interest Flow of dividends Flow of royalties Flow of rental income Flow of insurance premiums

16. Why is international tax planning important? DOMESTICGLOBAL Pre Tax 100 U.S.Taxes - 45 Foreign Taxes - 55 After Tax 0 Pre Tax 100 All Taxes - 45 After Tax 55 USA Co. USA Co. Customer USA Foreign Customer

17. Structural choices - international operations

18. Profit movement techniques Home Company Home Company Interest Rents Royalties profit remittances to home office USA Foreign Services Products Dividends Foreign Branch* Foreign Subsidiary * Also applies to partnerships and hybrid type entities,i.e., foreign corporations treated as partnerships for U.S. purposes

19. The transfer pricing issue for product sales Cross Border Producer Distributor Distribution and Resale of Widgets Production of Widgets Costs Incurred to Unrelated Parties Sales to Related Distributor Sales to Unrelated Parties Costs Incurred to Related Producer The Transfer Pricing Issue

20. The transfer pricing issue for licenses Cross Border Creator/Buyer User Licensor of Mfg/Mktg Intangibles Licensee of Mfg/Mktg Intangibles Costs Incurred to Related and Unrelated Parties to Develop/Buy Intangibles Royalty Expense Royalty Income Mgf/Mktg Profits The Transfer Pricing Issue

21. The transfer pricing issue for services Cross Border Provider Recipient Renders Service Benefits from Service Service Fee Expense Service Fee Revenue Costs Incurred Local Profits The Transfer Pricing Issue

22. The transfer pricing issue for debt Cross Border Creditor Debtor Lends Funds Borrows Funds Interest Expense Interest Income Local Profits Local Profits The Transfer Pricing Issue

23. The transfer pricing issue for leases Cross Border Lessor Lessee Leasing Tangible Property Leasing Tangible Property Rent Expense Rent Income Local Profits Local Profits The Transfer Pricing Issue

24. International tax planning techniques Home (USA) • Designing transactions to eliminate host country taxation (foreign nexus) • Minimizing home country taxation through export tax incentives (FSC, I/C Disc) • Structuring the foreign business as a branch or as a subsidiary to minimize host country and home country taxation • Optimizing the tax effects of financing the foreign business with loan capital and share capital • Planning to minimize/avoid home country anti-deferral provisions to keep profits abroad and untaxed at home until a later date • Maximizing host country tax savings when acquiring a foreign business via assets or share capital Host (Foreign Market)

25. International tax planning techniques Home (USA) • Researching the feasibility of gaining tax advantages through third country holding, financing, trading and leasing companies • Analyzing the advantages/disadvantages of foreign group relief, consolidation • Researching all elements of host country tax legislation, e.g., depreciation, inventory methods, deductions, capital gains provisions, credits • Taking advantage of all host country deductions, exemptions, and incentives • Implementing profit reduction techniques, e.g., transfer pricing policies, management agreements, loans, royalties, etc. • Minimizing home country taxation for asset transfers to host country operations Host (Foreign Market)

26. International tax planning techniques Home (USA) • Restructuringforeign branches to foreign subsidiaries to minimize host country taxation • Repatriating foreign profits and minimizing global tax cost • Monitoring the tax effects of foreign currency exchange fluctuations • Maximizing treaty benefits • Maximizing foreign tax credits, unilateral and bilateral double taxation relief • Designing policies for satisfying tax compliance requirements for employees on foreign assignment Host (Foreign Market)