Stuart S. Malawer, J.D., Ph.D. (2014)

1. Extraterritoriality of U.S. International Economic Legislation.--- Clash of Laws, Corporate Structures, Foreign Boycotts /Corruption / Taxation -- Stuart S. Malawer, J.D., Ph.D. (2014)

2. Transnational Transactions & Multi-jurisdictional World. – Private Transactions & Transnational Regulation - EU U.S. Third Country - ISSUE - Global transactions occur in many countries, but each country has own rules, e.g., antitrust, export controls, sanctions , taxation , corruption ….. Not much global regulation. Extraterritoriality of U.S. Legislation (2014)

3. Basic Problems Concerning Extraterritoriality • U.S. applies its international economic regulation outside of the U.S. • Actors are often foreign corporations and the transactions are often outside of the U.S. • Most important, the actions may be lawful under foreign law. • Raises the issue of “judicial imperialism” as well as the “clash of competing national laws” in a “horizontal legal system.” Extraterritoriality of U.S. Legislation (2014)

4. Extraterritoriality: Basic Dilemma. • Potential Regulation by Two Governments – Often unlawful under U.S. Law & lawful under foreign Law. • Presumption of Territoriality under U.S. law unless Congress intends otherwise – need domestic impact of foreign act in U.S. When does U.S. law apply? U.S. EU “Clash of competing legislation” as to foreign actors and foreign actions and foreign legality. Extraterritoriality of U.S. Legislation (2014)

5. Extraterritoriality: “Clash of Competing Antitrust Laws ” U.S. EU Applies to mergers, price fixing, abuse of dominant position. EU Regulation U.S. antitrust rules European antitrust rules Both U.S. and foreign antitrust laws apply to same transactions. Often applied to activities outside of their borders as long as there is an impact or effect is within their jurisiictions. Extraterritoriality of U.S. Legislation (2014)

6. Corporate Structure & Corporate Groups. Corporation (Separate Entity / Depends on Incorporation) [Provides limited liability of shareholders -- Liability only on the corporation. Fosters capital formation.] Parent Corporation (As a shareholder limited liability -- no liability for subsidiary) Subsidiary Corporation (Parent is shareholder / control of corporation) Shareholders (Equity Owners) Note – In a General Partnership all partners are individually liable for partnership debts -- no limited liability. Different from corporate organization. Extraterritoriality of U.S. Legislation (2014)

7. Foreign Branch & Foreign Subsidiary: Extraterritorial Application of U.S. Law. U.S. Law. U.S. Law. U.S. Corporation U.S. Parent Corporation Maybe. Yes. Part of corporation. No separate ownership or entity. Majority Equity Ownership. Non-majority equity Separate corporate entity. Incorporated in foreign country. Foreign Affiliate Foreign Subsidiary Foreign Branch Extraterritoriality of U.S. Legislation (2014)

8. Antiboycott & Corrupt Practices: Extraterritorial Application – Foreign Subsidiaries. Antiboycott Law Corrupt Practices Law U.S. Law U.S. Parent Corp. U.S. Parent Corp. Yes Yes Foreign Subsidiary Foreign Subsidiary • Applicable to branch. Extraterritoriality of U.S. Legislation (2014)

9. Export & “Reexport” Controls. U.S. Missile Technology Export controls govern both goods & technology Export U.K. ‘U.S. origin’ ‘Foreign Origin’ Subsidiary For. Co. Reexport Saudi / Russia Extraterritoriality of U.S. Legislation (2014)

10. U.S. Corporate Taxation: Multinational Global Corporations -- Worldwide System & Tax Deferral[Extraterritoriality & Related Problems.] General Rule -- U.S. taxes foreign income of corporations. This involves issues of double taxation, foreign tax credits, tax treaties and tax havens . Also involves issue of transfer-pricing as to where to take corporate profits. U.S. Firm For. Buyer U.S. taxes foreign source income for services or sales performed abroad. U.S. WORLDWIDE TAX SYSTEM EXPORT TAX DEFERRAL & EXPORT SUBSIDY U.S. Parent Export sales income U.S. Firm For. Subsidiary Foreign income No U.S. income tax (deferral) on foreign sales / export income of U.S. firm. Problem of the DISC and FSC legislation. WTO decisions against this. No U.S. income tax on foreign subsidiary’s income until repatriated back to U.S. For. Country * Obama proposals to change tax deferral on foreign income / transfer pricing. Considering temporary reduction of repatriation of overseas income to help spur domestic growth and employment. In addition to this cross-border tax evasion and tax havens are major concerns. The new policy for greater information exchange via OECD provisions is supported by the G-20 to limit tax evasion that utilizes bank secrecy laws. The OECD produced both model conventions and proposals for national / creating international obligations & “harmonizing” national legislation. (Dual Approach) New tax legislation FACTA imposes disclosure obligations on foreign banks as to U.S. taxpayers under sanction of 30% w/h on income or dividends from the U.S. Extraterritoriality of U.S. Legislation (2014)

11. Transfer-Pricing in International Sales & Transactions. Direct sale to T.P. Direct License or Sale to Buyer then Profit is in U.S. and Taxed in U.S. U.S. Corp. / Seller Parent / Subsidiary and then sale to T.P. Pricing to Subsidiary is very low & subsequent sales price is very high. Foreign Corp. / Buyer U.S. Corp. / Seller * License or Sale to offshore subsidiary and then sale to foreign buyer – no tax in the U.S. Extraterritoriality of U.S. Legislation (2014)

12. Extraterritoriality of U.S. Legislation (2014)