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Tax Yak Episode 37: US tax issues: a business perspective


The into tactic attacks Bantu podcast. We Love King about tax. So we've invited arrange a Texas experts and practitioners to have a chat with us. We hope you enjoyed the episode of tax yet. I'm Robin Jacobsson Tax China with Tech SPANTA and your host of today's podcast. I am joined again by Masha. Laying duck director of private cloud services international at Addison. Who was a guest with us? On episode he seeks and she's also joined by colleague out means WHO's managing director at Anderson's now both of these very special guests come very long way from San Francisco in particularly give you the background on. Masha mashes international tax lawyer providing cross border tax advisory tax compliance controversy services for both individuals businesses and US citizens living abroad. She has extensive experience in International Federal State and local tax medicine the US with between two years of private practice in the US and Canada. She's a member of the California and Michigan Baas the US tax code and US Supreme Coach Martial saw Barry Stuff and soliciting Canada. I public appetite of the United States. Financial Industry Regulatory Authority for the American Institute of Certified Public Accountants Masters a prolific old frequent speaker on international tax issues. She is published tax technical papers which have been presented to the tax writing committees of the US Congress the Treasury Department and International Conferences in the US. Canada and Australia on the US taxation of foreign. Pensions retirement cross-border estates and trusts. Us International Withholding and compliance in Folsom initiatives and you estate Michael Taxes. For Foreign businesses. Allen's background is managing director specializes in Tex- reporting for multinational public and private corporations tax accounting uncertain tax positions transfer pricing compliance and planning also joining us today. Some in Colombia direct off with Russian consulting. Who Does love with International Spicer delighted to the three joining us today regarding eight discussion about doing business in the? Us Bash? Before I get into this four of us. Have something in common really. Yes undeniably and I may GIC trial this. Let's now waiting. The the name was presented to in terms of where you work Anderson and then this morning Nestle Business Card. Anybody who has a background author Anderson? We'll be very familiar with the very big solid timber doors that were a feature of the back in the eighties and early nineties now. Ousama Renton in Melbourne. As the four of us are accent Essen. Well we're still current and we're just having a family reunion amazed at the plant in compensation. I thought the name was gone. I went to the fan. I must confess that I did leave well before. It'll Philip Harsh. The Fin Committee clients. Go Take Your Bible was an instant yet so I have at this alive to tell. The STORY WILL MARK FOUR SETS CURRENCY. Oh was longtime partner with the firm went into disappeared and he took twenty three of his colleagues in left and took his prior climate services group in his clients several hundred of the staff and the wealth tax advisory services. Now it must have been a very rushed exit because that is not a very eloquent name. The shorthand for the W. T. S. Which sounds a bit like a radio station but they weren't with HSBC for about five or six years and then they left the HSBC umbrella became their own firm. Still with the name Wealth Tax Advisory Services. Two thousand thirteen. They realized the cachet of the Andersen name. That time henderson had been vindicated by the Supreme Court. The legal status at the medicine torrential this period there was always the remnants of a partnership that were sitting there that held the last of the assets. Which really the name and the Training Center located in Illinois Center time. It's still Arthur Andersen. Yes yes and so it Marcus smart enough to license the name and became Andersen Tax and the cashier the names grown and grown and so in two thousand nineteen short it to just Anderson and the Dole's have persisted that survived. The doors are coming back this year. So Marcus always wanted to have the doors and every location so starting in the US this year all of the locations will had the doors that everyone knows and loves very official. Eastern Sea is in San Francisco in. Hold the double doors retail listened. Some of you may be excel industrial sells you may recall them little pets from the solve. Your your formula instead of my either to today we're talking about doing business in the US. I really want to bring into this discussion because your advising on this increasingly think what happens is a the world is getting smaller and smaller. It used to be the advent was only big business that did business cross-border but that is that is not the case Whether it's digitalization whether it's just the movement of people will sticks giving a quick More and more whizzing smaller than small businesses are asking questions about doing business. In foreign countries and typically one of those countries that comes up on it from a alcohol not he trying to grow customers overseas to the US. And that's really where the I've been dove starts. It's very interesting. How how clients or potential clients would come to you and ask us the question now from coming just thinking wanted to business in the US all set of accompany all a worse if they come on customs in the US. And I told me I had to have a company and so the first thing they do is go to this administration structure. Let's assume that's strain corporate structure Australian company and then suddenly there's a a US company in the fault and match. We we started by looking at I. Let's let's unpack this. Let's have a look at who have the Texas would and has already could Simon. Hey typically is the shades in the US company. Well because the announced question again. And I'm going to be working for twelve months on the assumption that the shades in his company would hold by the strike company. I haven't they'd sit up tall and sit up of trying trying threes. They were falling a new tax return of the only to find out with dug deeper and found that. Us vigils so you can make assumptions when you inheriting structure really go to look at the whole structure from the beginning and check again. Mike Assumptions. But you do need to get them while the impact of that structure is going to be. Obviously the commission saw. He's First and foremost but when you then say one of the Texas location let commission structure very very quickly. You can end up with an effective tax rate to the individual line. Australia of of profits from the US being subject to certainly. We don't want it to be any more than forty seven. Lonzo right but it very often news very quickly in the fifty percent and seventy office so the double tax Potential double tax under those of covert structures can be done. It can be a very high and simplistic Christian. Why does the day at a big enough role in this I? So short for the Double Techs Agreement between the story in the US. Still the naming of that has always been a little bit simple. It's a double tax agreement. Does that mean it's Day to ensure the double tax? It's eighty double tax so a little bit of a funny thing that we call it a dozen Texaco surely the idea behind these to minimize the fate of Donald Tax between the jurisdictions but really the trees just code for Each country has their own domestic rules and the trade is colored. Fool who has priorities or who has president tiebreaker? Rules will not breaking rules but I can act as that so really. It's just I bought a new dozen and it gives Samson a demarcation and the trees very important when you're looking at it certainly from business to business but equally as important is in the hall advent of Technical Cross-border Commercial Rangers transferred processing. And all the things that come with side L. Patchy can set the scene for us on the American system pertains to doing business there. Sure sure so. The American system is two systems. You have the federal system. The state system is very very different and then the states themselves have a sub jurisdictions underneath them. So let's stick with the income tax system for now combined probably about seven thousand income tax jurisdictions in the US and that goes down you know not only at the state level beneath the state you have counties cities towns some of these cities you know San Francisco Game Will. Budget is twelve point. Three billion they get it from someone and so there is it. They're out there to to make sure that you pay your fair share if you're doing business in their state or jurisdiction or if you have clients there so that's that's an interesting concept for heat. We have from income tax point of view we have federal income tax. Were Colbert income tax. If you like. And that's it. I mean we have individual income tax when it flows through so if you WANNA call united structural corporate structure or an entity structure. What have tax income comes out of that? Structurally more in a liar at individual level. When when we say this we got to the. Us We the headline number is a US. Federal corporate tax write potentially all league all the progressive rights and way to anti double texts that we tried to or minimizing. The double tags wage willing to Larry needs to the extent is use federal income tax. We then have Lyra what studied by in what. Cd BUYS IN BECAUSE STIKE CD local taxes that we just fucking Ingram Texas new four which really doesn't provide any protection so the treaty applause at the federal level. But not styling that comes as dramatic surprise to a lot of folks But most of the time when I want to do business in the US and they're coming from a foreign country they loathe to have to file a US tax return into the duly and so most of what we see coming in is coming in the form of creating a new US subsidiary in corporate for very few people enlisted ready to file tax want to elect a flow through entity and with the new change in the tax rates. We're finding that when we have you know. San Francisco is the land of startups. Everybody wants to have big exit and leave it behind when the private equity firms come in and they buy into these things in years and years ago they always set it up as a partnership now when you look at because the corporate tax rates are so low combined. Vince Dating California's about twenty seven and a half to the federal corporate tech trading. Less twenty one percent. California's eight point eight nine. But you get a deduction on your federal return for state taxes paid and so it's around twenty. Six twenty seven percents on average say totally. So now we're back to state where we were probably in the nineteen fifties and sixties were the highest in. It'LL INDIVIDUAL TAX RATES. Were around ninety percent. Incorporate was thirty five and so people. Us corporations for deferral mechanisms. Now we're back to that. Because the individual rates the federal are a thirty seven percent in California the highest rate is ten point three payroll taxes on top of that you north of fifty so leaving. Money Inc tends to have a bit of appeal to folks because there's a bit of everything very strenuous to with a start. They've been sitting last audience. Efficient percent rice and the government push a couple of years ago to try and reduce it down to twenty five. Ask Senator my house in the parliament. Wouldn't exist that for all companies. They said we'll give it to the smaller ones. But not the bigger ones. So we've ended up with a divided system which along the way that intersection going. Sherri God even further complicated. Because I decided that they should the law tax write be confined to small companies? But only that only business income and not passive income. So you only get the Law Tax Right which is currently twenty seven and a half percent. If you're under fifty million tune IVA and you'd I'd have a higher proportion of passive income now. Abstracts writes about to move those companies to twenty six percent this one ally and then July twenty twenty one to twenty five percent. So we've got a couple of moves coming up in that right there the reductions this has big implications for our freaking system. Because you've got started having patient in the US so we packed strider at corporate level. We pay a dividend data the Price Tax Dulles. We gross the backup to include the tax. Then it's all assisted. Individual shareholder and kind of a credit for taxes paid pipe company because otherwise. We're in here with double taxation of the individual level and we do refund excess franking credits. If you tax write happens to be lower than the corporate rich so it's quite a different system number one in the US. The lower tax rates apply to passive income passive income. His favorite because of the wealthy have a better lobby. The folks that are out earn wait because in Australia by Texas Income Fab late on in Pasadena. Generally folks it owned corporation. They take funds out of it and one of two ways. One is compensation for personal services. They provide to the corporation and secondly is in the form of dividends and the dividends when they come out our tax that reduce rates at the dividends would be taxed at twenty percent. Whereas if you were drawing a salary of the quarter million you might be paying thirty seven percent and payroll taxes etc. So it's much brain sent to draw a salary to to cover also get like how private investment or entrance. If you're an individual with investments they would be passive income is taxed more favorably than any complementing comes. Yes yes yes and I walk into dangerous world here because I'm a corporate tax person a generally. It's been a couple of decades since they've been prepared my own personal tax return because it is so complicated you know they send it to my desk. It weighs about a pound inch and that's just the federal then. I have all the states that I have to file because the Partnership File Everyone Partnership Ivories I have obligation to report to that state does the US have an equivalent of African benefits talks. I don't know what the fringe benefit tax it astrid. Your employer provides non-cash benefits to stop. So they pay for them school Faysal. I provide them with the motor vehicle off the pace of their entertainment. Would it up. It is not assessable to the employee's salary it's a tax that is paid by the employer now often it will be built into salary package so that liability effectively gets stolen to the employees that it is employ attacks and I have to file returns and they have to pay the tax on subject to a whole separate tax system and I believe if Peyton genetic outlets the months into whole tax revenue in Australia sheds a lot of administration for a relatively small amount of revenue so the government is always trying to drive public policy through tax law and so to the extent. They liked the fringe benefit. We like you to provide a subsidy for parking for public transportation for childcare. Those are genuine tax favorably. Meaning they're not taxed at all to the individual to the extent they don't like it. They denied induction to the employer. So for example if you are providing meals on site which San Francisco every company does the employer's not going to get an extra tax rate. But they don't get the tax deduction yes. Yes I can say where is going to be to basically allows that deduction lyons with the tall which is compliance. If it's a seven years ago I was on speaking at a session in Sydney and I was talking about some rules. We tight money out of Prague companies. And how we've got these textiles at dealing with that and Osama blue. Appreciate the comment. This accountant said to me will. Yeah let's do it night and also awesome. Were hiding this time. Because it's been a while and he's all arrived in France from fronts and we don't have anything like that in fact we don't have if simple. What do you do? And he sitting in France if a business provides a benefit to an inaugural worker a text to them assessable income. And that's the end of it and I said simple. We could get rid of APP. Errol's could get rid of Arafat Bay tables. I said how does that complied with any pretty well in jail population. We just like it so much more difficult for ourselves. We do we do. And it's a wonderful thing that they try to public policy through tax law but the unfortunate thing is that everyone's idea on what is good changes every two to four years in the US and so politically motivated. It doesn't that yes. It's so so the reason race changes really in the last few years the US has driven. Federal Colbert tax rates. Down to to provide an incentive at that level is Then the US also has some concepts that are still farmed To Australia in the sense of you can set up a company that you can set up a look through company you mentioned that earlier and those sorts of structures and an easy one has as an entity code. I Walk Three Company the. Us tends to sit in the form of an LLC filing Albain Company so instills it's incorporated as a limited liability company full services as I understand it other than FAW federally contexts. In which case. It's a little through. So it'll look through to the shareholders and and at outlets at AOL city fall falling as an open. Return doesn't actually have to follow ten and older to actually do aunts. It's a wonderful entity. It's kind of like the Swiss army knife of entities so the default classification on their federal tax rules is that an LLC would be disregarded it wouldn't even be considered to be an entity separate and apart from the owner actually legally yes so legally provide some liability protection in that respect. But if I were to open up a shoe store and the form of an LLC it would be reported as a sole proprietorship on my individual return. Now if I invite someone else to participate in this then it would be the default classification via partnership and everything would flow through. But if I don't like that I can file paperwork and there's a small window of time to do it. Once I form the entity. The says you know he thought about it. We'd like to be treated as a corporation and so very flexible now. That election stays in place for five years so revocable not irrevocable yes but with some structuring. That you can stack these things and then merges into another so. It's really just. It's very easily overcome from an Australian so from someone outside the US coming in industry now has rules are rules. So we treat these annella seal these kinds of entities in other jurisdictions as far harbor and we can typically we can treat them as orbits can be traded as if a partnership for destroying point of view. But if we lie that up with WHO is the shale hold up so l LLC so a simple example might be an Australian entity wants to awesome property in the US. So that's so pessimistic. This minority or invest capital investment properties in the. Us We know it's GonNa Connections in the US. There's no question of permanent establishments will bridge it's guidance taxed in the US that might not choose to use an LLC question becomes the yellow seasonal falling return so whoever owns that return is going to push the these who runs that LLC's he'll text Individual on now going to have to follow individual extra tune in the US on a US citizen on just an Australian citizen tax resident on it instead. Now I'm some has subject to the. Us just five properties Mel well-meaning real estate agent constantly because we love L. Caesar and the next thing you know you're getting called by the CPA saying it's time for you file. Us lets you an individual tax tax. Id Number so that we can even file a return to have a heart attack for somebody who's living in Australia is beautiful humid weather you know nice moisture spores you're gonNa tell me via Internet is very common outcome. That's fallen so when we look at this this way if we're looking at it from a Colbert structure or an entity structure point of view rather than if it happens to be the individual at fawn often from an Australian point of view. We we might want Eliah of our that for asset protection purposes. We WanNA put another entity so if we were to put for example a company and they fall in the ounce the company destroying company. Un's the oil see right. It's East Ryan Company in the US texture to which brings the culprit system applied. However that's not a very good structure point of view now got an Australian company. I disregard LLC property so it's now go out a Melissa Average Monroe in the US al culprit rules things if you go to destroying company with a branch in the US the income to these drying companies. What we call nine non assessable nonexempt and so what happens is we know it by text? Let's just assume it's the twenty one percent corporate tax in the US. Let's hopefully we didn't have any starting taxes. We pay twenty one dollars cooperating contacts in the US. We all written problem when we get it from Australian viewpoint. We've got seventy on all lift up one hundred dollars. A profit seven on those lift. Iva is no foreign tax credit because it's noticeable knowing's named and when that individual wants to pull that in coming out it's thin subject to Al Taught Lonzo Russian writer. Forty seven cents. The effective tax write on structure is sixty percent. Or they're so it's it's not ideal and so coming back to inherit a structure you could've inherited a structure with someone cities up and inadvertently that ended up with a double tax regime. The trade still works perfectly. It's just the work so we then look at different tractions to Tron flow through at US tax. Not For not for any avoidance issue. Just so that we've paid Texan. Us We want the ability to drag that credit through. So I have a question because this came across in one of structuring with with an Australian company actually so classic Structure Llc Own Vinyls Australian company of course he wanted to create a pe blocker right so surely LLC files a form eighty three to entity election less taxed a corporation in the US. So we can at least avail of the treaty the Treaty Between Corporation Corporation dividends up. And then a an interesting thing that we came across was apparently because the management and control of US LLC now corporation was in Australia that it was actually Australian Resin Corporation for Australian tax purposes those taxes at the Delaware L Z ago. So it's it's it's not a new concept but it certainly this. This comes out of a tax case. Rusen tax case a few using gold bar we go back to Colbert tax residency from our stride. Mystic definition actually Hook said sign if you're in corporate strategy and you treat it as an Australian text president as a casino. Us We've also got a second component to as if you are not incorporated in Australia but you carry on business in Australia and has are the central management and control in Strahl. All majority shareholder run-and-shoot. Then would be a foreign entity. Afar Nicole Brown today to be could adopt Australian tax residency status. So it's interesting that you say we've got an LLC LIMITS. Check check check coal projects have. Let's just call a US company right but that US companies under controlled voice on instruments. It's GONNA direct up. That does all things so basically the intention and this is another thing that comes with Lawrence. The intention is all of a firm incorporated entity mine. Tension is that it's a US tax resident in the US and it's going to build a twelve other Iman accumulate that will and when they choose to. They want live in metro that that central management and control so soon as you say they central management and control there was a longstanding those ruling that the it Oh had put in place which effectively said if the activities of that company were only the US and if the only reason that if if the only activities in Australia where central management control they would they would look over that a little bit and say despite being Central Management Control will treat that company as not carrying on business one would do through them much interest there is going to spill baller up just to give you some context. Mashhad Fowler investments as a High Court decision couple of years ago. It stems around a global documented at accountable. Vanda gold since it me. Who had some companies in Samoa Hamas UK amongst others reactive? They're these companies would basically Mawkish they were making profits in the hundreds of millions of dollars to the had to be hundreds of millions into the potentially billions of dollars and the argument was that these were not companies and central control of essays. Not Subject to tax here. The director was a united straight NBA lawyer now a Belgian national and listen to it slump. Wonderful entire kicking up Maccabi district Us was based in in Zurich Zurich. Maybe impotently Switzerland and on Piper. His signature was on buckets one. They brought him out to a stranger. He couldn't explain the documents that boys signatures. He couldn't explain the transactions that these companies have into and this ultimately went to the Hukou conclusion was that he was a director and the one calling the shots that controlling mind was actually Vanderbilt Becca Sydney. And so even that is companies were incorporated into say's. Adler carried on business in Australia which is accepted because there are dealing with Shaimaa cottee whereas the central control was deemed to be Sydney and the fallout text as residents and it went into the euro and the government said. Thank you very much. We'll take heading for the rest of us. Mom JOE IS THE ACO. We're back to it's all residency rolling corporates and said look. This has been the view about now. We're GONNA take view based on this decision and what's emerged as fine. A point of what makes known as the company and study resident and Osama quickly sage. You've got to have caramel business in Australia. Which is inexorable. And you've got to have the central control what the HBO's now saying is you can carry on a business anywhere the vote but if the central control is in Australia we will treat you as if the businesses carried on in Australia. Which takes that second requirement and attack president right so we have to Resin Corporation nap? And what's that having the ball? Taxation is currently which is one of our bodies that reviews assist the government and reviews law bit looking at this at the moment and pull because this is really interesting. Stuff with has pushed it to The question the good news at the moment so I think Having having a hard decision which wind through all the prison Previous caller mole on central management control on KOTEX. Edd'S MAZDA CLAUSE to rid the kayce on Going back in fifty years on corporate tax residency had no way to go other than decide. This is one of these and we have to abide by the code. Now says the inadvertent outcome of that is structures way. The full intention was to have foreign INC companies doing business in foreign country and despite the building some direction knowing need the of the avert any woodstock provisions that the case was to catch inadvertently they could potentially have a completely different outcome. So you've got this. You could potentially have structure we they instead of wine to flow through the foreign tax credits. So that what are the cities we might be able to get? A credit for Australia subtly gets undermined run down because we knew about a foreign corporation or sorry we'd be under Russian falling out the treating comes in areas income earners and a complex arrangement also straightening directors trying not to step over this line of saying all the Nabet central control and a strategy that will cause the whole business to be deemed to be carried on flying. I've essays to have bill Beijing's literally for few thousand flying back into Australia. Decided we didn't make the decisions in Australia right. Which affords now you start putting them over the border to individual the taxation as we talked about the other episode does not you're forcing an Australian company that married tended to have central management and control in a US company to know physically tried suffer that and as a result exposure individuals actual companies are in fact as a novice into a strategy. So we don't want to be making any decisions in Australia. We won't be making the martial arts one have you ask from either. Us directors space in the US. Well so that's one thing but what what has happened. There's been a transition FIS says. Since one of these things up at rulings beenish you'd and is what they call it. Practical compliance gone line. Should the tax office has allowed now? It was up till October. Nineteen and extended it through two. I think it's thirty June. Twenty twenty one for companies way. These might have caused an individual in residency for the into the house. You know what I'm saying. Does you relied on the previous. The previous view adopted by the. If you tighten ages to fix that up will allow you. We want China and we want to change the status quo previously so central management control. They they're allowing their effectively. Lowering is trying to rig this to get there and asking into two weeks how we saw that. The unintended outcome L. Kasich you about multinationals. It's getting a little bit on the typical client base that we would come across but the beats rate. Google Apple Microsoft. The boulders moved on. And there's a lot of turnout is digital tax and it's all about making sure that income is tax based on where profits are being made but we're as a Prophet Bang made. It does not long after factory at a plant and workers who turning up at a physical location Look at some of the bomb of web pages or emails that you're safe from these really big companies and we'll go crazy countries around the that a housing base business operations everything we've done moving internet intellectual property around and trying to attribute the income to where they don't actual property resides is looking at a sea change now because of OECD. Looking at everything. Let me give you a very simple example at you. Have Yelp here. Should help the value of y'all be attributed to where the Ip House or should the value of y'all be attributed to where it has enough momentum that it's a market entity it's really the number of restaurants and the number of people that are using it that feedback loop that they're giving you know checking in and giving ratings that are creating value within a country and so countries like India that are being cut out of the tax base they're taking that latter argument they're saying the IP is not the value the Ip that's not technologically groundbreaking or anything. This is just standard technology. Now the value is where the customer bases and we're that loop comes in and that's the argument that they're taking. I think transfer pricing in the next ten years is gonNA be dramatically different than it's been in the past and the planning that we've done is going to be very very different on what basis. Well the economists you can live up. They never reach a conclusion. And so that's what's happening. You know the their thought about where the value actually reside in the supply chain is moving and so and the supply chain itself is changing. It's not anything tangible. It's really just this popularity of a platform and finding an folks to give momentum to get it up and running so that the synergy takes off and more and more people use it the value in India they'd argued the value is not the IP values the fact that these restaurants and these customers are here and therefore we want to share the tax. It's a very interesting initiatives coming up. We just had a partner meeting last year and some of the partial India were there in from Africa. We have quite an extensive network and very heated discussion transfer pricing. You forget how folks become because they're not feeling they're given the proper bite at the apple and everyone wants about all. Yes that every all the acronyms we have about base erosion related party transactions. You know and all this stuff you know I. It really countries feel that. They've been treated unfairly when they're outside of the EU US Cana- north. America Australia China. The big players you know. They just feel like they've been left behind. This is interesting I case that is potentially being appealed I potentially because in this particular case trump mentioned in the moment the commission lodge his appeal six minutes after the deadline. So there's now a separate proceeding say with that. He's going to be alive all the time to actually make the appeal to see them. Allow that because until wearing an extension. Yes you pay with sixty minutes. Then we'll talk about the case in question is going to call and Glenn Courts of a major multinational. This particular. She was about the sale of copper. Concentrate friendly steinem subsidiary to the Swiss parent company and the Commissioner alleged and this is the transfer pricing is about. I'm paying too much for a particular service that of course it can work in reverse where. I'm selling something for less than what the venue should. We cannot the direction this was about selling to the parent company Shaw and the Asia. Saying well what you've sold it for wasn't mock venue. This seem to be caught established markets that they whistling at Eton output is the tax payer one before the Federal Court and there's not teaching million dollars worth Texas Daikin so it's not as significant loss for the commission at the moment. Transfer Pricing Tax Controversies of the IRS. Tried hiring private law firms to prosecute cases and it did not end well because the private law firms they were very aggressive and it caused a lot of ill will because people you know that people say that's my law firm. I can't believe you're doing that. It was against Microsoft. And you would think that you know. Take the gloves off. But it just was probably didn't like that transfer pricing you know as I said when you come to the US. If you're a small business you have no revenues of under a million. You know depending on what you do it you. Don't people want the formal transfer by we'd love to sell you a former transfer pricing report? We'd love to sell you penalty protection most most undo that they look they come up with a number of these. Well it should be between. I've seen other folks eight to twelve percent and they pick a number on there and you know we own educated guess we'll say you don't have any documentation etc but we know fits within within the ranger. Not but here's here's the part because you don't have a transfer pricing report or any other study we have to attach disclosure to US returned. That says you're not compliant. Now folks get very angry when we put that on their return they say you're attaching a strobe light and the siren to my photo your government. Yeah what they don't realize that. The government had overtaxed a better term. We don't have enough employees to deal with all this stuff and so you have to reach a certain size and you know be be out. The government has to really want to come after you with they want to be worth their wild. Yes but where this raises. Its head is when you want to exit the business because usually folks. San Francisco's Atlanta startups. They want to build something. Sell it and retire and so when you sell it you go through diligence phase and this is what accounts love nothing better than to find other accountants mistakes and so you sit there and you diligence team from the big four comes in and they beat you up because they want to drive down the tramp the purchase price and so even though if you never been asked by the IRS and ten years transfer pricing policy. And and you have something you're doing so you try to comply. Maybe just barely trying to comply. They will come in. They will figure out. Well really you know. Maybe you have five ten dollars at the dinner liability here because that's technically correct answer. And so that tends to be the bigger issue with folks be mindful of. It tried to do something how. America's the IRS. About this they have the big folks to run after so they tend to do is look at the larger companies. Iris agents keep in mind. There is a scoring system when you file returns and they are rated for their audit potential with an algorithm and they're sent back to revenue agent groups out in the field effectively. He's algorithms and such but right file tax payers to risk avenue. They get them the other avenues and I talked to do this. Oh reading the newspaper. I found that really interesting. Many sources in fact you know the IRS. A few years ago starting launching the irs of compliance campaigns and they will look at international taxpayers and international corporate returns over filed ender specifically making a catch and release program because of the High Audit risk. So you could go on the. Irs Dot Gov see the campaigns by the IRS. And you'll see what specific types of forms that have been filed that the irs looking especially into because they see that high risk exposure and if they know how a functional subsidiary something that must be earning profit because of what it does in the US. If you're running a Prophet CETERA. Especially make sure you had to transfer pricing adjustments record in the General Ledger. There's nothing worse than seeing you know book laws and then there's an adjustment appreciate the income for transfer pricing back into everything the same piece gift fat and Hawks get slaughtered really applies here. And if you you should always try to comply with the law you should always try to have a study. Donner in be reasonable about it. But when the IRS comes in we do often after the fact and so becomes a negotiating system and so in my experience they tend to be reasonable as long as you were trying to be compliant is your position that translate pricing is no longer the domain off the boys yes just the demise of the. I should say well no. It's not doesn't remember the states. Always there as well so Californian we love the state of California loves to challenge people in transfer pricing and you may not get hit at the federal level. But let's say you have some type of sales tax issue with transfer tax within you'll US bullets within the US border so California. They come in. I think California is much more effective than the federal government for businesses that operate in California. And there's information sharing agreements between the two. And so I have a client right now. That has a federal issue that the IRS shared the final results with the state of California and the State of California said welcome. We're here to help. I think you might good point. Room is transit. Pricing from an Australian perspective has for a long period of time. The denying you'd be into town. Yes Australia in. The last ten years is probably tried to make life easier for this more in small and medium businesses and they have what they referred to as simplify transfer pricing documentation simplified. And they're trying to mike traffic crossing easier fall. Simple transactions for small businesses and the. The problem is in practice so often You I multi national organization with apparent overseas that mile an opening in the US and you'd have one subsidiary in shy and that could be effectively installed up for a number of us and it's supported heavily by the US bought. Let's say an an after a number of years I become more efficient. And so there's a lot of support coming in. So that would otherwise being substantial losses those losses diminish and then as I stopped making profits they want to actually take a lot of the prophets back to the US. And that's no okay and there's a couple of choline so tonight in terms of what we see. From a technical on a practical viewpoint documentation and two is real process the Chechen so I think most businesses aren't going clones. We see how much destruction whether it's a secure universities with industry. I am grew trying to do business overseas. Let's call it in the. Us They are trying to allocate is fair and reasonable profit two inch sort of the the border but ultimately stri business they ultimately won't law that profit to come back to Australia it's in the US trying to increase. What I think I should get an that becomes that becomes important but our real process negotiation. I genuinely trying to workout. How much profit do I need to leave the? Us that image profit can be maktum astrid so if everybody said that typical functions risks and houses if most of the functions and risks most of the profit to be but interestingly it could be the federal federal design your small nothing to see he about a state with a warehouse might be might be saying. Well hang on. You can't leave a small is. This is a big place. We want to be more now. The second part though is documentation and what we find is important point seven if it gives you penalty protection the US. It's a very similar concept. He it also gives peace of mind and I've seen a lot of a lot of clients. They tried to do the right thing and are trying to build their documentation. Unfortunately the documentation path is built around the structures. Be Business so you still would have adopted the sign practice off reviewing reviewing what you do. Hey Pal he prostate. What methods of law and so there's minimal working document that process and it's not until actually done that. I actually can have appropriate compensation the bat eight one challenging enough charging too much and then it's a bit of that negotiation. Saw It and we find folks going through that cycle either either. They're very attentive and they want to dress it up front and it is important to have all your company contracts memorandums of understanding in place and make sure that they're refreshed annually. You provide for Escape Bell but the true etc for Prior Years. So we have that that very conscientious client that that gets everything done up front and then we have the client that we picked up so that great. I've just developed this great idea. It's the best thing in the world and then you find out you know well. My books and records to the past few years leave something to be desired. Because they're folk their business people. They'RE NOT WORRIED ABOUT TAX. And those are the ones who will come in and try to remediate etc but one of one of the best things you can do is to make sure you have all the documentation place intercompany contrast Cetera. Because you need to have those in place to even have a start that you were being reasonably compliant and it's a much better conversation to have. I feel much better than those replacement Cetera and I was the one thing people always forget. Interest is interest rates hard in a company transaction. People tend to to get very abusive when they use intercompany interest rates because they want to take advantage of the lower treaty rates on withholding and take everything out in the form of interest with the new tax laws CETERA and limitations on interest deductability and everything. A lot of that planning is changing. It's influx right now and so it'll be interesting over the next few years. You also made a comment a bit from the complaint of view. If I haven't done that study done some sort of documentation to fall out you. Bills ALARMS. Noncompliant strike took a slightly different approach to that. We've got let's say it's a corporate entity it's an east national dealing shedule. Now there are thresholds a two million dollars threshold in Tom Transactions. And if you want you of that even if it's only now even these full sign business scientists business like there is a threshold so we understand that that that fish is relatively low when you think about that two million could be buying a million dollars product from related Chinese manufacturers and selling one point one million of product to a related eighteen foreign country. That's two million try Y so the cumulative tastes at the threshold is is is there but it's one in amongst it says every one of those transactions have to nominate the extent to which you've tom transfer pricing documentation and so the very first thing is you kind of film is coming with two Newman. Two and a Lotta people would sit there and go. Well we're going to invoice and that represents that reflects what we charging to each other off got one hundred percent documentation. But that's not what the question's asking until this understanding of the game they'll get back towards Sedalia. Small businesses are becoming much more international. Doesn't tight much to tree this. It forces apply now waiting things dot signing somebody you've got needed indicated any of the US somewhere else in Hong Kong or Singapore subtly. You've got to go and get an advisory nature station to do a trace for processing input. Study to come back to Australia. It's back in the de-mining business to take. Dole's to do those reviews even simple of so todd how to get that that level of components as I look to wrap out comments on this discussion about doing business in the US. I think there has to be very close coordination between Australian and US tax advisor the accountants and the attorneys on lots of modeling. But more importantly you know they tend to cause problems when we last spoke with Marsha. You know people going back and forth. I have a business they fall in love etc. I can't tell you the number of Australian folks that I work with at their kids have. Us accent and so you know I. It's not just the business but happens. Lime happens yes but make sure that your professionals are all talking to each other. It's unfortunate when you you've meet folks you meet new clients and they've been my client for five years in the navy. They introduced me to their non. Us Tax Advisor. I find out he's been doing business with them the same amount of time. It's a shame only meeting now. Absolutely look thinking seriously timeout. Now and thanks for listening to this episode of Tech. I've been chatting with national and international tax lawyer and director of Product Services International at Anderson from San Francisco with a colleague managing director abandons out in the news and some collaborate Moshen consulting. If you'd like to connect with us on social media you can find taxpayer Entry shop let us know your tape. Besides all suggest feature topics of speakers you can also get onto the tech team on email podcast at Tech Spanta Dot Com dot a U and find a regular blog articles TECH SANTA DOT COM dot EU Ford Slash Bente Hyphen blog. Podcasts platek amounted to write a national review for the show wherever you are the profile at the shirt and would love to heal thoughts with fourteen joining us next time.

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