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Running Multinational

By John Dietz - Email Editor

Date : December 1, 2009

The dance of running a multinational business has its many challenges; not the least of which is a proper business structure. Above and beyond the business plan, considerations for tax efficiency, ease of operations, asset protection, and sales can give cause for brain freeze. A couple of questions on the short list would be:

I often get calls about clients wanting to set up offshore companies. Most client requests fall into the category of needing a corporate service provider, a firm that is established for the sole purpose of setting up companies. Setting up a company in any jurisdiction, in most instances, represents a simple commodity based transaction. Appropriate forms are filed and you are off to the races.

Not so fast buckaroo, what have you got yourself into?

The challenge: A lot of clients believe this is the end of the discussion, but in reality it is just the beginning.

If you are a US citizen, you could have just created a Controlled Foreign Corporation in the views of the tax authorities. A CFC, as it is commonly called, is immediately not a real tragedy, assuming you are filing the appropriate tax forms, but is that what you wanted?

Maybe you formed a foundation. How are you treating it for tax purposes? Does the tax authority treat it the same way you intended?

From a structural standpoint, you should put together a plan that is time tested and fits your business model first. If your customers are in the US and the people that pay you are in the US, it makes sense to keep your company US based. For tax purposes, this works, unfortunately for debtor/creditor purposes the US corporate veil fails miserably at its attempt to insulate the directors and shareholders with any real protection. Take a look at the court decisions out of California where they say corporate directors are fiduciaries to the creditors of an insolvent corporation. As you can no doubt guess, the definition of insolvent is all over the place. The realization for many clients is that any legal action against your company will most likely end up as a legal action against the humans that work in and operate the company. In the case of US persons dealing with US companies, your asset protection plan comes down to making money and then subsequently protecting that money. What you should end up with is a personal protection plan, akin to your very own personal insurance policy.

On the other hand, if your customer base lands you in many foreign nations, then you may need to interpose offshore companies, banks and trust companies within several jurisdictions. This is where it can get confusing as considerations for tax, banking, customer acceptance, vender payments, partners, local law; all play a part in a well structured multinational business.

Adding to the confusion is an unimaginable amount of corporate service providers ready to sell you a company. A few weeks ago Tim Berry wrote an article on the subject of dummy contracts in which he stated that many boilerplate documents were not worth the paper they were written on.

Bringing that forward into this conversation, if you form a company, whether onshore or offshore, without global business considerations, you may just have created a different version of the dummy contract --- the dummy entity. Just this week I attended a seminar in California where promoters offered a "free" LLC. I think the winners of the free LLC are going to be shocked to learn that if they set it up before December 15th they just donated $800 to the State of California for the initial year ending December 31, 2009. Without proper planning and consideration taken for a complete business structure, your newly formed company, trust or foundation, along with its paperwork, could end up to be the next bit of kindling for your fireplace.

By John Dietz, CWPP™, CAPP™- Senior Advisor
TrustMakers.com

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