From 2010 to 2015, Roy taught an MA course in international tax law at the University of London. The course was aimed at helping professional advisors understand the fundamental principles when structuring any entrepreneurial business internationally, and is now available online at www.theibsa.org
The right advice at the right time is what often makes an idea grow into a successful business empire. Roy Saunders brilliantly illustrates this maxim by delivering his International Tax Planning seminars annually at the University of London. The first half of the four-day course focuses on a certain Mr Holmes and his brainchild – Polycon Lens Company.
Mr Holmes, an industrious fellow, not unlike some modern Internet whiz kids, uses his training as an optometrist to make a break-through in acrylic lenses manufacturing. Not fearing foreign lands, Mr Holmes establishes his first company abroad and starts working to realise his ambition of penetrating the world of haute couture spectacles. The stars looking favourably on Mr Holmes’ enterprise, he broadens his product range with telescopic lenses for the military. The company soon finds itself supplying lenses of both kinds to customers across the globe.
To push sales and meet rising demand Mr Holmes goes through the increasingly complex stages of business development. From having to run a small start-up our Midas soon finds himself juggling the newly-appointed board of directors, subsidiaries, representative offices, agents, storage facilities and distributors, all in different jurisdictions and speaking different languages. Enter Maurice Brightman – a cautious but brilliant international tax advisor – to save the day, who some may know from Roy’s earlier book “The Principles of International Tax Planning.”
While Mr Holmes remains the powerhouse behind the company’s development, Mr Brightman plans for the tax-efficient international development strategy. Amongst other things, he knows when there is a permanent establishment and what it entails, advises what kind of business entity to choose for a particular purpose or cautions against high debt-to-equity ratios for the fear of thin capitalisation provisions kicking in. Under Mr Brightman’s careful guidance Polycon soon turns into a listed conglomerate with manufacturing and sales facilities around the world, boldly disposing of and acquiring new businesses and former customers and changing name in due process. Progressively, the group boasts its own in-house finance company, e-commerce subsidiary and real estate investment group. The sky is the limit, and the enterprise enters the ultra-modern renewable energy market through an off-shore private equity fund.
The course is delivered through a pre-distributed narrative, each of Mr Holmes’s stages of development elucidated by additional slides that Roy supplies. The students are split into four groups of five or six. All are invited to assume the role of Mr Brightman and advise Mr Holmes on implications of each step he was taking. Acting as a mentor, Roy explains the premise and gives everyone time to discuss the consequences. Following lively negotiations that last from five to ten minutes, each group presents its view of the situation, which Roy summarises on the whiteboard and on which basis he delivers his vision of the advice.
The usefulness of the course is augmented by the audience it is delivered to. The class is mostly composed of professionals with work experience in different jurisdictions and in different areas of law and finances. One could meet an estate planner, a chartered accountant, a chartered tax advisor and a retired tax inspector, as well as lawyers qualified in many different states. Although the stages became increasingly difficult, it doesn’t stop the barrage of ideas originating from each group’s brainstorming sessions. Every time the participants demonstrate the multitude of angles from which a problem could be approached. A bystander would notice the breadth of opinions and variety of commercial, legal, tax and financial issues that the students raise.
Most discussions start with consideration of the applicable universal international tax principles. These included treaty law and permanent establishment considerations, transfer pricing rules, CFC regulations, limitation of benefits and thin capitalisation requirements. The negotiations then often unfold on the basis of a person’s own practice. Different kinds of entities are considered, amongst them partnerships, joint ventures and Societas Europaea, as well as jurisdictions, such as Cyprus, Luxembourg, Hong Kong, Ireland and even Hungary. Use of losses are be discussed extensively, each providing deductibility justifications and grounds for the intra-group transfer from his or her own jurisdiction. For example, the significance of stewardship costs may be analysed in depth and compared with non-management expenses.
Various tax incentives and exemptions are proposed, like, for example, Chinese tax holidays for manufacturers established in particular investment zones. European-minded mentioned Parent-Subsidiary and Merger Directives. UK-qualified – substantial shareholding exemption, demerger relief, as well as use of trading losses. Each time the impact of different taxes is assessed, the latter including corporate, capital gains, value added, stamp duty and land taxes. Associated costs, such as export and import duties and currency fluctuations are also taken into account. Non-tax issues include evaluation of different options for business acquisition, such as shares vs. assets disposals, or discussion of incentives for the board members.
The exercise is especially useful for students whose experience with international taxes are largely theoretical. Firstly, it demonstrates close interrelation between different parts of academic courses and prompts the participants to consider several issues in unison. Secondly, Mr Holmes’s adventures closely resemble what one would be expected to meet in practice and attendees are invited to apply real-world analysis to the situation. This is when participation of those with several years in practice is invaluable. Not only does it keep everyone on their toes in order to keep up with the discussion, but also highlights issues to note down and later use in practice.
During the next two days Roy shares his own work experience by inviting students to consider an array of client structures that he encounters in practice. Like previous seminars, Roy gives just enough information to initiate the discussion and a quarter of an hour later invites the participants to share their views. It is probably fair to compare two parts of the course with gentle stretching followed by vigorous exercise. Not only do the students hardly have any hints as to how to approach each situation, the analysis has to be based on real-life facts, where laws of different jurisdictions have to be taken into account. The last cross-border transaction and, as expected, the most complex one, is used as a basis for the marked assignment, forming part of the course grade.
The uninitiated would hardly be excited by international taxes, and, arguably, the same is at least partially applicable to those who do them for a living. What Roy does one may easily call an achievement, for he makes hours and days of the course fly by.
In addition to delivering the course, Roy shares useful practical tips on how to interview clients, what questions to ask foreign counsels when contemplating activity abroad and how to approach preparing comprehensive advice. At the end of each day every group is asked to distill its vision of international tax law in three words or concepts. My personal favourites are creativity, teamwork and lateral thinking.
Article written by Dmitry Zapol