John P. Garcia, Targus Group International, Inc. - Speaker at the marcus evans Tax Officers Summit 2012, held in Las Vegas, NV, delivered his presentation entitled A Systematic Approach for Obtaining Foreign Tax Credits

1. John P Garcia CPA, MBA
P. Garcia, CPA
HEAD OF GLOBAL TAX
TARGUS GROUP INTERNATIONAL, INC.
ANAHEIM, CA
November 10, 2012
Red Rock Casino – Las Vegas, NV
Vegas

2. Targus is the world’s best selling notebook
carrying case brand, and the leading provider of
accessory products for the mobile lifestyle
lifestyle.
Targus has 45 offices worldwide and direct
distribution in over 145 countries.
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3. John Garcia, CPA, MBA is the Tax Director for
Targus Group International, Inc. and has been
Head of Global Tax at Targus for 6 years. He
oversees the filing of Targus’s federal consolidated
tax return, international tax returns, transfer pricing
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studies and various consolidated and separate
state tax returns. He has also prepared the g
p p global
tax provisions necessary for FAS 109 compliance.
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4. Our primary objective is to review the
Foreign Tax Compliance process in general
and to explore the withholding tax process
in some detail in order to help you
understand the process and develop an
effective approach to the compliance
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process for your firm or your client’s firm.
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5. 1. Introduction
2. US Perspective of Global Withholding
Tax Model
3. 4 Approaches to Compliance
4. The Integrated Database Solution
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6. INTRODUCTION

7. Economic activity across borders creates tax
liabilities:
Withholding Tax
Income
Sales
Valued Added Tax (VAT)
Property Tax
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8. Questions You Need to Ask
1. Do we know how much our company paid in
withholding taxes on a world wide basis last
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year?
2.
2 How do we know that we paid the correct
amount?
3. Can we recover more money in (from)
withholding tax?
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9. Typically occurs when a purchaser (payer)
conducts business with a supplier (payee) who
is not registered in the supplier’s jurisdiction
Governments impose withholding tax in order to
insure that non-resident recipients of resident
based income pay the appropriate tax
Typically, the obligation of withholding the
proper amount of tax lies with the resident
purchaser
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10. Non-related 3rd party transactions are
often correct.
Withholding tax has a tendency to be
incorrect when the counter-parties are
related.
related
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11. Example
US Parent Co.
Canadian
LENDER
Wholly-Owned
Subsidiary Co
$1MM Loan @ 5%
No presence in the US
h
BORROWER
US-Canada Treaty Rate = 10% withholding interest
The Canadian statutory non-treaty rate = 25%
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12. Income Flows That Attract Withholding Tax
1. Dividends
2. Interest
3. Royalties
4. Capital Gains
5. Sales
6. Technical / Management Service Fees
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7. Insurance
8. Rental Income
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13. Number of Possible Scenarios
X = Number of Countries where the
enterprise has operations
Y = Income Streams the company has which
require withholding tax
Z = Number of Operating Entities
Universe = X * Y * Z
THIS IS A VERY, VERY LARGE NUMBER
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14. Imagine the US Parent
income flows… Corporation
Hong Kong
g g Canadian
Sourcing Sales
Company Subsidiary
Chinese Singapore
Sales
S l Sales
S l
Company Company
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15. Universe = X * Y * Z
5 – Countries
x 2 – Revenue Streams (Interest and Sales)
x 5 – Legal Entities
= 50 Potential Revenue Streams Daily!
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16. Penalties in selected countries for failure to
withhold income taxes:
ithh ld i t
Country Penalty
Canada 10% (20% if missed more
than once)
)
China 50%
Hong Kong 10%
Singapore 5%
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17. U.S. PERSPECTIVE

18. The best a corporate taxpayer can do is 35%
after foreign tax credits.
ft f i t dit
This is postponed until earnings are repatriated
absent application of Subpart F rules.
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U.S. corporate tax rate is the highest in the
world
This affords great potential savings for U.S
based multinational corporations.
These potential savings have limited life, making
time of the essence.
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19. One TRILLION dollars
of unremitted foreign
earnings indefinitely
reinvested overseas.
This artificially distorts
utilization of capital
for the US
corporation.
ti
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20. Diverse and complex
complex.
Timely withholding, filing and remittance are
essential
Withholding taxes are transactional based
and can be voluminous.
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21. Lack of technical competency in the finance
area.
Tax burdens are significant.
Rules change daily with little advance notice.
Increased audits of these transactions.
Volatility of the global environment creates
planning challenges.
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22. With th
there b i l kl t returns i d
being lackluster t in developed
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economies, capital is seeking returns in less
stable more rapidly growing countries
countries.
Globalization has produced an increase in
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intercompany activity.
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23. Ease of Trading
2013 Forecast
Country Across Borders
GDP Growth
(1 185)
(1-185)
Brazil 4% 123
Russia 4% 162
India 6% 127
China 8% 68
USA 2% 22
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24. Developing nations often lack fully-developed
governmental institutions and proper reporting
systems.
Examples of 2012 changes:
Argentina terminated treaties with Switzerland,
Chile, and Spain.
Beginning 2013, South Africa exempted from
withholding non-resident interest received from in-
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country sources.
US – Chile Tax Treaty has been awaiting U.S.
Senate approval since February, 2010.
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25. 4 APPROACHES TO
COMPLIANCE

26. 1.
1 Do Little or Nothing Approach
2. Costly Consultant Approach
3. Ad Hoc Approach – Research Software
Supplemented by Consultants
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4. Integrated Database Solution
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27. Costly
2–C l C
Costly Consultant
l 3 – Ad Hoc
• Decentralized • Centralized
• Use Experts
• p
Use Experts
• I house Software
In h S ft
• External Research Tools Solution
• Reactive • Pro- Active
Inefficient
ffi i Efficient
1 – Do Little or Nothing 4 – Integrated Database
• Decentralized
D t li d Solution
• No experts Centralized
• Rarely Use Experts
• Google
• Real time Database
• Reactive • Pro-Active
Low Cost 27

28. INTEGRATED DATABASE
APPROACH

29. Convert data to information
Capture data, analyze the data and determine
payment and reporting requirements on a timely
basis.
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30. Daily
Rates Documents
Events
Interest &
Treaties and
Penalty
y Due Dates
Protocols
Rates
Withholding International
I t ti l
Forms and FX Rates
Tax Rates Receipts
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31. So why do we care?
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32. Recovered Withholding Tax
Avoid Double Taxation
Correct and Ti l Withholding
C t d Timely Withh ldi
Reduced Interest & Penalties
Foreign Tax Credit Support
More Efficient and Eff ti Audits
M Effi i t d Effective A dit
Verifiable Audits
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33. Reduce tax preparation expense
Better management of cash
Planning and Projections
Pl i d P j ti
Track expiring tax credits
Identify areas of exposure quickly
Scalability
S l bilit
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34. Do you have the capability?
Do current accounting systems properly identify the
intercompany transactions?
Are all legal Entities / Accounts / Centers properly
identified?
All entities in accounting enterprise system
Special purpose entities
Disregarded entities
Are all like kind intercompany income flows treated
the same?
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35. QUESTIONS?
john.garcia@cpa.com
j h i @

36. THANK YOU