It's an expanding global economy out there and, not surprisingly, one of your firm's long-term clients is considering an international expansion. Are you ready? Do you have the international knowledge and connections in place, or can you access them in matters such as tax codes in various countries and other legal issues? Are you familiar with the forms and filing requirements, or can you get quickly up to speed? Consider these five tips as you evaluate the kind of information you'll need to assist clients in their new venture.
1. Conduct an initial evaluation
If your client is a regional or smaller firm and not part of an international network affiliation, a first step might be to identify those international networks and do your homework, says Victor Wahba, partner in charge of the New York practice of WeiserMazars LLC. Potential areas to focus on in an initial evaluation should include assessing how well your firm’s culture blends with that of the foreign affiliate; confirming that they operate and serve clients in similar industries as yours; verifying that they have representative offices near the locations of your clients; and, finally, gaining an understanding of the fee structures in place.
2. Learn the ABC's of the new country
Once having developed a relationship with a foreign affiliate with on-the-ground knowledge in that country, be prepared to learn the ABCs of the country’s menu of tax forms and filing requirements, says Mitchell Sorkin, partner at Smallberg Sorkin & Co. in Melville, N.Y., and chairman of the International Tax Committee of the New York State Society of Certified Public Accountants. These include Form 926 to report the transfer of assets to a foreign corporation, Form 5471 to report the operations of the foreign corporation and Form 90.22.1 to report foreign bank accounts. This could be accomplished by attending seminars, consulting international professionals, contacting state accounting societies or conducting independent research. You want to guide your clients into realizing that this is going to be a learning curve for them, too, Sorkin says.
3. Communicate clearly among all parties
Constant communication is vital between your in-house professionals with international expertise and their foreign affiliate counterparts. Having someone or a group experienced in international services outside the U.S. is a critical first step. And anything you can do to facilitate clear communications among all parties would be advantageous. Of particular importance, says Wahba of WeiserMazars, the foreign affiliate should not only understand their local market, country rules and regulations but understand how the federal rules and regulations affect your client’s situation in the U.S. as well.
4. Identify hidden benefits to clients
For clients considering providing quality control work or setting up buying services for their U.S.-related corporation, your accounting firm can serve as an advisor in formulating and executing an advanced pricing agreement (APA) if there will be intercompany pricing issues, Sorkin says. Your tax professionals may decide to request approval of the APA by the IRS. One benefit for your clients, as Sorkin notes, is they could receive a commission for this work, typically about 5 percent of the goods purchased, and the U.S. shareholders would not be taxed since it is not considered Subpart F income.
5. Determine statutory reporting requirements in the jurisdiction
What are the accounting standards required for statutory reporting requirements in the jurisdiction in which your client is establishing business? And are those requirements the same as tax reporting requirements, or is there a separate set of tax reporting requirements as well? You need to advise your clients that they will have to obtain the expertise to comply with statutory and tax reporting requirements — either internally or through a service provider — according to Ken Marshall, Americas financial accounting advisory services leader at Ernst & Young.
The Bottom Line
In an increasingly borderless world, companies need to compete on a global level to succeed. There are many benefits to going international but risks as well. Both you and your client should have a clear idea of the client’s objective in wanting to go international, and both should sign off on the methodology to get there. Sometimes it is the little things that need tending to. But they can make a big difference and smooth the way.