International Business Law

Tips for New Exporters

April 1, 2011, 2:18 PM

Before your company starts to export goods, some serious considerations should be contemplated. First, your company should designate a person who will be in charge of learning about and making sure your company complies with all customs rules. This is no simple task. Currently, there arenumerous customs regulations, enforced by several differentagencies, such as the U.S. Department of Commerce, Bureau of Industry and Security, the U.S. Department of State, and the Office of Foreign Assets Control. The first step is tobecome more familiar with customs regulations anddetermine which regulations govern theparticular good that your company will export. Once you determine the regulations that apply, then you needtofigure out ifyour company is prohibited from exporting thatparticular good. Even if yourcompany ispermitted to export that particulargood, alicense may benecessary in order to export your good, depending on the country of destination. Exporting can be a complex endeavor, involving numerous federal regulations, that carry serious civil and criminalsanctions for violations. However, exportingwill open up entirely new markets to your company and may prove to be veryprofitable. Please contact me shouldyourcompany need additionalguidance incomplying with export regulations. --R. Ellen Coley

Transfer Pricing of Intangibles under review by OECD in 2011

March 23, 2011, 2:12 PM

In connection with 2010 revisions by the Organization for Economic Cooperation and Development (OECD) regarding the transfer pricing aspects of business restructuring, the OECD noticed an area of concern related to the lack of guidance regarding the identification and valuation of intangibles. This concern affects both governments and taxpayers because the uncertainly of the treatment of intangibles increases both the possibility of disputes and the risks of double or less-than-single taxation. In response, the OECD announced a new project for 2011 which will result in revisions and updates to the transfer pricing guidelines. OECD has identified seven key areas for the project: 1) The framework or process for analyzing intangible-related transfer pricing issues; 2) The definitional aspects, specifically defining "intangibles" for transfer pricing purposes; 3) The specific categories or types of intangibles, including research and development, workforce in place, going concern and goodwill as well as differentiating between intangible transfers and services and matters pertaining to marketing intangibles; 4) The determination of intangible transfers including the determination of when a transfer has occurred and possible recharacterization issues that may result; 5) The right of an associated enterprise to share in the return from an intangible that it does not own; 6) The cost contribution arrangements which are used to organize the development and ownership of valuable intangibles; and 7) The most appropriate transfer pricing method - currently OECD has five recognized methods. The OECD has delegated this review and responsibility to the Working Party No.6 of the Committee on Fiscal Affairs. The scope of the project can be accessed at: http://www.oecd.org/dataoecd/10/50/46987988.pdf. --Elaina L. Blanks

IRS Offers a Second Special Offshore Voluntary Disclosure Initiative

March 18, 2011, 8:27 AM

On February 8, 2011, the IRS announced a second voluntary offshore disclosure initiative. The original program, which ran from March 23, 2009 through October 15, 2009, resulted in approximately 15,000 voluntary disclosures being made by taxpayers by the closing date and more than 3,000 additional disclosures from taxpayers after the closing date. Stating that its goal is to bring taxpayers back into compliance with the U.S. tax system, the Tax Commissioner continued to stress that a top goal of the IRS is to combat international tax evasion. As such, the IRS has developed the 2011 Offshore Voluntary Disclosure Initiative (OVDI) designed to assist taxpayers with complying with their U.S. tax obligations. The deadline for submission is August 31, 2011.

Picking the Favored Courthouse

March 10, 2011, 3:27 PM

The prior post illustrated one situation (among many) when picking a desirable venue to resolve a dispute might be the pivotal action in determining how that dispute will be resolved. Indeed, in this lawyer's opinion, if forced to choose between picking local law or local venue, I would almost always opt for the latter. The language is our own; the local court rules are accessible; our witnesses will be available; we can sleep in our own beds; and the cost of resolving the dispute will be much higher for the opposition than for ourselves. As a result, the likely outcome of settlement discussions will be much more favorable whenever the judicial venue following unsuccessful negotiations is favorable.

Get it in Writing?

March 4, 2011, 11:42 AM

This post takes us back to the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG permits a seller and buyer in different treaty countries to create an enforceable contract for the sale of goods without reducing the deal to writing. Moreover, there is no required form for an international sales contract: in the event of a dispute, a contract may be proved by any means, including oral testimony from witnesses. Further, Article 29 of the CISG permits an oral contract modification.

Overview of the U.S.- CAFTA-DR Free Trade Agreement

February 25, 2011, 4:37 PM

The Central America-Dominican Republic-United States Free Trade Agreement (CAFTA) provides new market access for many products due to considerable tariff cuts. For example, with the implementation of CAFTA, 92% of U.S. capital goods exports, 100% of U.S. agricultural equipment, and 95% of U.S. construction equipment automatically become duty-free. There are also significant tariff cuts for consumer goods, chemicals, environmental goods, electronic goods, footwear, paper, and transportation equipment.

Implications of Recent Revisions to Form I-129

February 22, 2011, 10:42 AM

The recent revisions to Form I-129, used to apply for H-1B visas for skilled technical workers, now require companies to certify that they are compliant with deemed export regulations. Human resource managers are typically responsible for filling out these forms, which means that they will have to make expert license determinations in order to certify that their company is informed of and compliant with the rules relevant to deemed exports. For instance, U.S. entities must apply for an export license under the "deemed export" rule if they intend to transfer controlled technologies to foreign nationals within the United States and transfer of the same technology to the foreign national's home country would require an export license.

New Excise Tax on Foreign Procurement Payments

January 27, 2011, 9:59 AM

On December 22, 2010, Congress passed the James Zadroga 9/11 Health and Compensation Act of 2010 (the "Zadroga Act"). Most people recognize the Zadroga Act as being the act that provides financial and medical relief to our beloved first responders from 9/11 whose health was negatively impacted. In order to offset the cost of this act, Congress imposed a new excise tax on certain foreign persons that provide goods and services to the federal government. The tax is equal to 2 percent of the amount of the federal procurement payment which is any payment made pursuant to a contract with the government of the United States for either 1) the provision of goods that are manufactured or produced in a country that is not a party to an international procurement agreement with the United States; or 2) the provision of services that are provided in a country that is not a party to an international procurement agreement with the United States. The amount is collected as an additional amount to be deducted or withheld as part of the withholding of tax on foreign persons. An annual compliance review will be conducted by the Administrator for Federal Procurement Policy. --Elaina L. Blanks

CFC Look-Through Rule Extended and Reinstated

January 25, 2011, 11:32 AM

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Middle Class Tax Act of 2010"). Most people are familiar with the Middle Class Tax Act of 2010 as being the act that extends 1) the Bush Tax Acts of 2001 and 2003, 2) unemployment benefits and 3) some of the stimulus measures. An additional extension that received less attention is the extension of the controlled foreign corporation ("CFC") look-through rule (the "Look-Through Rule"). This temporary rule (which began in 2006) expired after December 31, 2009 for calendar year taxpayers. Thanks to the Middle Class Tax Act of 2010, the Look-Through rule is now retroactively reinstated for 2010 and through 2011. The Look-Through Rule is found in I.R.C. 954(c)(6) and generally provides that, a CFC that receives or accrues dividends, interest, rents, and/or royalties from a related CFC is not required to report the income as a foreign personal holding company income provided that the income is properly allocable or attributable to income of the payer that is not subpart F income and not treated as effectively connected with the conduct of a trade or business in the United States. In 2007 (after the original enactment of the rule), the IRS provided guidance on the application of the Look-Through Rule in Notice 2007-9. Click here for the Notice. --Elaina L. Blanks

IRS Withdraws UBS "John Doe" Summons

January 21, 2011, 2:23 PM

IRS Commissioner Don Shulman announced on November 16, 2010 that the IRS has now withdrawn its "John Doe" summons against UBS AG Bank thanks to the IRS's success and cooperation in discovering undisclosed offshore accounts. In August 2009, UBS, the Swiss government and the United States entered into an agreement whereby account holder information on US taxpayers was disclosed to the IRS. As a result of the agreement, the IRS provided a voluntary disclosure program last year and announced that approximately 15,000 voluntary disclosures were made and an additional 3,000 voluntary disclosures have been made subsequent to the close of the voluntary disclosure program. So far, the IRS is asserting that the closed cases have averaged more than $200,000 in tax collections (tax, penalties and interest) per case. Shulman's announcement echoes his continued priority and focus on combating international tax evasion. Thanks to this success, Shulman anticipates developing new leads with numerous banks, advisors and promoters from around the world. Shulman also touted the benefit of having these taxpayers being brought back into the US tax system and noted that this success is one of many efforts that the IRS is engaged in to increase international tax compliance. Other efforts include the recent reorganization of the Large Business and International Division, a focus of which is to further emphasize and specialize the international and offshore banking effort and continued work with other governments through the Organization for Economic Co-operation and Development. A copy of Shulman's complete announcement is posted here.

Differences in Customs and Income Tax Valuations are not a Violation of Section 1059A

January 18, 2011, 4:41 PM

On October 29, 2010, the Internal Revenue Service released an advice memorandum regarding the "first sale rule" and the potential for a transfer pricing adjustment. In a chief counsel advice memorandum, the IRS explained that differences in valuations for customs law and income tax law purposes upon the correct application of the "first sale rule" do not violate Section 1059A of the Internal Revenue Code. Section 1059A places a limit on a taxpayer's basis or inventory costs in property that is imported from related persons. The "first sale" rule is a custom valuation rule that permits importers to refer to the price paid by an intermediary to a foreign manufacturer as the taxpayer's basis for determining the value of the imported merchandise. The general income valuation rules most often yield a higher value because the amount is based on a later, more valuable sale. Naturally, the custom valuation rule is preferred by importers because it generally has a lower value than that of the income tax valuation and minimizes customs duties. The memorandum explains that this difference in valuations does not violate Section 1059A because the difference falls under the exception in Regulation 1.1059A-1(c)(2)(iv). Please note that chief counsel advice memoranda cannot be cited or used as precedent. Click here for a copy of the memorandum. --Elaina L. Blanks

Selling the Other White Meat under CISG

January 13, 2011, 10:33 AM

Perhaps you can tell that I wrote the prior post (involving chicken) and this post (involving pork back ribs) around lunch time. True, but I hope you share my appetite for some legal intrigue.

Escaping Contracts Can Be Expensive

January 10, 2011, 10:18 AM

Globex International, Inc. learned a $800,000 lesson when it challenged an arbitrator's decision to hold it liable for failing to meet contract performance requirements established under CISG (United Nations Convention on Contracts for the International Sale of Goods). Globex, an American food vendor, agreed to sell 112 containers of chicken parts to a Romanian company called Macromex. Before delivery of the full shipment, the Romanian government banned the importation of chicken. From Globex's perspective, this ban was fortuitous, because the price of chicken had spiked upward. Consequently, when Macromex demanded that Globex deliver the chicken parts to a Black Sea port in Georgia as an alternative delivery point (for substitute performance), Globex declined the direction in favor of selling the chicken to a higher bidder.

Define any Contract: Custom in the Industry vs. the Parties' Practices

January 5, 2011, 11:07 AM

In determining the intent of the parties' contractual terms, Article 8 of the CISG (United Nations Convention on Contracts for the International Sale of Goods) instructs the court to give "due consideration" to "all relevant circumstances", including the parties' negotiations, any practices which have developed between the parties, and any "usages" adopted by the parties. Under Article 9(2) of the CISG, the parties are deemed to have "impliedly" incorporated into their contract any "usage" regularly observed in international trade by parties to similar types of contracts. This raises the question whether the parties' definition of a trading term or the industry's definition of the same trading term will prevail in the case of a conflict.

Take It or Leave It "Deal" Enforceable under CISG

January 4, 2011, 2:47 PM

In prior postings, we have reviewed some of the key differences between the United Nations Convention on Contracts for the International Sale of Goods ("CISG") and the Uniform Commercial Code as in effect throughout the United States (except Louisiana). Of course, all of the muddy theories under CISG hit the judicial road when real cases must be decided under CISG.

Is Your Small Business Ready to Export?

December 15, 2010, 9:27 AM

The Small Business Administration (SBA) is working together with the Department of Commerce to assist small businesses in deciding whether they are ready to successfully begin exporting. Specifically related to exporting, the SBA offers training and counseling, information on market research and financing options, and resources to create a business export plan and find foreign buyers. The SBAs self-assessment tool will enable companies to evaluate whether they would benefit from entering the global marketplace. With approximately 96% of consumers living outside the U.S., all small businesses should consider taking advantage of SBAs resources in this respect.

Protecting Intellectual Property Rights: A Priority Trade Issue for the United States

December 13, 2010, 12:11 PM

U.S. Customs and Border Protection (CBP) has designated intellectual property rights enforcement as a Priority Trade Issue (PTI). Counterfeit goods imported into the U.S. pose safety concerns to end-user customers and cause huge economic losses to legitimate U.S. businesses. CBP is committed to seizing counterfeit goods at U.S. borders. Immigration and Customs Enforcement (ICE), as the largest investigative agency of the Department of Homeland Security, also plays a large role in preventing the import of counterfeit goods. In 2009, CBP and ICE were responsible for 14,841 seizures of counterfeit and pirated goods, the value of which totaled over $260.7 million. Since the beginning of 2010, CBP has seized over $3 million in counterfeit goods at just one port in Savannah, Georgia. To assist CBP and ICE in their efforts to keep counterfeit goods out of the U.S. market, businesses can submit a product identification guide to CBP. This guide should include company information, all brands, marks, copyrights, and patents that the company owns and the corresponding registration and recordation information, detailed product information, manufacturers of genuine goods, distribution channels, and information on known violators. --R. Ellen Coley

A Step Towards Export Control Reform

December 9, 2010, 11:41 AM

President Obama signed an Executive Order on November 9, 2010, establishing the Export Enforcement Coordination Center (the Center). Some of the frustrations with current export control laws are that such laws are enforced through different government agencies, are overly complicated, and are often redundant. The Center was established to coordinate export enforcement activities and serve as a forum through which executive departments and agencies will enhance their export control enforcement efforts and identify and resolve conflicts between these agencies. Additionally, the Center will serve as a conduit between government enforcement agencies and U.S. intelligence agencies to exchange information relating to potential U.S. export control violations. Through this new Center, the President hopes to eliminate conflicting polices between the separate agencies and strengthen export control enforcement overall. --R. Ellen Coley

New Partnership Between U.S. and India to Further Export Goals

December 7, 2010, 12:12 PM

Recently, President Obama and Prime Minister Singh agreed to work together to implement a four-part export reform program in an effort to facilitate trade and cooperation between the U.S. and India. The first step involves Indias membership in four multilateral export control regimes, the Nuclear Suppliers Group, the Missile Technology Control Regime, the Australia Group (chemical and biological controls), and the Wessenaar Arrangement (dual use and conventional arms controls). As long as India adopts export controls included on the regimes control lists, the U.S will fully support Indias membership in all four regimes. Secondly, the U.S. will remove all civil space and defense-related entities from the Department of Commerce Entity List. After doing so, shipment of certain items to such entities will no longer require an export license. The third step obliges the U.S. to reflect India as a strategic partner, no longer as a country of concern, in the dual-use export control regulations. India has agreed to implement a control list that corresponds with the multilateral regimes and implement re-export controls on certain items of U.S. origin. Lastly, the U.S. and India agreed to enhance export control cooperation through dialogue between the two counties on export control issues. Any company that is involved in exporting or importing with an India based company may visit http://www.bis.doc.gov/ for more information on this four-step reform program. --R. Ellen Coley