Turbulence, Technology Drive Boom in Global Start-Ups -- But Complex Tax Issues Mean Wrong Early Moves Can Spell Disaster

According to Marks Paneth & Shron Senior Consultant of Emerging Growth Companies and Entrepreneurs, New Entities Can Be "Global From Birth" -- But Critical Questions Come Thick and Fast About Structure, Location, Foreign Tax Credits; Entrepreneurs Need to Anticipate Hazards and Ask the Right Questions

NEW YORK, NY--(Marketwire - November 3, 2010) -  "Early-stage decisions by global start-ups are likely to be among the most critical in the life of the company," says Jeanne P. Goulet, CPA, a senior consultant in the Emerging Growth Companies and Entrepreneurs practice of leading New York accounting firm Marks Paneth & Shron LLP (MP&S). "These decisions will impact their future ability to raise funds, engage in mergers or other transactions, and create advantageous tax positions for themselves and their investors."

The number of global start-ups is booming as entrepreneurs take advantage of technology and worldwide networks to launch their businesses immediately on an international scale.

The global start-up boom comes as economic turbulence drives entrepreneurship to new highs. Layoffs at senior levels are transforming executives into entrepreneurs, business leaders are finding pockets of opportunity, and technology platforms support rapid global growth.

But the opportunity to be "global from birth" is matched by massive risk. Entrepreneurs are finding that the complexity of starting a business -- never simple -- is dramatically greater when it must operate on a global scale from the word "go." Leaders must decide almost instantly how to structure the business, where in the world to incorporate and how to plan for taxation in multiple worldwide jurisdictions. Failure to plan can lead to tax consequences so severe they can put the start-up out of business.

Ms. Goulet is an IBM veteran and a specialist in such global e-commerce challenges as the development of international tax strategies and the management of cross-border sales, revenue recognition and transfer pricing. In an interview or bylined article, she can discuss the questions global entrepreneurs need to ask:

  • Who has the right to tax my future profits? Thanks to the Internet, customers don't care where a business is located. But tax authorities do. The wrong decision about where to locate the business can lead to severe tax penalties.

  • How can I avoid double taxation and stay out of the "100 percent club," where my taxes equal 100 percent of my profits? Careful use of the US Foreign Tax Credit can minimize the amount of tax due across multiple jurisdictions. Failure to take correct advantage of it can lead to double taxation and business-crippling tax liability.

  • How should I manage taxes on intangibles? Intangibles developed in the US cannot be shifted out of the country to evade taxes. Tax strategies do exist, however, that minimize tax on intangibles across multiple jurisdictions. They are a must if you want to lower your overall effective tax rate.

  • How should revenue be characterized in order to minimize taxes? A sale of software might be called a "license" in one country and a "sale of goods" in another. Technology start-ups -- and others dealing in intellectual property -- need to structure their customer agreements with revenue issues in mind. That, plus the choice of location, can make a major difference in the tax picture.

  • Do my employees who work abroad create a tax problem for me? Under certain circumstances, overseas employees can create a "taxable business presence." Careful planning is needed to ensure that a single office, or a group of contractors, does not create an unavoidable tax burden.

  • How much tax do I need to withhold for my employees -- and where? Withholding needs to be planned for all the locations where the company does business.

  • What will the impact of overseas taxation be on my investors and key employees? Company financials and disclosures need to be structured from the outset with foreign taxation and the impact of the US Foreign Tax Credit firmly in mind.

"The current global environment provides a rich platform for entrepreneurship," Ms. Goulet says. "But the complexity of global taxation means that seemingly innocuous decisions can have far-reaching consequences. Entrepreneurs should be aware that they are going to have to manage that complexity, and work with professionals from the outset to create an optimal business and tax structure."

For more information, or to schedule an interview, please contact Itay Engelman of Sommerfield Communications at (212) 255-8386 or itay@sommerfield.com.

About Jeanne P. Goulet, CPA

Jeanne P. Goulet, CPA, has more than 25 years of experience in both industry and public accounting. Ms. Goulet spent the majority of her professional career with IBM, ultimately serving as head of tax of IBM Credit Corporation and as an IBM tax director. In those roles, she managed the tax function, developed and implemented tax strategy on a global basis, and participated with industry groups both in the US and abroad to develop tax policy for the information technology industry. In addition, she provided tax support to a number of IBM's business units including the Software Group, Global Services, and e-Business Solutions.

Ms. Goulet is a frequent speaker on corporate tax and business advisory topics. She has spoken at a variety of venues including George Washington University's International Tax Program, the International Fiscal Association (2001 Annual Global Congress), Harvard Law School 's International Tax Program and Society for Law and Tax Policy, the Institute for International Research and The Conference Board.

Ms. Goulet holds a Master of Science in Accounting from the Stern School of Business at New York University. She is based in Marks Paneth & Shron's midtown Manhattan headquarters and resides in Armonk, New York.

About Marks Paneth & Shron

Marks Paneth & Shron LLP is an accounting firm with nearly 475 people, of whom 64 are partners and principals. The firm provides businesses with a full range of auditing, accounting, tax, bankruptcy and restructuring services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services and energy clients.

The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in JHI, the leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world.

Marks Paneth & Shron LLP, whose origins date back to 1907, ranks among the 35th largest firms in the nation, and is the 13th largest firm in the New York area. In addition, readers of the New York Law Journal rank MP&S as one of the area's top forensic accounting firms.

Its headquarters are in Manhattan. Additional offices are in Westchester, Long Island and the Cayman Islands. For more information, please visit www.markspaneth.com.

Contact Information:

Itay Engelman
Sommerfield Communications, Inc.