October 14, 2015

*This presentation is offered for informational purposes only, and the content should not be construed as legal advice on any matter

GOING GLOBAL:Key Considerations for Successful International Expansion

A COMMON SCENARIO

You want to hire 2 developers in the U.K. and a sales person in China.

Here are some of the questions you should ask: Which entity will sell the products (software or services) to the

customer? Do we need an entity in each country? If so, what are our options and

how quickly can we get operational? How do we run payroll? Can we pay them from the U.S.? What are the local benefits and tax requirements? Are we issuing stock options? What sort of employment contracts do we need? What are the other

employment requirements and pitfalls? How do we effectively protect our intellectual property?

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SUBSIDIARY, BRANCH, OR “JUST PAYROLL?”

Step 1: Determine the appropriate entity structure Determine appropriate level of corporate “registration” in

country Subsidiary or branch? What are your plans for the future? Representative office – limited in scope to marketing and non-sales

activities In practice, representative offices often do more than permitted scope

Just payroll registration (possible in UK, not possible in China)

“Activities” in-country can trigger a corporate tax Permanent Establishment (“PE”) Difference between revenue generating activities vs. purely marketing,

non-revenue generating activities PE is a grey area and is open to interpretation by different fiscal

authorities in different countries Understanding “triggers” allows for proactive management and

compliance

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BRANCH VERSUS SUBSIDIARY

Branch Office A branch office is an extension of another company A branch office is not a separate legal entity - no legal liability

protection Branch office of U.S. parent company could expose Parent’s profits to

tax in branch country and also to legal liability Consider forming a separate Delaware LLC to house foreign employees and

contractors

Subsidiary A subsidiary is a separate legal entity Provides a layer of protection between the parent company and the

activities of the entity Generally a better vehicle to manage tax and legal liability risks

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Agency Workers

• permissible?

• limitations on time or type?

• equal pay obligations?

• equity compensation?

Employees

• local corporate presence required?

• payroll registrations?

• benefits?

• fixed term?

• equity compensation?

PEOEmployees

• are joint employees and need to comply with all applicable employment laws

• permissible?

• equity compensation?

EMPLOYMENT / HR PLANNING:ENGAGEMENT OPTIONS

Independent Contractors

• what quacks like a duck is a duck

• withholding obligations (VAT, GST)?

• registration obligations

• sales agent rules?

• equity compensation?

Step 2: Get employment and global equity right

Going Global

MOBILE EMPLOYEES AND EXPATRIATE ASSIGNMENTS – HOW DOES IT WORK?

Alternative #1: Direct contract with host country employer (‘localization’)

Home Country, Inc.

Host Country, Inc.

Transferemploymentrelationshipthroughtermination &hire

Alternative #2: Secondment

Keep existing employment with home country employer and second or loan to host country employer

Home Country, Inc.

Host Country, Inc.

Seconded

Service Fee

Alternative #3: Transfer followed by Secondment

Transfer employment relationship through termination & hire and then second or loan to host country employer

Home Country, Inc.

Host Country, Inc.

SecondedService Fee

Global Employment Company (“GEC”)

Home Country, Inc. (dormant)

Host Country, Inc.

Maintain dormant employment relationship with home country employer; enter into active employment relationship with host country employer

Alternative #4: Transfer with dormant home country employment relationship or dual employment

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EMPLOYMENT / HR PLANNING: OTHER CONSIDERATIONS

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Payroll• Local hires• Expat employees

Benefits• Mandatory (law, CBA)• Optional

Onboarding Requirements • Workers’ compensation

equivalent• Pre-hire medical tests• Background tests

Employment Agreements• Required?• Language?• PIIA• Specific terms?

Policies• Required work rules

and internal regulations

• “Global” policies (e.g., code of conduct)

• Local policies (e.g., disciplinary & grievance procedure)

Exit Strategy• No at-will employment

internationally• Probationary periods

and performance management

• Redundancies and performance terminations

Going Global

GLOBAL EQUITY COMPENSATIONPROGRAMS

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INTERNATIONAL TAX PLANNING:KEY CONSIDERATIONS

Step 3: Consider your international tax structure Early expansion stage – basic items Keep it simple and manageable as complexity produces marginal benefits and

reduces future flexibility Define intercompany relationship based primarily on business rationale Intercompany agreement – defines the relationship between affiliates Transfer pricing – pricing of goods, service and IP between affiliates based on the

intercompany agreement But, keep an eye out on potential for more sophisticated international

structuring opportunity and timing (as it could be sooner than you think) E.g., building an R&D team in Ireland; or acquisition of a Dutch target with product

and sales infrastructure; or raising Series C or going IPO at high valuation Valuable to company but also to potential acquirer

High growth stage – comprehensive international structuring Understand the value of planning by modeling out the timing and potential

benefits whether future as stand alone entity or acquisition target Note that value of intangibles increases over time, thus balancing of timing

and operational readiness becomes key

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TAX PLANNING SUMMARY

Overall message: Allocate, Protect, and Facilitate Allocate Allocate income to lower-tax jurisdiction(s) where feasible

Protect Plan for both US and foreign “long arm” statutes

US long arm statutes

Foreign long arm statutes Withholding Tax Permanent Establishment

Facilitate Reduce tax and legal friction on cash movement or redeployment

(including repatriation)

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OVERALL CONSIDERATIONS

Proper, practical planning for international expansion is critical Develop a checklist and bring in advisors early

Scope out timing & costs

Involve key players within your organization

Need to think long-term Impact to share value upon an exit event -- M&A, IPO

Potential tax reserves, once valuation allowances are released

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TREASURY IS A KEY FUNCTION FOR GLOBAL COMPANIES

Treasury’s top

challenges

1. Cash repatriation2. FX volatility3. Visibility into global

operations, cash, and financial risk exposures

Deloitte, “2015 Global Corporate Treasury Survey,” January 2015

Almost 3 months

Time spent annually on manual tasks by

organizations that rely on spreadsheets for

forecasting

50% more time than those with an

automated process

Kyriba & Association of Corporate Treasurers, “The Changing Role of the

Modern Treasurer,” 2015

Over 90%Companies that use

a central treasury organization to support their global operations.

2015 Treasury Strategies / RevalBenchmarking Study

EVERY COUNTRY IS UNIQUE

SEPA, covering the entire EURO zone, is one of the world’s largest cross-border networks for low-value payments

Germany uses its own electronic payments network, called ELV

Japan can transfer funds in real time with its Zengin system

Only Brazil uses the Boleto, a paperpayment method

The U.S. reports with BAI files ...

... while Europeprefers SWIFT

Paper checks are nearly non-existentin Sweden

CORE COMPONENTS TO A CENTRALIZEDTREASURY STRATEGY

Organization

Legal structure Tax structureOrganizational structure Policies and procedures

Operations Payments and collections Liquidity Risk management

Technology

ERP and treasury integration Standards and protocols Straight-through processes Systematic controls

CREATE A TAILORED GLOBAL TREASURY SOLUTION

Reviewyour global footprint

Identify locations

Align tax structure

Defineyour payment needs

Review volume, timing, and destinations

Which currencies

Improveyour work flow

Automate, consolidate, and expedite transactions

Implement industry-standard tools

Optimizeyour control

Establish accurate cash positioning

Optimize idle cash

Establishyour accounts

Assessin-country needs

Review funds flow

Designate controls, signers

Integrateyour systems

Transact globally from one platform

Connect directly to ERP

BENCHMARKS TO MEASURE SUCCESS

Centralized control, agnostic of location

Geographical standardization among processes

Decreased transaction costs

Scalability to support continued growth

Transparency for local tax needs

Consolidated banking relationship management

PRESENTERS

Michael BratsafolisSenior Paralegal

Twilio, Inc.

Since January 2015, Michael has managed the corporate logistics of Twilio’s international expansion in Europe, South America and Asia. Michael has spent the past ten years working as a paralegal in both in-house and traditional law firm settings. Michael received a BA from Coastal Carolina University, and is currently pursuing an MS in Applied Economics at Johns Hopkins University.

Ben OlivasPartner, International Tax

DLA Piperben.olivas@dlapiper.com

Ben Olivas concentrates his practice in international tax and operational structuring, global transfer pricing strategy and documentation, cross-border mergers, acquisitions, dispositions and joint ventures, post-acquisition integration and tax controversy. Ben has worked extensively with US companies doing business in various parts of the world, as well as foreign companies expanding their US operations.

Tyler ChapmanVP Finance /Corporate Controller

Lumos Labs “Lumosity”

Tyler Chapman oversees the Lumosity’s accounting, tax and treasury functions and is also heavily involved in corporate FP&A. He joined the company in 2014 and brings more than 10 years of corporate and public accounting experience to Lumosity. Tyler is a CPA and holds an M.S. in Taxation from Golden Gate University and both an M.S. in Accounting and a B.S. in Accounting from the University of Montana.

Albert HwuVice President International Treasury

Wells Fargo

Albert works with corporate/finance leaders to develop global cash management solutions for companies expanding internationally. He primarily focuses on middle market companies in the Bay Area including the technology and life sciences sectors.

Elise LeungDirector of Legal, Corporate &

SecutitiesAppDynamics, Inc.

As Director of Legal, Corporate & Securities, Elise represents AppDynamics, Inc. in all legal matters, including corporate governance, strategic transactions, commercial agreements, IP, litigation, compliance, employment law and equity administration.

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