Meeting Agenda

2. Meeting Agenda • Demystifying the Expatriate Assignment Process • Carol-Ann Simon, Perkins & Co • Emerging International Relocation Program • Issues, Risks and Best Practices • Gary P. Tober, Garvey Schubert Barer • Global Assignment Policy Overview • Joseph Willis, Nike • Improve Effectiveness of Global Mobility • Jennifer Fu, Banfield/Mars, Inc. • Destination Service Provider • DelayneRomson, International Expatriate Consulting, Inc.

3. Carol-Ann Simon Perkins & Co, Shareholder Carol-Ann is a tax shareholder and director of our Expatriate Tax practice group. With over 25 years of experience, in the US and Canada, Carol-Ann has the unique ability to understand the dual-country implications of a foreign assignment. Her expertise includes coordinating global tax compliance, tax effective compensation, cross border planning, employee relocation issues and tax equalization policies. Her clients have included hundreds of international businesses ranging in size from family-owned to large multinational companies. Most recently, Carol-Ann obtained Certifying Acceptance Agent (CAA) status with the IRS, allowing her to assist foreign nationals in the applications for Individual Taxpayer Identifi cation Numbers (ITIN). Carol-Ann’s certification will streamline the process of obtaining an ITIN as she will be able to locally review the original documents necessary and certify the application for the IRS. Prior to joining Perkins & Company, Carol-Ann was the partner in charge of BDO Seidman’s Expatriate Tax Services group and served as BDO Seidman’s U.S. liaison to the BDO International Center of Excellence for Expatriate Tax Services. In addition to her time with BDO, Carol-Ann developed her abilities with several of the top four accounting fi rms in the US and Canada, including Ernst & Young.

4. Demystifying the Expatriate Assignment Process December 6, 2011 Portland Relocation Council Meeting

5. Agenda • Outbound Expatriates • How to determine cost differentials • Elements of the assignment contract • Estimating the overall cost to the company • How to Pay • Certificates of Coverage • Tax equalization

6. Agenda (Cont’d.) • Inbound Expatriates • Local hire vs. temporary assignee • Split payroll considerations • Tax implications of various immigration visas • International Tax Updates

7. Outbound Expatriates

8. Cost Differentials • Most temporary assignments abroad attempt to keep the assignee economically neutral. • Measure four categories of cost differentials: • Housing • Cost of living • Transportation • Income taxes

9. Cost Differentials (Cont’d.) • Helpful if you can obtain independent data for the first 3 categories • There are specialized cost information providers that can supply this for you.

10. Elements of the Assignment Contract • Who is the employer company? • Is the employee “on loan” to host location? • Assignment length can have tax implications. Key cut-offs: • 6 months • 1 year • 5 years

11. Keep base salary “pure” • Denote allowances separately • Method of payment can make a tax difference (e.g. housing) • Description of your tax equalization process • Assignee agrees to hypo tax withholdings • Tax compliance process & provider

12. Assignee signs agreement that all tax advances you make on their behalf are considered debt to the company until settled through the tax equalization process. • Make sure all terms are agreed before the plane leaves.

13. Cost to the Company • Determine all potential assignment allowances and expense reimbursements • e.g. Home leaves, HHG/flights, temporary living (front & back end), visas, “look see” trip, storage, language training, schooling • Data used by tax services provider to calculate all home & host taxes plus gross-ups • Total costs can be used to obtain assignment approvals and set up cost accruals in budget.

14. Certificates of Coverage • US expatriates on temporary assignment for their US employer can be exempt from host country social security, and stay in US FICA/Medicare System. • Typically only lasts for assignments up to 5 years. • US has agreements w/ 24 countries, more pending. • Exemption from host country social security can be a signifcant savings for employer • Employee/employer portions, other countries’ systems can be much higher amounts • Apply online https://secure.ssa.gov/apps6z/coc_db/allforms.html

15. How to Pay • Consider offering a “split” payroll. Some pay in the US, some from host location. (This will help reduce exposure to currency fluctuations.) • Also helps to manage home country responsibilities, such as pension contributions, social security taxes, • Suggest assignee set up an account with an international banker, to facilitate movement of funds from home to host. Note – will require some manual information gathering for payroll reporting in home and host locations.

16. Tax Equalization Policy • Most companies have this as a companion to their relocation policy. • Philosophy is that assignee is “no better or worse off” from a tax point of view • Some companies are temptedto offer “protection” instead – assignee is “no worse off”.

17. Disadvantages • Sets precedent • Tax benefit hard to predict • Benefits will differ between employees • Impedes mobility

18. Inbound Expatriates

19. Local Hire • Many employees from abroad treated as local hires here. • US tax rates are often lower, salary grids often higher than home country. • Concept of tax equalization does not translate well in inpat scenarios – it’s a “US-centric” concept. • Not exempt from FICA/Medicare unless have a home country certificate of coverage

20. Tax Implications of Various Immigration Visas • Most aliens working in the US with a non immigration work visa are fully subject to US income tax and FICA/Medicare tax (unless exempt by Totalization)

21. Special Rules • J-1 Trainee • If paid from abroad, exempt from federal/Oregon income tax. • F-1, M-1, J-1, Q-1 • Exempt from FICA/Medicare, unless they have taken steps to be considered resident aliens. • Includes F-1 OPT (Optical Practical Training) • Working spouses not exempt

22. International Tax Updates China • Income tax rates have increased as of Sept. 1 • Social tax regime will now be applied to foreign employees for the first time • Effective Oct. 15? Implementation? Netherlands • Tax relief for expats (aka the “30% ruling”) will be harder to obtain • Specific expertise test hard to meet for younger workers • Cross border commuters ineligible

23. Updates (cont.) USA • New FATCA form 8938 for 2011 • New foreign asset reporting form for individuals • All foreign financial assets – goes beyond foreign bank account reporting • Large penalties for failure to file

24. Questions?

26. Gary P. Tober Garvey Schubert Barer, Shareholder GARY P. TOBER, a shareholder and member of Garvey Schubert Barer’s tax practice group, is involved in tax and business planning for U.S. and foreign corporations, partnerships and individuals, emphasizing the tax aspect of cross-border business operations and investments transactions. Mr. Tober regularly presents seminars on international tax topics to certified public accountants; teaches graduate school courses in international taxation at the Golden Gate University; speaks at seminars on international commercial agreements; chairs seminars on international law and taxation; and lectures on international topics at various professional education programs. He is admitted to practice in the State of Washington. Mr. Tober earned his B.A. at Denison University, his J.D. at the University of Toledo Law School, and his LL.M in Taxation, at Washington University School of Law.

27. Portland Relocation CouncilEmerging International Relocation ProgramIssues, Risks and Best Practice December 6, 2011 Gary P. Tober Garvey Schubert Barer Portland, Oregon and Seattle, Washington

28. Inadvertent Corporate Risks Associated With Foreign Relocation of Employees • Foreign Tax Nexus • Corporate Tax Obligations in Host Jurisdiction • Exemption Provided by Income Tax Treaties • Social Security Taxes • Totalization Agreements

29. Inadvertent Corporate Risks Associated With Foreign Relocation of Employees • Corporate Implications of Employee Tax Obligations • Tax Filings • U.S. • Foreign • Tax Withholdings • Other • FBAR • Legal Liability

30. Income Tax Treaties • Business Profits - Baseline Definition: The business profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the business profits of the enterprise may be taxed in the other state but only so much of them as is attributable to that permanent establishment.

31. Income Tax Treaties • Threshold Requirements is the Existence of an Enterprise. • Almost any economic activity carried out by a resident of a treaty country creates an enterprise. • Business Profits Generally Means Income Derived from any Trade or Business • No direct counterpart in U.S. domestic tax law • Only Business Profits Attributable to a Permanent Establishment will be Subject to Tax. • Income from active business operations

32. Income Tax Treaties • Permanent Establishment - Baseline Definition: For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. • If a U.S. company lacks a permanent establishment in the other treaty country, business profits derived in the treaty country will not be taxed by the treaty country.

33. Income Tax Treaties • Criteria for Permanent Establishment • Fixed place of business through which a resident of a treaty partner engages in industrial or commercial activity • Facilities • Place of management • Branch • Office • Simenon v. Comm’r, 44 T.C. 820 (1965) – Home office maintained in U.S. by French author resulted in P.E. under U.S.-France income tax treaty

34. Income Tax Treaties • Factory • Workshop • Place of extraction of natural resources • Building site – depending upon length of project. Required length varies from six months to two years depending upon treaty. • Exclusions • Storage facilities • Goods to be processed by another enterprise • Purchasing goods or collecting information • Activities of a preparatory or auxiliary character

35. Income Tax Treaties • Permanent Establishment by Attribution • Degree of authority of agents (i.e., employees are agents of their employer) • Permanent establishment results if agent has general authority and power to contract • If agent’s activities are limited to exempted activities no permanent establishment is created • No permanent establishment if agent is broker or commission agent and independent • Independent agent is one who is neither an employee nor under the day-to-day control of the principal • Handfield v. Commissioner, 23 T.C. 633 (1955) found that U.S. distributor of postcards was filling orders from a stock of merchandise and thereby created a permanent establishment for a Canadian citizen.

36. Income Tax Treaties • Non-fixed permanent establishment • Rev. Rul. 56-165, 1956-1 C.B. 849, holds that representatives of a French company who traveled continuously for two years in the United States had a permanent establishment, notwithstanding that the corporate representatives were merely demonstrating and taking orders for machinery.

38. Joe Willis Nike, Mobility Manager Joe joined Nike as the Americas Mobility Manager just last October. Prior to Nike, Joe was shoring up his Global Mobility experience at Broadcom where he served as the Global Mobility Program Manager and prior to that at Sony Pictures Entertainment as the Sr. Manager of Global Mobility. Joe’s working background also includes the MI Group, Children’s Hospital of Orange County and British Airways. He graduated from the University of California, Los Angeles with a B.S in Applied Geophysics and Space Physics.

39. Global Assignment Policy Overview Joseph Willis, CRP, GMS December 6, 2011

40. Global Assignment Types • Business Trip • Duration: < 3 Months • Not treated as an expatriate assignment • Short Term Assignment • Duration: 3 – 12 Months • Skill acquisition/personal development OR project assignment with defined end date • Fewer expatriate allowances • Developmental Assignment • Duration: 3 – 24 Months • Skill acquisition/personal development/global experience • Fewer expatriate allowances • Long Term Assignment • > 12 Months • Perform a job/career development/transfer of skills/global experience • Traditional expatriate allowances • Dual Career Assignment • Both spouses are employees on assignment • Some expatriate allowances are shared

41. Expatriate Compensation Balance Sheet Approach Transferee is kept whole compared to “stay-at-home” income Minimize impact of changing market conditions in the Host Country, such as exchange rates, tax rates and housing costs Base Salary Employee remains on Home Country payroll Equal to the pay of domestic peers in comparable jobs at home location Transfer Premium Compensates for separation from home, relatives, and friends, and the particular difficulties of international services Currently 12.5% of gross base salary, up to a maximum of US $12,500 Cost of Living Adjustment (COLA) Differential to offset cost of goods and services at host location to maintain purchasing power equal to domestic peers COLA is paid only if cost of goods and services at host location is greater than at home location COLA updated quarterly on Feb 1, May 1, August 1 and Nov 1

42. Expatriate Compensation (continued) Hardship Allowance Additional compensation if working under unusually difficult conditions Currently, 5% - 30% of gross base salary depending on location Revised annually Housing Norm Deduction Employee’s contribution to housing cost via payroll deduction Equals one-half of comparable housing in Home Country and consists of non-equity mortgage payments and property taxes or rent, plus normal utilities Hypothetical Tax Payroll deduction roughly equivalent to “Stay-at-Home” tax withholding Calculated on annual gross base salary and other factors which affect Stay-at-Home Tax (such as insurance and pension contributions) Hypo tax is not computed on transferee allowances

43. Expatriate Compensation (continued) One-Time Payments Relocation Allowance One half of monthly salary Intended to cover miscellaneous out-of-pocket expenses during relocation, ongoing expenses throughout the term of the assignment and offset incidental costs associated with the move back to the home location. Paid via Home Country payroll Spousal/Partner Allowance Intended for spouse/permanent partner to enhance interests, education or career while away from home One lump-sum payment at the beginning of the international assignment. Additional payments may be made if assignment is extended. Paid via Home Country payroll

44. Payroll/Compensation Administration Policy Counseling Visa/Work Permits Shipment/Storage of Household Goods Insurance (Personal Effects and Personal Liability) Payroll Tax Filing/Equalization Medical Benefits Property Management Temporary Housing/Car Rental Scope of Services – Home Country • Auto Loss-on-Sale or Lease Break • Intercultural Training • Language Training • Immunizations • AMEX/Expense Administration • Will Preparation • SOS/Travel Assistance • Mail Forwarding • Personal Long Distance Calls • Employee Store Shipments

45. Policy Counseling Visa/Work Permits Temporary Housing Home Finding Language Training Intercultural Training Personal Long Distance Scope of Services – Host Country • School Search • Dependent Education Assistance • Local Transportation • AMEX/Expense Administration • Tax Equalization/Services

46. Assignment Benefits Home Leave One home leave per year, after one year of overseas service for employee and dependents Up to $1,000 for car rental Intent of home leave is for employee to travel to home country to maintain business and personal connections Employee may elect an alternate destination. Reimbursement provided for amount equal to cost of airfare to Home Country. Rest and Relaxation Leave For employee and dependents assigned to hardship locations One R&R trip per year while on assignment Transferee selects destination 5 working days provided for R&R Forfeited if not used during the year and cannot be combined with home leave

47. Assignment Benefits (continued) Relocation Assistance – Expatriation & Repatriation Dependent Education Assistance Children are eligible one year prior to the required starting age with a minimum age of 3 years (example: if required school attendance age in the Host Country is 5 years, Nike would begin providing education assistance at age 4) Education assistance provided for accompanying children through age 18 Reimbursement provided for the following education expenses: Tuition and/or registration fees Cost of school bus or daily public transportation to and from school Books Laboratory fees

48. Assignment Benefits (continued) Housing Temporary housing provided in Home and Host Country, if needed (up to 30 days in each location) House-hunting trip may be provided, depending on Host Location Policy Housing allowance is per Host Location Policy Furniture, appliances, utilities are per Host Location Policy Transportation Per Host Location Policy Some countries provide transferee with a vehicle to drive Other countries provide a car and driver Intercultural Training Assistance with managing cultural adaptation and lifestyle adjustments due to transition Language Training Language lessons provided to transferee and eligible dependents to learn the official business language of the Host Country Healthcare Global Health Plan – If Home Country coverage is not valid international, employee needs to be moved to a Global Health Plan (Cigna International, Aetna Global, etc.)

49. Questions