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Sergey Frank offers some advice
�Shareholder value�, �stock options� and �IPOs� are all concepts which describe market developments deriving from the US, a market that has led the world in marketing and business development in the past and will continue to do so in future. Whoever wants to be successful in this attractive market should bear in mind certain rules of the game. On the one hand, the lyrics of the song New York, New York - if you can make it there, you can make it anywhere!� - apply. On the other hand, this euphoric approach is not nearly enough for successful operations in the USA. In general, communication will be pleasant and polite but, at the same time, focused. In the beginning �small talk� and �keep smiling�, as well as rather obvious humour, may be predominant, but not in such a sensitive way as in the UK. Communication is a natural talent of the Americans. If you give a talk, you should speak in a relaxed way and with a lot of humour to capture and keep the attention of your audience.
And nowhere else in the world is the attitude �time is money� as influential on business communication as in the US. After a neutral warm-up phase an American collaborator will get relatively quickly to the point, and usually gives rather little importance to status, title, formalities and protocol. He or she will communicate in an informal and direct manner on a first name basis and will be relaxed and casual with regard to gestures and body language. It is quite common to take off one�s jacket rather quickly and decide upon the most comfortable seating position.
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When doing business in the US be aware of the following:
Conducting negotiations on a highly professional level and making presentations with the help of state-of-the art technology is very much appreciated in the US. One should communicate on the basis of a pre-negotiated agenda or even on the basis of a draft-agreement. The negotiation will be led in a well-prepared, calm, matter-of-fact and pragmatic manner, added to a significant leavening of humour. Present and market your case in a positive way. Don�t be too humble about your own company, products, services, position, etc. Rather, take a �can do� attitude. Moreover, do not be misled by the relaxed manner of communication. Subjects such as religion, politics or ethnic background should only be touched very cautiously, even in private conversations, and are better avoided. The casual attitude in the US, where business partners renounce their academic titles on their business cards, where sandwiches and drinks in plastic or carton boxes are served during conferences, and where your business partners tend to act very casually in the office and chat about their family, should not lead to the assumption that there is no hierarchy in American companies. On the contrary, it is present in a very subtle way, and it may take some time to understand the ranking system in detail.
In next month�s issue we will look at the negotiating process in the US and the importance of in-house lawyers and attorneys in business.
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American business people are substantially different from their Japanese counterparts, for example, who pay considerable attention to form, etiquettes and distance. In the US, many social get-togethers are often used to discuss business matters with a partner. Americans tend to do business in a very pragmatic way, but they want to win. The development of a personal relationship with the business partner is not as important as reaching targets and negotiation results. They focus strongly on fast business results. Dividend payments, for example, are due and payable every quarter, and it is essential to secure profitability on a short-term basis. Any impatience of your American counterpart resulting from the �time is money� attitude should not be perceived as impoliteness, but rather as a necessity to achieve results quickly. Not without reason, many American contracts contain the provision �time is of the essence� within their preamble, indicating that the factor time is essential for the implementation of the agreement. This attitude has a strong influence on negotiations because strategic alliances and co-operation, with long-term potential such as joint ventures, are usually also evaluated in terms of the potential to achieve a return-on-investment rapidly.
This fact is one of the main reasons why so many joint ventures and collaborations concluded by US firms with partners from the Far East have failed, or at least have not met expectations. The negotiating approach of the Asian business world tends to be of a more long-term nature. There, �time is not of the essence�, at least not in the beginning. American partners are usually also aware of this difference in negotiations.
Nowhere else in the world is there as much available literature, and as many videos, on business practices of the Far East - mainly Japan - as in the US. These mostly focus on the �what� is behind the business and not on the more subtle questions based on the �how� and �why� business and communication patterns are so different. Frequently, American executives preparing for projects abroad will make themselves familiar with most of the specific negotiating patterns of the other country. But they may be walking on thin ice once the negotiating situation has changed and the knowledge �obtained and learned by heart� is no longer applicable. So beware of mistakes which may be likely to happen in the communication process.
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The US tax environment
By Rajesh Sharma
Taxes are imposed in the US at a federal, state, county, and local level. We deal here only with taxes imposed at the federal level. The US tax system is based on self assessment for entities and individuals.
Resident companies in the US are liable to corporation tax on their worldwide income, including capital gains. Non resident companies are liable to corporation tax on all income that is �effectively connected� with the conduct of a US trade or business. Income with a US source, i.e. interest, dividends and rent, is taxed at a flat rate of 30% unless reduced by a double taxation agreement.
The tax year is any 12-month period ending on the last day of a month of the taxpayer�s choice. A 52/53 week concept is also available, so that the taxpayer�s year end always ends on the same day each year. A tax year can be changed with the permission of the Internal Revenue Service. Tax returns should be filed within two-and-a-half months after the year end, and an extension can be granted for an additional six months if the tax is paid by the original due date.
Corporations pay estimated income taxes on an instalment basis, based on the previous year�s tax. There is an exception for large companies (income in excess of $1m or more for any of the three immediately preceding tax years) to base their instalments on current year income.
Corporate income taxes are based on a graduated scale with a maximum rate of 35%. Personal service corporations
(�s� corporations) are taxed at the marginal rates of the taxpayers, subject to a maximum of 39.6%. The �alternative� minimum tax rate of 20% is used to ensure that profitable corporations do not escape income tax by use of credits, exemptions and deductions. There is an exemption to the alternative minimum tax for small companies.
An additional tax called �personal holding company tax� is imposed on corporations with undistributed personal holding income. The additional tax is at a rate of 39.6% and applies to closely held corporations. Another additional tax called �accumulated earnings tax� is applied to improperly accumulated earnings of a corporation. The rate of 39.6% is aimed at ensuring that corporations do not accumulate earnings and profits rather than distributing them to shareholders. However, personal holding company tax and accumulated earnings tax are mutually exclusive.
Corporation income taxes are charged on the adjusted taxable profits. Taxable income can be determined, using the accruals basis or the cash basis. Companies accounting for inventory (stock) and large corporations must use the accrual basis, and some �s� corporations may use the cash basis.
Net operating losses are available to be carried back for two years and can be carried forward for 20 taxable years. For corporate groups, consolidated returns can be submitted, however once an election is made to submit consolidated returns, it cannot be rescinded without the consent of the Internal Revenue Service. Branch profits tax at the rate of 30% is charged on the taxable income of US permanent establishments of foreign corporations, subject to reductions under double taxation agreements.
Capital gains are taxed at the marginal tax rates up to 35%. A capital asset does not include inventories, other assets held for sale in business, trade accounts receivable, depreciable business property and real property. Capital losses can only be offset against capital gains. Capital gains can be carried back for three years and carried forward for five years.
Dividends received by a corporation are generally taxable. However, dividends from domestic and group companies are generally exempt. Dividends from foreign sources are fully taxable by the US recipient, subject to available foreign tax credits.
Related party transactions must be on an arm�s length basis. Strict transfer pricing rules apply to all related party transactions, and it is necessary to retain sufficient documentation to demonstrate how these prices have been determined.
There is no national sales tax, but many states have their own sales tax on goods and services. The statutory withholding rate on US source interest, dividends and royalties is 30%, however under most double tax agreements the rate is significantly reduced. Rajesh Sharma is an international tax specialist at Smith & Williamson Limited, the independent professional and financial services group. www.smith.williamson.co.uk
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Sergey Frank is partner of Kienbaum Executive Consultants. Website: www.kienbaum.com.
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