United States: Life Sciences Quarterly: Tax Cuts And Jobs Act: Implications For Life Science Business (Video)

What is the impact of the Tax Cuts and Jobs Act and what provisions of the legislation are relevant to the life sciences industry?

In this recap of our first quarter presentation, which includes video and an accompanying transcript, panelists – tax benefits partners Rom Watson and David Saltzman – address such topics as:

  • Changes in the taxation of U.S.-based international companies
  • Impact of tax reform on IP holding company structures and on inversions
  • Reduced rate regime for inbound royalties, including its effect on tax efficient location of intellectual property
  • Expansion of the Subpart F regime and increased potential for phantom income
  • The limitation or repeal of certain deductions and credits beneficial to the life sciences industry

This presentation is part of Life Sciences Quarterly, a quarterly seminar series that delivers insights from Ropes & Gray attorneys, speakers from government and industry and other professionals as they examine key developments, issues and trends affecting the life sciences sector.


Transcript:

Steve Wilcox: My name is Steve Wilcox. I'm a partner at Ropes & Gray in the life sciences group. And welcome to our first session of 2018 on life sciences, our quarterly seminar. And these seminars are focused on issues of interest in the life sciences industry. And we have two panelists today who are experts in the field of tax and how the tax laws affect the life sciences industry in light of the recent changes to the tax law. And so I think that one thing I wanted just to let people know about is on – is it April? Yeah, April 25th, we're going to be hosting a life sciences summit on China. And I don't know if you folks know this, but Ropes & Gray has I would say probably the biggest life sciences practice in China of any firm in the country. We have a very, very significant China practice based in Shanghai. And they're coming here on the 25th to host a summit on, you know, doing business in China and issues, you know, relating thereto. And I think if you're interested at all in that, I would recommend that you come on the 25th. So it's now my pleasure to introduce Rom Watson and David Saltzman. And they are tax lawyers that I've done a lot of work with in the past. And they're going to talk about how, you know, the tax laws changes that our esteemed president recently signed into law and its impact on the life sciences industry.

Rom Watson: It's going to be great. Great. Well, thanks, Steve. Well, it's great to be with you this morning. We'll try to keep this on time. I know it's pretty rough to show up to a breakfast seminar on any tax subject at this time of the morning. But I will say that I think the news to the extent you've started to dive into this since it was signed in December of 2017, the news is very good for your industry. Certainly for U.S. corporate structures across the country, this is a huge windfall in tax reform. And I know a lot of the Wall Street Journal articles have focused on our own hits as losing your state tax deductions and, you know, not having much of a break on individual income tax rates. But a lot of the money that was raised through some of the rejiggering of international tax principles did raise a lot of money that was all basically charged in December, as we'll talk about, December 2017. That money was spent pouring it back into the corporate sector. And so let's start with, you know, how the general rules and the context of tax reform affects life sciences. As I said, this was signed in December. It came as a surprise to most of us. You know, I've been at Ropes & Gray long enough to remember actually the last tax reform of 1986. And they say that about every 30 years this rolls through Congress. But last year none of us would have predicted this would pass. We thought it was just way too much of a heavy lift, way too much dissension and you had get some Democrats on board and then with tax reform, there's always somebody being hurt and somebody being helped which is just a heyday for lobbyists and that usually creates gridlock in Washington. Somehow, you know, by very slim margins the Republicans on their own were able to push this through. And it does reflect a lot of Republican principles of just being good for business. Basically as this slide points out, the key factors are, you know, the most important one is your rate has dropped from the basic rate of 35% to 21% for a U.S. corporation – 40% of the tax burden just disappears. But more importantly as we'll see, there's major changes to the international tax regime. We did the same talk last year and we've done it on the West Coast and the East Coast pre-tax reform about how companies in life sciences struggle with their effective tax rate and how they have to have intellectual property offshore to bring down the effective rate. And we'll step through some of that, you know, the planning that used to exist and that's now been supplanted by the new act. But basically the new act looks at things completely differently. It says, ***"If your customers are overseas whether you're a U.S. company or a subsidiary in Germany, if the customers are overseas," Congress has basically said, "That income is going to at least pay a minimum low tax between 10% and 13%, either in the foreign country or back in the United States." But they were basically done. You don't have to leave the cash offshore. You can move it around your group. You can deploy it wherever it makes sense. And that means you can also deploy it in the United States and earn this foreign income and still benefit from the lower tax rates. So that's all very good news. A couple of the costs of that are here. There's now limits on how much you can deduct interest. And there's also... another major benefit is, at least for a short period, when you purchase capital assets, tangible goods, you can expense them immediately rather than spreading them out over a depreciation schedule. So David, why don't you introduce the key changes in the corporate tax rate itself, and how companies will look at their rates in the future?

David Saltzman: Sure. So what we're going to try and do here is just hit some of the changes that really focus on corporations. There have been other changes that have affected the industry as well including how things like patents being sold by individuals are now taxed at ordinary rates. And there're, you know, any number of other changes that affect things. But I think our objective today is to really give you a flavor for how this changes the corporate landscape. So the first thing to note is the tax rate change – by now you've heard it's 21%. What that represents is a 40% change to the historic rates. One thing just to note there is that unlike for all of us, state taxes remain deductible for corporations. So when we're talking about rates, as we get into later, corporations will still think about their blended state rate. So you hear 21%, but you might really want to think 25% or 26% because that's the rate that once you're operating and making profits most companies are paying. The next item is alternative minimum tax. And this has always been something that's been relevant for younger biotech clients. Because until you're paying taxes, the question is you know, until you're making profits, the question is, you know, what if any taxes you should be paying. And for companies without significant profits, that's often meant the alternative minimum tax which, you know, added a lot of complexity to compliance. It didn't raise a whole lot of money. But it was something that in your industry folks planned around. That's been repealed. But the thing we kind of wanted to draw to everyone's attention is that once a company is operating in a multi-jurisdictional format, what has been kind of put in place is something called the Base Erosion Anti-Abuse tax, or BEAT.

Rom Watson: There's lots of great acronyms in this tax act, but the BEAT tax is one that the tax lawyers are focusing on in Congress. But it's important as you point out, David, to know that this is only applicable if your group has $500 million of U.S. gross receipts. So it's for the Apples and Googles and other large companies that have now expanded internationally. And it's going to limit the ability to make payments to related foreign products.

David Saltzman: Right, to move profits offshore. But the way to think about it is, it is a sort of new-fangled alternative minimum tax for larger sized companies with offshore operations. Capital expensing, just to put a little more of a spin on that. There are kind of a variety of phases to this. In the first five years, there's no tax. There's full deductibility. After five years, that starts to change. And some of the rate kind of falls off, you know, kind of 10% a year. So this is really – the way to really think about this is that expensing is available for companies to some degree over a, say, ten-year period. And I think that the real aim of the Republicans in Congress is actually to, once funds become available, if folks are still in power, is to make some of this permanent. So even though we talk about these things as being a five-year horizon, the actual law allows the benefits to go out further. And I think you really have to kind of read the writing that people will try actively to extend this. Expensing isn't available for real estate. It isn't available for buildings. And so that's a fairly important limitation.

Rom Watson: But for your capital equipment machinery, the day you buy it, you get to expense the full amount that year.

David Saltzman: And I think the final comment on this is that it applies for depreciation only when it's put in use in the United States. And that's going to become a little more important later on when we talk about kind of the international planning that's done. Because the same benefit isn't available abroad.

Audience Member: May I actually ask you a question? It's kind of linked to the capital expensing. But one of the pieces of the legislation that really baffled me was the R&D amortization beyond 2021. And kind of moving that from expensing R&D to amortizing it. Is that...

Rom Watson: That's a very good question. It is on the next slide.

Audience Member: Because I was wondering if you had the same perspective that that is something that they just say, "We need that to get points to pass the legislation."

David Saltzman: I think it was... I think that's exactly right. What is was about was... and we can jump right into that is...

Rom Watson: Well, before we move to R&D I want to say one more thing about capital expensing. And it might change some of your structures for acquisition. So in the M&A practice where you're looking at a target company, but you're really interested in certain of its assets. Or maybe it's got a lot of investments in assets. The fact that they're already in use doesn't mean this doesn't apply. If you buy assets instead of stock, you can treat those brand new purchased assets and expense them immediately which makes a huge difference with the buyer and the seller negotiating the purchase price for the whole deal as well as the effective tax rate afterwards. If you buy stock, you know, then the basis of the asset stays within the company you buy. And then nothing changes. Yeah, David.

Audience Member: Then how do you value those? Is it book value? I mean, you...

David Saltzman: Fair market.

Rom Watson: Fair market value. So you'd have, you know, you'd have to allocate the purchase price across good will as well as, you know, other intangibles, patents, etcetera. But to the extent you can fairly allocate to the fair market value of tangible property, then that piece of the acquisition is expensed.

Audience Member: Fair market value is not tax book any more. It's already...

Rom Watson: Correct. Correct. You still might have a fight with the IRS over how much value you put on this equipment. But that would be the test.

David Saltzman: But in your industry, you know, intangibles don't get this benefit. So if you're kind of selecting an asset style acquisition, you kind of have to balance that with the fact that you'd then be causing someone to recognize gain on the actual IP or good will of the business which may be the real value. So the real question then is, you know, when you cook all of that up together, is this a way to – are there sufficient net operating losses in the target that can be utilized? And it might be a way for you to get a better result.

Rom Watson: That's right. It's definitely a new factor to consider. It doesn't answer the question. It doesn't mean we're all going to do asset acquisitions from on.

Audience Member: Yeah, and does it have to be expensed? So the buyer didn't want all that expense, he'd still have to take it as an expense. There's no, like, opting out? 

Audience Member: I thought that at least for a period of time, and maybe I'm getting this wrong, the test on interest is EBIT, not EBITDA. So you actually have this window where the more you allocate to the equipment, and the more you write it off quickly, the more you get the benefit. But you still get to put the leverage on the business as if it wasn't counting against you. Like getting...

Rom Watson: That's true. To the extent you can finance the acquisition, within the interest limitations that we'll talk about.

Audience Member: When I have my buy-out hat on, turns out that there's actually a pretty slick window that's...

David Saltzman: Yeah, the combination of the two is, like, kind of almost like a negative tax rate. There's a subsidy.

Audience Member: If you have something with a lot of EBITDA. Because otherwise you're limited to the number of turns of debt you can put on the business, even at a low interest rate.

Rom Watson: So the point is, if you finance it, you get interest deductions as well as the complete expense deduction for the capital equipment you're buying. But it is true, as we'll talk about, Congress has limited the amount of interest deduction you can take. So and we'll get to those limits as well. But moving to R&D.

David Saltzman: Yeah, I think the point on the amortization, is it's a revenue raiser. I think it is fair to say that the industry was hit in a few different ways when it came to R&D credits. Another one we pointed out is related to the orphan drug credit. I think, you know, the way probably Congress was looking at some of these things was, they were giving away quite a bit in terms of goodies. And some of them were going to have to give way. And if you think also about, you know, who takes advantage of the R&D credits generally. It's a lot of tech, it's a lot of life science. If you look at the mature companies in the industry, they were the companies that were receiving the very largest benefits in terms of a kind of more competitive international tax landscape as well as really a lot of these were the industries that were really truly paying 35% in terms of the tax rate. Because I think when you pull back and look at it, you know, General Electric was an awfully large company. But it was paying 2% or 3% or who knows what at different times. A lot of other companies were able to much more successfully lower their tax rate. And so R&D credit has always been one of those things that had worked in your industry. So I think, you know, there's just some amount of rebalancing of the goodies.

Rom Watson: But we can also, you know, question how long the benefit of capital expensing will last and how long these R&E deduction limits are going to stay in place.

David Saltzman: And I think a few words on NOLs. This has been something that's come up for different companies in different ways in your industry. By and large, you know, younger companies have full valuation allowances on their NOLs. And in that respect, you know, the market was aware that those benefits were out there. At the same time, it was always questionable as to how much value was really there, partly because most people had disclosure that would say, "Well, we don't really know what kind of limits there are on the use of their NOLs." And the reality is, the accountants had never audited any of this. And the IRS had never come in to look at any of this. And so it was always a little bit of a black box. And so now it becomes a little bit of an accounting exercise to recompute what the tax asset value would be, and to re-establish the valuation allowance against it which basically says, "You know, we're not putting... we're no longer keeping this as a valuable asset for financial accounting purposes." So that's not a very substantial change.

Audience Member: David, one of the things that sometimes comes up with our biotech companies, is they will take a large up-front payment for a corporate deal which typically they've been able to shield by NOLs that they've accumulated up till that point. Will that now become harder to do? And will you get a tax hit on the up-front?

David Saltzman: That up-front there would be what? I'm sorry.

Audience Member: So sometimes in a large corporate transaction, you know, a partnership deal, right, there'll be a large up-front payment which would under some circumstances look like revenue to you.

David Saltzman: Oh, you're talking about maybe...

Audience Member: It's $100 million up-front for a company that's spending, you know, $30 or $40 million a year...

David Saltzman: Or even sometimes a payment for doing R&D or...

Audience Member: Any number of things. But historically you've not had a tax consequence to that because you've been able to use the NOLs that you've accumulated.

David Saltzman: To shelter that.

Audience Member: To shelter that. Will that be less efficient now? Or it should be just the same?

Rom Watson: 80%.

David Saltzman: I think it's the same. I think to some degrees, it can be better with respect to the use of historic losses. Let's kind of bucket it. For historic losses, it's better because there's no longer alternative minimum tax. So if you were sheltering before, you always had to pay a few percent in alternative minimum tax. As of, you know, a month ago that's gone. Then you're still able to bucket the use of your historic NOLs, unsheltered by the 80% limit. And then as Rom is saying, there's a new limit that says for NOLs that are generated post-2018, the use of those NOLs is limited to 80% which then kind of puts you back into having something like an AMT before. So on average, you know...

Rom Watson: Yeah, but those you don't use that year can be carried forward indefinitely. There's no limit now on how long you can carry them forward.

David Saltzman: Right. And then, you know, the very funny thing about it too is that when you start to run the numbers on that, it actually doesn't look so different even though the AMT before used to be at effectively 90%. Because rates are so much lower. What it really looks like is a kind of AMT type rate. So I would say overall, not so different.

Audience Member: Do the NOLs, when you have NOLs get put in limitation because of changes, so on and so forth, does that still apply in this...

Rom Watson: Yeah.

Audience Member: ...no changes to that. So I was looking at 80% and thinking as that changes, you know, limitations....

Rom Watson: No, it's just across the board, 80% limitation. But it's not for ownership change. You still have to worry about those limits.

Audience Member:  To be clear, the reason you were saying it's no big deal is because when you net out the lower rate and getting rid of the alternative minimum tax, the 80% kind of comes out in the wash. But as far as kind of an effect, you know, if it's all relative and you take out the rate increase, then a larger portion of, like, a large up-front payment will be subject to tax than before.

Audience Member: Yeah, I think that the wrinkle on this as I was understanding it is, if you did it in 2019, you're good because your NOLs that had the 80% hit are only 2018, 2019 going forward. So you've got the 100%-NOLs from the tail. But as we move forward you're going to feel more like your answer.

Rom Watson: Yeah, yeah. So you'll have a brief period where they're not limited. But you're...

Audience Member: Eventually, you're going to have a higher percentage of that up-front subject to tax. Now it's at a lower rate. 

Audience Member: So there are puts and takes that'll probably end up looking...

David Saltzman: Yeah, I think at the end of the day it looks a lot like the old AMT. I mean, I think that's a 90% limit applied at a 35% rate. I think that's kind of where 80% looks like. And I think one benefit though, you know, and this is probably getting a little hyper-technical. But, you know, people do even on the legal side see this, because this always runs through disclosure, is that there's no longer this risk of having your NOLs expire. And so part of what was always in people's disclosures was something that said, "Oh, because of limitations our NOLs might one day be unable to be used and expire worthless." That can never happen. And it's kind of odd, the accounting rules don't make you net present value that. So no one would theoretically make you take a hit. 

Rom Watson:
Well, let's move toward some of the limitations on interest deductibility. As was mentioned earlier, we now have a 30% limit based roughly on EBITDA. But beginning in 2022, that will be tightened so it's 30% of EBIT. Now, the interest that you can't use can be rolled forward indefinitely and used in the future. But for current use, this is a pretty strict limit on just leveraging up your company. So basically you pay no tax. The 30% of EBITDA idea really started in Germany. It was started as part of these European efforts to stop tax abuse and to stop companies from the United States coming into Europe and managing their transfer pricing and their financing so that they basically ended up with profits in the Cayman Islands and nothing in Europe. And so the Europeans have been jumping up and down about this for years. And one of the limits that Germany introduced was this 30% of EBITDA. And Congress thanked them for their effort and adopted it for us as well. Now it may not be that important within life sciences. It's very important obviously for any multi-national group trying to place their debt. But certainly in the start-up phase, a lot of your funding isn't coming from banks. And where this will really hit you is for related party debt where you're shifting debt burdens throughout your group and placing interest deductions in the jurisdiction with the highest tax rates. You know, now Germany and the United States are no longer going to be that welcoming to those interest deductions. And you'll have to find ways to manage it.

Audience Member: But if you're a biotech company and you take out venture debt and you've got negative EBIDTA, your interest is not deductible.

Rom Watson: Yeah, it's not going to be that relevant.

David Saltzman: Look, I think on this stuff the real story here to think about how this affects your industry is in the acquisition context. And I think it's also part of the whole story of inversions and foreign acquirers. Because the real importance of this rule is I think to sort of level the playing field for U.S. acquirers. So, you know...

Rom Watson: Compared to foreign companies coming in to make acquisitions.

David Saltzman: To foreign companies. Or an inverted company. Because the game an inverted company used to be able to play was... even a, you know, big pharma abroad is still a cash generator. It too didn't have third party financing even in a mature phase. But what it had the ability to do is when it acquired a U.S. company, it would set up a U.S. acquirer. It would fund it with some inner-company debt and it would fund it with some equity. And so suddenly between the United States and Ireland or Switzerland there would be this giant slug of debt. And even though if commercially the target never had borrowings and never would. No CFL would ever let them put borrowings in place.

Rom Watson: Certainly not up to that leverage.

David Saltzman: Right. You would now have a foreign acquirer strip out, as you said, the earnings from the U.S. And, you know, I think part of the answer is they can still do it. But it's limited to 30% of EBITDA and one day EBIT. And there are some other sets of rules this so-called BEAT that we talked about that provides some other limitations too. And, you know, I think that this is a pretty important deal topic. Because I think we've seen how some very large foreign acquirers were really able to outbid U.S. acquirers because of so-called tax synergies. The foreign acquirer could model the profits on an after-tax basis, you know, twice as high as what the U.S. acquirer could do. And I think we'll see some rebalancing in kind of auctions as a result. Maybe it's a little bit to the advantage of acquirers in the U.S. as opposed to targets in the U.S. But I think that's how it's going to be most relevant.

Audience Member: Is the limitation at the entity level? The limitation, the 30% limitation, is that at the legal entity level, not the... okay.

David Saltzman: And for a group of corporations at the U.S. group level. So one thing we wanted to kind of help people see is just kind of how the rate environment has changed. And how that rate environment is affecting at a very kind of broad level the sort of intellectual property planning that life science companies would do to essentially move intellectual property and ultimately to move manufacturing and people offshore to lower tax rates. And so what we kind of have on this slide is just a little illustration of what those rates look like before and after tax reform taking into account state taxes. And we've kind of shown 39% and call it 25% is sort of the difference.

Rom Watson: But keep in mind these are the statutory rates. So on the next slide we show what you all know is that no one was actually paying close to 40%. Or some people were. I mean, Walmart buying goods in the United States, selling them U.S. customers. They didn't have much to play with. But examples of Biogen, Pfizer, and Medtronic from their 10ks shows that this is 2015 numbers – they weren't close to 40%. And you can find other examples. David mentioned General Electric had basically an internal law firm to do their international tax planning. And they did it very, very well. And they were down in the single digits worldwide. And because of their footprint, you know, because they were in Asia and Europe and Latin America, they could manage all of the different tax rules around the world to their advantage and only leave in the United States the profit that had to be left here under transfer pricing principles. And Biogen, Pfizer, Medtronic were all playing some of the same... playing with the same rules before tax reform. So how did they actually achieve it? I think we'll quickly go through the next slides in the interest of time. But basically this is the world that I've been practicing in for about three decades now. And the next slide shows some of the factors we used to get those lower rates. Mainly it's if you could develop and hold your intellectual property outside the United States, then our principle said, "Well, the person that holds your crown jewels is the one that should get all the excess profit." And you can't move it out of the United States easily. To move your IP out to foreign subsidiaries was a taxable event. And if you had any future deductions for R&D, for building it up in a tax haven, those deductions are no longer usable in the United States. So that's another handcuff on you. And ultimately the tax authorities around the world would say, "Well, where are your actual people? You know, we're not going to give you that much benefit if you're just leaving a patent sitting in an empty shell on the Cayman Islands." But if you can move manufacturing, if you can move thinking, if you can move strategy into these jurisdictions, then, you know, you can justify more profit being left in low tax jurisdictions. But that was difficult. You know, no one really wants to live. They want to vacation in these spots, but they don't want to live there full-time. And administrative burdens, huge IRS challenges, you know, and foreign country challenges. And often the two governments would completely disagree and try to tax the same income. So you'd end up with double taxation unless you fought. So, you know, legal expenses were very high which is a terrible result for us. And but certainly the accountants and the lawyers were... and economists had to help these companies decide where the profits were appropriately placed and what you could defend not only against the IRS but also in France, Canada, Germany, countries that had very robust regimes for challenging transfer pricing. This next picture shows sort of how you did it. You start with a U.S. parent. And then that U.S. parent has a subsidiary. And so let's say that that subsidiary was at that statutory rate of 40%. But if they have an Irish subsidiary, that rate is 12.5% and Cayman Islands, zero percent. So the red circle is what we used to play with. This was the U.S. consolidated group. We wanted to keep the high tax, or I mean the high profit intangibles and all the extra profit outside of that red circle. Because that's where the 40% applied. The same was true for foreign companies, except their red circle was much smaller. They just had to worry about the U.S. subsidiary. But anyway, for that picture of a non-U.S. parent, the big benefit was they could move their profit from Caymans to Irish back up to the non-U.S. parent. And they could move it all around the group without touching the U.S. subsidiary. And that meant that on average they only had to worry about that 40% rate on one small part of the picture.

David Saltzman: And as we were talking about, on that 40% rate they could strip out the earnings with interest. They could strip out the earnings with royalties. So they weren't really paying that 40% rate. Their planning could be done without shifting a whole lot to the U.S.

Rom Watson: So here's a very simplified example. Let's just assume that you had $1 million of worldwide profit. And you had to pay tax on it somewhere and place it in different jurisdictions. And the left-hand side, suppose you put it all in the United States. Then it's pretty simple, you pay 40% on the $1 million, and $400,000 of tax. But if you could move a portion of this to Ireland, Ireland has a 12.5% rate. And if you could just move, let's say, 60% of your profit by having your intellectual property there, your manufacturing there, certainly your European sales managed through Ireland. And a 12.5% rate, blended with the U.S., that gives you a 23% rate. So that's how the companies were basically doing it before tax reform. Now the risk is shown in the right-hand side. If by moving your IP to Ireland and maybe putting your R&D expense there, or maybe just in your start-up phase, if you did it early. And all of us were telling you to do it early. We said it's going to be much harder to justify if you wait until you've got a valuable asset and then move it. Much more high cost on the tax side. So do it in the early stages. Well, in the early stages you've just got a lot of deductions. And so if you shift all those losses and deductions to Ireland, look what happens. Now the U.S. profit has been split. So it still has its $600,000. Ireland has $600,000 of losses. Actually I'm sorry, the U.S. profit is $1.6 million, because the deductions have been moved to Ireland for $600,000. You get no Irish tax on losses obviously. But all of the remaining income is left in the United States. So for the same worldwide profit of $1 million, your effective tax rate went up to 60%. You know, you can look at the math later. We'll circulate these slides. But basically the story is, lawyers and advisors were pushing you to do this early enough back in the stage where you were mostly managing losses or deductions. And yet that created a problem of raising your effective tax rate. The promise was that in the out years when you're profitable, you can get the overall rate down well below 40%.

David Saltzman: So and you could see there that the rates that you were driving to weren't that different kind of than the Biogen, Pfizer, Medtronic rates that we put up illustratively. That's kind of the range people were striving for. Post-tax reform, I think this gets into a bit of what has Congress done with the international system to level the playing field, if you will. And here I think an easy way to think about it is carrots and sticks. They've done two sets of different things. They've given rate reductions in the United States. They've put in a new regime that allows you to receive even more favorable tax rates on exporting. So just as a general concept, instead of paying the 21% tax rate that you would on sales to U.S. customers, a very complex formula provides a benefit of, you know, call it 13.125% on... for a certain portion of your exports. So if you think it that way, notwithstanding all the talk about 21% tax rate for corporations, the reality is if you're keeping your IP in the U.S. and exporting or licensing it abroad, your tax rate can go way lower than 21%. And that's not highlighted in most news reports. But it's a very kind of powerful planning concept.

Rom Watson: Yeah, you still might have a plant in Ireland and manufacturing there. But now that plant can pay. Instead of moving your IP out of the United States, that plant can pay for the IP. It can license the IP from the U.S. company. Leave the IP in the U.S. potentially. And that royalty coming back, instead of being taxed at 21%, taxed at 13%. So it's working into the system...

David Saltzman: If they kept it in the U.S....

Rom Watson: No, no, but it's for exporting goods. It's the royalty for the portion that's for foreign use. So for foreign sales, whether you're getting...

Audience Member: I think it's between 8% and 13% depending upon how much of it is real cash versus other things, right, something like that. 

David Saltzman: That's repatriation.

Audience Member: That's right. You're right. Yeah, sorry.

David Saltzman: Yeah, I think there are a lot of variables as to whether you get the 13% rate including how much you've invested abroad, what your tangible assets are. It's one of these things that's hardly going to be intuitive. But if you just pull back and say, "It used to be that in order to get a favorable tax rate from exploiting my X U.S. intellectual property, I needed to hold that X U.S. intellectual property abroad, I can now achieve at least some of those benefits, if not most of them by holding it right here in the U.S. and either manufacturing and sending those goods abroad, or licensing those X U.S. rights abroad to a related party or to an unrelated party." In all of those situations, a more favorable rate is available to the holder of the X U.S. rights if you're a U.S. corporation.

Rom Watson: Right, and in a simpler case where you don't even have royalty flows, you just manufacture in the U.S. but if the customers are in Europe, those product sales directly back to the U.S. company, taxed at 13%.

Audience Member: So for companies that are doing a fair amount of exporting, are they now incentivized to reverse all of their global tax planning?

Rom Watson: No, I think what you'll find David is that we've tried to keep these slides at a pretty high level but once you get into the details, it's really managing small margins. And it requires modeling. And you will have benefits from taking one of those routes, but it's hard to predict in advance. It seems like since December, every client structure we've looked at, you start thinking, "Well, maybe we should just make this all pass through from Europe. Or maybe we should keep it in the United States. Or maybe we should still do Ireland, but not as much." And each model comes up with answers. They all seem pretty good. Like, there's marginal differences between the two. So as we'll see in the next chart, when you go to the examples.

David Saltzman: And I guess before there, let's just pause on one idea in terms of the sticks. Because one of the differences is something that has been called GILTI which folks have suggested, that's the way we wanted to make people feel when they were testifying before Congress about why their rates were so low. It stands for...

Rom Watson: Global Intangible Low Taxed Income.

David Saltzman: It's one of these things where the acronym was created really without regard to how it actually worked. The income doesn't have to be low taxed and it doesn't have to be related to intangibles. What it really needs to just be is offshore. And the way the formula works is it looks first of all to what your tangible depreciable assets are. So now if you just put all of your IP into just a holding company and you haven't built a plant, you haven't done anything yet, the answer is there'll be zero allocated to that. If you built some kind of plant or something like that, then what you're entitled to is a kind of 10% tax-free return with respect...

Rom Watson: On the hard assets.

David Saltzman: With respect to those hard assets based on its tax basis. So that benefit will come down over time. But everything else remains currently taxed in the U.S. which is a giant difference from our prior system where tax was only imposed once earnings were repatriated to the U.S. And I think of equal importance is really the financial accounting aspect of that which was that part of the reason we have this concept of trapped cash abroad was that firms needed to promise their accountants that they wouldn't bring it back in order to have an effective tax rate that matched what their current tax bill was. So if you weren't paying anything more than zero or 12% abroad, in order to have current earnings reflected at 12% as opposed to the U.S. 35% rate, you had to promise to keep those profits abroad. And I think this becomes important because under this new system where the profits are treated as kind of being taxed currently in the U.S. and there is some ability to use foreign tax credits to offset it and all of a number of mitigating factors so you're not double taxed. The reality is, you today have a pretty accurate snapshot of what your U.S. tax liability is. So for financial accounting purposes, there's no more... or the kind of potential benefits of promising to keep cash abroad are quite limited or more idiosyncratic. Not really your normal case.

Rom Watson: But the good news is before, if you tripped up this mine field and you had these earnings taxed in the United States, your rate went from potentially zero to 35%, right. Now under what David is describing is, they're going to tax everything except this 10% return on your hard assets. But apart from that, all your excess profit, if you leave it in Ireland, if you leave it offshore, it's going to be taxed in the United States currently. But the rate is only 10.5%. And you get foreign tax credits. You get 80% of the foreign tax credits imposed on it. So if you're already paying in Europe, 13%, 25%, 15%; Latin America, Europe. Countries impose real taxes on where your customers are. Those taxes can completely wipe out any further U.S. tax. So it's described as a stick against the carrot of these low tax royalties. But the stick is really aimed at making sure you at least pay something. They don't want you to have structures where you get down to zero, like in the Cayman Islands. If you have a Cayman pool of earnings with no hard assets and it's earning in the Cayman Islands, you'll pay the U.S. rate on that currently. But it's only 10.5%. So what does that do to our example? The next slide. The one with the Irish losses stays exactly the same where nothing has really changed. You never want to have losses offshore where you can't tax benefit it. But notice in the left-hand side, the effective tax rate is 20%. Now David has explained that actually with state taxes it's 23%.

David Saltzman: Or closer to 26%. So here this kind of example, it hides the math. But it's also kind of trying to build in some of this idea that in our second scenario where we had 60% Irish profit, what you're really assuming there is that 60% of the value is attributable to X U.S. IP which is probably a little high.

Rom Watson: Yeah, so if you just keep it simple you're going to have some foreign customers and their product sales or their royalties back from Europe will come in at the 13% rate. So we gave it a blended tax rate of 20% in the first example. Now if you go through the trouble of actually moving a portion into Ireland, well, Ireland's going to tax it at 12.5%. But the difference between the U.S. tax rate of 25% and the 12.5% is reduced. And now you see we're really playing with that margin here between 20% and 17.5%. So not a lot of play. Probably this decision will be made more based on where it makes sense as a business matter to put your plant. You know, looking at labor rates, looking at costs, looking at quality of production, and the tax is not going to drive it. This is just a different world than playing with 35% and zero. Now we're playing with 20% and 17.5%. Now the real answer however though is that this is just a simple example. Every example as I say we've looked at with real clients, you need a model. And you need to look at all of their factors and the accountants will still have a major role in that because they know your numbers. But I think at the end of the day most of the numbers are going to come out with a much narrower range, at a much more beneficial answer no matter which way you decide on a lot of these questions. So this is a slide on the GILTI regime in a little bit more detail. But, you know, I think as David described, the major question here is just imposing some low tax rate, you know, on foreign earnings, do it currently. Prevent companies from imposing or from structures where you have a zero percent tax rate. And a U.S. parent with a foreign subsidiary is going to pick this up each year.

Rom Watson: But in many cases, they will be picking it up against foreign tax credits. And they'll say, "Well, we're fully sheltered by foreign tax credits. And we have no more U.S. tax." Once you've done that, once you've paid your U.S. tax on the earnings, taking foreign tax credits into account, then it doesn't matter where you place the earnings. From then on you can move them back as dividends tax free. You can move them between your foreign subsidiaries, no U.S. tax effects. So the U.S. tax system has just gotten out of the role of monitoring how you place your cash around the world.

Audience Member: And so that greatly reduces the benefits like the Cayman Islands. Using the Cayman Islands to... because if you take it too low, then you're going to be giving up this.

Rom Watson: Yeah, and the rate is 10.5% where you're headed.

David Saltzman: And one thing generally that is true here and I think in a lot of the changes in Europe is I think the tax authorities generally agree that they want to drive business to low tax jurisdictions, in treaty jurisdictions like Ireland or potentially Switzerland and away from the zero tax jurisdictions. So there is something to the idea that all things equal, people have...

Audient Member: A morally correct tax rate.

Rom Watson: The Irish came up with it I think.

Audience Member: If you go too low it's just immoral and you shouldn't be allowed to do that, that's right. Right, sorry. Some government should collect something. 

Audience Member: But don't, like, private equity and other companies still park their money in the Cayman Islands pending investment in... on that score or...?

Rom Watson: No, the general rules about putting passive assets offshore are still fully taxed. And they don't get the 10.5% rate. They're taxed at the corporate rate which is still lower. It's 21%. But private equity shops are mainly in the Cayman Islands so they have their partnerships there so they don't run into these rules at all with controlled foreign corporations. If a private equity company wants to buy a foreign company, they don't want it controlled by a U.S. person. So they want a Cayman partnership on top. So that's not a U.S. person.

Audience Member: And this doesn't change that?

Rom Watson: And that doesn't change that.

Audience Member: And I thought some of it was because you sometimes have foreign investors. And so you want them to be... it's a blocker set-up effectively.

Rom Watson: So they don't have to file U.S. tax returns.

Audience Member: And what about LLCs? If you see the last few years, I've seen a number of biotech start-ups, you know, form with LLCs. And maybe they have separate indications and separate entities under the LLC and the VCs actually invest in the LLC where before they didn't want to do that. Because this is a corporate tax. Well, what is the LLC for? How does this affect...?

Rom Watson: There can be real traps now using a Delaware LLC. I mean, not always. But the Delaware LLC, if it owns a foreign subsidiary, it's now subject to all these rules for phantom income. But the rate coming back to the LLC isn't the 10.5% rate. It's the individual rate because it flows through to individuals. And so they don't get these corporate tax breaks. So individuals do not want to have what's called subpart F income or phantom income pulled up from foreign companies. They're taxed at their full 37% rate plus state tax. And so it's a very bad system for them.

David Saltzman: But maybe you were talking about flow through structures? Were you talking about owning kind of in partner intellectual property in partnership form?

Audience Member: Well, I'm actually talking about, like, corporate structures where, like, the parent company's actually an LLC now where the VCs invest in the LLC. And then they may set up separate incorporations. There's a company called WinBiz. There's a bunch of, you know, companies that have done this.

Rom Watson: What they may well consider is that they'll set up a U.S. company underneath the LLC to hold their foreign operations to get into these favorable type things.

Audience Member: These things that have foreign operations, what I think they're trying to do is trying to make it easier to sell off an entity to a corporate buyer without having to then spin back out an asset at another basis. So by having, you know, a topco and four subs, they can sell a sub and not change the basis of the other subs. And yet keep those assets so they allow in a very easy way the pharma company to buy one of the subs.

David Saltzman: Yeah, we've seen structures like that. Yeah.

Audience Member: Would there be a reason not to do that and just change your basic...?

David Saltzman: Unless as Rom was saying, unless there are foreign targets.

Audience Member: It doesn't really...

Audience Member: And then the only time they bundle them back together is if they decide to take them public, right. Because then they can't take one of the subs public so they usually have to roll the bottoms cos up into the topco, create an entity and then go take it out.

Rom Watson: Well, we're about out of time. Let me just run through a few points on the rest of the slides. And again we'll circulate these slides so you can look at them. And certainly give us a call if you have any questions. And we'll also be happy to stay around afterwards if you have further questions.

Audience Member: Just one other question as a follow-on to that. S Corps don't really help you very much because you're still taxed like the personal rate.

Rom Watson: That's correct. That's correct. So we mentioned very briefly the repatriation tax. That basically was dealing with the 30 years of earnings built up, you know, by large U.S. multi-nationals, the Apples the G.E.s, Microsoft. And in order for them to get this new world of brand new tax rates, much lower, bring dividends back, they had to somehow deal with this hard knot of, "Well, what about the last 30 years? You've been promising accountants you weren't going to bring this stuff home. If you do bring it home it was going to be taxed at 35%." And the compromise in Congress is, "Yes, we are going to tax it. We're going to tax it now." Meaning December, 2017. "But we're going to tax it at relatively low rates." Those rates started lower than 15.5% and 8% but as negotiations went on and as Congress realized they needed more money, those percentages kept notching up. So the final answer was if you've got cash in your foreign sub, to the extent you had cash as of 2017, all of those earnings are 15% taxed in December and 8% on everything else. But you can spread this tax payment over eight years with 25% of it back-loaded to the eighth year. So it's not that much of a hit up front. But it does have to be shown on your financials. And so companies with these large pools of offshore earnings reported in December on their published financials they had huge tax liabilities that had not been anticipated by the market. But you know what? The market said, "No problem." When we look forward to what's happening in 2018 going forward, you're in great shape." So they basically dealt with the old earnings and that's a one-time thing. Now we have seen clients though with LLCs though that said, "Whoops, we have a foreign sub too. What about us?" Well, this repatriation tax doesn't distinguish between LLCs and U.S. C Corps. That means the U.S. individuals now in the LLC may have to pick up a huge hit in December because they owned a foreign company underneath an LLC. They didn't follow the private equity route of putting that LLC in the Cayman Islands. They had a Delaware company. That becomes the U.S. shareholder. And, you know, it has created some surprises.

Audience Member: So were these tax charges? I mean, did that money flow into the government? Or it just...

Rom Watson: It's just like a liability.

David Saltzman: You can elect to do it over eight years. And it's kind of back-loaded. So it just kind of shifts.

Rom Watson: But the amount is set now based on...

Audience Member: But there real revenues that paid into the IRS. I mean, the treasury got revenue from this. It just was fractional, right.

David Saltzman: Yeah. They raised a lot of money by doing this.

Rom Watson: Yeah, this is the one asset that the Democrats and Republicans have been fighting about for years. What about these offshore earnings? Who's going to tax it? They all agree, well, we should tax them at a low rate. But the Democrats would say, "Well, let's spend it on schools and infrastructure." And Republicans said, "Well, let's plow it back into the corporate system." So they've spent it now. They can't do it again. And that's why it may take another 30 years before we see tax reform again. But it was spent on these lower corporate rates. And it can, as I said, create big traps for people that weren't prepared for it. Section 956 is probably not an issue for a lot of you. It's mainly a way of creating phantom income if you do your debt agreements wrong and use your foreign subs to pledge to support U.S. borrowing. And finally inversions are now strongly deterred under the act. And not only are low tax rates in the United States, meaning that inversions are just less favorable, but also the Congress stuck in lots of little penalties. Like that repatriation tax at 15% and 8%, if you invert in the next ten years, they go back to 2017 and say, "I think we'll charge you 35% instead." So all that 2017 earnings is going to be taxed at a much higher rate if you invert. And, you know, again there will be foreign companies that acquire smaller U.S. companies. But the whole game of a U.S. company buying an equal sized or slightly larger foreign company and putting the foreign company on top, that's basically ended by tax reform in my view.

Audience Member: Now listening to all of this, it sounds like this tax reform was really well thought out. It doesn't sound like, I mean, when I saw it, it's like, in three months we're going to put together tax. This sounds like this has been, like, in the making for a really long time. Is that true?

Rom Watson: Well, there's a couple of answers to that. I mean, certainly that the process of getting it through was messy and fast. But some of these proposals, some of them go back to the Obama administration. And some even go back to the Clinton administration.

Audience Member: These have been cooking for a while.

Rom Watson: They've been cooking for a while. And I have to say it was pretty impressive, the thousand pages of legislation that suddenly appeared out of nowhere in December.

Audience Member: Yeah, right.

Rom Watson: You just couldn't believe that somebody produced it. On the other hand, anytime you do something that major, there's lots of glitches. The definitions don't match. There's just problems. And tax lawyers are jumping up and down saying the whole thing's a mess. But there is something to what you're saying, Steve, that if you step back and look at it, there was a lot of sort of overall thought. And if they can at least agree a little bit to fix some of the problems through technical corrections, it could work better. In contrast what I lived through as a young associate at the law firm in 1986, that was, like, a four year process. You started with a proposal from the White House. And the Treasury Department came out with a proposal. Full hearings, both Democrats and Republicans, Congress, both House and Senate. Then a new proposal from Treasury. Well, we heard everything you said. Let's do this. The ABA commented. I mean, over years, you know, and that almost didn't pass. But it did mean that there was a lot of thought given on a very technical level from both Democrats and Republicans in 1986. That didn't happen here. It was written in a closed room with staff and Republican Congressmen. And it was done.

David Saltzman: But as Rom said, a lot of the proposals... I think people also distinguish between the domestic side and the international side. The international tax reform is something Democrats and Republicans have been working on for five or six years. A lot of these proposals followed stuff that Chairman Kemp had done. And on the Republican side, I think as Rom is kind of alluding to, conceptually there are some very powerful and useful ideas. The sorts of criticisms people are making are, one, it was done in an extraordinarily complex way. Most tax reform efforts have tried to...

Audience Member: Simplify.

David Saltzman: Simplify the tax code. I think everyone agrees that all they've done on the international side is introduce two or three different extra layers of tax rules on top of an extraordinarily complex set of rules, in a sense. And then, you know, secondly I think as Rom is saying, I think the idea was get this passed and get this done. If we start talking about it, people are going to start shooting arrows at it. Which is why it showed up without public comment. So the process is going to be to, you know, fix it after the fact. And I think the tough questions right now are around what the Treasury Department thinks they have regulatory authority to actually fix and what they're going to need to do to get technical corrections done. And will the parties agree to actually do technical corrections?

Rom Watson: Yeah, through legislation.

David Saltzman: So I think that's going to be, you know, the tough part about it. It's conceptually sophisticated, but still unbaked.

Audience Member: It's just all details.

David Saltzman: Yeah, details, details.

Rom Watson: Anyway, thanks a lot for your attention this morning. And we'll circulate the slides to you by email. If you have any questions about it, feel free to call either one of us. And we can also hang around this morning if you want to talk about anything. So thanks a lot.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions