Enhancing Shareholder Value Through International Expansion

This is a guest blog from our partner KPMG. 

In a time of considerable uncertainty for many in the sector growing your business should be at the forefront of your overall strategy. Whist growth and shareholder value creation is typically enacted through strategic commercial levers that are pulled, it is very important that tax is not treated as an afterthought, it needs to be part of the decision making process. 

Many of our clients within the recruitment sector are increasingly looking to expand their business overseas as the riches of opportunity they say are greater than in the UK. It is vital that you are fully prepared for the costs and administration of setting up in an overseas jurisdiction. Be aware that merely having people on the ground overseas opens up a raft of tax issues and these can be difficult to unwind once they have begun. Typical questions to consider include; What type of entity should we set up, what legal form should it have, how do we fund it, how do we extract profits and where will it be resident for tax purposes. They are all really important matters to consider before you have started to put people on the ground and they go much wider than just transfer pricing.

Other matters to consider as you expand internationally include, where should we put our overseas entity within our structure. In many respects this is driven by your current structure and for many businesses in the sector it is always a useful exercise to evaluate your structure before driving a growth plan as it’s key to ensure that the structure maximises shareholder value on an exit process. For many of our clients the US is a very common place to expand into. The US tax system is complex with a raft of different taxes, at both State and Federal level, and again these need to be considered upfront. The movement of your people also needs to be at the forefront of any tax consideration, as well as how you incentivise your key people who are based overseas. Do not discount the complexity of Indirect taxes that could arise on cross border charges, which can be damaging on margins if they are not taken into account.

At a shareholder level the key is to ensure that any growth is reflected through shareholder value on an exit and as part of an exit process tax typically crystallises. It is really important to ensure that for an exit process the business can withstand a tax due diligence exercise which typically covers most taxes and goes back a number of years. The key is to prepare for this way in advance, by understanding that the tax profile of the business will be scrutinised, and you should be on the front foot as part of this process. Equally the shareholder structure is key and it is important to ensure that this has been considered a few years in advance of an exit, as some of the most beneficial tax attributes for shareholder have lead times.

The moral of the story here is that growth is a great thing, but in order to grow efficiently and effectively, you need to be mindful that tax should be part of the up-front considerations around your strategies for growth, and not an afterthought.

If you'd like to discuss your growth plans with KPMG, get in touch with KPMG Director of Tax, Shashi Prashad via email on Shashi.prashad@kpmg.co.uk or via phone on +44 20 76945973.