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What’s your IQ? 11 questions to gauge your international savviness

June 14, 2017 Article 3 min read
Authors:
Lou Longo Beth Babich
As your company expands its global footprint, are you wondering if you need to learn more about doing business internationally? This quick test will show you where you rank and if you could benefit from some extra help.

Hand holding a globe 

As business becomes increasingly global, it’s important to be internationally aware. Test your international quotient (IQ) by answering these true-or-false questions.

You don’t have to pay federal income tax on profits earned from activities outside of the United States.

False. The United States income tax system is a worldwide tax system, so profits earned by a U.S. company are subject to federal income tax regardless of where they’re earned. There are mechanisms in place to mitigate double taxation, and the U.S. tax on earnings of foreign subsidiaries may be deferred under certain structures. However, that doesn’t negate the application of federal income tax on worldwide earnings.

The best way to enter a foreign market is via a joint venture with a local partner.

False. The importance of local market knowledge is often overstated. The only reason to enter into a joint venture is if that local party brings something to the table you can’t provide alone. Remember — it’s a lot harder to get divorced than it is to get married.

Even if you’re only considering international operations, it’s still important to include an agenda item for management team meetings focusing on international business updates.

True. Even in the earliest stages, it’s important to keep the topic front and center to emphasize its importance. What’s been in the news? Any new activity from customers or suppliers?

I buy and sell in dollars, so I’m not affected by currency fluctuations.

False. Even if you don’t deal in international currencies, it’s likely that your customers or suppliers do. This is what we call the “dollar trap;" those outside costs can roll up to you.

When running an international operation, a healthy degree of skepticism is necessary to ensure success.

True. Oftentimes, owners become lax after establishing an international presence. That’s when trouble can arise. Trust is important, but we recommend operating by this mantra: trust but verify. An independent review for best practices, regulatory compliance, and efficiency is also a good idea.

When it comes to doing business, “yes” always means “yes.”

False. It’s a mistake to assume U.S. cultural norms and practices are automatically accepted in other countries. In Asia, for example, “yes” sometimes means, “I heard what you said” versus “Yes, I’ll get right on that.” In Mexico, “mañana” doesn’t necessarily mean “tomorrow;” it just means “not today.”

If you have wholly owned subsidiaries outside of the United States, you can sell them inventory at any price you’d like.

False. The United States and most of our trading partners have transfer pricing rules that require related parties to conduct business on an arm’s length basis (as if they’re unrelated) and maintain documentation to support those prices. Failure to comply can result in tax assessments and penalties.

Just because your customer says you need to have a facility in all of their international locations doesn’t mean you should start seeking out new locations.

True. There are myriad ways to comply with your customer’s requirements that will reduce your risk of investment. A regional approach versus a country-specific approach is often the way to go.

If I make a payment to a foreign person for goods or services, I don’t have to submit documentation the way I’d have to domestically.

False. While you wouldn’t send a 1099 to a foreign recipient, there are still payment reporting requirements for certain U.S.- sourced payments to foreign recipients. These must be filed annually with the U.S. government and may also include withholding tax liabilities.

Companies can rely on their subsidiary’s statutory audit as evidence that their subsidiary’s financial records are accurate.

False. A statutory audit is typically performed using auditing and accounting standards prescribed by the local government. There could be a high likelihood of differences between local and U.S. accounting standards. The statutory audit process is different from U.S. auditing standards and potentially lacks depth in areas important to the parent company.

When operating abroad, my private company’s financial statements are public information.

True. If you’re going to operate outside of the United States, the lack of privacy resulting from a statutory audit may be unavoidable. The statutory audit is generally required to be filed with various government authorities and is public information. Many U.S. private companies don’t understand that customers and competitors will now be privy to their financial condition.

How did you do?

11 correct:

Excellent! Perhaps you should consider a career with our global services team.

9-10 correct:

Nice Job.You know most of the ins and outs of global business.

7-8 correct:

Respectable.You’re somewhat internationally aware but could hone your skills further.

5-6 correct:

Average.You could probably use some global services assistance.

Less than 5 correct:

Don’t ask.But if you’re contemplating international activity, give us a call. We can help.

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