The company Gary Gagliardi founded 10 years ago, Fourgen Software, sells accounting software in 30 countries. So one might assume that top management at the $7-million Seattle company has all the answers on international tax planning. Not so, says president Gagliardi, who emphasizes that he never stops asking questions and searching for new tax strategies to enhance the performance of Fourgen's overseas operations.
One valuable, if unexpected, source of information: his customers.
"I travel to Europe several times a year, and I always talk to my customers about the tax situation in their countries," says Gagliardi. "There are all kinds of things we can learn from local companies, especially when our customers are bigger than we are and have access to more local resources."
Native insights can be invaluable. Consider the way one foreign customer helped Fourgen limit the royalty tax on its sales to Singapore. "Singapore has a 30% tax on royalties, so for every $100 worth of goods we would have shipped there from the United States, the country would have withheld $30. A customer suggested that, instead, we set up an office in the Netherlands, which has a special trade agreement with Singapore. When we ship from the Netherlands, only 7% of our Singapore revenues get withheld as foreign taxes," says Gagliardi.
He has found his customers remarkably willing to share their tax insights. "I tell them up front I would like to spend a couple of hours with them educating myself about the issues. If I'm sensitive about time, people are generally more than willing to help." Besides discussing large strategic issues, Gagliardi tries to talk about everything from audit risks to value-added taxes, cash-repatriation issues, and invoicing details. Although he begins by approaching his customers' CEOs, he says it often makes more sense to have those kinds of conversations with their controllers -- with the chief executives' permission.
Gagliardi explains that he often returns from his foreign business trips with more questions than ever -- issues he'll generally bring to Coopers & Lybrand, the Big Six accounting firm that handles Fourgen's international tax matters. And he warns of the need to check out the advice received: "There are times when customers try to persuade you to adopt strategies that are in their best interests rather than yours."* * *
If you're even considering expanding overseas, International Business, a 35-page booklet published recently by the American Institute of CPAs (800-862-4272, Product #090064, $9), is a must read. Its discussions of payment arrangements, export issues, and techniques for managing foreign-currency risk are especially helpful, as is a checklist of other sources of free and low-cost information.* * *