Hedge Funds

To Help Businesses Pursue Global Opportunities, Be Mindful of Local Culture and Characteristics

Timothy Speiss, partner-in-charge of Eisner’s personal wealth and Asia practices, discusses the challenges and opportunities in global business expansion.​

CCBJ: Describe your background and current practice for our readers.

Tim Speiss: I’ve been practicing in the tax and advisory arena for nearly 35 years. I am a CPA, hold a Master of Science in Taxation and hold additional credentials such as the Personal Financial Specialist designation, which is conveyed by the American Institute of Certified Public Accountants. I am also a Registered Investment Advisor.

In 2005, I joined EisnerAmper, where I’m currently the partner-in-charge of the personal wealth advisors practice. This practice is composed of approximately 200 credentialed professionals in the U.S. with additional firm resources overseas that assist to serve the global marketplace. Our client base is composed of corporate executives, business owners, family offices, investors in both the hedge fund and private equity spaces, and additional clients in the U.S. and global marketplace. We provide comprehensive income tax planning and compliance services, executive compensation and benefits planning, trust and estate services, international wealth advisory services and additional services. Members of the practice focus on specific industry areas, including real estate, financial services and technology.

In our practice, we’re helping clients solve complex financial, business and investment-related challenges. We strive to demonstrate resourcefulness and creativity to solve business issues, and to address individual and business tax-planning matters. Many of our clients are owner-operators of large private companies, or board members or senior executives of public companies. So we also undertake equity compensation planning and work with senior executives who have incentive stock options and nonqualified restricted stock options, restricted stock awards and additional types of compensation plans.

With my EisnerAmper partner Angela Chen, I also co-lead our Asia practice group.

What’s a key element in doing business in Asia?

At EisnerAmper, we are always mindful of the local culture, wherever we are doing business around the world, whether it be Singapore, India, London, Dublin, San Francisco or other locations. Understanding the culture of the markets from an individual’s perspective, and the business climate, is extremely important. We're of the view that it's more difficult to serve clients in global markets if you’re not mindful of the culture in a particular location, how people make decisions and what their values are.

What are some trends that you and your colleagues are seeing related to Asia?

The internet economy in Asia, in which China, Singapore and Hong Kong are actively engaged, has really evolved and is very competitive. Consumer services and online retailers – many that are very active in the United States – are making large inroads in Asia. Many of the technology services that are being provided are being delivered in the Asia local markets. Until a few years ago, that was very difficult to do. In China, they’re delivering to the marketplace instant messaging, voice and video calls, and integrated news and public service announcements.

EisnerAmper has deployed a significant amount of resources with our technology practice to understand U.S. and Chinese internet use. In 2016, roughly 80 percent of the U.S. population was using the internet in some capacity. China was around 55 percent, however, in 2013 it was around 45 percent, and in 2007 only about 20 percent. The growth year over year has been gradual, but the gap between the U.S. and China as a percentage of population access and use continues to shrink.

The Amazon effect is a global happening. The fact that consumers in Asia can acquire goods in the United States – and that percentage of the population is growing – is going to have a huge positive impact on the growth in goods manufactured and sold. Chinese consumers using online payment integration, like Alipay and WeChat, now have nearly 80 percent market access penetration, so the significant growth in individual consumer and business spending is happening. The ability of consumers in Asia to do business using either their own e-commerce site or an outsourced site has enhanced the experience of the consumer and marketplace in Asia. The Asia-Pacific brand marketers are using delivery systems to transfer their goods into the marketplace, much like Amazon. Google and Facebook, as the faces of online marketing and communications, are flourishing too.

In addition to consumer goods, construction companies are seeing significant growth in China, especially with the Belt and Road Initiative. Digital advertising is another hot area, and agribusiness is also growing.

Home shopping is becoming extremely popular in China. U.S. companies are seeking to do more business there, especially those selling cosmetics, consumer goods, food products and nutritional supplements. Asian manufacturers, of course, are keenly aware that their immediate market is a robust opportunity.

Singapore is a popular place for financial services firms, primarily hedge funds and private equity firms, and we see an increase in the growth of financial services firms. When I first visited China, the Chinese government had already built very large office parks, which it allowed Chinese internet companies and hedge funds to occupy rent-free. In three of the office parks visited, there were 5,000 separate hedge funds and private equity funds in operation. Now many of these same office parks contain trading desks for 3,000 employees, in addition to hosting private elementary schools and modern medical centers for funds employees and their families. China could easily be among the fourth or fifth largest in the world as far as the number of hedge funds within the next few years.

The Asian marketplace really wants to expand outside of the region’s borders to become more prominent in the U.S. and EU economies. And they’re not bashful about it. Last month, a logistics company – which coordinates the delivery of large construction vehicles, products and storage tanks – contacted EisnerAmper to help them form a U.S. company and establish a U.S. presence with the intent to commence U.S. operations. We were also requested to provide U.S. tax advice and planning for the Chinese nationals who were moving to the U.S. These activities are prominent and becoming pervasive in the continued flow of foreign capital to the United States, and the reverse is also true.

There seems to be a basic theme in Asia. Grow strong businesses. Support them to the point where they’re successful in their home countries, then enable and support them to drive commerce around the world.

There is also a focus on having the right talent to manage a business in the marketplace, to respond to consumer requests, to make sure that orders are being fulfilled and additional steps are executed in the manufacturing product-to-consumer cycle. Just like in the United States, hiring people who have those skills has become quite difficult. In contrast, India’s labor force has become a great beneficiary by providing services to business organizations around the world.

The United States has been a great recipient of labor benefits, with Asian students wanting to come here to study. As is the case with people of all countries, obtaining an education is very important to Asian nationals. And like many students around the world, they have no hesitation about going to the best institution they’re able to attend, no matter where it is, and returning to their home countries and using those skills to better their societies and economies.

How are you advising your clients on how to respond or react to these trends?

First, EisnerAmper strives to understand a client’s business plan – what is the product or service being offered and how does it compare to businesses it will compete with? We also strive to understand their “go to market plan” and where they intend to do business. Second, we assist in reviewing capital needs and sources, revenue and operating costs and forecasts, employee needs and skills that need to be in place. We also strive to help our clients quantify the benefits the business will deliver to the marketplace and the company’s investors. In the current climate for U.S. and non-U.S. investors, commercial companies, manufacturers and real estate operators, there are increasingly more opportunities to expand abroad, an endeavor every company should consider. For example, in our financial services practice, we speak with funds about expansion strategies into foreign markets. Whether it’s a U.S., Asian or EU-based fund, we can help them expand.

On the other hand, government restrictions remain around the world, regarding the flow of capital – outside of local markets into global markets. This will have to be resolved because all economies recognize the need to be integrated with the global economy. We’re certainly seeing a strong desire for cross-border investment, and in this regard we assist our clients in understanding local tax rules and tax regimes, cross-border entity structures and tax policy as it relates to the non-U.S. country. We also consider how U.S. tax rules will apply to cross-border trade and transactions, and how all of these factors apply, including a client’s business in non-U.S. countries that is seeking trade with other non-U.S. countries.

What is your take on anticipated changes in trade and tax policy?

The new U.S. Internal Revenue Code (IRC) Section 965 rules on repatriation and the general requirement that certain foreign companies report and pay tax on monies that were previously offshore were enacted by the 2017 Tax Cuts and Jobs Act. These tax dollars are coming back to the United States under an amortized payment concept of taxation. Optimally, the underlying income subject to tax would be transferred as well and reinvested in the U.S. economy. The effect should be, in theory, to create additional U.S. capital inflows, subject to taxation, but additional capital reinvested in the U.S. just the same.

In terms of global trade, the marketplace is aware of the announcements that have been made, and in certain cases enacted, regarding the imposition of tariffs on cross-border trade and the rebutting anti-tariff policies. There are some cases against retaliatory tariffs being discussed within the World Trade Organization that will go to court. It’s a big issue, but it will be resolved in some way because it has to be resolved. The marketplaces in the EU, Asia, Canada, Mexico, and the United States and additional global regions are too large for a resolution to be abdicated.

The tariff issue may more likely be figured out by economics, rather than by governments. What consumers end up purchasing or not purchasing is going to drive the rationale of whether tariffs are useful or harmful. If countries and industries start to see a significant decrease in sales and market penetration or reduction in tax receipts from the reduced sale and purchases of goods and services, the tariff process is going to have to be reworked.

What does our in-house audience need to know to best represent their companies?

The new IRC Section 965 tax rules and the imposition of tariffs are now among the most significant areas to be aware of for companies that are currently, or contemplating, doing business globally. The tax rules as applied among countries is very important, as is the knowledge of local country tax rules.

After considering the above and additional factors, an effective adviser would be speaking to how a business can gain access to the global capital markets, and the labor market and regulatory rules around hiring protocols. How do you raise capital, and how can you move capital cross-border, to make investments and hire people?

We are working with clients to address the business and tax issues discussed in this article. These issues are summarized and include interpreting new and pending tax treaty rules, the specific tax rules in particular countries, foreign tax credits and the taxation of companies. This includes the taxation of individual investors, shareholders, executives and other employees under the new IRC Section 965 repatriation rules, along with entity structuring within the international tax arena and specific corporate tax, individual taxation and LLC taxation matters.

Timothy Speiss is the partner-in-charge of EisnerAmper’s Personal Wealth Advisors group. He also co-chairs the firm’s Asia practice and is co-leader of the New York tax practice. Reach him at [email protected].

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