Doing business abroad -- Selecting the entity;

              DOING BUSINESS ABROAD-SELECTING THE ENTITY
Francis C. Oatway Partner, Executive Office
Presented before the University of Pennsylvania Thirteenth Annual Tax Conference, Philadelphia-October 1973
The choice of the entity for doing business abroad is probably the single most important decision that the U.S. company is faced with when it first contem­plates
a venture outside the United States. Some companies probably take the easy way out and never consciously face the question when the opportunity for overseas business arises. Consider, for example, the U.S. manufacturer who receives a large order for the sale of his product to a customer in a foreign country. His immediate reaction, particularly if business in the United States is slow, and perhaps the correct reaction is to fill the order. Such a business client would not be too pleased with the serious tax advisor who encourages him to hold up, at the risk of losing the order, until a proper study can be undertaken to determine the appropriate entity with which to do this piece of business. And yet, perhaps a delay would be in order. If the profit on the order is marginal, it could be wiped out by unknown controls or restrictions on doing business in the foreign country in question.
Suppose that, unbeknown to the U.S. manufacturer, the foreign country requires an import permit before allowing the conversion of currencies with which the purchaser can make payment to our manufacturer vendor. Suppose further that a permit will not be granted for our manufacturer's product if the vendor is a U.S. company. What profit is there to have sold the goods if the manufacturer is prevented not only from obtaining his gross profit but also from recovering his investment in the goods sold? Alternatively, consider a positive effect that a delay permitting the choice of the proper entity might have. Take the situation in which an otherwise noncompetitive price quota­tion
could be made competitive if the transaction were structured so that proper advantage was taken of all available tax and other incentives.
These are simple illustrations of the way in which the choice of the entity to do overseas business can have an effect in the most basic of overseas trans­actions,
the export sale. We cannot properly cover here all of the factors that would influence the choice of entity even in this simple set of circumstances. Obviously, therefore, neither can we do so with respect to much more com­plex
overseas business arrangements. Instead, what we will attempt is to focus