On September 8, 2016 Kegler Brown's Global Business Attorney, Vinita Bahri-Mehra was a part of a panel discussion along with BDO's International Tax Senior Manager Dominick Warner, Crimson Cup's President Greg Ubert, and Abercrombie & Fitch's Vice President of Corporate Development Jennifer Press. The panelists discussed their experiences and what they consider to be best practices when it comes to franchising + licensing abroad. While most of this event consisted of audience Q&A, moderated by Deborah Scherer of Columbus 2020, Vinita and Dominick each gave brief presentations on different aspects of international franchising.

2. Appealing Business Models
for International Expansion
Franchising Licensing

3. Franchising + Licensing
reduces requirement to invest company resources in
expansion by instead recruiting international
franchise/license partners who
 provide the capital to establish local operations
 are more motivated than employees to succeed
 have the important knowledge of their local markets

4. vs.Franchising Licensing
Regulatory Framework Governed
by Contract Law
Required Registration
Rights Not required
Offered to franchisee Territorial
Rights
Not offered: licensee can
sell similar licenses +
products in same area
Provided by franchisor Support +
Training Generally not provided

5. vs.Franchising Licensing
Yes Royalty
Payments Yes
Retained by franchisor +
used by franchisee
Use of
Trademark Can be licensed
Franchisor generally
exercises control over
franchisee
Control Generally no control
Examples

6. KEY ISSUES
to consider in
international franchising

7. Regulatory Framework vs.
Contractual Principles
1

8. Some countries have a regulatory framework in forms of franchise laws
which requires processes to be followed, and in some instances
registrations (e.g., Canada, Brazil, China, and Indonesia).
Some countries do not have franchise laws, and the implied franchise
relationship is governed by that country’s contract laws, and depending
upon the structure certain other laws of that country (e.g., Competition
Law, Anti-Trust Law, Intellectual Property Law) may regulate various
aspects of the franchise transactions (e.g., India, Bangladesh,
Philippines, Singapore, and Thailand).

9. Best Structure –
Internationally?
2

10. Master Franchising Arrangements (Advantage- requires few resources
and significantly less capital investment by the franchisor. Helps to ensure
compliance with local laws) (Disadvantage-Success depends upon the
ability and resources of the master franchisee)
Single Unit or Direct Franchising Arrangements (Provides maximum
control, but requires most time, money & attention)
Area Representative Arrangement (more of an agency or broker
arrangements where rights are granted to a local entity allowing it to
market, offer, and perhaps even train and service franchisees on behalf of
franchisor)
Franchise directly into foreign country or through a subsidiary to be
incorporated there (A subsidiary is often used because it can insulate the
franchisor from liabilities for start-up losses and other liabilities that might
be incurred in the foreign territory)

11. Form of Agreements/
Documents + Enforceability
3

12. Existing franchise agreement (and supplementary documents)
should include changes to comply with local laws, customs, and
perhaps a different language.
Operations manual must be adapted to suit local laws and
customs. If training is to be provided, then consider tax issues if
training is going to be provided in person in foreign country, and
compensation to receive for such training.
Consider enforceability of confidential and non-competition
covenants against foreign franchises and their guarantors, and
enforceability of guarantees (e.g., India & China).

13. Dispute Resolution
Mechanism
(Litigation vs. Arbitration)
4

14. Protecting Intellectual
Property
5

15. Employment Law Aspects
Employment law considerations are often overlooked by franchisors
seeking to expand into new countries. Many franchisors conclude
that, since they do not intend to employ individuals in the new
countries, they need not worry about applicable employment and
labor standards, legislation and regulations.
6

16. Other Issues
Currency Exchange Risks, Potential Currency Export
Restrictions, Restrictions on Import of Goods Essential to
Operation, Specialized Law, Privacy Laws
7

17. In western countries, the contract is most important to governing the
relationship of the parties. In developing world, the personal relationship
can be just as or more important than the contract.
International franchising often has more differences than franchising in
the United States, and can itself vary greatly from country to country.
While the potential remains, care and good planning are essential.
Conclusion

18. z
Thank You!
Vinita Bahri-Mehra, Director
Director + Chair, Asia Pacific Practice
Kegler Brown Hill + Ritter
vmehra@keglerbrown.com
keglerbrown.com/bahrimehra
614-255-5508
614-464-2634 (fax)

19. International Tax: Franchising and Licensing
Abroad
Presented By: Dominick Warner, International Tax Services Senior Manager
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international
BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

20. Page 20
AGENDA
 Introduction
 Key Tax Issues to Consider in Expanding Your Franchise and Licensing
Abroad

21. Page 21
INTRODUCTION – DOMINICK WARNER
Dominick Warner
International Tax
Senior Manager
dwarner@bdo.com
Tel: 248-244-6577
755 West Big Beaver
Suite 1900
Troy, MI 48084
www.bdo.com
EXPERIENCE
 Over 10 years of experience in U.S. and international taxation with
concentrations in:
 International consulting (Both inbound and outbound)
 U.S. and global compliance
 Tax provision work
 Experience on a variety of international planning solutions for
multinational companies including:
 Foreign cash tax reduction
 Effective tax rate planning
 Foreign cash repatriation
 Foreign cash management
 U.S. tax attribute management
 Additional experience in:
 Supporting merger and acquisition activities
 Identifying structuring options for both taxable and tax-free
transactions
 Reviewing and implementing cross-border financing strategies
 Providing structuring advice and implementation assistance for
post-deal integration.
PROFESSIONAL AFFILIATIONS
 American Institute of Certified Public Accountants
 Michigan Association of Certified Public Accountants
EDUCATION
 B.S.B.A., Accounting, Central Michigan University

22. Page 22
KEY TAX ISSUES TO CONSIDER
1. Does the Franchisor have a taxable presence in the country of the
Franchisee?
- Could the Franchisee be viewed as an agent of the Franchisor and subject the Franchisor
to tax in the local country?
2. What is the form of the Franchisor receiving the payment? (Corporation,
Partnership or Individual).
- Form could affect local withholding tax rates and income tax treaty eligibility (for lower
withholding tax rates).
3. What type of payments will be received by the Franchisor from the
Franchisee? (Royalty, Service Fee, Other?)
- Characterization could affect withholding tax rates.
4. What jurisdiction will the training be for establishing the Franchise?
- Location of training could affect taxability of income attributed to the training fee
received by the Franchisee.

23. Page 23
KEY TAX ISSUES TO CONSIDER (CONTINUED)
5. Who will conduct and how long is the duration of the training of the
Franchisee?
- Monitoring of training activity recommended to assess local country taxable presence.
6. What terms should be incorporated into the Franchising Agreement?
7. Are there planning or optimal structures that can be employed to address
the tax concerns?
- Yes. Talk to your BDO International Tax Specialist.

24. Panel DISCUSSION