Introduction Many companies eventually face the realization that to grow

Introduction
Many companies eventually face the realization that to grow, they must expand to international markets. Often times, these companies are faced with the decision of whether or not to offshore their business elsewhere in order to navigate the international market more effectively.
In this paper, we will illustrate the economic factors that make Ireland, The British Virgin Islands, and Delaware (USA) all viable offshore markets for Quattroporte Inc. business. The following analysis will lead us to recommending one jurisdiction along with justification.
Ireland
Globalization and Comparative Advantage
Globalization is the process of increased market interaction between countries through trade, immigration, technology and politics (Carbaugh, 2016). Globalization has occurred in waves, the first prior to World War I, through decreases in tariff barriers which resulted in countries beginning to trade. The second wave occurred after World War II. Developed countries eliminated barriers, allowing for increased growth in manufactured goods and trade. The latest wave of globalization is highly technological and occurring in all countries around the world, where location is no longer a barrier to trade. A nation develops a comparative advantage in a product when it gains an economic trade advantage by specializing in that goods or service.
Ireland has been one of these countries which has developed a strong comparative advantage in software. According to the Organization for Economic Cooperation and Development (OECD), Ireland is now the biggest exporter of software products in the world (Green, 2000). Much of Ireland’s success has come from a number of comparative advantage factors, including foreign direct investments (FDI) where multinational organizations are investing resources in Ireland. Cluster characteristics and geography are additional factors. Most of the software multinationals in Ireland are packaged software or product companies selling to mass markets (Green, 2000). These industries require higher level of software engineering skills which Ireland has recruited and retained (Tobin, 2015).
Openness is a country’s exports and imports as a percentage of its gross domestic product (GDP) (Carbaugh, 2016). According to the OECD 2017 economic summary, Ireland enjoys a high degree of openness, which has a direct link to economic growth rates (Anderson, 2008).
Tariff and Non-Tariff Barriers
Tariffs are tax levied on a product when it crosses a national border (Carbaugh, 2016). Considered a barrier to entry, a tariff makes purchasing a foreign product more expensive in the hands of the end user in order to deter its consumption and freezing trade to a degree. It is noted however, that a reduction in tariffs lead to a larger response in the growth of trade volumes (Rubini, 2009).
Ireland has been a part of the World Trade Organization’s Information Technology Agreement, which works toward eliminating all tariffs on information technology goods such as software. The free flow for information technology has allowed Ireland to become the silicon valley of Europe. Ireland’s alliance with the European Union (EU) remains a gateway to the European Marketplace for English speaking nations, following Great Britain’s vote to leave the EU (Bernal, 2016). With no tariffs and membership to the EU, Ireland remains in a lucrative position to capture multinational business. The only question that remains unanswered is how Great Britain will treat Irish exports in the post Brexit environment. If an agreement isn’t settled between the EU and Great Britain, the rules of the WTO come into effect; however, renegotiations could take place to bring new rules to fruition (Kelnar, 2016).
International Factor Movements and Multinationals
Ireland is a small and trade-dependent economy. It was among the initial group of 12 EU nations that began circulating the Euro in 2002. GDP growth averaged 6% in 1995-2007, but economic activity dropped sharply during the world financial crisis and the subsequent collapse of its domestic property market and construction industry (OECD, 2009).
Since the downfall of construction and the dip in business investments, exports dominated by foreign multinationals, has become an integral part of Ireland’s economy (OECD, 2009).
Ireland’s low corporation tax of 12.5% has been central to encouraging business investment. Loose tax residency requirements made Ireland a common destination for international firms seeking to avoid taxation (OECD, 2009).
Foreign Exchange and Risk Strategies
Foreign exchange will be a risk for our software company. By growing sales globally, Quattroporte Inc. will be involved with multiple foreign currencies. Our company is new to the global market and hesitant where sales will be coming from. A decision was made not to hedge each currency using a forward rate contract. According to 3M, the costs associated with hedging over the entire cycle of business can drain your company’s earnings. A simple forward contract that locks in an exchange rate costs up to half a percent per year (Carbaugh, 2017).
Instead, our company will use an approach whereby the risk of currency is passed onto the end user in that they will have to pay for the software in the currency that Quattroporte Inc. would like to recognize revenue in. End users can gain the software through using payment conversion services such as PayPal or their respective Financial Institution. Quattroporte Inc. is then free to exercise the usage of forward contracts on just one single currency for simplicity.
International/Regional Banking Factors
In 2008, Ireland’s budget deficit reached $18.2 billion which amounted to 6.2% of GDP (Country Analysis Report, 2011). In order to meet deficit targets, the government went under the EU-IMF bailout program that included strict adherence to its deficit reduction targets and refinance large sums of its banking debt. In 2013, Ireland officially exited from its bailout program (McDonald, 2013). In 2014, the economy rapidly picked up and GDP grew by 4.8% indicating the economy had begun to improve (Beesley, 2014).
Taxes & Repatriation
Ireland abides by a territorial taxation system on corporations while countries like the United States enact a worldwide income tax system. The difference is essentially all income globally under a worldwide income tax system is taxed in the home jurisdiction even though the revenue was not incurred in that jurisdiction. Many companies chose to relocate their non-home-based operations to a jurisdiction such as Ireland because the income earned through global ventures is not taxed in Ireland (Yang & Lauricella, 2017). Only the income earned in Ireland is taxed at the corporate rate of 12.5%.
Revenue will be received in euros. An important consideration is repatriation of profits back to Canada. Historically, there has been volatility in the Euro to Canadian dollar conversion. Over the last 10 years, an exchange rate high occurred in 2008 of $1.72 CND for 1 euro and in 2012, a low of $1.21 CND for 1 Euro. As a result, Quattroporte Inc. will seek out yearly forward bank contracts to hedge our profit exchange rate for repatriation back to Canada.

Intellectual Property Rights
Intellectual property (IP) is when the inventor of an idea, product or process registers their product with the government to protect exclusive rights for a period of time (Carbaugh, 2017). Different nations have different rules when it comes to IP rights. Some countries use the first-to-invent rule while other use first-to-file when determining patent eligibility (Carbaugh, 2017).
In Ireland, IP rights are taken very seriously by the government. It is understood that foreign direct investment is contingent on strict IP legislation. According to Grant Thornton (Thornton, 2015), Ireland’s strong national and international IP laws and alignment with international copyright treaty, the Berne Convention, has created an attractive and protective environment for research and development.
Software in Ireland is protected by the Copyright and Related Rights Act of 2000 and is automatically assigned to the owner, with no formal registration to the government required. The protection lasts the length of the author’s life plus 70 years (Knowledge Transfer Ireland). Since the introduction of this new Act, software piracy has decreased. Based on the 2011 piracy study, it is sitting at 34%, which is on par with the European Union (Piracy Study, 2011).
Country Risk and Freedom
Globalization has expanded borders for many nations worldwide to grow economically. With this expansion, the potential for political, economic, social and business risk also increase and must be evaluated. A number of different risk rating tools exist, but for the purpose of our software company, The Heritage Foundation, 2018 Index of Economic Freedom will be used to evaluate our three jurisdictions. It evaluates twelve aspects, divided into four categories, rule of law, government size, regulatory efficiency, and market openness. Each category is scored from 0-100 and the final score is an average of these twelve aspects. This risk service was selected as it incorporates intellectual property rights into its evaluation. Evidence has shown, that countries who score high are nations who support innovation and entrepreneurship (The Heritage Foundation, 2018).
Ireland is considered to be in the top tier of economic freeness as it is ranked number 6 in the world with an overall score of 80.4. In 2017, Ireland was considered mostly free, with an overall score of 76.7 and ranked number 9th. As a result, Ireland has moved up significantly in 2018 due to its efforts towards deficit reduction and banking debt refinancing to stimulate economic growth (Heritage Foundation, 2018). Property rights have ranged between 85-90 since 1995, indicating stability over the last 20 years when it comes to intellectual and physical property rights. This is very important for our software product which relies on copyright laws.
British Virgin Islands
Globalization and Comparative Advantage
The British Virgin Islands are known globally for their tourism; however, their financial services generates over 80% of the government revenues (The Star, 2016). Unfortunately, the British Virgin Islands (BVI) have become internationally known as a tax haven. The UK Business Insider estimates 1.5 trillion in assets move through the BVI annually due to not charging tax on capital gains or corporation tax (Hodgson, 2017). Tax havens have traditionally attracted corrupt individuals or businesses who are seeking a secretive way to shelter their money. The good news is the BVI are working to clean up this image as the government is investigating anti-money laundering risk assessments similar to the Cayman Islands.
Tariff and Non-Tariff Barriers
The British Virgin Islands represent a British Territory that governs all domestic issues while abiding to British foreign policy. The British Virgin Islands (BVI) are considered an extension to Great Britain and thus a part of Britain’s trade laws. Similar to Ireland, the BVI as an extension to Great Britain is a part of the Information Technology Agreement through the World Trade Organization.
In the wake of a post Brexit future, trade between Great Britain and the Eurozone remains to be sorted. If an agreement isn’t struck before March 2019, the relationship defaults to that of the WTO standards which both entities are members (Kelnar, 2016). Given that the Information Technology Agreement is part of the WTO’s initiative to foster greater trade in technology, the short-term line of sight remains stable for the Information Technology sector. What possibly could affect trade in the long run may be Great Britain’s renegotiation of trade with the EU, but it seems unlikely at the moment that the Information Technology sector would be in the cross hairs before sectors like Financial Services and Agriculture.
International Factor Movements and Multinationals
The British Virgin Islands (BVI), is one of the most stable economies in the Caribbean. BVI is highly dependent on tourism, which generates an estimated 45% of the national income. Over 300,000 tourists, mainly from the United States, visit the islands (Kersell, 1989). Due to close links with the US Virgin Islands, the British Virgin Islands has used the dollar as its currency since the late 50s.
In the mid-80s, the government began offering offshore registration to multinational corporations. These offshore fees now generate substantial revenues to their economy. An estimated 250,000 companies were on the offshore registry by 1997 (Kersell, 1989). The approval of a wide-ranging insurance law, that provides complete confidentiality with regulated avenues for investigation of criminal offenses, is expected to make the BVI more appealing to multinational corporations. (Kersell, 1989).
International/Regional Banking Factors
The BVI is home to over 400,000 offshore companies and this is due to it’s affordable and flexible luxuries the government provides (Liu, 2017). Through the BC Act, the BVI offers great amount of flexibility for joint venture companies (Birkwood, 2008). One of the many benefits of the BC Act include lenient requirements for annual general meetings, auditors, or directors. Companies are also provided with a great deal of discretion to decide how to distribute their profits. Lastly, joint venture companies in the BVI makes it easy to list the entity on a recognized stock exchange and creates avenues to access additional funding should that become necessary.
Taxes ; Repatriation
BVI effectively does not charge a corporate tax rate to companies registered in their jurisdiction. There is however a $350 USD registration fee to initially set up and $350 USD recurring annually as a licensing fee. If the company is to issue more than 50,000 shares, the initial registration will be $5,000 USD followed by a $1,100 annual licensing fee (Sackin, 2013). Capital gains, sales/value added tax are not charged at all. The BVI uses the US Dollar as its official currency, and there remains no restriction on the movement of the USD in or out of the BVI.
Intellectual Property Rights
Copyright law of the United Kingdom would apply within the BVI (World Intellectual Property Organization, 2012). Similar to Ireland, the United Kingdom is a part of the Berne Convention, which provides authors of software programs the same patent protection. The BVI updated their Trademark laws in 2015, whereby all applications must directly register their goods and services in both the BVI and the United Kingdom if they choose to do so. Software piracy rates in the United Kingdom is 26% (Piracy Study, 2011).
Country Risk and Freedom
The British Virgin Islands are considered a part of the United Kingdom with respect to country risk and freedom. In 2018, it was ranked 8th in the world and had an overall score of 78. Compared to 2017, the UK was ranked 12th in the world, with a score of 76.4. It’s overall score and rank increased due to improved fiscal health and government spending indicators. As the UK is set to leave the European Union, this should allow the government to correct any additional lagging indicators (Heritage Foundation, 2018). Property rights have been very stable with a score above 90 since 2012.
Delaware (USA)
Globalization and Comparative Advantage
Delaware is a state within the United States which has economically grown as one of the Country’s leaders in banking, insurance and agriculture. Delaware has also positioned itself as a domestic tax haven by not taxing holding companies. As a result, parent companies pay royalties back to the Delaware subsidiaries which can then be claimed in taxes. The whole process allows the shell companies to funnel profits, tax free (Browning, 2009).
Tariff and Non-Tariff Barriers
The United States has been a central character to the growth in Information Technology and its regulation. Delaware in particular as a domestic tax haven, finds many companies registered in its jurisdiction to avoid taxation on their intangible assets (Semuels, 2016).
As the United States is a part of the WTO’s Information Technology Agreement, much like Ireland and the BVI, they do not implement a tariff on software.
International Factor Movements and Multinationals
Delaware’s lenient laws regulating business taxation is a factor in which some of the United States’ largest financial multinational corporations have located. The finance sectors have become significant for employment, although manufacturing and agriculture are still relevant.
Thanks to lenient company laws and affordable taxes, Delaware is an attractive business destination. More than 50% of all publicly traded firms in the United States have chosen Delaware as their base of operations (Talley, 2015).
International/Regional Banking Factors
During the late 1970s, Pierre duPont, signed the Financial Center Development Act, a legislation that dropped restrictions on interest rates and gave tax breaks and other accommodations to the credit card sector. This act assists companies with rising credit card debt, and a key reason as to why some of the largest banking companies such as Chase Manhattan and J.P. Morgan Co. located their credit card divisions in Delaware.
Taxes & Repatriation
Delaware on a State level, does not charge a corporate tax for corporations that are receiving income from business outside of Delaware. Many corporations choose to set up a shell of itself in Delaware in an effort to have their income derived from foreign sales be funneled into Delaware. Companies elect to set up a Limited Liability Corporation (LLC) through the IRS which allows for taxable income from the LLC to flow directly to the shareholder of the LLC. Instead of paying the corporate tax of the State, the LLC is subject to the State’s flat tax of $250 USD annually (Steingold, 2013).
Repatriation of profits back to Canada is possible through a dividend repayment mechanism. For the dividend to be repatriated tax free under the exempt surplus rule, there needs to be a conditional hurdle of four factors. Those factors are, the foreign corporation is a non-resident of Canada, the income from the foreign corporation is considered active business income, the income from the business is not from business being carried out in Canada, and lastly the income cannot be reallocated in part or whole to the parent company based on transfer pricing rules (Atlas, 2015). As long as the four conditions are met, profits may be repatriated through dividend payments on a tax-free basis.
Intellectual Property Rights
Similar to Ireland and the British Virgin Islands, The United States is also a contracting party to the Berne Convention which allows a formality free approach to software copyright law (WIPO, 2018). In the United States, once a copy of copyrighted work has been sold, the copyright owner has no further distribution or sale rights (Computer Forensics, 1997). This is known as “first sale doctrine” and causes software to be sold in the form of licenses to maintain copyright ownership to the author. Software piracy in the United States is estimated to be 19% (Piracy Study, 2011).
Country Risk and Freedom
The United States is ranked 18th, with an overall score of 75.7. Compared to 2017, the US was ranked 17th, with an overall score of 75.1. The United States score did increase slightly, mainly due to financial freedom indicator. Historical signals indicate that the decade long decline in economic freedom may have come to an end (Heritage Foundation, 2018). Property rights dipped to 80th in 2013 and has remained stable for the last number of years.
Conclusion
Quattroporte Inc. has selected Ireland as its offshore jurisdiction. Ireland offers multiple advantages compared to BVI and Delaware. This includes its comparative advantage in software and skilled labor market. Both these factors make Ireland a suitable destination for international growth of our company. Ireland continues to be a part of the EU, with access to a new market which expands opportunity for growth.
Income earned through global sales are not taxed, only income earned on sales in Ireland are subject to 12.5% corporate tax rate. As a result, profits are maximized and can be repatriated back to Canada using a forward exchange contract on a yearly basis. The Heritage Foundation has ranked Ireland the highest amongst our three jurisdictions. This is due to the Irish government’s focus on deficit reduction and economic growth.
Finally, Ireland has strong IP rights, protecting the copyright and software industries. This has shown to be effective, with software piracy rates declining over time.