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Objectives
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• Reduce incremental costs due to income tax rate increase in 2003 (franl 38% to 39%). • Reduce total income reported by the GM given security issues. . • Differentiate GM's salary to that of his direct reports (managers). • Keep compliance with FCPA rules even when the payments will not be done to a Governmental agency???

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• All security payn1ents are taken 'from GM's representation expenses. • Those expenses are considered part of the GM's remuneration and file as such to local tax authorities. Therefore income tax and any other related payroll expenses are paid, as required by law. This incren1ents the total costs of the security paynlents. • In the accounting records, this an10unts are described as security payments.

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" Present situation • cost

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• Projected boxes for 2003 • Cost per box

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2,850,000 $ 0.03
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Expected security cost for 2003 $ 85,500 • Tax cost based on previous tax· rates 27,745
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Cost per prior rate tax • Tax incremental cost

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$ 113,245
25,779
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Total cost expected for 2003

$ 139,024

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Options
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3. 4,

Use the amount of salary been paid to the GM offshore (is reported locally for tax purposes) as . cash 'flow for'the security payments. Bring required cash into the country. A mix of the two options above and representation expenses. A combination of:
1.
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Increment salary base locally and reduce it in US, Transfer part of the payment to the US bank account of the GM, who will transfer to one of his local accounts. Pay a part as representation expense.

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Do not change pre~el1tmethod.

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Option 1 .. Use GM salary structure .. Description

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From the total GM salary reported locally, . $18,514 are paid offshore (after local tax . increnlent). • This amount is filed, however is not shown in the local accounting records. . • Local taxes are already paid for this amount. • Pay this amount locally and use the cash for
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• The outstanding payn1ents will stiH be obtained from GM1s representation expenses,

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Option 1- Use GM salary structure • Cost

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Payroll Rep expenses

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$ 12,514
72/986 $ 85/5pO

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$ 7/833

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$131,191 $ 139/024

$ 7/833

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Option 1 · Use GM salary ucture · Accounting

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• Representation expenses will be ; recorded as they are actually done. • Additional salary payments will be recorded as such in the local books, but will need to be reclassified to security, expenses in the G.O. books or as a Corporate reclassification.

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Option 1 • Use GM salary structure - Pro's and Con's

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Con's Pro's 1. GM's salarY is still very 1. Salaries reported high which rises locally match. secu rity issues accounting records. 2. Ilicremental costs due 2. Estimated savings of to taxes are still very $11,590r high. . 3. No additional cash is required. 4. GM's total local remuneration is higher than that of his direct reports

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Option 2· Bring required 'cash . into the country · Description

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Bring full amount of required payments from outside the country .

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Option 2.. Cost

Proposed Actual Savings

Security leash
Rep. expenses

$ 85,500

$ 85,500
53,524 $ 5~,524

Taxes

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Option 2 .; Bring cash flow , ccounting

• Cash disbursen1ents will be recorded in (CBl, Cll??) as security payments.

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Option 2 • Bring cash flow Pro's and Con's

Pro' -s
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Estimated savings of $53,524, GM's salary is significantfy reauced,tnere~lre ' security risk is lower,

Con' -sEven when it is not required to be 1.

2, 3.

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reported, bringing that amount (aprox $7K per month) of cash couid ' give the wrong idea to local authorities, if detected. GM/s total local remuneration is not ' higher than that of his direct reports. Remuneration reRorted for 2003 is lower than that of 2002..even when there are ways to explain thIs decrease, it could rise questions from authorities. GM locally reported sala~ does not match accounting records~

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Option '3 - Mix of Options 1 and 2 and Representation Expenses - Description

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• Pay $18,514 from the total GM salary reported local but paid offshore (after local tax increment) - Option 1. • Bring $36,000 from outside the country ($3,000 pI month aprox.) Option 2. • The outstanding payments will still be obtained from GM's representation expenses.

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Option 3 • Mix of Options 1 and 2 and

.Representation Expenses· Cost
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$ 12,514
36,000 36,986 $ 85,500 23,154 53,524 $ 30,370

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Total
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$108,654 $1391024 $ 39,370

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Option 3 • Mix of Options 1 and 2 and

Representation Expenses - Pro's and
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Pro's . Con's 1. Salaries reported 1. Incremental costs due locally match. to taxes are still very accounting records. ' high. . 2. Estimated savings of 2. Though it is a smaller $34,126. amount and it is not required to be 3. GM's total local ' reported, bringing in remuneration is higher cash (aprox $3K per than that of his direct montl1) could give tile reports and eVen . wrong idea to local though it is still hIgh, it authorities, if is lower than fast detected. year's. .

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Option 3 - Use GM salary ucture - Accounting

• Representation expenses will be recorded as they are actually dons. I Additional salary payments wiH be recorded as such in the local books. Such amounts ·w.ill be reduced from the US salary base in Corporate books and will be correctly accounted for as security expenses . • Cash transferred to the GM/s US bank account by Corporate will also be recorded as security payments.

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. GM's reported Remuneration

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$ 85(dOO $ 85(000 $85(000

$ 85(000 $130/000.

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$ 224/024 $193,920 $85,000 $135/384

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Option 3 · Use GM salary structure · Accounting

• Representation expenses will be recorded as they are actually done.

• Additional salary payments will be recorded

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as such in the local books, but will need to be reclassified'to security expenses in the G.O. books or as a Corporate reclassification. • Cash brought from out of the country will be recorded in (CBIt Cll??) as security paymen ts ·

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Option 4 - Combination
• Increase local base salary from $85{000 to $130{000. This will allow to pay $46{800 once requireQ local payment by GM is met. . • Transfer $12{000 (2 payments per year) of

security payments from headquarters to GWs transfer by the GMto one of his local bank
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This amount will be

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• The outstanding payments will still be

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Option 4 .. Combination ..
Cost
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Payroll Security leash

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Rep. expenses Taxes

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26/700 $ 85/500 27/429 $112/929 53/524 $ 26/095 $139/024

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Pro's Con's 1. Salaries reported locally 1, Incremental costs due to match. accounting records. taxes are still very high. 2. Estimated savings of 2, GIWstotal remuneration is $26,095. very highc increasing 3. GM/stotal local security risk. remuneration Is higher 3. Accounting is neater than that of his direct (FCPA)I reports and even though it is stilll1i~h, it is lower than last years. 4. There is no need to physically bring cash t cash from out of the country.
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Pending
• If Option 3{ is there any additional costs to bring money or could it be part of normal traveling? • Review of the tax numbers, mainly of the Option for by local. • Legal review,
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