How the OCC Plan™ Works

1. OCC Plan™ is based on three key concepts.

2. First, remember the proverb: "Don't put all your eggs in one basket." This means: Do not expose your foreign investment to the claims of creditors or the laws of an undeveloped, foreign nation. Protect yourself by using multiple entities to own various segments of your business.

a) Make sure that if your business is sued, it can survive an adverse legal judgment. Large corporations accomplish this by creating subsidiary corporations for each separate business activity. This strategy can be adapted to a small business with excellent results.

b) The multiple entity approach also creates an opportunity to engage in advanced tax and estate planning (including planning within the family) for the owners.

c) Regarding disputes within your business, make sure that you are not subject to the legal process within the country of investment.

3. The second concept involves a variation on the investment created by investment bankers called "derivatives."

a) In essence, a derivative divides an investment into component parts, and each part within the investment becomes a separate revenue stream or expense stream.

b) This theory was applied to tax planning by major accounting firms familiar with derivatives and many of the corporate tax shelters created in the past decade used this idea. Small businesses can also benefit greatly from this technique.

c) The derivatives technique uses multiple entities to receive income streams from the operating company located in the foreign country. Not only does this technique minimize taxes, it provides excellent asset protection.

4. Third: It's the intangibles, often called "intellectual property" which includes patents, copyrights, tradenames, tradedress, customer and vendor lists, pricing information, marketing and advertising, financial and accounting systems, manufacturing and operational knowledge, brand recognition and goodwill that generate the real income and must be legally protected.

a) Small businesses do not stay in business by selling products cheaply - they survive because of superior service, reputation, experience and knowledge of the marketplace and customers -- all intangible assets.

b) In short, they endure and thrive because they are better than their competitors at what they do, whether it is making a tastier pizza or providing quicker service.

c) Yet, this intellectual property usually does not appear on their balance sheets - it is a hidden asset.

d) In the foreign context, the use of intellectual property through licensing to the foreign operating company reduces the profits earned in the foreign country and provides a measure of protection against copyright and patent infringement.

(1) However, there is no true safeguard against the theft of intellectual property, which, of course, is the major drawback to investing in these markets.

5. Using OCC Plan™ in a business venture located in a foreign land: a typical business scenario

a) Example: A U.S. owner of a small profitable business located in the U.S. is informed by its overseas factory in China (or in India, Taiwan, Philippines, Mexico, Chili, India or other emerging economy) that the owner must now invest in the factory to continue to receive its products, or must invest in the expansion of the factory to keep up with increased production demands. The dollar investment needed is $250,000.

(1) Note: This scenario can apply to any business or company that will be investing in a business located in an emerging economy - a Taiwan company investing in China or India; Japanese company investing in Mexico; or a Hong Kong owner investing in Indonesia or the Philippines, etc.

(2) Several major issues immediately surface:

(a) How will the owner protect his investment with his foreign partner in case of:

i) A dispute regarding business operations - Where will the dispute be heard? Which law will be applied? What are the procedures and safeguards for a fair and impartial hearing?

ii) Management, ownership and control - Voting rights and procedures.

iii) Bringing in new investors - Terms, conditions and consents.

iv) Additional capital contributions - Terms, conditions and remedies for breach.

v) Transfer of business interests to the owner's children or beneficiaries in case the owner dies.

(b) Regarding business operations, investments and dispute resolution:

i) Which laws will apply?

ii) Which country's legal procedures will be used?

iii) How can the owner be assured of --

A fair and impartial hearing or resolution?

Protecting his interest against the tax claims of the foreign country or creditor claims?

Passing his ownership interest to his family or beneficiaries in case of death?

b) In addition to protecting the owner's investment and ensuring that a stable set of commercial laws will apply, another goal of the owner should be to protect the business against lawsuits arising from the foreign investment or expropriation by the foreign government.

c) Also, the owner should focus on lowering, deferring or even eliminating income and estate taxes imposed by the foreign jurisdiction on the earnings generated by the foreign investment. In some circumstances, income and estate taxes imposed by the owner's home country can be lowered, deferred or eliminated as well.

d) If properly structured, the owner can utilize the foreign investment income to pay for kids' education, invest for retirement, support his parents and other family obligations.

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