US technology company: software development subsidiary, inter-company IP, and SOX controls

Client

A US-headquartered technology company building a cloud-based product. The Vietnam entity was set up to access engineering talent in Ho Chi Minh City. Initial team: 12 engineers.

Challenge

The US parent wanted the Vietnam entity to operate as a cost-plus engineering centre, with the IP developed by Vietnam vesting in the US parent. The CFO in San Francisco was concerned about: (1) the TP documentation to support the cost-plus mark-up, (2) the SOX controls over the Vietnam entity (the parent is SEC-registered), and (3) the Vietnamese withholding tax on the cost-plus mark-up.

Approach

We structured the Vietnam entity as a limited-risk engineering centre: Vietnam costs are reimbursed at cost plus a 7% mark-up, with all developed IP assigned to the US parent under an inter-company IP assignment agreement. We prepared: (1) the inter-company cost-plus agreement, (2) the Local File with a benchmarking study supporting the mark-up, (3) the FCT registration and treaty-claim documentation to reduce the withholding on the cost-plus payment, and (4) the SOX-aligned internal controls documentation for the parent's external auditor.

Outcome

The Vietnam entity is fully operational, with monthly management accounts in USD. The SOX controls documentation was accepted by the parent's external auditor. The TP documentation is contemporaneous, and the FCT is filed on time with the treaty rate applied. The US CFO has live visibility into the Vietnam team cost and the IP-development deliverables.

Ongoing engagement

We continue as the Vietnam accounting, tax, payroll, and TP compliance partner. The engagement scope includes the SOX controls documentation and the annual TP file.