GNP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 10

[DanS]

"How is the distribution set up ?"

I sell direct to home theater computer manufacturers and dealers. They then either integrate the product into their products, or they sell individual boards to the end consumers.

"Can they order at the US distributor ?"

Nothing's stopping them, but I think by and large a completed transaction is unlikely.

[Roland]

So, if a german customer sees the higher VAT price, he/she will:

- try to order directly
- ***** at the german resaler.

Where's your problem in this ?

"Nothing's stopping them, but I think by and large a completed transaction is unlikely."

Why ?

[DanS]

"Where's your problem in this ?"

Because the natural inclination on the Euro side is to try to avoid those taxes. Some have asked for a relationship where I provide, let's say, $50 in hardware (taxed) and $450 in support (not taxed). Of course, I decline because that would set up a price differential among even my European distributors. But I have no idea whether it would be legal or not--it does strike me as dishonest.

I've thought about having a forwarding agent in Ireland, which I don't think is subject to these taxes. (?)

[DanS]

"Why ?"

The American dealer would probably be disinclined to provide cross-border support. It would just be a hassle.

[Makeo]

This sure is tedious. Roland, DanS's whole point is the tax difference. Don't get so wrapped around the axle.

[Roland]

GP: I'm only trying to figure out what the problem is and whether there is a solution to it. So far we are at the 4th possible problem if I have counted correctly...

Dan:

"Some have asked for a relationship where I provide, let's say, $50 in hardware (taxed) and $450 in support (not taxed)."

"Support" to the end customer ? Or the distributor ?

Looks like an odd construction, as the distributors' final sales price would be under VAT anyway. At first glance this makes only sense as it's easier to hide "support" than actual goods. Looks 100 % illegal.

"I've thought about having a forwarding agent in Ireland, which I don't think is subject to these taxes. (?)"

Ireland has VAT too (and a 21 %standard rate, I may add). And if the final sale is in Germany, you won't legally escape the german rate. IIRC your irish agent would just have an UID tax number for moving it on to Germany where VAT would be due.

[TCO]

Roland, is it that hard? He doesn't like that his product costs more in EU than in US becuase of the higher sales tax, VAT, excise, whatever.

[Roland]

[DanS]

GP: You know lawyers are trained to do unbelievably tedious tasks. Compared to what he usually does, this stuff is positively scintilating!

"Looks 100 % illegal."

Roland: Thank you--that was helpful. The nexus of the "problem" is no more complicated than GP describes. It's just the differential due to much higher taxes. This differential complicates my business relationships and screws up my demand response. And since there's no US taxes to complain about, it's my job as a reb-blooded American to complain about Europe's, where it impacts me.

""Support" to the end customer ? Or the distributor ?"

The distributor. It's totally bogus, IMO, so I just said that my lawyers wouldn't like it.

[DanS]

What does everybody think about XM radio (XMSR)? This looks to me like one of the only bright spots in aerospace and communications, even though I would be looking for a deep discount before investing.

There's really not much else interesting in my screen. COMS is a hold.

[TCO]

I don't approve of your screen watching. Better to buy an index fund. That exposes you to a reasonable risk/return. Investing in your business is good for more of a higher risk/return position with the advantage that here you have insider information.

[DanS]

I'm coming to find that you're at least partially correct, GP. Not that watching my screen has been unprofitable. Rather, it hasn't suggested enough clearly interesting candidates for me. So you come out modifying your screen and spending more time separating the wheat from the chaffe at the riskier end.

I am loathe to modify my screen too much, because it gets further away from my element. Instead of taking on risk that I might not clearly understand, it seems worthwhile to round out the buying with an index fund or two.

Re my business, you assume that I would be a buyer. You learn from the mistakes of your father. My father lost his objectivity and assumed way too much risk in one of the riskiest businesses available (wildcatting). Because of this, I view any money I put into my business as an allowance for things I like to do or areas I would like to learn more about. I can't even bring myself to label it a speculation, much less an investment.

[TCO]

If you are a stock picker, the odds are against you. Why not compile a portfolio of:

-index funds

-personal business ventures

Hold the index funds until you retire. The personal business ventures you can get in/out depending on your lifestyle and your knowledge of their value.

[pchang]

Index Funds

Unless you are dollar cost averaging, I would recommend buying iShares rather than index funds. You have more control of tax consequences and with the exception of Vanguard (who are comparable), you can't beat their low management fees.

[Roland]

"You know lawyers are trained to do unbelievably tedious tasks."

VAT is incredibly tedious. But sometimes there's a way around it. It is also the subject of funny arguments from confused american politicians and economists.

"The distributor. It's totally bogus, IMO, so I just said that my lawyers wouldn't like it."

In that case, yes. The only purpose would be that "support" leaves no (esp customs) paper trail like a physical good.