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G-20 Stamps Out Tax Havens

OECDThe fallout from the recent tax evasion settlement with UBS is reverberating throughout the G-20 community.  As we reported back in October,  the French Governments action directing banks to close branches and subsidiaries in non-OEDC compliant jurisdictions will pressure all G-20 participants to adopt a more uniform tax code and enforcement practice.  The drive to strengthen the respect of tax treaties and the closure of havens to custody assets beyond the reach of national tax authorities signals a new era in multinational cooperation and the eclipse of radical free market tax practices.

The principal drivers for this unprecedented level of cooperation and standardization is the dire need for national tax authorities to recognize and tax revenue streams to help address the burgeoning budget deficits the global economic crisis has has wrought.

Clearly the crackdown on tax evasion is gaining momentum since the global financial crisis has devastated national treasuries.  Enormous expenditures on stimulus programs and dramatically falling tax receipts has created a perfect storm and has created an enormous threat to the fiscal soundness of national treasuries.

Forbes reports that Singapore has become the latest in a flurry of jurisdictions complying with Office of Economic Cooperation and Development standards on transparency and exchange of information for tax purposes.  Fifteen jurisdictions have come into compliance since April 2009.  In addition to Singapore and the sea change occurring in the Suisse banking industry; other  governments that have lost revenue to tax havens are individually taking tough action:

–The U.K. government has informed the Isle of Man that it will reduce revenue transfers of value-added tax receipts to the island by 50 million pounds next year, 9% of the island’s revenue.

–French banks are starting to close down their operations in tax havens.

–In Germany, the hiding of funds in Liechtenstein bank accounts has prompted a backlash against tax havens.

–In the United States, White House advisor Paul Volcker in December is due to report on ways of eliminating revenue losses to tax havens.

This heightened regulation and standardization amongst  G-20 tax authorities is quickly closing any regulatory tax arbitrage opportunities for global investors.  The closure of preferential tax domiciles will heighten the power and reach of national tax agencies enforcement capabilities and the scope of their examination reach.  The IRS is stepping up its enforcement and institutional assets to assure that private equity and hedge fund industries comply with all the anti-money laundering laws and stringent tax codes.

Sum2’s IARP helps investment managers assess and manage the growing threat of audit and tax enforcement risk.  Sum2’s CARP helps large and mid-size corporations assess compliance and manage  IFI audit risk.

Risk: audit, enforcement, regulatory, tax, reputational, litigation

November 16, 2009 Posted by | AML, CARP, corruption, IARP, IRS, legal, OECD, private equity, regulatory, reputational risk, risk management, Tax | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Survey Says: Corporate Tax Audits on the Rise

An-Examination-at-the-Faculty-of-Medicine,-ParisA recent survey published by Sabrix indicates that corporate tax audits are on the rise.   Eighty-three percent of companies surveyed report an increased number of audits due to state and local tax revenue shortfalls.  Survey respondents comprised 140 tax executives from the Forbes Global 2000 Index.

Ninety-six percent of the attendees said that despite the recession, transaction taxes such as sales and use taxes will continue to be an area of focus. In response to the economic downturn, 45 percent of the attendees said their companies had reduced their employee headcount, but 45 percent also increased their investment in tax technologies.

Eighty-one percent of the respondents have made sales and use tax and value-added tax a more strategic focus of their company due to the economy. A similar proportion said they have implemented new programs and processes to remain compliant.

The IRS is under pressure to enforce compliance with federal tax statutes.  The US Treasury coffers are seriously depleted given all the stimulus and economic recovery expenditures.  The IRS is mandated to assure that corporations comply with all tax laws.  The IRS has developed an Industry Focus Issue, (IFI) audit strategy that  profiles high risk corporate tax compliance statutes.   IFI guides field audit personnel through a risk based assessment of corporate tax compliance.  The IFI aggregates and ranks  Three Tiers of high risk tax compliance issues.  Examiners will conduct rigorous reviews of these issue sensitive factors.  The factors concern revenue recognition, sales tax, partnership reporting, and the repatriation of revenue derived in foreign domiciles.

Sum2 has published a product, IRS Audit Risk Program (IARP) that guides corporate tax managers and tax professionals through a risk assessment of their exposure to IFI risk factors.  The IARP helps corporate tax professionals score tax risk exposures, determine mitigation actions, estimate remediation expenses and manage tax controversy defense strategies.  The IARP is available for purchase on Amazon.com.

Sum2 also has developed the Corporate Audit Risk Program (CARP).  The CARP is IRS tax risk assessment tool for corporate tax managers.  A  single user license for CARP can be purchased on Amazon.com.

Risk: compliance, tax audit, reputation, litigation

You Tube video: Stevie Ray Vaughan, Taxman

October 23, 2009 Posted by | CARP, CPA, government, IARP, IRS, regulatory, risk management, Sum2, Tax, Treasury | , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Radio Nowhere: Tax Risk Delists Emmis Communications

radiosMisinterpretation of the tax code led to the NASDAQ delisting of Emmis Communications after investors dumped the stock following a restatement announcement.  In an 8-K Filing Emmis announced that its previously filed public financial statements cannot be relied on for accuracy.  Emmis’s stock price has been trading  below $1.00 per share after investors negative reaction to the company’s restatement of earnings and financial condition.  The restatement was necessary after Emmis discovered it improperly accounted for the tax treatment of Federal Communication Commission  (FCC) licensing rights.

Emmis operates a number of radio stations in key metropolitan markets and was forced to restate its financial statements for the past fiscal year and for the first quarter of this year to adjustments it made in its provision for income taxes.   Last year the company wrote down the value of its FCC licenses.  This put Emmis into a loss position leading the company to overstate the benefit for income taxes and understated deferred tax liabilities by $25.3 million for its fiscal year ended February 28, 2009.

Emmis CEO Jeff Smulyan,  released a statement on the company website that read, “Certainly, ‘restating our earnings’ sounds ominous, but our restatement solely relates to a non cash technical tax issue that has no impact on our operations. While there might be big numbers involved and a lot of paperwork being filed, I don’t see anything to worry about.”

This is an interesting example of the consequences of tax risk.  Most tax risk events result in huge settlement amounts, damage to executive reputations and the company brand and sometimes prison terms for the persons and parties involved.  The delisting of the Emmis stock and the severe devaluation of shareholder equity is a more extreme result of the failure to mitigate tax risk factors.

Sum2’s  Corporate Audit Risk Program (CARP) guides corporate tax managers through a thorough risk assessment of exposures to IRS Industry Focus Issues (IFI).  CARP helps tax professionals score threats of IFI risk factors and implement mitigation actions.  The CARP lists Emmis tax problem as a Tier Three IFI risk factor.  It falls  under the communications  technology and media industry guidelines for amortization on intangibles, licensed programs and contract rights.  The CARP is an indispensable guideline and tool that may have provided insights into the tax risk that led to a costly delisting and evaporation of shareholder equity.

Emmis share price closed today at $1.32.  We wish the management, shareholders and employees a speedy remediation to the problems confronting the company and a recovery of the share price to reestablish its listing on the NASDAQ.

You Tube Music Radio: Bruce Springsteen, Radio Nowhere

Risk: tax, shareholder equity, reputation, regulatory

October 15, 2009 Posted by | business, CARP, CPA, IARP, IRS, regulatory, reputation, Sum2, Tax | , , , , , , , , , , , , , , , , , , , , , | 3 Comments

Get Ready for Here They Come

GEITHNER0031175.jpgTreasury Secretary Tim Geithner’s recent testimony on Capitol Hill is a clear warning to corporate America that the IRS is shifting gears.  While the Secretary stated the IRS requires a modest amount of money to reform the tax code and the complicated super system of laws; he also stated that he is seeking a larger allotment for enforcement purposes.  Clearly for the immediate future the focus of the agency will be to insure corporations are in full compliance of existing tax laws and statutes.

According to the article,  Geithner wants $332 million to go to new IRS enforcement efforts, including $128.1 million to improve international tax compliance. The balance of the funds would be used to support 755 employees to increase examinations of tax returns for businesses and high-income individuals; 300 employees to expand the IRS document-matching program, which compares tax returns to other forms such as W-2s and 1099s; and an additional 491 employees to improve collection operations and build two new IRS automated collection center sites.

Corporate tax professionals need to be vigilant and begin to design a strategy to mitigate rising tax risk.  Sum2’s Corporate Audit Risk Program (CARP) is a unique tool that helps corporate tax managers and professionals assess, manage and mitigate tax risk exposures.

Learn more about how CARP can help you manage this mounting risk factor here: manage tax risk.

You Tube Music Video: The Temptations, Get Ready

May 25, 2009 Posted by | CARP, IRS, regulatory, risk management, Tax, Treasury | , , , , , , , , | Leave a comment