Bramwell’s Lunch Beat: IASB’s Mackintosh Thinks Adopting IFRS is the Only Way to Go

A tax-debt scheme shut down
In a column for the Washington Post on Tuesday, Michelle Singletary praised the Federal Trade Commission (FTC) for giving back $16 million in refunds to more than 18,000 customers of American Tax Relief, which advertised heavily on TV, radio, and the Internet, promising taxpayers overwhelmed with debts to the IRS that it could significantly reduce their burden.

“American Tax Relief was selling a lot of hope. Unfortunately, desperate people will do desperate things,” she wrote. “In its complaint, the FTC said the company made claims that it could remove tax liens and stop wage garnishments, bank and tax levies, property seizures, and ‘unbearable monthly payments.’”

At the request of the FTC, a federal judge shut down the national operation. American Tax Relief agreed to the terms of the settlement without admitting guilt or denying any of the allegations, according to the column.

But if you shelled out money to American Tax Relief, don’t expect a full refund, Singletary wrote. The FTC says former customers will get on average 16 percent of the amount of money lost. Often, even though authorities can take action against a company, much of the money is already gone, so there isn’t enough to make all victims whole.

“If you get a check, you will need to cash it within 60 days of the mailing date,” she continued. “If you have questions or need more information about the settlement with American Tax Relief, call the administrator, Gilardi & Co., at 877-430-3699 or go to www.ftc.gov/refunds. Scroll to the end of the page and click on the link for ‘Recent FTC Cases Resulting in Refunds.’”

Are truly global standards achievable?
That was the title of a speech given in Johannesburg, South Africa, on Wednesday by International Accounting Standards Board (IASB) Vice Chairman Ian Mackintosh, who said full convergence with US Generally Accepted Accounting Principles (GAAP) will “probably never be achieved” and that adoption of International Financial Reporting Standards (IFRS) “is the only viable approach to achieving global accounting standards.”

“There really is no shortcut to meeting the challenges of economic globalization, other than by providing a single set of high-quality, global accounting standards. That is what IFRS does,” he said.

During his speech, given at an IFRS conference in Johannesburg, Mackintosh said the IFRS is best suited to provide a set of global accounting standards, adding that more than 100 countries have transitioned from national standards to IFRS.

He also noted that almost all of the countries that have not adopted IFRS permit its use in certain circumstances. He cited India and Japan, which permits voluntary use of IFRS, as well as China, whose largest companies report using full IFRS for the purpose of their dual listings in Hong Kong. He also mentioned the United States, which has allowed non-US companies to report using IFRS as issued by the IASB since 2007.

“The evidence indicates that global standards are both desirable, achievable, and in my view, inevitable,” Mackintosh said. “As economic globalization continues apace, so too will the force of the arguments in favor of IFRS adoption within these remaining jurisdictions. That is why I believe that we should not fret too much about the timing by which we get every jurisdiction onto global standards.”

The IASB vice chairman also talked about the convergence effort with the Financial Accounting Standards Board (FASB), noting there have been some successes, such as accounting for business combinations, fair value measurement, and revenue recognition.

“These achievements should not be overlooked because they have improved the quality and comparability of financial information around the world,” Mackintosh said.

He also touched upon convergence failures, such as the financial instruments project. The IASB issued its own standard last month, IFRS 9 Financial Instruments.

“In various aspects of this project, including the netting of derivatives, loan-loss provisioning, and in the classification and measurement of financial instruments, we have seen the boards sit around the table and reach a converged outcome, only to see that agreement melt away,” Mackintosh said.

Mackintosh concluded his speech by saying: “Global standards are not only achievable, but an inevitable consequence of continued economic globalization. More than four-fifths of countries now mandate the use of IFRS, while momentum toward IFRS adoption continues in many of the remaining countries, as evidenced by recent developments in India, Japan, and Singapore. IFRS has become the de-facto global language of business, and over time, the IFRS map of the world will be complete.”

Click here to read Mackintosh’s speech.

Democrats push plan to harness tax inversions
Siobhan Hughes of the Wall Street Journal reported on Wednesday that Senate Democrats are acting on a vow to crack down on US companies that move overseas for tax purposes, outlining a proposal to make the economics of the practice less appealing.

The proposal from Senator Chuck Schumer (D-NY) would restrict the practice of earnings stripping, where US companies borrow money from overseas parents and deduct the interest expense on US taxes.

Hughes wrote that the plan, which could become part of a larger corporate inversions package, offers a sign Democrats who have been critical of a wave of corporate inversions are preparing to push legislation taking aim at the practice. The proposal could come up for Senate vote ahead of the midterm elections.

The New York senator's provision would change IRS rules on interest deductions, eliminating a provision that allows companies to have one-and-a-half times as much debt as equity while deducting all allowable interest costs, and put in place other restrictions.

It is believed that legislation addressing earnings stripping may stand the best chance of winning bipartisan support in Congress, Hughes noted. For example, Senator Chuck Grassley (R-IA), a senior lawmaker with an interest in tax matters, has worked on the issue in the past.

Obama won’t return money from tax deals he dislikes
In Wednesday’s “Bramwell’s Lunch Beat,” I featured a Bloomberg article from Richard Rubin and Annie Linskey on how some of President Obama’s biggest donors have also profited from offshore inversion deals that the president has widely criticized. In the article, a White House spokesperson didn’t comment on whether President Obama would return donations or stop soliciting contributions from people involved in deals that he has labeled as wrong.

Later yesterday, Rubin and Linskey updated their article after White House Deputy Press Secretary Eric Schultz responded to the earlier Bloomberg article, saying the president will keep the cash.

“We are not privy to the details and have no role in any individual company’s plans,” Schultz said on Wednesday at a briefing on Martha’s Vineyard where Obama is vacationing, according to the updated article. “But what the president is focused on is stopping the problem.”

Schultz added that there isn’t a double standard and that he would “understand the skepticism more if we weren’t doing something to tackle the problem.”

AbbVie-Shire deal still offers big tax savings without an inversion
Maureen Farrell of Wall Street Journal MoneyBeat wrote on Wednesday that according to a new research report from Barclays, AbbVie Inc. would still reap big tax savings from its $54 billion acquisition of Shire PLC even if the company is unable to take advantage of all the benefits of a new UK domicile.

Should its buyout of Shire close this year, AbbVie has the ability to slash its corporate tax rate from 22 percent to 13 percent simply by gaining access to Shire’s cash flow from its US operations, Barclays says.

AbbVie and Barclays’ analysts said the tax savings would be greater if AbbVie can take up Shire’s UK address for its headquarters. But, Farrell wrote, even if AbbVie opted to keep its headquarters is Illinois, it would generate roughly $500 million in annual tax savings, Barclays estimated.

That’s because AbbVie generates minimal cash flow in the United States, according to the article. Instead, like many pharmaceutical companies, it holds its cash in overseas subsidiaries and pays negligible taxes on it. US companies generally pay taxes only when they repatriate the funds or use them to fund US operations.

Tax savings to await Kinder Morgan deals
Kinder Morgan may be giving up the tax-advantaged partnerships that it popularized, but the pipeline giant is unlikely to pay more taxes itself soon. In fact, the Houston-based company says its $44 billion deal to consolidate four of its entities into one will generate about $20 billion in income tax savings over the next 14 years, Alison Sider of the Wall Street Journal reported on Wednesday.

In her article, Sider explained how this tax savings will work: “Now, Kinder Morgan's empire consists of four separate companies with overlapping management and interlocking-ownership interests. Two are master limited partnerships – publicly traded entities that have become popular in the energy industry because they pay no corporate income tax and distribute most of their cash to investors.

“An existing corporation, Kinder Morgan Inc., or KMI, is buying the other entities for a mix of cash and stock.

“The deal sets a new value for the pipelines and terminals that KMI is getting from the partnerships, based on the price it pays for them rather than their depreciated historical cost. This has the effect of increasing the value of the assets and enables Kinder to deduct more from its income taxes because of depreciation.”

The consolidation also translates into higher capital expenditures for Kinder Morgan, instead of being divided among the different partnerships, which will help cut its tax bill, according to the article.

Quick Links:

  • According to this, audit partner naming is no longer on the PCAOB’s to do list (Going Concern)
  • IASB vice chairman suggests adopting IFRS is the only solution to convergence failure (Going Concern)
  • IFRS 9 leaves much open to interpretation (Accountancy Age)
  • Accounting for America: Students helping small businesses (Wall Street Journal)
  • A tax on public schools (Wall Street Journal)
  • A takeover battle that may put tax inversions to the test (DealBook)
  • Can I invert myself and not pay taxes? (Reuters)
  • Corporate taxes aren’t corporate patriotism (USA Today)
  • To deter inversions, overhaul corporate taxes: Our view (USA Today)
  • Raise more money from corporations: Opposing view (USA Today)
  • The tale of two popular corporate tax dodges (CNBC)
  • Tax reform: You don’t care, and neither does DC (CNBC)
  • A carbon tax could eliminate tax inversions (CFO)
  • Another tax reform solution: taxing consumption (Washington Post)
  • Counterproductive tax policy isn’t “patriotic” (Denver Post)
  • The president’s inversion on taxes (Washington Times)
  • Guess who’s doing “God’s work” advising companies on how to avoid US taxes? (Quartz)
  • Walgreen Co. did the right thing, but most corporations won’t without a change in tax rules (Huffington Post)
  • Trending now: Inversions & hating them (Forbes)
  • Investor watch: Chiquita faces multiple offers and government scrutiny (Forbes)
  • Think before you post: The dangers of seeking tax advice on the Internet (Forbes)
  • Kinder Morgan deal ushers in a golden age of MLP investing (Forbes)
  • One Kinder MLP an after-tax loser in consolidation deal – Wells Fargo (Barron’s)
  • How ISIS is using taxes to build a terrorist state (Tax Analysts)
  • More bad news for taxpayers with undisclosed Swiss accounts (FATCA) (Due Diligence)
  • Illinois’ business tax burden? Not so bad, report says (Chicago Tribune)
  • School’s back. So are some, but not all, education tax breaks (Don’t Mess With Taxes)
  • Tax Court holds that disregarded entities may not be disregarded for charitable contribution valuation purposes (Tax Litigation Survey)

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