US initials deal with China to curb offshore tax evasion
John D. McKinnon of the Wall Street Journalreported on Thursday that the US Treasury Department initialed an agreement with China to help implement the Foreign Account Tax Compliance Act (FATCA), a 2010 federal law aimed at curbing offshore tax evasion that goes into effect on July 1.
The two countries agreed on the terms, but are scrutinizing the fine print before officially signing it, McKinnon noted. The move helps the US government's effort to put the complex regulatory plan into practice while avoiding disruptions in commercial transactions with other major economies.
Chinese officials in the past have expressed concerns privately about the potential burdens of complying with FATCA. But the United States has used intergovernmental agreements to simplify compliance. The United States has signed or initialed agreements with about 80 countries, including almost all major economies, a senior Treasury official said, according to the article.
The United States and China entered into a type of reciprocal agreement that will give the US government information on US-owned financial accounts, and the United States in turn will provide banks information on Chinese residents’ US accounts.
[For some additional reading, check out an article from The Economist on why FATCA will do more harm than good.]
Where does Hertz go from here?
In a June 24 blog, Olga Usvyatsky of Audit Analytics wrote that there were signs of accounting trouble at Hertz long before the rental car company made its June 6 restatement announcement.
In all, of the numerous accounting and other risk red flags that Audit Analytics’ track, Hertz had six prior to the restatement announcement, four of which the research firm would classify as “critical.”
But perhaps the strongest warning was on May 13, when Hertz notified the US Securities and Exchange Commission (SEC) that it wouldn’t be able to file its quarterly report (known as Form 10-Q) on time. In the filing, Hertz wrote: “The company identified certain errors relating to prior periods which may require it to restate its previously issued financial statements for 2011.” Hertz further stated that it was evaluating some changes in its internal controls, hinting that its already disclosed (and priced-in) accounting troubles may be just the tip of an iceberg, Usvyatsky wrote.
“While an investor might have had reasons to disregard many of the flags, the May 13 NT 10-Q should have been a trigger to start taking measures to mitigate the risks related to potential accounting irregularities,” she noted. “Out of 2,219 late filings filed in 2014, only 87 cited resolution of accounting issues as a reason, making it a very good early red flag. Recent research has found that accounting-related delays to quarterly filings had the most severe negative market reactions. However, the filing had been largely overlooked by the market. Only the restatement announcement of June 6 caused a significant drop in the stock price.
“The lesson? Generally, by the time a restatement hits the market it’s already too late,” Usvyatsky continued. “But what should investors do now, when the effect of the restatement and any related legal actions have largely been priced in? The stock ratings, as usual, range from ‘buy’ to ‘sell,’ and any two analysts have at least four opinions.”
IRS chief: IG to address Lerner emails soon
During an appearance on CNN’s The Situation Room on Thursday, IRS Commissioner John Koskinen said he expects the Treasury Inspector General for Tax Administration (TIGTA) to weigh in on Lois Lerner’s missing emails in “the next few weeks,” Bernie Becker of The Hillreported.
Koskinen said the agency was cooperating fully with TIGTA, whose report on the agency’s improper scrutiny of Tea Party groups in May 2013 has helped spark more than a year’s worth of investigations.
The IRS controversy has since gained new life after the agency acknowledged that a computer crash left it unable to reproduce all of Lerner’s emails from 2009 to 2011. Republicans believe those emails are especially important to their investigation.
“I think the appropriate way to proceed is, let’s see what the IG finds out,” Koskinen said on CNN, according to the article. “I think we need to pull all of this together, see what we know, and proceed.” He also stressed that he had seen nothing so far to suggest that the loss of the emails amounted to a crime, Becker wrote.
Koskinen’s interview came just one day after House Ways and Means Committee Chairman Dave Camp (R-MI) charged that Lerner sought to audit Senator Chuck Grassley (R-IA) over an invitation from a nonprofit.
[For some additional reading, check out this Politicoarticle on another federal agency that has lost key emails.]
Big Four accounting firms oppose HK’s Occupy Central
Ned Levin and Chester Yung of the Wall Street Journalwrote on Friday that the Hong Kong affiliates of Ernst & Young LLP, PricewaterhouseCoopers, Deloitte LLP, and KPMG LLP published a half-page, Chinese-language advertisement in the local press voicing concerns about the Occupy Central movement.
The pro-democracy coalition calls for protests to paralyze the city’s financial district if an electoral proposal that the Hong Kong government is scheduled to release by the end of this year ignores the views of the city’s residents. Hong Kong’s chief executive is currently chosen by a 1,200-member committee composed largely of pro-Beijing organizations and business groups.
On June 20, Occupy Central kicked off a mock referendum, which has no legal standing, centering on whether residents should be able to directly nominate candidates for the city’s chief executive other than those approved by Beijing in 2017 elections, Levin and Yung wrote. The poll will end on Sunday.
The Big Four firms called for the issues to “be resolved through dialogue,” writing that civil disobedience in Central could hurt the city’s financial industry.
“We worry that multinational companies and investors might consider moving their regional headquarters from Hong Kong, or even remove their businesses, in the long term shaking Hong Kong from its position as an international financial and commercial center,” the firms wrote, according to the article. Spokespeople for the four firms confirmed that they jointly issued the advertisement and declined to comment further.
KPMG acquires boutique investment bank St. Charles Capital
KPMG Corporate Finance LLC, the advisory arm of KPMG LLP, is buying Denver-based boutique investment bank St. Charles Capital in a deal designed to bolster the firm's capabilities as an adviser on middle-market mergers and acquisitions (M&A), Gillian Tan of the Wall Street Journalwrote on Thursday.
St. Charles Capital advises companies in the technology, health care, energy, financial services, and diversified industrial sectors, according to the article. One of its most recent roles was advising oil-and-gas imagery provider Spatial Energy LLC on its acquisition by DigitalGlobe Inc.
Middle-market deals make up a big chunk of the overall M&A landscape. Despite the number of so-called megadeals, or those valued at more than $10 billion, the average value of deals so far this year is $218 million, according to Dealogic.
Click here to read the press release on the KPMG acquisition of St. Charles Capital.
Catherine Engelbert named chairman and CEO of Deloitte’s audit practice
Deloitte announced on Thursday that Catherine Engelbert has been named chairman and CEO of Deloitte & Touche LLP, the audit subsidiary of Deloitte LLP, to lead its audit practice. Engelbert succeeds Gregory Weaver, who will retire in the fall after a 41-year career with Deloitte.
“This recognition speaks volumes about Cathy’s exemplary skills, industry knowledge, and extensive experience. Her commitment to deliver audits of the highest quality and exceptional leadership abilities instill trust and confidence among her colleagues and clients alike,” Deloitte CEO Joseph Echevarria said in a written statement. “As the leader of our audit practice, Cathy will guide our efforts to innovate audit service delivery as we lead the profession to further strengthen the quality of financial reporting for the investing public.”
With almost 28 years of experience at Deloitte, including 16 years as a partner, Engelbert has held partner roles serving several of the world’s leading life sciences and pharmaceutical companies and advises multinational companies on financial instrument accounting matters. She is currently a member of the Deloitte LLP Board of Directors and serves on the board’s Strategic Investment and Finance and Audit committees, and previously served on the Risk and Regulatory and Government Relations committees.
“I am honored and excited to build upon Deloitte’s leading position in audit quality,” Engelbert said. “We will continue to invest in innovation to transform the audit process, with the goals of providing the highest quality audits and responding to the changing needs of the capital markets. We also will continue to engage with regulators, audit committees, corporate management, and investors to shape the future of the audit and advance the profession overall.”
World Cup at the UN mixes tax-free beer with diplomacy
Sangwon Yoon of Bloombergwrote on Friday that watching World Cup matches while drinking tax-free imported beer is an important part of diplomacy at the United Nations (UN).
Ambassadors from the Netherlands, Djibouti, and World Cup host Brazil created an “open-ended watching group” in the North Delegates’ Lounge – the bar and cafe in the UN Secretariat building – where diplomats, UN officials, and journalists can watch football 24 hours a day.
“If you look on average, diplomats work 12 to 14 hours a day, so if you take a two-hour break, it’s OK,” said Karel van Oostrom, the Dutch ambassador to the UN, according to the article. “It’s a collective effort where we think that supporting a national team is work.”
Bar manager Rudy Lasher said business has been good since he introduced $4 imported beers and $5 house wine specials, Yoon wrote. Drinks sold at the UN are cheaper than those bought outside its 18-acre campus in midtown Manhattan. As international territory, the Delegates’ Lounge is exempt from sales tax, which is 8.875 percent for food and beverages, according to New York City’s Department of Finance website.
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- Scott London talks about relationships, Rolex watches and how he hates that parking lot picture (Going Concern)
- Prison-bound KPMG ex-partner remorseful for insider tips (Wall Street Journal)
- Christie, Democratic lawmakers face off over tax increase in state budget (Wall Street Journal)
- Registration opens for two educational webinars on the GASB proposal on fair value measurement and application (GASB)
- Why Parmalat litigation v. Grant Thornton is like a 0-0 soccer game (Reuters)
- Same-sex couples need a good accountant more than ever (Time)
- Sorry, Harry Reid: Koch Industries probably pays a lot of corporate tax (New York Times)
- How Texans may see a property tax cut (New York Times)
- BNP Paribas expected to plead guilty and pay $8.9 billion fine (DealBook)
- IRS announces new tax preparer program to mixed reactions (Forbes)
- Tax competition reaches the liberal bastion of Washington, DC (Forbes)
- Close but no cigar: The politics of class, race, and taxes (TaxVox)
- Japan prices rise most since ’82 on tax, utility fees: Economy (Bloomberg)
- Assembly approves tax credits for aerospace industry (Los Angeles Times)
- California uses tax breaks to subsidize favored industries (Sacramento Bee)
- UK tax system errors mean 3.5 million unexpectedly owe (Don’t Mess With Taxes)
- Brazilian tax trouble for Ghana’s $3 billion soccer bonus? (Don’t Mess With Taxes)
- Conflict minerals: Stakeholder options for responsible sourcing are expanding, but more information on smelters is needed (GAO)
About Jason Bramwell
Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.