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Bramwell’s Lunch Beat: Big Winners in SEC Audit Client Gains

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Oct 28th 2014
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Hungary waters down planned tax on Internet use
Margit Feher of the Wall Street Journalreported that Hungary’s government said on Monday it will soften its stance on a proposed tax on Internet access after tens of thousands protested the plan that initially saw a steep levy on every gigabyte of online traffic.

After protests in Budapest and other cities in Hungary over the weekend, the administration of Prime Minister Viktor Orban said it filed a new version of its tax proposal, capping the tax at 700 forints ($2.87) a month for each individual subscriber and 5,000 forints for businesses. Internet service providers rather than subscribers are to pay the tax, according to the bill. The original bill sent to parliament would slap a 150 forint tax for every gigabyte of Internet traffic.

The original Internet tax proposal sparked discontent, with protesters on Sunday saying the tax would reduce access to the Internet and limit free speech. The government said the demonstrations had been staged by the opposition, Feher wrote. Technology sector lobbies said attempts to increase taxes would weigh on growth.

“The new tax is unreasonable, absurd, and contradictory … forcing Hungary to U-turn on the road to digital development,” said the communications interest-coordination council HET, which comprises telecommunications firms, according to the article.

[In a Bloomberg Viewcolumn on Tuesday, Leonid Bershidsky defended Hungary’s Internet tax proposal, writing that the protests have more to do with Hungarians' fatigue with Prime Minister Orban's unorthodox approach to taxation. “Taxing information consumption is not such a crazy idea,” he wrote.]

Auditor changes roundup: Q3 2014
KPMG, BDO, and Grant Thornton were the big winners among the top 12 accounting firms when it comes to new US Securities and Exchange Commission (SEC) client gains. But perhaps the biggest story of the quarter comes from Midwestern firm KLJ & Associates, which managed to win an impressive 37 new clients in the third quarter, John Pakaluk of Audit Analytics wrote in an Oct. 23 blog.

With a net gain of five clients this past quarter, BDO now has a net increase of 19 clients for the year to go with the 57 net gain the firm had in 2013. With a net gain of six clients, KPMG had another strong quarter, as well. The Big Four firm is standing on a net gain of 21 SEC clients for the year. Grant Thornton is also having a good year, with 12 new clients overall, Pakaluk wrote.

KLJ & Associates’ net gain of 37 clients was largely due to its acquisition of Silberstein Ungar, which had a net “loss” of 42 clients, according to Audit Analytics.

[Back on Sept. 4 when the announcement was made that KLJ had acquired the client base of Silberstein Ungar, Kent Jensen, CPA, managing partner of KLJ, said, “This merger should enable us to move into the top 12 in the rankings of auditors of public companies, based on quantity of public company clients. Once the transition is completed, we expect to be one of the few audit firms with more than 100 public company clients. We look forward to working with our new partner and staff members and earning the trust of their clients.”]

Tax inversions succeed when government lawyers go private
In a midtown Manhattan auditorium, Hal Hicks addressed a roomful of peers on the tax-avoidance technique called inversion, in which a US company claims a foreign legal address.

Waving his hands back and forth as if tracing a pendulum’s swing, Hicks explained how four government attacks over three decades had failed to stop the practice, Zachary R. Mider of Bloombergwrote on Monday.

“There’s been lots of law thrown at these transactions,” Hicks said at the January session, according to the article.

Hicks ought to know. He was the one doing the throwing, during four years as a top government tax lawyer, Mider noted. Hicks then returned to private practice and helped set in motion a spree of inversions that a congressional panel estimates will cost at least $19.5 billion in lost tax revenue over the next decade.

“Hicks epitomizes the world of high-level Washington lawyers who have played a behind-the-scenes role in helping these tax-driven address changes proliferate,” Mider wrote. “Top federal tax officials, many of them career corporate lawyers, have sometimes closed loopholes only after companies slipped through them. And former officials like Hicks use skills and contacts honed in office to help companies legally outmaneuver the government.”

Offshore firms still get government contracts
Bernie Becker of The Hillwrote on Saturday that the US Treasury Department has spent millions of dollars on federal contracts for companies that have shifted their legal address abroad, even as the Obama administration pushes to rein in the practice.

Just last month, Treasury Secretary Jack Lew moved to limit the appeal of those tax deals, known as inversions, after Democrats sharply criticized a new wave of potential mergers in the heat of the midterm election season. Democratic lawmakers are also seeking to stop US companies that have moved offshore from getting federal contracts.

At the same time, the Treasury Department has paid out millions of dollars in contracts to some of the dozens of companies that have fled the United States in recent decades, Becker wrote. For example, the department gave roughly $4.8 million between 2012 and 2014 in contracts to Tyco, a security firm that went to Bermuda in 1997 and is now in Switzerland.

Aon has received more than $3 million from Treasury since it moved its headquarters to London in 2012, according to data from the Federal Procurement Data System. The insurance brokerage, which has received more than $16 million in contracts from Treasury since President Obama took office, is one of close to 50 companies to invert in just the last decade, according to the Congressional Research Service.

Treasury officials say that they follow all relevant contracting rules, Becker noted in the article.

Global accord to halt tax dodgers to be signed this week
Rainer Buergin of Bloombergreported on Monday that finance ministers from at least 37 countries will take the biggest step yet in fighting tax evasion at a conference this week hosted by Germany’s Wolfgang Schaeuble, German officials said.

Fifty states and jurisdictions are sending representatives to Berlin to sign an agreement on Oct. 29 on the automatic exchange of financial information to curb tax dodging, Finance Ministry Spokesman Martin Jaeger told reporters in Berlin.

The unambiguous, clear message of this conference will be that tax evasion isn’t worth it any more, that this is over now,” Jaeger said, according to the article. “This is an impressive example of international cooperation.”

Global moves toward fighting tax evasion have accelerated since the United States put the Foreign Account Tax Compliance Act into force in 2010, Buergin wrote. That tightened reporting requirements for non-US financial accounts and since then the initiative has spread across the globe, driven by the European Union’s five biggest economies, as financial crises sapped their tax revenue.

The signatories will agree to collect data from new accounts starting on Jan. 1, 2016, and exchange that information between tax authorities starting September 2017, Jaeger said. The automatic information exchange has the general backing of 65 states, including countries such as Singapore, according to the article.

San Francisco hails ‘Twitter tax break’ as rousing success
John Coté of the San Francisco Chroniclewrote on Monday that construction cranes and rattling power tools are visible evidence that the 2011 tax break designed to draw tech firms like Twitter to San Francisco’s long-neglected Mid-Market has attracted businesses.

Now there are numbers to bear that out: A report the San Francisco Controller’s Office released on Monday indicated the city brought in $7.6 million more in business tax revenue last year from the tax break zone than the area had generated before the incentive, while the city gave up only $4.2 million in waived tax revenue under the program in 2013.

Board of Supervisors President David Chiu pointed to that as a $3.4 million net gain for the city and evidence the incentive program – commonly known as the “Twitter tax break” – was “absolutely” worth it, Coté wrote. The tax deal, passed in 2011, gives a break on payroll taxes, including stock options, for six years to companies that grow in the Mid-Market or neighboring Tenderloin area.

For the city as a whole, the net benefit or loss of the tax break is more muddled. It depends on two things: whether the tax break prevented businesses from leaving the city and whether it prompted businesses to move into the tax zone that would have grown elsewhere in the city.

The 2013 tax figures also don’t include Twitter’s $25 billion initial public offering last year, however, and the cost of the tax break is likely to spike this year when Twitter’s stock sale is at least partially factored in, according to the article.

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