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Bramwell’s Lunch Beat: Rules, Smules – More Inversions On the Way

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Oct 14th 2014
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Tesco suspends three more workers amid accounting probe
Tesco PLC, the largest UK supermarket chain, suspended three more employees amid a widening independent probe into a potential 250 million-pound ($400 million) overstatement of a profit estimate, Paul Jarvis of Bloombergreported on Tuesday.

The three have been asked to step aside to “facilitate the investigation,” spokesman Tom Hoskin said, without naming them, according to the article. It brings to eight the number of workers that have been relieved of their duties for the moment.

Tesco said on Sept. 22 that some income was booked before being earned and costs were recognized later than incurred, meaning that its 1.1 billion-pound projection for first-half operating profit was about 250 million pounds too high, Jarvis wrote. The grocer, whose shares have slid to an 11-year low amid falling sales and market share, called in Deloitte LLP and Freshfields Bruckhaus Deringer LLP to conduct an independent investigation.

Tesco will provide an update on the probe when it reports its delayed first-half earnings on Oct. 23, Hoskin said.

The grocer’s accounting error has attracted the attention of bodies, including the UK Financial Conduct Authority, which said this month that it is investigating. The Financial Reporting Council, a watchdog with powers to make companies restate their accounts, is also looking into the matter, according to the article.

Tax-lowering deals keep coming as Steris unfazed
Richard Rubin and Zachary R. Mider of Bloombergreported on Monday that the US government’s attempt to prevent companies from seeking a tax address outside the country hasn’t stopped Steris Corp.

The Mentor, Ohio-based provider of hospital sterilization products and services announced yesterday that it will buy the smaller Synergy Health PLC and establish the combined company’s tax address in the United Kingdom, even as senior executives remain in the United States. Steris’ effective tax rate will reach 25 percent, potentially saving the company about $13 million a year, according to calculations based on the two companies’ annual reports.

“We’re not typically users of aggressive tax policies, and I don’t think we are here,” Steris CEO Walter Rosebrough said on a conference call with analysts on Monday, according to the article. “So we’re not taking super-aggressive postures. We’re not using the number of techniques that the Treasury Department has described as things that they would naturally attack.”

The Steris-Synergy deal is the second announced since the Treasury Department last month detailed rules designed to make so-called inversions less attractive for companies.

The first company was Civeo Corp., a Houston-based owner of worker housing in Canada and Australia. The company said on Sept. 29 that it planned to change its tax address to Canada, Rubin and Mider wrote.

Swiss banker faces feds in historic tax evasion trial
Rachael Bade of Politicoreported on Tuesday that in what some call the most significant tax evasion trial in US history, the former No. 3 exec at Swiss banking giant UBS faces a Florida jury on charges he helped thousands of fat-cat American tax cheats hide billions.

The trial of Raoul Weil – whose five-year run from the feds ended in Italy last winter – is the first of a foreign banker of such a high rank. He maintains his innocence.

It will be the first public test of the investigative method that the US Justice Department has been building for years: catching and charging Swiss bankers, offering them deals and light sentences in return for cooperation – and a promise that someday they’ll spill the beans on their bosses, Bade wrote.

Weil’s former subordinates are expected to dish about how high up the tax secrecy went and turn on their old boss, who says he didn’t know of their illegal activities. In a rarity, several witnesses for his defense will testify via video, because they fear being arrested in the United States, according to court filings.

The US indicted Weil in 2008 around the time UBS entered into a deferred-prosecution deal and paid a $780 million settlement for courting Americans with promises of banking secrecy. The Swiss national was fired from the bank but landed a cushy financial consultancy job where he worked until his arrest in Italy last year, according to the article.

Draft US deal for Swiss banks in tax row seeks ‘total cooperation’: Paper
Alice Baghdjian of Reuterswrote that the Justice Department is seeking “total cooperation” from Swiss banks in a draft agreement aimed at allowing the banks to make amends for aiding tax evasion by wealthy Americans, a Swiss newspaper reported on Oct. 11.

About 100 Swiss banks signed up to work with US authorities at the end of last year in a program brokered by the Swiss government. That followed criminal investigations of roughly a dozen Swiss banks in the United States.

Under the program, so-called category two banks – those that have reason to believe they may have committed tax offences – will escape prosecution if they detail their wrongdoing with US clients and pay fines, Baghdjian wrote.

These banks have now received a draft nonprosecution agreement from the United States, which would require them to report in full to US authorities any information or knowledge of activity relating to US tax, the Neue Zuercher Zeitung (NZZ) said, citing unnamed banking sources.

These requirements would also apply to parent companies, subsidiaries, management, workers, and external advisors, the NZZ reported, according to the article.

IRS technical guidance roundup (week of Oct. 6)
The following technical guidance was released by the IRS last week:

Notice 2014-58 amplifies Notice 2010-62, 2010-40 I.R.B. 411, by providing additional guidance regarding the codification of the economic substance doctrine and the related penalties.

Notice 2014-59 announces the intention of the US Treasury Department and the IRS to amend certain provisions of the temporary regulations published under sections 1441, 1442, and 6049 of the Internal Revenue Code on March 6, 2014, to provide modified applicability dates with respect to: (i) the standards of knowledge applicable to a withholding certificate or documentary evidence to document a payee that is an entity under §1.1441-7(b); and (ii) the rules under §1.6049-5(c) providing the circumstances under which a withholding agent or payor may rely on documentary evidence provided by a payee instead of a withholding certificate to document the foreign status of the payee for purposes of chapters 3 and 61. Prior to the issuance of these amendments, taxpayers may rely on this notice regarding the modified applicability dates.

Notice 2014-61 provides guidance on the federal tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those tribes.

Notice 2014-62 provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates, and the 24-month average segment rates. In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I). The rates in this notice reflect the application of Section 430(h)(2)(C)(iv), which was added by the Moving Ahead for Progress in the 21st Century Act, Public Law 112-141 (MAP-21) and amended by section 2003 of the Highway and Transportation Funding Act of 2014, Public Law 113-159 (HATFA).

Fired PwC employee breached firm’s ethics in Comcast complaints
According to an article for the Silicon Valley Business Journal, Jason McCormick wrote on Monday that even after Comcast Corp. issued a public apology last week to Conal O’Rourke, an ex-accountant who lost his job at PricewaterhouseCoopers (PwC) after a dispute with Comcast over his home cable services, the Big Four accounting firm has stood by the termination.

PwC confirmed in a statement to the Silicon Valley Business Journal that an internal investigation concluded O’Rourke had violated the firm’s ethical standards and practices, and subsequently lost his employment there.

“Mr. O’Rourke was employed in one of our internal firm services offices,” said a PwC spokesperson in a prepared statement emailed on Monday to the Silicon Valley Business Journal, according to the article. “The firm has explicit policies regarding employee conduct; we train our people in those policies, and we enforce them. Mr. O’Rourke’s violation of these policies was the sole reason for his termination.”

Comcast reportedly told PwC that a person who had claimed to be an employee of the accounting firm had phoned the office of Comcast’s chief accounting executive, and shouted at an employee to assist him with his complaints about cable services and bills. O’Rourke seeks $100,312.50 in damages, along with reinstatement of his former employment, McCormick wrote.

Duff & Phelps publishes sixth annual US Goodwill Impairment Study
US companies recorded $21 billion of goodwill impairment in 2013, the lowest aggregate impairment amount since 2008 and a 59 percent decrease from the $51 billion reported in 2012, according to a new report from global valuation and corporate finance advisory firm Duff & Phelps.

The sixth annual US Goodwill Impairment Study was prepared and issued by Duff & Phelps in partnership with the Financial Executives Research Foundation.

The 2014 study, which was released on Tuesday, was compiled based on financial information reported for the 2009-13 calendar years by more than 5,100 companies, representing 92 percent of market capitalization for US-based publicly traded companies as of Dec. 31, 2013.

Key highlights from the 2014 study include:

  • The average impairment amount was $108 million in 2013. This represents a 50 percent decline from the prior-year average and approaches the low of $86 million in 2009.
  • The aggregate goodwill impairment amount was no longer dominated by the top three impairment events for the year. The concentration of goodwill impairments attributable to the three-largest impairment events declined from 47 percent in 2012 to 22 percent in 2013.
  • Fifty-two percent of the goodwill impairments were booked by three industries: materials, health care, and industrials. In contrast, last year’s report found that 67 percent of the goodwill impairment was concentrated in the IT, industrials, and healthcare sectors.
  • Industrials had the largest percentage of companies with impaired goodwill (7 percent), followed by IT and consumer discretionary (both at 6 percent).
  • Of the companies carrying goodwill, 8.6 percent recognized goodwill impairment in 2013, a decrease from 10.5 percent in 2012.
  • Use of Step 0 by public company respondents to an annual survey of Financial Executives International members increased to 43 percent from the 29 percent reported in the prior year’s survey. This was consistent with a Duff & Phelps independent Step 0 study of US public companies that found an increase in usage from 33 percent in 2012 to 41 percent in 2013.

“This year’s study found that aggregate impairment is at its lowest level since 2008, reflecting a stronger economy and higher market valuations overall,” Greg Franceschi, Duff & Phelps managing director and co-chairman of the American Institute of CPAs Impairment Task Force, said in a written statement. “While the Financial Accounting Standards Board continues to deliberate over the most appropriate model for goodwill accounting, it is notable that the use of the qualitative assessment option has increased over the prior year and that the majority of survey respondents that have applied Step 0 believe it has met its stated objective of reducing compliance costs while continuing to provide important and relevant information to users of financial statements.”

Quick Links:

  • Someone made a documentary about Lois Lerner and you can watch it tomorrow (Going Concern)
  • Center for Audit Quality managed to find some people confident in audits (Going Concern)
  • KPMG outs itself as firm that must address diversity imbalance (Accountancy Age)
  • Glenn M. Gelman & Associates appoints Warren Hennagin, CPA as new managing director (Glenn M. Gelman & Associates)
  • Some firms do just fine without a CFO (CFO Journal)
  • Bono: Controversial tax laws have brought Ireland the only prosperity it’s ever known (The Guardian)
  • EU to widen information-sharing to fight tax evasion (Wall Street Journal)
  • Survey shows Mexicans drinking less soda after tax (Wall Street Journal)
  • Ballot question targets indexing of gas tax (Associated Press)
  • Raise a mug to increased beer taxes? (Wilkes-Barre Times Leader)
  • Emanuel to raise tax on parking in garages (Chicago Tribune)
  • New York to offer debt backed by record tax receipts: Muni deals (Bloomberg)
  • Will your favorite tax break be restored? (Forbes)
  • Funding the fight against Ebola: Are taxes the answer? (Forbes)
  • Forget privacy – it’s time to tax miles, not gas (Tax Analysts)
  • Taxes account for a large part of cellular phone bills (Don’t Mess With Taxes)
  • Tax Court maintains jurisdiction over premature and erroneously sent determination letter (Tax Litigation Survey)
  • Tax Court clarifies ability to review frivolous ground submissions in CDP hearings (Tax Litigation Survey)
  • Internal Revenue Service selects Thomson Reuters for agency-wide legal, tax research solutions (Thomson Reuters)
  • Wolters Kluwer, CCH launches new CCH IntelliConnect Browser Search (Wolters Kluwer, CCH)
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