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Bramwell’s Lunch Beat: Lease Accounting Talks Scheduled to Start Back Up Later This Week

Apr 21st 2014
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Clawback policies vary by company, industry: PwC
According to a report issued to clients by PwC on April 17, companies have instituted a wide range of so-called clawback policies – with no two exactly alike – in anticipation of new regulations, Maxwell Murphy, a senior editor for the Wall Street Journal’s CFO Journal, wrote last week.

The US Securities and Exchange Commission (SEC) was required by the Dodd-Frank Act to create rules on clawbacks. While it remains one of nearly half of the rules yet to be completed, many expect a proposal this year, Murphy reported.

PwC studied 100 large companies with clawback provisions from 2009 to 2012. The Big Four firm found 92 allowed a clawback following a restatement. Of those, about three-fourths required proof that the employee caused or contributed to the incorrect financial reports.

Also, 84 companies said misconduct spurs a clawback, while only 44 specified fraud and just 16 said negligence was a reason to come after an executive’s past pay. Triggers also range by industry, according to the report. More than 70 percent of energy companies have a fraud clause, while 13 percent of insurance companies do, Murphy wrote. Meanwhile, all the energy and health care companies warn executives about misconduct and excessive risk, but those were popular with just 63 percent of entertainment, media, and communications companies.

FASB, IASB plan to resume talks on lease accounting
The Financial Accounting Standards Board (FASB) will resume talks with the International Accounting Standards Board (IASB) on April 23 to see if the two standard-setters can come to some agreement on how to revise their joint standard on lease accounting, Tammy Whitehouse of Compliance Weekreported last week.

During the meeting, which is set to begin at 8 a.m. ET on Wednesday, the boards plan to focus on lease modifications – or accounting for changes to the contractual terms and conditions of a lease that were not part of the original terms and conditions – as well as contract combinations, such as when it is appropriate to combine two or more contracts when applying the lease guidance, the article stated. Also on the agenda, the boards plan to discuss which variable lease payments should be included in the initial measurement of lease assets and liabilities and when an entity might reassess variable lease payments that rely on an index or a rate.

The boards also plan to address in-substance fixed payments, or when a variable lease payment that is essentially a fixed payment should be included within the definition of lease payments, and whether and how to further clarify what constitutes such a payment. Finally, the boards will discuss the discount rate, especially how to determine it and when to reassess it, Whitehouse wrote.

The boards met in March to begin redeliberating their May 2013 proposal to bring all leases onto corporate balance sheets under a dual-model approach, but they differed on how to proceed.

SIFMA seeks delay for tax evasion law
Bernie Becker of The Hillreported on April 17 that the Securities Industry and Financial Markets Association (SIFMA) has asked the US Treasury Department and the IRS to give banks and other businesses six months of what it called “transitional relief” from the Foreign Account Tax Compliance Act (FATCA).

Passed in 2010, FATCA will force banks to disclose information about certain accounts held by Americans or face a withholding tax. The law, already delayed a couple of times, is set to go into effect on July 1, Becker noted.

But SIFMA said that time frame would not give banks and other businesses enough time to get ready, especially after Treasury dropped a new set of rules fewer than two months ago.

“It is simply not feasible in less than three full months for all of the impacted domestic and foreign financial institutions to complete detailed implementation plans, prepare written procedures, train personnel, educate clients, and develop and test the systems changes required for compliance with the voluminous changes issued this late in the process,” Payson Peabody, SIFMA’s managing director and tax counsel, wrote to Treasury and IRS officials, according to the article. “If banks and securities firms are not afforded sufficient time for an effective implementation of FATCA, SIFMA believes that adverse consequences could include severe disruptions to global and US financial markets.”

SIFMA’s proposed six-month delay would only be for businesses, and the law would continue to go live for individuals on July 1.

Property tax collections rising at fastest pace since US crash
William Selway of Bloombergreported today that cities – such as San Jose, California, Nashville, Tennessee, Houston, and Washington – have or are poised to set record revenues from real estate levies.

Local governments are using the money to hire police, increase salaries, and pave roads after the decline in property values and 18-month recession that ended in 2009 forced them to eliminate about 600,000 workers and pushed Detroit, Central Falls, Rhode Island, and three California cities into bankruptcy.

Selway noted that property tax collections nationally rose to $182.8 billion during the last three months of 2013, when much of the money is due, according to a US Census estimate last month. That topped the previous peak four years earlier, before the decline in housing values reduced revenue.

That increase helped boost collections for the year by 3 percent over 2012. That was the biggest gain since 2009, when revenue climbed 9 percent, according to the article.

In Slovakia, real lottery prize goes to tax man
Over the last 10 years, Slovakia’s revenue from value-added taxes, a type of sales tax, has declined. But hiring auditors and pursuing individual merchants and service providers in court is expensive and slow. So last fall, the government decided to put a lottery in the mix, Suzanne Daley and Raphael Minder of the New York Timeswrote on April 19.

The idea is to enlist average citizens to collect receipts from their purchases and register them with the government, creating a paper trail for transactions and forcing restaurant and shop owners to pay the sales taxes they owe, the article stated. As Slovakians register their receipts for the lottery, a computer will also tell them if a merchant has issued a receipt with a fake tax identification number, so they can report suspected fraud.

For any purchase worth more than 1 euro, or about $1.38, Slovakians can enter their receipts in a monthly lottery to win €10,000, a car, or a chance to be a contestant on the Slovakian version of The Price Is Right.

Tax officials say the lottery is already having a big impact, and other European countries that are also struggling with the collection of value-added taxes have considered it, including Portugal, which started its own tax lottery on Thursday. In Slovakia, about 450,000 people have taken part, registering about 60 million receipts, officials said.

[Click here for another article about the lottery in Slovakia from Forbes contributor Robert W. Wood.]

A flash tax for the Flash Boys
Michael Lewis spotlights high-frequency traders with his new book, Flash Boys. These traders use high-speed computers and fast connections to outrace investors, and other traders, to the market. They now account for more than half of all US stock trades.

In an April 18 blog on TaxVox, Tax Policy Center Senior Fellow Steven Rosenthal believes the SEC can, and should, regulate the worst abuses – and its absence is befuddling.

“But there is another possible solution: Tax high–frequency trades. The French already do it. With some modifications, so could we,” he wrote.

Quick Links:

  • What accounting firm logos say about those firms (Going Concern)
  • Tax Geek Tuesday: Tax planning for mergers and acquisitions, part 1 (Forbes)
  • Learning tax-strategy lessons the hard way (Forbes)
  • IRS targeting? How about coerced sex with IRS? (Forbes)
  • How to tax multinationals hiding behind the tree? Use the mighty US consumer (Forbes)
  • What tax documents should you keep? (US News and World Report)
  • Higher taxes on cigarettes make good sense (Washington Post)
  • $100,000 income: Three very different tax bills (CNNMoney)
  • Amazon’s tax-free European profits drop after IRS clamp-down (Reuters)
  • Florida residents will soon pay sales tax on Amazon goods (Wall Street Journal)
  • New tax risks for owning overseas assets (Wall Street Journal)
  • ‘Tax haven’ legislation is misguided, will make Maine even less competitive (Bangor Daily News)
  • To not nix pix, California must use tax trix (Los Angeles Times)
  • Some of VP Joe Biden’s Social Security is taxed. Is yours? (Don’t Mess With Taxes)
  • What’s Uncle Sam doing with our tax money? (Don’t Mess With Taxes)

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