Bramwell’s Lunch Beat: Big Tax Breaks Lure High-Tech Data Centers to Iowaby
Foreign filers and XBRL reporting requirements
In a recent blog for research firm Audit Analytics, Liam Sullivan noted that as of June 15, 2011, all US Securities and Exchange Commission (SEC) registrants that use US Generally Accepted Accounting Principles (GAAP) as their accounting standard are required to file eXtensible Business Reporting Language (XBRL) statements.
In addition, foreign issuers using International Financial Reporting Standards (IFRS)/International Accounting Standards Board (IASB) as their basis of accounting are also technically required to include XBRL, though in this case it is a little more difficult, as no formal XBRL taxonomy has been approved by the SEC for use with IFRS/IASB. This, in practice, means that there is a de facto exemption for IFRS filers, at least until a taxonomy is accepted, Sullivan wrote.
But what percentage of international SEC registrants are following these new XBRL rules? Audit Analytics checked its audit opinion database to find all companies that filed a 20-F or 40-F with the SEC during calendar year 2013. According to its data, Audit Analytics found that 344 of 360 foreign filers (96 percent) using US GAAP included XBRL financial statements with their 2013 filings. Of those international filers using IFRS/IASB standards, only five of 413 (less than 2 percent) included XBRL. No filers using another accounting standard used XBRL at all.
“As we can see from this data, the phasing in of non-US GAAP filers is decidedly a work in progress,” Sullivan wrote. “We wonder how this relates to the long-discussed ‘convergence’ between US GAAP and IFRS. Given that convergence seems to be on indefinite hold at the moment, is it more or less likely that an XBRL taxonomy will be developed for IFRS filers?”
Why data centers collect big tax breaks
Facebook Inc. opened a new $300 million data center last Friday in Altoona, Iowa, a move that highlights the intense competition and lavish tax breaks available from small communities looking for technology bragging rights, wrote Shira Ovide and Mark Peters of the Wall Street Journal.
Nearly three times the size of the city’s sole Wal-Mart Supercenter, Facebook’s warehouse-like structure is packed with refrigerator-sized stacks of computer servers and thick coils of cables. That massive facility employs just 75 people to tend its equipment, the company said.
The Altoona facility was built on millions of dollars of tax breaks and about 18 months of negotiation, Ovide and Peters wrote. As Facebook hashed out terms with Iowa officials, the company dangled the possibility of choosing neighboring Nebraska as a data center site instead. But city officials offered a sweet deal.
Altoona agreed to provide Facebook a 20-year exemption on paying property taxes, and Iowa agreed to $18 million in sales-tax refunds or investment-tax credits through 2023, according to state documents. Facebook pledged to spend at least $300 million on the project and create at least 31 jobs paying $23.12 an hour or more. It has already begun construction of a second building just as large as the first.
Facebook isn’t Iowa’s first high-tech catch. Microsoft Corp. is spending nearly $2 billion on a data center nearby in West Des Moines. Google Inc. is expanding a facility less than 150 miles west in Council Bluffs, according to the article.
Dynamic scoring no magic elixir on tax policy, Hatch says
Richard Rubin of Bloombergwrote on Monday that budget rules that assume tax cuts will spur growth are no magic elixir to speed a revamp of the US tax code, said Sen. Orrin Hatch (R-UT), the next chairman of the Senate Finance Committee.
Hatch took a middle ground in a speech on so-called dynamic scoring yesterday, saying its use should be accelerated and refined without saying it should be the only method. Ignoring the effect of large tax changes on the broader economy is wrong, and Democrats who embraced such analysis of the Senate’s 2013 immigration bill should also embrace it for taxes, he added.
“For large proposed changes to government spending, provisions in the tax code, or policies with significant labor force or technology effects, static scoring is downright dumb,” Hatch said at the American Action Forum in Washington, according to the article. But he added that “we should not expect dynamic scoring to produce outsized miracles from either the supply side or the demand side.”
Using dynamic scoring could let Republicans assume that a revamped tax code would generate more growth and thus more revenue, Rubin wrote. Plowing that revenue back into the plan would let them cut tax rates without eliminating as many tax breaks.
Democrats typically oppose dynamic scoring on tax policy, warning of the uncertainties and noting that it requires many economic assumptions.
Seven big US companies paid CEOs more than Uncle Sam in 2013 – study
Kevin Drawbaugh of Reuterswrote that seven of the 30 largest US corporations paid more money to their CEOs last year than they paid in US federal income taxes, according to a study released on Tuesday that was disputed by at least one of the companies.
Amid talk in Washington about corporate tax reform, the report from the Institute for Policy Studies and the Center for Effective Government said the seven companies, which in 2013 reported more than $74 billion in combined US pre-tax profits, came out ahead on their taxes, gaining $1.9 billion more than they owed. Both Washington think tanks said the findings reflected “deep flaws in our corporate tax system,” Drawbaugh wrote.
The seven companies cited were Boeing Co., Ford Motor Co., Chevron Corp., Citigroup Inc., Verizon Communications Inc., JPMorgan Chase & Co., and General Motors Co.
In reply, Verizon said it paid $422 million in income taxes in 2013. “We do not provide a breakdown between federal vs. state in that total; however, I am confirming for you that the federal portion of that number is well more than Verizon's CEO's compensation,” a spokesman said in an email, according to the article.
Africa makes strides in corporate accounting, governance
Sub-Saharan Africa has long lagged behind the developed world in corporate-governance practices, but political and economic stability in countries like Ghana, Kenya, and Rwanda have had a halo effect on the region, Kimberly S. Johnson of the Wall Street Journal’s CFO Journalwrote on Monday.
Over the past five years, more of Africa’s companies have adopted IFRS to help draw global investors. Investment returns across the broader continent averaged 13 percent in 2012, according to consulting firm McKinsey & Co. And the International Monetary Fund expects economic growth in sub-Saharan Africa alone to reach 5.5 percent this year, up from last year’s 4.9 percent.
The risks, however, continue to make headlines, Johnson wrote. The Ebola outbreak in Liberia, Guinea, and Sierra Leone and a recent military takeover in Burkina Faso may make some potential investors skittish. And, despite a growing acceptance of anticorruption measures and international reporting standards, companies sometimes lack the accounting resources to meet stricter financial guidelines.
For investors, a major challenge is that the majority of the region’s companies are small or midsize, closely held, and family-run. Most have never had an outside investor or applied for a bank loan, according to the article.
Islamic finance body AAOIFI to discuss global accounting standards
Bernardo Vizcaino of Reutersreported on Monday that the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is engaging its counterpart in conventional finance to discuss the convergence of corporate accounting standards.
The move is a shift in approach by the AAOIFI, which has traditionally developed accounting standards separately from those of the London-based IASB.
Collaboration between the two bodies could reduce differences in accounting practices between Islamic and conventional finance, or at least uncertainty about the extent of the differences, Vizcaino wrote. This could help to reduce costs for banks and other companies.
The AAOIFI has invited IASB officials to its annual conference in Manama this week, a gathering of the industry's top sharia scholars and regulators, the AAOIFI conference agenda shows.
In response to the rapid growth of Islamic finance, the IASB set up a group to consult with the industry last year, but until now the AAOIFI has not become involved. Under a new secretary general appointed in September, the AAOIFI now appears to be taking a more proactive approach to the industry, revising a wide range of standards and declaring its intention to develop new ones, according to the article.
EY: Dealmaking on track for ‘blockbuster 2014’ as technology M&A soars
According to a new report from Big Four firm Ernst & Young (EY), global technology mergers and acquisitions’ (M&A) value and volume reached quarterly heights not seen since the dotcom bubble.
The aggregate value of all disclosed-value deals in the third quarter of 2014 was $73.7 billion, up 41 percent sequentially and 4 percent year-on-year. At 923 deals in total, overall volume also set a record for any quarter since 2000, rising 6 percent sequentially and 31 percent year-on-year, according to EY’s Global Technology M&A Update: July-September 2014.
Corporate dealmakers continued to drive the growth in the third quarter, particularly European and Asian buyers targeting US companies. Cross-border deal value soared 168 percent sequentially and 33 percent year-on-year to $32.7 billion after three consecutive declines. At 332 deals, cross-border volume was up 51 percent year-on-year and 7 percent sequentially. Overall, corporate dealmakers increased aggregate value by 40 percent sequentially and 9 percent year-on-year to $65.3 billion, and volume by 33 percent year-on-year to 855 deals, according to the report.
Volume in the Americas grew year-on-year, driven by the pervasive themes of cloud/software as a service and smart mobility, as well as big data analytics, heathcare IT, security, and payments. Companies in Europe, the Middle East, and Africa focused on driving growth by acquiring US companies, which pushed volume and value to record levels.
“Technology corporate development teams stand today at the intersection of rapid, disruptive innovation induced by the five technology megatrends and global economy uncertainty that has caused a sudden increase in equity markets volatility,” Jeff Liu, global technology industry transaction advisory services leader at EY, said in a written statement. “Megatrend-related innovation drove the strategic dealmaking that led to several technology M&A records in the third quarter of 2014, but prolonged volatility could slow or even stall M&A growth. We will keep a wary eye on volatility, but we are certain of this much: The innovation driving technology M&A growth is not slowing down.”
Coinciding with the report launch, EY also released its biannual technology sector Capital Confidence Barometer, which also points to a strong technology M&A outlook. Ninety-six percent of the 163 technology executives surveyed expressed confidence that the global economy is stable or improving. Moreover, according to the study, 83 percent of technology respondents expressed confidence in their own corporate earnings, well above the 77 percent average for all industries and a big jump from 64 percent in the April survey.
However, more telling were the M&A-specific results: 59 percent of technology respondents expect global M&A markets to improve in the next 12 months, and 40 percent expect M&A levels to remain at current levels. Moreover, the aggregate number of deals in respondents’ pipelines increased dramatically from April to October, up nearly four times to 890 deals from 230.
EY’s M&A report data show a blockbuster year taking shape. Deal volume has grown for five consecutive quarters, and year-to-date aggregate deal value of $192.7 billion is already higher than in any year after 2000. And while deals above $1 billion get the most attention (they increased 29 percent year to date to a total of $129.4 billion from $100 billion in 2013), deals valued below $1 billion have increased 54 percent to $63.3 billion from $41 billion for the same period in 2013, according to the report.
Plante Moran: Strong link found between culture and innovation-generated revenue
According to the results of a new survey from accounting firm Plante Moran, C-suite executives, especially those in manufacturing and professional service firms, say a positive culture is important for successful innovation and increased revenue because it supports one of the main drivers of innovation: employees.
“What we found at the highest levels is a group of organizations we refer to as ‘elite innovators,’” Plante Moran Managing Partner Gordon Krater said in a written statement. “Organizations in this tier saw revenue increase by 30 percent or more in the past one to three years due to innovation, which they cite as a vital component of survival. They also have the highest markers for a great corporate culture.”
For its 2014 Innovation Survey, the accounting firm asked more than 400 Midwest organizations whether culture was a catalyst for innovation. According to the survey, two factors, corporate strategy and employees with ideas, were defined as the top drivers of innovation by elite organizations. In contrast, those not in the top tier reported overall that the customer was the No. 1 driver of innovation.
Elite organizations acknowledge the customer is an important factor; however, they drive their innovation forward with a strong focus on corporate strategy and their employees. Specifically, these elite innovator organizations:
- Prioritize innovation strategy and leadership investment, with 60 percent having a research and development line item in their budget dedicated to innovation.
- Used professional advice for space planning and design to promote a collaborative and open work environment and “free-range office mentality,” with easy access to executives.
- Provide the tools, training, and programs needed to support innovation; individuals challenge existing notions and create leading-edge ideas when given opportunities to learn and grow.
The survey also found that 42 percent of elite organizations offer some form of incentive, such as recognition and monetary awards. When comparing this statistic with organizations that do not see increased revenue from innovation, only 13 percent offer employee incentives.
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