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Bramwell's Lunch Beat: Lease Planning, Cloud Conundrum, Tyco’s Tax Deals

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Jan 26th 2016
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About those off-book lease obligations
Finance chiefs have at least three years until they officially have to bring trillions in off-balance-sheet leases onto their company's books, but experts say they should already be preparing, wrote Maxwell Murphy of CFO Journal. The 100 public companies in the Fortune 500 with the most such obligations have a total of $539 billion in off-balance-sheet leases, according to a recent study from LeaseAccelerator Inc., a leasing-software firm. The lease accounting rule change is in the final stages and likely to be approved by the Financial Accounting Standards Board (FASB) this year. Most companies will have to begin preparing for lease accounting rule changes starting in 2017 because they will need to present two years of comparable books when reporting results under the new standard in 2019. Multinationals could have the trickiest task, evaluating leases across the globe, said LeaseAccelerator CEO Michael Keeler.

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Will new accounting rule slow adoption of cloud computing?
John Dix of Network World wrote that a recent FASB accounting rule change will make it harder to capitalize the cost of cloud setup and implementation expenses, which may encourage some enterprises to opt instead for traditional on-premise software. The Accounting Standards Update to Intangibles – Goodwill and Other – Internal-use Software (Subtopic 350-40) addresses “Customer's accounting for fees paid in a cloud-computing arrangement.” And while the update didn't set out to address how to account for cloud migration costs, the new rules, combined with the FASB's decision “not to provide additional guidance on the accounting for upfront costs,” will mean enterprise shops can no longer depreciate some fees involved in a cloud migration. Google Inc., one of many companies that commented on the suggested change before it went into effect on Dec. 15, 2015, said the shift will dampen interest in cloud-computing services.

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Obama adviser: Reform business tax code first
Congress and the White House should address the business tax code before tackling broader tax reform, President Obama's top economic adviser said on Tuesday, wrote Tom DiChristopher of CNBC. Jason Furman, chairman of the president's Council of Economic Advisers, told CNBC's Squawk Box he sees consensus on several critical issues: cutting the corporate tax rate, broadening the tax base, and reforming the international system so that it collects more revenue and makes American companies more competitive. “I think many Republicans would like to use business tax reform as a way to do a broader set of tax cuts,” particularly whether to cut taxes for high-income individuals, Furman said. “If you could set that broader set of tax cuts for high-income individuals aside, that's a completely different issue, a completely different debate. We could focus on the business system.”

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Tyco's long history of tax-driven deals
Maureen Farrell and Liz Hoffman of the Wall Street Journal wrote that at least four pieces of the Tyco empire – which was broken up after an accounting scandal that sent its former CEO, Dennis Kozlowski, to prison – have become major players in the recent surge in cross-border, tax-flavored M&A. The latest to join the club is Tyco International PLC, which on Monday agreed to sell itself to Johnson Controls in an inversion deal that will move Johnson Controls' tax base to Ireland, Tyco's legal home. Tyco's tax-savvy roots go back to 1997, when it moved to Bermuda by combining with ADT Ltd. in an inversion deal. At the time, Kozlowski said the deal was structured as a sale to smaller, Bermuda-based ADT to maintain ADT's low-tax status. As it has spun off businesses over the years, many of those offshoots took on Tyco's foreign domicile. The result is a crop of companies with Tyco DNA and a big advantage in dealmaking.

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Obama has plan to expand access to retirement accounts
President Obama will pitch some new proposals to expand access to retirement savings accounts and revisit some old ones when issuing his budget next month, wrote Kevin Freking of the Associated Press. The White House says Obama's proposals, if enacted, would provide more than 30 million people access to a retirement account. The biggest chunk of that increase would occur through legislation requiring employers that don't offer a retirement plan to automatically enroll their workers in an IRA. The employers that did so would get a tax credit of $3,000 to help them offset the administrative expense. The proposal was also part of last year's budget, but Congress did not pass it. On the new front, Labor Secretary Thomas Perez says the administration will seek to make it easier for multiple employers to join together to offer retirement plans. For small employers, that would mean lower administrative expenses.

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