ameri resources


Need an office in metro Detroit, Alabama or Toronto? Office suites, meeting rooms, virtual offices, network access




free downloads
USA: "Digital factories: Industry 4.0 to unleash new highly efficient automotive manufacturing in th

USA: "Digital factories: Industry 4.0 to unleash new highly efficient automotive manufacturing in the U.S." report. 20-page report by Roland Berger.

proceed to download
eJournals





back to index backAMERItalk June,  2017


U.S. Tax Compliance Toughens for Intercompany Transactions

Many U.S. companies are still making the internal process changes needed to comply with the OECD's base erosion and profit shifting project.

As the new administration’s trade policies come into clearer focus, it is obvious that some changes are underway. Actions by the Trump administration could redirect trade flows and incite an all-out trade war. Retaliatory actions by foreign countries could alter the regulatory landscape, leading to a confusing array of new regulations with complicated tax and accounting obligations.

Many global businesses already strain to comply with complex rules governing cross-border intercompany transactions. Finance and accounting personnel must cope with local tax policies, currencies, and transfer pricing, as well as evolving global mandates requiring greater transparency and controls. If intercompany transactions are not accurately reconciled and eliminated, the out-of-balance accounts can have an adverse impact on the financial statements. Compelled to issue a restatement, the organization may incur steep SEC fines, a rash of shareholder lawsuits, and lingering reputational damage.

Rules in Flux

Many U.S. companies are still making the internal process changes needed to comply with BEPS (Base Erosion and Profit Shifting), developed by the OECD (Organization for Economic Cooperation and Development). They’re doing much of the same with respect to two evolving IRS rules, Sections 385 and 956.

The OECD launched BEPS in 2013 as a project to enable automatic sharing of company tax information on a country-by-country basis. The final report was issued in December 2016 and subsequently signed by 31 countries. The signatories are now in the process of taking steps to ratify the agreement according to local laws.

A key tenet of BEPS (Action 13) is to enhance the transparency of multinational enterprises’ business operations to make it easier for global tax administrations to conduct transfer-pricing risk assessments. These evaluations are needed to combat the rise in corporate tax avoidance strategies, whereby profits are shifted from jurisdictions with high taxes to those that have little or no taxes.

Compliance with BEPS requires businesses to capture and roll up the data points involving an intercompany transaction between two associated companies that file a consolidated tax return or financial statement. Information on the flow of capital from a parent to a subsidiary, a subsidiary to a parent, or a subsidiary to a subsidiary must be reported and filed in all relevant jurisdictions.

Compliance with BEPS is extremely challenging for finance and accounting personnel. To document, reconcile, net, and settle tens of thousands of intercompany transactions requires manually sifting through multiple, disconnected ERP and general ledger systems and applications. When questions arise, the staff relies on spreadsheets, phone calls, emails, and attachments to ensure proper, accurate, and documentable records for compliance purposes. Small wonder that 25% of companies expect to miss the BEPS deadline of Dec. 31, 2017.

Equally problematic are Sections 385 and 956 of the Internal Revenue Code. Section 956 (Subpart F) allows a controlled foreign corporation (CFC) of a U.S. multinational company to loan its earnings to the parent for use in paying dividends on a tax-deferred basis. Taxation occurs if the parent attempts to use the CFC’s earnings prior to paying a dividend.

In 2015, the rule was changed to provide a 30-day exception for short-term loans. If the loan is repaid within 30 days from the time it is incurred, the tax remains deferred. However the exception applies only if the CFC does not hold any debt obligations of the related entity for 60 days or more within the taxable year. If it exceeds this 60-day limit, the 30-day exception does not apply.

The new rule creates worrisome timing challenges. Finance and accounting personnel must be fully aware of the outstanding debt obligations and the associated aging of the debt. Tracking this activity via spreadsheets, emails, and phone calls is a substandard way to maintain compliance.

Section 385, which addresses the use of cross-border debt to reduce U.S. income for tax purposes, poses other administrative demands. In 2016, the rule was amended to allow the IRS to treat certain third-party debts as indebtedness in part, and as stock in part. Previously, the transaction was treated either as wholly stock or wholly debt.

Going forward, a company must document the commercial terms of the lending to receive IRS acknowledgement of the intercompany transaction as debt (and not equity). Otherwise, the “debt” cannot be treated as such for federal income tax purposes.

Companies can expect further compliance strains requiring added due diligence. To address growing intercompany documentation responsibilities, the associated tasks must be automated. Intercompany agreements can then be stored in a centralized database, affording clear visibility into the underlying details of each.

As the new administration takes steps that alter the global trade landscape, manually attending to the resulting changes in tax and accounting regulations is no way to maintain compliance.

Therese Tucker is CEO of financial automation software provider BlackLine.

Source: CFO - GAI



previous page

go top
search our site


Loading

AMERItalk

Other articles from the same issue (June,  2017).

The Future of High Tech Patent Litigation in the Auto Industry
play read on

UAW Focuses on Safety in Tesla Organizing Effort
play read on

Auto industry growth strategies: Fasten your seatbelts
play read on

Trade Policy in the First 100 Days: Implications for Automakers and Suppliers
play read on

Autos: North America Build Still Seen Above Expectations in Q2 2017 (download report)
play read on

Trucks: North America Rebound May Be Set to Slow (May 2017 download report)
play read on

New Materials/New Skills for Automotive Skilled Trades
play read on

Auto Dealers: Border Adjustment Tax Will Hurt Dealers and Customers
play read on

Report: 288,000 American Workers in 48 States are Building Technology for Cleaner Cars Today
play read on

Report: 'Clean Diesel' Cars Fade in US
play read on

Compliance Grows Up: Increasing Budgets and Board Access Point Toward Greater Prominence, Independence
play read on

"Shifting" Away From Hourly Pay ... Be Aware of Potential Pitfalls
play read on

Industry 4.0 and the digital twin
play read on

The 3-D Printer That Could Finally Change Manufacturing
play read on

Canadian manufacturing sector falling behind in digital production revolution, says BDC
play read on

What American Manufacturers Can Learn From Henry Ford
play read on

U.S. Supreme Court Limits Jurisdiction in Patent Cases
play read on

U.S. Tax Compliance Toughens for Intercompany Transactions
play read on

America’s declining mobility has millennials feeling stuck
play read on

Understanding the great potential of Chinese investment in the US
play read on

Americans Believe Manufacturing Industry Critical to Country’s Prosperity
play read on

Middle Market Manufacturers: Surprisingly Suited to Capitalize on IoT Advantages?
play read on

How tenant incentives are reshaping the U.S. office market
play read on

Email Outside of Working Hours Not a Burden to US Workers
play read on

TSA offers advice for passengers before summer travel season
play read on

Silver Tsunami Washing Over the U.S. Workforce
play read on

Lack of Workers, Not Work, Weighs on the Nation’s Economy
play read on

Corporate Tax Reform to Have Positive, Domino Effect on U.S. Industrial Economy
play read on

Failed Workplace Drug Tests Reach 12-Year High
play read on

TaxNewsFlash-United States
play read on

Tennessee DOR Explains New Law Permitting Manufacturing Companies to Elect Single Sales Factor Apportionment
play read on

NLRB: Nonunion Employees Do Not Have A Right To A Co-Worker’s Presence During Investigatory Interviews
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120