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December 12, 2013

News last week that two major U.S. companies had violated export control statutes should be warning enough to any business that the U.S. government is serious about enforcing cross-border trade laws and regulations.

In the first case, Weatherford International, a major energy industry company, and four of its subsidiaries were fined $100 million for export control and sanctions violations. The government found that executives, managers, or employees on multiple occasions participated in, directed, approved, and facilitated prohibited transactions and the conduct of its various subsidiaries. Specifically, the businesses had exported or re-exported oil and gas drilling equipment to, and conducted business operations in, sanctioned countries without the required U.S. Government authorizations between 1998 and 2007.

This news arrived almost simultaneously to that of another major company's export control problems. The former export compliance officer at Honeywell International, Inc. was administratively debarred from participating in any activities that are subject to the International Traffic in Arms Regulations (ITAR) for violations of the Arms Export Controls Act (AECA) and the ITAR. The company itself avoided sanctions by voluntarily disclosing the violations to the U.S. State Department’s Office of Defense Trade Controls Compliance. According to the government, the employee falsified export license authorizations which resulted in the company exporting defense articles, including technical data, and provided defense services to various foreign persons without Department approval in violation of the AECA and ITAR.

As these two cases demonstrate, the "we've got someone on top of that" and "it's not broke, so no need to fix" arguments do little to advance understanding and transparency in what is becoming an increasingly significant source of revenue for many U.S. companies: international operations. Understanding the obligations with which your company must comply under international trade and customs laws and regulations can be a burdensome task. If your company is involved in interactional sourcing, manufacturing and/or distribution activities, we’d be pleased to help. A few of our value-added services include export control compliance program development, reviews or assessments, and staff & management training.

For more information, please contact Mark Ludwig of Variant Advisors* at mludwig@variantadvisors.com or tel. 305-213-8775, or John Archer of CBIZ MHM LLC at jarcher@cbiz.com or tel. 305.503.4229. *Outside of the Big Four, and through its relationship with Variant Advisors, CBIZ is unique among other major national professional services firm by offering these value-added solutions.

October 8, 2013

According to a recent survey, tax executives have a growing concern over one thing - global transfer pricing. It ranked second in potential corporate tax risk, only behind U.S. tax legislation and regulation changes.

Josh Finfrock, Senior Manager in the Memphis office and transfer pricing expert, analyzes the results of the global survey and shares his insight on transfer pricing risks:

Since the economic downturn, tax authorities from both developed and developing economies are gaining sophistication as transfer pricing has become one of their highest priority issues in the prevention of tax base erosion. Tax executives are increasingly balancing global transfer pricing risk in an environment where tax authorities worldwide have shifted from not only viewing transfer pricing as a tax base erosion prevention issue, but also utilizing transfer pricing as an active tool to increase tax revenue. With the economics of government under ever increasing pressure, tax executives are forced to carefully assess and mitigate the global risk of double taxation resulting from aggressive transfer pricing adjustments.

The survey conducted included participants from 20 countries with over 300 senior tax executives from large public and private companies. You can read the full story on Accounting Today's website.

October 1, 2013

The Government of India's Central Board of Direct Taxes (CBDT) issued the finalized draft of India's safe harbor rules after considering comments made on its first version from various stakeholders.

Its draft, released in August, outlined the minimum acceptable operating margins for a variety of intercompany services and export of manufactured auto-parts as well as acceptable spreads in terms of basis points for financial transactions. With the intention to benefit India taxpayers, the finalized version revises the minimum acceptable operating margins and transaction amount ceilings. It also states that those who opt into the safe harbor can elect to use it for a period of one to five years, but nothing greater than five assessment years beginning from the 2013-14 year will be applicable.

A safe harbor essentially specifies a transfer price that taxpayers may elect as an alternative and thereby generates a greater level of certainty concerning their tax positions in a given country. Although a safe harbor relieves taxpayers from providing third party comparables, it is necessary for taxpayers to document a functional and risk profile analysis for the respective services provided. India specifies safe harbors for the following categories of intercompany services:

  • Software development services
  • Information technology enabled services (iTes)
  • Knowledge process outsourcing (KPO) services
  • Research and development (R&D) services wholly or partly related to software development
  • Research and development (R&D) services wholly or partly related to generic pharmaceutical drugs

In addition, it specifies safe harbors for the following financial transactions: advancing of intra-group loans to wholly owned subsidiary and providing corporate guarantee to wholly owned subsidiary. Lastly, it specifies safe harbors for manufacturing as follows: Manufacture and export of core and non-core auto components.

Although the CBDT's intention is to provide multinational corporations (MNCs) more certainty in their tax positions, these corporations may encounter an increase in scrutiny from other foreign income-tax authorities, as safe harbors are not necessarily considered arm's length prices on the corresponding side to any intercompany transactions with an India-based party affiliate. The CBDT's revisions to its draft safe harbor rates are certainly more appealing to taxpayers than its original proposal. However, the revised amounts are still considerably higher than the margins produced by third party comparables.

As a result, MNCs will need to assess the cost and benefits of opting into India's safe harbor policy, i.e. will the simplification of documentation, increased tax position certainty, and avoidance of audit controversy merit the potential increase in scrutiny from corresponding foreign tax jurisdictions?

August 15, 2013

Josh Finfrock, Manager in our Transfer Pricing division, gives insight into the best providers for your license, royalty or contractual data in the final post of this 3-part blog series.

Now that you are aware of the 3 sources you have readily available for your own license, royalty or contractual data search and understand the pros and cons to each, deciding on the best approach for your own business needs will vary based on your company or industry. Your selection will depend on the technical application, frequency of analyses and available budget (i.e. the fees for data access plus the time and expertise invested in selection, analysis and documentation).

Some examples of data providers include the following:

Legal Research Companies

  • Lexis Nexis
  • Westlaw

Royalty Agreement Database Companies

  • ktMINE
  • RoyaltySource
  • Royaltystat

Proprietary Databases

  • Big 4 Accounting Firms
  • Large Law Firms

Companies operating in industries subject to rapid technological advancement or high levels of R&D investment will require more current market contracts or agreements than available within proprietary databases. Determining an effective source for gathering data will most likely be based on the consideration of whether or not to devote fee and time resources to analysis and documentation or likewise to pay a premium for public data access (i.e. available via the SEC) that can be found elsewhere for a more reasonable cost.

August 8, 2013

Josh Finfrock, Manager in our Transfer Pricing division, gives insight into the best providers for your license, royalty or contractual data in part 2 of this 3-part blog series. 

Companies and consultants from around the world often rely on license, royalty or contract data from U.S. sources because of the readily available public company data due to filing requirements of the Securities and Exchange Commission (SEC). As discussed in our last blog post on license, royalty and contractual data, companies, attorneys and consultants regularly seek the best source to perform searches and analysis for their own business use.

Determining the 'best' source for your own data needs can be taxing, so learning each provider's advantages and disadvantages will be key in helping your search process.

Legal Research Companies

Pros - Low cost of access - Ability to access the full text & originally filed license, royalty or contractual agreement

Cons - Must be proficient in search mechanisms & "boolean" logic to effectively narrow down your search - Significant amount of time must be invested with no guarantee of finding relevant data

Royalty Agreement Database Companies

Pros - More manageable & relevant pool of data to review

Cons - May or may not generate relevant data or full contract detail - Fees often charged prior to user's ability to fully review an agreement or contract's terms - Fee charged merely provides access to a narrowed field of data - Potential limitations on time access or limitations on data pulls

Proprietary Databases

Pros - One-stop shop for data access, technical analysis and documentation of the analysis

Cons - Cost of analysis varies significantly from firm to firm - At a larger firm, data offered may be unavailable to the public however may not be as 'current'

Which source provides the best approach for your company or industry? Find out in our next blog post on how to select the best provider for your license royalty or contractual data.  

July 30, 2013

Josh Finfrock, Manager in our Transfer Pricing division, gives insight into the best providers for your license, royalty or contractual data in part 1 of this 3-part blog series.

Companies, attorneys and consultants regularly seek the best source for performing searches and analysis involving license, royalty or other contractual arrangements. This data is key to making business decisions, helping benchmark, value or document royalty rates, fees or certain terms involved in these agreements. If companies, attorneys or consultants lack internal contracts they perform searches to identify external agreements between unrelated market participants for their own application. Usually these "examples" are applied in various business planning, transfer pricing, valuation or litigation support analyses. In the U.S., many providers are available to provide various levels of data access and/or analysis for varying fees.

The following three sources may be considered for identifying relevant license, royalty or contractual data:

1.   Legal Research Companies

These sources offer screening tools, typically based on "boolean" search logic, to search through available public company filings for exhibits, annexes or appendices that may contain relevant license, royalty or contractual agreements.

2.   Royalty Agreement Database Companies

Offering various levels of pre-screened and summarized content sourced from public filings or journal articles, Royalty Agreement Database Companies sell varying scopes of data access to summaries of publicly available data.

3.   Proprietary Databases

Developed by CPA, Law or Valuation firms, proprietary databases leverage collections of contracts and agreements assimilated from prior analyses. They are not accessible for a fixed fee as they are typically tied with professional service fees for analysis and/or documentation.

Trying to decipher between sources? Learn about the advantages and disadvantages to all 3 in our next blog post on license, royalty and contract searches.


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