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April 7, 2016

As part of an ongoing Executive Roundtable Series, CBIZ MHM Memphis hosted a breakfast seminar last week focused on International Tax.  This session covered an array of international tax topics including proposed government regulations, outbound planning (hybrids, treaties, etc.), and base erosion & profit sharing (BEPS) reports.

With a room full of tax executives eager to gain knowledge on international tax trends, Don Reiser, Managing Director for CBIZ & MHM’s National Tax Office, began discussing the proposed Section 367(d) regulations and the effective government concerns and definition of tangible/intangible property.  Furthermore, Don educated attendees on the evolving permanent establishment (PE) issues as well as hybrid entity structures and multiple examples of offshore IP transfers.

In closing, Josh Finfrock, Director of Transfer Pricing for the Memphis Office, reviewed the impact of BEPS final reports as well as transfer pricing documentation and country-by-country reporting (CBCR).  Josh outlined in detail BEPS Action 13, which presents a 3-step approach to transfer pricing compliance including: a master file, local file, and CBCR details.

To attend one of our future seminars, join our mailing list by clicking here.  For questions regarding the topics and/or your company's international operations or practices, please contact Josh Finfrock at jfinfrock@cbiz.com or 901-685-5575.




March 4, 2016

Over the next six months, the Memphis office is focusing on different specialties and services by featuring a Q & A with one of our local experts each month.

Josh Finfrock serves as a Director and leads the transfer pricing practice for CBIZ & MHM Memphis.  Josh has significant experience providing guidance on the development of internal transfer pricing policies and on the development of planning and documentation strategies for multinational clients operating in various countries worldwide.

Not only does this series allow you to get to know Josh on a more personal level, but he also answers important questions like “What should be in consideration as you're doing business internationally?”  The conversation continues with Josh discussing the common issues he finds, consequences of companies not in compliance, and why it’s important for transfer pricing to be controlled and monitored.

More resources featured on Josh’s Conversation page include previously featured articles, a BizTip Transfer Pricing video, and information on the latest CBIZ MHM Executive Roundtable Series.

Read the full conversation by clicking here.




March 12, 2015

The Australian Taxation Office (“ATO”) recently published Practice Statement Law Administration (“PS LA”), online guidance for safe harbors regarding the simplification of transfer pricing record keeping. The PS LA explains the Australian Commissioner will not review a taxpayer’s transfer pricing records beyond confirming the taxpayer’s eligibility if certain safe harbor requirements are met.

The guidance provides safe harbors to the following:

Safe harbor conditions for Small (non-distribution) taxpayers:

  • Consolidated turnover is not greater than AUD 25 million; 
  • Has not incurred 3 or more consecutive years of losses;
  • Has no intercompany transactions with entities in “specified countries” (countries considered “high risk”);
  • Has not restructured in the year;
  • Has no intercompany transactions involving royalties, research and development, and license fees and arrangements;
  • Not classified as a distributor; and
  • No more than 15% of total turnover is comprised of “specified intercompany services” (services considered “high risk”).
  • Safe harbor conditions for Small-to-medium sized distributors:
  • Turnover for the distributor is no greater than AUD 50 million and has an operating margin of at least 3% on a 3-year basis;
  • Has no intercompany transactions with entities in “specified countries;”
  • Has not restructured in the year; and
  • Has no intercompany transactions involving royalties, research and development, and license fees and arrangements.

Safe harbor conditions for Low-risk intragroup services:

  • The markup on low-risk service revenue is at least 7.5% or the markup on low-risk service expense is no more than 7.5%; and
  • One of the following conditions is met: (1) No more than AUD 1 million of absolute intercompany services or (2) Greater than AUD 1 million of absolute intercompany services, with service expense comprising of no more than 15% of total expense and the service revenue comprising of no more than 15% of total revenue;
  • Has not incurred 3 or more consecutive years of losses;
  • Has no intercompany transactions with entities in “specified countries”;
  • Has not restructured in the year; and
  • No more than 15% of total turnover is comprised of “specified intercompany services.”

Safe harbor conditions for Low-level intragroup loans:

  • Australian group has a combined borrowed and loan amount of AUD 50 million or less;
  • The interest rate paid on the amounts borrowed is not more than the variable Reserve Bank of Australia indicator lending rate for “small business; variable; residential-secured; term loans”;
  • Has not incurred 3 or more consecutive years of losses;
  • Has no intercompany transactions with entities in “specified countries” (countries considered “high risk”); and
  • Has not restructured in the year.

However, there are certain limitations to the safe harbors. Any taxpayer paying or receiving royalties or license fees are excluded from the safe harbor. Furthermore, the distribution safe harbor applies to the whole group. Specifically, the whole group’s main activity must be classified as a distributor and the distribution segment cannot be segmented. Finally, safe harbor for interest only applies to inbound interest expenses (there is no safe harbor for outbound interest revenue).

If you have further questions regarding transfer pricing or safe harbors, feel free to contact our Transfer Pricing expert Josh Finfrock at jfinfrock@cbiz.com.




January 7, 2014

Shortly after the U.S. enacted its first federal tax (a customs duty), the Continental Congress created a drawback of that same tax in 1789 to promote trade and allow American companies to compete internationally. Today, the federal government collects more than $28 billion annually in customs tariffs, of which somewhere between $2 billion to $3 billion is available to be refunded under drawback.

Surprisingly, the U.S. Bureau of Customs and Border Protection (CBP) estimates that in any given year more than 70% of these monies go unclaimed and are eventually lost by companies. What is drawback?

 In its simplest form, drawback is a refund of duty paid on imported merchandise that is linked to an exportation (or destruction) of an article. For valid drawback claims, CBP refunds 99% of the value of duties paid at the time of import, retaining 1% to cover its costs of administering the program. Today, there are three categories of drawback: 1) manufacturing drawback, 2) unused merchandise drawback, and 3) rejected merchandise drawback.

How long does it take to receive a refund?

Drawback regulations provide for generous time periods to collect information, import/export documentation, and prepare and file refund claims. For example, recovery of import duties and fees for unused merchandise that is subsequently sent abroad is available when such goods are exported or destroyed within 3 years following import. Considering the multi-year window for claiming drawback after the export of the merchandise, a company new to the drawback program can potentially receive a significant duty recovery on its initial filing(s). Thereafter, duty refund claims can be filed in periodic installments based on import and export activity.

What are the steps required to receive drawback?

In addition to gathering import and export transaction documentation, authorization to operate under drawback is required, and detailed records of the company’s inventory flows must be maintained. For certain types of drawback, the claimant must select a drawback accounting method (e.g., FIFO, LIFO, Low-to-High) which does not necessarily have to match that used by the company for financial or tax purposes. Additionally, a notice of intent to export or destroy merchandise may be required prior to export or destruction, but in many cases, a waiver may be requested.

While there are many benefits to duty drawback beyond cash recovery, the initial and ongoing diligence required to maintain a compliant and effective drawback program can be challenging for some companies.

Considering the various types of drawback available and the advanced approval/ruling requirement, initial studies, such as a duty-refund opportunity identification exercise and operational feasibility analysis, are recommended. These efforts will help determine the amount of duties that may be available for recovery, the type of drawback that may apply to your company, and the process you need to follow to prepare for filing claims. The output of these efforts will provide you with 1) the proper insight for selecting the type of drawback that is right for your company and 2) help you to develop and implement the procedures necessary to operate a robust and compliant drawback program. This guest post was written by Mark Ludwig of Variant Advisors,* a corporate management consulting firm offering value-added services including export control compliance program development, reviews or assessments, and staff & management training.

For more information contact Mark at mludwig@variantadvisors.com or 305-213-8775. *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.      




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?




September 17, 2013

Today's post is co-authored by Managing Directors, Eustis Corrigan and Lloyd Grissinger. Together, they offer insight into the captive insurance segment of the insurance industry. Learn more about structuring your own risk financing, including the reasons companies choose to establish captive and the effects captive will have on your taxes. 

Organizations today have a wide variety of choices when structuring their risk financing arrangements. In the past 60 years, a significant portion of all U.S. commercial insurance premiums have moved from the traditional insurance market into the captive insurance segment of the insurance industry. From purchasing first dollar insurance to joining, or creating, a captive insurance company arrangement, the options available tend to favor a financially efficient model that matches the risk appetite.

What is a captive insurance company?

A captive insurance company is an organization formed to provide insurance coverage to their owners or affiliates (policyholders). Captives are established in specific geographic locations (both domestic and foreign) to take advantage of resident services and favorable regulations. It provides mid-sized companies the potential to create significant savings in its costs of insurance.

What are the reasons companies choose to establish a captive?

Choosing Captive

What are the typical captive programs?

  • Workers' Compensation
  • General Liability
  • Property
  • Professional Liability
  • Directors' & Officers' Liability
  • Credit Risk
  • Warranty
  • Other Enterprise Risks

What are the potential drawbacks of a captive?

  • Initial capital requirements and upfront fees
  • Underwriting losses
  • Reduced diversification

How does a captive affect my taxes?

For federal tax purposes a captive is oftentimes classified as a "C" corporation. The taxability of the earnings and profits of the captive for federal tax purposes will depend on the amount of premium income and investment income generated on an annual basis.

Clearly, deciding whether or not to utilize a captive is tricky. Becoming a captive participant may be profitable or fraught with an unacceptable degree of risk. Our National Captive Practice Group can help walk plan sponsors through the analytics so they can make an informed decision regarding whether or not to make the move to a captive. To read more about the risks and rewards of health care captives click here.

Learn more about how using captive structures can help you manage risk, reduce insurance costs and achieve your estate or succession planning goals. View the CBIZ SlideShare Presentation.




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.  




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