January, 2017 | RKL LLP
Posted on: January 31st, 2017

OECD/G20 Base Erosion and Profit Shifting Project, Action 13: New Reporting Required for Multinationals

Action 13 is part of the Base Erosion and Profit Shifting initiative for large multinational entities. RKL’s tax team explains the reporting requirements. Not a week goes by without news of controversy surrounding the international corporate structure of a major U.S. firm, be it Apple, Starbucks or Amazon. Each company has come under scrutiny for placing rights to its intangible assets, such as trademarks and patents, in Ireland, Luxembourg or the Netherlands – countries with corporate tax rates significantly lower than the American levy of 35 percent.

A great deal of attention has also been paid to so-called inversion transactions, whereby a large U.S.-based multinational merges with a smaller competitor in a lower-tax jurisdiction and relocates its headquarters, and much of its profits, resulting in a lower tax bill but few changes to its operations.

As a way of identifying and combatting these strategies, member countries of the Organization for Economic Cooperation and Development (OECD) and the G20 have been working since February 2013 to implement a 15-point Action Plan to combat “base erosion and profit shifting” (BEPS). The information reporting required by Action 13 is one of the more urgent and impactful pieces of the BEPS initiative for large multinational entities (MNEs), in its initial phase generally applying to companies with consolidated revenues in excess of €750 million (U.S. $850 million).

What is Base Erosion and Profit Shifting Action 13?

There are three main components to the documentation requirements of Action 13: the master file (MF), local file (LF) and Country-by-Country Report (CbCR), with participation in each varying by member state.

  • MF: The master file is a collection of relevant information on a multinational group as a whole, including organizational structure, financial statements and descriptions of supply chain, as well as financing, intercompany services and intangibles strategies.
  • LF: The local file will include very similar information to the MF, but on a country-specific level for each jurisdiction where the company has a presence. The LF also must include a description of transfer pricing assumptions, agreements and methodology.
  • CbCR: The country-by-country report is made up of two tables of data, grouped by country and entity. The first is used to identify the main business activities of each entity. The second will reflect quantitative data by country including revenues, profit before tax, income tax paid and accrued, stated capital, accumulated earnings, number of employees and tangible assets. MNEs with a parent company based in the U.S. will prepare and submit Form 8975 with its federal return to satisfy this requirement.

Action 13 documentation may serve as a roadmap to audits for taxing authorities, so care should be taken to ensure that all three parts work together to tell the same story. Reporting data that appears inconsistent could invite increased scrutiny.

When do BEPS rules take effect?

Implementation of the rules are effective in most countries for fiscal years beginning on or after January 1, 2016 (July 1, 2016 in the U.S.). While due dates for preparation and/or submission of the three components vary by country (as early as May 2017 for China and the Netherlands), most are due by the tax return due date or one year from the end of the fiscal year in question. There is also an obligation to notify taxing authorities in each country which entity is the parent of the MNE, generally by December 31, 2016.

Is my company responsible for reporting?

The primary responsibility for reporting rests with the multinational entity’s parent company. The CbCR will be reported to the taxing authorities in its home country, then sent to other nations under to-be-completed information sharing agreements. In the U.S., a multinational parent’s filing of Form 8975 with its federal return will allow the IRS to share the data with the applicable member countries. For most jurisdictions the MF and LF are to be maintained, but only submitted to authorities upon request. Penalties apply for MNEs that fail to maintain the files as required. While the parent is ultimately responsible, significant coordination will be required by personnel at the local entity level to gather and document the information required for the MF, LF and CbCR.

RKL’s Tax Services team is available to help companies determine if and how BEPS Action 13 impacts their reporting obligations. Contact your RKL advisor or one of our local offices to get started.

David W. Achey, CPA, MST, Manager in RKL’s Tax Services GroupContributed by David W. Achey, CPA, MST, Manager in RKL’s Tax Services Group. Dave specializes in business tax services including combined reporting, multistate and international issues, as well as accounting for income taxes. He has extensive experience working with small and medium-sized businesses as well as multinational companies, serving clients in industries ranging from industrial manufacturing and transportation to consumer electronics and pharmaceuticals.

 

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Posted on: January 23rd, 2017

Attention Employers: New Version of Form I-9 in Effect

Business team standing in cubicle smilingForm I-9, Employment Eligibility Verification, is a familiar document to employers and hiring managers. In order to increase the ease of electronic completion and minimize reporting errors, the U.S. Citizen and Immigration Services (USCIS) issued a revised version of Form I-9, which took effect January 22, 2017. The new form expires on August 31, 2019, so employers must be sure to use the updated version moving forward.

Used to verify an individual’s identity and employment authorization, Form I-9 is an important enforcement tool for several federal immigration laws. All U.S. employers must ensure proper completion of Form I-9 for each individual they hire within the country. Though most employers are aware of and adhere to this requirement, the release of the updated Form I-9 is a chance to stress the importance of compliance and share tips for correct usage.

How to complete Form I-9

  • Form I-9 consists of four pages. The first three pages are to be completed by the employee and employer, and the fourth page provides a list of acceptable documentation to use for proof of identity. All documents used must be current and cannot be expired.
  • The employee must complete Section 1 of Form I-9, entering information in each box. If there are any areas that the information does not pertain to that particular employee, the employee must enter NA in any boxes that are left blank.
  • The employer is responsible for completing Section 2 of the document. Please note, at that the top each section the employee’s first, middle and last name from Section 1 must be completed.
  • It is also the responsibility of the individual who verified the documents to complete the Certification Section of the form.
  • Section 3 is the responsibility of the employer, when a rehired employee’s name has changed or when the noncitizen, nonresident documentation of a current employee expires during the course of employment.
  • Employers are not required to keep copies of the identification provided, however, if you choose to keep copies, copies must be kept for all Form I-9s on file.

Proper completion of Form I-9 allows employers to stay in compliance with federal requirements and avoid penalties or audits. Companies with questions about I-9 compliance or the new version of the form may contact Lindsey M. Heist at lheist@rklcpa.com or 717.394.5666.

Contributed by Lindsay M. Heist, Human Resources Consultant. Lindsay assists clients with a variety of HR projects and issues, including employee development, benefits/payroll and performance management. She has consulting experience across a wide variety of industries, including financial services, manufacturing, warehouse distribution, property management and nonprofits.  

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Posted on: January 17th, 2017

Data: Increasingly Important to Post-Acute Care Payments

Data: Increasingly Important to Post-Acute Care PaymentsThe financial landscape for post-acute care (PAC) providers is shifting, with alternative payment models steadily replacing traditional fee-for-service models. The transition started in 2015, when the Centers for Medicare & Medicaid Services (CMS) announced its intention to tie 30 percent of all Medicare payments to alternative payment models – a goal it reached one year ahead of schedule. Now, CMS is closing in on its second goal: 50 percent of payments transitioned by the end of 2018.

Data to support care outcomes

The traditional fee-for-service models are based on sheer volume; alternative payment models are based on the value and quality of care. The change from fee-for-service to alternative payment models could have a major impact on financial performance if PAC providers are not well-versed in the new models and their requirements.

This is where data comes into the conversation. The availability of comprehensive data will help PAC providers support their outcomes of care and translate quality of care into more dollars for providers.

One alternative: Bundled payment model

There are many alternative payment models out there, but let’s take a look at one for an example of how data is key to successful compensation. The bundled payment model, currently being tested by CMS, provides one payment for the range of services a patient receives during one episode of care that may occur at multiple settings. Bundled payment arrangements are incredibly dependent on highly supportive cost and outcomes data, because each provider will have to produce data to demonstrate the outcomes yielded by different points of care. Data will also be essential to determining the internal cost of providing different levels of care.

Financial leaders of PAC providers confronted with a bundled payment model must compile substantial data to support the care provided in their settings, with the goal of demonstrating favorable outcomes and reasonable costs. Data will also help ensure that payments are properly divided between providers in these payment models. It will require collaboration between the financial and clinical aspects of care to ensure that expenses and treatment are clearly outlined and supporting data are assembled. This will go a long way to help PAC providers get their fair share when payments are allocated.

Focus on improving health outcomes

The United States is higher in per capital health care spending than other developed nations like England, Germany and Japan, yet U.S. life expectancy trails many other nations by several years. While the shift to alternative payment models may not rectify this statistical disparity, a focus on improved care and reduced costs is definitely progress.

RKL’s Senior Living Consulting Group can help providers understand and prepare for the transition to alternative payment models. Contact one of our local offices today.

 

James M. Spencer, CPA, MBA, Manager in RKL’s Senior Living Services Consulting GroupContributed by James M. Spencer, CPA, MBA, Manager in RKL’s Senior Living Services Consulting Group. Jamie specializes in the preparation of financial models and analysis, including projections and forecasts, financial feasibility studies and transaction due diligence.

 

 

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Posted on: January 10th, 2017

Understanding Your Business Insurance Coverage

economic crisisBusiness insurance coverage can vary widely, so it can be challenging for owners and operators to decide how much or what is appropriate and necessary to protect their company from exposure to risk. Factors like coverage scope, type and cost are certainly important, but a key component of business insurance is a full understanding of what is covered and what is not. Far too often, however, this clarity around coverage is reached only after an insurance payout is less than expected or a claim is denied.

From coverage assumptions on the part of the business owner to confusion over policy terminology to fine print that is hard to read and harder to understand, there are many reasons why a business owner may ultimately feel disappointed by the final outcome of an insurance claim. Let’s take a look at one type of insurance in particular that often results in a disputed claim to help illustrate the challenges of managing business insurance coverage.

Disputed Claim Example: Business Interruption or Loss of Profits Coverage

Whether the insurance company refers to it as business interruption or loss of profits, this type of coverage is intended to provide financial support during a time when a business cannot operate as normal due to a covered incident like fire or water damage.

The tangible damage to the business, like ruined inventory, broken equipment or building damage, is covered under the property insurance policy. The business interruption or loss of profits claim, however, is calculated using the fixed costs incurred and profits lost while the business operation was out of commission. There are several factors that make this claim difficult to quantify:

  • Measurement of lost profit: The method by which lost profit is calculated is often times not clearly spelled out in the policy or is presented too simplistically. Many businesses see monthly net profits fluctuate, particularly when seasonal revenues are involved, so basing the lost profit calculation on historical earning trends will produce different results than a current snapshot of the profits at the time of the business interruption. The difference in these measurements is subjective and can be controversial.
  • Fixed vs. variable costs: In general, business interruption coverage applies to fixed costs but not variable, or avoidable, costs. This can create differences of opinion when the overall cost structure is reviewed line by line as to whether certain costs, like payroll or employee benefits, are fixed and therefore eligible to be included in the damage claim.
  • End date of the interruption period: Both the business owner and insurance company usually have a clear and agreed upon date on which the business interruption started. What is often less clear, however, is the date when that period ends. Standard policy language typically defines the interruption ending when “the damaged property is physically repaired and returned to operations under the same condition that existed prior to the disaster,” which is also a subjective matter.

Business Insurance Analysis Can Help Create Clarity

Given all the subjectivity and complexity involved with insurance coverage, what is a business owner to do? One surefire way to get a more comprehensive grasp on coverage is to conduct regular, periodic reviews of the overall business insurance program. Business owners should be sure to ask the following questions during their reviews:

  • What types of policies are in-force?
  • How much coverage does the business have?
  • When do the polices expire?
  • What premiums are being paid?
  • Is there a clear understanding of what each policy actually covers?
  • How would the insurance company quantify a covered claim?
  • Does the business have the necessary supporting documentation for claims?
  • Are coverages and policy limits adequate based on current and future business plans?
  • Based on our current and future business plans, are our coverages and policy limits adequate?
  • Are there any identified coverage gaps to consider filling?

 The importance of conducting a routine and thorough business insurance analysis cannot be understated. It helps business owners ensure their companies are adequately protected against the unexpected. Business owners don’t have to go it alone, however; a trusted business advisor like RKL can help with the review process. Contact your RKL professional or one of our local offices today for more information on this topic or for assistance reviewing your business insurance coverage.

John S. Stoner, CPA, CVAContributed by John S. Stoner, CPA, CVA, partner and leader of RKL’s Business Consulting Services Group in the Lancaster office. John provides a wide range of business consulting services, including business valuation, financial analysis, litigation support, merger/acquisition assistance and business succession planning to business clients.

 

 

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