RSM International Conference, Singapore 2007 International Tax Chad Koebnick Head of International Tax, RSM McGladrey

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” Discussion topics –United States income tax accounting issues –FIN 48 –Tax preparer standards –Internal Revenue Code Section 6694 –Internal Revenue Service Circular 230

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” FIN 48 –The Financial Accounting Standards Board released an interpretation of Statement #109, Accounting for Income Taxes –This interpretation is known for its FASB Interpretation Number (FIN) 48. –FIN 48 Requires a more rigorous and methodical assessment of decisions for financial statement reporting purposes. –All US companies (public and private) are required to apply FIN 48 for fiscal years beginning after December 15, 2006.

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” The basic process –First step – Identify tax positions –Second step – recognition –Will “more likely than not” tax position will be sustained on exam by tax authorities? –“More likely than not” means that a tax position has a greater than 50% likelihood prevailing under examination. –All tax authorities are considered (i.e. foreign subsidiaries or enterprises included in U.S. financial reporting)

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” The basic process –Tax position that meets “more likely than not” recognition threshold – is then measured to determine the amount of benefit/decrease to liability to recognize on financial statements –Tax position that fails to meet “more likely than not” recognition threshold – expense/liability must be recognized

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” “International Topics present most significant challenges” –The most recent meeting of the Tax Executives Institute identified international tax issues as the most significant and difficult obstacles to FIN 48 compliance. –Lack of reporting integration is cited as the largest contributor to the obstacles. (RSM has had great success bridging this gap).

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” “International Topics present most significant challenges” –The most common international issues addressed include the following: –Transfer pricing –FIN 48 will require potentially large amount of work in identifying all relevant positions and carrying out recognition and measurement assessments –Even where adjustments can be taken into account, an assessment will need to be made to establish that there is not a material uncertain tax position

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” “International Topics present most significant challenges” –The most common international issues addressed include the following: –Permanent establishment –Treaty positions –Tax credits

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” FIN 48 –Once benefit of a tax position has been recognized, assessment cannot be changed unless: –The tax is settled by negotiation or litigation –The statute of limitations has expired or –There is a change in the more likely than not analysis

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” Transfer Pricing Setting aside FIN 48, risk of not preparing –Potential double taxation of intercompany income if the other jurisdiction will not allow a “mirror” adjustment –In addition, transfer pricing legislation almost always includes a provision for the imposition of significant penalties when adjustments are made to taxable profits following an audit

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” Transfer Pricing Opportunity from preparation and planning –Effective transfer pricing can help minimize global taxation –Transfer pricing planning can help shift income legally into lower tax jurisdictions –Adequate contemporaneous documentation of transfer pricing strategy and implementation can usually safeguard against the imposition of penalties

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” International Tax Minimization –United States Economic Data and anecdotal observation reveals more middle market businesses in the US are involved in global supply chain. –Our experience is that clients and prospects have great interest in world wide tax minimization utilizing the following tools: –Holding Companies –Transfer pricing –Cash management –Long-term tax deferral opportunities

RSM International Conference, Singapore 2007 International Tax – “Into the Fast Lane” Discussion and Group open forum –Experiences with cross border working groups –Regional groups –Types of services –Types of clients