G-20 Fallout: French Banks Exit Tax Havens

An official at the French Banking Federation announced that French banks plan to close shut branches and subsidiaries in countries considered tax havens. France's banks intend to halt business activities in countries that remain on the OECD's so-called "gray list" at the end of March 2010.

The Organization for Economic Cooperation and Development advocates regulatory standards for global banking industry. It tracks countries that do not comply with the basic regulatory guidelines and publishes a "gray list" of countries that do not comply with international tax information exchange rules.

All French Banks will comply with this action. BNP Paribas earlier announced it will stop operating in countries considered tax havens after the bank indicated that it would close branches in Panama and the Bahamas.

Global hedge funds that operate in OECD non-compliant jurisdictions have an increased tax risk profile. Tax professionals need to assess the potential benefits derived from continued operations in these high risk domiciles with the rising compliance and tax risk factors these jurisdictions pose.

Sum2's IRS Audit Risk Program (IARP) helps tax professionals and compliance managers determine and score risk exposures of investment partnerships IRS Industry Focus Issues.

Click for more information on IARP.

Risk: compliance, regulatory, tax audit, reputation

A Taxing Situation

President Obama announced his intention to curb the use of offshore tax havens for multinational corporations. The Treasury Department is looking to raise tax revenues and believes that by closing the use of offshore tax shelters it will be able to raise over $200 bn over the next ten years. According to the New York Times, firms like Citibank, Morgan Stanley, GE and Proctor and Gamble utilize hundreds of these type structures to shelter revenue from being taxed by the IRS. It has effectively driven down the tax rates these companies pay and has been a key driver in maintaining corporate profitability.

This move should come as a surprise to no one. The Treasury Department needs to find sources of tax revenues to cover the massive spending programs necessitated by the credit crisis and the global economic meltdown. The TARP program designed to revitalize banks has expenditures that amounted to $700 bn. Amounts pledged for economic recovery through EESA, PPIP and ARRA will push Treasury Department expenditures targeting economic stimulus projects and programs to approximately $2 tn. These amounts are over and above routine federal budget expenditures that is running significant deficits as well.

The planned move by the Treasury Department to rewrite the tax code may be an intentional effort to close budget deficits but it also represents a significant rise in tax audit risk. For the past two years the IRS has been developing a practice strategy and organizational assets to more effectively enforce existing tax laws. Private sector expertise, practices and resource has significantly out gunned the IRS’s ability to detect and develop a regulatory comprehension of the tax implications of the sophisticated multidomiciled structured transactions flowing through highly stratified and dispersed corporate structures. The IRS is looking to level the playing field by adding to its arsenal of resources required to engage the high powered legal and accounting expertise that corporate entities employ.

The IRS has hired hundreds of new agents and has developed risk based audit assessment guidelines for field agents when examining corporations with sophisticated structures and business models. As such investment partnerships, global multinational corporations and companies utilizing offshore structures can expect to receive more attention from IRS examiners.

The IRS had developed Industry Focus Issues (IFI) to be used as an examination framework to guide audit engagements for sophisticated investment partnerships and Large and Mid-size Businesses (LSMB). The IFI for LSMB has developed three tiers of examination risk. Each tier has comprises about 12 examination issues that will help examiners focus attention of audit resource on areas the agency considers as high probability for non-compliance. Clearly the audit risk factors risk

To respond to this challenge, Sum2 developed an audit risk assessment program to assist CFO’s, tax managers, accountants and attorneys conduct a through IFI risk assessment. The IRS Audit Risk Program (IARP) is a mitigation and management tool designed to temper the threat of tax audit risk. A recent survey commissioned by Sum2 to measure industry awareness of IFI risk awareness indicated extremely low awareness of tax audit risk factors.

Sum2’s IARP helps corporate management and tax planners score exposure to each IFI risk factor. It allows risk managers to score the severity of each exposure, mitigation capabilities, mitigation initiatives required to address risk factor, responsible parties and mitigation expenses. The IARP allows corporate boards and company management to make informed decisions on tax exposure risk, audit remediation strategies, arbitration preparation and tax controversy defense preparation.

The IARP links to all pertinent IRS documentation and information on each tax statute and IFI audit tier. The IARP links to pertinent forms and allows for easy information retrieval and search capabilities of the vast IRS document libraries. The IARP also has links to FASB to have instant access to latest information on accounting and valuation treatments for structured instruments.

The IARP is the newest risk application in the Profit|Optimizer product series. The Profit|Optimizer is a enterprise risk management tool used by SME’s and industry service providers.

The IARP is available in two versions.

The IRS Audit Risk Program for investment partnerships (IARP)

Buy it on Amazon here: IARP

The Corporate Audit Risk Program (CARP)

Buy it on Amazon here: CARP

Sum2’s Audit Risk Survey results are here: IFI Audit Risk Survey

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Hedge Fund Audit Risk Survey: Interim Results

The IRS has developed a methodology to determine an audit risk profile for hedge funds, private equity firms, CTA’s RIAs and corporations using offshore structures.

Sum2 has commissioned a survey to determine financial services industry awareness and readiness for IRS audit risk factors. The survey seeks to determine industry awareness of IRS Industry Focus Issue (IFI) risk exposures for hedge funds, private equity firms, RIAs, CTAs and corporations using offshore structures.

The survey is open to fund management executives, corporate treasury, tax managers and industry service providers. CPAs, tax attorneys, compliance professions, administrators, custodians and prime brokers are also welcomed to participate in the study.

The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IFI audit risk.

Sum2 will share weekly interim results of the surveys findings. The survey will run for four weeks. This is the first weekly report.

Survey Highlights

• 62% of survey respondents are from North America
• 18% are from Great Brittan
• 16% are from other EU countries
• 4% are from Asia
• 50% of respondents who viewed survey begin survey
• 20% of respondents indicate an awareness of IFI
• 9% of respondents indicated that they initiated actions to address IFI
• 7% of respondents indicated that they have received action alerts from industry service providers concerning IFI
• 2% of respondents indicated that they plan to communicate impact of IFI to fund investors

Take the Survey

We invite you to participate in a survey to determine industry awareness of IRS Industry Focus Issue risk for hedge funds, private equity firms, RIAs, CTAs and offshore corporate structures.

The survey can be accessed here: IRS Audit Risk Survey for Hedge Funds

The survey is open to fund management executives and industry service providers to the industry. CPAs, tax attorneys, compliance professions, administrators, custodians, consultants and prime brokers are welcome to take the study.

The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IRS Industry Focus Issue risk. The goal of the survey is to help Sum2 better respond to the critical needs of fund managers and the alternative investment management industry by improving our just released IRS Audit Risk Program (IARP).

This survey asks ten questions. The questions concern your awareness of IFI and how it pertains to your fund or fund management practice. The survey seeks to determine overall industry risk awareness, potential exposure to IFI risk factors and any mitigation initiatives you plan to address IFI risk factors. It should take no more then 5 minutes to complete the questionnaire.

Your participation in this study is completely voluntary. There are no foreseeable risks associated with this project. However, if you feel uncomfortable answering any questions, you can withdraw from the survey at any point. It is very important for us to learn your opinions.

Your survey responses will be strictly confidential and data from this research will be reported only in the aggregate. Your information will be coded and will remain confidential.

If you have questions at any time about the survey or the procedures, you may contact Sum2 at 973.287.7535 or e-mail us at customer.service@sum2.com

Thank you for your participation.

Sum2 Product Announcement: IRS Audit Risk Tool for Hedge Funds

IRS Audit Risk Program (IARP) for Hedge Funds helps managers to determine IRS risk exposure to Tier I, II and III; IRS Industry Focus Issues (IFI).

The IARP is a threat management and scoring tool that helps managers ascertain level of audit risk for each IFI Tier risk factor. The IARP aggregates and groups overall IFI Tier risk exposures. Managers and fund advisers can then take considered action to mitigate tax exposure risk factors, prepare for tax audits and organize defensive responses for potential mediation, arbitration or litigation of tax audit disputes.

The IARP uses a scoring methodology to determine a funds exposure and level of preparedness to meet IFI audit risk factors. The IARP guides managers through a thorough IFI risk assessment. It helps managers formulate and initiate actions required to mitigate the threat of IFI risk exposures.

The IARP helps to identify and calculate expenses associated with mitigation initiatives. The IARP helps managers to assign mitigation responsibilities to staff members or service providers and tracks any open risk issues.

The IARP links to issue specific IRS resources and documentation that clearly outlines the risk factor, documentation and agency engagement guidance pertaining to the specific IFI risk factor. These critical tax compliance resources enable managers to determine the severity an IFI risk factor represents and helps to align corporate resources needed to address it.

The IARP is a necessity for hedge funds, private equity firms, CTAs, RIAs, global multinationals and corporations utilizing offshore structures. The IARP is a critical resource for CFOs, CCOs, CROs and internal corporate counsel. Corporate treasury executives that engage in innovative transactions, recognize unusual revenue sources and employ sophisticated tax strategies will benefit from the use of this product. CPA firms and corporate tax attorneys with a focus on financial services industry will find the IARP an indispensable risk discovery and client engagement tool.

The IARP is a vertical application of Sum2's Profit|Optimizer product series. The Profit|Optimizer is a C Level risk management tool that assists managers to uncover and mitigate business threats and discover opportunities to assure profitability and growth. The IARP product is available as an industry standard MS Excel© application and is delivered by digital download.

More information on our sound practice product suits can be found on our Sum2 website. Please visit our bog Credit Redi. We can always be reached by e-mail at customer.service@sum2.com or by phone 973.287.7535.

The IARP is available for purchase on Amazon.com.

A single user license can be purchased for $95.00.

The link can be found here: IARP for Hedge Funds.