OECD unveils plan for cross-border tax reporting

Cross-border portfolio investments are greater than $35 trillion globally, but the intended tax benefits are so difficult to claim that they often do not reach their intended targets. In response, the Organisation for Economic Cooperation and Development (OECD) has developed and approved a standardized system of relief meant to streamline processes, reduce costs and assure investors their rights, while also improving tax compliance.

The electronic system allows tax authorities to exchange information and financial institutions to report information to tax authorities. The new “Treaty Relief and Compliance Enhancement” system is based on eXtensible Markup Language (XML) technology. The United States and Canada are among the 34 countries in North and South America, Europe, Asia, Australia and New Zealand that participate in the OECD.

The135-page “Trace Implementation Package” adopted on January 23, 2013 by the OECD committee that developed it would allow authorized intermediaries to claim exemptions or reduced rates of withholding taxes on a pooled basis on behalf of their portfolio investor customers.  The package contains a complete set of tools and documents for intermediaries to begin using the system, although OECD acknowledges there are still some technology issues to resolve and, in some cases, participating countries may need to change certain domestic laws to enable intermediaries to participate. Learn more about this system at the OECD website and read the article “OECD Offers Plan for Cross-Border Investment Tax Woes” at Compliance Week online

Professional Ethics for CPAs in Business

“The AICPA Code of Conduct applies to all CPAs and the aftermath of accounting scandals has created new expectations and federal compliance issues. Those working in business face unique problems and are sometimes faced with ethical decisions that affect their only source of income.”

“The goal of this course is to promote ethical behavior and ethical reasoning and to give CPAs working in business the tools they need to resolve ethical dilemmas in compliance with the AICPA and government regulations. Case studies are the primary learning tool to allow participants to practice their ethical decision-making skills and their knowledge of AICPA rules.”

The AICPA course Professional Ethics for CPAs in Business is available for online access and as a CD-ROM. Choose the best format that best meets your self-study/on-site group study needs. In addition, review other available professional ethics research and guidance.

UK Supreme Court Blocks Tax Advisers' Legal Privilege

In the recent court case of Prudential plc v Special Commissioner of Income Tax, the United Kingdom’s Supreme Court decided that legal professional privilege (LPP) should not be extended to clients of non-legally qualified tax advisers, but that the matter should be looked at by Parliament.

LPP is a common law right that has developed over the past 400 years. In other cases, the English legal system requires full disclosure from a party of all the documents which they have which are relevant to the matters at issue, but the privilege is designed to ensure that any person can feel confident in seeking advice about their legal rights and obligations, and be reassured that any information they provide cannot be passed to a third party without their express consent.

LPP currently only applies to clients of lawyers, and also extends to any tax advice they provide – despite the fact that the majority of tax advice is now provided by chartered accountants. Confidential tax advice passing between the latter and their clients will now still have to be disclosed as part of any litigation. Extending the privilege, the Supreme Court held, would cause uncertainty over its scope and inconsistency in its application. That would be likely to lead to what is currently a clear and well understood principle becoming an unclear principle, involving uncertainty.

Read more about this court judgment in the article “UK Supreme Court Blocks Tax Advisers' Legal Privilege” by Jason Gorringe in Global Tax News online (London, January 2013). Tax-News.com is a daily worldwide tax news service with a 45,000 story archive that can be searched for free!

Sarbanes-Oxley and the Accounting Profession: Public Interest Implications

A recent research article notes that “The US accounting profession was caught up in, and some say responsible for, the whirlwind of accounting and business scandals that rocked the US markets in 2002. To restore investor confidence in financial information, the Sarbanes-Oxley Act created a new Public Company Accounting Oversight Board [PCAOB] with the authority to set standards for auditors of publicly-traded companies, thus ending a century of professional regulation of auditing.”

The research uses sociological theories of professionalism to help understand the implications of the Sarbanes-Oxley legislation for the accounting profession and for the public interest. It explains why professional self-regulation is important for retaining valuable economic franchises. It also explains why the public interest orientation of the profession is important and how government take-over of auditing standards potentially erodes the public accounting profession’s commitment to the public interest.

According to the article, self-control over professional work, a key characteristic of professional status, is pre-empted by the newly created government oversight body PCAOB. With government takeover of oversight of auditing practice, claims to professional status are weakened and professional commitment to, and involvement with, vital work standards may suffer. In addition, the profession may no longer have incentives to promote the public interest or to innovate and change in response to changing conditions.

The authors trace events leading up to Sarbanes-Oxley legislation and conclude that underlying problems arising from internal work differentiation as consulting work became more profitable and glamorous, and development of a commercially-oriented work culture may continue to threaten the profession in the future.

They speculate that the greatest costs may be opportunity costs as the profession no longer has the incentives or ability to innovate and embrace new forms of accountability. Learn more by reading the research article “Sarbanes-Oxley and the Accounting Profession: Public Interest Implications” by Sara Ann Reiter (1Binghamton University, Binghamton, USA) and Paul F. Williams (North Carolina State University, Raleigh, USA) in Open Journal of Accounting, 2013, Vol. 2, pages 8-15.

Good judgment requires discipline and awareness of traps and biases

It used to be that exercising good judgment largely meant "using common sense." But today, while common sense is still essential, exercising good judgment -- consistently -- in a business environment that is increasingly complex and dynamic, volatile and uncertain, and under high pressure requires a disciplined process. It also requires an understanding of common traps and biases, like "groupthink," that can undermine the judgments of even seasoned professionals and boards.

This article highlights the main recommendations in Enhancing Board Oversight: Avoiding Judgment Traps and Biases, a COSO paper co-authored by KPMG and Brigham Young University professors Steven M. Glover and Douglas F. Prawitt. The paper discusses the keys to a robust professional judgment process, including “where things can go wrong.” Read the article “Good Judgment Requires Discipline, Awareness of Traps and Biases” by Dennis T. Whalen and George Herrmann.