Session XIII-A

1
Session XIII-A

• Transfer Pricing and
• International Taxation

2
Goals of Intl Transfer Pricing

• Strategic goal congruence
• Preservation of local management discretion
• Minimization of built-in conflicts
• Taxes versus duties
• Local balance of payment status
• Inflation and politics

3
Transfer Pricing Issues

• Government regulations and restrictions
• Tax statutes
• Tariff and duty rates
• Currency restrictions
• Inflation rates
• Local motivation--see page 389

Typical issues not considered in Global Case.
4
T/P Approaches

• Market-based (recommended approach)
• Cost-based
• Negotiated rate
• Advanced pricing agreement
• General rule
• Variable cost plus opportunity cost

5
Why Market-Based?

• Legal ?
• Goal congruence ?
• Equity ?
• Simplicity ?

6
Tax Issues(Too complex to cover in depth)

• Territorial (local) versus worldwide approach
  (all)
• Classic (cash receipt) versus integrated (cash
  repatriation)
• Foreign tax credits and tax treaties
• Value-Added taxation (VAT)
• Deferred taxes due to timing of deductions (skim)
• Tax Incentives--page 407
• IRS Code Section 482key provision

7
Session XIII-B

• Auditing Issues

8
Internal/Operational Auditing Objectives

• S-C-O-R-E
• Safeguarding assets
• Compliance with laws and regulations
• Organization goal attainment
• Reliability of information
• Effectiveness and efficiency of operations

9
Current Governance Climate

• Shift to Board focus from Senior Mgmt. focus
• Global perspective
• FCPA-Foreign Corrupt Practices Act (1977)
• COSO-Treadway Commission Committee of Sponsoring
  Organizations (1987)
• IIA, FEI, IMA, AICPA, AAA

10
Other Influencing Factors

• Technology
• Increasing reliance on Operational Audit reports
• International complexities
• See list on page 427

11
Internal Audit Structure

• Independence is number one priority
• Solid line to the Audit Committee
• International organizational structure (6 models)
• Centralized
• Decentralized
• Resident staff and regional review
• Regional staff
• Resident staff and centralized review
• Resident staff, regional and centralized review
• Overkill!!!
• Outsourcing and co-sourcing
• 40 rule

Note advantages and disadvantages on page 431
12
Foreign Corrupt Practices Act

• Passed in 1977
• No bribery
• No influence peddling
• Facilitating payments are OK
• Influences action that must be taken anyway

13
Institute of Internal Auditors--IIA

• Established 1941
• Professional body for internal auditors
• Certification
• Literature
• Lobbying
• Training
• Code of ethics

14
External Auditors

• True and Fair View (TFV)
• EU base 4th directive
• Subject to cultural interpretation
• Presents Fairly
• More standardized meaning
• Independent audit environment--varies widely
• Brazil, Germany, Japan, Netherlands US

15
Other Audit Related Issues

• Harmonization of GAAS
• Same fundamental arguments as GAAP
• Driven by globalization of capital markets
• International Federation of Accountants-IFAC
• Worldwide equivalent of AICPA
• Practices, education, ethics
• Financial and managerial actg. concerns
• Also involves IT information
• Compliance is encouraged

16
Other Audit Related Issues, continued

• International Organization of Security
  Commissions-IOSCO
• Encourages free flow of capital
• European Union
• 8th directive covers statutory auditing