FIN 48 is an interpretation that was meant to provide clarity around certain aspects of FAS109, specifically, the computation and disclosure of Uncertain Tax Positions ("UTPs"). As such, FIN 48 is an integral part of FAS 109 and needs to be considered within the tax provision work flow. Under FIN 48, UTPs formerly computed under FAS 5 must now be reviewed under new standards for identification, probability, computation, and disclosure. Once this has been done, the results need to be fully integrated with the rest of the tax provision.
Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP.
Integration of UTPs with the current taxes payable account presents special challenges. Before FIN 48, tax reserves computed under FAS 5 were typically recorded in the current payable on the theory that the government could demand payment at any time. This meant that refunds and payments due with the filing of the return were co-mingled in the ending balances. Past FIN 48, these items are still included in the ending balances; however, the movement in the UTPs must be disclosed in a separate roll forward using the following prescribed categories: Beg Balance, PY Increase, PY Decrease, CY Increase, CY Decrease, Settlements Expiration.
Research demonstrated that most tax money benefited the middle classes and the rich, in short: those who need it least. Moreover, these strata of society were most likely to use tax planning to minimize their tax payments. They could afford to pay professionals to help them to pay less taxes because their income was augmented by transfers of tax money paid by the less affluent and by the less fortunate. The poor subsidized the tax planning of the rich, so that they could pay less taxes. No wonder that tax planning is regarded as the rich man's shot at tax evasion. The irony is that taxes were intended to lessen social polarity and friction - but they achieved exactly the opposite. In economies where taxes gobble up to 60% of the GDP (France, Germany, to name a few) - taxes became THE major economic disincentive. Why work for the taxman? Why finance the lavish lifestyle of numerous politicians and bloated bureaucracies through tax money? Why be a sucker when the rich and mighty play it safe?
The roll forward of UTPs within the current taxes payable may give rise to a cumulative translation adjustment where activity is recorded in local currency and is translated into a different reporting currency. A cumulative translation adjustment arises because the beginning and ending balances are recorded at the beginning and ending spot rates, and the activity is recorded at the rates used in the income statement for the period. In their presentation of the UTP roll forward, companies will have to decide the best presentation of this item; i.e. should the cumulative translation be combined with the activity columns or should it be separately stated. For calendar year filers, this disclosure is not required until the 4th quarter of 2007. The roll forward of UTPs now requires companies to clearly breakout increases and decreases due to changes in judgment and the expiration of statute of limitations, both of which are offset by charges to the current tax provision. Changes in tax rates can also have a signify-cant impact on the integration of UTPs into the tax provision.
The initial VAT legislation, usually close to standard international models, as time goes on tends to become both more complex and to some extent ad hoc in how it is actually applied. The structure of VAT becomes littered with privileges and exemptions that minimize its revenue impact and make it difficult to manage. Sometimes, once concessions enter the system, they have been subsequently enlarged surreptitiously without quick response from the tax administration, becoming in effect almost a "self- assessment" system without the necessary administrative systems and safeguards to support such a system. Concessions thus feed on themselves, encouraging taxpayers to lobby for still more concessions, just as tax amnesties create an incentive to defer payment in anticipation of future amnesties. Little assistance in coping with these complexities is offered in the way of taxpayer services. Nor is much done to guard against abuse, with most so-called VAT "audits" amounting to little more than simple numerical checks. Widespread base erosion facilitates both evasion and also, when taxpayers are subject to audit, corruption.
Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP.
Integration of UTPs with the current taxes payable account presents special challenges. Before FIN 48, tax reserves computed under FAS 5 were typically recorded in the current payable on the theory that the government could demand payment at any time. This meant that refunds and payments due with the filing of the return were co-mingled in the ending balances. Past FIN 48, these items are still included in the ending balances; however, the movement in the UTPs must be disclosed in a separate roll forward using the following prescribed categories: Beg Balance, PY Increase, PY Decrease, CY Increase, CY Decrease, Settlements Expiration.
Research demonstrated that most tax money benefited the middle classes and the rich, in short: those who need it least. Moreover, these strata of society were most likely to use tax planning to minimize their tax payments. They could afford to pay professionals to help them to pay less taxes because their income was augmented by transfers of tax money paid by the less affluent and by the less fortunate. The poor subsidized the tax planning of the rich, so that they could pay less taxes. No wonder that tax planning is regarded as the rich man's shot at tax evasion. The irony is that taxes were intended to lessen social polarity and friction - but they achieved exactly the opposite. In economies where taxes gobble up to 60% of the GDP (France, Germany, to name a few) - taxes became THE major economic disincentive. Why work for the taxman? Why finance the lavish lifestyle of numerous politicians and bloated bureaucracies through tax money? Why be a sucker when the rich and mighty play it safe?
The roll forward of UTPs within the current taxes payable may give rise to a cumulative translation adjustment where activity is recorded in local currency and is translated into a different reporting currency. A cumulative translation adjustment arises because the beginning and ending balances are recorded at the beginning and ending spot rates, and the activity is recorded at the rates used in the income statement for the period. In their presentation of the UTP roll forward, companies will have to decide the best presentation of this item; i.e. should the cumulative translation be combined with the activity columns or should it be separately stated. For calendar year filers, this disclosure is not required until the 4th quarter of 2007. The roll forward of UTPs now requires companies to clearly breakout increases and decreases due to changes in judgment and the expiration of statute of limitations, both of which are offset by charges to the current tax provision. Changes in tax rates can also have a signify-cant impact on the integration of UTPs into the tax provision.
The initial VAT legislation, usually close to standard international models, as time goes on tends to become both more complex and to some extent ad hoc in how it is actually applied. The structure of VAT becomes littered with privileges and exemptions that minimize its revenue impact and make it difficult to manage. Sometimes, once concessions enter the system, they have been subsequently enlarged surreptitiously without quick response from the tax administration, becoming in effect almost a "self- assessment" system without the necessary administrative systems and safeguards to support such a system. Concessions thus feed on themselves, encouraging taxpayers to lobby for still more concessions, just as tax amnesties create an incentive to defer payment in anticipation of future amnesties. Little assistance in coping with these complexities is offered in the way of taxpayer services. Nor is much done to guard against abuse, with most so-called VAT "audits" amounting to little more than simple numerical checks. Widespread base erosion facilitates both evasion and also, when taxpayers are subject to audit, corruption.
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