International tax compliance for auditors and CFOs.

• Author: Collins, James G.
• Position: Chief financial officers

Any financial executive who has attempted to find his or her way through the labyrinth of the Code's international tax provisions likely knows that even the most trusted tax counselors often offer only inadequate guidance. Day-today operations are usually too vast--and their circumstances too involved--for an outside tax professional to assess them adequately. It is the financial executives (or the outside auditors) who know the operational details of a company and its transactions who must ultimately assess whether a company has exposure for underpaid international tax obligations. But these executives may not have enough of an international tax background to even realize there is a problem.

With the Obama administration planning to hire some 1,500 new international tax examiners, and current business conditions fraught with risk, an overlooked international tax exposure could very well put a medium-sized company's very viability in peril. So it is only prudent for financial executives to do a checkup, of sorts, of their companies' operations to ensure that there are no looming unidentified cross-border tax issues. This is especially true for companies large enough to have multinational operations but still small enough to be below the threshold of the Coordinated Examination Program that the IRS uses to audit large, publicly traded multinational corporations. With so many new international tax examiners on the IRS payroll, it is highly likely that many more medium-sized companies will find their transactions scrutinized by an international tax examiner.

A thorough review of every tax aspect of every cross-border transaction would consume hundreds of pages and require thousands of hours. Nevertheless, prudent CFOs and CEOs can exercise reasonable diligence to ensure that their business organizations have procedures in place to address some of the more common shortcomings in cross-border tax compliance. This item is intended to help CEOs and CFOs achieve that level of prudence. It addresses most of the routine tax compliance issues that larger medium-sized companies ($500 million or less in sales) are most likely to encounter, whether they are U.S. companies or the U.S. operations of foreign companies.

Particular attention is given to the type of international tax compliance traps that can blindside a CEO or CFO who has been lulled into a false sense that his or her foreign tax reporting obligations are under control; that false comfort sometimes comes to executives on the word of middle managers who simply do not know what they do not know. This article explains what should be contained in the "foreign" tab of what are often massive amounts of international tax detail and illustrates how executives or outside auditors may be signing off on information that can be catastrophically wrong.

For audit seniors and managers addressing the old Statement of Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes, and vetting tax positions for Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes (now mostly contained in FASB Accounting Standards Codification topic 740), as well as for tax specialists only somewhat familiar with international tax practice, completing...