Guyana's tax laws and reporting requirements should determine multinational accounting for gains and losses

http://www.stabroeknews.com/index.pl/article?id=56522797

Guyana's tax laws and reporting requirements should determine
multinational accounting for gains and losses
Stabroek News
Tuesday, June 19th 2007

Dear Editor,

After reading Christopher Ram's article in Stabroek Business captioned
'DDL - A Reality Review' (2007-06-08) and R. Vansluytman's response in
a letter captioned 'Mr. Ram's Reality Review of DDL's accounts left
something to be desired' (07.06.08), I am convinced that the Guyana
Revenue Authority would have a challenge to reconcile financial and tax
accounting treatment of the tangled amounts of multinational
transactions in order to determine the true tax liability of DDL. It is
clear that from either a financial or tax accounting standpoint a high
standard and quality of reporting to the taxing authorities and the
Guyana Securities Council would be needed to serve shareholders' and
new investors', as well as government's, interests in a uniform, as
well as timely and reliable way.

Uniformity in reporting multiple entity, parent and subsidiary
transactions should be scheduled for both interim and final audited
statements for tax diligence and the public audit functions.

Published reporting standards for each class of transaction should be
identified by taxable income source (tax base), and the applicable tax
rate. In the interest of transparency and better governance, public
information gaps should be bridged. A public asset-ownership register
for intangible assets, such as trademarks and goodwill and tangible
assets, including a land register (the promised 'cadastral') should be
made available through the Guyana Securities Council or other
government agency. Book values and ownership and transfers of ownership
registers should be reported as benchmarks.

The range of transactions reported in both articles covering DDL
parent, its subsidiaries and their relationships include: Operating
profits ($1.984 billion), BEV Processors Inc. ($1/4 billion turn-around
in after-tax profits), National Rums of Jamaica ($1/4 billion loss
turnaround to $53 million profits), Trade Mark asset capital recovery
(2007-06-08, paragraph 9), Overseas Expenses and allocation issues
(2007-06-08, paragraph 10), Decipher and Solutions subsidiary (sale for
$3 million, asset cost and cost of sale not reported in both articles),
Parent plus subsidiaries with share of profits in 'associated company'
(41.938 million). The tax consequences of these transactions should
have a clear path in order for the company and the shareholders to pay
and the government to receive its share of taxes based on a correct
assessment of taxable income. Ram's article appears to deal with two
areas (1) financial reporting issues related to a timetable for
reporting and definitional issues of parent versus subsidiaries net
profit and (2) the assignment of income and the allocation of ordinary
and necessary current and capitalized expenses. It is in the second
area that I share his concern and would seek guidance from more
experienced counties' tax code, such as the USA in dealing with
multinational entities and their transactions.

Section US Internal Revenue Code (IRC) 482: The purpose of IRC section
482 is to ensure taxpayers clearly reflect income attributable to
controlled transactions and to prevent avoidance of taxes regarding
such transactions. IRC section 482 places a controlled taxpayer on a
tax parity with an uncontrolled taxpayer by determining true taxable
income.

To accomplish tax parity also with resident and non-resident firms, the
Tax Commissioner may allocate items of income or expense among
controlled taxpayers. These practices on internal adjustments following
public disclosure requirements and standards should work with
provisions under Guyana's international income tax laws.

IRC section 936: Transfer pricing issues: Transfer pricing and profit
split issues in uncontrolled foreign headquartered corporations,
conversions of section 936 foreign sourced income (in)to new controlled
foreign corporations and the like. Perform a Functional Analysis-A
functional analysis will typically identify and describe the functions
performed, assets used, and risks assumed by each party in a controlled
transaction. The taxpayer should provide documentation transfer pricing
methodologies and show how these are correlated with the local Tax Code
of the Commissioner of Taxes.

IRC section 263: Ordinary and necessary tangible and intangible
capitalization expenses such as the amounts paid to sell or transfer
properties and what amounts are capitalized in the value of tangible
and intangible assets.

In order for new investors to understand better the Guyana finance and
taxation environments, full disclosure should be the standard,
published in formats that help the public to understand and evaluate
potential gains and losses. This could build investor confidence,
knowing that the commissioner has a focused Tax Code that can assign
income and allocate expenses in order to determine true taxable income.

Guyana could be better off with a Tax Code for determining the tax
consequence of each transaction, using tax principles such as those for
dealing with multinational taxable income and their tax-liabilities to
government.

Yours faithfully,

Ganga Prasad Ramdas