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The TJX Companies, Inc. Reports Q1 FY23 Results; Marmaxx Comp Store Sales Increased 3% TJX | May 18, 2022 Q1 FY23 GAAP pretax margin of 7.5% Q1 FY23 adjusted pretax margin of 9.4%, which excludes a 1.9 percentage point charge related to a write-down of the Company’s minority investment in Familia, was above the Company’s plans FY23 GAAP pretax margin outlook of 9.2% to 9.4%; increasing FY23 adjusted pretax margin outlook to 9.6% to 9.8% Q1 FY23 Marmaxx comp store sales increased 3% over a 12% open-only comp store sales increase last year Q1 Marmaxx comp increase driven by customer traffic Q1 FY23 U.S. comp store sales growth rounded down to flat over a 17% U.S. open-only comp store sales increase last year Q1 FY23 GAAP diluted earnings per share were $.49 Q1 FY23 adjusted diluted earnings per share of $.68, which excludes a $.19 charge related to a write-down of the Company’s minority investment in Familia, was above the Company’s plans Returned $907 million to shareholders in Q1 FY23 through share repurchases and dividends The TJX Companies, Inc. (NYSE: TJX), the leading off-price apparel and home fashions retailer in the U.S. and worldwide, today announced sales and operating results for the first quarter ended April 30, 2022. Net sales for the first quarter of Fiscal 2023 were $11.4 billion, an increase of 13% versus the first quarter of Fiscal 2022. U.S. comp store sales (defined below) growth rounded down to flat over a 17% increase in U.S. open-only comp store sales (defined below) in the first quarter of Fiscal 2022. Net income for the first quarter of Fiscal 2023 was $587 million, and GAAP diluted earnings per share were $.49 versus $.44 per share in the first quarter of Fiscal 2022. Excluding a charge of $.19 related to a write-down of the Company’s minority investment in Familia (see below), adjusted diluted earnings per share were $.68. CEO and President Comments Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc., stated, “I am very pleased with our first quarter performance. I want to recognize the continued commitment and dedication of our talented Associates who bring outstanding values on branded, quality merchandise to our customers every day. I am particularly pleased that our first quarter pretax profit margin and earnings per share, each on an adjusted basis, exceeded our plans even though our sales were slightly below our planned range. This underscores the power of our flexible, off-price business model when we execute well. For the full year, we see opportunity to further improve our profitability. I also want to highlight our largest division, Marmaxx, delivered a comp store sales increase of 3% over 12% open-only comp growth last year, which was driven by an increase in customer traffic. We believe our value proposition is as appealing as ever for consumers in today’s retail environment, and we are excited about our initiatives to drive customer traffic and sales. We remain focused on our long-term vision to become an increasingly profitable, $60-billion-plus company.” U.S. Comparable Store Sales and Open-Only Comparable Store Sales The Company’s U.S. comparable store sales by division in the first quarter of Fiscal 2023 and open-only comparable store sales by division in the first quarter of Fiscal 2022 were as follows: FY2023 U.S. Open-Only Marmaxx3 HomeGoods4 Total U.S.5 1Comparable store sales exclude e-commerce sites (tjmaxx.com, marshalls.com, homegoods.com, and sierra.com). 2This measure reports the sales increase or decrease of these stores for the days they were open in the first quarter of Fiscal 2022 against sales of those stores for the same days in Fiscal 2020, prior to the emergence of the COVID-19 global pandemic. 3Combination of T.J. Maxx, Marshalls, and Sierra stores. 4Combination of HomeGoods and Homesense stores. 5Combination of Marmaxx and HomeGoods divisions. Net Sales by Division The Company’s net sales by division in the first quarter of Fiscal 2023 were as follows: First Quarter Net Sales ($ in millions)1,2 Marmaxx (U.S.)3 HomeGoods (U.S.)4 Total U.S. 5 TJX Canada TJX International (Europe & Australia) TJX 1Net sales in TJX Canada and TJX International include the impact of foreign currency exchange rates. 2Figures may not foot due to rounding. 3Combination of T.J. Maxx, Marshalls, and Sierra stores, and tjmaxx.com, marshalls.com, and sierra.com e-commerce sites. 4Combination of HomeGoods and Homesense stores, and the homegoods.com e-commerce site. 5Combination of Marmaxx and HomeGoods divisions. For the first quarter of Fiscal 2023, the Company’s consolidated pretax profit margin was 7.5%. Excluding a 1.9 percentage point negative impact from a charge related to a write-down of the Company’s minority investment in Familia (see below), adjusted consolidated pretax margin was 9.4%, compared to 7.2% in the first quarter of Fiscal 2022. This increase was driven by a benefit from a reduction in COVID-related expenses and the annualization of temporary store closures internationally last year, the Company’s pricing initiative, and strong markon. These benefits were partially offset by approximately 2.2 percentage points of incremental freight pressure and approximately 0.7 percentage points of incremental wage pressure. Gross profit margin for the first quarter of Fiscal 2023 was 27.9%, a 0.2 percentage point decrease versus the first quarter of Fiscal 2022. Selling, general and administrative (SG&A) costs as a percent of sales for the first quarter of Fiscal 2023 were 18.4%, a 2.1 percentage point decrease versus the first quarter of Fiscal 2022. Total inventories as of April 30, 2022 were $7.0 billion, compared with $5.1 billion at the end of the first quarter of Fiscal 2022. Consolidated inventories on a per-store basis as of April 30, 2022, including the distribution centers, but excluding inventory in transit, the Company’s e-commerce sites, and Sierra stores, were up 35% on a reported basis (up 37% on a constant currency basis). Overall availability of quality, branded merchandise in the marketplace remains excellent. The Company is comfortable with its inventory levels, particularly in consideration of more normalized, pre-pandemic levels. The Company is confident it is well positioned to flow exciting merchandise to its stores and e-commerce sites throughout the summer season. Cash and Shareholder Distributions For the first quarter of Fiscal 2023, the Company used $634 million of operating cash flow due to timing of inventory purchases and related accounts payable. The Company ended the quarter with $4.3 billion of cash. During the first quarter, the Company returned a total of $907 million to shareholders. The Company repurchased a total of $600 million of TJX stock, retiring 9.5 million shares, and paid $307 million in shareholder dividends during the quarter. The Company continues to expect to repurchase approximately $2.25 to $2.50 billion of TJX stock in Fiscal 2023. The Company may adjust this amount up or down depending on various factors. In addition, the Company increased its dividend by 13% in the first quarter of Fiscal 2023. The Company remains committed to returning cash to its shareholders while continuing to invest in the business to support the near- and long-term growth of TJX. Commitment to Divest from Familia On March 3, 2022, the Company announced that it has committed to divesting its minority investment in Familia, an off-price retailer that operates in Russia, which it continued to hold at the end of the first quarter of Fiscal 2023. The Company has recorded an impairment charge of $217.6 million, representing the entirety of the Company’s investment. This impairment charge negatively impacted first quarter Fiscal 2023 earnings per share by $.19. Second Quarter, Full Year, and Second Half Fiscal 2023 Outlook For the start of the second quarter, the Company is pleased with its sales trends. For the second quarter of Fiscal 2023, the Company is planning U.S. comparable store sales to be down 1% to down 3% versus a 21% U.S. open-only comp store sales increase in the second quarter of Fiscal 2022. This comp sales guidance implies stronger 3-year stacked comp sales growth in the second quarter of Fiscal 2023 than in the first quarter of Fiscal 2023. (3-year stacked comp sales is the sum of the comparison of Fiscal 2023 U.S. comp store sales to Fiscal 2022 open-only comp store sales plus the comparison of Fiscal 2022 open-only comp store sales to Fiscal 2020 comp store sales.) For the second quarter of Fiscal 2023, the Company expects diluted earnings per share to be in the range of $.65 to $.69. For the full year Fiscal 2023, the Company now expects U.S. comparable store sales to be up 1% to 2% over a 17% U.S. open-only comp store sales increase in Fiscal 2022, which reflects the Company’s actual first quarter U.S. comp sales and second quarter U.S. comp sales plan. For the full year Fiscal 2023, the Company expects pretax margin in the range of 9.2% to 9.4% and is increasing its outlook for adjusted pretax margin to a range of 9.6% to 9.8%. The Company expects diluted earnings per share in the range of $2.94 to $3.01 and adjusted diluted earnings per share in the range of $3.13 to $3.20. Adjusted pretax margin and adjusted earnings per share plans exclude the negative impact from the charge related to a write-down of the Company’s minority investment in Familia. The Company’s full year Fiscal 2023 outlook implies a 4% to 5% U.S. comparable store sales increase in the second half of Fiscal 2023, over a 14% U.S. open-only comp store sales increase in the second half of Fiscal 2022. The Company’s full year Fiscal 2023 outlook also implies second half Fiscal 2023 pretax margin in the double-digit range. Stores by Concept During the first quarter ended April 30, 2022, the Company increased its store count by 26 stores to a total of 4,715 stores and increased square footage by 0.4% versus the previous quarter. Store Locations1 Gross Square Feet2 First Quarter FY2023 In the U.S.: T.J. Maxx In Europe: T.K. Maxx In Australia: 1Store counts above include both banners within a combo or a superstore. 2Square feet figures may not foot due to rounding. Fiscal 2023 U.S. Comparable Store Sales For Fiscal 2023, the Company returned to its historical definition of comparable store sales. While stores in the U.S. were open for all of Fiscal 2022, a significant number of stores in TJX Canada and TJX International (Europe and Australia) experienced COVID-related temporary store closures and government-mandated shopping restrictions during Fiscal 2022. Therefore, the Company cannot measure year-over-year comparable store sales with Fiscal 2022 in these geographies in a meaningful way. As a result, the comparable stores included in the Fiscal 2023 measure consist of U.S. stores only, which, for clarity, the Company refers to as U.S. comparable store sales and are calculated against sales for the comparable periods in Fiscal 2022. Fiscal 2022 Open-Only Comp Store Sales Due to the temporary closing of stores as a result of the COVID-19 global pandemic, the Company’s historical definition of comp store sales was not applicable in Fiscal 2022. In order to provide a performance indicator for its stores, the Company temporarily reported open-only comp store sales. The Company’s open-only comp store sales calculation includes stores initially classified as comp stores at the beginning of Fiscal 2021. This measure reports the sales increase or decrease of these stores for the days the stores were open in Fiscal 2022 against sales for the same days in Fiscal 2020, prior to the emergence of the global pandemic. Global Corporate Responsibility In the first quarter of Fiscal 2023, the Company announced four new environmental sustainability goals that expanded and accelerated the Company’s previous environmental commitments. These new goals further demonstrate the Company’s continued commitment to pursuing initiatives that are environmentally responsible and smart for business. As part of the Company’s global environmental sustainability efforts, the Company is aiming to: Achieve net zero greenhouse gas (GHG) emissions in its operations by 2040 Source 100% renewable energy in its operations by 2030 Divert 85% of its operational waste from landfill by 2027 Shift 100% of the packaging for products developed in-house by its product design team to be reusable, recyclable, or contain sustainable materials by 2030 More information about the Company’s environmental sustainability efforts, including progress toward its previously set global science-based GHG emissions reduction target, is available at www.tjx.com/responsibility/environment/. About The TJX Companies, Inc. The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of April 30, 2022, the end of the Company’s first quarter, the Company operated a total of 4,715 stores in nine countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and five e-commerce sites. These include 1,285 T.J. Maxx, 1,155 Marshalls, 859 HomeGoods, 60 Sierra, and 39 Homesense stores, as well as tjmaxx.com, marshalls.com, homegoods.com, and sierra.com, in the United States; 293 Winners, 148 HomeSense, and 106 Marshalls stores in Canada; 623 T.K. Maxx and 77 Homesense stores, as well as tkmaxx.com, in Europe; and 70 T.K. Maxx stores in Australia. TJX’s press releases and financial information are available at TJX.com. First Quarter Fiscal 2023 Earnings Conference Call At 11:00 a.m. ET today, Ernie Herrman, Chief Executive Officer and President of TJX, will hold a conference call to discuss the Company’s first quarter Fiscal 2023 results, operations, and business trends. A real-time webcast of the call will be available to the public at TJX.com. A replay of the call will also be available by dialing (866) 367-5577 (U.S. only) or (203) 369-0233 through Wednesday, May 25, 2022, or at TJX.com. Important Information at Website Archived versions of the Company’s conference calls are available in the Investors section of TJX.com after they are no longer available by telephone, as are reconciliations of non-GAAP financial measures to GAAP financial measures and other financial information. The Company routinely posts information that may be important to investors in the Investors section at TJX.com. The Company encourages investors to consult that section of its website regularly. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Various statements made in this release are forward-looking and involve a number of risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements, including, among others, statements regarding the Company’s anticipated operating and financial performance, business plans and prospects, dividends and share repurchases, and fiscal 2023 outlook. The following are some of the factors that could cause actual results to differ materially from the forward-looking statements: the ongoing COVID-19 pandemic and associated containment and remediation efforts; execution of buying strategy and inventory management; various marketing efforts; customer trends and preferences; competition; operational and business expansion; management of large size and scale; merchandise sourcing and transport; labor costs and workforce challenges; personnel recruitment, training and retention; data security and maintenance and development of information technology systems; corporate and retail banner reputation; cash flow; expanding international operations; fluctuations in quarterly operating results and market expectations; mergers, acquisitions, or business investments and divestitures, closings or business consolidations; real estate activities; inventory or asset loss; economic conditions and consumer spending; market instability; serious disruptions or catastrophic events; disproportionate impact of disruptions in the second half of the fiscal year; commodity availability and pricing; adverse or unseasonable weather; fluctuations in currency exchange rates; compliance with laws, regulations and orders and changes in laws, regulations and applicable accounting standards; outcomes of litigation, legal proceedings and other legal or regulatory matters; quality, safety and other issues with our merchandise; tax matters; and other factors that may be described in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized. The TJX Companies, Inc. and Consolidated Subsidiaries (In Thousands Except Per Share Amounts) Thirteen Weeks Ended April 30, May 1, Cost of sales, including buying and occupancy costs Impairment on equity investment Income before income taxes Cash dividends declared per share Weighted average common shares – diluted Condensed Balance Sheets Accounts receivable and other current assets Merchandise inventories Federal, state and foreign income taxes recoverable Net property at cost Operating lease right of use assets Liabilities and Shareholders' Equity: Accrued expenses and other current liabilities Current portion of operating lease liabilities Non-current deferred income taxes, net Long-term operating lease liabilities Condensed Statements of Cash Flows Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax provision (benefit) (Increase) in accounts receivable and other assets (Increase) in merchandise inventories (1,085.3) Decrease (increase) in income taxes recoverable (Decrease) in accounts payable (Decrease) increase in accrued expenses and other liabilities (Decrease) in net operating lease liabilities Other, net Net cash (used in) operating activities Property additions Purchase of investments Sales and maturities of investments Net cash (used in) investing activities Payments on debt Payments for repurchase of common stock Cash dividends paid Proceeds from issuance of common stock Net cash (used in) financing activities Effect of exchange rate changes on cash Net (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period Selected Information by Major Business Segment Net sales: In the United States: Marmaxx TJX International Total net sales Segment profit (loss): General corporate expense Notes to Consolidated Condensed Statements 1. During the first quarter ended April 30, 2022, the Company returned a total of $0.9 billion to shareholders. The Company repurchased and retired 9.5 million shares of its common stock at a cost of $0.6 billion on a "trade date" basis and paid $0.3 billion in shareholder dividends. In February 2022, the Company announced that the Board of Directors had approved a new stock repurchase program that authorizes the repurchase of up to an additional $3.0 billion of TJX common stock from time to time. TJX records the repurchase of its stock on a cash basis, and the amounts reflected in the financial statements may vary from the above amounts due to the timing of settlement of repurchases. 2. During the quarter ended April 30, 2022, the Company announced that it has committed to divesting its minority investment in Familia, an off-price retailer that operates in Russia, and as a result, the Company completed an impairment analysis of this investment. Based on this analysis, the Company concluded that there was an other-than-temporary impairment of this investment and recorded an impairment charge of $218 million, representing the entirety of the Company's investment. This charge had a $0.19 negative impact on diluted earnings per share for the first quarter of fiscal 2023. Asana Announces Appointment of GM, EMEA in Support of Regional Enterprise Growth Plans Consumer Optimism Remains Strong Despite Economic Headwinds, Per 2022 Holiday Spending Report...

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professional_accounting

Toggle SGML Header (+) (-) <ACCESSION-NUMBER>0000096223-19-000003 <TYPE>8-K <PUBLIC-DOCUMENT-COUNT>2 <PERIOD>20190110 <ITEMS>2.02 <FILING-DATE>20190110 <DATE-OF-FILING-DATE-CHANGE>20190110 <FILER> <COMPANY-DATA> <CONFORMED-NAME>Jefferies Financial Group Inc. <CIK>0000096223 <ASSIGNED-SIC>2011 <IRS-NUMBER>132615557 <STATE-OF-INCORPORATION>NY <FISCAL-YEAR-END>1231 </COMPANY-DATA> <FILING-VALUES> <FORM-TYPE>8-K <ACT>34 <FILE-NUMBER>001-05721 <FILM-NUMBER>19520466 </FILING-VALUES> <BUSINESS-ADDRESS> <STREET1>520 MADISON AVENUE <CITY>NEW YORK <STATE>NY <ZIP>10022 <PHONE>2124601900 </BUSINESS-ADDRESS> <MAIL-ADDRESS> </MAIL-ADDRESS> <FORMER-COMPANY> <FORMER-CONFORMED-NAME>LEUCADIA NATIONAL CORP <DATE-CHANGED>19920703 </FORMER-COMPANY> <FORMER-CONFORMED-NAME>TALCOTT NATIONAL CORP </FILER> Go to... Top Section 1: 8-K (JEFFERIES FINANCIAL GROUP 2018 FORM 8-K) Section 2: EX-99 (EXHIBIT 99 JFG PRESS RELEASE NOVEMBER 30, 2018) Section 1: 8-K (JEFFERIES FINANCIAL GROUP 2018 FORM 8-K) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): January 10, 2019 JEFFERIES FINANCIAL GROUP INC. (State or Other Jurisdiction of Incorporation) (Commission File Number) (Address of Principal Executive Offices) (Zip Code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company: o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Item 2.02. Results of Operations and Financial Condition On January 10, 2019, we issued a press release announcing financial results for the quarter and year ended November 30, 2018. Also included in that release are the financial results for the quarter and year ended November 30, 2018 of Jefferies Group LLC. A copy of the press release is attached hereto as Exhibit 99 and is incorporated herein by reference. The information provided in this Item 2.02, including Exhibit 99, is intended to be "furnished" and shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of the Exchange Act, except as expressly set forth by specific reference in such a filing. Item 9.01(d). Exhibits Exhibit No. Description 99 Press Release issued by Jefferies Financial Group Inc. on January 10, 2019 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. /s/ Teresa S. Gendron Teresa S. Gendron Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit No. Exhibit 99 Press Release dated January 10, 2019 Section 2: EX-99 (EXHIBIT 99 JFG PRESS RELEASE NOVEMBER 30, 2018) Jefferies Announces 2018 Financial Results New York, New York, January 10, 2019--Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the two and eleven month periods ended November 30, 2018, and the results of its principal operating subsidiary, Jefferies Group LLC, for the three and twelve month periods ended November 30, 2018. During the fourth quarter, Jefferies Financial Group changed its fiscal year end from December 31 to November 30, the same as Jefferies Group LLC, and thereby eliminated the financial reporting lag for Jefferies Group LLC, its largest subsidiary. Jefferies Financial Group's two and eleven month results include three and twelve month results, respectively, for Jefferies Group LLC, and two and eleven month results, respectively, for the balance of Jefferies Financial Group. Highlights for Jefferies Financial Group for the eleven months ended November 30, 2018: Net income attributable to Jefferies Financial Group common shareholders of $1.0 billion, or $2.90 per diluted share Pre-tax income from continuing and discontinued operations of $1.3 billion Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of $410 million Merchant Banking pre-tax income from continuing and discontinued operations of $1.1 billion, including pre-tax gains of $873 million and $222 million from the sales of 48% of National Beef and Garcadia, respectively, and an unrealized mark-to-market write-down of $419 million on our investment in Spectrum Brands (NYSE: SPB) Total income taxes from continuing and discontinued operations of $296 million, substantially all of which was offset by historic net operating loss carryforwards; at November 30, 2018, we continue to have approximately $1.1 billion in U.S. federal net operating loss carryforwards that may be used to offset future income tax liabilities Dividends paid of $0.45 per share Repurchase of 50 million shares, representing 13% of our fully diluted shares outstanding at the beginning of the year, for $1.1 billion, or an average price of $22.86 per share; when the share buyback is combined with dividends paid in the eleven month period of 2018, we returned to our shareholders an aggregate of $1.3 billion, or 17% of our tangible common shareholders' equity1 at the beginning of the year Additional $500 million share repurchase authorization approved today by the Board of Directors Fully diluted tangible equity per share2 increased by 22% from $20.48 at the beginning of the fiscal year to $24.90 at November 30 Even after the $1.3 billion we returned to shareholders and our $400 million of investments to expand Vitesse Energy Finance and Leucadia Asset Management, Jefferies Financial Group ended fiscal 2018 with an increase of $300 million in parent company liquidity, which now totals $1.6 billion Highlights for Jefferies Financial Group for the two months ended November 30, 2018: Net loss attributable to Jefferies Financial Group common shareholders of $20 million, or $0.06 per diluted share, including an unrealized mark-to-market write-down of $190 million on our investment in Spectrum Brands Pre-tax loss of $52 million Jefferies Group pre-tax income of $78 million Merchant Banking pre-tax loss of $109 million, as a result of the unrealized write-down of $190 million on Spectrum Brands and a $62 million reduction in the carrying value of the equity portion of our investment in FXCM, partially offset by an unrealized write-up of $71 million on our investment in WeWork (historical cost of $9 million; our valuation is based upon the valuation implied by the most recent round of financing, but materially discounted due to structural considerations) Repurchase of 23.9 million shares for $512 million, or an average price of $21.44 per share Highlights for Jefferies Group LLC for the twelve months ended November 30, 2018: Total Net Revenues of $3.2 billion Investment Banking Net Revenues of $1.9 billion (record advisory and equity capital markets fees) Total Equities and Fixed Income Net Revenues of $1.2 billion Earnings Before Income Taxes of $410 million Net Earnings of $159 million after Provisional Charge related to the Tax Cuts and Jobs Act (the "Tax Act") of $165 million, $113 million of which is non-cash; without this charge, Jefferies Group would have reported Adjusted Net Earnings of $324 million3, 4 Highlights for Jefferies Group LLC for the three months ended November 30, 2018: Total Net Revenues of $762 million Investment Banking Net Revenues of $522 million Total Equities and Fixed Income Net Revenues of $251 million Earnings Before Income Taxes of $78 million Net Earnings of $62 million Rich Handler, our CEO, and Brian Friedman, our President, said: "In our fiscal year ended November 30, 2018, Jefferies Financial Group recorded net income attributable to common shareholders of $1.0 billion, or $2.90 per diluted share, and paid $0.45 per share in dividends. Fully diluted tangible equity per share2 increased by 22% from $20.48 at the beginning of the fiscal year to $24.90 at November 30. "We recorded net revenues at Jefferies Group of almost $3.2 billion, pre-tax income of $410 million and adjusted return on tangible equity of 8.7%3. A solid first half of the year was offset by a slower second half, particularly a lighter than expected fourth quarter as the market turmoil dampened our trading results, as well as our performance in asset management. "Jefferies Group’s fourth quarter results reflect continued strong performance in Investment Banking. Our Investment Banking revenues for the fourth quarter were $522 million, compared to $452 million for the third quarter. "Over the last several years, our strategic priority has been to build further our fee-based and non-capital intensive Investment Banking platform. In 2016, our Investment Banking net revenues were $1.1 billion and represented 45% of our overall Jefferies Group net revenues. In 2018, our Investment Banking net revenues were $1.8 billion (on a comparable basis, excluding the impact of recent revenue recognition rule changes) and represented 58% of our overall Jefferies Group net revenues5. In 2018, we achieved record Advisory revenues of more than $800 million, record Equity Capital Markets revenue of more than $450 million and a strong performance in Leverage Finance. "Jefferies Finance, our corporate lending 50/50 joint venture with Mass Mutual, ended the year in a strong position in terms of risk exposure, having successfully syndicated all deals we brought to market during the year. Our commitments outstanding at year end were all of good quality, with terms consistent with current market conditions, and should be fully syndicated readily in the near-term. We remain vigilant in our underwriting process, while continuing to serve our clients and maintain our market position. "Our Sales and Trading results were weaker than recent periods as a result of the challenging environment, which persisted for much of the quarter. Equities revenues for the quarter were $164 million, versus $181 million for the same period last year. Fixed Income revenues were $87 million for the current quarter, compared to $101 million for last year's fourth quarter. Investors' risk appetite and activity levels fell during October and November, and negatively impacted our business. Notwithstanding this more subdued recent quarter, throughout 2018, our client-oriented Sales and Trading flow businesses continued to take market share, and invest in technology and talent. Noteworthy strong performances included: Global Electronic Equity Trading, Leveraged Credit and Prime Brokerage. "As mentioned, we transferred our 50% interest in Berkadia and our Leucadia Asset Management ("LAM") seed investments into Jefferies Group as of October 1, 2018 to amalgamate our primary financial services operating businesses into one platform. Berkadia continues to perform well. Jefferies Group's share of Berkadia's net profits for the two months was $20 million, which was reported through the 'Other' line within Jefferies Group's Capital Markets segment. This was offset by negative revenues of $34 million for the quarter in Asset Management, reflecting weak investment performance due to the significant declines in the equity markets and net interest expense associated with the capital utilized in LAM. "Jefferies Group's quarter end gross assets have remained at approximately $40 billion since the balance sheet de-leveraging and de-risking we undertook in late 2015 and early 2016. During the fourth quarter of 2015, we reduced our risk (as measured by average VaR) by 40% to $10 million. Average VaR for the fourth quarter of 2018 was also $10 million, after including the impact of adding the LAM interests. Maintaining these consistently lower levels of risk and balance sheet for the last few years has helped limit the downside during times of market stress. "Consistent with the theme of conservative risk levels, it’s worth noting that Jefferies Group's tangible leverage has declined to 9.0 times from 10.4 times in the third quarter 2018 due to retained earnings and the infusion of equity capital to support the Berkadia and asset management transfer. Excess liquidity remains at close to historic highs, with cash and highly liquid unencumbered securities representing 16.0% of total assets. Level 3 assets were $337 million at November 30, 2018 and remain at historic lows, representing only 7.7% of tangible equity and 2.1% of inventory. We have steadily reduced Level 3 assets since the end of 2015 when they were $542 million, or 15.1% of tangible equity and 3.3% of inventory. "Overall, Jefferies Group's competitive position and brand strengthened further over the course of the year. Several of our primary competitors continue to experience challenges, which may lead to further industry consolidation and create additional market share growth opportunities. We therefore believe Jefferies Group is poised for acceleration in our performance on the back of our continued investment in growing and developing our entire platform and, in particular, our investment banking effort, which represented 60% of Jefferies Group's 2018 net revenues. While our prospects are always subject to market forces, we continue to be focused on revenue growth and margin expansion across our business lines. "Our Merchant Banking fourth quarter results reflect continued strong performance from National Beef and Vitesse. Increased supply of cattle for National Beef was coupled with strong demand for beef, leading to a positive sales and margin environment. We recorded pre-tax income of $27 million for the two month period in respect of National Beef. Vitesse's April 2018 acquisition of non-operated assets has increased production; however, the majority of its pre-tax income of $36 million for the two month period represents the positive impact of our oil hedge portfolio. "Our fourth quarter results were negatively impacted by a $190 million mark-to-market decrease in the value of our investment in Spectrum Brands, which is in the midst of a transformation involving significant management, operational and strategic changes. As a result of these changes, Spectrum Brands will consist of a narrower portfolio of business units and should achieve better results with a stronger balance sheet. "We also recorded an impairment charge related to the equity component of our investment in FXCM, which is based on updated expectations that have been impacted by the recently revised regulations of the European Securities Market Authority and dampened operating results. Through November 30, 2018, we have received a cumulative $350 million in principal, interest and fees from our initial $279 million investment in FXCM, and continue to hold $68 million of principal balance outstanding on our loan, earning a coupon of 20.5%, and $75 million of equity value in the underlying business. Our fourth quarter results also include a $71 million positive fair value adjustment for our investment in WeWork. Our historical cost of this investment is $9 million, we have realized $13 million in cash to date and this valuation adjustment is based upon the valuation implied by the most recent round of financing, but materially discounted due to structural considerations. "We believe we are well positioned for 2019 and we thank all Jefferies' shareholders, bondholders and employee partners for their continued support." Jefferies Financial Group is releasing today the Annual Letter from our CEO and President. We expect to file our Form 10-K on or about January 28, 2019. Amounts herein pertaining to November 30, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Transition Report on Form 10-K with the Securities and Exchange Commission ("SEC"). More information on our results of operations for the two and eleven month periods ended November 30, 2018 will be provided upon filing our Transition Report on Form 10-K with the SEC. This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements about our future and statements that are not historical facts. These forward-looking statements are usually preceded by the words "should," "expect," "intend," "may," "will," or similar expressions. Forward-looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward-looking statements also include statements pertaining to our strategies for future development of our businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC. Peregrine C. Broadbent Jefferies Group LLC Tangible common shareholders' equity of $7,643 million at December 31, 2017 is a non-GAAP measure and equals Jefferies Financial Group common shareholders' equity of $10,106 million less Intangible assets, net and goodwill of $2,463 million. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. Fully diluted tangible equity per share, a non-GAAP measure, is defined as tangible common shareholders' equity divided by fully diluted shares outstanding. Tangible common shareholders' equity, a non-GAAP measure, is defined as Jefferies Financial Group common shareholders' equity less Intangible assets, net and goodwill. Fully diluted outstanding shares, a non-GAAP measure, is defined as Jefferies Financial Group shares outstanding plus restricted stock units and other shares that have not been issued yet. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. Refer to schedule on page 11 for reconciliation to U.S. GAAP amounts. Adjusted financial measures are non-GAAP financial measures. Management believes such measure for the year ended November 30, 2018 provides meaningful information to investors as it enables investors to evaluate Jefferies Group LLC results excluding the impact of the provisional tax charge resulting from the Tax Act. Jefferies Group LLC's Adjusted Net Earnings for the year ended November 30, 2018 of $324 million results in an 8.7% return on tangible equity (a non-GAAP financial measure), based on the twelve months ended November 30, 2018 Jefferies Group LLC adjusted net earnings divided by adjusted tangible Jefferies Group LLC member's equity at November 30, 2017 of $3,716 million. Adjusted tangible Jefferies Group LLC member's equity is calculated as tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) of $3,916 million at November 30, 2017 reduced by the $200 million distribution to Jefferies Financial Group, which was paid on January 31, 2018. Refer to the schedule on page 14 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. As a result of Jefferies Financial Group's previous fiscal year end being December 31, the charge recorded by Jefferies Group LLC related to the Tax Act was included in Jefferies Financial Group's consolidated results during 2017, and therefore excluded from Jefferies Financial Group's 2018 financial results. Adjusted financial measures are non-GAAP financial measures. Management believes such measure for the year ended November 30, 2018 provides meaningful information to investors as it enables investors to evaluate Jefferies Group LLC results excluding the impact of the increase in Investment banking revenues, as a result of the new revenue standard, which was adopted on December 1, 2017 (see "Impact of Adopting Revenue Recognition Guidance" in Part I, Item 2 "Management's Discussion and Analysis" in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018). Refer to the schedule on page 14 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Summary for Jefferies Financial Group Inc. and Subsidiaries (In thousands, except per share amounts) Two Months Ended November 30, 2018 Three Months Ended December 31, 2017 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Net revenues Income (loss) from continuing operations before income taxes and income (loss) related to associated companies (24,573 Income (loss) related to associated companies Income tax provision (benefit) (321,385 Income from discontinued operations, net of income tax provision of $0, $27,825, $47,045 and $118,681 Gain on disposal of discontinued operations, net of income tax provision $0, $0, $229,553 and $0 Net income (loss) Net (income) loss attributable to the noncontrolling interests (233 Net (income) loss attributable to the redeemable noncontrolling interests Preferred stock dividends (1,172 Net income (loss) attributable to Jefferies Financial Group Inc. common shareholders Basic earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders: (0.06 Income from discontinued operations Gain on disposal of discontinued operations Number of shares in calculation Diluted earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders: A summary of results for the two months ended November 30, 2018 is as follows (in thousands): Jefferies Group Merchant Banking Parent Company Interest Consolidation Adjustments Expenses: Floor brokerage and clearing fees Selling, general and other expenses Income (loss) from continuing operations before income taxes and loss related to associated companies Loss related to associated companies Income tax benefit from continuing operations A summary of results for the three months ended December 31, 2017 is as follows (in thousands): Income (loss) from continuing operations before income taxes and income related to associated companies Income related to associated companies Income tax provision from continuing operations Income from discontinued operations, net of income tax provision A summary of results for the eleven months ended November 30, 2018 is as follows (in thousands): Gain on disposal of discontinued operations, net of income tax provision A summary of results for the twelve months ended December 31, 2017 is as follows (in thousands): Non-GAAP Reconciliations The following tables reconcile Jefferies Financial Group non-GAAP measures to their respective U.S. GAAP measures. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. These measures should not be considered a substitute for, or superior to, measures prepared in accordance with U.S. GAAP. Tangible Common Shareholders' Equity GAAP Reconciliation Reconciliation of Jefferies Financial Group common shareholders' equity to tangible common shareholders' equity (a non-GAAP measure) (dollars in millions): Jefferies Financial Group common shareholders' equity (GAAP) Less: Intangible assets, net and goodwill Jefferies Financial Group tangible common shareholders' equity (non-GAAP) Fully Diluted Shares Outstanding GAAP Reconciliation Reconciliation of Jefferies Financial Group shares outstanding to fully diluted shares outstanding (a non-GAAP measure) (shares in thousands): Jefferies Financial Group shares outstanding (GAAP) Restricted stock units Jefferies Financial Group fully diluted shares outstanding (non-GAAP) Note: Fully diluted shares exclude shares for options, preferred shares and, at December 31, 2017, convertible debt. The convertible debt was redeemed in early 2018. Fully diluted shares include the target number of shares under the senior executive award plan. The following financial tables provide information for the results of Jefferies Group LLC and should be read in conjunction with Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended August 31, 2018 and its Annual Report on Form 10-K for the year ended November 30, 2017. Amounts herein pertaining to November 30, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2018. Jefferies Group LLC and Subsidiaries Consolidated Statements of Earnings (Amounts in Thousands) Quarter Ended Revenues: Commissions and other fees Principal transactions Asset management fees Total revenues Non-interest expenses: Non-compensation expenses: Technology and communications Occupancy and equipment rental Total non-compensation expenses Total non-interest expenses Earnings before income taxes Net earnings Net earnings (loss) attributable to noncontrolling interests (4 Net earnings attributable to Jefferies Group LLC Pretax operating margin (1) The results in the quarters ended November 30, 2018 and August 31, 2018 include an increase in Investment banking revenues and a corresponding increase in Total non-compensation expenses of $30.6 million and $36.3 million, respectively, as a result of the new revenue standard, which was adopted on December 1, 2017 (see "Impact of Adopting Revenue Recognition Guidance" in Part I, Item 2 "Management's Discussion and Analysis" in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018). Twelve Months Ended Principal transactions (1) Asset management fees (1) Net earnings attributable to noncontrolling interests Effective tax rate (3) Certain reclassifications within revenue line items have been made for the year ended November 30, 2017. Jefferies Group LLC has reorganized the presentation of its gains and losses generated from its capital invested in asset management funds managed by Jefferies Group LLC and its related parties. This was previously presented as Asset management: Investment income (loss) from investments in managed funds and is now presented within Principal transactions revenues. The results in the year ended November 30, 2018 include an increase in Investment banking revenues and a corresponding increase in Total non-compensation expenses of $131.8 million, as a result of the new revenue standard, which was adopted on December 1, 2017 (see "Impact of Adopting Revenue Recognition Guidance" in Part I, Item 2 "Management's Discussion and Analysis" in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018). The effective tax rate for the year ended November 30, 2018 includes a provisional tax charge of $165 million as a result of the Tax Act. Consolidated Adjusted Selected Financial Data (Amounts in Thousands, Except Where Noted) Twelve Months Ended November 30, 2018 Net earnings (excluding provisional tax charge) Investment banking net revenues Investment banking net revenues - % of Net revenues (excluding impact of adopting revenue recognition guidance) (1.7 )% This presentation of Adjusted financial information is an unaudited non-GAAP financial measure. Adjusted financial information for Net earnings begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude the provisional tax charge of $165 million related to the enactment of the Tax Act in the year ended November 30, 2018. Adjusted financial information for Investment banking net revenues begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude $132 million due to the impact of adopting revenue recognition guidance in the year ended November 30, 2018. Jefferies Group LLC believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors as they enable investors to evaluate Jefferies Group LLC's results excluding the impact of the provisional tax charge as a result of the enactment of the Tax Act and the impact of adopting revenue recognition guidance. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Selected Statistical Information (Amounts in Thousands, Except Other Data) Net Revenues by Source: Total sales and trading Other investment banking Total investment banking Total Capital Markets Total Asset Management Other Data: Number of trading days Number of trading loss days (1) Average firmwide VaR (in millions) (2) The November 30, 2018 period includes two months of Jefferies Group LLC's investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc. VaR estimates the potential loss in value of Jefferies Group LLC's trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. The quarter ended November 30, 2018 includes two months of Jefferies Group LLC's investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2017. VaR estimates the potential loss in value of Jefferies Group LLC's trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. The twelve months ended November 30, 2018 includes two months of Jefferies Group LLC's investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2017. (Amounts in Millions, Except Where Noted) Financial position: Total assets (1) Average total assets for the period (1) Average total assets less goodwill and intangible assets for the period (1) Cash and cash equivalents (1) Cash and cash equivalents and other sources of liquidity (1) (2) Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2) Financial instruments owned (1) Goodwill and intangible assets (1) Total equity (including noncontrolling interests) (1) Total Jefferies Group LLC member's equity (1) Tangible Jefferies Group LLC member's equity (1) (3) Level 3 financial instruments: Level 3 financial instruments owned (1) (4) (5) Level 3 financial instruments owned - % total assets (1) (4) Level 3 financial instruments owned - % total financial instruments (1) (4) Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (4) Other data and financial ratios: Total long-term capital (1) (6) Leverage ratio (1) (7) Tangible gross leverage ratio (1) (8) Average firmwide VaR (9) Number of employees, at period end Financial Highlights - Footnotes Amounts pertaining to November 30, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Annual Report on Form 10-K for the fiscal year ended November 30, 2018. At November 30, 2018, other sources of liquidity include high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities of $959 million, in aggregate, and $499 million, being the estimated amount of additional secured financing that could be reasonably expected to be obtained from Jefferies Group LLC's financial instruments that are currently not pledged after considering reasonable financing haircuts. The corresponding amounts included in other sources of liquidity at August 31, 2018 were $948 million and $337 million, respectively, and at November 30, 2017, were $1,031 million and $514 million, respectively. Tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) represents total Jefferies Group LLC member's equity less goodwill and identifiable intangible assets. We believe that tangible Jefferies Group LLC member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible equity, making these ratios meaningful for investors. Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned. At November 30, 2018, August 31, 2018 and November 30, 2017, total long-term capital includes Jefferies Group LLC's long-term debt of $5,657 million, $5,703 million and $5,403 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, as applicable. Leverage ratio equals total assets divided by total equity. Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible Jefferies Group LLC member's equity. The tangible gross leverage ratio is used by rating agencies in assessing Jefferies Group LLC's leverage ratio.

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Fliegler v. Lawrence | 361 A 2d 218 | June 28, 1976 | Brett Johnson Fliegler v. Lawrence Original Creator: Brian JM Quinn Current Version: Brett Johnson Section 144 provides alternate methods to modulate the standard of review from entire fairness to the business judgment presumption. In addition to seeking the approval of a majority of the disinterested directors, a board can seek the approval of the stockholders. Notice that although the statute requires only that the challenged transaction is approved by a majority of the stockholders in order to gain the presumption of business judgment, courts have place additional burdens on the stockholder vote. In particular, courts require that a stockholder vote under 144(a)(2) get a majority of the disinterested shares voted in favor. Why might this additional requirement make sense? 1361 A.2d 218 (1976) 2 Irving FLIEGLER, Plaintiff below, Appellant, John C. LAWRENCE et al., Defendants below, Appellees. Supreme Court of Delaware. 4Submitted October 15, 1975. 5Decided June 28, 1976. 6 Steven D. Goldberg of Theisen, Lank & Mulford, Wilmington, and Barry H. Singer of Pollack & Singer, New York City, of counsel, for plaintiff below, appellant. R. Franklin Balotti and Stephen E. Herrmann of Richards, Layton & Finger, Wilmington, and Warren M. Weggeland, Salt Lake City, Utah, of counsel for defendants below, appellees, John C. Lawrence and Fred H. Tresher. Edward B. Maxwell of Young, Conaway, Stargatt & Taylor, Wilmington, for defendant below, Agau Mines, Inc. Before DUFFY and McNEILLY, JJ., and CHRISTIE, Judge. [219] McNEILLY, Justice: In this shareholder derivative action brought on behalf of Agau Mines, Inc., a Delaware corporation, (Agau) against its officers and directors and United States Antimony Corporation, a Montana corporation (USAC), we are asked to decide whether the individual defendants, in their capacity as directors and officers of both corporations, wrongfully usurped a corporate opportunity belonging to Agau, and whether all defendants wrongfully profited by causing Agau to exercise an option to purchase that opportunity. The Court of Chancery found in favor of the defendants on both issues. (1974). Reference is made to that opinion for a full statement of the facts; what follows here is but a brief resume of the events giving rise to this litigation. In November, 1969, defendant, John C. Lawrence (then president of Agau, a publicly held corporation engaged in a dual-phased gold and silver exploratory venture) in his individual capacity, acquired certain antimony properties under a lease-option for $60,000.[1] Lawrence offered to [220] transfer the properties, which were then "a raw prospect", to Agau, but after consulting with other members of Agau's board of directors, he and they agreed that the corporation's legal and financial position would not permit acquisition and development of the properties at that time. Thus, it was decided to transfer the properties to USAC, (a closely held corporation formed just for this purpose and a majority of whose stock was owned by the individual defendants) where capital necessary for development of the properties could be raised without risk to Agau through the sale of USAC stock; it was also decided to grant Agau a long-term option to acquire USAC if the properties proved to be of commercial value. In January, 1970, the option agreement was executed by Agau and USAC. Upon its exercise and approval by Agau shareholders, Agau was to deliver 800,000 shares of its restricted investment stock for all authorized and issued shares of USAC. The exchange was calculated on the basis of reimbursement to USAC and its shareholders for their costs in developing the properties to a point where it could be ascertained if they had commercial value. Such costs were anticipated to range from $250,000. to $500,000. At the time the plan was conceived, Agau shares traded over-the-counter, bid at $5/8 to $¾ and asked at $1 to $1¼. Applying to these quotations a 50% discount for the investment restrictions, the parties agreed that 800,000 Agau shares would reflect the range of anticipated costs in developing USAC and, accordingly, that figure was adopted. In July, 1970, the Agau board resolved to exercise the option, an action which was approved by majority vote of the shareholders in October, 1970. Subsequently, plaintiff instituted this suit on behalf of Agau to recover the 800,000 shares and for an accounting. The Vice-Chancellor determined that the chance to acquire the antimony claims was a corporate opportunity which should have been (and was) offered to Agau, but because the corporation was not in a position, either financially or legally, to accept the opportunity at that time, the individual defendants were entitled to acquire it for themselves after Agau rejected it. We agree with these conclusions for the reasons stated by the Vice-Chancellor, which are based on settled Delaware law. Equity Corp. v. Milton, Del.Supr., 221 A.2d 494 (1966); Guth v. Loft, Inc., Del.Supr., 23 Del.Ch. 255, 5 A.2d 503 (1939); also see Wolfensohn v. Madison Fund, Inc., Del.Supr., 253 A.2d 72 (1969). Accordingly, Agau was not entitled to the properties without consideration. Plaintiff contends that because the individual defendants personally profited through the use of Agau's resources, viz., personnel (primarily Lawrence) to develop the USAC properties and stock purchase warrants to secure a $300,000. indebtedness (incurred by USAC because it could not raise sufficient capital through sale of stock), they must be compelled to account to Agau for that profit. This argument pre-supposes that defendants did in fact so misuse corporate assets; however, the record reveals substantial evidence to support the Vice-Chancellor's conclusion that there was no misuse of either Agau personnel or warrants. Issuance of the warrants in fact enhanced the value of Agau's option at a time when there was reason to believe that USAC's antimony properties had a "considerable potential", and plaintiff did not prove that alleged use of Agau's personnel and equipment was detrimental to the corporation. [221] Nevertheless, our inquiry cannot stop here, for it is clear that the individual defendants stood on both sides of the transaction in implementing and fixing the terms of the option agreement. Accordingly, the burden is upon them to demonstrate its intrinsic fairness Johnston v. Greene, Del.Supr., 35 Del.Ch. 479, 121 A.2d 919 (1956); Sterling v. Mayflower Hotel Corp., Del.Supr., 33 Del.Ch. 293, 93 A.2d 107 (1952); Gottlieb v. Heyden Chemical Corp., Del.Supr., 33 Del.Ch. 82, 90 A.2d 660 (1952); David J. Greene & Co., v. Dunhill International, Inc., Del.Ch., 249 A. 2d 427 (1968). We agree with the Vice-Chancellor that the record reveals no bad faith on the part of the individual defendants. But that is not determinative. The issue is where the 800,000 restricted investment shares of Agau stock, objectively, was a fair price for Agau to pay for USAC as a wholly-owned subsidiary.[2] Preliminarily, defendants argue that they have been relieved of the burden of proving fairness by reason of shareholder ratification of the Board's decision to exercise the option. They rely on 8 Del.C. § 144(a)(2) and Gottlieb v. Heyden Chemical Corp., Del.Supr., 33 Del.Ch. 177, 91 A. 2d 57 (1952). In Gottlieb, this Court stated that shareholder ratification of an "interested transaction", although less than unanimous, shifts the burden of proof to an objecting shareholder to demonstrate that the terms are so unequal as to amount to a gift or waste of corporate assets. Also see Saxe v. Brady, 40 Del.Ch. 474, 184 A.2d 602 (1962). The Court explained: "[T]he entire atmosphere is freshened and a new set of rules invoked where formal approval has been given by a majority of independent, fully informed [share]holders." 91 A.2d at 59. The purported ratification by the Agau shareholders would not affect the burden of proof in this case because the majority of shares voted in favor of exercising the option were cast by defendants in their capacity as Agau shareholders. Only about one-third of the "disinterested" shareholders voted, and we cannot assume that such non-voting shareholders either approved or disapproved. Under these circumstances, we cannot say that "the entire atmosphere has been freshened" and that departure from the objective fairness test is permissible. Compare Schiff v. R. K. O. Pictures Corp., 37 Del.Ch. 21, 104 A.2d 267 (1954), with David J. Greene & Co. v. Dunhill International, Inc., supra, and Abelow v. Symonds, 40 Del.Ch. 462, 184 A.2d 173 (1962). In short, defendants have not established factually a basis for applying Gottlieb. Nor do we believe the Legislature intended a contrary policy and rule to prevail by enacting 8 Del.C. § 144, which provides, in part: (a) No contract or transaction between a corporation and 1 or more of its directors or officers, or between a corporation and any other corporation, partnership, association, or other organization in which 1 or more of its directors [222] or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee, or the shareholders. Defendants argue that the transaction here in question is protected by § 144(a)(2)[3] which, they contend, does not require that ratifying shareholders be "disinterested" or "independent"; nor, they argue, is there warrant for reading such a requirement into the statute. See Folk, The Delaware General Corporation Law — A Commentary and Analysis (1972), pp. 85-86. We do not read the statute as providing the broad immunity for which defendants contend. It merely removes an "interested director" cloud when its terms are met and provides against invalidation of an agreement "solely" because such a director or officer is involved. Nothing in the statute sanctions unfairness to Agau or removes the transaction from judicial scrutiny. Turning to the transaction itself, we note at the outset that from the time the option arrangement was conceived until the time it was implemented, there occurred marked changes in several of the factors which formed the basis for the terms of the exchange. As of the critical date, the market value of Agau shares had risen and shares were being traded at about $3.00 per share; thus, while initially the maximum discounted market value of the 800,000 was considered to be $500,000, by the time in question it was $1.2 million. Development expenses, originally anticipated to range from $250,000.-$500,000., but as actually incurred, were towards the lower end of that scale. Further, while only equity investment was anticipated as the means of raising the capital to finance exploration and development, an original subscriber for 1,500 shares for $250,000. cancelled his subscription and USAC found itself unable to obtain sufficient capital through sale of stock; thus it was forced to borrow $300,000., the debt being secured by USAC property as well as by Agau stock purchase warrants.[4] It also appears that only $83,000. in cash was actually received through sales of stock. [223] On the basis of these changed conditions and in light of the fact that the exchange price was originally calculated simply to reimburse the USAC shareholders for their costs, plaintiff argues that the issuance of 800,000 shares of Agau stock, having a market value of at least 1.2 million dollars, to acquire a corporation in which only $83,000 in cash had been invested, and whose property was subject to loans of $300,000, is patently unfair. The difficulty with this argument for purposes of the fairness test is that it impermissibly attempts to equate and compare two different standards of value (if indeed USAC's debt/equity ratio is a standard of value) in order to demonstrate the inadequacy of the consideration Agau received. See Sterling v. Mayflower Hotel Corp., supra. In fact, a reference to market sales of the stock involved, might support a finding of fairness. It appears that, although USAC was closely held, there was one arms-length sale of 75 USAC shares to non-affiliated investors for $160. per share. At this rate, the value of the 10,000 USAC shares would be 1.6 million, $400,000. more than the value of the shares given up by USAC. Furthermore, the market value of Agau's stock, even discounted, is an unrealistic indicator of the true value of what Agau gave up as it was clearly inflated due to Agau's possession of the option to acquire USAC whose properties were increasing in value largely as a result of the time and efforts expended by the individual defendants. As stated by the Vice-Chancellor: "Thus, I think it is without question that if Lawrence and the other defendant shareholders of USAC had not granted the option to Agau, the value of the consideration originally established would not have risen. In other words, the very fact that Agau had the option increased the value of the consideration it was committed to give in the event it chose to exercise it, and this, in turn, was due to the fact that as USAC continued its efforts it became increasingly obvious that it had something that Agau would want to acquire." The book value of 800,000 Agau shares reinforces this conclusion. Saleable assets (at cost less depreciation) less liabilities (excluding accrued salary due Lawrence) yielded an equity totaling about $113,000. On this basis, the 800,000 shares, which when issued represented a 28.6% interest in the corporation,[5] thus had a value of about $32,000. In this sense, Agau paid little; but, USAC's book position was no better, with assets and liabilities about equal. This comparison, however, is likewise unrealistic for it ignores the true value of USAC's most valuable asset, the antimony properties themselves. While the properties were carried on the books at cost ($60,000.), the record indicates their value was considerably higher. In late 1969 or early 1970, when the properties were still considered to be a "raw prospect", USAC received two offers (subsequently confirmed in writing) of $200,000. for a 50% interest in the properties and their future development and yield. Further, Lawrence, a qualified expert, testified that in his opinion, the properties had a net value of between 3.5-70 million dollars as of August 31, 1970. Viewing the two corporations as going concerns from the standpoint of their current and potential operational status presents a clearer and more realistic picture not only of what Agau gave up, but of what it received. Agau was organized solely for the purpose of developing and exploring certain properties for potentially mineable gold and silver ore. The bulk of its cash, raised through a public offering, had been expended [224] in "Phase I" exploration of the properties which failed to establish a commercial ore body, although it did reveal "interesting" zones of mineralization which indicated to Lawrence that "Phase II" development and exploration might eventually be desirable. However, plans for further development had been temporarily abandoned as being economically unfeasible due to Agau's lack of sufficient funds to adequately explore the properties, as well as to the falling market price of silver. It further appears that other than a few outstanding unexercised stock purchase warrants, Agau did not have any ready sources of capital. Thus, as the Vice-Chancellor found, had the option not been exercised, Agau might well have gone out of business. By comparison, the record shows that USAC, while still considered to be in the exploratory and development stage, could reasonably be expected to produce substantial profits. At the time in question, the corporation had established a sizeable commercial ore body, had proven markets for its product, and was in the midst of constructing a major ore separation facility expected to produce a high grade ore concentrate for market. An admittedly "conservative" report submitted in June, 1970, by Pennebaker, an independent geologist retained by USAC, confirmed the presence of a sizeable ore body and projected for the corporation a three-year net pre-tax profit of $660,000. after deducting all costs from ground to market including property payments, a complete return of the capitalized construction costs of the ore separation facility and $120,000 per year for further exploration and development.[6] Without allowing for capital return and exploration and development costs, he projected a three-year profit of $1,357,500. He noted further that his projections were based on only 50% recovery by the proposed separation facility; the remaining 50% not thereby recovered would be recoverable at a later date by another facility planned to be constructed for this purpose. Likewise a metallurgy report by defendant Snyder, projected a sizeable positive cash flow once production got underway. The record does suggest that if the properties were to be immediately profitable, the market value for antimony would have to remain relatively high; however, Pennebaker, after noting this potential problem, stated that he was encouraged by the long-term purchaser offers USAC had already received and accordingly concluded that USAC should proceed with the plant construction as planned. Further, Lawrence stated that any mining venture is by its very nature speculative in that its success or failure largely depends upon the whims and vagaries of the metals market. It appears that at the time in question, consumption and demand for domestic antimony were rising. The only evidence offered by plaintiffs on the fairness question consisted of Agau's annual reports for the years 1971 and 1972, and a 1973 proxy statement. These documents are immaterial to the issue before us since we are concerned only with the situation as it existed at the time of the transaction. Johnston v. Greene, supra. Considering all of the above factors, we conclude that defendants have proven the intrinsic fairness of the transaction. Agau received properties which by themselves were clearly of substantial value. But more importantly, it received a promising, potentially self-financing and [225] profit generating enterprise with proven markets and commercial capability which could well be expected to provide Agau at the very least with the cash it sorely needed to undertake further exploration and development of its own properties if not to stay in existence. For those reasons, we believe that the interest given to the USAC shareholders was a fair price to pay. Accordingly, we have no doubt but that this transaction was one which at that time would have commended itself to an independent corporation in Agau's position. [1] Antimony is a metallic element used in a wide variety of alloys, especially with lead in battery plates, and in the manufacture of flame-proofing compounds, paints, semiconductors and ceramic products. [2] The date at which this transaction must be scrutinized for intrinsic fairness is critical to the resolution of this question. We agree with the Vice-Chancellor that as of January 28, 1970, when the option was formally executed, that the transaction was one which would have commended itself to an independent corporation in Agau's position. Johnston v. Greene, supra. However, we are not concerned so much with Agau's acquisition of the option, but rather with the exercise thereof and implementation of its terms. In other words, the focus must be on the actual exchange of Agau's stock for USAC's stock and the test is whether that which Agau received was a fair quid pro quo for that which it had to pay. Since that exchange did not and could not, in fact occur until shareholder approval had been given in October, 1970, we must examine the transaction as of that point in time. [3] They also argue that since defendant-director Dawson was not "interested" and since he approved acquiring the option, the transaction falls under the protection of § 144(a)(1). However, Dawson, who was the only disinterested director, did not participate at the Board meeting in which it was resolved to exercise the option; and it is with that decision which we are now concerned. [4] These warrants apparently were demanded by the lenders because of Agau's option rights in USAC and were issued after the Agau Board of Directors had resolved that the option be exercised. [5] Prior to the exchange, there were approximately two million shares outstanding. Adding to that the 800,000 shares paid to defendants, their consequential share was 800,000/2,800,000, or 28.57%. [6] We note here that while Agau did take USAC subject to a $3000,000 long-term debt, the loan proceeds were used in part to pay off the balance due on USAC's lease-option on the properties and to finance construction of the ore separation facility; and as indicated above, these expenditures were anticipated to be recovered through before-profit product sale receipts. In other words, it was apparently anticipated that the loans would be paid off from gross product income. Original Item: "Fliegler v. Lawrence" Lineage of: Fliegler v. Lawrence 07/01/2013 at 14:15 by Brian JM Quinn 11/08/2013 at 12:01 by lmhbrem Name: Brett Johnson Affiliation: bjohnson

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professional_accounting

Danimer Scientific Inc. RUSH STREET INTERACTIVE CLOSES BUSINESS COMBINATION WITH DMY TECHNOLOGY[...] RUSH STREET INTERACTIVE TO RING OPENING BELL AT NEW YORK STOCK EXCHANGE Polar Capital Global Financials Trust plc Half-year Report POLAR CAPITAL GLOBAL FINANCIALS TRUST PLC (the 'Company') Unaudited Results for the half year ended 31 May 2020 Legal Entity Identifier: 549300G5SWN8EP2P4U41 Financial Highlights for the half year ended 31 May 2020 Performance (Sterling total return) For six months ended 31 May 2020 Net asset value (NAV) per ordinary share (1) Ordinary share price (2) Ordinary share price including subscription share value (3) Benchmark(4) MSCI ACWI Financials Net Total Return Index (in Sterling) Other Indices and peer group (in Sterling) MSCI World Index FTSE All Share Index Lipper Financial Sector (5) Restructuring on 22 April 2020 Since Restructuring Net asset value (NAV) per ordinary share (total return) (6) As at 31 May As at Six months to 31 May 2020 £142,715,000 Net assets per ordinary share 115.8p Ordinary share price Discount per ordinary share - net gearing - net cash Ordinary shares in issue (excluding those held in treasury) Ordinary shares held in treasury Six months to Year to 30 Earnings per ordinary share: Revenue Return Capital Return (40.60)p (0.38)p Dividends* First interim Second interim * The Company declares dividends in respect of a financial year in or around July and January for payment at the end of the following August and February. The first interim dividend for the year ending 30 November 2020 was declared on 30 June 2020 and will be paid on 28 August 2020 to shareholders on the register on 7 August 2020. The shares will go ex-dividend on 6 August 2020. The second interim dividend will be declared in or around December 2020 for payment in February 2021. Note 1 The total return NAV performance for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. Performance since inception has been calculated using the initial NAV of 98p and the NAV on 31 May 2020. Dividends are deemed to be reinvested on the ex-dividend date as this is the protocol used by the Company's benchmark and other indices. Note 2 The total return share price performance is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date. Performance since inception has been calculated using the launch price of 100p and the closing price on 31 May 2020. Note 3 The total return share price performance since inception includes the value of the subscription shares issued free of payment at launch on the basis of 1 for every 5 ordinary shares and assumes such were held throughout the period from launch to the conversion date of 31 July 2017. Performance is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date and uses the launch price of 100p per ordinary share and the closing price per ordinary share on 31 May 2020. Note 4 The benchmark changed on 23 April 2020 to MSCI ACWI Financials Net Total Return Index (in Sterling) due to the Company's exposure to Emerging Market financials equities and its limited exposure to real estate equities. Prior to this the Company's benchmark was MSCI World Financials + Real Estate Net Total Return Index. Preceding 31 August 2016, the Company's benchmark was the MSCI World Financials Index, which included Real Estate as a constituent until its removal that year. Benchmark performance above illustrates linked performance of these benchmarks. See 'Benchmark' below. Note 5 Dynamic average of open ended funds in the Lipper Financial Sector Universe which comprised 56 open ended funds in the period under review. Note 6 The total return NAV performance for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. Performance has been calculated from the rebased NAV of 102.8p following the tender offer on 22 April 2020. Data sourced by HSBC Securities Services Limited, Polar Capital LLP, MSCI and Lipper. Robert Kyprianou, Chairman Tracey Lago, Company Secretary In over 40 years of experience in financial services I have never faced such an extraordinary period on which to report. Firstly and most importantly, on behalf of the Board, I would like to extend our well wishes for the health of all our shareholders and our deepest sympathies to those who may have been directly affected by the COVID-19 pandemic. Much has happened since the time of my last statement which was published in early March as we were approaching the reconstruction of your Company through a Tender Offer and the removal of its seven-year fixed life of the Company. On 8 April 2020, we announced the results of the Tender Offer and of the associated General Meeting. I am pleased to report that, despite the extraordinarily unsupportive background, 60.9% of the issued share capital chose to remain invested and the extension to the Company's life was passed by 100% of the shares cast at the General Meeting. As part of the proposals we replaced the fixed end-of-life with five-yearly tender offers which will give Shareholders a periodic opportunity to tender their shares at close to net asset value. As we moved towards the closing of the tender offer period, the UK entered lockdown on 23 March 2020 as a result of the COVID-19 global pandemic. As I write, it would appear that COVID-19 is starting to abate, and the UK Government has commenced the easing of the lockdown measures as have a number of other countries. However, we remain in a period of uncertainty as, globally, we move towards to what is likely to become a new normal. The sector in which the Company operates has been one of the most negatively impacted by the fallout from COVID-19 and this is reflected in the half-year financial results of the Company. For the period to 31 May 2020 the NAV total return performance was -21.3% compared to a fall of 18.1% in the benchmark over the same period. Since the closing of the Tender Offer on 22 April 2020 to the end of the period under review, the NAV total return performance has been +12.2% compared to the benchmark performance of +8.0%. Further information on investment performance can be found within the Financial Highlights and the Investment Manager's Report. Associated with the pandemic has been considerable market volatility and a deterioration in sentiment towards the financials sector. This has been reflected in movements in the Company's share price discount. Over the six-month period to 31 May 2020, the Company's share price has traded between a premium of 0.26% and a discount of 11.78% to its NAV. At the time of the reconstruction in April we gave shareholders guidance on a discount level that the Board would find acceptable, in normal market circumstances, of no wider than an average of around 5 per cent. over the longer term. The Board has the ability to repurchase shares on an ad hoc basis in order to support liquidity and thereby help to redress supply/demand imbalances which might have given rise to a relatively wide discount. In the period under review 345,000 shares were bought back under the shareholder buy-back authority and a further 79,159,235 shares were bought back as a result of the Tender Offer. In the period from 31 May 2020 to the date of writing, a further 25,000 shares have been bought back. All shares bought back have been placed into the Company's treasury account. As detailed within the Circular to Shareholders proposing the Tender Offer the Board have formulated a succession plan which will be rolled out over the next 2-3 years; further information will be provided in due course and within the Annual Report for the year ending 30 November 2020. Corporate Broker In conjunction with the completion of the Tender Offer we announced a change of service provider. On 29 April 2020, Investec Bank plc resigned as the Company's corporate broker and the Board appointed Stifel Nicolaus Europe Limited as sole corporate broker to the Company. We thank the Investec team for their service to the Company through the corporate action and look forward to working with Stifel going forward. There will be a particular focus with Stifel on rebuilding the size of the Company and the breadth of the investor base by the reissue of the shares held in our treasury account as a result of the Tender Offer as and when opportunities arise. To do so the Company's shares must be trading at a premium to NAV, a position we hope to reach through performance and a positive turn in sentiment in due course. Subsequent to the corporate action and the confidence our Shareholders have put in the continuation of the life of the Company, we made a market announcement on 4 May 2020 confirming that we undertake to support the Company's dividends in the financial year 2020. Since that announcement we have witnessed cuts or suspension of dividend pay-outs by a number of listed companies, including some within the financial sector. Despite this I am pleased to announce that through a combination of investment performance, income generation and distributable reserves we are presently able to maintain the Company's interim dividend at the same level of 2019. The Board has therefore declared a first interim dividend of 2.40p per share, payable on 28 August 2020 to shareholders on the register on 7 August 2020. In line with the dividend policy approved at the AGM held in May 2020, we continue to pursue a policy of dividend growth, although there is no guarantee that this can be achieved. The Board monitors, with the Investment Manager, the prospects for dividends from its equity holdings, interest income from cash and fixed income securities, and the potential to earn additional revenue from writing options. While significant uncertainty surrounds the outlook for dividend income, the Board has available further income reserves to support dividend payments until the sustainable longer term level can be determined. The COVID-19 global pandemic has presented a unique combination of challenges that span science, public policy and economics, each one extraordinary in depth and impact. Together they have introduced consequences, risks and uncertainties on a scale not experienced in modern times. So much so that the validity of long established pre COVID-19 templates for how we analyse economic, financial and political responses and likely outcomes are being severely compromised. How will the lives versus livelihood conflict be resolved? What is the long-term impact of the once unimaginable scale of monetary and fiscal support measures being dispensed globally? How many of the changes in behaviour witnessed in response to the pandemic will be permanent? And what do these changes mean for a wide range of industries and services? In the recovery will capital and finance be allocated by the private sector or will it be directed based on social imperatives? These are just some of the questions that need to be clarified before any statements about the outlook can be made with any degree of confidence. Answers to many of these questions remain highly uncertain. What is clear is that this crisis has had a significant negative impact on a number of key components that make up the financials sector in which the Company invests, from banks and insurance companies to asset managers. What is also clear is that, unlike the last crisis to hit global economies, banks are part of the solution and not the cause of the problem. Undoubtedly, they will find the environment in which they operate problematic. But they are generally in much better shape from a capital and operational leverage perspective than at any time this century. It is also apparent that regulators and monetary authorities understand the key role that banks will need to play to address the economic impairment currently being inflicted by the virus. Regulatory capital buffers have already been relaxed for example and certain central banks have made facilities available to limit the damage to profitability. In the 'whatever-it-takes' mindset that characterises the public policy response to the economic damage brought about by the virus, further supportive and protective measures for the financial sector can be expected. The significant downgrading of a broad range of financial subsectors may be an understandable market response to the economic and financial fallout from the pandemic, but it is also one that is formulated on pre-COVID-19 templates. While we wait to see what new templates emerge our Manager has responded by, on the one hand, strengthening the defensive qualities of the portfolio, and on the other hand positioning it to benefit from some of the positive emerging structural changes presented to parts of the financial services community. At the time of writing global equity markets have recovered sharply from their late March lows as markets look ahead to the recovery phase of the pandemic-induced economic cycle. A broad range of financial services sectors, in particular banks, will be beneficiaries of the emergence from the sharp economic downturn and from undemanding valuation levels. The Board continues to believe that the Company offers an attractive vehicle for those looking for longer term opportunities in the financials sector. Robert Kyprianou Investment Manager's Report for the half year ended 31 May 2020 As highlighted in the Chairman's Statement, it was a disappointing period for the Trust's portfolio. At its worst point on 23 March, Financials, as illustrated by the MSCI ACWI Financials Index*, had fallen by 32.0%, with the falls significantly cushioned by a sharp fall in sterling, before starting to recover along with sterling. They have since rallied 18.9% from the lows to the end of May and are little changed from then to the date of this report having given up the further gains they made at the beginning of June. The Trust's net asset value total return for the period was a loss of 21.3%, against a fall of 19.6% for the MSCI ACWI Financials Index and 18.0% for the MSCI World Financials + Real Estate Index. Over the six months positive stock selection was more than offset by negative sector and to a small extent regional allocation. The gearing on the Trust, while relatively small, also acted as a headwind to performance. Our bank holdings were the biggest drag on both the absolute and relative performance of the Trust with US and European banks being the hardest hit as lockdowns were expected to have a significant impact on their earnings. The non-life insurance sector was also surprisingly weak despite its perceived defensive qualities. In particular, concerns around its exposure to business interruption but also travel insurance and even cancellation insurance policies resulted in shares in the sector falling quite sharply. Conversely stock exchanges, payment companies and some asset managers performed well. The former have been a beneficiary of the volatility in financial markets while lockdowns have benefited payments companies on the back of an acceleration of the growth in e-commerce. Against this background the biggest positive contributors to performance were MasterCard and PayPal Holdings, while the biggest negative contributors to performance were JP Morgan and Wells Fargo. On a relative basis, holdings in Citizens Financial and Arch Capital were the biggest drag on performance. Despite the promising start to the financial year with equity markets rising in December, on the back of optimism around trade talks between the US and China, financial markets fell in January. The fall was initially over rising tensions in the Middle East, following the assassination of Qasam Soleimani, the head of Iran's Revolutionary Guard. But the assassination was quickly overshadowed by the concern that the rapid spread of COVID-19 in China could have a significant impact on global growth. While containment policies in China and elsewhere in Asia quickly appeared to be curtailing the virus, its spread to other countries, in Europe initially to Italy, led to a domino of lockdowns globally as governments tried to reduce the impact of COVID-19 on healthcare systems. As a result, financial markets suffered a brutal sell-off towards the end of February into the middle of March, exacerbated by a sharp fall in the oil price following the breakdown of talks between Saudi Arabia and Russia which also knocked sentiment. The response by central banks was very swift in cutting interest rates and injecting significant amounts of liquidity into financial markets. Governments also acted with surprising speed and announced various stimulus programmes of unprecedented sizes including providing guaranteed loans to companies, payments to cover employees on furlough, direct payments to unemployed workers etc. all to dampen the impact of lockdowns on businesses and individuals. Against this background equity markets bounced sharply, led by the US and technology shares recovering more than half the falls, with technology shares hitting an all-time high post the interim period end. Credit markets recovered even more swiftly, benefiting from the Federal Reserve announcement that it would buy ETFs that invested in corporate bonds, with investment grade bonds recovering all their losses by the end of May. High yield bonds also saw a strong recovery. Not surprisingly, despite the discount at which the sector already traded relative to underlying equity markets it still materially underperformed over the period reflecting its cyclicality and operational gearing to financial markets. Banks suffered very large falls in share prices. While strong trading and investment banking revenue has been helpful to earnings of larger banks, the combination of falling interest rates, which reduces net interest margins, and rising provisions for loan losses have had a significant impact on profitability. US banks have been very quick to raise reserves against future losses, more so than banks in many other countries, in part driven by a change in accounting rules that means banks have to recognise potential losses earlier than they would have previously. However, as the economy had deteriorated much more than expected when they set the level of provisions deemed prudent for their first quarter results, bank CEOs have since highlighted that they expect to take further large provisions for the second quarter. Regulators have been quick to react to the crisis telling banks in the UK and Europe to suspend dividend payments and buybacks. They have lowered capital requirements, reducing counter-cyclical buffers to zero while also reducing other buffers, so that banks have more flexibility to take losses but still support borrowers. They have also told banks to not automatically treat borrowers who have asked for loan payment holidays as likely to default. Nevertheless, the impact of forcing banks to suspend dividend payments has impacted sentiment and shares fell sharply when it was announced. Insurance companies also suffered large falls in share prices. Life assurance companies which are highly geared to credit markets and to a less extent equity markets corrected sharply. Counterintuitively, non-life insurance companies which historically have acted very defensively in market corrections as earnings are driven by claims which are largely accident or weather related, also suffered large share price falls, driven by concerns over their exposure to COVID-19 insured losses on travel insurance, event cancellations but in particular business interruption policies. Conversely, the share prices of payment companies have been very resilient over the last six months. While not immune to the downturn which has impacted those exposed to the travel industry, their business models have remained resilient as they have little or no balance sheet risk. They have also been seen as potential beneficiaries of lockdowns, as it could have longer-term consequences for their growth by accelerating the shift towards digital transactions from cash and lead to faster growth of e-commerce. Stock exchanges have also proved very resilient, benefiting from their reliance on data revenues but also higher trading volumes on the back of volatility in financial markets. The share prices of asset managers, not surprisingly, also fell sharply but rallied along with financial markets with alternative asset managers and those traditional asset managers with large passive fund businesses continuing to outperform their peers focused primarily on actively managed fund mandates. Investment Activity Reflecting the volatility in financial markets there was some significant investment activity over the six-month period. Following the fall in equity markets we took the opportunity to reduce some of our European bank holdings and holdings in smaller US regional banks which we believe are more vulnerable to a deep recession. These included selling holdings in BNP Paribas, ING Groep, Banco Santander, Lloyds Bank, Comerica and KeyCorp while reducing a number of others. New holdings purchased include American Express, Berkshire Hathaway, Hong Kong Exchanges & Clearing Limited, Adyen, Hiscox, Prosperity Bancshares and Ping An Insurance, all businesses which we see as more resilient from the fallout of the COVID-19 crisis. We also purchased bonds issued by Pension Insurance Corporation, ING Groep, Royal Bank of Scotland and Jupiter Fund Management, the latter which was issued to facilitate its purchase of Merian Global Investors. The decision by UK and European regulators to make banks and some insurance companies under their jurisdiction suspend dividend payments, along with other companies that will likely reduce dividend payments in the short-term has had an impact on the revenue generated from the portfolio. We have also previously reduced the Trust's exposure to some of the higher-yielding stocks in the sector over the last year which has had an impact. Regulators in the US have, so far, taken a more pragmatic approach to bank dividends, despite calls from some ex-regulators in the US for the Federal Reserve to follow the actions of their UK and European counterparts. Dividends have been capped at current levels and a limit imposed that they cannot exceed the average net income of a bank over the preceding four quarters. The Federal Reserve will also require banks to resubmit their capital plans later in the year when there will be significantly more visibility on the severity of losses that banks will have to provision for. US banks dividend payout ratios were significantly lower than most other developed market banks entering the crisis as over two-thirds of the capital they returned to shareholders in the last couple of years has been via buybacks which they have voluntarily ceased in the short-term. Therefore, we believe that the majority of US banks, which represent the largest exposure of the Trust, should be able to maintain their dividends at last year's level, subject to there not being a significant deterioration in the economic outlook. The significant underperformance of the financial sector over the last 6 months, along with other cyclically sensitive sectors, has been exacerbated by the difficulty investors have found in quantifying the impact, given the size of the exogenous shock to economic activity and lack of historical comparisons. But while caution is warranted, in the short-term, we remain of the view that the downturn brought on by COVID-19 will be an earnings event for the sector given its underlying profitability and capital buffers, not a capital one, and therefore the upside for the sector remains material. Furthermore, we continue to own sizeable holdings in a number of payments companies, stock exchanges and asset managers which continue to exhibit good earnings growth, as they are benefiting from structural growth trends, and we expect to remain resilient even if there is further volatility in financial markets. While valuations for most of these companies are high by historical standards, they along with some of our fixed-income and other more defensive holdings counterbalance the more cyclical and lowly valued parts of the Trust's portfolio. Nevertheless, the majority of the Trust's assets are invested in banks and non-life insurance stocks. The valuation of non-life insurance stocks has fallen quite sharply over concerns that the sector will suffer a significant hit to earnings. While the hit will be primarily from insured losses, but also investment losses, there has been concern of weak wording on business interruption policies which will result in litigation and risks much larger payments to policyholders. There has also been concern that politicians would look to make retrospective changes in law so that the insurance industry covers more of the costs of lockdowns that businesses have borne despite pandemics being excluded from policies. We think these concerns are overdone. However, banks have seen the sharpest falls in share prices, taking their valuations down to levels only previously seen during the global financial crisis when the solvency of the banking sector was in question, unlike today. So while the falls are easy to understand, as banks have to bear the brunt of losses arising from what is expected to be the deepest recession since the 1930s depression and on some metrics well before that, equally the upside here is the greatest when a sustainable recovery starts to get momentum. Importantly, the scale of government actions and those of central banks are on a scale never seen before and will dampen the losses that banks have to take, suggesting loan losses during the recession may well not be as bad as other less deep recessions in recent decades. But the relief provided to borrowers, whether from direct cheques to the unemployed, money to cover furloughed employees, grants, guaranteed loans, mortgage holidays etc. will be turned off at some point over the coming months and then defaults will likely pick up sharply. Against that background it is worth considering the actions of the largest shareholder of BlackRock, PNC Financial Services, which we own in the Trust and is one of the largest banks in the US. In May it sold its 22% stake to raise around $14bn. PNC's management team is seen as astute and was one of the winners of the global financial crisis buying troubled National City, a Cleveland Ohio headquartered regional bank with $150bn in assets in the depths of the crisis. They believe that this crisis will also provide significant opportunities to buy distressed assets. In the short-term until we see more evidence of defaults, or a significant rise in infections, the sector could continue to rally off the historically low valuations that it is currently trading at, as the economic outlook continues to improve and we start to see a recovery in activity. Whether any short-term rally is sustainable only time will tell but early evidence is promising. Either way, the longer-term value in the sector remains compelling which will be realised when economies and interest rates start to return to a more normalised environment. In that vein one of the biggest headwinds for the banking sector in recent years has been the decline in interest rates. Part of the reason for this is that central banks have had to do most of the heavy lifting in stimulating demand by keeping interest rates low as governments have run tight fiscal budgets. The steps that governments have had to take in recent months, as a consequence of COVID-19 induced lockdowns, as well as the potential impact from rising populism and trade conflicts may well lead to a less disinflationary environment looking forward which would materially benefit the sector. Nick Brind & John Yakas Note: We would draw shareholders' attention to http://www.polarcapitalglobalfinancialstrust.co.uk/ for regular monthly portfolio updates and commentary. *index performance figures are total return in Sterling, please see note 4 following the Financial Highlights regarding the Company's benchmark index. In local currencies the fall was 38.6%. Market Value £'000 % of total net assets Geographical Exposure Marsh & McLennan Toronto-Dominion Bank Arch Capital PNC Financial Services Asia (ex-Japan) Top 10 investments Diversified Financials AIA Group E. Sun Financial Hong Kong Exchange KBC Groep Citizens Financial Group SVB Financial First Republic Bank Intact Financial Corporation Progressive Corporation VPC Specialty Lending Investments UBS Group Bank of the Philippine Islands Solar Capital Keppel DC REIT Sumitomo Mitsui Financial Oversea-Chinese Banking Corporation Ares Capital Atom Bank (unquoted) Direct Line Insurance Prosperity Bancshares Enterprise Financial Services OneSavings Bank East West Bancorp Tisco Financial AJ Bell International Personal Finance 5.75% Bond Banca Generali Housing Development Finance Sparebank SMN Nationwide Building Society 10.25% CCDS Pollen Street Secured Lending Mapletree Commercial City of London Investment Group Aldermore Group 8.5% Bond HSBC Floating Rate Bond Itaú Unibanco Chailease Pension Insurance 7.375% Bond National Westminster Bank Floating Rate Bond Augmentum Fintech ING Groep Floating Rate Bond Jupiter 8.875% Bond Total investments Other net liabilities Note: Figures in brackets denote comparative rankings as at 30 November 2019. Geographical Exposure* Benchmark weighting as at 31 May 2020** Sector Exposure* Market Cap* Benchmark weighting as at 31 May 2020 Large (>US$5bn) Medium (US$0.5bn - US$5bn) Small (<US$0.5bn) * Based on the net assets as at 31 May 2020 of £142.7m (30 November 2019: £301.2m). **Classifications derived from the Benchmark Index as far as possible. Not all geographical areas or sectors of the Benchmark are shown, only those in which the Company had an investment at the period end. Corporate Matters Principal Risks and Uncertainties As mentioned above the COVID-19 pandemic has had a substantial impact on the global economy which also affects the performance of the Company and its underlying investments. The Directors categorise the risks to the Company presented by COVID-19 as emerging risks, the full effects of which will not be known for some time to come; the investment portfolio is however made up of primarily liquid listed investments and as the economy begins the movement towards recovery the outlook for the Company and the sector is positive. The Company has experienced no failures in service provision by third-party service providers or the Investment Manager as a result of the measures undertaken to combat the COVID-19 pandemic, this is primarily due to the successful implementation of business continuity arrangements at each organisation. The Directors therefore consider that the principal risks and uncertainties faced by the Company for the remaining six months of the financial year, which could have a material impact on performance, remain consistent with those outlined in the Annual Report for the year ended 30 November 2019. These principal risks can be summarised as business risks, including meeting the investment objective of the Company, and market-related risks encompassing factors such as excessive share price discount to NAV, market volatility, stock pricing and liquidity risk, currency and interest rate risk, counterparty risk, gearing and the ability to meet the dividend policy. Other principal risks include infrastructure risks, including the performance of the operational and accounting systems and processes provided by the Investment Manager, taxation, mis-valuation and legal and regulatory risks; and external risks which focuses on the exposure to the economic cycles of the markets of the underlying investments. The Investment Manager's Report comments on the performance in the period under review and the outlook for market-related risks. The Company's risk management framework is a structured process for identifying, assessing and managing the risks associated with the Company's business. The investment portfolio is diversified by geography which mitigates risk, but the portfolio is focused on a single sector, being financials, which means that it may be more sensitive to investor sentiment than a non-sector specific investment portfolio. To further mitigate risk the investments are diversified across a variety of sub-sectors including banking, insurance, property and others. As part of the risk review process the Directors continually assess the risks faced by the Company including monitoring the COVID-19 situation and effect on the economy. In consideration of the going concern position, the Board refer to the longer-term viability statement as published within the Annual Report and Financial Statements for the year ended 30 November 2019. In connection with the new risks presented by the COVID-19 pandemic, the Board has refreshed the stress-testing which was undertaken during the corporate action process in relation to the material uncertainty ahead of the Tender Offer being proposed. These stress tests included a revised five-year cash flow forecast which demonstrated the Company's ability to meet its short-term and long-term obligations. Having conducted these revised stress-tests, the Board is satisfied that it is appropriate to continue to adopt the going concern basis and further confirms the removal of the material uncertainty following completion of the Tender Offer to Shareholders on 29 April 2020. Additionally, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expenses and concluded that the Company is able to continue its operations and meet its expenses and liabilities as they fall due. The Directors have not identified any material uncertainties in relation to the Company's ability to continue in operation. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial results of the Company. In accordance with DTR 4.2.8R there have been no new related party transactions during the six-month period to 31 May 2020 and therefore nothing to report of any material effect by such transactions on the financial position or performance of the Company during that period. There have therefore been no changes in any related party transaction described in the last Annual Report that could have a material effect on the financial position or performance of the Company in the first six months of the current financial year or to the date of this report. Statement of Directors' Responsibilities As at 31 May 2020 The Directors of Polar Capital Global Financials Trust plc, who are listed in the Company Information section, confirm to the best of their knowledge that: · The condensed set of financial statements has been prepared in accordance with IAS34 as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as at 31 May 2020 as required by the Disclosure and Transparency Rules 4.2.4R; and · The Interim Management Report includes a fair review of the information required by the Disclosure Guidance and Transparency Rules 4.2.7R and 4.2.8R. The half-year financial report for the six-month period to 31 May 2020 has not been audited or reviewed by the Auditors. The half-year financial report for the six months ended 31 May 2020 was approved by the Board on 2 July 2020 and the responsibility statement was signed on its behalf by Robert Kyprianou, Chairman of the Board. Statement of Comprehensive Income for the half year ended 31 May 2020 Half year ended 31 May 2020 Year ended 30 November 2019 £'000 Other operating income (Losses)/gains on investments held at fair value Other currency losses Investment management fee Other administrative expenses (Loss)/profit before finance costs and tax (Loss)/profit before tax Net (loss)/profit for the period and total comprehensive (expense)/income (Losses)/earnings per ordinary share (pence) The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. The amounts dealt with in the Statement of Comprehensive Income are all derived from continuing activities. The notes to follow form part of these financial statements. Statement of Changes in Equity for the half year ended 31 May 2020 (Unaudited) Half year ended 31 May 2020 Called up share capital Capital redemption Share premium reserve Special distributable reserve Revenue reserve Total equity at 1 December 2019 Total comprehensive (expense)/income: (Loss)/profit for the half year ended 31 May 2020 Transactions with owners, recorded directly to equity: Shares bought back and held in treasury Shares bought back to treasury pursuant to tender offer Equity dividends paid Total equity at 31 May 2020 (Audited) Year ended 30 November 2019 Total comprehensive income: Profit for the year ended 30 November 2019 Total equity at 30 November 2019 Balance Sheet as at 31 May 2020 Investments held at fair value through profit or loss Overseas tax recoverable Bank overdraft Equity attributable to equity shareholders Capital redemption reserve Net asset value per ordinary share (pence) Cash Flow Statement for the half year ended 31 May 2020 Half year ended Adjustment for non-cash items: Losses/(gains) on investments held at fair value through profit or loss Scrip dividends received Amortisation on fixed interest securities Adjusted profit before tax Adjustments for: Purchases of investments, including transaction costs Sales of investments, including transaction costs Decrease/(increase) in receivables Increase/(decrease) in payables Overseas tax deducted at source Net cash generated from operating activities Shares repurchased from tender offer into treasury Shares repurchased into treasury Loan repaid Loan drawn Net cash used in from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Notes to the Financial Statementsfor the half year ended 31 May 2020 The financial statements comprise the unaudited results for Polar Capital Global Financials Trust Plc for the six-month period to 31 May 2020. The unaudited financial statements to 31 May 2020 have been prepared using the accounting policies used in the Company's financial statements to 30 November 2019. These accounting policies are based on International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB') and the International Accounting Standards Committee ('IASC'), as adopted by the European Union. The financial information in this half year Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the periods ended 31 May 2020 and 31 May 2019 has not been audited. The figures and financial information for the year ended 30 November 2019 are an extract from the latest published accounts and do not constitute statutory accounts for that year. Full statutory accounts for the year ended 30 November 2019, prepared under IFRS, including the report of the auditors which was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies. The Company's accounting policies have not varied from those described in the financial statements for the year ended 30 November 2019.The financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand pounds (£'000), except where otherwise stated. The Directors believe it is appropriate to adopt the going concern basis in preparing the financial statements. The Board continually monitors the financial position of the Company and in connection with the new risks presented by COVID-19, we have revised the stress-testing which was undertaken during corporate action process in relation to the material uncertainty ahead of the Tender Offer being proposed. These tests included a revised five-year cash flow forecast which demonstrated the Company's ability to meet its short-term and long-term obligations. Having carried out the revised tests, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial results of the Company. The assets of the Company comprise mainly of securities that are readily realisable and accordingly, the Company have adequate financial resources to meet their liabilities as and when they fall due and to continue in operational existence for the foreseeable future. See Corporate Matters section above for further details. 2 Dividends and Other Income For the half UK dividends Overseas dividends Scrip dividends Interest on debt securities Total investment income allocated to revenue Bank interest Interest on tax receivable Total other operating income 3 (Losses)/earnings per Ordinary Share Basic (losses)/earnings per share Net (loss)/profit for the period: Weighted average number of shares in issue during the period Basic - ordinary shares (pence) As at 31 May 2020 there were no potentially dilutive shares in issues (31 May 2019 and 30 November 2019: same). 4 Net Asset Value per Ordinary Share Net assets attributable to ordinary shareholders (£'000) Ordinary shares in issue at end of period As at 31 May 2020 there were no potentially dilutive shares in issues (31 May and 30 November 2019: same). 5 Share Capital During the six months ended 31 May 2020, the Company bought back 345,000 ordinary shares to be held in treasury (31 May 2019 and 30 November 2019: nil) for a total consideration of £310,000 (31 May 2019 and 30 November 2019: nil). In addition to this, as part of the share tender offer on 22 April 2020, 79,159,235 ordinary shares were bought back and held in treasury for a total consideration of £81,573,000 including costs. Subsequent to the period end, 25,000 ordinary shares were repurchased into treasury at a price of 110.25p per share. Following this, the company's issued share capital consists of 202,775,000 ordinary shares of which, 79,529,235 are held in treasury. The total voting rights of the Company stands at 123,245,765 ordinary shares. 6 Dividends The first interim dividend for the year ending 30 November 2020 was declared on 30 June 2020 and will be paid on 28 August 2020; it is anticipated that the second interim dividend for the year ending 30 November 2020 will be declared in or around December 2020 and will be paid on 28 February 2021. 7 Related Party Transactions There have been no related party transactions that have materially affected the financial position or the performance of the Company during the six month period to 31 May 2020. 8 Post Balance Sheet Events The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a global health emergency on the 30th January 2020, has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. The Board and Manager continue to monitor developments relating to COVID-19 and the impact on investment performance in line with the investment objectives. Subsequent to the half year end, the net asset value per share of the Company has increased by 4.0% from 115.8p to 120.4p and the Company's share price has increased by 2.1% from 106.8p to 109.0p as at 30 June 2020. Polar Capital, the appointed Investment Manager, is coordinating its operational response based on existing business continuity plans and on guidance from global health organisations, UK government and general pandemic response best practice. Certain statements included in this half year Report contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the principal risks and uncertainties included in the Annual Report for the financial year ended 30 November 2019. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Global Financials Trust plc or any other entity and must not be relied upon in any way in connection with any investment decision. The Company undertakes no obligation to update any forward-looking statements. www.polarcapitalglobalfinancialstrust.com Neither the contents of the Company's website nor the contents of any website accessible from the hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement. Smartlinks | Polar Capital Global Financials Trust plc | Top Business and Economy News | Finance | Stock Markets | Security Markets | Stock Markets | Security Markets | Company News | Top Company News | Financial Services | Investment Trusts | Investment Services | Manufacturing | Semiconductors and Electronic Components | Investment Trusts | London Stock Exchange (LSE) | Turquoise | BXE | CXE | Cboe Off Exchange | SIGMA X MTF

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professional_accounting

Stocks rose smartly last week, by more than 1.5% in a broad rally, despite soft gross domestic product news that caused shares to drop on Friday. First-quarter earnings reports came in, for the most part, as projected. The Commerce Department said that real GDP had risen at a 2.5% annual clip in the first quarter. That was up from 0.4% in the fourth quarter, but weaker than the 3% consensus estimate. The Dow Jones Industrial Average closed at 14,712.55, up 1.1%, or 165 points, on the week, while the S&P 500 added 27 points, or 1.7%, to end at 1582.24. Friday, the S&P fell 0.2%. The Nasdaq Composite index picked up 73 points and rose 2.3% last week, to 3,279.26. With May nearly upon us, John Leo Manley, the chief equity strategist for Wells Fargo Funds, is already thinking of the summer and likens the market to a beach ball under water. "When you push it down, it just bobs up." What's behind that bob? Monetary easing by central banks around the world in general, and the Federal Reserve's quantitative bond buying in particular, he says. Investors must realize two things, Manley avers: "First, the Fed isn't going to stop soon, and secondly, no one is going to be able to say soon that the Fed's easing won't work." So the market goes up just when bears are able to push it down, as happened the previous week. This week, investors have a plethora of news to look forward to, including a Fed meeting topped off by April nonfarm payroll numbers. Given the surprise of the unsatisfying March payroll figures one month ago, notes Douglas Cote, chief market strategist at ING Investment Management, the market will look to see if that disappointing data was a one-time event. Speaking of summer, the market is approaching its traditionally weak season. According to Robin Carpenter, who heads up research firm Carpenter Analytix, from 1972 through 2012, the S&P had an average price gain of 6.8% in the seven months from October through April. In the other five months, the S&P had a cumulative loss of 1.62%. After the rip-roaring 11% start to 2013, that shouldn't stop investors from enjoying the summer, should it? J.C. Penney (ticker: JCP) shares soared 11.6% last week, to $17, after Soros Fund Management disclosed a 7.9% stake in the beleaguered firm. That was a shot in the arm for a retailer decimated by former CEO Ron Johnson's failed plan to transform it into "a specialty department store." The stock was $40 just 13 months ago. Johnson's gone, but Penney remains hated, with almost 40% of its shares sold short. The company has an enterprise value (net debt plus market capitalization) of $5.7 billion, with about $3 billion in debt and $930 million in cash. Property and plant on the balance sheet equal $5.3 billion, after $3.1 billion in depreciation. Penney's revenue fell 25% in 2012, to $13 billion, and Johnson was recently replaced by his predecessor, Myron Ullman. Trying to predict the retailer's fortunes is a wild guess at best, so equity valuations for such a risky stock aren't useful. Shorts say liquidity issues could drop Penney to $10. But any evidence of stabilization—however, unlikely—could jump-start the shares. The bonds might prove less risky, says James Roumell, president of his eponymously named investment-management firm in Chevy Chase, Md. He's been buying Penney bonds due 2020 with a coupon rate of 5.65%. They trade at about 83-84 cents on the dollar, he adds, providing an annualized yield to maturity of 8%-9%. The bonds are selling at "stressed levels, not distressed," he observes. The rationale is that, in the worst case, Penney's assets can cover its debts, and that even if the retailer just muddles along, the bonds can rally close to par. Yet investors disagree on the value of the company's real estate. Penney owns nine of its 27 distribution centers; 426 of its 1,102 stores, including 121 on land leases; its Plano, Texas, headquarters, and 240 acres around it. Investors we spoke with put the owned real estate at anywhere from $1.6 billion to $3 billion. One estimate, which included the value of long-term contracts on leased properties, had it near $8 billion. Penney's woes make its stock a speculation, instead of an investment. The bonds seem a better bet. IF THE RELATIVE STOCK performance between Johnson & Johnson (JNJ) and Cisco Systems (CSCO) were a battle of market heavyweights, J&J would be winning handily on points. At Friday's close of $85.12, the giant health-care and medical-product company is up about 21% this year, compared with the market's 11%. Cisco, at $20.67, has risen just 5%. Investors remain nervous about this bull market's longevity, and those wanting big blue chips have opted for stable defensive names like J&J, rather than cyclical technology giants like Cisco. Even though the networking-equipment maker's earnings-per-share gains and free-cash-flow growth over the past 10 years have, on average, bettered J&J's, there's a bias to the defensives. The idea is that if things go belly-up, folks will stop purchasing routers before they stop buying aspirin. While there's a logic to that, the wide valuation disparity seems much more a result of market style than differences in fundamental outlook. That should make a long-term investor think twice about adding J&J at this price and ignoring Cisco. Both companies are dominant players in their industries and possess industry-leading financial strength, says Martin Leclerc, a money manager at Barrack Yard Advisors. Triple-A credit Johnson & Johnson has about $6 billion of net cash. Cisco is rated just A-plus, despite having net cash of some $30 billion, he notes. Their market values are $238 billion and $110 billion, respectively. Though J&J's business is somewhat non-cyclical and thus perceived as less risky, the cyclical risk associated with Cisco, Leclerc says, is mitigated by its solid incumbent position in global information technology infrastructure, a strong balance sheet, and low valuation. "It's when things are cheap that they seem riskiest," says the portfolio manager. Using this logic, Cisco is less risky than J&J. Indeed, if Cisco's net cash of $5.60 per share is subtracted from its stock price, the shares trade at about nine times earnings per share, less than half of J&J's multiple, though the technology outfit has a better track record. When various one-time charges to earnings are added back to J&J's net profit line, the health-care giant shows little EPS growth over the past eight years. J&J hiked its dividend 8% Thursday, but its payout ratio—the payout as a percent of earnings—is about 64%. At Cisco, which only recently began paying a dividend, the ratio is just 27%, so it would appear to have more room to boost its payout. Indeed, this month, it announced a 21% hike. Leclerc says he bought Cisco for the first time recently and that J&J, which he's held a long time, is close to his $90 sell price. J&J is winning the match so far, but when earnings fundamentals come back in style, as they usually do, they appear to favor Cisco. The good news is that International Paper shares are up more than 50% since we wrote bullishly about the paper-and-packaging company two years ago ("No Paper Tiger," May 2, 2011). Even better, investors can look forward to more gains, based on recent industry-wide price hikes and strong cash generation by Memphis-based IP. In our story, Chip Dillon, formerly of Credit Suisse and now at Vertical Research Partners, made the case for the shares (ticker: IP) to hit $42 by May 2012, based on stronger demand, improved pricing, international growth, and margin expansion. While IP's $4.5 billion takeover of rival Temple-Inland delayed the gains a bit, the stock reached a high of $49.10 in early April from $30.48 at the time of our story. Dillon's current price target is $55, and IP, with a market value of $22 billion, remains his top large-cap pick. Demand for containerboard, the material used to make brown corrugated boxes, is strong and supplies tight. Those conditions have prompted an industrywide price hike of $50 a ton that could add more than $1 a share to IP's bottom line, according to analyst Philip Ng at Jefferies. Based on that, the company's ability to return cash to investors and an 11% free-cash-flow yield, Ng rates the stock Buy and sees it hitting $60 in the next 12 months, a 29% gain from Friday's $46.41. Last week, IP said that it is exploring the spin-off and merger of its non-core packaging and paper-supply distribution business, xpedx. Under the plan, xpedx would be divested into a new company, and IP would get a yet-undetermined cash dividend, financed by debt from that entity. The new company would then be spun off to IP shareholders and merged with Bain Capital's Unisource Worldwide in a tax-free transaction. IP reduced debt by $2 billion in 2012, raised its dividend 14%, and sees "more runway on the dividend" ahead. While increasing the payout is a priority, the company has also said that it will consider share buybacks. This is a paper trail worth following. Stocks rose smartly last week, by more than 1.

{'timestamp': '2019-04-25T22:24:33Z', 'url': 'https://www.barrons.com/articles/SB50001424052748703889404578438852165839048', 'language': 'en', 'source': 'c4'}

professional_accounting

I told her that she was actually talking to the wrong guy. I explained that the “go-to” person to speak with about starting a business and running it in a way that would minimize mistakes was a local accountant. She thanked me for the advice and went along; I hope to find an accountant. This got me to thinking that there are probably many would-be entrepreneurs who have the same question, and thus, the inspiration for this article. To put some meat on the bones for this piece, I decided I needed to talk to my friend, Craig Satz, a CPA I know in Mesa, AZ, whose clientele is made up mostly of smaller businesses. After describing the purpose of my call, he explained that the work that accountants do for small businesses falls into two categories: business services and tax services. And, he mentioned, both of these subjects must be addressed before the business is launched, and thereafter on a regular basis as the business grows and prospers. Select a business structure that best fits your needs by evaluating tax advantages, legal exposure, ease of operation, and portability should you need to relocate. Setting up Articles of Incorporation (Corporation) or Articles of Organization (LLC). Establishing an Employer ID number. Determine your start-up budget and working capital needs. Establish billing and collection procedures. Set up a home office so you can benefit from certain tax advantages. Comply with employment laws so you don’t get fined or have unhappy employees. Small Business Accounting – Small business accounting will include helping to reconcile bank statements, preparing monthly or quarterly financial statements, checking your general ledger for accuracy, and helping you determine how much of your accounting you can and should do yourself, and how it should be accomplished. For example, your accountant can help you decide if you are you a candidate for QuickBooks and if so, do you need to be trained to use it properly. Payroll – Your accountant can help you decide how to do your payroll. In some instances it might be best for you to do it yourself, or you might decide that you want your accountant to do it for you. Or, depending on your situation, your accountant might recommend a payroll service such as ADP Payroll Services. Audits, Reviews, and Compilations – Some companies will be required by lenders or customers to have their books audited by an independent third party. Many accountants will perform audits for their clients. Reviews and Compilations are similar to audits but less expensive and the requirements are not as strict as an audit. Internal Controls – At times, you may need a trained outside professional to evaluate your company’s operations to determine if the appropriate controls are in place to ensure proper handling of resources and to protect yourself and the company from problems such as employee theft. Cash Flow Management – Everything is better when your incoming cash exceeds your outgoing cash. A cash crisis can be emotionally devastating, and it can even kill your business. If you’ve ever had to beg, borrow, or steal to cover payroll, you know what I mean. Your accountant can help you understand when, where, and how your cash shortfalls will occur and help you determine the best sources for meeting your additional cash needs. Tax Preparation – Tax preparation will include preparation of federal and state income tax returns, as well as sales tax returns for businesses that sell products at retail like a restaurant or a hardware store. A special note: if you are in the construction business where you sell labor and material, or if you are an e-commerce company, sales tax issues can be very complex. Tax Planning – Tax planning is the key to successfully and legally reducing your tax liability. A good accountant will proactively recommend tax saving strategies to maximize your income and the value of your business. Resolving Tax Problems – Once in a while, almost every business owner or his or her business has a tax problem that will require the help of an accountant. Examples include representation at IRS audits, payroll tax problems, IRS payment plans, and unfortunately, others. Starting and managing a successful small business is bone-crushing hard work; just ask anyone you know who does it. Simply writing a great business plan isn’t enough. That’s why you need the services of a trusted advisor, your accountant, who can help you make informed business and financial decisions. By the way, if you need help in finding an accountant, you might want to visit GoodAccountants.com, one of many online accounting directories.

{'timestamp': '2019-04-19T14:24:33Z', 'url': 'https://www.caycon.com/blog/2012/07/why-startups-need-accountants', 'language': 'en', 'source': 'c4'}

professional_accounting

Financial Accounting MCQs /Page 9 102. Amount paid to Gagan posted to the credit side of his account would affect (a) Gagan's account (b) Cash account (c) Cash account and Gagan's account (d) None of these 103. Which of the following statements is/are true ? (a) A sale of an asset is recorded in the Sales Book (b) Total of Return Outward Book is debited to Return Outward Account (c) The balance of Petty Cash Book is a liability (d) Cash Book is a subsidiary book as well as a ledger [Hints: (d) The sale of an asset is recorded in the Asset Account and not in the Sales book (which pertains to sale of goods). Statement (a) is false. Total of Return Outwards book (being purchase return) has a credit balance. The total is transferred at the end of the period to the credit of the Purchase Account and not debited to Return Outwards Account. Statement (b) is false. The balance of Petty Cash book is not a liability, it is an asset as it is the balance of cash left with the petty cashier. Statement (c) is incorrect. Cash Book is both a subsidiary book or book of original entry where all cash transactions are directly recorded and a ledger, it plays the role as a Cash Account (a ledger). Hence statement (d) is true. 104. Which of the following is true regarding closing entries? (a) They must be followed by reversing entries (b) They transfer the balances in all of the Nominal Accounts to the Trading and (c) They must be made after the reversing entries but before the adjusting entries (d) They must be made after the adjusting entries but before the reversing entries [Hints: (d) Closing entries are required to transfer the nominal accounts to the Profit & Loss Account and the Trading account. Real accounts and personal account are not closed to Profit & Loss Account or Trading Account. Their balance is carried in the Balance Sheet and appears as opening Balance in the next accounting period.] 105. Closing stock is generally valued at (a) Cost Price (b) Market Price (c) Cost price or Market price whichever is higher (d) Cost price or Market price whichever is lower [Hints: (d) Para 5, of AS-2 states that inventories should be valued at the lower of cost and net realizable value.] 106. Which of the following assets is/are to be valued at the lower of cost and net realizable (a) Goodwill (b) Inventories (c) Investments (d) Both (b) and (c) above. [Hints: (b) Inventories (b) are to be valued at the lower of cost and net realizable value. All the other assets stated in other alternatives are valued as per the cost concept. Goodwill (a) is a fixed intangible asset and is shown at the cost of its acquisition. Investments (c) are valued at cost or market value whichever is less. The combination of (b) and (c) is incorrect because a correct answer with incorrect answer is an incorrect answer. Thus, the correct answer is (b).] 107. A few errors committed in Ahhiwalia's books of account are given below. State which errors would affect the Trial Balance. (a) Sales of '950 to Ram completely omitted from books of account (b) Purchases of '720 from Shyam entered in the purchases journal as '700 (c) Purchases Journal is overcast by '1,000 (d) Sales returns journal is undercast by '200 (e) Amount paid to Agarwal wrongly posted to the debit to Mittal's account (f) Bank overdraft shown under debit column in the Trial Balance (g) Sales of 7500 to Sadiq entered in sales journal as sales to Mushtaq (h) Wages paid for installation of machinery debited to wages account (a) a, c and g (b) c, d and f (c) c, d, e and h (d) c, d, f and h 108. Which of the following methods is not a practical way of realizing revenue? (a) Delivery method (b) Percentage-of-completion method (c) Production method (d) Moving average method [Hints: (d) The following methods are the practical ways of realizing revenue applying the conservatism concept and realization concept and the (a) Delivery method in case of sale of goods, (b) Percentage-of-completion method in case of rendering of services and (c) Production method in case of agriculture produce. Thus, these are the various ways of recognizing revenue and the methods adopted to recognize revenue. Moving average method (d) is the method of valuing inventory and it is not the method adopted to recognize revenue. Thus, (d) is the correct answer.] 109. The amount payable to a person as consideration for the use of rights vested in him is (a) Dividend (b) Royalty (c) Purchase consideration (d) Installment [Hints: (b) The amount paid to the landlord for use of rights vested in him is the royalty. Dividend is the amount paid for the investment made in an enterprise and is not the correct answer. Purchase consideration is the price paid for receiving a title of a property moveable and immoveable and is not the correct answer. Installment is the payment of amount in stages and is not the amount paid for using the rights vested in the landlord and is not the correct answer.] 110. Buildings account is debited with an amount towards repairs. This is an example of (a) Error of commission (b) Error of principle (c) Error of omission (d) Compensating error [Hints: (b) Buildings account debited with an amount towards repairs is an error of principle. Error of principle is a wrong classification of expenditure or receipt.] 111. The concept of conservatism will have the effect of (a) Overstatement of Assets (b) Understatement of Assets (c) Overstatement of Liabilities (d) Understatement of Liabilities [Hints: (b) The concept of conservatism will have the effect of understatement of assets since the financial statements are usually drawn up on rather a conservative basis. Window-dressing i.e., showing a position better than what it is, is not permitted.] 112. During the year 2011 -2012, the value of closing inventory was overstated by ? 25,000. Which of the following is true? (a) The cost of goods sold was overstated during 2011 -2012 and income will be understated during 2012-2013 (b) The income was overstated during 2011-12 and closing inventory will be overstated during 2012-2013 (c) The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013 (d) The cost of goods sold was understated during 2011-2012 but retained earnings will not be affected during 2012-2013 [Hints: (c) Closing Stock's overstatement increases the profit of the current period and results in the increase of retained earnings relating to the current accounting period. It decreases the profit and thereby retained earnings of the next accounting period since the closing stock of the current accounting period becomes the opening stock of the next accounting period, the overstatement of which has the effect of decreasing the profits and retained earnings.] 113. Which of the following errors is an error of omission? (a) Sale of ? 100 was recorded in the Purchases Journal (b) Wages paid to Mohan have been debited to his account (c) The total of the sales journal has not been posted to the Sales Account (d) Repairs to buildings have been debited to buildings account [Hints: (c) Error of omission occurs when a transaction is entirely omitted from record in the original books partially omitted while posting. Therefore, omission of posting of the sales journal to the Sales Account is an error of omission.] ▼ May ( 233 ) ▼ May 11 ( 38 ) Cost Accounting MCQs page 3 Cost Accounting MCQs Auditing MCQs page 11 Auditing MCQs page 9 Auditing MCQs /E book Library Financial Accounting MCQs page 16 Financial Accounting MCQs /Page 13 Financial Accounting MCQs page 2 Financial Accounting MCQs

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professional_accounting

Optimise before you digitise audit, advises Riaan Koppeschaar, Exxaro finance director 16 June 2021 Tamara Oberholster Digitisation offers massive benefits but requires strategic thinking and infrastructure investment, says Exxaro FD. This Future of Audit Series interview is proudly brought to you by ACCA. As business evolves, so too must audit methodology and the audit product itself, says Riaan Koppeschaar, finance director at Exxaro Resources. Whereas auditing has to date focused on providing assurance focused on financial information, Riaan believes the industry will need to begin to address other market needs, such as audits related to climate change or ESG investing. As one of the largest South African-based diversified resources groups, Exxaro needs to keep ahead of such developments to ensure the company’s long-term sustainability. From an auditing perspective, Riaan says the company has worked hard to stay ahead of the curve and had already moved its financial systems to the cloud before Covid-19 struck. “I think that was obviously a big positive,” he says. “With the onset of Covid, when we had to audit in the cloud, it was possible for people to get access to the various systems remotely, to extract information, and for us to give access to the auditors.” Nevertheless, given that Exxaro’s business takes place across several sites, including mines at various different locations, undertaking the entire audit virtually was no easy task. “Obviously, there were challenges like physical asset verification – things like stock counts,” he says. However, between the Exxaro team and the auditors, resourceful solutions were employed. “Where there were locations where auditors could not get onsite, we had our people video calling with them on the phone and the auditors would direct them to what they needed to see, so they could show them the stock and verify serial numbers and things like that,” says Riaan. “And in our new Belfast mine, which we commissioned last year, it’s very much digitised, so we already had a drone system in place to manage stock counts.” Drones do flights over the mine’s stock piles to survey them, and then the data is fed into auditing software that automatically calculates stock volumes and attaches values to them. In the long term, this not only cuts down on costs and improves efficiency, but also ensures that people don’t have to risk their safety by manually venturing into the stock piles. “In some of our audit processes we’ve also implemented robotics to run the process,” says Riaan. “Auditors are now using more and more robotic tools to perform audit procedures, which means that whereas in the past they were only doing samples on a manual basis, they can now run through our whole database to provide 100 percent verification. I think that’s one of the changes that we will see more and more in future.” Riaan believes that this will improve audit quality, and that cloud-based systems are more secure from a data management perspective. “You've got a central repository of all the information that you can retain – it’s not spread over different servers, all over the place. And then over the longer term, there are also cost benefits associated with the cloud and software-as-a-service. You don't need to buy servers anymore and you pay for what you use. It’s a much more scalable model that ensures you’re not paying for idle capacity.” Investing in digital transformation Of course, moving the audit online meant Exxaro, like many other organisations, had to beef up its IT infrastructure and its cybersecurity. “I think the big thing that people underestimate is the need for a very strong ‘backbone’”, he says, referring to the connectivity required to ensure digital systems are able to function. “It doesn’t help you try to audit virtually or do these things in the cloud and you've got a an unreliable WiFi system.” While this may sound like common sense in an office environment, Exxaro’s connectivity needs extend to harder-to-reach areas, like underground mining operations. “We’ve had to install WiFi underground in some of our mines, so we’ve been investing in 5G networks, which initially comes with a capital outlay, but if you don’t have that you’re not going to be able to get the benefits of digital systems,” he says. Exxaro has been investing in digital transformation of more than its financial systems and asset management. It’s also been working to digitise certain aspects of the HR function, as well as its supply chain. Riaan says it’s important to prototype the solution and trial it in a specific part of the business to test its effectiveness before rolling it out throughout the group. “To get the full benefit, you must have a holistic solution, not a ‘point solution’ that only addresses one area, but not the whole value chain. If you’ve got an inefficient process, it doesn’t help you to digitise it – then you just get garbage faster. You need to optimise the whole process first, otherwise digitisation is not going to assist you,” he says. Exxaro went as far as sourcing routers and dongles for employees during the hard lockdown to ensure they were connected. “It’s important not to assume that all your employees have access to reliable internet,” he says. “Of course, a challenge that’s more unique to South Africa is that all of this sounds very nice, but you run into major problems when loadshedding happens and people can’t get into digital meetings or do their work.” The human role Despite the drive towards digital transformation, Riaan believes that completely virtual audits are not necessarily ideal and that a hybrid model is more likely to be adopted in future. “I think it’s still good to have a human interface and that there will always be some kind of personal contact required,” he says. Even where digital solutions can be employed for the sake of cost, accuracy or human safety (such as drone surveying of stockpiles), Riaan says that auditors might still undertake site visits, but run many of their processes virtually at the site. “Keeping contact with teams and connecting with people and giving feedback – that is still very important, and I don’t see that changing,” he concludes. Audit is here to stay, but needs to evolve, says Tarryn Pedlar Partner at Moore Durban says big data analytics and value-add are the future of audit. Kholeka Mzondeki says influence comes with privilege and should be used for good Experienced non-executive director says audit committees play a key role in demonstrating credibility to shareholders. “Are these the auditors we want?” asks Julius Mojapelo The CEO of the Institute of Internal Auditors South Africa says audit should be a civil service. Survey shows client willingness to rotate auditors, says Adiebah Moruck The future of audit: market view report by Mazars Group highlights need for audit soft skills. Audit firms need cybersecurity expertise, says SigOct Founder Cybersecurity is set to become a bigger component of audit, says Ian Sharland. Governance starts with personal responsibility, says Kyansambo Vundla Restoring trust requires enlisting and empowering the right people, says RMA Group CFO. Audit shouldn’t be a necessary evil, but a value-add, says Jo Pöhl Audit innovation is about improving the user experience, says iOCO CFO. Professionalise the public finance role, says CIGFARO president Public sector audit issues can be solved through appointing the right people, says Peet du Plessis. NGO auditing is not to be underestimated and requires specific skills, says Nico Esterhuizen CFO of JAM International says non-profit accounting holds subtle but important differences from its commercial counterpart. 10 Finance leaders share their insights into the future of audit Can the audit profession restore trust? Will new technologies cannibalise jobs? Find out from the experts. Transfer pricing audits – the surprise multinationals want to avoid, says Michael Hewson Graphene Economics founder says transfer pricing audits arrive years down the line, creating surprise risk exposure. Audit firms must re-look their business model, says Ascendis Health CFO CJ Kujenga says audit needs to add business value and to grapple differently with complexity.

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professional_accounting

The Tax Benefits of ABC Companies with the right production and cost characteristics can achieve considerable savings. BY STEVEN C. DILLEY, FRED H. JACOBS AND RONALD M. MARSHALL THE BENEFITS OF ACTIVITY-BASED costing are well documented. Less well known are the substantial income tax savings that some companies can achieve if ABC is used to determine taxable income. TAX SAVINGS COME FROM TWO MAJOR sources. There will be savings if some of a company's products use large amounts of the single plantwide cost driver but very few of the ABC drivers. There also will be savings in the year a company switches to ABC if average overcosted product inventory levels, as a percentage of production, exceed average undercosted product inventory levels. ADDITIONAL FACTORS CAN AFFECT THE amount of tax savings available by using ABC. These include annual overhead cost changes, production level changes, the uniform capitalization rules of IRC section 263A, inventory flow assumptions and the use of alternate costing systems. SWITCHING FROM A PLANTWIDE overhead allocation system to an ABC system for tax purposes constitutes a change in accounting method and requires Internal Revenue Service approval. Taxpayers must file Form 3115, Application for Change in Method of Accounting . MANY COMPANIES ARE RELUCTANT TO switch to ABC because they are unsure of the benefits. However, if a company has particular production and cost characteristics, the available tax benefits are certain, predictable and potentially significant. Steven C. Dilley, CPA, PhD, JD, is professor of accounting at Michigan State University, East Lansing. Fred H. Jacobs, CPA, PhD, is associate professor of accounting at Michigan State University. Ronald M. Marshall, CPA, PhD, is associate professor of accounting at Michigan State University. T he overall benefits of activity-based costing (ABC) have been well documented over the past decade. By providing cost driver and product cost information that is more precise than plantwide allocation systems, ABC systems usually result in better strategic decisions and process control. Yet there is another potential benefit of ABC. In a wide variety of circumstances, a company can realize significant tax savings if it uses ABC to determine taxable income. Although the savings will be greatest in the year of the switch from a plantwide system, there should be benefits in the years following the change as well. This article demonstrates the potentially significant impact ABC can have on the tax liability of some companies. Consider, for example, a simplified company, Jupiter, Inc., that switches from a traditional plantwide overhead allocation system to an ABC system. Jupiter produces only two products, Hi-V and Lo-V. Hi-V is a high-volume product that represents the company's major source of revenue and profit. It is produced once a month, inventoried and shipped to customers twice a month. Lo-V is a specialty product that is made to order for several smaller customers. It is produced each time an order is placed-usually once a week-and immediately shipped to the customer. The plantwide system uses direct labor hours to allocate costs. The ABC system has five overhead cost pools (engineering, receiving, setup, packing and all other) and corresponding cost drivers (engineering change orders, receiving orders, setups, shipments and machine hours). Detailed cost, activity, production and sales data for Jupiter are shown in exhibit 1. Product cost computations for both systems are shown in exhibit 2, at right. Jupiter is a typical manufacturing company, with approximately 60% of its product costs in direct materials, 10% in direct labor and 30% in overhead. The traditional system overcosts (assigns too much of the costs to) Hi-V by $18.51 per unit, or 27% of its ABC cost, and undercosts Lo-V by $37.01, or 54%. A company of this type often is used to illustrate the weaknesses of a plantwide allocation system and the strength of ABC. When products place significantly diverse demands on manufacturing resources, no single cost driver can accurately reflect those demands and yield accurate product costs. The high-volume product that uses a disproportionately small share of manufacturing support services will be overcosted, and the low-volume product that uses a disproportionately large share of support services will be undercosted. Income statements for year 1, the year of Jupiter's switch to ABC, and for year 2, the year after, are shown in exhibit 3 and exhibit 4 . Typical gross margin and profit margin percentages of approximately 30% and 10%, respectively, are assumed, along with a 34% tax rate. In year 1, the change to ABC increases the cost of goods sold and thus decreases taxable income by $22,207. As a result, taxes are reduced by $7,550, or 11%. In year 2, the reduction in taxable income is $3,701, with corresponding tax savings of $1,258, or approximately 2%. BASIC SOURCES OF TAX SAVINGS The following general formula can be used to explain and predict the tax savings a company can expect by switching from a plantwide to an ABC system. Tax savings = (allocation error x inventory difference) x tax rate The allocation error is the sum of the allocation errors for all of the company's overcosted products. The inventory difference refers to the difference between the average inventories of the overcosted products and undercosted products as a percentage of production. For example, using the amount that Hi-V is overcosted (from exhibit 2 ) and the inventory differences between Hi-V and Lo-V (from exhibit 1 ), the tax savings for Jupiter can be calculated: Tax savings = ($222,065 3 .10) 3 .34 = $7,550 The formula identifies two major sources of tax savings. There will be savings if some of a company's products use large amounts of the single plantwide driver but very few of the ABC drivers. In Jupiter's case, Hi-V uses 86% of the direct labor hours but an average of only 25% of the five nonvolume drivers. Lo-V uses only 14% of the direct labor hours but 75% of the ABC drivers. There will be savings in the year of the switch if average overcosted product inventory levels, as a percentage of production, exceed average undercosted product inventory levels. After that, the average change in overcosted product inventory levels must be larger. For Jupiter, in year 1 the inventory of the overcosted Hi-V is 10% of its production, compared with 0% for the undercosted Lo-V. In year 2, the inventory of Hi-V increases, while there is still no Lo-V inventory. Both of the above factors must be present for there to be any tax savings. Some additional factors could affect the amount of tax savings: Annual overhead cost changes. If annual overhead costs increase, tax savings under ABC also increase. For Jupiter, if overhead costs in year 2 increase by 5%, tax savings increase from 2% to 3%. In fact, after a company has switched to ABC, overhead cost increases can produce tax savings even if inventory percentages don't change. Production level changes. If production levels increase, tax savings under ABC usually increase as well. For Jupiter, if the year 2 Hi-V inventory increase occurs because of increased production, and if 75% of overhead costs are variable, tax savings in year 2 increase from 2% to 3%. Thus, in general, a growing company with increasing production, sales and inventories will benefit even more than Jupiter. Uniform capitalization rules. Internal Revenue Code section 263A requires capitalization of more premanufacturing and postmanufacturing costs. This usually will lead to greater allocation errors and increased tax savings. Inventory flow assumptions. For Jupiter, the inventory flow assumption was first-in, first-out. In a last-in, first-out system, the impact of a switch to ABC depends on the extent to which older inventory layers become part of cost of goods sold. Alternate costing systems. These systems initially trace overhead costs to specific manufacturing support and production departments and then use departmental rates to allocate these costs to individual products. Such departmental systems are more accurate than plantwide systems but less accurate than ABC systems. As a result, allocation errors and corresponding tax savings will be smaller for companies that switch from a plantwide system to a departmental system or from a departmental system to an ABC system. Exhibit 5 summarizes the major factors that contribute to income differences and tax savings. A switch from a plantwide overhead allocation system to an ABC system for tax purposes constitutes a change in accounting method and requires Internal Revenue Service approval. Companies seek this approval by filing Form 3115, Application for Change in Method of Accounting . Taxpayers are required to disclose the adjustment under IRC section 481, which shows the difference in taxable income with and without the accounting method change. If the cutoff method is selected, or if the adjustment is $25,000 or less, the adjustment can be taken in the year of the change. Otherwise, it must be spread over a number of years, based on an agreement between the taxpayer and the IRS. For a Lifo taxpayer, completing form 3115 and computing the adjustment is substantially more complex because of the need to restate the various Lifo layers. THE CHOICE IS ABC Surveys have suggested that one of the major reasons for the reluctance of companies to switch to ABC systems is the uncertainty of the resulting benefits. Because strategic decisions depend, in part, on noncontrollable, external factors, benefits attributable to more precise product costs often are difficult to quantify or even realize. These difficulties, however, do not apply to tax benefits. If a company's production and cost characteristics are consistent with those described here, the benefits are certain, predictable and potentially significant.

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professional_accounting

In Goldilocks and the Three Bears, a little girl searches for porridge that’s not too hot, not too cold, but just right. Your search for the right professional employer organization (PEO) requires a similar journey of taste-testing to find the perfect match for your company. As a co-employer, the PEO you choose will ultimately take responsibility for processing payroll, providing workers’ compensation insurance coverage, providing employee benefits and a host of other sensitive tasks. A mismatch between your company’s culture and that of your PEO, or partnering with a financially unstable PEO, can spell trouble both for your company and your employees. The internet abounds with stories of PEOs increasing rates without warning or going out of business without paying employees or payroll taxes. To ensure the best fit possible between your company and this close partner, you’ll need to conduct a thorough analysis of your potential PEO. Here are five steps you can’t afford to avoid. Employer Services Assurance Corporation (ESAC) – This is an independent agency that reviews the ethical, financial and operational practices of PEOs. It also provides some financial assurance through bonds covering each PEO it accredits. To be accredited, a PEO must provide ESAC with comprehensive information, including audited financial statements, quarterly independent CPA verification of tax payments, benefit plan information and evidence of required employer insurance coverage. State licensing or registration – Most states have an online tool that allows you to verify whether the PEO has an active license or registration, such as the Texas Department of Licensing and Regulation (TDLR). You should check for licensing and good standing in each city and state in which you have employees. In addition, recently, the IRS established a new voluntary program for PEOs – certified professional employer organizations (CPEO). The certification is the result of a decade of advocating for a federal law that establishes guidelines and a framework for the professional employer organization industry and the payment of federal employment taxes. So before you sign on the dotted line, you may want to ask: Are you a certified professional employer organization? * The IRS does not endorse any particular certified professional employer organization. For more information on certified employer organizations go to www.IRS.gov. A reputable PEO will be happy to share references. Ask for three to five current customers’ contact information, ensuring the list includes a mix of long-term and newer clients. It’s a serious red flag if your potential PEO hesitates over this request or has trouble putting together such a list. Why did you join a PEO? How many PEOs did you review before choosing this one? Why did you choose this particular PEO? How has the PEO helped your business? What do you wish you had known before you joined the PEO? What are this PEO’s weaknesses? How long do you plan to stay with the PEO? Why? Look to social media and search engines for a sense of the PEO’s public persona. Check the company’s website, LinkedIn, Facebook and Twitter pages to see what it says about itself, and also search these sites for references to the company’s name, the CEO and the salespeople you interact with. You’re not necessarily looking for dirt – you’re trying to get a sense of its corporate personality. Social media is a great place to discover if customers have complaints, what those complaints are and how the company responds. Also look for what the PEO’s employees say about it online, what awards it’s won, if it’s recognized as a leader in the industry, whether it gives back to the community and more. If its own employees and current customers seem satisfied overall, and if the company responds in a positive manner to online questions and concerns, there’s an indication you’re likely to have a similar experience. If the PEO is a publicly traded company, it should be easy to find its audited financial statements online. Look for the PEO’s annual report on its website or SEC.gov, and verify that information using your favorite investment research website. If your potential PEO is privately owned, you should request a copy of its latest audited financial statements. The audited financial statements should show that the PEO has adequate net worth and working capital, including sufficient financial reserves for any loss-sensitive or self-insured insurance plans. Because these audits evaluate a PEO’s internal controls and accuracy of financial information, groups like the National Association of Professional Employer Organizations (NAPEO) consider it an industry best practice. Several state licensing and registration laws require PEOs to provide audited financial statements. While independent audits won’t prevent fraud or financial failure, they will include the independent auditor’s opinion whether the PEO’s statements are materially accurate, complete and fairly presented per generally accepted accounting principles. When was the company founded? How long has the current leadership team been in place? How many years has the company offered PEO services? Are its PEO services its core offering or a sideline to another business? Where is the company headquartered? How many other offices does the company have and where are these located? How many corporate employees does it have? How many clients and worksite employees (i.e., employees of client companies) does it have? What credentials does its staff members have? Does the PEO have HR professionals in your company’s key locations? If not, what is their expected response time, should you need them onsite? How does the PEO usually communicate with its clients? Does it proactively contact clients or wait for clients to call? Can you meet the people who will service your account? How many clients does an account representative typically handle? Can you see your service agreement? Answers to these questions will give you a better understanding of the personality of the PEO and whether your cultures will be aligned in a co-employment relationship. They can also help you determine the stability and sustainability of the PEO. Learn more about finding the right PEO for your company. Download the free e-book, A Buyer’s Checklist: How to Compare Professional Employer Organizations.

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professional_accounting

flgt-8k_20191104.htm Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exact Name of Registrant as Specified in Charter) incorporation) Temple City, California Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) FLGT The Nasdaq Stock Market (Nasdaq Global Market) Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ Item 2.02 Results of Operations and Financial Condition. On November 4, 2019, Fulgent Genetics, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended September 30, 2019. A copy of the Company’s press release containing this information is being furnished as Exhibit 99.1 to this Current Report on Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. Financial Statements and Exhibits. Exhibits. Press Release of Fulgent Genetics, Inc., dated November 4, 2019 /s/ Paul Kim Paul Kim flgt-ex991_6.htm Exhibit 99.1 Fulgent Genetics Reports Third Quarter 2019 Financial Results Third Quarter 2019 Results: Record billable tests of 20,697, growing 272% year over year Record revenue of $10.3 million, growing 84% year over year Gross Margin improves 8.9 percentage points year over year and 5.4 percentage points sequentially; cost per test improves 60% year over year and 15% sequentially Posts profit; GAAP income of $1.5 million, or $0.08 per share Non-GAAP income of $2.6 million, or $0.14 per share Cash flow from operations of positive $3.9 million Adjusted EBITDA of $3.0 million TEMPLE CITY, CA, November 4, 2019 —Fulgent Genetics (NASDAQ: FLGT) (“Fulgent Genetics” or the “company”), a provider of comprehensive genetic testing and Next Generation Sequencing (NGS) solutions, today announced financial results for its third quarter ended September 30, 2019. Third quarter revenue was $10.3 million, an increase of 84% year over year from $5.6 million in the third quarter of 2018. GAAP income for the third quarter of 2019 was $1.5 million, or $0.08 per share, and non-GAAP income was $2.6 million, or $0.14 per share. Adjusted EBITDA was $3.0 million in the third quarter of 2019, an increase of 950% year over year from $281,000 in the third quarter of 2018. Non-GAAP income (loss) and adjusted EBITDA are described below under “Note Regarding Non-GAAP Financial Measures” and are reconciled to the most directly comparable GAAP financial measure, GAAP income (loss), in the accompanying tables. Ming Hsieh, Chairman and Chief Executive Officer, said, “We continued to build on our momentum in the third quarter and once again posted very strong results. Revenue and billable test volume reached new record highs in the third quarter, while cost per test continued to improve. Our strong top line results have been driven by the growing traction with our oncology and reproductive health businesses, as well as our sequencing-as-service offering. Our established strategic investments and partnerships are contributing to our ongoing momentum, and we have been successful in meeting the growing demand from our new commercial genomic customers. We believe our superior test capabilities, extensive and flexible test menu, along with our competitive pricing will continue to drive strong growth across our business.” Paul Kim, Chief Financial Officer, said, “We once again achieved record results in the third quarter, exceeding our expectations for test volume, revenue and profit. At the same time, we have seen increasing efficiencies across our business which have resulted in ongoing improvements in gross and operating margins. These efficiencies coupled with our increasing scale resulted in meaningful EBITDA, net income and cash flow generation in the quarter. We expect to see continued progress as we close out the year.” Mr. Kim added, “We will provide a formal update on our guidance regarding certain financial measures during our investment community conference call to shortly follow the issuance of this press release.” Fulgent Genetics will host a conference call for the investment community today at 4:30 PM ET (1:30 PM PT) to discuss its third quarter results. Press and industry analysts are invited to attend in listen-only mode. The call can be accessed through a live audio webcast in the Investors section of the company’s website, http://ir.fulgentgenetics.com, and through a live conference call by dialing (855) 321-9535 using the conference ID 8069749. An audio replay will be available in the Investors section of the company’s website or by calling (855) 859-2056 using passcode 8069749 through November 11, 2019. Note Regarding Non-GAAP Financial Measures Certain of the information set forth in this press release, including non-GAAP income (loss) and adjusted EBITDA, are non-GAAP financial measures. Fulgent Genetics believes this information is useful to investors because it provides a basis for measuring the performance of Fulgent’s business excluding certain income or expense items that management believes are not directly attributable to the company’s core operating results. Fulgent Genetics defines non-GAAP income (loss) as income (loss) calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), plus or minus provisions (benefits) for income taxes, plus equity-based compensation expenses, plus or minus equity income (loss) in investee, plus or minus the effect of a corporate tax rate, and plus or minus other charges or gains, as identified, that management believes are not representative of the company’s core operations. Fulgent Genetics defines adjusted EBITDA as GAAP income (loss) plus or minus interest expense (income), plus or minus provisions (benefits) for income taxes, plus depreciation, plus equity-based compensation expenses, plus or minus equity income (loss) in investee, and plus or minus other charges or gains, as identified, that management believes are not representative of the company’s core operations. Fulgent Genetics may continue to incur expenses similar to the items added to or subtracted from GAAP income (loss) to calculate non-GAAP income (loss) and adjusted EBITDA; accordingly, the exclusion of these items in the presentation of these non-GAAP financial measures should not be construed as an implication that these items are unusual, infrequent or non-recurring. Management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measure of income (loss) in evaluating the company's operating performance. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in conformity with GAAP, and non-GAAP financial measures as reported by Fulgent Genetics may not be comparable to similarly titled metrics reported by other companies. About Fulgent Genetics Fulgent Genetics is a technology company with a focus on offering comprehensive genetic testing to provide physicians with clinically actionable diagnostic information they can use to improve the quality of patient care. The company has developed a proprietary technology platform that allows it to offer a broad and flexible test menu and continually expand and improve its proprietary genetic reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times. The company believes its test menu offers more genes for testing than its competitors in today’s market, which enables it to provide expansive options for test customization and clinically actionable results. This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements in this press release include statements about, among other things: anticipated growth of and increased stability in the company’s business and performance, including its volume and expected volume growth of billable tests delivered, and evaluations and judgments regarding diversification, traction, momentum, partnerships and the company’s recent performance; the success of the company’s investments in its business; the timing, commercial success and impact on the company’s results of new product launches and other initiatives; and the company’s identification and evaluation of opportunities and its ability to capitalize on opportunities to grow its business. Forward-looking statements are statements other than historical facts and relate to future events or circumstances or the company’s future performance, and they are based on management’s current assumptions, expectations and beliefs concerning future developments and their potential effect on the company’s business. These forward-looking statements are subject to a number of risks and uncertainties, which may cause the forward-looking events and circumstances described in this press release to not occur, and actual results to differ materially and adversely from those described in or implied by the forward-looking statements. These risks and uncertainties include, among others: the market potential for, and the rate and degree of market adoption of, the company’s tests and genetic testing generally; the company’s ability to capture a sizable share of the developing market for genetic testing and compete successfully in this market, including its ability to continue to develop new tests that are attractive to its various customer markets and otherwise keep pace with rapidly changing technology; the company’s ability to maintain the low internal costs of its business model, particularly as the company makes investments across its business; the company’s ability to maintain an acceptable margin on sales of its tests, particularly in light of increasing competitive pressures and other factors that may continue to reduce the company’s sale prices for and margins on its tests; risks related to volatility in the company’s results, which can fluctuate significantly from period to period; risks associated with the composition of the company’s customer base, which can fluctuate from period to period and can be comprised of a small number of customers that account for a significant portion of the company’s revenue; the company’s ability to grow and diversify its customer base and increase demand from existing and new customers; the company’s investments in its infrastructure, including its sales organization and operational capabilities, and the extent to which these investments impact the company’s business and performance and enable it to manage any growth it may experience in future periods; the company’s level of success in obtaining coverage and adequate reimbursement and collectability levels from third-party payors for its tests; the company’s level of success in establishing and obtaining the intended benefits from partnerships, joint ventures or other relationships; the company’s compliance with the various evolving and complex laws and regulations applicable to its business and its industry; risks associated with the company’s international operations; the company’s ability to protect its proprietary technology platform; and general industry, economic, political and market conditions. As a result of these risks and uncertainties, forward-looking statements should not be relied on or viewed as predictions of future events. The forward-looking statements made in this press release speak only as of the date of this press release, and the company assumes no obligation to update publicly any such forward-looking statements to reflect actual results or to changes in expectations, except as otherwise required by law. The company’s reports filed with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 22, 2019 and the other reports it files from time to time, including subsequently filed quarterly and current reports, are made available on the company’s website upon their filing with the Securities and Exchange Commission. These reports contain more information about the company, its business and the risks affecting its business, as well as its results of operations for the periods covered by the financial results included in this press release. In particular, you are encouraged to review the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2019 for any revisions or updates to the information in this release. Investor Relations Contacts: Nicole Borsje, 415-217-2633, [email protected] CONDENSED CONSOLIDATED BALANCE SHEET DATA September 30, 2019 and December 31, 2018 Investments in marketable securities LIABILITIES & EQUITY: Accounts payable, accrued liabilities and other liabilities Total liabilities & equity CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA Three and Nine Months Ended September 30, 2019 and 2018 (in thousands, except per share data) Nine months ended September 30, Cost of revenue (1) Operating expenses: Selling and marketing (1) General and administrative (1) Total operating expenses Operating income (loss) Interest income and other income Income (loss) before income taxes and equity loss in investee Provision for (benefit from) income taxes Income (loss) before equity loss in investee Equity loss in investee Net income (loss) Basic and diluted income (loss) per common share: Weighted average common shares: (1) Equity-based compensation expense was allocated as follows: Selling and marketing General and administrative Total equity-based compensation expense Non-GAAP Income (Loss) Reconciliation Equity-based compensation expense Non-GAAP tax effect (1) Non-GAAP income (loss) Non-GAAP income (loss) per common share: (1) Tax rates as follows: Corporate tax rate of zero for the three and nine months ended September 30, 2019 due to full valuation allowance. Corporate tax rate of 23% for the three and nine months ended September 30, 2018. Non-GAAP Adjusted EBITDA Reconciliation Interest (income) Adjusted EBITDA

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NAZALI About Nazalı News From Us, Official Gazette NAZALI.COM.TR PROBLEMS ENCOUNTERED WITH THE CAPACITY TO FILE A LAWSUIT AND ERROR CORRECTION IN PRACTICE FROM THE POINT OF TAX RESPONSIBLE PARTIES Gözde SARUHAN BERK , Pınar SOLYALI 16/12/2022 GÖZDE SARUHAN BERK Partner, Lawyer-Arbitrager Tax Disputes and Corporate Restructurings Department PINAR SOLYALI GÖKALP Partner, ADIT-CPA International Tax and Transfer Pricing Department Taxpayer and tax responsible party are two basic concepts related to tax law. Although these terms are defined as two different concepts from the viewpoint of Tax Procedure Law No. 213, evaluations of these two terms bring the concept of tax responsible party closer to the concept of taxpayer. The evaluation of these two concepts by courts and the Tax Administration, both in litigation process and in administrative remedies, has changed over the years and decisions have been made against and in favour of the taxpayer. In this study, we will be discussing how the concept of taxpayer and tax responsible party, the most basic concepts of tax procedure law, are handled both before the Courts and before the Tax Administration, with precedent decisions and examples from practice. Keywords: Tax Responsible Party, Taxpayer, Capacity to File a Lawsuit, Error Correction, Legal Interest Pursuant to Article 8 of the Tax Procedure Law (“TPL”) No. 213, titled "Taxpayer and tax responsible party", "taxpayer" and "tax responsible party" are defined as two different concepts. Pursuant to the said article regulation1, Taxpayer refers to a real or legal person to whom tax debt is incurred according to tax laws. Tax responsible refers to the person who is the addressee of the creditor Tax Office in terms of paying the tax. Although taxpayer and tax responsible party are defined as two different concepts in the regulation of the Article, "The term "taxpayer" in the following articles of this law also includes tax responsible parties." It has been indicated that taxpayer statements in the Articles of the TPL would also be valid for the tax responsible parties. On the other hand, the provision of Paragraph 1 of Article 377 of the TPL titled "Capacity to File a Lawsuit in the Tax Court" regarding the capacity to file a lawsuit in the tax jurisdiction is as follows: “Taxpayers and those who have been fined can file a lawsuit in the Tax Court against the taxes are levied and fines are imposed.” Likewise, pursuant to the provision in Article 122 of the TPL titled "Correction Request " regarding the request for correction of tax errors, "Taxpayers may request the correction of errors in tax transactions in writing from the Tax Office." As a result of the evaluation of the aforementioned Article regulations together, although Articles 122 and 377 of the TPL seem to regulate only the taxpayers and those who have been fined, using legal remedies and/or administrative remedies when the aforementioned Article regulation is considered together with the 8/4 provision of the TPL, it can be stated that taxpayers also have the capacity to file a lawsuit and apply for correction given to taxpayers and to those who have been penalized.2 When we look at the recent decisions of the Council of State, although it is stated that the Council of State has moved towards a different view from its previous decisions and that the taxpayer statements in the articles of the TPL in the criteria regarding the ability to file a lawsuit for tax responsible parties would also be valid for those responsible for taxation, we observe that it begins to take contrary decisions based on the justification that "there is no directly violated interest". The fact that decisions are made in different directions, especially in the case of income tax refund issues, brings to our mind the questions of whether there is a right turn towards a Treasury approach to decisions. In this article, the issue of the capacity of tax responsible parties to file lawsuits and request corrections will be discussed within the framework of the old and new jurisprudence of the Council of State and administrative practices. Decisions of the Council of State Concerning the Tax Responsible Parties’ Lack of Capacity to File a Lawsuit When we look at the decisions of the Council of State that the taxpayers do not have the capacity to file a lawsuit, we observe that it has made decisions against it for different reasons. As an example of these reasons, it shows the problems that can be experienced in practice if the tax responsible party who files a lawsuit wins the case and the person who is the taxpayer files a lawsuit on the same issue and gets a favourable result, while another justification is that the tax responsible party completes his duty by paying the tax on behalf of the taxpayer and there is no infringed interest when a dispute arises. In the following decisions, we observe that these justifications were adopted by the Council of State in terms of different disputes. Decision of the 4th Chamber of the Council of State No. E.2020/2193, and K.2022/3279 dated 25.05.2022. “…From the evaluation of the aforementioned legislation provisions together, it is clear that; those who are addressed to the tax office in terms of paying the tax and fulfilling other duties are obliged even if the economic burden of a tax is intended to be borne by different persons (tax bearer) from the person who pays it, therefore, there is a legal relationship arising from the law in the obligation; as stated in Article 8/3 of the Tax Procedure Law, special contracts regarding obligation do not bind the tax administration, except for the exceptions stipulated in the tax laws; although the tax responsible party has the opportunity to transfer the tax to others through reflection, the taxpayer is the main tax debtor, therefore, the tax responsible party will be the interlocutor against the tax office in order to deduct someone else's tax and pay it to the tax office; in this sense, it is clear that the "intermediary payer", who is obliged to deduct the tax calculated from the payments made by the tax responsible party to the main taxpayer and deposit it to the creditor's tax office, will be considered as "intermediary payer". On the other hand, with the relevant provisions of the Income Tax Law and the Tax Procedure Law, the sanction of tax responsible parties who have been given certain duties for not performing these duties properly, and the rights of claim and file a lawsuit that those responsible for this can apply, are included in the Article 378 of the Tax Procedure Law, which introduces a special judicial procedure rule. According to this; although it is possible to demand compensation for the damage incurred and file a lawsuit against the tax responsible party in accordance with the provisions of private law, based on the "defect liability" due to the taxes that have been deducted or incorrectly deducted; opposing the Article 2 of the Administrative-Judiciary Procedure Law, which states that those who are authorized to file a lawsuit for tax cases should have the capacity to act subjectively, and filing an annulment action against an administrative act is conditional on the violation of interest; in order for an administrative lawsuit to be filed, the direct interest of the tax responsible party must have been violated. …. In the incident, the employee is the taxpayer of the tax paid to the tax office by withholding on the service award payment made to the employee of the company in the capacity of tax responsible party of the plaintiff company, which is the employer. As such, in accordance with the provisions of the tax error, the right to rectify, file complaints and, to receive a refund if there is an overpaid tax, belongs to the taxpayer, who is an employee whose interests are violated by deduction from the payment made to him. Considering that the plaintiff company, the employer, has the obligation to deduct the tax calculated from the payment made only to the principal taxpayer and deposit it to the creditor tax office on his behalf and it is not possible to talk about a tax it has paid on its own behalf since it has been concluded that the employer company, in the position of taxpayer, does not have a directly violated interest and therefore does not have the capacity to file a lawsuit, it is seen that the appealed decision to the contrary is not in accordance with the law…” Decision of the 4th Chamber of the Council of State No. E.1999/4832, and K.2020/1330, dated 06.04.2000. “…Article 11 of the Tax Procedure Law No. 213, titled "Responsibility of Taxpayers", stipulates that those who are obliged to withhold tax from their payments made or to be made are responsible for the full deduction and payment of the tax and fulfilling other related duties. The taxpayer is the main debtor of the tax, and the tax responsible party is the person who is dealing with the creditor tax office. Therefore, the tax responsible party does not have a tax debt and collects the tax paid from the main taxpayer. The plaintiff company, in its capacity as responsible, made deductions from the compensation paid to the teachers and deposited it to the tax office. In this respect, the duty of the tax responsible party, which she has to do by law, has come to an end. Teachers who have an interest in filing this lawsuit can file a lawsuit with the allegation that the tax paid is against the law and that the tax should be cancelled and refunded. Otherwise, there may be some difficulties in returning the paid tax. Because the tax responsible party deducts the paid tax from the main taxpayer and deposits it to the tax office. In case the court decision is in favour, the refunded taxes will remain under the responsibility of the tax responsible party. Undoubtedly, there are cases where it is possible for tax responsible parties to create conflicts. For example, in such a dispute, if an assessment is made on behalf of the plaintiff company due to the fact that income tax is not deducted from the education and training compensation, this assessment may be the subject of a lawsuit. In this respect, there was no illegality in the court decision rejecting the case in terms of competence…” Decisions of the Council of State Regarding the Liability of Tax Responsible Parties Considering the decisions made about whether the tax responsible party has the capacity to file a lawsuit, in Article 8 of the TPL, the taxpayer, is defined as natural and legal person who has a tax debt according to tax laws, on the other hand, the tax responsible party is defined as the person who is the addressee against the creditor tax office in terms of paying the tax, and since the term taxpayer in other articles of the TPL is also valid for taxpayers, it is seen that the decision was made in favour of it. As a matter of fact, in the decisions of the Council of State on the subject, it has been accepted that taxpayers also have the capacity to file a lawsuit. Decision of the 4th Chamber of the Council of State No. E.2019/7758 and K.2020/290, dated 28.01.2020. “…In tax law, the capacity to file a lawsuit is subject to a special and different regulation. According to the provisions of the Tax Procedure Law, in order to be able to file a lawsuit in the Tax Courts, the tax must be levied, the penalty must be imposed, the amendment and valuation commission decisions must have been notified, the taxpayers must have paid the taxes collected through withholding and the tax must have been deducted by the payer. Taxpayers and those who have been fined can file a lawsuit claiming that these transactions are unlawful. Therefore, considering that the taxpayer is defined as the person who has the duty to pay tax debt according to the tax laws and that the term taxpayer includes the tax responsible party who is the addressee of tax office in terms of paying the tax, it is concluded that the tax responsible party has the capacity to file a lawsuit like a taxpayer. In this case, since the plaintiff company has the capacity to file a lawsuit, the decision of the Tax Court was not found to be in compliance with the law. On the other hand, it is necessary to investigate whether K1, K2, K3 and K4, whose names have been deducted by the plaintiff company, have filed a lawsuit regarding the same period, and a decision should be made by evaluating the outcome of these lawsuits in the decision to be made on the merits of the business…” “...In tax law, the capacity to file a lawsuit is subject to a special and different regulation. The Tax Procedure Law applies to taxes, duties and charges included in the general budget, and taxes, duties, and charges belonging to special provincial administrations and municipalities. According to the provisions of this Law, in order for a lawsuit to be filed in the Tax Courts, the tax must be levied, the penalty must be imposed, the amendment and appraisal commission decisions must be notified, the payment must have been made to the beneficiaries in the taxes collected through withholding, and the tax must have been deducted by the payer. Taxpayers and those who have been fined can file a lawsuit claiming that these transactions are unlawful. Therefore, considering that the taxpayer is defined as the person who has the duty to pay tax debt according to the tax laws and that the term taxpayer includes the tax responsible party who is the addressee of the tax office in terms of paying the tax, it is concluded that the tax responsible party has the capacity to file a lawsuit just like the taxpayers. On the other hand, in accordance with Article 94 of the Income Tax Law No. 193, those who deduct taxes from payments made to employees are the tax responsible parties, and those who has been taxed from the salaries are the taxpayers. The tax responsible party has to declare and pay the tax with a tax declaration. In other words, it is clear that if the tax deducted is declared and not paid, it is clear that the tax responsible party will be followed, and if the record is made by the responsible person in the declaration without prejudice, this record is not accepted, and the accrued tax may be subject to a tax lawsuit. In this case, in accordance with Article 94 of the Income Tax Law No. 193, the plaintiff company has the responsibility to deduct the tax at the rate stipulated in the law from the wages of its employees, declare it with a tax declaration and pay it. With the decision of the Constitutional Court No. E:2006/95, and K:2009/144, dated 15.10.2009 and published in the Official Gazette dated 8.1.2010, since then, it has been decided that the phrase "excess of 35%" in Article 103 of the Income Tax Law is unconstitutional in terms of wage incomes and can be annulled, in the lawsuit filed with the request for the refund of the amount paid by removing the income (withholding tax) accrued on the declaration she made with reservation, there is no lawfulness in the decision of the Tax Court given to the contrary, since she has the capacity to file a lawsuit.3 Decision of the 4th Chamber of the Council of State, No. E.2011/4349, and K.2011/10312, dated 28.11.2011. “...Considering that the taxpayer is defined as the person who has the duty to pay tax debt according to the tax laws and that the term taxpayer includes the tax responsible party who is the addressee of the creditor tax office in terms of paying the tax, it is concluded that also the tax responsible party has the capacity to file a lawsuit just like the taxpayers. On the other hand, in accordance with Article 94 of the Income Tax Law No. 193, those who deduct taxes from payments made to employees are the tax responsible parties, and those who has been taxed from salaries are taxpayers. The tax responsible party has to declare and pay the tax with a tax declaration. In other words, it is clear that if the tax deducted is declared and not paid, the tax responsible party will be followed, and if the record is made by the responsible person in the declaration without prejudice, this record is not accepted, and the accrued tax may be subject to a tax lawsuit. In this case, in accordance with Article 94 of the Income Tax Law No. 193, the plaintiff company has the responsibility to deduct the tax at the rate stipulated in the law from the wages of its employees and declare it with a tax declaration and pay it. With the decision of the Constitutional Court No. E:2006/95, and K:2009/144 ,dated 15.10.2009 and published in the Official Gazette dated 8.1.2010, since then, it has been decided that the phrase "excess of 35%" in Article 103 of the Income Tax Law is unconstitutional in terms of wage incomes and can be annulled, in the lawsuit filed with the request for the refund of the amount paid by removing the income (withholding tax) accrued on the declaration she made with reservation, there is no lawfulness in the decision of the Tax Court given to the contrary, since she has the capacity to file a lawsuit…” Decision of the General Assembly of the Council of State Tax Litigation Chambers No. E.2011/390, and K.2011/583, dated 12.10.2011. “…In Article 11 of the Tax Procedure Law No. 213, it is stipulated that tax responsible parties who are obliged to withhold taxes from the payments they have made or would make, will be responsible for the full deduction and payment of the relevant tax and fulfilling other related duties. While the organizations and persons listed in Article 94 of the Income Tax Law No. 193 make these payments in cash or on account, the remuneration holders are obliged to withhold income taxes, and according to the first paragraph of Article 98, they are obliged to notify the tax office of the district where the accrual is made, with a tax declaration, until the evening of the twenty-third day of the following month. In Article 8 of the Tax Procedure Law, the taxpayer is defined as a natural or legal person who has a tax debt according to the tax laws; on the other hand, the tax responsible party is defined as the person who is the addressee against the creditor tax office in terms of paying the tax, and it is stipulated that the term taxpayer in other articles of this Law is also valid for tax responsible party. In the first paragraph of Article 377, after it is stipulated that taxpayers and those who have been fined, can file a lawsuit in the tax court against the taxes levied and the fines imposed. In Article 378, it is stipulated that in order to file a lawsuit in the tax court, the tax must be levied, the penalty must be levied, and the tax holders must have paid the taxes collected through withholding and the tax must have been deducted by the payer. Without prejudice to the cases referred to in the first paragraph of the same article in the Law No. 2577 and the Law on Civil Procedure, in the second paragraph of the Article 31 of the Administrative Procedure Law No. 2577, since it is foreseen to apply the provisions of the Tax Procedure Law in the resolution of tax disputes, capacity to file a lawsuit should be determined according to Article 377 of the Procedural Law. It is understood from the regulation states that in Article 377 of the Tax Procedure Law, the right to file a lawsuit is not only granted to taxpayers and those who have been penalized, and that the term taxpayer mentioned in the other articles of this Law is also valid for tax responsible party in Article 8 of the same Law. For this reason, it is possible for taxpayers to file a lawsuit if the tax is accrued on the tax return and if they meet certain conditions imposing the tax against the taxes and penalties levied like the taxpayers, the penalty is imposed, the payment has been made to the claim holders in the taxes collected through withholding and the tax has been deducted by the payer and it has been accrued over the tax bases declared with reservation. According to the above-mentioned provisions of the Tax Procedure Law, since the plaintiff has the authority to file a lawsuit against the tax that she withheld and declared with reservation, the tax court's insistence decision rejecting the case on the grounds that the tax responsible plaintiff does not have the capacity to file a lawsuit and pursuant to Article 15/1-b of the Law No. 2577 not considered appropriate.…” Decision of the 3rd Chamber of the Council of State, No. E.2004/239, and K.2005/1905 dated 15.09.2005. “…In Article 8 of the Tax Procedure Law No. 213, the taxpayer is defined as the natural or legal person who owes tax according to tax laws, and the tax responsible party is defined as the person who is the addressee against the creditor tax office. In the last paragraph of the same article, it is stated that the term "taxpayer" in the following articles of this law also includes tax responsible party, and in Article 377 of the same Law, taxpayers and those who have been fined can file a lawsuit against the taxes levied and the penalties imposed in the tax court. In the Article 378, it is stipulated that in order to file a lawsuit in the tax court, the tax must be levied, the penalty must be imposed, the amendment and appraisal commissions' decisions must be notified, the payment must be made to the beneficiaries in the taxes collected through withholding, and the tax must be deducted by the taxpayer. Taxpayers are held responsible for deducting the tax stipulated in the law from the payments made to the beneficiaries, declaring them with a concise declaration and paying them. It is clear that the case of not declaring or not paying the tax deducted will require the follow-up of the tax responsible party, and considering the above-mentioned provisions, it is possible to subject the tax assessment and accrual transactions based on the declaration to an administrative lawsuit if the taxpayer or the responsible person duly puts a reservation on the declaration. Persons and organizations that have to withhold tax are specified in Article 94 of the Income Tax Law and Article 24 of the Corporate Tax Law. In the event that is the subject of the lawsuit, the plaintiff company, liable pursuant to the sub-clause (b-i) of the first paragraph of the Article 94 of the Income Tax Law, withheld tax from the dividend paid to the Savings Deposit Insurance Fund from its partners in the period of June 2003 and declared it with reservation. In order not to be penalized in the future, a lawsuit may be filed against the accrual by the plaintiff company, which has submitted its declaration with reservations. For this reason, while the decision should be made by examining the merits of the case, it was not found in accordance with the law in its rejection in terms of competence…” Decision of the 4th Chamber of the Council of State No. E.1971/5552, and K.1972/141, dated 28.12.1972. “…In Article 8 of the Tax Procedure Law No. 213, the tax responsible party is defined as the person who is the addressee of the creditor against the tax office in terms of paying the tax, and it is stated in the last paragraph of the same article that the term taxpayer includes the tax responsible party in the following articles of this law. and Article 24 of the Corporate Tax Law No. 5422 states that those who are obliged to withhold taxes through withholding will be considered as tax responsible. In this respect, it is necessary to understand that the term “taxpayers authorized to object”, as determined by Article 377 of the Tax Procedure Law No. 213, includes tax responsible parties as well. Since they have declared with disputed reservations, there is no accuracy in the decision made by mentioning material error in the event that is not related to Articles 116-126 of the Tax Procedure Law No. 213…” Capacity of Error Correction Application of the Tax Responsible Parties One of the issues that came to the agenda with the beginning of the discussion of the capacity of tax responsible parties to file a lawsuit is whether tax responsible parties can apply for corrections for tax errors. Pursuant to Article 122 of the TPL, taxpayers may request the correction of errors in their tax treatment in writing from the tax office. As mentioned above, according to the provision that the term taxpayer would also apply to tax responsible parties there are many high court decisions that taxpayers can also request corrections in terms of the application of the TPL. In the decision of the 4th Chamber of the Council of State, dated 23.01.1986 and numbered E.1985/3253, K.1986/343, it was considered that an unfair deduction was made from the severance pay paid by the employer as a result of the employee's application to the Labour Court. It has been evaluated whether the employer has the right to demand correction in a situation where the excess deduction made by the employer is paid back to the employee in accordance with the decision of the Labour Court. In the decision given, it was stated that the employer requested a correction due to a decrease in her wealth, and the administrative actuation capacity of the tax responsible party was recognized. “In line with this, in the event that Article 119/5 of the Tax Procedure Law, stipulating that tax errors can be revealed on the application of the tax responsible party, and Article 122, which stipulates that the taxpayer can request the correction of errors in tax treatment, in writing, are evaluated together with the above-mentioned Article 8, and it is understood that there is no clear provision preventing taxpayers from making a correction request. In the event, based on the decision of the Labour Court, it is concluded that it would not be possible for the principal obligor to make a correction request, who compensates for the decrease in his property as a result of the previous taxation error by obtaining the same amount of money from the plaintiff Bank, which is in the position of tax responsible party, would not provide any benefit for himself, and that it is not possible to take an initiative in this direction since its purpose has been achieved. On the other hand, it is concluded that the claimant Bank has requested a correction due to a decrease in its own property, not the principal obligor. Considering that the taxpayer does not have the right of recourse due to the final judgment, it is concluded that there is no procedural and unlawful aspect in the request for correction due to the unjustified tax burden.” Likewise, in the concrete case subject to the decision of the General Assembly of the Tax Case Chambers of the Council of State No. E.1995/194, and K.1997/188, dated 11.04.1997 and , although the plaintiff deducted 5% from the advance payment she made for the construction work, she calculated and paid this withholding as 15% in the declaration. Although 10% tax was not deducted from the remuneration, it was declared and paid incorrectly, and the tax office agreed with the taxpayer that there is no doubt about the error. However, the request for correction was rejected by the administration on the grounds that the tax responsible parties were not competent. In the decision given, it was concluded that the tax responsible parties can request a correction: “In Article 121 of the Tax Procedure Law, it is regulated that the administration should correct the obvious and absolute tax errors ex officio. There is no doubt that 5% tax should be withheld from the advance payments made to the contractor. It is also clear that the accrual made on the declaration, which appears to have been deducted at the level of three times this rate, contains a clear and absolute error. While the tax administration should correct the accrual of October 1990 ex officio in accordance with Article 121 of the Tax Procedure Law and take action in line with the claimant's request, the issuance of a payment order on behalf of the Institution and the decision to reject the lawsuit filed against the payment order did not comply with the law.” In the first example, the excess deduction made from the remuneration paid to the employee was returned to the employee in accordance with the Labour Court decision, and in the second example, the burden of the taxes in question remained with the tax responsible party, since the withholding tax was calculated at the rate of 15% on the declaration despite the deduction of 5% from the payment made to the contractor. In other words, in both examples above, the party whose assets decreased as a result of tax error is the tax responsible. Although the above-mentioned judicial decisions do not refer to the condition of violation of interest, the General Communiqué of the Income Tax Law No. 261 sheds light on the approach of the administration by making this distinction. In the following communiqué published on the return of the withholdings made before 1/1/2004 in return for the rental of real estate belonging to fused foundations was presented as below; “In line with this, it is necessary to apply in writing to the tax office where the concise declaration is submitted by the mentioned fused foundations, within the framework of the correction provisions of the Tax Procedure Law, until 7/7/2007 regarding the refund requests in question. However, in the lease agreement, if the tax to be deducted is undertaken by the tenant who makes the payment, in other words, if the fused foundation that gives the lease the real estate has received the net rent, the mentioned amount will be returned to the tenants because of the tax will be paid by calculating the gross amount and the mentioned tax deduction will be paid from the lessee's assets. For this reason, if the tax to be withheld is undertaken by the tenant who makes the payment, the correction petition bearing the joint signature of the fused foundation and the tenant must be submitted to the relevant tax office until 7/7/2007.” Incorporating the above provisions, the ability to make corrections is determined according to whether the contract between the parties is understood as net or gross. While the withholding made in a clearly understood contract indicates a decrease in the tax responsible party's assets, in a grossly understood contract, there is a decrease in the taxpayer's assets. The result of this approach of the Communiqué is that the tax responsible party can apply for correction only if there is a decrease in the assets. Since there is a decrease in the assets of the responsible person in both judicial decisions, it can be said that this approach does not directly conflict with the decisions. In our study, although the violation of interest is mentioned in the decisions regarding the tax responsible party's inability to file a lawsuit, which is included in the title of "I-Decisions of the Council of State Regarding the Lack of Capacity of the Tax Responsible Party", the issue of causing a decrease in the assets of the parties by tax deduction in accordance with the agreements between the parties, has not been examined. In other words, the aforementioned judicial decisions are in contradiction with the approach in the General Communique on Income Tax Law No. 261. The following statements are included in the Ruling No. B.07.1.GİB.4.34.16.01-KVK 34-1970 on the subject of "Return of the Withholding Amounts Corresponding to the Rent Fees Paid as a Result of the Evacuation Case" issued by the Istanbul Tax Office on the subject, dated 03.11.2011.“The refund to be made due to the mentioned correction process has to be made to the owner of the remuneration upon the application of the owner of properties whose remuneration has been withheld and it is not possible to make the mentioned refund to your company that makes the tax deduction as responsible.” Whether the tax responsible party requests a correction or not, and which party transfers the amount to be refunded as a result of the correction, both should be considered separately.4 Even if we assume for a moment that the above-mentioned judicial decisions imply that tax responsible parties can apply for correction regardless of the principle of infringement of interest, the refund resulting from the correction of the error upon the request of the tax responsible parties should be made to the right holders. A current revision application process has also been carried out in parallel with this approach. In the aforementioned case, the tax responsible party erroneously applied 20% withholding tax when making payments to a company residing in a country with which Turkey has concluded a double tax treaty for self-employment services performed entirely remotely. The contract was understood in gross terms, and the withholding tax overdue caused a decrease in the assets of the company residing abroad. Upon noticing the incident, the tax responsible person requested a correction to the tax office and this request was accepted by the tax office and the file started to be examined. Although the capacity of the tax responsible party for the correction request was accepted, a power of attorney was requested from the company residing abroad in order for the refund to be made to the tax responsible party, and it was stated that the refund would only be made with a document stating that the tax responsible party was authorized to collect on behalf of the company abroad. In the aforementioned event, the contract value was understood as gross. The procedure to be followed in case the service fee is clearly understood is debatable. In cases where withholding is done unfairly according to the domestic legislation, most of the time, a resident company records its remuneration as net value in its accounts and fulfils its tax liability over the corporate tax rate in the relevant country. In this case, it cannot be mentioned that an income that is not obtained and never recorded by the foreign enterprise reduces its assets. In such cases, it is the tax responsible who receives the service in Turkey, whose interests are violated, and pays excessive and unwarranted withholding tax. Although the taxpayer is not the main taxpayer, she is the final contractor of the tax. In this case, although it is thought that the refund can be made directly to the taxpayer, pursuant to the provision stated in Article 8 of the TPL, "Special agreements regarding liability or tax liability do not bind the tax offices", the refund should be made to the main taxpayer who has not suffered any loss of interest, and it can be argued that whether the tax responsible party is the owner who is entitled to the refund amount or not will be a commercial dispute. However, this claim contradicts the approach in the judicial decisions that state that tax bearers whose property rights are violated also have the capacity to file a lawsuit (and indirectly take administrative action). In this context, the decision of the General Assembly of the Tax Litigation Chambers of the Council of State No. E.2021/42, and K.2021/943, dated 09.06.2021 and the approval of Ankara Regional Administrative Court 4th Tax Litigation Office Decision No. E.2020/631, and K.2020/880, dated 29.09.2020 can be given as an example.5 “However, although it is not a direct party to the tax relationship established between the administration and the person, the main contractor of the tax, that is, the "tax bearer", whose tax burden remains with him and has to meet this burden from his assets, is indisputably the party whose interests are affected, albeit indirectly, in the tax relationship again due to law. When the wording of Article 377 of the Law No. 213 is strictly adhered to, it can be argued that the tax carrier does not have the authority (subjective capacity) to file a lawsuit in the tax court. The European Court of Human Rights has accepted in many of its decisions that the measures taken regarding taxes are an interference with the right to property. At the same time, the Court also accepts that means of resorting to the judiciary of the addressees of such obligations should be left open in any case against the measures taken and practices within the scope of tax policies and taxation authority, and that the absence of sufficient legal guarantees for taxpayers to protect their rights constitutes a violation of the right to property (Hentrich/France and S.A. Dangeville/France decisions). Since, by stating in Paragraph 1 of Article 6 of the Convention that everyone has the right to be tried in a fair and reasonable time before an independent and impartial court regarding disputes regarding their civil rights and obligations, legal remedies for the settlement of disputes regarding the property rights, which is one of the civil rights, are also guaranteed. The litigation procedure for the compensation of damages arising from the violation of the property rights through administrative action is regulated in Article 12 of the Administrative Procedure Law No. 2577. In order to examine the merits of the full remedy action to be filed pursuant to the aforementioned article, it is necessary and sufficient that the administrative act subject to the annulment request violates a person's right to be protected by law, in other words, the administrative act causes material and/or moral damage to the person. In the event, it is accepted that there is an error in the subject of the fee in the transfer process, and that the property right of the plaintiff is violated due to this transaction. It is also clearly understood from the letter dated 08/06/2016 of İller Bankası Anonim Şirketi present in the file. The amounts to be paid by İller Bankası Anonim Şirketi are borne by the plaintiff; as such, it is undisputed that the plaintiff is the party whose property rights have been violated due to the illegal transaction, by fulfilling his obligation to pay the fees both to himself and to the Bank which is out of litigation. Considering the fact that the transfer costs are borne by the plaintiff, the other party's being a public legal entity, it shall be contrary to the ordinary course of life to accept that it is due to the freedom of contract. As a result, in accordance with the reference made in the last paragraph of Article 90 of the Constitution, with the request of the claimant to return the title deed fee that she had to bear, Protocol No. 1 to the European Convention on Human Rights, Article 6 of the Convention and Article 12 of the Law No. 2577. and in accordance with the Decision No. E:2009/1 and K:2012/2 of the Council of State Consolidation of Jurisprudence, it should be accepted that there is the capacity to file a lawsuit in the tax court.” Although the concepts of taxpayer and tax responsible party should be accepted as two different concepts, the statement of the TPL, which identifies the concept of tax responsible party with the concept of taxpayer, causes different precedent decisions, especially in terms of the capacity to file a lawsuit. Although it is observed that decisions in this direction are made in order to avoid repeated returns in the justifications of the unfavourable decisions, in the decisions made in favour, it is clearly stated that in accordance with the court decisions given as a result of the lawsuits filed, the Administration shall fulfil the court decisions in a way that shall not cause duplication in extradition. In this context, it is incompatible with the concept of liability to accept that only the person who collects the tax and deposits it with the tax office has the capacity to file a lawsuit, and that the tax responsible parties who essentially pay the tax and bear the financial burden of the tax are not related to this tax. From this point of view, the acceptance that tax responsible parties have the capacity to file lawsuits and apply for error correction, just like taxpayers, is a result of the evaluation of the above-mentioned articles of the TPL. “Article 8 - Taxpayer is a natural or legal person who is incumbent on tax debt according to tax laws. The tax responsible party is the person who is the addressee against the creditor Tax Office for the payment of the tax. Except for the cases accepted by tax laws, special agreements regarding tax liability or tax responsibility do not bind Tax Offices. The term "taxpayer" in the following Articles of this Law also applies to tax responsible parties. A tax number is given to every real person and legal entity subject to the Republic of Turkey. The Ministry of Finance is authorized to determine the procedures and principles regarding the implementation of this provision and impose the obligation to use the tax number in the records and documents to be issued regarding the transactions to be made by public institutions and organizations, and real and legal persons.” Levent YARALI, “The Capacity to Sue of Taxpayers in the Light of the Council of State Decisions”, http://dergipark.gov.tr, Access Date: 13.11.2018. Here in the same direction: Decision of the 3rd Chamber of the Council of State, numbered E.2011/3275, K.2014/803 Ali ÇAKMAKÇI, “Vergi Sorumluları Vergi Hatası Kapsamında Düzeltme Başvurusunda Bulunabilirler Mi?”, https://www.adenymm.com.tr/vergi-sorumlulari-vergi-hatasi-kapsaminda-duzeltme-basvurusunda-bulunabilirler-mi Access Date: 11.09.2022. Mustafa BALCI, Vergi Hataları ile Düzeltme - Şikayet Konusunda Uygulamada Yaşanan Hukuki Sorunlar ve Çözüm Önerileri, On İki Levha Yayıncılık, Istanbul 2022, p. 64-66. NAZALI TAX & LEGAL [email protected] This document provides general information on the subject and does not constitute a legal opinion or recommendation. Consulting a specialist is recommended before taking an action. No claim arising from the content of or relating to this document can be asserted against NAZALI. -About Nazalı -Our Policy -Leaders -News From Us, Official Gazette -Our Offices -Tax -Social Security -Law -Articles Sign up for Agenda to be informed about developments in legislation! 19 MAYIS CAD. DR. İSMET ÖZTÜRK SOK. ELİT RESİDENCE KAT 4-10-29 ŞİŞLİ 34360 İSTANBUL, TÜRKİYE

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professional_accounting

Asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity (IASB Framework). It is worth noting that the framework defines asset in terms of control rather than ownership. While control is generally evidenced through ownership, this may not always be the case. Therefore, an asset may be recognized in the financial statement of the entity even if ownership of the asset belongs to someone else. For instance, if a machine is leased to a company for the entire duration of its useful life, the machine may be recognized in its Statement of Financial Position (Balance Sheet) since the entity has control over the economic benefits that would be derived from the use of the asset. This illustrates the use of Substance Over Form whereby the economic substance of the transaction takes precedence over the legal aspects of a transaction in order to present a true and fair view. Since, by definition, an asset must be controlled by the entity in order for it to be recognized in the financial statements, certain 'Assets' would not qualify for recognition. Consider a highly dedicated workforce. Generally speaking, a hardworking and motivated workforce is the most valuable asset of any successful company. But does an entity has control over its workers? The answer is no, because an employee may quit an organization any day and seek employment in a rival firm much to the detriment of the company. Therefore, such 'Assets' may not be recognized in the financial statements of a company. Apart from meeting the above definition, the Framework has advised the following recognition criteria that ought to be met before an asset is recognized in the financial statements. The inflow of economic benefits to entity is probable. The cost/value can be measured reliably. With regard to the first criteria, it makes sense to only recognize an asset if the benefits from its use or sale are likely. The second test ensures that the financial statements present assets that can be measured objectively. For instance, how does a person place value on something subjective such as customer loyalty or a dedicated employee?

{'timestamp': '2019-04-21T05:09:00Z', 'url': 'https://accounting-simplified.com/assets-recognition.html', 'language': 'en', 'source': 'c4'}

professional_accounting

President of Evangelical Financial Accountability Group Fined for Unlicensed Use of CPA Title By Julie Roys UPDATE: Though the original story did not mention it, I sent numerous requests to Dan Busby for an interview through his agent, Anna Hutstell of the public relations firm DeMoss. Instead of an interview, Hutsell sent me the ECFA statement cited in this article. As President of the Evangelical Council for Financial Accountability (ECFA), Dan Busby is responsible for enforcing ECFA’s standards of ethics among the 2,300 nonprofit groups and churches that the ECFA accredits. Busby also speaks nationally on financial accountability. And he’s written numerous books including, TRUST: The Firm Foundation of Kingdom Fruitfulness—a book equipping leaders of “Christ-centered ministries” to “be intentional about building and maintaining trust.” Given that the ECFA and Busby’s platform rely on trust and integrity, one would expect Busby to be above reproach. Yet according to the Virginia Board of Accountancy (VBOA), Busby was fined $9,000 in 2016 for the unlicensed use of the CPA (Certified Public Accountant) title on at least 38 publications, his personal website, the ECFA’s website, and the Church Law & Tax website. The VBOA also required Busby to pay an additional $1,000 administrative fee to cover the VBOA investigation. And the board ordered Busby to remove the CPA title from all “signage and any and all listings” until Busby again became licensed. “Given that the ECFA and Busby’s platform rely on trust and integrity, one would expect Busby to be above reproach. Yet according to the Virginia Board of Accountancy, Busby was fined $9,000 in 2016 for the unlicensed use of the CPA title . . . “ According to the complaint submitted to the VBOA, Busby allowed his CPA license from the state of Kansas to lapse in 2000, two years after moving to Virginia. Then from 2000-2015, Busby was not licensed as a CPA, though he repeatedly claimed he was. In December 2016, Busby obtained a CPA license from the Virginia board, which remains active. According to the VBOA complaint, Busby falsely represented himself as a CPA on multiple books published by Zondervan between 2000-2015. These included “The Christian’s Guide to Worry-free Money Management,” and numerous editions of “The Zondervan Minister’s Tax & Financial Guide” and Zondervan’s “Church and Nonprofit Tax & Financial Guide.” I contacted Zondervan for comment, but the publisher did not respond. Busby also was listed as a CPA on numerous books published by the ECFA between 2000-2015. These included “Charitable Giving Guide for Missionaries and Other Workers,” “Donor-Restricted Gifts Simplified,” “The Independent Audit and the Audit Committee,” and multiple editions of “Preparing Tax Returns for Clergy” and “Reporting Procedures for Congregations.” Busby was also listed as a CPA in ECFA newsletters between 2000-2015, as well as on multiple websites, the National Directory of Registered Tax Return Preparers and Professionals, and Busby’s LinkedIn account. Brian Taylor, a former CPA who now works for a small consulting company in the Dallas/Ft. Worth area, sent me the VBOA complaint, which he said he researched and submitted four years ago. Taylor noted that Busby had worked as a CPA for 31 years before coming to the ECFA, and said his misrepresentation was intentional and inexcusable. “With Busby, it was a 15-year pattern of intentional fraudulent inducement to sell books and enrich his pocketbook and his reputation,” Taylor said. “This was no accident. . . . He knew he didn’t take any CPE classes for 15 years. You can’t do it for 31 years and then suddenly forget. CPAs are reminded annually.” “This was no accident. . . . He knew he didn’t take any CPE classes for 15 years. You can’t do it for 31 years and then suddenly forget. CPAs are reminded annually.” In his complaint, Taylor also asserts that Busby’s misrepresentation was especially egregious because of his position with the ECFA. “The Virginia Board of Accountancy must take into account that Mr. Busby is not just a simple tax preparer who didn’t keep up on his CPE (continuing professional education),” Taylor wrote. “Mr. Busby’s current role as President of ECFA is to enforce (ECFA’s Seven Standards of Responsible Stewardship) among all member nonprofits, as the basis for the public trust in nonprofit fundraising and responsible stewardship of trust funds throughout America. And yet . . . Mr. Busby freely chose to commit intentional acts of wrongdoing over his entire 15-year tenure at ECFA, that repeatedly violated the ECFA Standards, the Code of Virginia, and the AICPA (American Institute of CPAs) Code of Professional Conduct.” Virginia law prohibits a person who does not hold a Virginia CPA license from using the CPA title in Virginia. Similarly, the AICPA Code of Professional Conduct states that a member discredits the profession if the person “makes claims about the member’s . . . qualifications in a manner that is false, misleading, or deceptive.” This would include “any representation about CPA licensure . . . that is not in compliance with the requirements of the relevant licensing authority.” Recently, Busby and the ECFA have come under increased scrutiny for its longstanding accreditation of Harvest Bible Chapel, despite glaring financial improprieties there. Last Wednesday, I confronted the ECFA publicly for accrediting Harvest. And on Saturday, the ECFA finally suspended Harvest’s ECFA accreditation. But the Harvest debacle has raised questions concerning the ECFA’s effectiveness to hold member groups accountable. In a statement released today, the ECFA defended its president. The statement said that Busby learned that he was not in compliance with Virginia’s accountancy laws in 2015 and has since rectified the problem. “While Dan’s use of the CPA designation complies with the laws of Kansas—where he was originally and still is certified—he had no idea that his use of the designation could possibly not be in compliance with Virginia law,” the statement said. “Dan, of course, was mortified to learn of any possibility that he was not in full compliance as he has made it his life’s work to help organizations pursue integrity.” The statement added that Busby “has never held himself out as offering public accounting services as a Virginia CPA.” And it noted that Busby has since completed more than 180 hours of continuing professional education and settled the matter with the Virginia Board. “Dan is glad to have the matter resolved and he deeply regrets the oversight,” the statement said. “Dan, of course, was mortified to learn of any possibility that he was not in full compliance as he has made it his life’s work to help organizations pursue integrity.” However, the ECFA statement is not completely accurate. To use the title of CPA in Kansas, one must obtain a CPA certificate, as well as a permit to practice. Though Busby had an active Kansas CPA certificate from 2000-2015, his Kansas permit lapsed in 2000, and remains lapsed. Also, according to the AICPA, “any action initiated by a member that informs others of his or her status as a CPA . . . constitutes holding out as a CPA.” Not only did Busby use the CPA designation from 2000-2015 on his website, bio, and in his books, he also prepared the ECFA 990 tax returns and was listed as a CPA in online directories. Taylor said he stands by his claim that Busby’s violation was intentional and not an “oversight.” In addition to the facts already cited, Taylor noted that Busby did not use the CPA title when he signed a letter in 2011 that was submitted to the IRS, nor in a 2013 report that was submitted to U.S. Senator Chuck Grassley. The “logical conclusion,” Taylor asserts, was that Busby “was afraid he might be found out and embarrassed, so he concealed the CPA where the risk was higher.” According to the ECFA statement, the organization’s board was informed of the issues with the Virginia board “as it developed.” The statement adds that the board “continues to wholeheartedly support Dan in his role as ECFA president and in all his endeavors.” Interestingly, Busby’s base salary at the ECFA in 2015 was $193,218, according to the ECFA 2015 990 tax form. However, in 2016, the year of the Virginia board sanction, it jumped 26-percent to $242,563. And in 2017, the last 990 available online, Busby’s base salary was $254,979. One of the seven areas covered in ECFA’s seven standards is compensation setting for leaders of its member organizations. The other standards deal with use of resources and compliance with laws, doctrinal issues, governance, financial oversight, transparency, and stewardship of charitable gifts. ECFA Statement: ECFA President Dan Busby learned in 2015 that he was not in compliance with Virginia’s accountancy laws in connection with his use of the CPA designation. While Dan’s use of the CPA designation complies with the laws of Kansas—where he was originally and still is certified—he had no idea that his use of the designation could possibly not be in compliance with Virginia law. Dan, of course, was mortified to learn of any possibility that he was not in full compliance as he has made it his life’s work to help organizations pursue integrity. He has never held himself out as offering public accounting services as a Virginia CPA. The matter was settled with the Virginia Board of Accountancy in 2016, and Virginia issued him a license to practice accountancy—and thereby the privilege to use the CPA designation. He completed more than 180 hours of continuing professional education in 2016 and 2017 (in contrast to the required 40 hours per year). Dan is glad to have the matter resolved and he deeply regrets the oversight. ECFA’s board of directors was fully apprised of the matter as it developed and continues to wholeheartedly support Dan in his role as ECFA president and in all his endeavors. Report: Giving To Larger Churches Dropped Last Year, Even As Charitable Donations Rose December 1, 2022 1 Comment An annual report on giving to evangelical Christian nonprofits, including churches and other ministries, found that giving to the United States’ largest Opinion: Don’t Fund Abuse This Christmas Generosity is good for us and those we empower. But as someone who served for years in an organization that, without my Opinion: Time to Review Church Budgets With the arrival of the year 2023 in two months, that means many church elders and board members will soon be voting 69 thoughts on “President of Evangelical Financial Accountability Group Fined for Unlicensed Use of CPA Title” M. Wiggins So as far as I can tell here, he’d stopped doing CPEs (continuing professional ed) for 15 years…and he has the audacity to claim it was an oversight? Who does he think he’s kidding? If this truly is the case, then he a a flat out liar. I’ve taught CPEs to accountants for 10 years, everyone knows what you have to do to maintain licensure. Again, he appears to just be a plain old liar. Doug Bartholomew Hey Julie, speaking of accountants, why not look into the $200 MILLION scheme your boss at world (Kevin Martin) was connected tp – the HomeGold fraud that saw some of his colleagues land in jail. It that you really Doug Bartholomew of Naples FL checking in??? James MacDonald’s new sugar daddy? At least I don’t hide my identity as witless trolls like you do oh go on a safari with James… I’m not hiding my identity, Doug. Here I am, that’s my name. Personally, I think you’re gutless. Watching and Praying Does this mean you ARE supporting James right now and want to divert attention by calling someone a troll? Hey Doug Bartholomew..If you think Julie Roy’s is afraid of calling out Her Bosses it shows how bias and uninformed you are… Julie lost her Job of 7 years on Moody radio FOR CALLING OUT HER BOSS…Julie is one Christian that no one can say isn’t contending for the Faith, She has more spine than almost ALL of the so called Leadership in the “Evangelical Industrial Complex”…you remind me of a little kid who gets caught with his hand in the cookie jar and his only defences is “Jonny did it to”…..a real lame arguement. too bad she doesn’t have enough spine to admit when she reports false allegations as she does regularly What is she lying about in this particular story???? Too bad you don’t have enough spine to tell us which allegations are false. She sure as thunder has a good bit more spine than Doug Bartholomew. Doug and others, we need to stop the name calling and seek the truth. Doug note that Julie is a freelance writer and contributes articles to various periodicals, one being World magazine. She is not on staff, thus Kevin is not her boss. If you are in contact with James MacDonald, please have him come forth and tell his side of the story. He can defend himself against these allegations. His silence and decision to stay hidden is contrary to his preaching and public persona. Let this story ends, then she can focus her energy on other deceit in the church as you have requested. Tim your right, I apologize . Doug, I’m a freelance journalist. I don’t work for WORLD. Hey everybody! Baaaaaaaad ! Is that the voice of a nasty ungodly,WORLDLY human I hear? Not gooooooooood ! Ruuuuuuuun! Deception and no Godly spirit there Ruuuuuun ! No fruit there ! Ruuuuuun! Before you get some on you, yuuuuuuck! Hey Doug….were waiting…..what is Julie lying about in this story??? Looks like your just another blowhard who likes to throw false diversions to muddy the water and cover the truth…Reminds me of a tall bald pastor I know. Doug’s just a hit-and-run coward who throws a broad and vague accusation (“she reports false allegations as she does regularly”) and then runs and hides. Commonplace, boring. He also apparently gets his facts wrong, thinking Julie works for World. But of course, we don’t expect good research, solid ethics or clear thought, do we? When you throw a completely broad accusation like that (“false allegations…regularly”) it’s a clear indication that you don’t know of any false allegations. You’re just trying to smear. Trust me, if he had any dirt on Julie, could recite any lies she’s told, he’d have typed those words out here so fast we’d have all seen them. The difference between Doug and Julie is Julie has a spine, she names names and gives facts, if she’s wrong, it’s put there for everyone to discredit. That takes a little courage. But when you’re gutless, spineless, a little coward, you take a vague shot and then run–and you don’t even try to support it because you know you have nothing. That’s Doug Bartholomew. Dougie you’re BAAAAAAAAAAAD ! Hey, Bartholomew, Exactly what about MacDonald impresses you so much that you would rent your church out to him for only ten dollars a month? How naive are you? Just as he insults people from his own church behind their back, he must be laughing his bald head off at you and your wife for being his latest two suckers. Ron, maybe Doug was promised a cut of the gate when Harvest Naples takes off….under the table of course….thats how “Professional Christians” usually operate. O.k Doug Bartholomew….I’ll make this a little easier for ya…..what has Julie published about your good buddy Jmac that’s not true???? and has she not reached out to Jmac so that she could publish his side of the story …but Jmac, the Man with the spine of linguini is no where to be found probably hiding out somewhere in south Florida…probably at your house…James McDonald could learn a thing or two about how to “Act like Men” From Julie Roys, she tells the truth and admits when she’s wrong….unlike Jmac and his merry band of puppets. Julie – There are rumors that the big incident from HCA video which you spoke about in world magazine has since been destroyed. But how can that be if you claimed to have seen the video? If you have a copy of that video will you be releasing it? Please do. This is very important. I never claimed to have seen the video. I reported videographer Luke Helmer’s eye-witness account of the video. https://world.wng.org/2018/12/hard_times_at_harvest I had seen the one that’s currently being circulated on Twitter though. Thank you for responding Julie. I remembered where I heard that you had seen a video. In this interview at 14:10 you say that you’d seen some of the video. Is the video on Twitter the one you are referring to? It’s unfortunate we don’t have the main incident on film. https://itunes.apple.com/us/podcast/julie-roys-journalism-and-james-macdonald/id1132692359?i=1000426184370&mt=2 at 14:10 in this podcast, you reference that you’ve seen part of the video. Is the clip on twitter the one you are referencing? Song of Joy Doug Bartholomew said: “At least I don’t hide my identity as witless trolls like you do”. I seem to recall a recent, but now defunct blog called “ElephanTitus” where the pseudonym of “Mr. Titus” was used. Wasn’t that you, hiding your identity while defending James MacDonald? Just pointing out that your insults toward people who chose to use nicknames is hilariously hypocritical. FormerHarvestMbr ECFA’s accreditation is worthless and they need to be investigated. I trusted in their certification for decades and now feel robbed and deceived.

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professional_accounting

American Eagle swings to Q2 net loss of US$42.5M from US$121.5M net income last year amid challenging consumer backdrop; total revenue flat at US$1.20B from US$1.19B last year as American Eagle brand revenue falls 8%, Aerie rises 11% Sample article from our Retail & Omnichannel PITTSBURGH , September 7, 2022 (press release) – Second quarter results impacted by challenging consumer backdrop Expanding scope of expense and capital expenditure reductions Significant progress made on right-sizing inventory Pausing quarterly cash dividend to provide additional financial flexibility American Eagle Outfitters, Inc. (NYSE: AEO) today announced financial results for the second quarter ended July 30, 2022. “This is an unprecedented time in retail. As we cycle exceptional demand from last year, a tougher macro environment is impacting consumer spending behavior. Second quarter performance reflected these challenges, constraining revenue and amplifying margin pressure as we fully cleared through excess spring and summer goods,” commented Jay Schottenstein, AEO’s Executive Chairman of the Board and Chief Executive Officer. “In a shifting macro environment, we are focused on controlling the controllables. We entered the second half with inventory levels in a much better position and an assortment that is current for the Fall season. Given ongoing external uncertainties, we have taken additional actions to improve financial performance. We have made more expansive expense reductions and are pulling back further on capital expenditures. As an additional cautionary move, we have paused our quarterly cash dividend to strengthen our cash position. Our brands and products remain highly relevant and sought after by our customers. I am confident we will successfully navigate current challenges, and set AEO up for a stronger future.” Second Quarter 2022 Results: Total net revenue of $1.2 billion, flat to the second quarter of 2021. Our supply chain business, Quiet Platforms, contributed approximately 2 percentage points to revenue growth. Brand revenue declined 2%. Aerie revenue of $372 million rose 11% versus second quarter 2021, reflecting a 25% 3-year revenue CAGR. Comp sales declined 6% versus second quarter 2021. American Eagle revenue of $778 million declined 8% versus second quarter 2021 reflecting a -3% 3-year revenue CAGR. Comp sales declined 10% versus second quarter 2021. Consolidated store revenue declined 2%. Total digital revenue declined 6%. Compared to pre-pandemic first quarter 2019, store revenue increased 1% and digital revenue increased 60%. Gross profit of $370 million declined 26% from $502 million in the second quarter of 2021 and reflected a gross margin rate of 30.9% compared to 42.1% last year. Higher markdowns drove 750 basis points of the rate decline with roughly a third reflecting higher end of season selloffs to fully clear excess spring and summer goods. Higher freight costs impacted the gross margin by approximately 200 basis points and Quiet Platforms had a 60 basis point impact as we integrate and ramp up the platform. Delivery, warehousing costs and rent also increased, offset slightly by lower incentive compensation accruals. Selling, general and administrative expense of $308 million increased 5%. SG&A increased 110 basis points as a rate to sales versus second quarter 2021 primarily due to increased store wages, corporate compensation, professional services and advertising, partially offset by lower incentive compensation accruals. Operating income of $14 million included an approximately $30 million impact from higher end-of-season selloffs, $25 million from higher freight costs and a $9 million loss from Quiet Platforms, and compared to operating income of $168 million in the second quarter of 2021. GAAP EPS of ($0.24). Adjusted EPS of $0.04 excludes $60 million of debt related charges primarily linked to the convertible notes exchange transaction and includes an approximately $1 million addback to net income of interest expense associated with the company’s convertible notes. GAAP average diluted shares outstanding were 180 million. Adjusted average diluted shares outstanding were 207 million, compared to 209 million in the second quarter of 2021. Unrealized dilution associated with the company’s convertible notes was 25 million shares compared to 36 million shares in the second quarter of 2021 reflecting the timing and impact of exchange transactions completed in the quarter. The company also repurchased 17 million shares in the quarter as part of its accelerated share repurchase program. Third quarter weighted average share count is expected to be 198 million shares. Total ending inventory at cost increased 36% to $687 million compared to $504 million last year. From a brand standpoint, AE and Aerie each drove roughly half of the increase. Total units were up 22%, reflecting better in-stocks and earlier receipts due to improved flow across the supply chain. Store openings over the past 12 months across Aerie and Offline also drove a portion of the inventory increase. Ending second quarter inventory consisted of current BTS and fall merchandise. The company continues to make progress adjusting inventories lower to be in line with demand trends. Third quarter ending inventory is projected to be up in the mid-single digits with fourth quarter inventory expected to be down year-on-year. Capital expenditures totaled $69 million in the second quarter and $128 million year-to-date. For the year, management now expects to spend approximately $250 million, compared to prior guidance of $275 million. In the first half of the year, the company paid two quarterly cash dividends of $0.18 per share, amounting to approximately $65 million. The company also repurchased approximately 17 million shares through an accelerated share repurchase program totalling $200 million. The total cash returned to shareholders of $265 million was the highest level since 2015. To increase financial flexibility while navigating near-term macro challenges, the company is pausing its quarterly cash dividend. Quarter-to-date, demand trends remain difficult, with brand revenue down in the high-single digits following exceptional growth and a record Back-to-School season last year. Assuming current trends continue, the third quarter gross-margin rate would be in the mid-30s and fourth quarter in the low-30s. This reflects higher markdowns in anticipation of a more promotional retail environment and the company’s seasonal clearance cadence which is more weighted to the fourth quarter. Management has expanded expense cuts with a focus on store payroll, corporate expense, professional services and advertising. These actions are now expected to drive $100 million in annualized expense reductions to plan, compared to our prior target of $60 million. This translates to SG&A dollars remaining relatively flat to last year in the second half, compared to prior guidance for low-to-mid-single digit growth. Conference Call and Supplemental Financial Information Management will host a conference call and real time webcast today at 4:30 p.m. Eastern Time. To listen to the call, dial 1-877-407-0789 or internationally dial 1-201-689-8562 or go to www.aeo-inc.com to access the webcast and audio replay. Additionally, a financial results presentation is posted on the company’s website. About American Eagle Outfitters, Inc. American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle® and Aerie® brands. Our purpose is to show the world that there’s REAL power in the optimism of youth. The company operates stores in the United States, Canada, Mexico, and Hong Kong, and ships to 81 countries worldwide through its websites. American Eagle and Aerie merchandise also is available at more than 270 international locations operated by licensees in 25 countries. For more information, please visit www.aeo-inc.com. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This release and related statements by management contain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which represent our expectations or beliefs concerning future events, including third quarter and annual fiscal 2022 results. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on many important factors, some of which may be beyond the company’s control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," “potential,” and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise and even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The following factors, in addition to the risks disclosed in Item 1A., Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 and in any other filings that we may make with the Securities and Exchange Commission in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for fiscal 2022 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this release or otherwise made by management: the negative impacts of the COVID-19 pandemic and related operational disruptions; the risk that the company’s operating, financial and capital plans may not be achieved; our inability to anticipate customer demand and changing fashion trends and to manage our inventory commensurately; seasonality of our business; our inability to achieve planned store financial performance; our inability to react to raw material cost, labor and energy cost increases; our inability to gain market share in the face of declining shopping center traffic; our inability to respond to changes in e-commerce and leverage omni-channel demands; our inability to expand internationally; difficulty with our international merchandise sourcing strategies; challenges with information technology systems, including safeguarding against security breaches; and global economic, public health, social, political and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, which could have a material adverse effect on our business, results of operations and liquidity. AMERICAN EAGLE OUTFITTERS, INC. Merchandise inventory Prepaid expenses and other Property and equipment, at cost, net of accumulated depreciation Goodwill, net Non-current deferred income taxes Unredeemed gift cards and gift certificates Accrued compensation and payroll taxes Accrued income taxes and other Other current liabilities and accrued expenses Non-current operating lease liabilities Long-term debt, net Other non-current liabilities Total non-current liabilities Contributed capital (1,378,106 (Dollars and shares in thousands, except per share amounts) GAAP Basis 13 Weeks Ended July 30, 2022 % of Cost of sales, including certain buying, occupancy and warehousing expenses Debt related charges Other income, net (Benefit) provision for income taxes Net (loss) income per basic share Net (loss) income per diluted share Weighted average common shares outstanding - basic Weighted average common shares outstanding - diluted GAAP TO NON-GAAP RECONCILIATION (Dollars in thousands, except per share amounts) Debt related charges Net (loss) income Diluted earnings per common share Effective tax rate Weighted average outstanding- diluted Less: Debt related charges (1) Dilution(2) Non-GAAP Basis (1) Pre-tax debt related charges of $60.1 million related primarily to the induced conversion expense on the exchange of our convertible notes, along with certain other costs related to actions we took to strengthen our capital structure. A portion of the induced conversion expense was not deductible for income tax purposes which resulted in the difference in the effective tax rate. (2) Dilution of 26.5 million shares consists of 25.3 million shares from the Company's 2025 notes and 1.2 million shares of equity awards. As GAAP results were a net (loss), these shares were not included in the diluted earnings per share denominator. Interest expense, net Net income Diluted earnings per common share Less: Convertible debt (1) (1) Amortization of the non-cash discount on the Company's convertible notes RESULTS BY SEGMENT American Eagle Aerie Corporate and Other(1) Total 13 weeks ended July 30, 2022 (1) Corporate and Other includes revenue and operating results of the Todd Snyder and Unsubscribed brands, and Quiet Platforms (net of intersegment eliminations), which have been identified as operating segments but are not material to disclose as separate reportable segments. Corporate operating costs represents certain costs that are not directly attributable to another reportable segment. YTD Second Quarter Consolidated stores at beginning of period Consolidated stores opened during the period AE Brand (2) Aerie (incl. OFFL/NE) (3) Todd Snyder Consolidated stores closed during the period Total consolidated stores at end of period Total gross square footage at end of period (in '000) International license locations at end of period (1) (1) International license locations (retail stores and concessions) are not included in the consolidated store data or the total gross square footage calculation. (2) AE Brand includes AE stand alone locations, AE/Aerie side-by side locations, AE/OFFL/NE side-by-side locations, and AE/Aerie/OFFL/NE side-by-side locations. (3) Aerie (incl. OFFL/NE) includes Aerie stand alone locations, OFFL/NE stand alone locations, and Aerie/OFFL/NE side-by-side locations. More from our Retail & Omnichannel Coverage American Eagle Outfitters Inc. We offer built-to-order retail & omnichannel coverage for our clients. Contact us for a free consultation.

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professional_accounting

Tax Breaks to Consider During National Small Business Week The week of September 13-17 has been declared National Small Business Week by the Small Business Administration. To commemorate the week, here are three tax breaks to consider. 1. Claim bonus depreciation or a Section 179 deduction for asset additions Under current law, 100% first-year bonus depreciation is available for qualified new and used property that’s acquired and placed in service in calendar year 2021. That means your business might be able to write off the entire cost of some or all asset additions on this year’s return. Consider making acquisitions between now and December 31. Note: It doesn’t always make sense to claim a 100% bonus depreciation deduction in the first year that qualifying property is placed in service. For example, if you think that tax rates will increase in the future — either due to tax law changes or a change in your income — it might be better to forgo bonus depreciation and instead depreciate your 2021 asset acquisitions over time. There’s also a Section 179 deduction for eligible asset purchases. The maximum Section 179 deduction is $1.05 million for qualifying property placed in service in 2021. Recent tax laws have enhanced Section 179 and bonus depreciation but most businesses benefit more by claiming bonus depreciation. We can explain the details of these tax breaks and which is right for your business. You don’t have to decide until you file your tax return. 2. Claim bonus depreciation for a heavy vehicle The 100% first-year bonus depreciation provision can have a sizable, beneficial impact on first-year depreciation deductions for new and used heavy SUVs, pickups and vans used over 50% for business. For federal tax purposes, heavy vehicles are treated as transportation equipment so they qualify for 100% bonus depreciation. This option is available only when the manufacturer’s gross vehicle weight rating (GVWR) is above 6,000 pounds. You can verify a vehicle’s GVWR by looking at the manufacturer’s label, usually found on the inside edge of the driver’s side door. Buying an eligible vehicle and placing it in service before the end of the year can deliver a big write-off on this year’s return. Before signing a sales contract, we can help evaluate what’s right for your business. 3. Maximize the QBI deduction for pass-through businesses A valuable deduction is the one based on qualified business income (QBI) from pass-through entities. For tax years through 2025, the deduction can be up to 20% of a pass-through entity owner’s QBI. This deduction is subject to restrictions that can apply at higher income levels and based on the owner’s taxable income. For QBI deduction purposes, pass-through entities are defined as sole proprietorships, single-member LLCs that are treated as sole proprietorships for tax purposes, partnerships, LLCs that are treated as partnerships for tax purposes and S corporations. For these taxpayers, the deduction can also be claimed for up to 20% of income from qualified real estate investment trust dividends and 20% of qualified income from publicly traded partnerships. Because of various limitations on the QBI deduction, tax planning moves can unexpectedly increase or decrease it. For example, strategies that reduce this year’s taxable income can have the negative side-effect of reducing your QBI deduction. These are only a few of the tax breaks your small business may be able to claim. Contact us to help evaluate your planning options and optimize your tax results. Using Targeted Education to Narrow the Gender Gap in Retirement Savings September 1, 2021by admin In employment settings in which women save less for retirement than men, an aggressive educational program can help to narrow the gap. That’s the conclusion of a study conducted by the Center for Retirement Research. The study focused on the impact of an initiative by the state of Wisconsin to close a retirement savings gender gap among state employees. Although Wisconsin state employees were also covered by defined benefit plans, increasing women’s contributions to a state-sponsored supplemental retirement plan was considered essential to their retirement security. The study’s authors reported that, while financial education outside of the workplace typically doesn’t correlate with increases in retirement savings, workplace-based education efforts generally are effective. The Wisconsin initiative “delivered information, motivation, and challenges through multiple media over a span of a few months.” For example, women received monthly emails with messages such as “women are twice as likely as men to live in poverty during retirement,” with links to online educational resources and financial planning tools. Such messages apparently hit home. Women were also invited to attend women-only lunchtime education sessions, and the resulting participation rates were high. Rather than lectures, the program format emphasized peer interaction to overcome what the study’s authors call “the ostrich effect” — a reluctance of people to discuss personal finance matters, especially if they’re already worried about their financial health. Program content directed participants to take specific actions to improve their financial outlook, particularly increasing their participation in the supplemental retirement savings plan. According to the study, “Differences between men and women in financial knowledge and motivation contribute to gender gaps in retirement savings.” However, the study concluded that using multimedia financial education can increase knowledge and motivate participants. 10 Facts About the Pass-Through Deduction for Qualified Business Income Are you eligible to take the deduction for qualified business income (QBI)? Here are 10 facts about this valuable tax break, referred to as the pass-through deduction, QBI deduction or Section 199A deduction. It’s available to owners of sole proprietorships, single member limited liability companies (LLCs), partnerships and S corporations. It may also be claimed by trusts and estates. The deduction is intended to reduce the tax rate on QBI to a rate that’s closer to the corporate tax rate. It’s taken “below the line.” That means it reduces your taxable income but not your adjusted gross income. But it’s available regardless of whether you itemize deductions or take the standard deduction. The deduction has two components: 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate; and 20% of the taxpayer’s combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income. QBI is the net amount of a taxpayer’s qualified items of income, gain, deduction and loss relating to any qualified trade or business. Items of income, gain, deduction and loss are qualified to the extent they’re effectively connected with the conduct of a trade or business in the U.S. and included in computing taxable income. QBI doesn’t necessarily equal the net profit or loss from a business, even if it’s a qualified trade or business. In addition to the profit or loss from Schedule C, QBI must be adjusted by certain other gain or deduction items related to the business. A qualified trade or business is any trade or business other than a specified service trade or business (SSTB). But an SSTB is treated as a qualified trade or business for taxpayers whose taxable income is under a threshold amount. SSTBs include health, law, accounting, actuarial science, certain performing arts, consulting, athletics, financial services, brokerage services, investment, trading, dealing securities and any trade or business where the principal asset is the reputation or skill of its employees or owners. There are limits based on W-2 wages. Inflation-adjusted threshold amounts also apply for purposes of applying the SSTB rules. For tax years beginning in 2021, the threshold amounts are $164,900 for singles and heads of household; $164,925 for married filing separately; and $329,800 for married filing jointly. The limits phase in over a $50,000 range ($100,000 for a joint return). This means that the deduction reduces ratably, so that by the time you reach the top of the range ($214,900 for singles and heads of household; $214,925 for married filing separately; and $429,800 for married filing jointly) the deduction is zero for income from an SSTB. For businesses conducted as a partnership or S corporation, the pass-through deduction is calculated at the partner or shareholder level. As you can see, this substantial deduction is complex, especially if your taxable income exceeds the thresholds discussed above. Other rules apply. Contact us if you have questions about your situation. Tax Deadlines Tax Deadlines: September 2021 Employees – who work for tips. If you received $20 or more in tips during August, report them to your employer. You can use Form 4070. Individuals – Make a payment of your 2021 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2021. Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August. Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August. S Corporations – File a 2020 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. Partnerships – File a 2020 calendar year return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each partner with a copy of Schedule K1 (Form 1065) or a substitute Schedule K1. Corporations – Deposit the third installment of estimated income tax for 2021. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year. Eligible Businesses: Claim the Employee Retention Tax Credit The Employee Retention Tax Credit (ERTC) is a valuable tax break that was extended and modified by the American Rescue Plan Act (ARPA), enacted in March of 2021. Here’s a rundown of the rules. Back in March of 2020, Congress originally enacted the ERTC in the CARES Act to encourage employers to hire and retain employees during the pandemic. At that time, the ERTC applied to wages paid after March 12, 2020, and before January 1, 2021. However, Congress later modified and extended the ERTC to apply to wages paid before July 1, 2021. The ARPA again extended and modified the ERTC to apply to wages paid after June 30, 2021, and before January 1, 2022. Thus, an eligible employer can claim the refundable ERTC against “applicable employment taxes” equal to 70% of the qualified wages it pays to employees in the third and fourth quarters of 2021. Except as discussed below, qualified wages are generally limited to $10,000 per employee per 2021 calendar quarter. Thus, the maximum ERTC amount available is generally $7,000 per employee per calendar quarter or $28,000 per employee in 2021. For purposes of the ERTC, a qualified employer is eligible if it experiences a significant decline in gross receipts or a full or partial suspension of business due to a government order. Employers with up to 500 full-time employees can claim the credit without regard to whether the employees for whom the credit is claimed actually perform services. But, except as explained below, employers with more than 500 full-time employees can only claim the ERTC with respect to employees that don’t perform services. Employers who got a Payroll Protection Program loan in 2020 can still claim the ERTC. But the same wages can’t be used both for seeking loan forgiveness or satisfying conditions of other COVID relief programs (such as the Restaurant Revitalization Fund program) in calculating the ERTC. Beginning in the third quarter of 2021, the following modifications apply to the ERTC: Applicable employment taxes are the Medicare hospital taxes (1.45% of the wages) and the Railroad Retirement payroll tax that’s attributable to the Medicare hospital tax rate. For the first and second quarters of 2021, “applicable employment taxes” were defined as the employer’s share of Social Security or FICA tax (6.2% of the wages) and the Railroad Retirement Tax Act payroll tax that was attributable to the Social Security tax rate. Recovery startup businesses are qualified employers. These are generally defined as businesses that began operating after February 15, 2020, and that meet certain gross receipts requirements. These recovery startup businesses will be eligible for an increased maximum credit of $50,000 per quarter, even if they haven’t experienced a significant decline in gross receipts or been subject to a full or partial suspension under a government order. A “severely financially distressed” employer that has suffered a decline in quarterly gross receipts of 90% or more compared to the same quarter in 2019 can treat wages (up to $10,000) paid during those quarters as qualified wages. This allows an employer with over 500 employees under severe financial distress to treat those wages as qualified wages whether or not employees actually provide services. The statute of limitations for assessments relating to the ERTC won’t expire until five years after the date the original return claiming the credit is filed (or treated as filed). Contact us if you have any questions related to your business claiming the ERTC. Who In A Small Business Can Be Hit With The “Trust Fund Recovery Penalty?” There’s a harsh tax penalty that you could be at risk for paying personally if you own or manage a business with employees. It’s called the “Trust Fund Recovery Penalty” and it applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages. Because taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the person liable and responsible for the taxes will be penalized 100% of the taxes due. Accordingly, the amounts IRS seeks when the penalty is applied are usually substantial, and IRS is aggressive in enforcing the penalty. Wide-ranging penalty The Trust Fund Recovery Penalty is among the more dangerous tax penalties because it applies to a broad range of actions and to a wide range of people involved in a business. Here are some answers to questions about the penalty so you can safely avoid it. What actions are penalized? The Trust Fund Recovery Penalty applies to any willful failure to collect, or truthfully account for, and pay over Social Security and income taxes required to be withheld from employees’ wages. Who is at risk? The penalty can be imposed on anyone “responsible” for collection and payment of the tax. This has been broadly defined to include a corporation’s officers, directors and shareholders under a duty to collect and pay the tax as well as a partnership’s partners, or any employee of the business with such a duty. Even voluntary board members of tax-exempt organizations, who are generally exempt from responsibility, can be subject to this penalty under some circumstances. In some cases, responsibility has even been extended to family members close to the business, and to attorneys and accountants. According to the IRS, responsibility is a matter of status, duty and authority. Anyone with the power to see that the taxes are (or aren’t) paid may be responsible. There’s often more than one responsible person in a business, but each is at risk for the entire penalty. You may not be directly involved with the payroll tax withholding process in your business. But if you learn of a failure to pay over withheld taxes and have the power to pay them but instead make payments to creditors and others, you become a responsible person. Although a taxpayer held liable can sue other responsible people for contribution, this action must be taken entirely on his or her own after the penalty is paid. It isn’t part of the IRS collection process. What’s considered “willful?” For actions to be willful, they don’t have to include an overt intent to evade taxes. Simply bending to business pressures and paying bills or obtaining supplies instead of paying over withheld taxes that are due the government is willful behavior. And just because you delegate responsibilities to someone else doesn’t necessarily mean you’re off the hook. Your failure to take care of the job yourself can be treated as the willful element. Never borrow from taxes Under no circumstances should you fail to withhold taxes or “borrow” from withheld amounts. All funds withheld should be paid over to the government on time. Contact us with any questions about making tax payments.

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professional_accounting

Meaning of FDI with Examples? Methods, Benefits and Limitations Foreign Direct Investment (FDI) is a significant and often utilize method for countries to invest directly in one another. This would imply that a country’s economy is more likely to be robust and growing if it consistently receives large investments from corporations in other nations. Let us understand the meaning of FPI with examples, methods, benefits and limitations of it. Also read about different types of FDI to understand the concept in-depth. It is possible to invest in other countries in both “organic” and “inorganic” ways. Organic investment is when a foreign investor lends money to a firm that is already doing well so that it might expand even more rapidly. An example of an inorganic investment is when a foreign investor purchases a domestic company. Meaning of FDI (Foreign Direct Investment) FDI Examples How Does FDI Work? What Is the Difference Between FDI and FPI? Benefits of FDI (Foreign Direct Investment) Limitations of FDI (Foreign Direct Investment) Methods of Foreign Direct Investment Foreign direct investment (FDI) is when an investor from one country invests in a business in another country with the expectation of a financial return over a longer period of time. The term “foreign direct investment” (FDI) should not be confuse with “foreign portfolio investment” (FPI). In which investors simply own assets issue by a foreign country without being actively involved in or interested in the country. Foreign direct investment refers to investments in which an investor actively participates or has a stake. When a corporation begins operations in a foreign nation, this is an example of a foreign direct investment. Foreign direct investment is when a firm or investor from outside a country purchases stock in a domestic enterprise (FDI). Acquisition is frequently use to represent a firm’s choice to expand into new markets. This is by investing extensively in or even purchasing a foreign company. Typically, this phrase is not use to indicate the purchase of shares in a foreign company. Foreign direct investment (FDI) encompasses mergers, acquisitions, and collaboration agreements in the retail, service, logistics, and industrial sectors. They demonstrate that an effort is being made to grow into international markets. They also run the risk of getting in problems with the law. The American corporation Nvidia recently acquired the British semiconductor manufacturer ARM. ARM is headquarter in the United Kingdom. Recently, it was reveal that the United Kingdom’s competition authorities will investigate. Whether or not a $40 billion purchase will harm competition in industries that employ semiconductor chips. Foreign direct investment (FDI) in China’s high-tech manufacturing and service industries has been a significant contributor to the country’s overall economic growth. In the meanwhile, India has loosened its rules on Foreign Direct Investment (FDI) to the certain point. Where foreign investors can now acquire 100 percent of a single-brand store without obtaining government approval first. Apple can now proceed with its intentions to open a store in India due to a favourable administrative judgement. Until now, Apple’s iPhones could only be purchase from Apple-authorized dealers. When determining whether to undertake a FDI, businesses frequently place the most emphasis on open economies with the potential for above-average development and a competent labour force. People also desire less government intervention. Foreign direct investment typically involves more than just spending money. Another option would be to supply administration, technology, and hardware. Foreign direct investment is distinguish by the ability to effectively control or exert substantial influence on a foreign company’s decision-making. Foreign portfolio investment is when an institution (corporation or a pension fund) or an individual invests in the global market. Adding the stocks or bonds of a foreign company to a portfolio is one strategy to diversify the sorts of businesses and industries represented in the portfolio. For a deal to qualify as foreign direct investment, a corporation must either acquire a foreign company outright or invest a substantial amount of money in it (FDI). FDI, which stands for “foreign direct investment”, is a long-term financial commitment. Typically made by a multinational corporation to assist a domestic company in growing more quickly. Both direct foreign investments and investments in foreign portfolios are actively promoted, particularly in developing nations. When it comes to foreign direct investment (FDI); the investor has a greater responsibility to adhere to the rules of the country in which the invested business is located. Foreign direct investment (FDI) is beneficial for both the investor and the country receiving the investment. Everyone has a direct motivation to participate in FDI and a purpose to welcome FDI as a result of these incentives. The majority of these benefits are advantageous for organisations since they help them save money and reduce risks. The primary benefit is financial for the country hosting the event. Diverse markets, tax benefits, cheaper labour, advantageous tariffs, and subsidies are some of the things that are beneficial to businesses. Foreign direct investment (FDI) can provide numerous benefits to the country that receives it. Including an economic boost, an increase in human capital, additional employment possibilities, and easier access to specialised management knowledge, training, and technology. Foreign direct investment (FDI) provides more benefits than drawbacks. Although it can harm local enterprises and send money back to the country where it was obtain. Due to the fact that FDI can generate issues within a country’s boundaries; several of these countries’ legal systems contain restrictions on FDI. If large corporations such as Walmart join the market, local firms may be force to close. People who believe that Walmart’s low pricing are responsible for the closure of small businesses point out that many local businesses cannot compete with Walmart’s prices. The greatest concern with the repatriation of profits. Companies may not reinvest the funds in the economy of the country in which they operate. This is the direct reason why so much money is leaving the host country. One way a business owner can participate in FDI is by expanding into a new country and establishing a new branch there. Amazon’s decision to locate its second headquarters in the Canadian city of Vancouver is an excellent illustration. Foreign direct investments consist of the reinvestment of profits from abroad operations and any loans given to overseas subsidiaries by the parent business. A domestic investor can strengthen their influence over the voting decisions of a foreign corporation in a variety of ways. Mergers and acquisitions, joint ventures, the establishment of a foreign subsidiary of a domestic corporation, and the purchase of voting shares in a foreign company are common examples. Depending on the circumstances, this could signify a variety of various things. If you purchase fewer than 10 percent of a firm’s voting shares; you may be able to gain control of the company. This is one of the factors that can cause this to occur. Control is one of the most crucial factors in luring foreign direct investment (FDI). The term “control” refers to the desire to direct and influence the daily activities of a foreign corporation. This is the primary distinction between FDI and passive foreign investments, such as assets in a portfolio.

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Auditor blasts leaders of tiny Maine plantation for mishandling public money by Valerie Royzman December 19, 2022 December 19, 2022 An independent auditor called out elected officials of a tiny Maine municipality for violating the public trust by not following proper procedures for handling taxpayer money. An accountant who performed The Forks Plantation’s annual audit for 2021 stopped short of saying its leadership was committing fraud, but described several unusual practices in a letter filed with a report to the state. The most questionable action was the second assessor, who is also the tax collector, issuing a check to herself without board approval, and then shortly thereafter paying her back taxes that were a similar amount, according to Keel J. Hood, a certified public accountant based in Fairfield. Town officials made deposits without documenting them and recorded payments that never happened, Hood said in his report. The July 14 document — called a disclaimer of opinion — represents a rare rebuke of elected officials in this remote plantation of 48 people in central Somerset County, and caught the attention of the state auditor’s office. “Disclaimers of opinion are vanishingly rare,” Maine State Auditor Matthew Dunlap said. “We’re not alleging any illegal activity. Neither is the auditor, but he suggests that there could be possibilities of it based on the lack of controls.” The plantation differs from cities and towns in that it is governed by a Board of Assessors, which has three elected members. Municipalities in Maine have been required since 1937 to perform annual audits, which are snapshots of public finances to ensure officials are responsibly managing money and to safeguard against fraud. Hood declined to comment and directed questions to assessors, who didn’t respond to messages. But in an Aug. 11 letter responding to the audit, they argued with several of Hood’s key points, in some cases denying any wrongdoing. During the fiscal year ending June 30, 2021, the plantation’s second assessor and treasurer processed and cashed payments to themselves without approval from assessors, a practice that continued even after he informed the board of the proper procedure, he said in the letter. The second assessor and tax collector — who is listed as Judith Hutchinson on The Forks website, though not named in Hood’s report except by title — cashed a $2,254.92 check, written in September 2020, that was not approved by assessors before or after it was issued, he said. She had unpaid 2019 and 2020 property taxes totaling $2,237.91, which were paid in October 2020, according to the letter. “Fraud is difficult to detect, nearly impossibly so in the case Management colludes to conceal it,” he said. “The Board of Assessors’ failure to appropriately scrutinize these transactions is an indication that fraud could go undetected.” Hutchinson failed to place a lien on her own property for the 2019 tax year, Hood said, which is the responsibility of a tax collector. Then collection of the delinquent property taxes, interest and fees are supposed to be turned over to the treasurer. Meeting minutes did not show that the assessors had given their approval to not place liens on Hutchinson’s property, he said. Assessors, in a response to Hood on Aug. 11, argued they were aware of and approved not to record the tax lien, but in a later exchange admitted they never formally voted. Hutchinson paid back $15,742 to the plantation for prior years’ overpayments to her, plus the $2,254.92, circumventing the penalty fees and costs associated with liens, Hood said. “The only bank statement page missing from the [The Forks’] 12 months’ bank statements was the page containing the photocopy of this check,” he said, noting the plantation, by phone, had to request a copy from the bank to show to whom it was made out, and there was no record indicating the payment’s purpose. Hood recommended that the treasurer not sign checks without board approval, in accordance with state law. He suggested that the plantation require its tax collector to file liens for all unpaid taxes, and there should be no exception for officers. Assessors agreed with the two recommendations in their Aug. 11 letter. It has been the board’s practice to place checks on a warrant and approve them, assessors said, but they acknowledged the incorrect sequence and said they have ended that practice. When the plantation’s newly elected treasurer started in October 2021, assessors implemented new control policies that they believe address the deficiencies noted in Hood’s letter, they said. Hood’s letter also detailed how management tried to control his access to people he needed to do his audit. Management insisted that Hood only work with the prior treasurer and that an assessor be present at all times, he said. Hutchinson wrote that communications should go through her and the first assessor, he said. The assessors, in their Aug. 11 letter, denied that they limited Hood’s inquiry to meeting only with the former treasurer and encouraged him to interview the past treasurer because that is who served during the fiscal year. Hood refused, they said, which they viewed as inconsistent with his obligation to the plantation. “At two points, [Hood’s] letter refers to ‘fraud’ with respect to the issuance of checks before placing them on a warrant,” assessors said. “The board rejects any implication of wrongdoing.” What unfolds next in The Forks will be between the town’s elected officials and residents, Dunlap said, and his office doesn’t have the authority to do anything more than request information. “For me, it would certainly raise urgent questions if I was a citizen of that town,” he said. In a letter dated Oct. 13, Melissa Perkins, acting state auditor at the time, wrote to the plantation’s lawyer seeking a review of The Forks’ accounting procedures, description of financial controls and any plans for corrective action adopted during the fiscal year. Timothy Woodcock of Eaton Peabody in Bangor, who represents The Forks Plantation, responded on Oct. 17 that assessors would hire another accountant — RHR Smith & Company — for a professional evaluation. Assessors made the decision after Hood failed to give the plantation the clarification they sought, he said Thursday. The accounting firm will review the June 30, 2021, audit and provide feedback to assessors, which should be completed by Jan. 31, 2023. Assessors will have to accept the findings and establish controls if RHR finds that there are issues. RHR also will do the 2022 audit. Dunlap, who was reappointed as state auditor in November, wrote back to Woodcock on Nov. 22, highlighting that Hood’s inconclusive audit is highly unusual. Dunlap said his office was not requesting another audit or professional outside review, nor was it concerned with a disagreement between the plantation and auditor. He has not heard back from the plantation or its lawyer since that last exchange, he said this week. Tagged: Matthew Dunlap, morning, surprise, The Forks Plantation Previous Harvard thumps turnover-prone UMaine women’s basketball Next Ways to stay warm in Maine’s snowy outdoors

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professional_accounting

eBriefcase Resources | Blog Better Insights Illinois Corporate Income Tax Basics- Base Income By Christopher T. Lutz Now that we have provided a primer on procedural issues at Illinois, Chicago, and Cook County, it’s time to jump into the fun stuff! Illinois has a relatively high corporate income tax rate compared to most states (a combined 9.5%), coming in at the fourth highest rate in the United States. In 2019, the Governor’s budget anticipates that corporate and personal income taxes will constitute more than 50% of Illinois’ general funds revenues, generating over $20 billion. Consequently, Illinois’ administration of its corporate income tax generates a significant amount of litigation compared to many other states. While calculating Illinois base income is generally straightforward, certain aspects are rather complex, particularly with respect to foreign income and dividend income from certain types of investment companies. Illinois Statutory Modifications Illinois base income begins with the U.S. Form 1120, Line 30, or equivalent, amount. See Form IL-1120 Instructions. Illinois Income Tax Act section 203 then provides the addition and subtraction modifications to be applied to the Federal starting point. Addition Modifications Some of the most significant addition modifications to Illinois base income relate to interest received from regulated investment companies, net operating losses, and payments to foreign entities. All amounts of interest paid or accrued to taxpayers and all distributions received from regulated investment companies must be added to Illinois base income. 35 ILCS 5/203(b)(2)(A). Additionally, any net operating loss deduction taken in arriving at taxable income other than a net operating loss carried forward from a taxable year ending prior to December 31, 1986 must be added back. 35 ILCS 5/203(b)(2) (D) (Illinois provides its own way of calculating the Illinois net loss, 35 ILCS 5/203(e)). For taxable years 2001 and thereafter, taxpayers must also add back the bonus depreciation deduction taken under IRC 168. 35 ILCS 5/203(b)(2) (E-10). For taxable years ending on or after December 31, 2008, interest payments to a person who would be a member of the same unitary business group but for the fact that the person is a foreign entity (more than 80% of its activity is outside the United States), must also be added back to Illinois base income. 35 ILCS 5/203(b)(2) (E-12). However, this modification does not apply where the foreign payee is subject in a foreign country or state to a tax on or measured by net income with respect to that interest. Id. at (E-12)(i). A similar add back is required where insurance premium expenses and costs are made to a member of the same unitary group that is excluded from the group because it is required to file a separate Illinois return as an insurance company. 35 ILCS 5/203(b)(2) (E-14). Also notable is how Illinois treats Real Estate Investment Trust (REIT) dividends. For taxable years beginning after December 31, 2008, any deduction taken for dividends paid by a captive real estate investment trust must be added back. 35 ILCS 5/203(b)(2) (E-15). This inverts the manner in which the Federal government taxes REITs, which taxes the dividends at the recipient, not the payor level. Subtraction Modifications Many of the Illinois subtraction modifications correspond to the addition modifications. For instance, exempt interest dividends paid to shareholders by a regulated investment company may be deducted from Illinois base income. 35 ILCS 5/203(b)(2) (H). However, the most notable subtraction modification is contained in 35 ILCS 5/203(b)(2)(O). This modification provides that for periods after December 31, 1992, taxpayers may deduct a percentage equal to that allowed under IRC 243(a)(1) (a percentage that may be either 50% or 100% depending on whether the dividends are “qualifying dividends” for Federal purposes) for dividends received from a corporation that is not created or organized under the laws of the United States or any political subdivision thereof, including dividends received or deemed received or paid or deemed paid under IRC sections 951 through 965. For taxable years ending on or after December 31, 2008, dividends received from a captive REIT should also be deducted. Dividends included in taxable income, including for taxable years on or after December 31, 1988, dividends received or deemed received or paid or deemed paid under IRC sections 951 through 964 should also be deducted. This section effectively requires taxpayers to deduct all Federal Subpart F income and REIT dividend income from Illinois base income. Specifically with respect to REITs, these modifications reflect the fact that in Illinois, unlike on the Federal consolidated return, REITs are to be included in the Illinois combined group. Consequently, for tax years after December 31, 2008, these modifications effectively eliminate the dividend payment entirely. Constitutional Limitations on Illinois Base Income The Illinois Income Tax Act also provides that taxpayers shall deduct all amounts included in Federal income which are exempt from taxation by Illinois either by reason of its statutes or Constitution or by reason of the Constitution, treaties or statutes of the United States. 35 ILCS 5/203(b)(2)(J). Non-unitary income, such as certain types of investment income, is therefore statutorily excludable from Illinois base income, irrespective of whether the income is generated by a member of the combined Illinois group. Prior to 2002, when a taxpayer sold its stock or substantially all of its assets for a particular business, Illinois generally treated the gain as nonbusiness income. Blessing/White, Inc. v. Zehnder, 329 Ill App 32 714 (2002). At the time, the perception was that businesses are not generally in the business of selling off entire operations, so the gain should not be includible in Illinois business income. Now, however, Illinois requires a more rigorous analysis to determine whether the asset that generated a particular gain was unitary with the taxpayer’s Illinois business. See MeadWestvaco Corp. v. Illinois Department of Revenue, 553 U.S. 16 (2008). This is a heavily factual inquiry and it may often be difficult to prove whether a particular class of assets or stock is unitary with the Illinois taxpayer. Indeed, even in MeadWestvaco, the United States Supreme Court remanded the case back to Illinois to make a determination as to whether the division sold in that case was in fact unitary with the Illinois operations. In such cases, as will be discussed in a later post on apportionment, the Illinois Department of Revenue may be amenable to alternative apportionment to allow for factor relief. Otherwise, instances of a large gain on the sale of a business may dramatically inflate Illinois base income but be excluded entirely from the apportionment factor, thus resulting in a tax liability that does not accurately reflect the company’s business operations in Illinois. While many parts of Illinois tax compliance may be very complicated, calculating Illinois base income is generally straightforward. The most notable deviations from Federal taxable income relate to investment companies, such as Regulated Investment Companies and REITs, and foreign income. Generally speaking, Illinois inverts the federal treatment of investment companies and excludes Subpart F income. With recent Federal tax reform, it is certainly possible that Illinois will calibrate its modifications, particularly with respect to foreign income. Publications to subscribe to General Firm News and Press Releases Bankruptcy, Reorganization and Creditors' Rights Private Client, Trusts and Estates For security verification, please enter any random two digit number. For example: 82 Confirm Subscription * Yes, confirm my subscription to HMB insights. By checking this box, I consent that the above information may be used by HMB Legal Counsel to send me newsletters, updates and other relevant insights. International Asset Recovery Archives Select Month January 2021 December 2020 August 2020 June 2020 April 2020 February 2020 January 2020 October 2019 September 2019 June 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 November 2017 October 2017 August 2017 July 2017 May 2017 April 2017 March 2017 February 2017 December 2016 November 2016 October 2016 September 2016 August 2016 June 2016 March 2016 December 2015 November 2015 October 2015 September 2015 August 2015 July 2015 June 2015 May 2015 April 2015 March 2015 February 2015 January 2015 December 2014 November 2014 October 2014 September 2014 August 2014 July 2014 June 2014 May 2014 March 2014 February 2014 Add to eBriefcase █Facebook █LinkedIn █Twitter 500 West Madison Suite 3700 Chicago IL 60661 © Horwood Marcus & Berk Chartered 2021. All Rights Reserved. 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professional_accounting

How Financial Report Readers Can Detect Problems in Undervalued Liabilities Accounting For Canadians For Dummies Cheat Sheet A Collection of Mastering Australian Payroll with Xero In A… A Collection of Getting the Most Out of Xero In… How to Control Your Business Cash Reading Financial Reports For Dummies, 3rd Edition By Lita Epstein Undervaluing liabilities can certainly make a company look healthier to financial report readers, but this deception is likely to lead the company down the path to bankruptcy. Games played by misstating liabilities frequently involve large numbers and hide significant money problems. Most times, an increase in accounts payable is directly related to the fact that the company is delaying payments for inventory. To test for a problem, you need to calculate the accounts payable ratio. If you find a trend indicating that the number of days the company takes to pay its accounts payable is steadily increasing, test the number of days in inventory. If the company fails both tests, investigate further. Even though the company may not be playing games with its numbers, take these signs as an indication of a worsening problem. With the trends you’re noticing, definitely call investor relations and ask for explanations about why the company has been paying its bills more slowly or why the inventory has been sitting on the shelves for longer periods of time. If investor relations doesn’t answer the questions to your satisfaction, don’t buy the stock. If you already do own the stock, you may want to consider selling it if you believe the company is hiding the truth. Accrued expenses payable Any expenses that a company hasn’t paid by the end of an accounting period are accrued (posted to the accounts before cash is paid out) in the current period, so these expenses can be matched to current period earnings. This amount is added to the liability side of the balance sheet. Unpaid expenses can include just about any expense for which the company gets a bill and has a number of days to pay, such as these expenses: Administrative expenses If the bill arrives during the last week before a company closes its books, the company most likely will accrue it rather than pay it. Most firms cut off paying bills several days before they close their books so the staff can concentrate on closing the books for the period. If a firm needs to improve its net income, it can manage its numbers by not accruing bills and instead paying them in the next accounting period. The problem with this strategy is that the next accounting period has more expenses charged to it than the company actually incurred during that accounting period. The expenses will be higher and the net income will be lower in the next reporting period. You can test for this particular game by watching the trend for accrued expenses payable. Check to see whether accrued expenses payable is going up or down from accounting period to accounting period. Usually, accrued expenses payable stay pretty level. If you see a steady decline, the company may be doing some creative accounting, or maybe the company’s decrease in expenses is simply due to discontinued operations or other changes. If you see a declining trend, look deeper into the numbers to see whether you can find an explanation. If not, call investor relations to find out why the trend for accrued payables shifts from accounting period to accounting period. Contingent liabilities Contingent liabilities are liabilities that a company should accrue when it determines that an event is likely to happen. For example, if the company is party to a lawsuit that it lost and the winner was awarded damages, the company should accrue the liability as a contingent liability. A company must determine two factors before it can list a contingent liability on its balance sheet. Factor one: The company deems it probable that it will be held liable. Factor two: The company can reasonably estimate the costs that it will incur. If the company hasn’t determined these two issues, you’ll probably find a note about the contingency in the notes to the financial statements. Read the notes about contingencies and research further any items you think the company may not be fully disclosing. You can do so by reading analysts’ reports on the company or by calling the investor relations department to ask questions. Pay-down liabilities Another way that the firms involved in the scandals of the past three years played with their numbers was by indicating that they paid down their liabilities when they actually didn’t. To make its balance sheet look better, a company may transfer debt to another entity owned by the company, its directors, or its executives to hide its true financial status. You probably won’t have any way of knowing whether this is happening until a company insider decides to expose the practice or the SEC catches the company.

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professional_accounting

High-Yield Debt in Portugal Cuatrecasas Portugal April 18 2019 High-yield debt securities versus bank loans Discuss the major differences between high-yield debt securities and bank loans in your jurisdiction. What are some of the critical advantages and disadvantages? One of the key differences of high-yield debt securities compared with bank loans is regulatory. Only duly authorised credit institutions and financial companies can conduct, on a professional basis (isolated transactions are excluded), the activity related to granting of loans, guarantees and other commitments. Investment in securities (such as debt securities) does not require a licence. This gives greater flexibility for companies to search for a wider range of investors on high-yield debt securities as opposed to bank loans. Another key difference is found in the covenants package. Bank loans have financial maintenance covenants, while high-yield bonds have incurrence-based covenants. Typically, financial maintenance covenants are triggered if the borrower does not meet certain leverage ratios (eg, debt-to-earnings before interest, tax, depreciation, and amortisation (EBITDA)) or a certain limit of interest coverage (eg, EBITDA-to-interest expense) or some other coverage metric set forth in the business model. The loan agreements usually establish exceptions for investments, disposals and liens that are in line with the business model. Cash sweep mechanisms that force the borrower to prepay the loan if there is excess cash flow are also common. In incurrence-based covenants of high-yield bonds, however, covenants are only potentially breached when the issuer raises new debt, makes an acquisition, pays a dividend, or undertakes some other relevant corporate action - namely it requires an action from the borrower. From the issuer’s perspective, incurrence-based covenants are preferable because they give more flexibility. Also as a consequence of the difference in respect of covenants, the process for obtaining waivers or consents in a bank loan is easier and more flexible, with the borrower being able to approach a limited number of lenders and agree with them on waivers or consents within a short period, while in the case of high-yield bonds the issuer has to communicate with a wider range of investors, the threshold for amending key economic terms is higher and the process is more costly and time-consuming. Finally, another relevant difference is the level of disclosure of information, in particular if there is a public placement of the securities or if they are admitted to trading (see question 6). Are you seeing increased regulation regarding either high-yield debt securities or bank loans in your jurisdiction? Bank loans have recently been subject to stricter regulation, in particular regarding interest rates, interest payments and information disclosed to the borrower. As to high-yield bonds, investment in such securities is not a regulated activity. However, several applicable securities laws have been toughened in recent years with a view to providing greater protection and information to investors; high-yield bonds are traded on secondary markets or non-regulated markets where information level requirements are lower, thus not providing investors with adequate information for the risk being taken. From a regulatory perspective, the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) has entered into force and the last implementation measures of MiFID II are now being concluded. This is expected to have some impact on high-yield bond transactions and distribution public offers in general, as a result of the need for the definition of the target market for the bonds. Current market activity Describe the current market activity and trends in your jurisdiction relating to high-yield debt securities financings. Last year was a record year for the European high-yield market (including the Portuguese segment). It not only recovered in 2017 compared with 2016 but it also reached new records in terms of issuance values and deals. According to capital structure data, the value of European high-yield bonds increased to €110 billion in 2017 and the number of deals went up to from 266 in 2016 to 339 in 2017 with the average total size of each deal being €466.5 million. Pricing tightened further with an average coupon of 4.4 per cent and there was a strong trend for issuer-friendly terms with the environment of low interest rates clearly favouring more appetite for risk from investors. However, the trends at the beginning of 2018 are not very positive. There has been a sharp drop of 38 per cent up until February and the news is not positive as the expectations of an increase in interest rates by the Federal Reserve in the second semester of the year keep growing. Pricing also went up in the beginning of the year with the average yields raising 3.4 per cent. As with 2016, 2017 saw no specific sector experience increased levels of high-yield debt activity. We have seen issuances in the telecommunications, power and energy, security and alarms, and pharmaceutical sectors among others. High-yield bonds are mainly regulated by New York law governed indenture, pursuant to which a trustee and a security agent are appointed to represent the interests of the holders of high-yield bonds. With the significant increase in European high-yield bond issuances, we have seen in recent deals the indenture being ruled by English and, in some cases, German law. Other typical documents in high-yield bond transactions are the purchase agreement pursuant to which the purchasers underwrite the bonds issued by the issuer; the intercreditor agreement between the bank lenders, the bondholders and the issuer; and the security agreements pursuant to which the several companies of the issuer’s group grant security in case of secured deals. Legal opinions and accountants’ comfort letters are also a necessary element of these transactions. In terms of security, and aside from the classic corporate guarantee granted by Portuguese subsidiaries, share security and certain types of in rem security (eg, bank accounts, insurance policies, receivables) are taken without impacting the day-to-day business activity of the company. High-yield bonds are usually exclusively offered to qualified investors; not to retail investors. They do not entail a public placement in Portugal for the purposes of the Securities Code and have a nominal amount of at least €100,000. Investors in high-yield debt securities are usually mutual funds (eg, corporate bond funds, high-yield funds and income mutual funds), insurance companies and pension funds. Finally, we confirm that there has been, in the majority of financings, a clear overlap between high-yield debt securities and loan financings, although the greater portion of the financing arises from high-yield bonds. Main participants Identify the main participants in a high-yield debt financing in your jurisdiction and outline their roles and fees. The main participants (aside from the issuer, guarantors, legal advisers and auditors) in a high-yield debt financing and their roles are as follows: Initial purchasers and underwriters: the role of the initial purchasers is to advise the issuer on the structure and timing of the offering and to coordinate and market the transaction. They have a major role in the discussion of the offering memorandum with the legal teams and accountants. They underwrite the securities from the issuer under the purchase agreement and resell them to investors. Security agent: given that neither the trustee nor parallel debt is a recognised legal concept in Portuguese law, the security agent has a major role in high-yield bond transactions. It is a party to the intercreditor agreement and the security documents, and is responsible for monitoring and enforcing the collateral guaranteeing the notes in an enforcement scenario. Paying agent: the role of the paying agent is to make payments of principal and interest to the bondholders. Rating agencies: ratings are issued by two of the big four rating agencies (eg, DBRS, Fitch, Moody’s and Standard & Poor’s). Fees of the initial purchasers are usually calculated as a percentage agreed on an individual basis of the aggregate principal amount of the notes. The other parties referred to above receive market-standard fees (usually flat fees) in connection with their engagement. Describe any new trends as they relate to the covenant package, structure, regulatory review or other aspects of high-yield debt securities. Covenant packages vary considerably depending on the economic and credit cycle. They are more restrictive if there is more risk aversion and interest rates and spreads are higher. If, however, there is less risk aversion and interest rates and spreads are lower, the covenant package is less restrictive. Covenant trends in 2017 continued to be very favourable to issuers. Covenant-lite issuances were predominant and increased in relation to 2016, as did soft-cap grower baskets calculated on the higher of a fixed amount or a percentage of assets or EBITDA. There was also a trend for broader exceptions to the ability to redeem bonds and for shorter periods of non-exercise of call options, which are now less than half of the tenor of the high-yield bonds. In addition, European (including Portuguese) high-yield bonds continue to provide issuers with more flexibility to redeem bonds and equity claws are more and more common. Documentation terms How are high-yield debt securities issued in your jurisdiction? Are there particular precedents or models that companies and investors tend to review prior to issuing the securities? Transaction documents are prepared based on recent relevant precedents, including the offering memorandum or prospectus, purchase agreement and the indenture as well as, if combined with a loan financing, the relevant senior facilities agreement. Previous issuances by the same issuer will tend to set a precedent, as will issuances by companies in the same industry or sector or with a similar credit risk profile. The lead bank’s (and, in a sponsored deal, also the sponsor’s) standard covenant form typically also plays an important role in negotiating the covenants. Maturity and call structure What is the typical maturity and call structure of a high-yield debt security? Are high-yield securities frequently issued with original issue discount? Describe any yield protection provisions typically included in the high-yield debt securities documentation. Typically, high-yield debt securities have maturities that generally range from five to 10 years. In relation to redemption or call rights, it is rare to have mandatory redemption provisions requiring an issuer to prepay the outstanding notes prior to maturity, and it is very common for the issuer to have call rights. Notwithstanding, there are usually non-call periods and declining premium redemptions. As mentioned in question 5, in recent years, high-yield bonds have provided issuers with more flexibility to redeem bonds, namely with shorter non-call periods and widespread use of the equity claw redemption. How are high-yield debt securities offerings launched, priced and closed? How are coupons determined? Do you typically see fixed or floating rates? The launch, pricing and closing of high-yield bonds issued by a Portuguese issuer follow the standard process and steps of a typical high-yield offering. The offering is launched by preparing and distributing the preliminary offering memorandum to investors. Then there is a roadshow with several investor meetings, which typically lasts from three days to two weeks. The roadshow ends with pricing the offering, which basically means executing the purchase agreement. While the company is on the roadshow, company counsel will be negotiating the purchase agreement with the banks and the purchasers. The most significant aspect of the purchase agreement, beyond the price of the bonds, is the dramatic and temporary change it engenders in the relationship between the company and the initial purchasers. Prior to executing the purchase agreement, the company and the initial purchasers have an informal arrangement to do a deal if there is one to be done. Either party can walk away at any time with no liability being triggered. Once the purchase agreement is signed, the parties are bound to close, typically on the third business day after pricing (T+3) but sometimes up to nine business days later (T+9). The closing of a high-yield offering is relatively uneventful. The initial purchasers will initiate a bring-down due diligence call in which they will ask the company whether there have been any material events since the pricing. After that, the transfer of funds and delivery of the notes will take place. The majority of high-yield bonds have a fixed coupon. The coupon is determined based on investor demand, which in turn depends on several factors, including, among others, the general market development, the financial condition of the issuer, the covenant package and the prospects for the industry in which the issuer is operating. However, we note that in recent years there has been an increase in floating rate unsecured high-yield bonds. Describe the main covenants restricting the operation of the debtor’s business in a typical high-yield debt securities transaction. Have you been seeing a convergence of covenants between the high-yield and bank markets? As mentioned above, covenants for high-yield bonds are generally incurrence-based, as opposed to maintenance-based. The issuer will not typically be required to maintain any financial ratios, but will be restricted from taking certain actions (including in relation to subsidiaries, except if it is an unrestricted subsidiary), unless it meets an exception to the relevant restrictions. Typical covenants relate to: fixed charge coverage ratios; credit facility and debt baskets; permitted investments; limitations on payments, liens and asset sales; and transactions with affiliates. Are you seeing any tightening of covenants or are you seeing investor protections being eroded? Are terms of covenants often changed between the launch and pricing of an offering? As mentioned above, covenant trends in 2017 were still very favourable to issuers, with covenant-lite issuances and soft-cap grower baskets being frequently used. Covenant terms are often redrafted and renegotiated between the launch and pricing of an offering and in the marketing process, with additional covenants sometimes being added and others deleted. Are there particular covenants that are looser or tighter, based on a particular industry sector? If the relevant industry sector is characterised by certain customary specifics or requires more investment (eg, telecommunications), the covenants will contain adequate exceptions to reflect such industry specifics and grant more flexibility to the issuer. Do changes of control, asset sales or similar typically trigger any prepayment requirements? Typically, high-yield bonds documentation establishes that, upon a change of control, the issuer is forced to make a repurchase offer for the bonds at a fixed percentage, which is usually 101 to 103 per cent. Portable change of control provisions have become increasingly popular. There are also put option rights of the bondholders upon the sale of certain assets to the extent the cash proceeds of the sale are not reinvested in the business or used to repay debt. Do you see the inclusion of ‘double trigger’ change of control provisions tied to a ratings downgrade? Yes. Some high-yield bonds include a ‘double trigger’ change of control covenant, meaning there is only a requirement to make a change of control offer if there is a change of control event, which is followed by a ratings downgrade. However, this is not very common. Crossover covenants Is there the concept of a ‘crossover’ covenant package in your jurisdiction for issuers who are on the verge of being investment grade? And if so, what are some of the key covenant differences? Yes, a ‘crossover’ covenant package is common for issuers who are on the verge of being investment grade. Usually there is no restricted payments covenant and limitations on indebtedness covenant might only apply to secured debt, as well as the basket mechanics. Disclosure requirements Describe the disclosure requirements applicable to high-yield debt securities financings. Is there a particular regulatory body that reviews or approves such disclosure requirements? In case of a private placement, there are no specific statutory disclosure requirements to be complied with and the typical high-yield debt offering disclosure standards are followed. The private placement offering memorandum does not need to be approved by the Portuguese Securities Market Commission (CMVM). Public offerings of high-yield notes in Portugal, as well as the listing of debt securities in a Portuguese secondary regulated market, require the filing of a prospectus for prior approval by the CMVM and its registration. The CMVM will verify that the prospectus contains all necessary information concerning the issuer and the securities for investors to make an informed investment decision and that it complies with the applicable regulations (mainly EU Prospectus Directive regulations). The prospectus shall contain all information which, according to the particular nature of the issuer and of the securities offered to the public or admitted to trading on a regulated market, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses, and prospects of the issuer and of any guarantor, and of the rights attaching to such securities. Are there any limitations on the use of proceeds from an issuance of high-yield securities by an issuer? There are very few limitations on the use of proceeds by an issuer from an issuance of high-yield securities. The more important limitations are financial assistance rules set forth in the Portuguese Companies Code (which prohibit the use of the proceeds to fund the acquisition of own shares) and anti-money laundering or similar laws, which limit the possible use of proceeds. Restrictions on investment On what grounds, if any, could an investor be precluded from investing in high-yield securities? Any investor can invest in high-yield securities. A variety of investors participate in the high-yield notes market either directly or indirectly via funds investing in high-yield securities. However, if high-yield securities are offered by way of a private placement, the nominal value of the notes must be at least €100,000 and all actions that could permit a public offering of any of the notes in Portugal or for the offering memorandum to be distributed in Portugal are prohibited, except in circumstances that will not be considered as a public offering under article 109 of the Portuguese Securities Code. Closing mechanics Are there any particular closing mechanics in your jurisdiction that an issuer of high-yield debt securities should be aware of? No, there are no particular closing mechanics in the case of the issuance of a high-yield bond by a Portuguese issuer. Guarantees and security Outline how guarantees among companies in a group typically operate in a high-yield deal in your jurisdiction. Are there limitations on guarantees? In Portugal, a high-yield deal comprises the granting of guarantees by material subsidiaries of the issuer (upstream guarantees) and, in cases where the issuer is not the top holdco, also by its parent company (downstream guarantee), as well as any material sister companies (cross-stream guarantees). The guarantors are usually the same as the guarantors under the senior facilities agreement. Pursuant to Portuguese law, Portuguese guarantors may only guarantee third parties’ obligations if (i) the company has a justified corporate interest in the granting of the guarantees or the collateral, or both, or (ii) the company is in a group or control relationship with the entities whose obligations are being secured. Under the Companies Code the definition of ‘controlling relationship’ includes relationships between Portuguese companies where one company holds, directly or indirectly, the majority of the share capital or the voting rights in, or the right to appoint the majority of the members of the board of directors or supervisory board of, the other company. A group relationship includes relationships between Portuguese companies where one is 100 per cent owned or controlled, directly or indirectly, by the other; or between companies that are bound by a group agreement or a subordination agreement, whereby one company is subject to the instructions or management of the other. In the absence of a controlling or a group relationship, the validity of a guarantee or security interest could be challenged if there is no justified corporate interest. In addition, the obligations under the high-yield note guarantees or collateral granted by the Portuguese guarantors shall not extend to any use of the proceeds of the notes for the purpose of acquiring shares representing the share capital of such guarantor or shares representing the share capital of the parent guarantor, or refinancing a previous debt incurred for the acquisition of shares representing the share capital of such guarantor or shares representing the share capital of its parent guarantor. This would constitute unlawful financial assistance pursuant to article 322 of the Portuguese Companies Code. In this respect, guarantee limitation language is included in such high-yield notes guarantees or collateral to ensure that in no case can any high-yield notes guarantees or collateral granted by a Portuguese guarantor secure repayment of the above-mentioned funds. Finally, we also outline that, for tax reasons, the obligations under high-yield note guarantees or collateral granted by the Portuguese guarantors are typically limited to an agreed maximum amount. As a result, the Portuguese guarantors will not have a direct obligation to repay any amounts once the relevant maximum secured amount has been reached, as applicable. Collateral package What is the typical collateral package for high-yield debt securities in your jurisdiction? In Portugal, the typical collateral package for high-yield debt securities includes pledges over the issued share capital, plant and equipment (this refers to manufacturing plant and machinery, trucks, generating sets, drilling rigs and similar items), bank account pledges, and security assignments of receivables, among others. The typical collateral package for high-yield bonds granted by Portuguese entities in connection with high-yield debt securities depends on the type of assets owned by the issuer and subsidiaries and its sector of activity. Usually it comprises: share security (namely, a financial pledge over the issued share capital); bank account security (namely, a financial pledge over the bank accounts); assignment of receivables (including intercompany receivables); security over fixed movable assets (namely, a pledge over stock, equipment or inventory); and assignments of, or pledges over, insurance policies and, in some cases (although less commonly), intellectual property rights. In very few issuances, security is taken over real estate. Are there any limitations on security that can be granted to secure high-yield securities in your jurisdiction? Are there any limitations on types of assets that can be pledged as collateral? Are there any limitations on which entities can provide security? The limitations on the granting of guarantees are those already mentioned above for upstream, downstream and cross-stream security granted (see question 19). If the assets of the Portuguese issuer or guarantor are covered by the immunities legally set forth - which include, but are not limited to, assets that are part of the public domain of the Portuguese Republic or allocated to public service purposes - it will be entitled to claim for itself immunity from suit, attachment or other legal process in respect of its obligations under the note guarantees. We also note that, as a general rule, under Portuguese law, any guarantee, pledge or mortgage must guarantee or secure another obligation to which it is ancillary, which must be identified in the security agreements. Therefore, the guarantee or security follows the underlying obligation in such a way that the invalidity of the underlying obligation entails invalidity of the guarantee or security and termination of the underlying obligation entails termination of the guarantee or security. Collateral structure Describe the typical collateral structure in your jurisdiction. For example, is it common to see crossing lien deals between high-yield debt securities and bank agreements? There is no typical collateral structure in Portugal, which will depend on the issuer and guarantors and its credit profile risk, capital and financial structure. Crossing lien structures (where lenders benefit from first ranking security and bondholders benefit from second ranking security) are not very common but we have seen them being used. This concept can be implemented in practice, although it can be more complex in relation to certain types of assets, such as real estate. It is also common to regulate this type of issue (ranking and priority of debt and security) in the intercreditor agreement through waterfall provisions. Finally, we have also seen structures where there is a mixed issuance of senior secured notes and senior unsecured notes. Who typically bears the costs of legal expenses related to security interests? In Portugal, the issuer bears the costs of legal expenses related to the transaction, including the fees to be paid by the initial purchasers to their legal counsel. The issuer also bears any expenses related to security interests, including stamp duty and registration costs. Security interests How are security interests recorded? Is there a public register? Bank account pledges are subject to registration with the bank with which the account is held, while share security can be subject to registration with the issuer, a depositor or a bank in the case of registered, deposited or dematerialised shares. Mortgages over real estate or registrable movable assets (eg, vehicles, ships, aircraft), as well as pledges over quotas, are recorded in the competent registry office, whose register is in both cases public. How are security interests typically enforced in the high-yield context? Portuguese law does not recognise the concept of parallel debt or trusteeship. The indenture will thus provide (along with the intercreditor agreement) that only the security agent may enforce the security documents in its capacity as agent and joint and several creditor, and that usually the holders of the notes will not have direct security interests. Therefore, the holders will not be entitled to take enforcement action in respect of the high-yield notes guarantee or collateral securing the high-yield notes, except through the trustee, who will provide instructions to the security agent in respect of the notes’ guarantee or collateral, or both. The security interests are thus enforced by the security agent on the occurrence of an enforcement event and following an instruction by the bondholders or lenders in accordance with the provisions of the indenture, the intercreditor agreement and the relevant security agreement. Depending on the type of security, the ways of enforcing security can be very different. Financial pledges over shares and bank accounts allow for an appropriation of the asset by the pledgor and allow for an extrajudicial sale of the asset to the extent the rules for the evaluation of the asset are established in the contract. The enforcement of a mortgage, however, requires a judicial enforcement proceeding, whereas assignment of receivables only requires a notification to the debtor or client of the issuer to make payments directly to the secured parties. Finally, it is common for the guarantors to grant power of attorney in favour of the security agent to enforce security and sell the assets on the occurrence of an event of default. Debt seniority and intercreditor arrangements Ranking of high-yield debt How does high-yield debt rank in relation to other creditor interests? The majority of high-yield notes are senior unsecured notes, which means that they rank equally in right of payment with all existing and future non-subordinated obligations of the issuer and rank senior to any existing or future subordinated indebtedness. If collateral is granted (which is often the case), the notes will, in practice, rank senior to any existing or future unsecured obligations to the extent the proceeds of enforcement of the collateral satisfy with priority the obligations of the issuer under the high-yield debt securities. However, certain guaranteed credits - namely, special statutory liens (eg, real estate special statutory liens such as state credits related with real estate property tax) and movable assets special statutory liens (eg, credits resulting from legal expenses incurred in the interest of the creditors) - may rank in priority to the security of high-yield debt. If there are privileged credits, which are credits secured by general statutory liens over assets integrated in the insolvency estate (labour, tax and social security debts), they rank in priority to common credits up to the amount corresponding to the value of the assets granted in guarantee or the general statutory liens, which means that they rank senior to senior unsecured high-yield notes. Regulation of voting and control Describe how intercreditor arrangements entered into by companies in your jurisdiction typically regulate voting and control between holders of high-yield debt securities and bank lenders? The terms of the intercreditor agreement governing control of enforcement proceedings depend on the collateral structure and the ranking of high-yield debt in relation to bank debt. Structures involving super senior bank debt with lenders controlling the enforcement are less common and deals with pari passu structures provide for a right of the noteholders to participate in the control of enforcement proceedings by voting as a class. Offsetting of interest payments May issuers set off interest payments on their securities against their tax liability? Are there any special considerations for the high-yield market? Issuers of securities, including high-yield bonds, may generally set off their interest payments against their tax liability. However, there is a general annual limitation to tax deduction for corporate income tax purposes of financial expenses in excess of the highest of €1 million or 30 per cent of EBITDA (as adjusted for tax purposes). Non-deductible financial expenses can be carried forward to the five subsequent years. In the event that net financial expenses of a tax year are below the 30 per cent EBITDA threshold, the difference may be used as an extra deduction on top of the 30 per cent of EBITDA during the five subsequent years. Tax rulings Is it common for issuers to obtain a tax ruling from the competent authority in your jurisdiction in connection with the issuance of high-yield bonds? No, it is uncommon for issuers to obtain any tax rulings in connection with the issuance of securities, including high-yield bonds. Cuatrecasas - Maria João Ricou and Manuel Requicha Ferreira Health Law Newsletter (Portugal) - April 2017 * Newsletter tax (Portugal) - January 2015 - I National Legislation * RD 413/2014 of June 6, regulating electricity production from renewable energy sources, co-generation, and waste * Insurance considerations for aircraft financing and leasing in Portugal * Anti-corruption and Bribery in Portugal * Related Portugal articles High-Yield Debt in Portugal * Guarantees and security for high-yield debt in Portugal * Regulating high-yield debt in Portugal * High-Yield Debt in Russia * - Russia High-Yield Debt in Finland * - Finland High-Yield Debt in Switzerland * - Switzerland Bruce E Allen Senior Counsel Labor & Employment AECOM Technology Corporation "I find the newsfeeds to be extremely beneficial as a means of keeping up with changes in the law. I've made a regular practice of sharing a number of the items with members of our HR staff. Please keep up the good work."

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professional_accounting

Copley, OH – December 2018 – DebtNext Software, a hosted inventory management and operations software provider, welcomes Louis Thomas as its new Sales Executive. In his new role, Louis will manage the sales efforts as the Company expands into new industry verticals and will join DebtNext in its Northeast Ohio headquarters located in Copley, Ohio. Louis brings over 10 years of sales and business strategy experience within the High-Tech Industry. For the past decade, Louis has worked in various sales and sales management roles and was most recently responsible for business development at a boutique engineering firm. Due to his unique experience, Louis has developed innovative strategies that expand market share and increase revenue. Louis has been honored with awards numerous times for his consistent high performance, dedication to clients and outstanding achievements. His education background includes a Bachelor of Business Administration with a specialization in Marketing from Cleveland State University. “We’re very excited to have Louis joining our team as a leader in helping us continue to grow our client base and strengthen our product offering”, said Paul Goske, President of DebtNext Software. “Louis brings a great deal of experience in articulating software value propositions to his clients and we’re looking forward to him continuing in that capacity as we enter into new markets”. DebtNext Software has been delivering robust solutions for their clients’ recovery management needs since its founding in 2003. Their industry leading Platform is currently used by some of the nation’s largest utility, telecommunications and financial services companies to help manage and optimize the placement of their accounts receivables with third party collection vendors. DebtNext Software is headquartered in Copley, Ohio. For more information, visit www.debtnext.com, or email [email protected]. Copley, OH – November 2018 – DebtNext Software, a hosted inventory management and operations software provider, today announced that it has completed its SOC 2 Type II audit. This attestation provides evidence that DebtNext Software has a strong commitment to deliver high quality services to its clients by demonstrating they have the necessary internal controls and processes in place. SOC 2 engagements are based on the AICPA’s Trust Services Criteria. SOC 2 service auditor reports focus on a service organization’s non-financial reporting controls as they relate to security, availability, processing integrity, confidentiality, and privacy of a system. KirkpatrickPrice’s service auditor report verifies the suitability of the design and operating effectiveness of DebtNext Software’s controls to meet the standards for these criteria. “Our team is extremely proud of the effort that has gone into attaining the SOC 2 Type II attestation and appreciate the partnership with Kirkpatrick Price and their efforts in the audit. The protection of our clients’ data is a critical element of our success, and the policies and procedures we have put in place that are validated through this annual audit aid in our continual improvement in that area”, said Paul Goske, President of DebtNext Software. KirkpatrickPrice is a licensed CPA firm, PCI QSA, and a HITRUST CSF Assessor, registered with the PCAOB, providing assurance services to over 800 clients in more than 48 states, Canada, Asia, and Europe. The firm has over 13 years of experience in information security and compliance assurance by performing assessments, audits, and tests that strengthen information security and internal controls. KirkpatrickPrice most commonly provides advice on SOC 1, SOC 2, PCI DSS, HIPAA, HITRUST CSF, GDPR, ISO 27001, FISMA, and CFPB frameworks. For more information, visit www.kirkpatrickprice.com, follow KirkpatrickPrice on Twitter (@KPAudit), or connect with KirkpatrickPrice on LinkedIn. Copley, OH – May 2018 – KirkpatrickPrice announced today that DebtNext Software, hosted inventory management and operations software provider, has received their SOC 2 Type I attestation report. The completion of this engagement provides evidence that DebtNext Software has a strong commitment to deliver high quality services to its clients by demonstrating they have the necessary internal controls and processes in place. DebtNext has been delivering robust solutions for their clients’ recovery management needs since its founding in 2003. Their industry leading Platform is currently used by some of the nation’s largest utility, telecommunications and financial services companies to help manage and optimize the placement of their accounts receivables with third party collection vendors. DebtNext Software is headquartered in Copley, Ohio. For more information, visit www.debtnext.com, or email [email protected]. KirkpatrickPrice is a licensed CPA firm, PCI QSA, and a HITRUST CSF Assessor, registered with the PCAOB, providing assurance services to over 700 clients in more than 48 states, Canada, Asia, and Europe. The firm has over 13 years of experience in information security and compliance assurance by performing assessments, audits, and tests that strengthen information security and internal controls. KirkpatrickPrice most commonly provides advice on SOC 1, SOC 2, PCI DSS, HIPAA, HITRUST CSF, GDPR, ISO 27001, FISMA, and CFPB frameworks. For more information, visit www.kirkpatrickprice.com, follow KirkpatrickPrice on Twitter (@KPAudit), or connect with KirkpatrickPrice on LinkedIn.

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professional_accounting

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professional_accounting

Justia Forms Business Contracts MedAmerica Properties Inc. Agreement of Limited Partnership of Broad Street Realty, LP Agreement of Limited Partnership of Broad Street Realty, LP Contract Categories: Business Formation - Limited Partnership Agreements EX-10.12 2 brst-ex1012_126.htm EX-10.12 brst-ex1012_126.htm AGREEMENT OF LIMITED PARTNERSHIP BROAD STREET OPERATING PARTNERSHIP, LP THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS IN THE OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS. Dated as of May 21, 2019 ARTICLE I DEFINED TERMS ARTICLE II ORGANIZATIONAL MATTERS Section 2.1 Registered Office and Agent; Principal Office Partnership Interests as Securities Certificates Describing Partnership Units ARTICLE III PURPOSE Purpose and Business ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS Capital Contributions of the Partners Issuances of Partnership Interests No Preemptive Rights Other Contribution Provisions No Interest on Capital LTIP Units Conversion of LTIP Units. ARTICLE V DISTRIBUTIONS Requirement and Characterization of Distributions Amounts Withheld Distributions Upon Liquidation Revisions to Reflect Issuance of Partnership Interests ARTICLE VI ALLOCATIONS Allocations for Capital Account Purposes Revisions to Allocations to Reflect Issuance of Partnership Interests or Future Agreements to Bear Disproportionate Losses ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS Certificate of Limited Partnership Title to Partnership Assets Reimbursement of the General Partner and the Parent Outside Activities of the General Partner; Relationship of Shares to Partnership Units; Funding Debt Transactions with Affiliates Liability of the General Partner Other Matters Concerning the General Partner Section 7.10 Reliance by Third Parties Restrictions on General Partner’s Authority Loans by Third Parties ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS Management of Business Outside Activities of Limited Partners Return of Capital Rights of Limited Partners Relating to the Partnership Redemption Right ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS Records and Accounting ARTICLE X TAX MATTERS Preparation of Tax Returns Tax Elections Partnership Representative Organizational Expenses ARTICLE XI TRANSFERS AND WITHDRAWALS Transfers of Partnership Interests of General Partner Limited Partners’ Rights to Transfer Substituted Limited Partners ARTICLE XII ADMISSION OF PARTNERS Admission of a Successor General Partner Admission of Additional Limited Partners Amendment of Agreement and Certificate of Limited Partnership Limit on Number of Partners ARTICLE XIII DISSOLUTION AND LIQUIDATION Compliance with Timing Requirements of Regulations; Restoration of Deficit Capital Accounts Rights of Limited Partners Notice of Dissolution Cancellation of Certificate of Limited Partnership Reasonable Time for Winding Up Waiver of Partition Liability of Liquidator ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS Meetings of the Partners ARTICLE XV GENERAL PROVISIONS Addresses and Notice Titles and Captions Pronouns and Plurals Binding Effect Invalidity of Provisions No Rights as Stockholders List of Exhibits: Exhibit A — Partner Registry Exhibit B — Capital Account Maintenance Exhibit C — Special Allocation Rules Exhibit D — Notice of Redemption Exhibit E — Notice of Election by Partner to Convert LTIP Units into Class A Units Exhibit F — Notice of Election by Partnership to Force Conversion of LTIP Units into Class A Units THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of May 21, 2019 (the “Agreement”), is entered into by and among Broad Street OP GP, LLC, a Delaware limited liability company, as the General Partner, and the Persons whose names are set forth on the Partner Registry (as hereinafter defined) as Limited Partners, together with any other Persons who become Partners in Broad Street Operating Partnership, LP (the “Partnership”) as provided herein. WHEREAS, on May 21, 2019, the General Partner formed the Partnership as a limited partnership pursuant to Delaware law by the filing of the Certificate of Limited Partnership with the Delaware Secretary of State; and WHEREAS, the General Partner and MedAmerica Properties Inc., a Delaware corporation (the “Parent”), wish to enter into the partnership agreement as set forth herein. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. “Act” means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute. “Additional Limited Partner” means a Person admitted to the Partnership as a Limited Partner pursuant to Section 12.2 and who is shown as a Limited Partner on the Partner Registry. “Adjusted Capital Account” means the Capital Account maintained for each Partner as of the end of each Fiscal Year (i) increased by any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. “Adjusted Capital Account Deficit” means, with respect to any Partner, the deficit balance, if any, in such Partner’s Adjusted Capital Account as of the end of the relevant Fiscal Year. “Adjusted Property” means any property the Carrying Value of which has been adjusted pursuant to Exhibit B. “Adjustment Event” has the meaning set forth in Section 4.6.A(i). “Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any Person of which such Person owns or controls ten percent (10%) or more of the voting interests or (iv) any officer, director, general partner or trustee of such Person or any Person referred to in clauses (i), (ii), and (iii) above. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing. “Agreed Value” means (i) in the case of any Contributed Property, the Section 704(c) Value of such property as of the time of its contribution to the Partnership, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed as determined under Section 752 of the Code and the Regulations thereunder; and (ii) in the case of any property distributed to a Partner by the Partnership, the Partnership’s Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution. “Agreement” means this Agreement of Limited Partnership, as it may be amended, supplemented or restated from time to time. “Assignee” means a Person to whom one or more Partnership Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5. “Available Cash” means, with respect to any period for which such calculation is being made: all cash revenues and funds received by the Partnership from whatever source (excluding the proceeds of any Capital Contribution, unless otherwise determined by the General Partner in its sole and absolute discretion) plus the amount of any reduction (including, without limitation, a reduction resulting because the General Partner determines such amounts are no longer necessary) in reserves of the Partnership, which reserves are referred to in clause (b)(iv) below; less the sum of the following (except to the extent made with the proceeds of any Capital Contribution): (i)all interest, principal and other debt-related payments made during such period by the Partnership, (ii)all cash expenditures (including capital expenditures) made by the Partnership during such period, (iii)investments in any entity (including loans made thereto) to the extent that such investments are permitted under this Agreement and are not otherwise described in clauses (b)(i) or (ii), and (iv)the amount of any increase in reserves established during such period which the General Partner determines is necessary or appropriate in its sole and absolute discretion (including any reserves that may be necessary or appropriate to account for distributions required with respect to Partnership Interests having a preference over other classes of Partnership Interests); with any other adjustments as determined by the General Partner, in its sole and absolute discretion. Notwithstanding the foregoing, after commencement of the dissolution and liquidation of the Partnership, Available Cash shall not include any cash received or reductions in reserves and shall not take into account any disbursements made or reserves established. “BBA Rules” means the partnership tax audit rules enacted under the Bipartisan Budget Act of 2015 and all effective Regulations and other guidance issued thereunder or with respect thereto. “Book-Tax Disparities” means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for U.S. federal income tax purposes as of such date. A Partner’s share of the Partnership’s Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Partner’s Capital Account balance as maintained pursuant to Exhibit B and the hypothetical balance of such Partner’s Capital Account computed as if it had been maintained strictly in accordance with U.S. federal income tax accounting principles. “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, NY are authorized or required by law to close. “Capital Account” means the Capital Account maintained for a Partner pursuant to Exhibit B. The initial Capital Account balance for each Partner who is a Partner on the date hereof shall be the amount set forth opposite such Partner’s name on the Partner Registry. “Capital Account Limitation” has the meaning set forth in Section 4.7.B. “Capital Contribution” means, with respect to any Partner, any cash and the Agreed Value of Contributed Property which such Partner contributes or is deemed to contribute to the Partnership. “Carrying Value” means (i) with respect to a Contributed Property or Adjusted Property, the Section 704(c) Value of such property reduced (but not below zero) by all Depreciation with respect to such Contributed Property or Adjusted Property, as the case may be, charged to the Partners’ Capital Accounts and (ii) with respect to any other Partnership property, the adjusted basis of such property for U.S. federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Exhibit B, and to reflect changes, additions (including capital improvements thereto) or other adjustments to the Carrying Value for dispositions and acquisitions of Partnership properties, as deemed appropriate by the General Partner. “Cash Amount” means an amount of cash equal to the Value on the Valuation Date of the Shares Amount. “Certificate of Limited Partnership” means the Certificate of Limited Partnership relating to the Partnership filed in the office of the Delaware Secretary of State, as amended from time to time in accordance with the terms hereof and the Act. “Charter” means the charter of the Parent, within the meaning of the Delaware General Corporation Law. “Class A” has the meaning set forth in Section 5.1.C. “Class A Share” has the meaning set forth in Section 5.1.C. “Class A Unit” means any Partnership Unit that is not specifically designated by the General Partner as being of another specified class of Partnership Units. “Class A Unit Distribution” has the meaning set forth in Section 4.6.A. “Class A Unit Economic Balance” has the meaning set forth in Section 6.1.E. “Class A Unit Transaction” has the meaning set forth in Section 4.7.F. “Class B” has the meaning set forth in Section 5.1.C. “Class B Share” has the meaning set forth in Section 5.1.C. “Class B Unit” means a Partnership Unit that is specifically designated by the General Partner as being a Class B Unit. “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. “Consent” means the consent or approval of a proposed action by a Partner given in accordance with Article XIV. “Consent of the Outside Limited Partners” means the Consent of Limited Partners (excluding for this purpose (i) any Limited Partner Interests held by the General Partner or the Parent, (ii) any Person of which the General Partner or the Parent directly or indirectly owns or controls more than fifty percent (50%) of the voting interests and (iii) any Person directly or indirectly owning or controlling more than fifty percent (50%) of the outstanding voting interests of the General Partner or the Parent) holding Partnership Interests representing more than fifty percent (50%) of the Percentage Interest of the Class A Units of all Limited Partners which are not excluded pursuant to (i), (ii) and (iii) above. “Constituent Person” has the meaning set forth in Section 4.7.F. “Contributed Property” means each property or other asset contributed to the Partnership, in such form as may be permitted by the Act, but excluding cash contributed or deemed contributed to the Partnership. Once the Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B, such property shall no longer constitute a Contributed Property for purposes of Exhibit B, but shall be deemed an Adjusted Property for such purposes. “Conversion Date” has the meaning set forth in Section 4.7.B. “Conversion Factor” means 1.0; provided, however, that, if the Parent (i) declares or pays a dividend on its outstanding Shares in Shares or makes a distribution to all holders of its outstanding Shares in Shares and does not make a corresponding distribution on Class A Units in Class A Units, (ii) subdivides its outstanding Shares, or (iii) combines its outstanding Shares into a smaller number of Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time) and the denominator of which shall be the actual number of Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination; and provided further that in the event that an entity other than an Affiliate of the Parent shall become General Partner pursuant to any merger, consolidation or combination of the General Partner or the Parent with or into another entity (the “Successor Entity”), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by the number of shares of the Successor Entity into which one Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of the event retroactive to the record date, if any, for the event giving rise thereto, it being intended that (x) adjustments to the Conversion Factor are to be made to avoid unintended dilution or anti-dilution as a result of transactions in which Shares are issued, redeemed or exchanged without a corresponding issuance, redemption or exchange of Partnership Units and (y) if a Specified Redemption Date shall fall between the record date and the effective date of any event of the type described above, that the Conversion Factor applicable to such redemption shall be adjusted to take into account such event. “Conversion Notice” has the meaning set forth in Section 4.7.B. “Conversion Right” has the meaning set forth in Section 4.7.A. “Convertible Funding Debt” has the meaning set forth in Section 7.5.F. “Debt” means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person, (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person’s interest in such property, even though such Person has not assumed or become liable for the payment thereof, and (iv) obligations of such Person incurred in connection with entering into a lease which, in accordance with generally accepted accounting principles, should be capitalized. “Depreciation” means, for each Fiscal Year, an amount equal to the U.S. federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for U.S. federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the U.S. federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided, however, that if the U.S. federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the General Partner. “Distribution Period” has the meaning set forth in Section 5.1.C. “Economic Capital Account Balances” has the meaning set forth in Section 6.1.E. “Equity Incentive Plan” means any equity incentive or equity compensation plan hereafter adopted by the Partnership or the Parent. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Fiscal Year” means the fiscal year of the Partnership, which shall be the calendar year as provided in Section 9.2. “Forced Conversion” has the meaning set forth in Section 4.7.C. “Forced Conversion Notice” has the meaning set forth in Section 4.7.C. “Funding Debt” means any Debt incurred for the purpose of providing funds to the Partnership by or on behalf of the Parent or any wholly owned subsidiary of the Parent. “General Partner” means Broad Street OP GP, LLC, a Delaware limited liability company, or its successor or permitted assignee, as general partner of the Partnership. “General Partner Interest” means the Partnership Interest held by the General Partner, which Partnership Interest is an interest as a general partner under the Act. The General Partner will not be required to make a Capital Contribution to the Partnership in exchange for the General Partner Interest. A General Partner Interest may be expressed as a number of Partnership Units. “IRS” means the Internal Revenue Service, which administers the internal revenue laws of the United States. “Immediate Family” means, with respect to any natural Person, such natural Person’s spouse, parents, descendants, nephews, nieces, brothers, and sisters. “Incapacity” or “Incapacitated” means, (i) as to any individual who is a Partner, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her Person or estate, (ii) as to any corporation which is a Partner, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter, (iii) as to any partnership or limited liability company which is a Partner, the dissolution and commencement of winding up of the partnership or limited liability company, (iv) as to any estate which is a Partner, the distribution by the fiduciary of the estate’s entire interest in the Partnership, (v) as to any trustee of a trust which is a Partner, the termination of the trust (but not the substitution of a new trustee) or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner’s creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner’s properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment or (h) an appointment referred to in clause (g) is not vacated within ninety (90) days after the expiration of any such stay. “Indemnitee” means (i) any Person made a party to a proceeding by reason of its status as (A) the General Partner, (B) a Limited Partner or (C) a director or officer of the Partnership, the General Partner or the Parent and (ii) such other Persons (including Affiliates of the General Partner, the Parent, a Limited Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion. “Limited Partner” means any Person named as a Limited Partner in the Partner Registry or any Substituted Limited Partner or Additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership. “Limited Partner Interest” means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Units. “Liquidating Event” has the meaning set forth in Section 13.1. “Liquidating Gains” has the meaning set forth in Section 6.1.E. “Liquidator” has the meaning set forth in Section 13.2.A. “LTIP Units” means a Partnership Unit which is designated as an LTIP Unit and which has the rights, preferences and other privileges designated in Section 4.6 and elsewhere in this Agreement in respect of holders of LTIP Units. The allocation of LTIP Units among the Partners shall be set forth in the Partner Registry, as it may be amended or restated from time to time. “LTIP Unitholder” means a Partner that holds LTIP Units. “LV Safe Harbor” “LV Safe Harbor Election” and “LV Safe Harbor Interest” each has the meaning set forth in Section 10.2.B. “National Securities Exchange” means the New York Stock Exchange, the NYSE American LLC, the NASDAQ Stock Market or any successor to any of the foregoing. “Net Income” means, for any taxable period, the excess, if any, of the Partnership’s items of income and gain for such taxable period over the Partnership’s items of loss and deduction for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with Exhibit B. If an item of income, gain, loss or deduction that has been included in the initial computation of Net Income is subjected to the special allocation rules in Exhibit C, Net Income or the resulting Net Loss, whichever the case may be, shall be recomputed without regard to such item. “Net Loss” means, for any taxable period, the excess, if any, of the Partnership’s items of loss and deduction for such taxable period over the Partnership’s items of income and gain for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with Exhibit B. If an item of income, gain, loss or deduction that has been included in the initial computation of Net Loss is subjected to the special allocation rules in Exhibit C, Net Loss or the resulting Net Income, whichever the case may be, shall be recomputed without regard to such item. “New Securities” means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase Shares, excluding grants under any Equity Incentive Plan, or (ii) any Debt issued by the Parent that provides any of the rights described in clause (i). “Nonrecourse Built-in Gain” means, with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration. “Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c). “Nonrecourse Liability” has the meaning set forth in Regulations Section 1.752-1(a)(2). “Notice of Redemption” means a Notice of Redemption substantially in the form of Exhibit D. “Operating Entity” has the meaning set forth in Section 7.4.F. “Parent” has the meaning set forth in the recitals hereto. “Partner” means the General Partner or a Limited Partner, and “Partners” means the General Partner and the Limited Partners. “Partner Minimum Gain” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3). “Partner Nonrecourse Debt” has the meaning set forth in Regulations Section 1.704-2(b)(4). “Partner Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(i), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2). “Partner Registry” means the Partner Registry maintained by the General Partner in the books and records of the Partnership, which contains substantially the same information as would be necessary to complete the form of the Partner Registry attached hereto as Exhibit A. “Partnership” has the meaning set forth in the recitals hereto. “Partnership Interest” means a Limited Partner Interest, a General Partner Interest or LTIP Units, and includes any and all benefits to which the holder of such a partnership interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units. “Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d). “Partnership Record Date” means the record date established by the General Partner either (i) for the distribution of Available Cash pursuant to Section 5.1, which record date shall be the same as the record date established by the Parent for a distribution to its stockholders of some or all of its portion of such distribution, or (ii) if applicable, for determining the Partners entitled to vote on or Consent to any proposed action for which the Consent or approval of the Partners is sought pursuant to Section 14.2. “Partnership Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2, and includes Class A Units, Class B Units, LTIP Units and any other classes or series of Partnership Units established after the date hereof. The number of Partnership Units outstanding and the Percentage Interests in the Partnership represented by such Partnership Units are set forth in the Partner Registry. “Percentage Interest” means, as to a Partner holding a class of Partnership Interests, its interest in such class, determined by dividing the Partnership Units of such class owned by such Partner by the total number of Partnership Units of such class then outstanding. For purposes of determining the Percentage Interest of the Class A Units at any time when there are Class B Units outstanding, all Class B Units shall be treated as Class A Units. “Person” means a natural person, partnership (whether general or limited), trust, estate, association, corporation, limited liability company, unincorporated organization, custodian, nominee or any other individual or entity in its own or any representative capacity. “Publicly Traded” means listed or admitted to trading on any National Securities Exchange or over-the-counter market. “Qualified Assets” means any of the following assets: (i) interests, rights, options, warrants or convertible or exchangeable securities of the Partnership; (ii) Debt issued by the Partnership or any Subsidiary thereof in connection with the incurrence of Funding Debt; (iii) equity interests in Subsidiaries and limited liability companies (or other entities disregarded from their sole owner for U.S. federal income tax purposes, including wholly owned grantor trusts) whose assets consist solely of Qualified Assets; (iv) up to a one percent (1%) equity interest in any partnership or limited liability company at least ninety-nine percent (99%) of the equity of which is owned, directly or indirectly, by the Partnership; (v) cash held for payment of administrative expenses or pending distribution to security holders of the Parent or any wholly owned Subsidiary thereof or pending contribution to the Partnership; and (vi) other tangible and intangible assets that, taken as a whole, are de minimis in relation to the net assets of the Partnership and its Subsidiaries. “Recapture Income” means any gain recognized by the Partnership (computed without regard to any adjustment pursuant to Section 754 of the Code) upon the disposition of any property or asset of the Partnership, which gain is characterized either as ordinary income or as “unrecaptured Section 1250 gain” (as defined in Section 1(h)(6) of the Code) because it represents the recapture of depreciation deductions previously taken with respect to such property or asset. “Recourse Liabilities” means the amount of liabilities owed by the Partnership (other than Nonrecourse Liabilities and liabilities to which Partner Nonrecourse Deductions are attributable in accordance with Section 1.704-(2)(i) of the Regulations). “Redeeming Partner” has the meaning set forth in Section 8.6.A. “Redemption Amount” means either the Cash Amount or the Shares Amount, as determined by the General Partner, in its sole and absolute discretion. A Redeeming Partner shall have no right, without the General Partner’s consent, in its sole and absolute discretion, to receive the Redemption Amount in the form of the Shares Amount. “Redemption Right” has the meaning set forth in Section 8.6.A. “Regulations” means the Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). “Residual Gain” or “Residual Loss” means any item of gain or loss, as the case may be, of the Partnership recognized for U.S. federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax Disparities. “Safe Harbor” has the meaning set forth in Section 11.6.F. “Securities Act” means the Securities Act of 1933, as amended. “Section 704(c) Value” of any Contributed Property or Adjusted Property means the fair market value of such property at the time of contribution or adjustment, as the case may be, as determined by the General Partner using such reasonable method of valuation as it may adopt; provided, however, subject to Exhibit B, the General Partner shall, in its sole and absolute discretion, use such method as it deems reasonable and appropriate to allocate the aggregate of the Section 704(c) Value of Contributed Properties or Adjusted Properties in a single or integrated transaction among each separate property on a basis proportional to its fair market values. “Share” means a share of common stock (or other comparable equity interest) of the Parent (or the Successor Entity, as the case may be). Shares may be issued in one or more classes or series in accordance with the terms of the Charter. Shares issued in lieu of the Cash Amount by the Partnership or the Parent may be either registered or unregistered Shares at the option of the Parent. If there is more than one class or series of Shares, the term “Shares” shall, as the context requires, be deemed to refer to the class or series of Shares that corresponds to the class or series of Partnership Interests for which the reference to Shares is made. When used with reference to Class A Units, the term “Shares” refers to shares of common stock (or other comparable equity interest) of the Parent. “Shares Amount” means a number of Shares equal to the product of the number of Partnership Units offered for redemption by a Redeeming Partner times the Conversion Factor; provided, however, that, if the Parent issues to holders of Shares securities, rights, options, warrants or convertible or exchangeable securities entitling such holders to subscribe for or purchase Shares or any other securities or property (collectively, the “rights”), then the Shares Amount shall also include such rights that a holder of that number of Shares would be entitled to receive unless the Partnership issues corresponding rights to holders of Partnership Units. “Specified Redemption Date” means, subject to Section 8.6(iv) and with respect to any exercise of a Redemption Right pursuant to a Notice of Redemption, the first Business Day of the first calendar quarter that begins at least 20 Business Days after the receipt by the General Partner of a Notice of Redemption; provided, that the General Partner may in its sole discretion designate an earlier (but not later) Specified Redemption Date in respect of any Notice of Redemption. “Subsidiary” means, with respect to any Person, any corporation, limited liability company, trust, partnership or joint venture, or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person. “Substituted Limited Partner” means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4 and who is shown as a Limited Partner in the Partner Registry. “Successor Entity” has the meaning set forth in the definition of “Conversion Factor” herein. “Termination Transaction” has the meaning set forth in Section 11.2.B. “Unrealized Gain” attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under Exhibit B) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B) as of such date. “Unrealized Loss” attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B) as of such date, over (ii) the fair market value of such property (as determined under Exhibit B) as of such date. “Unvested LTIP Units” has the meaning set forth in Section 4.6.C. “Valuation Date” means the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the first Business Day thereafter. “Value” means, with respect to one Share of a class of outstanding Shares of the Parent that are Publicly Traded, the average of the daily market price for the ten consecutive trading days immediately preceding the date with respect to which value must be determined. The market price for each such trading day shall be: (i) if the Shares are listed or admitted to trading on any National Securities Exchange, the closing price, regular way, on such day or, if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the Shares are not listed or admitted to trading on any National Securities Exchange, the last reported sale price on such day or, if no such sale price takes place on such date, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner; (iii) if the Shares are not listed or admitted to trading on any National Securities Exchange and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than thirty (30) days prior to the date in question) for which prices have been so reported; or (iv) if the Shares are not listed or admitted to trading on any National Securities Exchange and no such last reported sale price or closing bid and asked prices are available during the immediately-preceding thirty (30) day period, the Value of a Share as determined by the board of directors of the Parent in its reasonable discreiton. If the outstanding Shares of the Parent are Publicly Traded and the Shares Amount includes, in addition to the Shares, rights or interests that a holder of Shares has received or would be entitled to receive, then the Value of such rights shall be determined by the Parent acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. If the Shares of the Parent are not Publicly Traded, the Value of the Shares Amount per Partnership Unit tendered for redemption (which will be the Cash Amount per Partnership Unit offered for redemption payable pursuant to Section 8.6.A) means the amount that a holder of one Partnership Unit would receive if each of the assets of the Partnership were to be sold for its fair market value on the Specified Redemption Date, the Partnership were to pay all of its outstanding liabilities, and the remaining proceeds were to be distributed to the Partners in accordance with the terms of this Agreement. Such Value shall be determined by the General Partner, acting in good faith and based upon a commercially reasonable estimate of the amount that would be realized by the Partnership if each asset of the Partnership (and each asset of each partnership, limited liability company, trust, joint venture or other entity in which the Partnership owns a direct or indirect interest) were sold to an unrelated purchaser in an arm’s-length transaction where neither the purchaser nor the seller were under economic compulsion to enter into the transaction (without regard to any discount in value as a result of the Partnership’s minority interest in any property or any illiquidity of the Partnership’s interest in any property). “Vested LTIP Units” has the meaning set forth in Section 4.6.C. “Vesting Agreement” means each or any, as the context implies, agreement or instrument entered into by a holder of LTIP Units upon acceptance of an award of LTIP Units under an Equity Incentive Plan. ORGANIZATIONAL MATTERS Section 2.1Organization A.Organization, Status and Rights. The Partnership is a limited partnership organized pursuant to the provisions of the Act. The Partners hereby confirm and agree to their status as partners of the Partnership and to continue the business of the Partnership on the terms set forth in this Agreement. Except as expressly provided herein, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes. B.Qualification of Partnership. The Partners (i) agree that if the laws of any jurisdiction in which the Partnership transacts business so require, the appropriate officers or other authorized representatives of the Partnership shall file, or shall cause to be filed, with the appropriate office in that jurisdiction, any documents necessary for the Partnership to qualify to transact business under such laws; and (ii) agree and obligate themselves to execute, acknowledge and cause to be filed for record, in the place or places and manner prescribed by law, any amendments to the Certificate of Limited Partnership as may be required, either by the Act, by the laws of any jurisdiction in which the Partnership transacts business, or by this Agreement, to reflect changes in the information contained therein or otherwise to comply with the requirements of law for the continuation, preservation and operation of the Partnership as a limited partnership under the Act. C.Representations. Each Partner represents and warrants that such Partner is duly authorized to execute, deliver and perform its obligations under this Agreement and that the Person, if any, executing this Agreement on behalf of such Partner is duly authorized to do so and that this Agreement is binding on and enforceable against such Partner in accordance with its terms. Section 2.2Name The name of the Partnership is Broad Street Operating Partnership, LP. The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of any of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “LP,” “Ltd.” or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Limited Partners of such change in the next regular communication to the Limited Partners. Section 2.3Registered Office and Agent; Principal Office The address of the registered office of the Partnership in the State of Delaware is located at The Corporation Trust Company, 1209 Orange Street, Corporation Trust Center, Wilmington, DE 19801 and the registered agent for service of process on the Partnership in the State of Delaware at such registered office is The Corporation Trust Company, 1209 Orange Street, Corporation Trust Center, Wilmington, DE 19801. The principal office of the Partnership is 7250 Woodmont Avenue, Suite 350, Bethesda, MD 20814, or shall be such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable. Section 2.4Term The term of the Partnership commenced on May 21, 2019, and shall continue until dissolved pursuant to the provisions of Article XIII or as otherwise provided by law. Section 2.5Partnership Interests as Securities All Partnership Interests shall be securities within the meaning of, and governed by, (i) Article 8 of the Delaware Uniform Commercial Code and (ii) Article 8 of the Uniform Commercial Code of any other applicable jurisdiction. Section 2.6Certificates Describing Partnership Units The General Partner shall have the authority to issue certificates evidencing the Limited Partnership Interests in accordance with Section 17-702(b) of the Act. Any such certificate (i) shall be in form and substance as approved by the General Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the following effect: THIS CERTIFICATE IS NOT NEGOTIABLE. THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY AND TRANSFERABLE ONLY IN ACCORDANCE WITH (A) THE PROVISIONS OF THE AGREEMENT OF LIMITED PARTNERSHIP OF BROAD STREET OPERATING PARTNERSHIP, LP, AS AMENDED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME AND (B) ANY APPLICABLE FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS. Section 3.1Purpose and Business The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act; (ii) to enter into any corporation, partnership, joint venture, trust, limited liability company or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged, directly or indirectly, in any of the foregoing; and (iii) to do anything necessary or incidental to the foregoing. Section 3.2Powers The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and develop real property, and lease, sell, transfer and dispose of real property; provided, however, that the Partnership shall not take, or shall refrain from taking, any action which, in the judgment of the General Partner, in its sole and absolute discretion, (i) could subject the Parent to any taxes under Sections 857 or 4981 of the Code, or (ii) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner, the Parent or their securities, unless such action (or inaction) shall have been specifically consented to by the General Partner in writing. CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS Section 4.1Capital Contributions of the Partners A.Capital Contributions. Prior to or concurrently with the execution of this Agreement, the Partners have made the Capital Contributions as set forth in the Partner Registry. On the date hereof, the Partners own Partnership Units in the amounts set forth in the Partner Registry and have Percentage Interests in the Partnership as set forth in the Partner Registry. The number of Partnership Units and Percentage Interest shall be adjusted in the Partner Registry from time to time by the General Partner to the extent necessary to reflect accurately exchanges, redemptions, Capital Contributions, the issuance of additional Partnership Units or similar events having an effect on a Partner’s Percentage Interest in accordance with the terms of this Agreement. B.General Partnership Interest. Except for any Partnership Units designated as Limited Partner Interests by the General Partner, the Partnership Units held by the General Partner shall be the General Partner Interest of the General Partner. C.Except as provided in Sections 7.5, 10.5, and 13.3, the Partners shall have no obligation to make any additional Capital Contributions or provide any additional funding to the Partnership (whether in the form of loans, repayments of loans or otherwise). Except as otherwise set forth in Section 13.3, no Partner shall have any obligation to restore any deficit that may exist in its Capital Account, either upon a liquidation of the Partnership or otherwise. Section 4.2Issuances of Partnership Interests A.General. The General Partner is hereby authorized to cause the Partnership from time to time to issue to Partners (including the General Partner, the Parent and their Affiliates) or other Persons (including, without limitation, in connection with the contribution of property to the Partnership or any of its Subsidiaries) Partnership Units or other Partnership Interests in one or more classes, or in one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to one or more other classes of Partnership Interests, all as shall be determined, subject to applicable Delaware law, by the General Partner in its sole and absolute discretion, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests, (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions, (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership, (iv) the rights, if any, of each such class to vote on matters that require the vote or Consent of the Limited Partners, and (v) the consideration, if any, to be received by the Partnership; provided, however, that no such Partnership Units or other Partnership Interests shall be issued to the General Partner or the Parent unless (a) the Partnership Interests are issued in connection with the grant, award or issuance of Shares or other equity interests in the Parent (including a transaction described in Section 7.4.F) having designations, preferences and other rights such that the economic interests attributable to such Shares or other equity interests are substantially similar to the designations, preferences and other rights (except voting rights) of the Partnership Interests issued to the General Partner or the Parent in accordance with this Section 4.2.A, and the General Partner or the Parent contributes to the Partnership the proceeds (if any) from the issuance of Shares or equity received by the General Partner or the Parent as required pursuant to Section 7.5.D, (b) the General Partner or the Parent makes an additional Capital Contribution to the Partnership, or (c) the additional Partnership Interests are issued to all Partners holding Partnership Interests in the same class in proportion to their respective Percentage Interests in such class. If the Partnership issues Partnership Interests pursuant to this Section 4.2.A, the General Partner shall make such revisions to this Agreement (including but not limited to the revisions described in Section 5.4, Section 6.2 and Section 8.6) as it deems necessary to reflect the issuance of such Partnership Interests. The designation of any newly issued class or series of Partnership Interests may provide a formula for treating such Partnership Interests solely for purposes of voting on or consenting to any matter that requires the vote or Consent of the Limited Partners as set forth in one or more of Sections 7.1, 7.5.A, 7.11, 13.1(i), 13.1(vi), 14.1.A, 14.1.C, 14.2.A, and 14.2.B of this Agreement as the equivalent of a specified number (including any fraction thereof) of Class A Units. Nothing in this Agreement shall prohibit the General Partner from issuing Partnership Units for less than fair market value if the General Partner concludes in good faith that such issuance is in the best interests of the Partnership. B.Classes of Partnership Units. The Partnership shall have three authorized classes of Partnership Units, entitled “Class A Units,” “Class B Units” and “LTIP Units,” and, thereafter, such additional classes of Partnership Units as may be created by the General Partner pursuant to Section 4.2.A and this Section 4.2.B. Class A Units, Class B Units or a class of Partnership Interests created pursuant to Section 4.2.A or this Section 4.2.B, at the election of the General Partner, in its sole and absolute discretion, may be issued to newly admitted Partners in exchange for the contribution by such Partners of cash, real estate partnership interests, stock, notes or other assets or consideration; provided, however, that any Partnership Unit that is not specifically designated by the General Partner as being of a particular class shall be deemed to be a Class A Unit. Each Class B Unit shall be converted automatically into a Class A Unit on the day immediately following the Partnership Record Date for the Distribution Period in which such Class B Unit was issued, without the requirement for any action by the General Partner, the Partnership or the Partner holding the Class B Unit. The issuance and terms of any LTIP Units shall be in accordance with Section 4.6. Section 4.3No Preemptive Rights Except to the extent expressly granted by the Partnership pursuant to another agreement, no Person shall have any preemptive, preferential or other similar right with respect to (i) additional Capital Contributions or loans to the Partnership or (ii) issuance or sale of any Partnership Units or other Partnership Interests. Section 4.4Other Contribution Provisions A.General. If any Partner is admitted to the Partnership and is given a Capital Account with an initial balance greater than zero in exchange for services rendered to the Partnership, such transaction shall be treated by the Partnership and the affected Partner (and set forth in the Partner Registry) as if the Partnership had compensated such Partner in cash, and the Partner had made a Capital Contribution of such cash to the capital of the Partnership. The Partnership shall be entitled to deduct and withhold taxes with respect to any such transaction and the recipient Partner shall indemnify and hold harmless the Partnership from any such taxes. B.Mergers. To the extent the Partnership acquires any property (or an indirect interest therein) by the merger of any other Person into the Partnership or with or into a Subsidiary of the Partnership, Persons who receive Partnership Interests in exchange for their interest in the Person merging into the Partnership or with or into a Subsidiary of the Partnership shall be deemed to have been admitted as Additional Limited Partners pursuant to Section 12.2 and shall be deemed to have made Capital Contributions as provided in the applicable merger agreement (or if not so provided, as determined by the General Partner in its sole and absolute discretion) and as set forth in the Partner Registry. Section 4.5No Interest on Capital No Partner shall be entitled to interest on its Capital Contributions or its Capital Account. Section 4.6LTIP Units A.Issuance of LTIP Units. The General Partner may from time to time, for such consideration as the General Partner may determine to be appropriate, issue LTIP Units to Persons who provide services to the Partnership or the Parent and admit such Persons as Limited Partners. Subject to the following provisions of this Section 4.6 and the special provisions of Sections 4.7 and 6.1.E, LTIP Units shall be treated as Class A Units, with all of the rights, privileges and obligations attendant thereto (or, if so designated by the General Partner in connection with the issuance thereof, as Class B Units for the quarter in which such LTIP Units are issued). For purposes of computing the Partners’ Percentage Interests, holders of LTIP Units shall be treated as Class A Unit holders and LTIP Units shall be treated as Class A Units. In particular, the Partnership shall maintain at all times a one-to-one correspondence between LTIP Units and Class A Units for conversion, distribution and other purposes, including, without limitation, complying with the following procedures: (i)If an Adjustment Event (as defined below) occurs, then the General Partner shall make a corresponding adjustment to the LTIP Units to maintain a one-for-one conversion and economic equivalence ratio between Class A Units and LTIP Units. The following shall be “Adjustment Events”: (A) the Partnership makes a distribution on all outstanding Class A Units in Partnership Units, (B) the Partnership subdivides the outstanding Class A Units into a greater number of units or combines the outstanding Class A Units into a smaller number of units, or (C) the Partnership issues any Partnership Units in exchange for its outstanding Class A Units by way of a reclassification or recapitalization of its Class A Units. If more than one Adjustment Event occurs, the adjustment to the LTIP Units need be made only once using a single formula that takes into account each and every Adjustment Event as if all Adjustment Events occurred simultaneously. For the avoidance of doubt, the following shall not be Adjustment Events: (x) the issuance of Partnership Units in a financing, reorganization, acquisition or other similar business Class A Unit Transaction, (y) the issuance of Partnership Units pursuant to any employee benefit or compensation plan or distribution reinvestment plan or (z) the issuance of any Partnership Units to the General Partner, the Parent or any other Person in respect of a Capital Contribution to the Partnership. If the Partnership takes an action affecting the Class A Units other than actions specifically described above as “Adjustment Events” and in the opinion of the General Partner such action would require an adjustment to the LTIP Units to maintain the one-to-one correspondence described above, the General Partner shall have the right to make such adjustment to the LTIP Units, to the extent permitted by law and by any Equity Incentive Plan, in such manner and at such time as the General Partner, in its sole discretion, may determine to be appropriate under the circumstances. If an adjustment is made to the LTIP Units, as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth such adjustment and a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall mail a notice to each LTIP Unitholder setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment; and (ii)The LTIP Unitholders shall, when, as and if authorized and declared by the General Partner out of assets legally available for that purpose, be entitled to receive distributions in an amount per LTIP Unit equal to the distributions per Class A Unit (the “Class A Unit Distribution”), paid to holders of Class A Units on such Partnership Record Date established by the General Partner with respect to such distribution. So long as any LTIP Units are outstanding, no distributions (whether in cash or in kind) shall be authorized, declared or paid on Class A Units or Class B Units, unless equal distributions have been or contemporaneously are authorized, declared and paid on the LTIP Units. B.Priority. Subject to the provisions of this Section 4.6 and the special provisions of Sections 4.7 and 5.1.E, the LTIP Units shall rank pari passu with the Class A Units and Class B Units as to the payment of regular and special periodic or other distributions and distribution of assets upon liquidation, dissolution or winding up. As to the payment of distributions and as to distribution of assets upon liquidation, dissolution or winding up, any class or series of Partnership Units which by its terms specifies that it shall rank junior to, on a parity with, or senior to the Class A Units shall also rank junior to, or pari passu with, or senior to, as the case may be, the LTIP Units. Subject to the terms of any Vesting Agreement, an LTIP Unitholder shall be entitled to transfer his or her LTIP Units to the same extent, and subject to the same restrictions as holders of Class A Units are entitled to transfer their Class A Units pursuant to Article XI. C.Special Provisions. LTIP Units shall be subject to the following special provisions: (i)Vesting Agreements. LTIP Units may, in the sole discretion of the General Partner, be issued subject to vesting, forfeiture and additional restrictions on transfer pursuant to the terms of a Vesting Agreement. The terms of any Vesting Agreement may be modified by the General Partner from time to time in its sole discretion, subject to any restrictions on amendment imposed by the relevant Vesting Agreement or by the Equity Incentive Plan, if applicable. LTIP Units that have vested under the terms of a Vesting Agreement are referred to as “Vested LTIP Units;” all other LTIP Units shall be treated as “Unvested LTIP Units.” (ii)Forfeiture. Unless otherwise specified in the Vesting Agreement, upon the occurrence of any event specified in a Vesting Agreement as resulting in either the right of the Partnership or the General Partner to repurchase LTIP Units at a specified purchase price or some other forfeiture of any LTIP Units, then if the Partnership or the General Partner exercises such right to repurchase or forfeiture in accordance with the applicable Vesting Agreement, the relevant LTIP Units shall immediately, and without any further action, be treated as cancelled and no longer outstanding for any purpose. Unless otherwise specified in the Vesting Agreement, no consideration or other payment shall be due with respect to any LTIP Units that have been forfeited, other than any distributions declared with respect to a Partnership Record Date prior to the effective date of the forfeiture. In connection with any repurchase or forfeiture of LTIP Units, the balance of the portion of the Capital Account of the LTIP Unitholder that is attributable to all of his or her LTIP Units shall be reduced (after taking into account any reductions required as a result of distributions payable in accordance with the preceding sentence) by the amount, if any, by which it exceeds the target balance contemplated by Section 6.1.E, calculated with respect to the LTIP Unitholder’s remaining LTIP Units, if any. (iii)Allocations. LTIP Unitholders shall be entitled to certain special allocations of gain under Section 6.1.E. (iv)Redemption. The Redemption Right provided to the holders of Class A Units under Section 8.6 shall not apply with respect to LTIP Units unless and until they are converted to Class A Units as provided in clause (v) below and Section 4.7. (v)Conversion to Class A Units. Vested LTIP Units are eligible to be converted into Class A Units in accordance with Section 4.7. D.Voting. LTIP Unitholders shall (a) have the same voting rights as the Limited Partners, with the LTIP Units voting as a single class with the Class A Units and having one vote per LTIP Unit; and (b) have the additional voting rights that are expressly set forth below. So long as any LTIP Units remain outstanding, the Partnership shall not, without the affirmative vote of the holders of a majority of the LTIP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of this Agreement applicable to LTIP Units so as to materially and adversely affect any right, privilege or voting power of the LTIP Units or the LTIP Unitholders as such, unless such amendment, alteration, or repeal affects equally, ratably and proportionately the rights, privileges and voting powers of all of Class A Units (including the Class A Units held by the General Partner or the Parent); but subject, in any event, to the following provisions: (i)With respect to any Class A Unit Transaction (as defined in Section 4.7.F), so long as the LTIP Units are treated in accordance with Section 4.7.F, the consummation of such Class A Unit Transaction shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the LTIP Units or the LTIP Unitholders as such; and (ii)Any creation or issuance of any Partnership Units or of any class or series of Partnership Interest in accordance with the terms of this Agreement, including, without limitation, additional Class A Units or LTIP Units, whether ranking senior to, junior to, or on a parity with the LTIP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the LTIP Units or the LTIP Unitholders as such. The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required will be effected, all outstanding LTIP Units shall have been converted into Class A Units. Section 4.7Conversion of LTIP Units. A.Conversion Right. An LTIP Unitholder shall have the right (the “Conversion Right”), at his or her option, at any time to convert all or a portion of his or her Vested LTIP Units into Class A Units; provided, however, that a holder may not exercise the Conversion Right for less than one thousand (1,000) Vested LTIP Units or, if such holder holds less than one thousand Vested LTIP Units, all of the Vested LTIP Units held by such holder. LTIP Unitholders shall not have the right to convert Unvested LTIP Units into Class A Units until they become Vested LTIP Units; provided, however, that when an LTIP Unitholder is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such LTIP Unitholder may give the Partnership a Conversion Notice conditioned upon and effective as of the time of vesting and such Conversion Notice, unless subsequently revoked by the LTIP Unitholder, shall be accepted by the Partnership subject to such condition. The General Partner shall have the right at any time to cause a conversion of Vested LTIP Units into Class A Units. In all cases, the conversion of any LTIP Units into Class A Units shall be subject to the conditions and procedures set forth in this Section 4.7. B.Exercise by an LTIP Unitholder. A holder of Vested LTIP Units may convert such LTIP Units into an equal number of fully paid and non-assessable Class A Units, giving effect to all adjustments (if any) made pursuant to Section 4.6. Notwithstanding the foregoing, in no event may a holder of Vested LTIP Units convert a number of Vested LTIP Units that exceeds (x) the Economic Capital Account Balance of such Limited Partner, to the extent attributable to its ownership of LTIP Units, divided by (y) the Class A Unit Economic Balance, in each case as determined as of the effective date of conversion (the “Capital Account Limitation”). In order to exercise his or her Conversion Right, an LTIP Unitholder shall deliver a notice (a “Conversion Notice”) in the form attached as Exhibit E to this Agreement to the Partnership (with a copy to the General Partner) not less than ten nor more than 60 days prior to a date (the “Conversion Date”) specified in such Conversion Notice; provided, however, that if the General Partner has not given to the LTIP Unitholders notice of a proposed or upcoming Class A Unit Transaction (as defined in Section 4.7.F) at least 30 days prior to the effective date of such Class A Unit Transaction, then LTIP Unitholders shall have the right to deliver a Conversion Notice until the earlier of (x) the tenth day after such notice from the General Partner of a Class A Unit Transaction or (y) the third business day immediately preceding the effective date of such Class A Unit Transaction. A Conversion Notice shall be provided in the manner provided in Section 15.1. Each LTIP Unitholder covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to this Section 4.7.B shall be free and clear of all liens and encumbrances. Notwithstanding anything herein to the contrary, a holder of LTIP Units may deliver a Notice of Redemption pursuant to Section 8.6 relating to those Class A Units that will be issued to such holder upon conversion of such LTIP Units into Class A Units in advance of the Conversion Date; provided, however, that the redemption of such Class A Units by the Partnership shall in no event take place until after the Conversion Date. For clarity, it is noted that the objective of this paragraph is to put an LTIP Unitholder in a position where, if he or she so wishes, the Class A Units into which his or her Vested LTIP Units will be converted can be redeemed by the Partnership simultaneously with such conversion, with the further consequence that, if the General Partner elects to cause the Parent to assume and perform the Partnership’s redemption obligation with respect to such Class A Units under Section 8.6 by delivering to such holder Shares rather than cash, then such holder can have such Shares issued to him or her simultaneously with the conversion of his or her Vested LTIP Units into Class A Units. The General Partner and LTIP Unitholder shall reasonably cooperate with each other to coordinate the timing of the events described in the foregoing sentence. C.Forced Conversion. The Partnership, at any time at the election of the General Partner, may cause any number of Vested LTIP Units held by an LTIP Unitholder to be converted (a “Forced Conversion”) into an equal number of Class A Units, giving effect to all adjustments (if any) made pursuant to Section 4.6; provided, however, that the Partnership may not cause Forced Conversion of any LTIP Units that would not at the time be eligible for conversion at the option of such LTIP Unitholder pursuant to Section 4.7.B. In order to exercise its right of Forced Conversion, the Partnership shall deliver a notice (a “Forced Conversion Notice”) in the form attached as Exhibit F to this Agreement to the applicable LTIP Unitholder not less than ten nor more than 60 days prior to the Conversion Date specified in such Forced Conversion Notice. A Forced Conversion Notice shall be provided in the manner provided in Section 15.1. D.Completion of Conversion. A conversion of Vested LTIP Units for which the holder thereof has given a Conversion Notice or the Partnership has given a Forced Conversion Notice shall occur automatically after the close of business on the applicable Conversion Date without any action on the part of such LTIP Unitholder, as of which time such LTIP Unitholder shall be credited on the books and records of the Partnership with the issuance as of the opening of business on the next day of the number of Class A Units issuable upon such conversion. After the conversion of LTIP Units as aforesaid, the Partnership shall deliver to such LTIP Unitholder, upon his or her written request, a certificate of the General Partner certifying the number of Class A Units and remaining LTIP Units, if any, held by such person immediately after such conversion. The Assignee of any Limited Partner pursuant to Article XI may exercise the rights of such Limited Partner pursuant to this Section 4.7 and such Limited Partner shall be bound by the exercise of such rights by the Assignee. E.Impact of Conversions for Purposes of Section 6.1.E. For purposes of making future allocations under Section 6.1.E and applying the Capital Account Limitation, the portion of the Economic Capital Account Balance of the applicable LTIP Unitholder that is treated as attributable to his or her LTIP Units shall be reduced, as of the date of conversion, by the product of the number of LTIP Units converted and the Class A Unit Economic Balance. F.Class A Unit Transactions. If the Partnership, the General Partner or the Parent shall be a party to any Class A Unit Transaction, as defined below (including without limitation a merger, consolidation, unit exchange, self tender offer for all or substantially all Class A Units or other business combination or reorganization, or sale of all or substantially all of the Partnership’s assets, but excluding any Class A Unit Transaction which constitutes an Adjustment Event) in each case as a result of which Class A Units shall be exchanged for or converted into the right, or the holders of such Class A Units shall otherwise be entitled, to receive cash, securities or other property or any combination thereof (each of the foregoing being referred to herein as a “Class A Unit Transaction”), then the General Partner shall, immediately prior to the Class A Unit Transaction, exercise its right to cause a Forced Conversion with respect to the maximum number of LTIP Units then eligible for conversion, taking into account any allocations that occur in connection with the Class A Unit Transaction or that would occur in connection with the Class A Unit Transaction if the assets of the Partnership were sold at the Class A Unit Transaction price or, if applicable, at a value determined by the General Partner in good faith using the value attributed to the Partnership Units in the context of the Class A Unit Transaction (in which case the Conversion Date shall be the effective date of the Class A Unit Transaction). In anticipation of such Forced Conversion and the consummation of the Class A Unit Transaction, the Partnership shall use commercially reasonable efforts to cause each LTIP Unitholder to be afforded the right to receive in connection with such Class A Unit Transaction in consideration for the Class A Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Class A Unit Transaction by a holder of the same number of Class A Units, assuming such holder of Class A Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a “Constituent Person”), or an affiliate of a Constituent Person. In the event that holders of Class A Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Class A Unit Transaction, prior to such Class A Unit Transaction the General Partner shall give prompt written notice to each LTIP Unitholder of such election, and shall use commercially reasonable efforts to afford the LTIP Unitholders the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each LTIP Unit held by such holder into Class A Units in connection with such Class A Unit Transaction. If an LTIP Unitholder fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each LTIP Unit held by him or her (or by any of his or her transferees) the same kind and amount of consideration that a holder of a Class A Unit would receive if such Class A Unit holder failed to make such an election. Subject to the rights of the Partnership and the General Partner under any Vesting Agreement and any Equity Incentive Plan, the Partnership shall use commercially reasonable effort to cause the terms of any Class A Unit Transaction to be consistent with the provisions of this Section 4.7.F and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any LTIP Unitholders whose LTIP Units will not be converted into Class A Units in connection with the Class A Unit Transaction that will (i) contain provisions enabling the holders of LTIP Units that remain outstanding after such Class A Unit Transaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the Class A Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation, conversion, and other rights set forth in this Agreement for the benefit of the LTIP Unitholders. Section 5.1Requirement and Characterization of Distributions A.General. The General Partner may cause the Partnership to distribute at least quarterly all, or such portion as the General Partner may in its sole and absolute discretion determine, of the Available Cash of the Partnership with respect to such quarter or shorter period to the Partners in accordance with the terms established for the class or classes of Partnership Interests held by such Partners who are Partners on the respective Partnership Record Date with respect to such quarter or shorter period as provided in Sections 5.1.B, 5.1.C and 5.1.D and in accordance with the respective terms established for each class of Partnership Interest. Notwithstanding anything to the contrary contained herein, in no event may a Partner receive a distribution of Available Cash with respect to a Partnership Unit for a quarter or shorter period if such Partner is entitled to receive a distribution with respect to a Share for which such Partnership Unit has been redeemed or exchanged. Unless otherwise expressly provided for herein, or in the terms established for a new class or series of Partnership Interests created in accordance with Article IV hereof, no Partnership Interest shall be entitled to a distribution in preference to any other Partnership Interest. B.Method. (i) Each holder of Partnership Interests that is entitled to any preference in distribution shall be entitled to a distribution in accordance with the rights of any such class of Partnership Interests (and, within such class, pro rata in proportion to the respective Percentage Interests on such Partnership Record Date); and (i)To the extent there is Available Cash remaining after the payment of any preference in distribution in accordance with the foregoing clause (i), with respect to Partnership Interests that are not entitled to any preference in distribution or with respect to which distributions are not limited to any preference in distribution, such Available Cash shall be distributed pro rata to each such class in accordance with the terms of such class (and, within each such class, pro rata in proportion to the respective Percentage Interests on such Partnership Record Date). C.Distributions When Class B Units Are Outstanding. If for any quarter or shorter period with respect to which a distribution is to be made (a “Distribution Period”) Class B Units are outstanding on the Partnership Record Date for such Distribution Period, the General Partner shall allocate the Available Cash with respect to such Distribution Period available for distribution with respect to the Class A Units and Class B Units collectively between the Partners who are holders of Class A Units (“Class A”) and the Partners who are holders of Class B Units (“Class B”) as follows: (1)Class A shall receive that portion of the Available Cash (the “Class A Share”) determined by multiplying the amount of Available Cash by the following fraction: A x Y (A x Y) + (B x X) (2)Class B shall receive that portion of the Available Cash (the “Class B Share”) determined by multiplying the amount of Available Cash by the following fraction: B x X (3)For purposes of the foregoing formulas, (i) “A” equals the number of Class A Units outstanding on the Partnership Record Date for such Distribution Period; (ii) “B” equals the number of Class B Units outstanding on the Partnership Record Date for such Distribution Period; (iii) “Y” equals the number of days in the Distribution Period; and (iv) “X” equals the number of days in the Distribution Period for which the Class B Units were issued and outstanding. The Class A Share shall be distributed pro rata among Partners holding Class A Units on the Partnership Record Date for the Distribution Period in accordance with the number of Class A Units held by each Partner on such Partnership Record Date; provided, however, that in no event may a Partner receive a distribution of Available Cash with respect to a Class A Unit if a Partner is entitled to receive a distribution with respect to a Share for which such Class A Unit has been redeemed or exchanged. If Class B Units were issued on the same date, the Class B Share shall be distributed pro rata among the Partners holding Class B Units on the Partnership Record Date for the Distribution Period in accordance with the number of Class B Units held by each Partner on such Partnership Record Date. In no event shall any Class B Units be entitled to receive any distribution of Available Cash for any Distribution Period ending prior to the date on which such Class B Units are issued. D.Distributions When Class B Units Have Been Issued on Different Dates. If Class B Units which have been issued on different dates are outstanding on the Partnership Record Date for any Distribution Period, then the Class B Units issued on each particular date shall be treated as a separate series of Partnership Units for purposes of making the allocation of Available Cash for such Distribution Period among the holders of Partnership Units (and the formula for making such allocation, and the definitions of variables used therein, shall be modified accordingly). Thus, for example, if two series of Class B Units are outstanding on the Partnership Record Date for any Distribution Period, the allocation formula for each series, “Series B1” and “Series B2” would be as follows: (1)Series B1 shall receive that portion of the Available Cash determined by multiplying the amount of Available Cash by the following fraction: B1 x X1 (A x Y) + (B1 x X1) + (B2 x X2) (3)For purposes of the foregoing formulas the definitions set forth in Section 5.1.C(3) remain the same except that (i) “B1” equals the number of Partnership Units in Series B1 outstanding on the Partnership Record Date for such Distribution Period; (ii) “B2” equals the number of Partnership Units in Series B2 outstanding on the Partnership Record Date for such Distribution Period; (iii) “X1” equals the number of days in the Distribution Period for which the Partnership Units in Series B1 were issued and outstanding; and (iv) “X2” equals the number of days in the Distribution Period for which the Partnership Units in Series B2 were issued and outstanding. E.Distributions With Respect to LTIP Units. In accordance with Section 4.6.A, LTIP Unitholders shall be entitled to receive distributions in an amount per LTIP Unit equal to the Class A Unit Distribution; provided, however, that the General Partner may in its sole discretion adjust distributions made pursuant to this Article V or Section 13.2A as it deems necessary to ensure that the amount distributed to each LTIP Unit does not exceed the amount attributable to items of Partnership income or gain realized after the date such LTIP Unit was issued by the Partnership. The intent of the foregoing sentence is to ensure that all LTIP Units qualify as “profits interests” under Revenue Procedure 93-27,1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001), and this Section 5.1 shall be interpreted and applied consistently therewith; provided, however, that none of the General Partner, the Parent, and the Partnership shall have liability to a recipient of LTIP Units under any circumstances as a result of such LTIP Unit not so qualifying. The General Partner at its discretion may amend this Section 5.1. to ensure that any LTIP Units will qualify as “profits interests” under Revenue Procedure 9327,19932 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001) (and any other similar rulings or regulations that may be in effect at such time). Section 5.2Amounts Withheld All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.5 with respect to any allocation, payment or distribution to the General Partner, the Limited Partners or Assignees shall be treated as amounts distributed to the General Partner, Limited Partners or Assignees, as the case may be, pursuant to Section 5.1 for all purposes under this Agreement. Section 5.3Distributions Upon Liquidation Proceeds from a Liquidating Event shall be distributed to the Partners in accordance with Section 13.2. Section 5.4Revisions to Reflect Issuance of Partnership Interests If the Partnership issues Partnership Interests pursuant to Article IV, the General Partner shall make such revisions to this Article V and the Partner Registry in the books and records of the Partnership as it deems necessary to reflect the issuance of such additional Partnership Interests without the consent or approval of any other Partner. Section 6.1Allocations for Capital Account Purposes For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnership’s items of income, gain, loss and deduction (computed in accordance with Exhibit B) shall be allocated among the Partners in each taxable year (or portion thereof) as provided herein below. A.Net Income. After giving effect to the special allocations set forth in Section 1 of Exhibit C, Net Income shall be allocated: (1)first, to the General Partner until the cumulative Net Income allocated under this clause (1) equals the cumulative Net Losses allocated to the General Partner under Section 6.1.B(4); (2)second, to the holders of any Partnership Interests that are entitled to any preference upon liquidation until the cumulative Net Income allocated under this clause (3) equals the cumulative Net Losses allocated to such Partners under Section 6.1.B(3); (3)third, to the holders of any Partnership Interests that are entitled to any preference in distribution (excluding for the avoidance of doubt any preference with respect to liquidating distributions described in the preceding clause (2)) in accordance with the rights of any such class of Partnership Interests until each such Partnership Interest has been allocated, on a cumulative basis pursuant to this clause (3), Net Income equal to the amount of distributions payable that are attributable to the preference of such class of Partnership Interests whether or not paid (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made); and (4)finally, with respect to Partnership Interests that are not entitled to any preference in distribution or with respect to which distributions are not limited to any preference in distribution, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made). B.Net Losses. After giving effect to the special allocations set forth in Section 1 of Exhibit C, Net Losses shall be allocated: (1)first, to the holders of Partnership Interests, in proportion to, and to the extent that, their share of the Net Income previously allocated pursuant to Section 6.1.A(4) exceeds, on a cumulative basis, the sum of (a) distributions with respect to such Partnership Interests pursuant to clause (ii) of Section 5.1.B and (b) Net Losses allocated under this clause (1); (2)second, with respect to classes of Partnership Interests that are not entitled to any preference in distribution upon liquidation, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made); provided, however, that Net Losses shall not be allocated to any Partner pursuant to this Section 6.1.B(2) to the extent that such allocation would cause such Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case (i) by not including in the Partners’ Adjusted Capital Accounts any amount that a Partner is obligated to contribute to the Partnership with respect to any deficit in its Capital Account pursuant to Section 13.3 and (ii) in the case of a Partner who also holds classes of Partnership Interests that are entitled to any preferences in distribution upon liquidation, by subtracting from such Partners’ Adjusted Capital Account the amount of such preferred distribution to be made upon liquidation) at the end of such taxable year (or portion thereof); (3)third, with respect to classes of Partnership Interests that are entitled to any preference in distribution upon liquidation, in reverse order of the priorities of each such class (and within each such class, pro rata in proportion to their respective Percentage Interests as of the last day of the period for which such allocation is being made); provided, however, that Net Losses shall not be allocated to any Partner pursuant to this Section 6.1.B(3) to the extent that such allocation would cause such Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case by not including in the Partners’ Adjusted Capital Accounts any amount that a Partner is obligated to contribute to the Partnership with respect to any deficit in its Capital Account pursuant to Section 13.3) at the end of such taxable year (or portion thereof); and (4)thereafter, to the General Partner. C.Allocation of Nonrecourse Debt. For purposes of Regulation Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated by the General Partner by taking into account facts and circumstances relating to each Partner’s respective interest in the profits of the Partnership. For this purpose, the General Partner shall have the sole and absolute discretion in any Fiscal Year to allocate such excess Nonrecourse Liabilities among the Partners in any manner permitted under Code Section 752 and the Regulations thereunder. D.Recapture Income. Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall, to the extent possible after taking into account other required allocations of gain pursuant to Exhibit C, be characterized as Recapture Income in the same proportions and to the same extent as such Partners have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income. E.Special Allocations Regarding LTIP Units. Notwithstanding the provisions of Section 6.1.A, Liquidating Gains shall first be allocated to the LTIP Unitholders until their Economic Capital Account Balances, to the extent attributable to their ownership of LTIP Units, are equal to (i) the Class A Unit Economic Balance, multiplied by (ii) the number of their LTIP Units. For this purpose, “Liquidating Gains” means net gains that are or would be realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership, including but not limited to net capital gain realized in connection with an adjustment to the value of Partnership assets under Section 704(b) of the Code made pursuant to Section 1.D of Exhibit B of the Partnership Agreement. The “Economic Capital Account Balances” of the LTIP Unitholders will be equal to their Capital Account balances to the extent attributable to their ownership of LTIP Units. Similarly, the “Class A Unit Economic Balance” shall mean (i) the Capital Account balance of the Parent, plus the amount of the Parent’s share of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to the Parent’s ownership of Class A Units and computed on a hypothetical basis after taking into account all allocations through the date on which any allocation is made under this Section 6.1.E, but prior to the realization of any Liquidating Gains, divided by (ii) the number of the Parent’s Class A Units. Any such allocations shall be made among the LTIP Unitholders in proportion to the amounts required to be allocated to each under this Section 6.1.E. The parties agree that the intent of this Section 6.1.E is to make the Capital Account balance associated with each LTIP Unit to be economically equivalent to the Capital Account balance associated with the Parent’s Class A Units (on a per-Unit basis), provided that Liquidating Gains are of a sufficient magnitude to do so upon a sale of all or substantially all of the assets of the Partnership, or upon an adjustment to the Partners’ Capital Accounts pursuant to Section 1.D of Exhibit B. The Partnership and the Partners intend that each LTIP Unit qualify as a profits interest within the meaning of Revenue Procedures 93-27 and 2001-43 and all provisions of this Agreement shall be interpreted consistently with such intent as determined by the General Partner in its sole discretion; provided, however, that none of the General Partner, the Parent, and the Partnership shall have liability to a recipient of LTIP Units under any circumstances as a result of such LTIP Unit not so qualifying. In accordance with the foregoing, the General Partner may in its sole discretion adjust or limit aggregate allocations of Liquidating Gains made to LTIP Units in each taxable year of the Partnership such that they are no greater than the excess (if any) of (x) the total amount of the Partnership’s items of book income and gain (as determined for purposes of maintaining Capital Accounts) for such year, over (y) the total amount of the Partnership’s items of book loss, deduction, and expense (as determined for purposes of maintaining Capital Accounts) for such year. F.Special Allocations in Connection with a Liquidity Event. The Partners intend that the allocation of Net Profits, Net Losses and other items of income, gain, loss, deduction and credit required to be allocated to the Capital Accounts of the Partners pursuant to this Agreement will result in final Capital Account balances that will permit the amount each Partner is entitled to receive upon “liquidation” of the Partnership (within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations) to equal the amount such Partner would have received if such amount was distributable solely pursuant to the priorities set forth in Article V and Section 13.2.A(1) - (4). Accordingly, notwithstanding the provisions of Section 6.1.A, in the taxable year of the event precipitating a Liquidity Event and thereafter, appropriate adjustments to allocations of Net Profits and Net Losses to the Partners shall be made to achieve such result. Section 6.2Revisions to Allocations to Reflect Issuance of Partnership Interests or Future Agreements to Bear Disproportionate Losses A.Issuances of Partnership Interests. If the Partnership issues Partnership Interests pursuant to Article IV, the General Partner shall make such revisions to this Article VI and the Partner Registry in the books and records of the Partnership as it deems necessary to reflect the terms of the issuance of such Partnership Interests, including making preferential allocations to classes of Partnership Interests that are entitled thereto. Such revisions shall not require the consent or approval of any other Partner. B.Agreement to Bear Disproportionate Losses. The General Partner may, in its sole discretion, modify (i) the allocation provisions contained herein to provide for disproportionate allocations of Loss (or items of loss or deduction) and chargebacks thereof to a Limited Partner that agrees to restore all or part of any deficit in its Capital Account, and (ii) any other provision hereof to provide for corresponding contribution obligations of such Limited Partner. MANAGEMENT AND OPERATIONS OF BUSINESS Section 7.1Management A.Powers of General Partner. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners with or without cause. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 7.11, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 and to effectuate the purposes set forth in Section 3.1, including, without limitation: (1)the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as are required under Section 5.1.A), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities including, without limitation, the assumption or guarantee of the debt of the Parent, its Subsidiaries or the Partnership’s Subsidiaries, the issuance of evidences of indebtedness (including the securing of same by mortgage, deed of trust or other lien or encumbrance on the Partnership’s assets) and the incurring of any obligations the General Partner deems necessary for the conduct of the activities of the Partnership; (2)the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership; (3)the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership (including acquisition of any new assets, the exercise or grant of any conversion, option, privilege or subscription right or other right available in connection with any assets at any time held by the Partnership) or the merger or other combination of the Partnership or any Subsidiary of the Partnership with or into another entity on such terms as the General Partner deems proper; (4)the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct of the operations of the Parent, the General Partner, the Partnership or any of the Partnership’s Subsidiaries, the lending of funds to other Persons (including, without limitation, the Parent, the General Partner and their Subsidiaries and the Partnership’s Subsidiaries) and the repayment of obligations of the Partnership and its Subsidiaries and any other Person in which the Partnership has an equity investment and the making of Capital Contributions to its Subsidiaries; (5)the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Partnership or any Subsidiary of the Partnership or any Person in which the Partnership has made a direct or indirect equity investment; (6)the negotiation, execution, and performance of any contracts, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or the implementation of the General Partner’s powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership’s assets; (7)the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership; (8)the distribution of Partnership cash or other Partnership assets in accordance with this Agreement; (9)the holding, managing, investing and reinvesting of cash and other assets of the Partnership; (10)the collection and receipt of revenues and income of the Partnership; (11)the selection, designation of powers, authority and duties and the dismissal of employees of the Partnership (including, without limitation, employees having titles such as “president,” “vice president,” “secretary” and “treasurer”) and agents, outside attorneys, accountants, consultants and contractors of the Partnership and the determination of their compensation and other terms of employment or hiring; (12)the maintenance of such insurance for the benefit of the Partnership and the Partners (including, without limitation, the Parent and the General Partner) as it deems necessary or appropriate; (13)the formation of, or acquisition of an interest (including non-voting interests in entities controlled by Affiliates of the Partnership or third parties) in, and the contribution of property to, any further limited or general partnerships, joint ventures, limited liability companies or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of funds or property to, or making of loans to, its Subsidiaries and any other Person in which it has an equity investment from time to time, or the incurrence of indebtedness on behalf of such Persons or the guarantee of the obligations of such Persons); (14)the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution or abandonment of any claim, cause of action, liability, debt or damages due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; (15)the determination of the fair market value of any Partnership property distributed in kind, using such reasonable method of valuation as the General Partner may adopt; (16)the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any assets or investment held by the Partnership; (17)the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, individually or jointly with any such Subsidiary or other Person; (18)the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have any interest pursuant to contractual or other arrangements with such Person; (19)the making, executing and delivering of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or other legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement; (20)the distribution of cash to acquire Partnership Units held by a Limited Partner in connection with a Limited Partner’s exercise of its Redemption Right under Section 8.6; (21)the determination regarding whether a payment to a Partner who exercises its Redemption Right under Section 8.6 that is assumed by the Parent will be paid in the form of the Cash Amount or the Shares Amount, except as such determination may be limited by Section 8.6; (22)the acquisition of Partnership Interests in exchange for cash, debt instruments and other property; (23)the maintenance of the Partner Registry in the books and records of the Partnership to reflect the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of Partnership Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise; and (24)the registration of any class of securities of the Partnership under the Securities Act or the Exchange Act, and the listing of any debt securities of the Partnership on any exchange. B.No Approval by Limited Partners. Except as provided in Section 7.11, each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement, the Act or any applicable law, rule or regulation, to the full extent permitted under the Act or other applicable law. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall be in the sole and absolute discretion of the General Partner without consideration of any other obligation or duty, fiduciary or otherwise, of the Partnership or the Limited Partners and shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity. The Limited Partners acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and the stockholders of the Parent. C.Insurance. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the properties of the Partnership and its Subsidiaries, (ii) liability insurance for the Indemnitees hereunder, and (iii) such other insurance as the General Partner, in its sole and absolute discretion, determines to be necessary. D.Working Capital and Other Reserves. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time, including upon liquidation of the Partnership under Article XIII. Section 7.2Certificate of Limited Partnership To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate of Limited Partnership and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4), the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Limited Partnership or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and any other state, the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property. Section 7.3Title to Partnership Assets Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partners, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, in its sole and absolute discretion, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held. Section 7.4Reimbursement of the General Partner and the Parent A.No Compensation. Except as provided in this Section 7.4 and elsewhere in this Agreement (including the provisions of Articles V and VI regarding distributions, payments and allocations to which it may be entitled), the General Partner (in its capacity as such) shall not receive payments from the Partnership or otherwise be compensated for its services as the general partner of the Partnership. B.Responsibility for Partnership and General Partner and Parent Expenses. The Partnership shall be responsible for and shall pay all expenses relating to the Partnership’s organization, the ownership of its assets and its operations. The Partnership shall also be responsible for the administrative and operating costs and expenses incurred by the General Partner and the Parent, including, but not limited to, all expenses relating to the General Partner’s and the Parent’s (i) continued existence and subsidiary operations, (ii) offerings and registration of securities, (iii) preparation and filing of any periodic or other reports and communications required under federal, state or local laws and regulations, (iv) compliance with laws, rules and regulations promulgated by any regulatory body, and (v) operating or administrative costs incurred in the ordinary course of business on behalf of the Partnership; provided, however, that such costs and expenses shall not include any administrative or operating costs of the General Partner or the Parent attributable to assets owned by the General Partner or the Parent directly and not through the Partnership or its subsidiaries. The General Partner and the Parent, at the General Partner’s sole and absolute discretion, shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses the Parent or the General Partner incurs relating to or resulting from the ownership and operation of, or for the benefit of, the Partnership (including, without limitation, expenses related to the operations of the General Partner and the Parent and to the management and administration of any Subsidiaries of the General Partner, the Parent or the Partnership or Affiliates of the Partnership, such as auditing expenses and filing fees); provided, however, that (i) the amount of any such reimbursement shall be reduced by (x) any interest earned by the General Partner or the Parent with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership as permitted in Section 7.5.A (which interest is considered to belong to the Partnership and shall be paid over to the Partnership to the extent not applied to reimburse the General Partner or the Parent for expenses hereunder); and (y) any amount derived by the General Partner from any investments permitted in Section 7.5.A; (ii) the Partnership shall not be responsible for expenses or liabilities incurred by the General Partner in connection with any business or assets of the General Partner other than its ownership of Partnership Interests or operation of the business of the Partnership or ownership of interests in Qualified Assets to the extent permitted in Section 7.5.A; and (iii) the Partnership shall not be responsible for any expenses or liabilities of the General Partner that are excluded from the scope of the indemnification provisions of Section 7.7.A by reason of the provisions of clause (i) or (ii) thereof. The General Partner shall determine in good faith the amount of expenses incurred by it or the Parent related to the ownership of Partnership Interests or operation of, or for the benefit of, the Partnership. If certain expenses are incurred that are related both to the ownership of Partnership Interests or operation of, or for the benefit of, the Partnership and to the ownership of other assets (other than Qualified Assets as permitted under Section 7.5.A) or the operation of other businesses, such expenses will be allocated to the Partnership and such other entities (including the General Partner and the Parent) owning such other assets or businesses in such a manner as the General Partner in its sole and absolute discretion deems fair and reasonable. Such reimbursements shall be in addition to any reimbursement to the General Partner and the Parent pursuant to Section 10.3.C and as a result of indemnification pursuant to Section 7.7. All payments and reimbursements hereunder shall be characterized for U.S. federal income tax purposes as expenses of the Partnership incurred on its behalf, and not as expenses of the General Partner or the Parent. C.Partnership Interest Issuance Expenses. The General Partner and the Parent shall also be reimbursed for all expenses they incur relating to any issuance of Partnership Interests, Shares, Debt of the Partnership, Funding Debt of the General Partner or the Parent or rights, options, warrants or convertible or exchangeable securities pursuant to Article IV (including, without limitation, all costs, expenses, damages and other payments resulting from or arising in connection with litigation related to any of the foregoing), all of which expenses are considered by the Partners to constitute expenses of, and for the benefit of, the Partnership. D.Purchases of Shares by the Parent. If the Parent exercises its rights under the Charter to purchase Shares or otherwise elects or is required to purchase from its stockholders Shares in connection with a share repurchase or similar program or otherwise, or for the purpose of delivering such Shares to satisfy an obligation under any dividend reinvestment or equity purchase program adopted by the Parent, any employee equity purchase plan adopted by the Parent or any similar obligation or arrangement undertaken by the Parent in the future, the purchase price paid by the Parent for those Shares and any other expenses incurred by the Parent in connection with such purchase shall be considered expenses of the Partnership and shall be reimbursable to the Parent, subject to the conditions that: (i) if those Shares subsequently are to be sold by the Parent, the Parent shall pay to the Partnership any proceeds received by the Parent for those Shares (provided, however, that a transfer of Shares for Partnership Units pursuant to Section 8.6 would not be considered a sale for such purposes); and (ii) if such Shares are required to be cancelled pursuant to applicable law or are not retransferred by the Parent within thirty (30) days after the purchase thereof, the General Partner shall cause the Partnership to cancel a number of Partnership Units (rounded to the nearest whole Partnership Unit) held by the Parent equal to the product attained by multiplying the number of those Shares by a fraction, the numerator of which is one and the denominator of which is the Conversion Factor. E.Reimbursement not a Distribution. Except as set forth in the succeeding sentence, if and to the extent any reimbursement made pursuant to this Section 7.4 is determined for U.S. federal income tax purposes not to constitute a payment of expenses of the Partnership, the amount so determined shall constitute a guaranteed payment with respect to capital within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners and shall not be treated as a distribution for purposes of computing the Partners’ Capital Accounts. Amounts deemed paid by the Partnership to the General Partner in connection with redemption of Partnership Units pursuant to clause (ii) of subparagraph (D) above shall be treated as a distribution for purposes of computing the Partner’s Capital Accounts. F.Funding for Certain Capital Transactions. In the event that the Parent shall undertake to acquire (whether by merger, consolidation, purchase or otherwise) the assets or equity interests of another Person and such acquisition shall require the payment of cash by the Parent (whether to such Person or to any other selling party or parties in such transaction or to one or more creditors, if any, of such Person or such selling party or parties), (i) the Partnership shall advance to the Parent the cash required to consummate such acquisition if, and to the extent that, such cash is not to be obtained by the Parent through an issuance of Shares described in Section 4.2 or pursuant to a transaction described in Section 7.5.B, (ii) the Parent shall, upon consummation of such acquisition, transfer to the Partnership (or cause to be transferred to the Partnership), in full and complete satisfaction of such advance and as required by Section 7.5, the assets or equity interests of such Person acquired by the Parent in such acquisition (or equity interests in Persons owning all of such assets or equity interests), and (iii) pursuant to and in accordance with Section 4.2 and Section 7.5.B, the Partnership shall issue to the Parent, Partnership Interests and/or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights that are substantially the same as those of any additional Shares, other equity securities, New Securities and/or Convertible Funding Debt, as the case may be, issued by the Parent in connection with such acquisition (whether issued directly to participants in the acquisition transaction or to third parties in order to obtain cash to complete the acquisition). In addition to, and without limiting, the foregoing, in the event that the Parent engages in a transaction in which (x) the Parent (or a wholly owned direct or indirect Subsidiary of the Parent) merges with another entity (referred to as the “Parent Entity”) that is organized in the “UPREIT format” or “up-C format” (i.e., where the Parent Entity holds substantially all of its assets and conducts substantially all of its operations through a partnership, limited liability company or other entity (referred to as an “Operating Entity”)) and the Parent survives such merger, (y) such Operating Entity merges with or is otherwise acquired by the Partnership in exchange in whole or in part for Partnership Interests, and (z) the Parent is required or elects to pay part of the consideration in connection with such merger involving the Parent Entity in the form of cash and part of the consideration in the form of Shares, the Partnership shall distribute to the Parent with respect to its existing Partnership Interest an amount of cash sufficient to complete such transaction and the General Partner shall cause the Partnership to cancel a number of Partnership Units (rounded to the nearest whole number) held by the Parent equal to the product attained by multiplying the number of additional Shares of the Parent that the Parent would have issued to the Parent Entity or the owners of the Parent Entity in such transaction if the entire consideration therefor were to have been paid in Shares by a fraction, the numerator of which is one and the denominator of which is the Conversion Factor. Section 7.5Outside Activities of the General Partner; Relationship of Shares to Partnership Units; Funding Debt A.General. Without the Consent of the Outside Limited Partners, the General Partner shall not, directly or indirectly, enter into or conduct any business other than in connection with the ownership, acquisition and disposition of Partnership Interests and the management of the business of the Partnership and such activities as are incidental thereto. Without the Consent of the Outside Limited Partners, the assets of the General Partner shall be limited to Partnership Interests and permitted debt obligations of the Partnership (as contemplated by Section 7.5.F); provided, however, that the General Partner shall be permitted to hold such bank accounts or similar instruments or accounts in its name as it deems necessary to carry out its responsibilities and purposes as contemplated under this Agreement and its organizational documents (provided that accounts held on behalf of the Partnership to permit the General Partner to carry out its responsibilities under this Agreement shall be considered to belong to the Partnership and the interest earned thereon shall, subject to Section 7.4.B, be applied for the benefit of the Partnership); and, provided further that, the General Partner shall be permitted to acquire Qualified Assets. B.Repurchase of Shares and Other Securities. If the Parent exercises its rights under the Charter to purchase Shares or otherwise elects to purchase from the holders thereof Shares, other equity securities of the Parent, New Securities or Convertible Funding Debt, then the General Partner shall cause the Partnership to purchase from the Parent (i) in the case of a purchase of Shares, that number of Partnership Units of the appropriate class equal to the product obtained by multiplying the number of Shares purchased by the Parent times a fraction, the numerator of which is one and the denominator of which is the Conversion Factor, or (ii) in the case of the purchase of any other securities on the same terms and for the same aggregate price that the Parent purchased such securities. C.Forfeiture of Shares. If the Partnership or the Parent acquires Shares as a result of the forfeiture of such Shares under a restricted or similar share, share bonus or similar share plan, then the General Partner shall cause the Partnership to cancel, without payment of any consideration to the Parent, that number of Partnership Units of the appropriate class equal to the number of Shares so acquired, and, if the Partnership acquired such Shares, it shall transfer such Shares to the Parent for cancellation. D.Issuances of Shares and Other Securities. The Parent shall not grant, award or issue any additional Shares (other than Shares issued pursuant to Section 8.6 or pursuant to a dividend or distribution (including any stock split) of Shares to all of its stockholders that results in an adjustment to the Conversion Factor pursuant to clause (i), (ii) or (iii) of the definition thereof), other equity securities of the Parent, New Securities or Convertible Funding Debt unless (i) the General Partner shall cause, pursuant to Section 4.2.A, the Partnership to issue to the Parent, Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially the same as those of such additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, and (ii) in exchange therefor, the Parent transfers or otherwise causes to be transferred to the Partnership, as an additional Capital Contribution, the proceeds (if any) from the grant, award, or issuance of such additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, or from the exercise of rights contained in such additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be (or, in the case of an acquisition described in Section 7.4.F in which all or a portion of the cash required to consummate such acquisition is to be obtained by the Parent through an issuance of Shares described in Section 4.2, the Parent complies with such Section 7.4.F). Without limiting the foregoing, the Parent is expressly authorized to issue additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, for less than fair market value, and the General Partner is expressly authorized, pursuant to Section 4.2.A, to cause the Partnership to issue to the Parent corresponding Partnership Interests, (for example, and not by way of limitation, the issuance of Shares and corresponding Partnership Units pursuant to a stock purchase plan providing for purchases of Shares, either by employees or stockholders, at a discount from fair market value or pursuant to employee stock options that have an exercise price that is less than the fair market value of the Shares, either at the time of issuance or at the time of exercise) as long as (a) the General Partner concludes in good faith that such issuance is in the interests of the General Partner, the Parent and the Partnership and (b) the Parent transfers all proceeds from any such issuance or exercise to the Partnership as an additional Capital Contribution. E.Equity Incentive Plan. If at any time or from time to time, the Parent sells or otherwise issues Shares pursuant to any Equity Incentive Plan, the Parent shall transfer or cause to be transferred the proceeds of the sale of such Shares, if any, to the Partnership as an additional Capital Contribution in exchange for an amount of additional Partnership Units equal to the number of Shares so sold divided by the Conversion Factor. F.Funding Debt. The General Partner or the Parent or any wholly owned Subsidiary of either of them may incur a Funding Debt from a financial institution or other lender, including, without limitation, a Funding Debt that is convertible into Shares or otherwise constitutes a class of New Securities (“Convertible Funding Debt”), subject to the condition that the General Partner, the Parent or such Subsidiary, as the case may be, lend to the Partnership the net proceeds of such Funding Debt; provided, however, that Convertible Funding Debt shall be issued in accordance with the provisions of Section 7.5.D above. If the General Partner, the Parent or such Subsidiary enters into any Funding Debt, the loan to the Partnership shall be on comparable terms and conditions, including interest rate, repayment schedule, costs and expenses and other financial terms, as are applicable with respect to or incurred in connection with such Funding Debt. G.Capital Contributions of the Parent. The Capital Contributions by the Parent pursuant to Sections 7.5.D and 7.5.E will be deemed to equal the cash contributed by the General Partner plus (a) in the case of cash contributions funded by an offering of any equity interests in or other securities of the Parent, the offering costs attributable to the cash contributed to the Partnership to the extent not reimbursed pursuant to Section 7.4.C and (b) in the case of Partnership Units issued pursuant to Section 7.5.E, an amount equal to the difference between the Value of the Shares sold pursuant to any Equity Incentive Plan and the net proceeds of such sale. H.Tax Loans. The General Partner or the Parent may in its sole and absolute discretion, cause the Partnership to make an interest free loan to the General Partner or the Parent, as applicable, provided that the proceeds of such loans are used to satisfy any tax liabilities of the General Partner or the Parent, as applicable. Section 7.6Transactions with Affiliates A.Transactions with Certain Affiliates. Except as expressly permitted by this Agreement, with respect to any transaction with an Affiliate not negotiated on an arm’s-length basis, the Partnership shall not, directly or indirectly, sell, transfer or convey any property to, or purchase any property from, or borrow funds from, or lend funds to, any Partner or any Affiliate of the Partnership that is not also a Subsidiary of the Partnership, except pursuant to transactions that are determined in good faith by the General Partner to be on terms that are fair and reasonable and no less favorable to the Partnership than would be obtained from an unaffiliated third party. B.Joint Ventures. The Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes to be advisable. C.Services Agreement. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, any management, shared-services, development or advisory agreement with a property and/or asset manager (including an Affiliate of the Partnership, the Parent or the General Partner) for the provision of property management, asset management, leasing, development and/or similar services with respect to the Partnership properties and any agreement for the provision of services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, developers, financial advisors and other professional and administrative services with an Affiliate of any of the Partnership, the Parent or the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable. D.Conflict Avoidance. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a non-competition arrangement and other conflict avoidance agreements with various Affiliates of the Partnership, the Parent and General Partner on such terms as the General Partner, in its sole and absolute discretion, believes are advisable. E.Benefit Plans Sponsored by the Partnership. The General Partner in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Parent, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them. Section 7.7Indemnification A.General. The Partnership shall indemnify each Indemnitee to the fullest extent provided by the Act from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts, arising from or in connection with any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, incurred by the Indemnitee and relating to the Partnership or the General Partner or the Parent or the operation of, or the ownership of property by, the Indemnitee, Partnership or the General Partner or the Parent as set forth in this Agreement in which any such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established by a final determination of a court of competent jurisdiction that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) the Indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guarantee, contractual obligation for any indebtedness or other obligation or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 7.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and any insurance proceeds from the liability policy covering the General Partner and any Indemnitee, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7. B.Reimbursement of Expenses. Reasonable expenses expected to be incurred by an Indemnitee shall be paid or reimbursed by the Partnership in advance of the final disposition of any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative made or threatened against an Indemnitee upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in Section 7.7.A has been met and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. C.No Limitation of Rights. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified. D.Insurance. The Partnership may purchase and maintain insurance on behalf of the Indemnitees and such other Persons as the General Partner shall determine against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Indemnitee or Person against such liability under the provisions of this Agreement. E.No Personal Liability for Partners. In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. F.Interested Transactions. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. G.Benefit. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their employees, officers, directors, trustees, heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7, or any provision hereof, shall be prospective only and shall not in any way affect the limitation on the Partnership’s liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or related to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. H.Indemnification Payments Not Distributions. If and to the extent any payments to the General Partner pursuant to this Section 7.7 constitute gross income to the General Partner (as opposed to the repayment of advances made on behalf of the Partnership), such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts. I.Exception to Indemnification. Notwithstanding anything to the contrary in this Agreement, the General Partner shall not be entitled to indemnification hereunder for any loss, claim, damage, liability or expense for which the General Partner is obligated to indemnify the Partnership under any other agreement between the General Partner and the Partnership. Section 7.8Liability of the General Partner A.General. Notwithstanding anything to the contrary set forth in this Agreement, the General Partner (which for the purposes of this Section 7.8 shall include the directors and officers of the General Partner and the Parent) shall not be liable for monetary or other damages to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission unless the General Partner acted in bad faith and the act or omission was material to the matter giving rise to the loss, liability or benefit not derived. B.Obligation to Consider Interests of Parent. The Limited Partners expressly acknowledge that the General Partner, in considering whether to dispose of any of the Partnership assets, shall take into account the tax consequences to the Parent of any such disposition and shall have no liability whatsoever to the Partnership or any Limited Partner for decisions that are based upon or influenced by such tax consequences. C.No Obligation to Consider Separate Interests of Limited Partners. The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership, the Limited Partners and the Parent’s stockholders, and that, except as set forth herein, the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or Assignees) in deciding whether to cause the Partnership to take (or decline to take) any actions, and that the General Partner shall not be liable for monetary or other damages for losses sustained, liabilities incurred or benefits not derived by Limited Partners in connection with any decisions or actions made or taken or declined to be made or taken, provided that the General Partner has acted pursuant to its authority under this Agreement. Any decisions or actions not taken by the General Partner in accordance with the terms of this Agreement shall not constitute a breach of any duty owed to the Partnership or the Limited Partners by law or equity, fiduciary or otherwise. In the event of a conflict between the interests of the Limited Partners and the stockholders of the Parent, the General Partner shall act in the interests of the Parent’s stockholders, and neither the Parent nor the General Partner shall be liable for monetary or other losses sustained, liabilities incurred or benefits not derived by the Limited Partners in connection therewith. D.Actions of Agents. Subject to its obligations and duties as General Partner set forth in Section 7.1.A, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith. E.Effect of Amendment. Notwithstanding any other provision contained herein, any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner’s liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. F.Limitations of Fiduciary Duty. Sections 7.1.B, Section 7.7.E and this Section 7.8 and any other Section of this Agreement limiting the liability of the General Partner and/or the directors and officers of the Parent shall constitute an express limitation of any duties, fiduciary or otherwise, that they would owe the Partnership or the Limited Partners if such duty would be imposed by any law, in equity or otherwise. Section 7.9Other Matters Concerning the General Partner A.Reliance on Documents. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties. B.Reliance on Advisors. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which the General Partner reasonably believes to be within such Person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. C.Action Through Agents. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder. Section 7.10Reliance by Third Parties Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership, to enter into any contracts on behalf of the Partnership and to take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if the General Partner were the Partnership’s sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing, in each case except to the extent that such action imposes, or purports to impose, liability on the Limited Partner. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership, and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. Section 7.11Restrictions on General Partner’s Authority The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of (i) all Partners adversely affected or (ii) such lower percentage of the Partnership Interests held by Limited Partners as may be specifically provided for under a provision of this Agreement or the Act. The preceding sentence shall not apply to any limitation or prohibition in this Agreement that expressly authorizes the General Partner to take action (either in its discretion or in specified circumstances) so long as the General Partner acts within the scope of such authority. Section 7.12Loans by Third Parties The Partnership may incur Debt, or enter into similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any acquisition of property and any borrowings from, or guarantees of Debt of the General Partner or any of its Affiliates) with any Person upon such terms as the General Partner determines appropriate. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS Section 8.1Limitation of Liability The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement, including Section 10.5, or under the Act. Section 8.2Management of Business No Limited Partner or Assignee (other than the General Partner, the Parent, any of their Affiliates, or any officer, director, employee, partner, agent or trustee of the General Partner, the Parent, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operation, management or control (within the meaning of the Act) of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, the Parent, any of their Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Parent, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement. Section 8.3Outside Activities of Limited Partners Subject to Section 7.5, and subject to any agreements entered into pursuant to Section 7.6.B and to any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership, the Parent or a Subsidiary, any Limited Partner (other than the Parent) and any officer, director, employee, agent, trustee, Affiliate or stockholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct or indirect competition with the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. None of the Limited Partners (other than the Parent) or any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner or the Parent to the extent expressly provided herein), and no Person (other than the General Partner and the Parent) shall have any obligation pursuant to this Agreement to offer any interest in any such business venture to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character which, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person. Section 8.4Return of Capital Except pursuant to the right of redemption set forth in Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. No Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions (except as permitted by Section 4.2.A) or, except to the extent provided by Exhibit C or as permitted by Sections 4.2.A, 5.1.B(i), 6.1.A and 6.1.B, or otherwise expressly provided in this Agreement, as to profits, losses, distributions or credits. Section 8.5Rights of Limited Partners Relating to the Partnership A.General. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.D, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner’s interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner’s own expense: (1)to obtain a copy of the most recent annual and quarterly reports filed with the Securities and Exchange Commission by either the Parent or the Partnership, if any, pursuant to the Exchange Act; (2)to obtain a copy of the Partnership’s U.S. federal, state and local income tax returns for each Fiscal Year; (3)to obtain a current list of the name and last known business, residence or mailing address of each Partner; (4)to obtain a copy of this Agreement and the Certificate of Limited Partnership and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate of Limited Partnership and all amendments thereto have been executed; (5)to obtain true and full information regarding the amount of cash and a description and statement of the Agreed Value of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each Partner became a Partner; and (6)other information regarding the affairs of the Partnership as is just and reasonable. B.Notice of Conversion Factor. The Partnership shall notify each Limited Partner upon request (i) of the then current Conversion Factor and (ii) of any changes to the Conversion Factor. C.Confidentiality. Notwithstanding any other provision of this Section 8.5, the General Partner and the Parent may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion, any information that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or (ii) the Partnership or the Parent is required by law or by agreements with unaffiliated third parties to keep confidential. Section 8.6Redemption Right A.General. (i) Subject to Section 8.6.C and Section 11.6.E, at any time on or after one (1) year following the date of the initial issuance thereof (which, in the event of the transfer of a Class A Unit or Class B Unit, shall be deemed to be the date that the Class A Unit or such Class B Unit, as the case may be, was issued to the original recipient thereof for purposes of this Section 8.6), the holder of a Class A Unit (if other than the Parent or any Subsidiary of the Parent), including any LTIP Units that are converted into Class A Units, shall have the right (the “Redemption Right”) to require the Partnership to redeem such Class A Unit, with such redemption to occur on the Specified Redemption Date and at a redemption price equal to and in the form of the Cash Amount to be paid by the Partnership. Any such Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the holder of the Partnership Units who is exercising the Redemption Right (the “Redeeming Partner”). A Limited Partner may exercise the Redemption Right from time to time, without limitation as to frequency, with respect to part or all of the Partnership Units that it owns, as selected by the Limited Partner, provided, however, that a Limited Partner may not exercise the Redemption Right for fewer than one thousand (1,000) Partnership Units of a particular class unless such Redeeming Partner then holds fewer than one thousand (1,000) Partnership Units in that class, in which event the Redeeming Partner must exercise the Redemption Right for all of the Partnership Units held by such Redeeming Partner in that class, and provided further that, with respect to a Limited Partner which is an entity, such Limited Partner may exercise the Redemption Right for fewer than one thousand (1,000) Partnership Units without regard to whether or not such Limited Partner is exercising the Redemption Right for all of the Partnership Units held by such Limited Partner as long as such Limited Partner is exercising the Redemption Right on behalf of one or more of its equity owners in respect of one hundred percent (100%) of such equity owners’ interests in such Limited Partner. For purposes hereof, a Class A Unit issued upon conversion of a Class B Unit shall be deemed to have been issued when the Class B Unit was issued. (i)The Redeeming Partner shall have no right with respect to any Partnership Units so redeemed to receive any distributions paid in respect of a Partnership Record Date for distributions in respect of Partnership Units after the Specified Redemption Date with respect to such Partnership Units. (ii)The Assignee of any Limited Partner may exercise the rights of such Limited Partner pursuant to this Section 8.6, and such Limited Partner shall be deemed to have assigned such rights to such Assignee and shall be bound by the exercise of such rights by such Limited Partner’s Assignee. In connection with any exercise of such rights by such Assignee on behalf of such Limited Partner, the Cash Amount shall be paid by the Partnership directly to such Assignee and not to such Limited Partner. (iii)In the event of a Termination Transaction on which the holders of Shares shall have the right to vote, the Redemption Right shall be exercisable, without regard to whether the Partnership Units have been outstanding for any specified period, during the period commencing on the date on which the Parent enters into a definitive agreement with respect to such Termination Transaction and ending on the record date to determine stockholders eligible to receive such distribution or to vote upon the approval of such merger, sale or other extraordinary transaction (or, if no such record date is applicable, at least twenty (20) Business Days before the consummation of such merger, sale or other extraordinary transaction). If this subparagraph (iv) applies, the Specified Redemption Date is the date on which the Partnership and the General Partner receive notice of exercise of the Redemption Right, rather than ten (10) Business Days after receipt of the Notice of Redemption. B.Parent Assumption of Redemption Right. (i) If a Limited Partner has delivered a Notice of Redemption, the General Partner may, in its sole and absolute discretion (subject to any limitations on ownership and transfer of Shares set forth in the Charter), elect to cause the Parent to assume directly and satisfy a Redemption Right. If such election is made by the General Partner, the Partnership shall determine whether the Parent shall pay the Redemption Amount in the form of the Cash Amount or the Shares Amount. The Partnership’s decision regarding whether such payment shall be made in the form of the Cash Amount or the Shares Amount shall be made by the General Partner, in its capacity as the general partner of the Partnership and in its sole and absolute discretion. Upon such payment by the Parent, the Parent shall acquire the Partnership Units offered for redemption by the Redeeming Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. Unless the General Partner, in its sole and absolute discretion, shall exercise its right to cause the Parent to assume directly and satisfy the Redemption Right, the Parent shall not have any obligation to the Redeeming Partner or to the Partnership with respect to the Redeeming Partner’s exercise of the Redemption Right. If the General Partner shall exercise its right to cause the Parent to assume directly and satisfy the Redemption Right in the manner described in the first sentence of this Section 8.6.B and the Parent shall fully perform its obligations in connection therewith, the Partnership shall have no right or obligation to pay any amount to the Redeeming Partner with respect to such Redeeming Partner’s exercise of the Redemption Right, and each of the Redeeming Partner, the Partnership and the Parent shall, for U.S. federal income tax purposes, treat the transaction between the Parent and the Redeeming Partner as a sale of the Redeeming Partner’s Partnership Units to the Parent. Nothing contained in this Section 8.6.B shall imply any right of the General Partner to require any Limited Partner to exercise the Redemption Right afforded to such Limited Partner pursuant to Section 8.6.A. (i)If the General Partner determines that the Parent shall pay the Redeeming Partner the Redemption Amount in the form of Shares, the total number of Shares to be paid to the Redeeming Partner in exchange for the Redeeming Partner’s Partnership Units shall be the applicable Shares Amount. If this amount is not a whole number of Shares, the Redeeming Partner shall be paid (i) that number of Shares which equals the nearest whole number less than such amount plus (ii) an amount of cash which the General Partner determines, in its reasonable discretion, to represent the fair value of the remaining fractional Share which would otherwise be payable to the Redeeming Partner. (ii)Each Redeeming Partner agrees to execute such documents or provide such information or materials as the Parent may reasonably require in connection with the issuance of Shares upon exercise of the Redemption Right. C.Exceptions to Exercise of Redemption Right. Notwithstanding the provisions of Sections 8.6.A and 8.6.B, a Partner shall not be entitled to exercise the Redemption Right pursuant to Section 8.6.A if (but only as long as) the delivery of Shares to such Partner on the Specified Redemption Date would (i) be prohibited under the restrictions on the ownership or transfer of Shares in the Charter, (ii) be prohibited under applicable federal or state securities laws or regulations (in each case regardless of whether the Parent would in fact assume and satisfy the Redemption Right), (iii) without limiting the foregoing, result in the Shares being owned by fewer than 100 persons (determined without reference to rules of attribution), (iv) without limiting the foregoing, result in the Parent being “closely held” within the meaning of Section 856(h) of the Code or cause the Parent to own, actually or constructively, ten percent (10%) or more of the ownership interests in a tenant of the Parent, the Partnership or a Subsidiary of the Partnership’s real property within the meaning of Section 856(d)(2)(B) of the Code, and (v) without limiting the foregoing, cause the acquisition of the Shares by the Redeeming Partner to be “integrated” with any other distribution of Shares for purposes of complying with the registration provision of the Securities Act, as amended. Notwithstanding the foregoing, the Parent may, in its sole and absolute discretion, waive such prohibition set forth in this Section 8.6.C. D.No Liens on Partnership Units Delivered for Redemption. Each Limited Partner covenants and agrees that all Partnership Units delivered for redemption shall be delivered to the Partnership or the Parent, as the case may be, free and clear of all liens; and, notwithstanding anything contained herein to the contrary, neither the Parent nor the Partnership shall be under any obligation to acquire Partnership Units which are or may be subject to any liens. Each Limited Partner further agrees that, if any state or local property transfer tax is payable as a result of the transfer of its Partnership Units to the Partnership or the Parent, such Limited Partner shall assume and pay such transfer tax. E.Additional Partnership Interests; Modification of Holding Period. If the Partnership issues Partnership Interests to any Additional Limited Partner pursuant to Article IV, the General Partner shall make such revisions to this Section 8.6 as it determines are necessary to reflect the issuance of such Partnership Interests (including setting forth any restrictions on the exercise of the Redemption Right with respect to such Partnership Interests which differ from those set forth in this Agreement), provided, however, that no such revisions shall materially adversely affect the rights of any other Limited Partner to exercise its Redemption Right without that Limited Partner’s prior written consent. In addition, the General Partner may, with respect to any holder or holders of Partnership Units, at any time and from time to time, as it shall determine in its sole and absolute discretion, (i) reduce or waive the length of the period prior to which such holder or holders may not exercise the Redemption Right or (ii) reduce or waive the length of the period between the exercise of the Redemption Right and the Specified Redemption Date. BOOKS, RECORDS, ACCOUNTING AND REPORTS Section 9.1Records and Accounting The General Partner shall keep or cause to be kept at the principal office of the Partnership appropriate books and records with respect to the Partnership’s business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 9.3. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided, however, that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles. Section 9.2Fiscal Year The fiscal year of the Partnership shall be the calendar year. Section 9.3Reports A.Annual Reports. As soon as practicable, but in no event later than the date on which the Parent mails its annual report to its stockholders, the General Partner shall cause to be mailed to each Limited Partner an annual report, as of the close of the most recently ended Fiscal Year, containing financial statements of the Partnership, or of the Parent if such statements are prepared on a consolidated basis with the Partnership, for such Fiscal Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the Parent. B.Quarterly Reports. If and to the extent that the Parent mails quarterly reports to its stockholders, as soon as practicable, but in no event later than the date on which such reports are mailed, the General Partner shall cause to be mailed to each Limited Partner a report containing unaudited financial statements, as of the last day of such fiscal quarter, of the Partnership, or of the Parent if such statements are prepared on a consolidated basis with the Partnership, and such other information as may be required by applicable law or regulation, or as the General Partner determines to be appropriate. C.The General Partner shall have satisfied its obligations under Section 9.3.A and Section 9.3.B by posting or making available the reports required by this Section 9.3 on the website maintained from time to time by the Partnership or the Parent, provided that such reports are able to be printed or downloaded from such website. Section 10.1Preparation of Tax Returns The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for U.S. federal and state income tax purposes and shall use all reasonable efforts to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Limited Partners for U.S. federal and state income tax reporting purposes. Section 10.2Tax Elections A.Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code (including the election under Section 754 of the Code). The General Partner shall have the right to seek to revoke any such election upon the General Partner’s determination in its sole and absolute discretion that such revocation is in the best interests of the Partners. B.Without limiting the foregoing, the Partners, intending to be legally bound, hereby authorize the General Partner, on behalf of the Partnership, to make an election (the “LV Safe Harbor Election”) to have the “liquidation value” safe harbor provided in Proposed Treasury Regulation § 1.83-3(l) and the Proposed Revenue Procedure set forth in Internal Revenue Service Notice 2005-43, as such safe harbor may be modified when such proposed guidance is issued in final form or as amended by subsequently issued guidance (the “LV Safe Harbor”), apply to any interest in the Partnership transferred to a service provider while the LV Safe Harbor Election remains effective, to the extent such interest meets the LV Safe Harbor requirements (collectively, such interests are referred to as “LV Safe Harbor Interests”). The tax matters partner is authorized and directed to execute and file the LV Safe Harbor Election on behalf of the Partnership and the Partners. The Partnership and the Partners (including any person to whom an interest in the Partnership is transferred in connection with the performance of services) hereby agree to comply with all requirements of the LV Safe Harbor (including forfeiture allocations) with respect to all LV Safe Harbor Interests and to prepare and file all U.S. federal income tax returns reporting the tax consequences of the issuance and vesting of LV Safe Harbor Interests consistent with such final LV Safe Harbor guidance. The Partnership is also authorized to take such actions as are necessary to achieve, under the LV Safe Harbor, the effect that the election and compliance with all requirements of the LV Safe Harbor referred to above would be intended to achieve under Proposed Treasury Regulation § 1.83-3, including amending this Agreement. Section 10.3Partnership Representative A.Generally. (i)With respect to each taxable year of the Partnership that is subject to the BBA Rules, the General Partner may designate and replace in its sole discretion the Partnership’s “partnership representative” for purposes of the BBA Rules. Each Partner shall take such actions as are necessary or convenient to effect such designation or replacement or any designation or replacement of a “designated individual” under the BBA Rules. For the avoidance of doubt, the General Partner may designate a different Partnership Representative for different taxable years of the Partnership, and the provisions of this Section 10.3 shall be interpreted and applied so as to give effect to such designations. (ii)The Partnership Representative has full power and authority in its capacity as such to represent and bind the Partnership in each audit conducted under the BBA Rules, including without limitation the power and authority to make an election under Section 6226 of the Code and any Treasury Regulations promulgated thereunder, to seek on behalf of the Partnership any adjustment to an imputed underpayment available under Section 6225 of the Code or the Treasury Regulations promulgated thereunder (including in cases where such imputed underpayment has been or will be assessed against a subsidiary of the Partnership), or to request on behalf of the Partnership any adjustments under Section 6227 of the Code or the Treasury Regulations promulgated thereunder, and to take, and to cause the Partnership to take, all actions necessary or convenient to give effect to such elections or actions. Each Partner agrees to take (or, as applicable, omit to take) all actions that the General Partner or Partnership Representative informs it are reasonably necessary or convenient to effect any action described in the preceding sentence, including without limitation (i) providing any information, certifications, or other documentation reasonably requested in connection with any tax audit or related proceeding (which information may be freely disclosed to the Internal Revenue Service and other relevant taxing authorities), (ii) paying all liabilities attributable to such Partner as the result of an election under Section 6226 of the Code, (iii) making any tax filings that the Partnership Representative determines to be necessary or appropriate to reduce an imputed underpayment under Section 6225 of the Code or (iv) paying all liabilities associated with such tax filings. (iii)The costs and expenses incurred by a Partner in connection with the preceding Section 10.3(A)(ii) shall not be treated as Partnership Expenses or their payment as capital contributions, and as a result, such costs and expenses shall not give rise to any additional or incremental right to proceeds from the Partnership or reduce a Partner’s unpaid Capital Commitment. If any tax audit under the BBA Rules or similar foreign, state, or local laws or regulations results in the imposition of a tax liability on the Partnership (including indirectly through such an imposition on one or more subsidiaries of the Partnership) and the General Partner determines in its sole discretion that any portion of such liability is attributable to a Partner, then at the General Partner’s election such amount shall, without duplication (x) be deemed to be an amount withheld pursuant to Section 10.5, or (y) be contributed by such Partner to the Partnership. Any amount contributed under the preceding sentence shall be taken into account for purposes of maintaining Capital Account balances to the extent required by applicable Regulations, but shall not be treated as a Capital Contribution or otherwise increase the contributing Partner’s rights to any Partnership Units or distributions or other amounts from the Partnership. (iv)Each Partner shall promptly notify the General Partner upon becoming aware of the commencement any tax audit or similar proceeding with respect to such Partner or its affiliates if such audit or proceeding relates (or reasonably could be expected to relate) to the Partnership or any income, gain, loss, or deduction derived from an Interest. Notwithstanding any provision of this Agreement to the contrary, each Partner agrees that its obligations to comply with the Partnership Representative’s decisions and to make payments under this Section 10.3 shall survive any transfer of its Partnership interest and the termination of the Partnership, and such Person shall reimburse and indemnify the Partnership and the General Partner against any liability that the General Partner would be attributed to such Person under this Section 10.3 regardless of whether such Person is a Partner at the time of determination; provided, that the General Partner may instead enforce this provision against any successor in interest of such Person. In accordance with Section 7.7, each Partner shall indemnify and hold harmless the General Partner with respect to all liabilities attributed to such Partner under this Section 10.3, provided that any such indemnification payments shall not be duplicative with amounts paid to the Partnership under this Section 10.3. References to Code Sections in this paragraph are to such provisions as amended by the BBA Rules. B.Reimbursement. The Partnership Representative shall receive no compensation for its services. All third party costs and expenses incurred by the Partnership Representative in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm and/or law firm to assist the Partnership Representative in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable. C.Indemnification. The provisions relating to indemnification of the General Partner set forth in Section 7.7 shall be fully applicable to the Partnership Representative in its capacity as such. Section 10.4Organizational Expenses The Partnership shall elect to deduct expenses as provided in Section 709 of the Code. Section 10.5Withholding Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of U.S. federal, state, local, or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable, allocable or otherwise transferred to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445, 1446 or 1471-1474, inclusive, of the Code and the Regulations thereunder. Any amount paid on behalf of or with respect to a Limited Partner (other than amounts actually withheld from payments to a Limited Partner) shall constitute a loan by the Partnership, to such Limited Partner, which loan shall be repaid by such Limited Partner within fifteen (15) days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution which would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Partnership which would, but for such payment, be distributed to the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed or otherwise paid to such Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner’s Partnership Interest to secure such Limited Partner’s obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.5. If a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.5 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner (including, without limitation, the right to receive distributions). Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in The Wall Street Journal, plus four (4) percentage points (but not higher than the maximum rate that may be charged under law) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request to perfect or enforce the security interest created hereunder. TRANSFERS AND WITHDRAWALS Section 11.1Transfer A.Definition. The term “transfer,” when used in this Article XI with respect to a Partnership Interest or a Partnership Unit, shall be deemed to refer to a transaction by which the General Partner purports to assign all or any part of its General Partner Interest to another Person or by which a Limited Partner purports to assign all or any part of its Limited Partner Interest to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term “transfer” when used in this Article XI does not include any redemption or repurchase of Partnership Units by the Partnership from a Partner or acquisition of Partnership Units from a Limited Partner by the Parent pursuant to Section 8.6 or otherwise. No part of the interest of a Limited Partner shall be subject to the claims of any creditor, any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement. B.General. No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article XI shall be null and void. Section 11.2Transfers of Partnership Interests of General Partner A.General. Other than to an Affiliate of the Parent, the General Partner may not transfer any of its Partnership Interests except in connection with (i) a transaction permitted under Section 11.2.B, (ii) a Transfer to any wholly owned Subsidiary of the General Partner or the owner of all of the ownership interests of the General Partner, or (iii) as otherwise expressly permitted under this Agreement, nor shall the General Partner withdraw as General Partner except in connection with a transaction permitted under Section 11.2.B or any Transfer, merger, consolidation, or other combination permitted under clause (ii) of this Section 11.2.A. B.Termination Transactions. Neither the General Partner nor the Parent shall engage in any merger (including, without limitation, a triangular merger), consolidation or other combination with or into another Person (other than any transaction permitted by Section 11.2.A(ii) or Section 11.2.A(iii)), any sale of all or substantially all of its assets or any reclassification, recapitalization or change of outstanding Shares (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination as described in the definition of “Conversion Factor”) (a “Termination Transaction”), unless: (i)the Consent of the Outside Limited Partners is obtained; (ii)following such Termination Transaction, substantially all of the assets directly or indirectly owned by the surviving entity are owned directly or indirectly by the Partnership or another limited partnership or limited liability company which is the survivor of a merger, consolidation or combination of assets with the Partnership; or (iii)in connection with such Termination Transaction all Partners either will receive, or will have the right to receive, for each Partnership Unit an amount of cash, securities, or other property equal to the product of the Conversion Factor and the greatest amount of cash, securities or other property paid to a holder of Shares, if any, corresponding to such Unit in consideration of one such Share at any time during the period from and after the date on which the Termination Transaction is consummated; provided, however, that, if in connection with the Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of the percentage required for the approval of mergers under the organizational documents of the Parent, each holder of Partnership Units shall receive, or shall have the right to receive without any right of Consent set forth above in this Section 11.2.B, the greatest amount of cash, securities, or other property which such holder would have received had it exercised the Redemption Right and received Shares in exchange for its Partnership Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer. C.Creation of New General Partner. The General Partner shall not enter into an agreement or other arrangement providing for or facilitating the creation of a General Partner other than the General Partner, unless the successor General Partner executes and delivers a counterpart to this Agreement in which such General Partner agrees to be fully bound by all of the terms and conditions contained herein that are applicable to a General Partner. Section 11.3Limited Partners’ Rights to Transfer A.General. Except to the extent expressly permitted in Sections 11.3.B and 11.3.C or in connection with the exercise of a Redemption Right pursuant to Section 8.6, a Limited Partner may not transfer all or portion of its Partnership Interest, or any of such Limited Partner’s rights as a Limited Partner, without the prior written consent of the General Partner, which consent may be withheld in the General Partner’s sole and absolute discretion. Any transfer otherwise permitted under Sections 11.3.B and 11.3.C shall be subject to the conditions set forth in Section 11.3.D and 11.3.E, and all permitted transfers shall be subject to Section 11.5 and Section 11.6. B.Incapacitated Limited Partner. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner’s estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partner, for the purpose of settling or managing the estate and such power as the Incapacitated Limited Partner possessed to transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership. C.Permitted Transfers. A Limited Partner may transfer, with or without the consent of the General Partner, all or a portion of its Partnership Interest (i) in the case of a Limited Partner who is an individual, to a member of his or her Immediate Family, any trust formed for the benefit of himself or herself and/or members of his or her Immediate Family, or any partnership, limited liability company, joint venture, corporation or other business entity comprised only of himself or herself and/or members of his or her Immediate Family and entities the ownership interests in which are owned by or for the benefit of himself or herself and/or members of his or her Immediate Family, (ii) in the case of a Limited Partner which is a trust, to the beneficiaries of such trust, (iii) in the case of a Limited Partner which is a partnership, limited liability company, joint venture, corporation or other business entity to which Units were transferred pursuant to clause (i) above, to its partners, owners or stockholders, as the case may be, who are members of the Immediate Family of or are actually the Person(s) who transferred Partnership Units to it pursuant to clause (i) above, (iv) in the case of a Limited Partner which acquired Partnership Units as of the date hereof and which is a partnership, limited liability company, joint venture, corporation or other business entity, to its partners, owners, stockholders or Affiliates thereof, as the case may be, or the Persons owning the beneficial interests in any of its partners, owners or stockholders or Affiliates thereof (it being understood that this clause (iv) will apply to all of each Person’s Interests whether the Partnership Units relating thereto were acquired on the date hereof or hereafter), (v) in the case of a Limited Partner which is a partnership, limited liability company, joint venture, corporation or other business entity other than any of the foregoing described in clause (iii) or (iv), in accordance with the terms of any agreement between such Limited Partner and the Partnership pursuant to which such Partnership Interest was issued, (vi) pursuant to a gift or other transfer without consideration, (vii) pursuant to applicable laws of descent or distribution, (viii) to another Limited Partner and (ix) pursuant to a grant of security interest or other encumbrance effectuated in a bona fide transaction or as a result of the exercise of remedies related thereto, subject to the provisions of Section 11.3.E hereof. A trust or other entity will be considered formed “for the benefit” of a Partner’s Immediate Family even though some other Person has a remainder interest under or with respect to such trust or other entity. D.No Transfers Violating Securities Laws. The General Partner may prohibit any transfer of Partnership Units by a Limited Partner unless it receives a written opinion of legal counsel (which opinion and counsel shall be reasonably satisfactory to the Partnership) to such Limited Partner to the effect that such transfer would not require filing of a registration statement under the Securities Act or would not otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Unit or, at the option of the Partnership, an opinion of legal counsel to the Partnership to the same effect. E.No Transfers to Holders of Nonrecourse Liabilities. No pledge or transfer of any Partnership Units may be made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan otherwise constitutes a Nonrecourse Liability unless (i) the General Partner is provided prior written notice thereof and (ii) the lender enters into an arrangement with the Partnership and the General Partner to exchange or redeem for the Redemption Amount any Partnership Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code. Section 11.4Substituted Limited Partners A.Consent of General Partner. No Limited Partner shall have the right to substitute a transferee as a Limited Partner in its place. The General Partner shall, however, have the right to consent to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The General Partner’s failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership, the General Partner or any Partner. The General Partner hereby grants its consent to the admission as a Substituted Limited Partner to any bona fide financial institution that loans money or otherwise extends credit to a holder of Partnership Units and thereafter becomes the owner of such Partnership Units pursuant to the exercise by such financial institution of its rights under a pledge of such Partnership Units granted in connection with such loan or extension of credit. B.Rights of Substituted Partner. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article XI shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. The admission of any transferee as a Substituted Limited Partner shall be conditioned upon the transferee executing and delivering to the Partnership an acceptance of all the terms and conditions of this Agreement (including, without limitation, the provisions of Section 15.11) and such other documents or instruments as may be required to effect the admission. C.Partner Registry. Upon the admission of a Substituted Limited Partner, the General Partner shall update the Partner Registry in the books and records of the Partnership as it deems necessary to reflect such admission in the Partner Registry. Section 11.5Assignees If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 as a Substituted Limited Partner, as described in Section 11.4, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses, gain, loss and Recapture Income attributable to the Partnership Units assigned to such transferee, and shall have the rights granted to the Limited Partners under Section 8.6, but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement, and shall not be entitled to vote such Partnership Units in any matter presented to the Limited Partners for a vote (such Partnership Units being deemed to have been voted on such matter in the same proportion as all other Partnership Units held by Limited Partners are voted). If any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article XI to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units. Section 11.6General Provisions A.Withdrawal of Limited Partner. No Limited Partner may withdraw from the Partnership other than as a result of a permitted transfer of all of such Limited Partner’s Partnership Units in accordance with this Article XI or pursuant to redemption of all of its Partnership Units under Section 8.6. B.Termination of Status as Limited Partner. Any Limited Partner who shall transfer all of its Partnership Units in a transfer permitted pursuant to this Article XI or pursuant to redemption of all of its Partnership Units under Section 8.6 shall cease to be a Limited Partner. C.Timing of Transfers. Transfers pursuant to this Article XI may only be made upon three (3) Business Days prior notice to the General Partner, unless the General Partner otherwise agrees. D.Allocations. If any Partnership Interest is transferred during any quarterly segment of the Partnership’s fiscal year in compliance with the provisions of this Article XI or redeemed or transferred pursuant to Section 8.6, Net Income, Net Losses, each item thereof and all other items attributable to such interest for such fiscal year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interests during the fiscal year in accordance with Section 706(d) of the Code and corresponding Regulations, using the interim closing of the books method (unless the General Partner, in its sole and absolute discretion, elects to adopt a daily, weekly, or a monthly proration period, in which event Net Income, Net Losses, each item thereof and all other items attributable to such interest for such fiscal year shall be prorated based upon the applicable method selected by the General Partner). Solely for purposes of making such allocations, each of such items for the calendar month in which the transfer or redemption occurs shall be allocated to the Person who is a Partner as of midnight on the last day of said month. All distributions of Available Cash attributable to any Partnership Unit with respect to which the Partnership Record Date is before the date of such transfer, assignment or redemption shall be made to the transferor Partner or the Redeeming Partner, as the case may be, and, in the case of a transfer or assignment other than a redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner. E.Additional Restrictions. Notwithstanding anything to the contrary herein, and in addition to any other restrictions on transfer herein contained, including, without limitation, the provisions of Article VII and this Article XI, in no event may any transfer or assignment of a Partnership Interest by any Partner (including pursuant to Section 8.6) be made without the express consent of the General Partner, in its sole and absolute discretion, (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership there is a significant risk that such transfer would cause a termination of the Partnership for U.S. federal or state income tax purposes (except as a result of the redemption or exchange for Shares of all Partnership Units held by all Limited Partners other than the General Partner, or any Subsidiary of either, or pursuant to a transaction expressly permitted under Section 11.2); (v) if in the opinion of counsel to the Partnership, there is a significant risk that such transfer would cause the Partnership to be treated as an association taxable as a corporation for U.S. federal income tax purposes; (vi) if such transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (vii) if such transfer is effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code and the Regulations thereunder or such transfer causes the Partnership to become a “publicly traded partnership,” as such term is defined in Sections 469(k)(2) or 7704(b) of the Code (provided, however, that, this clause (vii) shall not be the basis for limiting or restricting in any manner the exercise of the Redemption Right under Section 8.6 unless, and only to the extent that, outside tax counsel provides to the General Partner an opinion to the effect that, in the absence of such limitation or restriction, there is a significant risk that the Partnership will be treated as a “publicly traded partnership” and, by reason thereof, taxable as a corporation for U.S. federal income tax purposes); or (viii) if such transfer subjects the Partnership or the activities of the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended. F.Avoidance of “Publicly Traded Partnership” Status. The General Partner shall monitor the transfers of interests in the Partnership to determine (i) if such interests are being traded on an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code and (ii) whether additional transfers of interests would result in the Partnership being unable to qualify for at least one of the “safe harbors” set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable on a secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code) (the “Safe Harbors”). The General Partner shall take all steps reasonably necessary or appropriate to prevent any trading of interests or any recognition by the Partnership of transfers made on such markets and, except as otherwise provided herein, to insure that at least one of the Safe Harbors is met; provided, however, that the foregoing shall not authorize the General Partner to limit or restrict in any manner the right of any holder of a Partnership Unit to exercise the Redemption Right in accordance with the terms of Section 8.6 unless, and only to the extent that, outside tax counsel provides to the General Partner an opinion to the effect that, in the absence of such limitation or restriction, there is a significant risk that the Partnership will be treated as a “publicly traded partnership” and, by reason thereof, taxable as a corporation. ARTICLE XII ADMISSION OF PARTNERS Section 12.1Admission of a Successor General Partner A successor to all of the General Partner’s General Partner Interest pursuant to Section 11.2 who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such successor shall carry on the business of the Partnership without dissolution. In such case, the admission shall be subject to such successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. Section 12.2Admission of Additional Limited Partners A.General. No Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent shall be given or withheld in the General Partner’s sole and absolute discretion. A Person who makes a Capital Contribution to the Partnership in accordance with this Agreement or who exercises an option to receive Partnership Units shall be admitted to the Partnership as an Additional Limited Partner only with the consent of the General Partner and only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 15.11 and (ii) such other documents or instruments as may be required in the discretion of the General Partner to effect such Person’s admission as an Additional Limited Partner. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission. B.Allocations to Additional Limited Partners. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the General Partner, in its sole and absolute discretion, elects to adopt a daily, weekly or monthly proration method, in which event Net Income, Net Losses, and each item thereof would be prorated based upon the applicable period selected by the General Partner). Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of Available Cash thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner. Section 12.3Amendment of Agreement and Certificate of Limited Partnership For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment to the Partner Registry) and, if required by law, shall prepare and file an amendment to the Certificate of Limited Partnership and may for this purpose exercise the power of attorney granted pursuant to Section 15.11. Section 12.4Limit on Number of Partners Unless otherwise permitted by the General Partner in its sole and absolute discretion, no Person shall be admitted to the Partnership as an Additional Limited Partner if the effect of such admission would be to cause the Partnership to have a number of Partners that would cause the Partnership to become a reporting company under the Exchange Act. ARTICLE XIII DISSOLUTION AND LIQUIDATION Section 13.1Dissolution The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following: (“Liquidating Events”): (i)an event of withdrawal of the General Partner (other than an event of bankruptcy) unless within ninety (90) days after the withdrawal, the written Consent of the Outside Limited Partners to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a substitute General Partner is obtained; (ii)an election to dissolve the Partnership made by the General Partner, in its sole and absolute discretion; (iii)entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act; (iv)ninety (90) days after the sale of all or substantially all of the assets and properties of the Partnership for cash or for marketable securities; (v)the redemption of all Partnership Units other than those held by the General Partner; or (vi)a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless prior to or at the time of the entry of such order or judgment, the written Consent of the Outside Limited Partners is obtained to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a substitute General Partner. Section 13.2Winding Up A.General. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business and affairs. The General Partner (or, if there is no remaining General Partner, any Person elected by a majority in interest of the Limited Partners (the “Liquidator”)) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership’s liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include equity or other securities of the General Partner or any other entity) shall be applied and distributed in the following order: (1)First, to the payment and discharge of all of the Partnership’s debts and liabilities to creditors other than the Partners; (2)Second, to the payment and discharge of all of the Partnership’s debts and liabilities to the General Partner; (3)Third, to the payment and discharge of all of the Partnership’s debts and liabilities to the Limited Partners; (4)Fourth, to the holders of Partnership Interests that are entitled to any preference in distribution upon liquidation in accordance with the rights of any such class or series of Partnership Interests (and, within each such class or series, to each holder thereof pro rata based on its Percentage Interest in such class); and (5)The balance, if any, to the Partners in accordance with their positive Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods. The General Partner shall not receive any additional compensation for any services performed pursuant to this Article XIII. B.Deferred Liquidation. Notwithstanding the provisions of Section 13.2.A which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. Section 13.3Compliance with Timing Requirements of Regulations; Restoration of Deficit Capital Accounts A.Timing of Distributions. If the Partnership is “liquidated” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made under this Article XIII to the General Partner and Limited Partners who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). In the discretion of the General Partner, a pro rata portion of the distributions that would otherwise be made to the General Partner and Limited Partners pursuant to this Article XIII may be: (A) distributed to a trust established for the benefit of the General Partner and Limited Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership (in which case the assets of any such trust shall be distributed to the General Partner and Limited Partners from time to time, in the reasonable discretion of the General Partner, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the General Partner and Limited Partners pursuant to this Agreement); or (B) withheld to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership; provided, however, that such withheld amounts shall be distributed to the General Partner and Limited Partners as soon as practicable. B.Restoration of Deficit Capital Accounts upon Liquidation of the Partnership. If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever, except as otherwise set forth in this Section 13.3.B, or as otherwise expressly agreed in writing by the affected Partner and the Partnership after the date hereof. Notwithstanding the foregoing, if the General Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions, and allocations for all Partnership years or portions thereof, including the year during which such liquidation occurs), the General Partner shall contribute to the capital of the Partnership the amount necessary to restore such deficit balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3). Any contribution required of the General Partner under this Section 13.3.B shall be made on or before the later of (i) the end of the Partnership Year in which the interest is liquidated or (ii) the ninetieth (90th) day following the date of such liquidation. The proceeds of any contribution to the Partnership made hereunder shall be treated as a Capital Contribution and the proceeds thereof shall be treated as assets of the Partnership to be applied as set forth in Section 13.2.A. Section 13.4Rights of Limited Partners Except as otherwise provided in this Agreement, each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contributions and shall have no right or power to demand or receive property other than cash from the Partnership. Except as otherwise expressly provided in this Agreement, no Limited Partner shall have priority over any other Limited Partner as to the return of its Capital Contributions, distributions, or allocations. Section 13.5Notice of Dissolution If a Liquidating Event occurs or an event occurs that would, but for provisions of an election or objection by one or more Partners pursuant to Section 13.1, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each of the Partners and to all other parties with whom the Partnership regularly conducts business (as determined in the discretion of the General Partner). Section 13.6Cancellation of Certificate of Limited Partnership Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2, the Partnership shall be terminated and the Certificate of Limited Partnership and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware shall be canceled and such other actions as may be necessary to terminate the Partnership shall be taken. Section 13.7Reasonable Time for Winding Up A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2, to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect among the Partners during the period of liquidation. Section 13.8Waiver of Partition Each Partner hereby waives any right to partition of the Partnership property. Section 13.9Liability of Liquidator The Liquidator shall be indemnified and held harmless by the Partnership in the same manner and to the same degree as an Indemnitee may be indemnified pursuant to Section 7.7. ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS Section 14.1Amendments A.General. Amendments to this Agreement may be proposed by the General Partner or by any Limited Partner holding Partnership Interests representing twenty-five percent (25%) or more of the Percentage Interest of the Class A Units. Following such proposal (except an amendment governed by Section 14.1.B), the General Partner shall submit any proposed amendment to the Limited Partners. The General Partner shall seek the written Consent of the Partners as set forth in this Section 14.1 on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. For purposes of obtaining a written Consent, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) calendar days, any failure to respond in such time period shall constitute a vote in favor of the recommendation of the General Partner. A proposed amendment shall be adopted and be effective as an amendment hereto if it is approved by the General Partner and, except as provided in Section 14.1.B, 14.1.C or 14.1.D, it receives the Consent of the Partners holding Partnership Interests representing more than fifty percent (50%) of the Percentage Interest of the Class A Units (including Class A Units held by the Parent). B.Amendments Not Requiring Limited Partner Approval. Notwithstanding Section 14.1.A but subject to Section 14.1.C, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1)to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners; (2)to reflect the admission, substitution, termination, or withdrawal of Partners in accordance with this Agreement (which may be effected through the replacement of the Partner Registry with an amended Partner Registry); (3)to set forth the designations, rights, powers, duties, and preferences of the holders of any additional Partnership Interests issued pursuant to Article IV; (4)to reflect a change that does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions of this Agreement, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; (5)to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal, state or local agency or contained in federal, state or local law; (6)to modify the method by which Partners’ Capital Accounts, or any debits or credits thereto, are computed, under this Agreement; (7)to include provisions in the Agreement that may be referenced in any rulings, regulations, notices, announcements, or other guidance regarding the U.S. federal income tax treatment of compensatory partnership interests issued and made effective after the date hereof or in connection with any elections that the General Partner determines to be necessary or advisable in respect of any such guidance. Any such amendment may include, without limitation, (a) a provision authorizing or directing the General Partner to make any election under such guidance, (b) a covenant by the Partnership that all of the Partners must (I) comply with the such guidance and (II) take all actions (or, as the case may be, not take any action) necessary, including providing the Partnership with any required information, to permit the Partnership to comply with the requirements set forth or referred to in the Regulations for such election or other related guidance from the IRS, and (c) an amendment to the Capital Account maintenance provisions and the allocation provisions contained in Exhibit B or Exhibit C of this Agreement so that such provisions comply with (I) the provisions of the Code and the Regulations as they apply to the issuance of compensatory partnership interests and (II) the requirements of such guidance and any election made by the General Partner with respect thereto, including, a provision requiring “forfeiture allocations” as appropriate. (8)to take into account any Regulations or other guidance issued under or with respect to the BBA Rules in such manner as the General Partner in its sole discretions determines to be necessary or appropriate; and (9)to give effect to any amendments adopted in accordance with Section 11.6E. The General Partner shall notify the Limited Partners in writing when any action under this Section 14.1.B is taken in the next regular communication to the Limited Partners or within ninety (90) days of the date thereof, whichever is earlier. C.Amendments Requiring Limited Partner Approval (Excluding the Parent). Notwithstanding Sections 14.1.A and 14.1.B, without the Consent of the Outside Limited Partners, the General Partner shall not amend Section 4.2.A, Section 7.1.A (second sentence only), Section 7.5, Section 7.6, Section 7.8, Section 7.11, Section 11.2, Section 13.1, the last sentence of Section 11.4.A (provided, however, that no such amendment shall in any event adversely affect the rights of any lender who made a loan or who extended credit and received in connection therewith a pledge of Partnership Units prior to the date such amendment is adopted unless, and only to the extent such lender consents thereto), this Section 14.1.C or Section 14.2. D.Other Amendments Requiring Certain Limited Partner Approval. Notwithstanding anything in this Section 14.1 to the contrary, this Agreement shall not be amended with respect to any Partner adversely affected without the Consent of such Partner adversely affected or to any Assignee who is a bona fide financial institution that loans money or otherwise extends credit to a holder of Partnership Units that is adversely affected, but in either case only if such amendment would (i) convert such Limited Partner’s interest in the Partnership into a general partner’s interest, (ii) modify the limited liability of such Limited Partner, (iii) amend Section 7.11, (iv) amend Article V or Article VI (except as permitted pursuant to Sections 4.2, 5.4, 6.2 and 14.1.B(3)), (v) amend Section 8.6 or any defined terms set forth in Article I that relate to the Redemption Right (except as permitted in Section 8.6.E), or (vi) amend Sections 11.3 or 11.5, or add any additional restrictions to Section 11.6.E or amend Section 14.1.B(4) or this Section 14.1.D. E.Amendment and Restatement of Partner Registry Not an Amendment. Notwithstanding anything in this Article XIV or elsewhere in this Agreement to the contrary, any amendment and restatement of the Partner Registry by the General Partner to reflect events or changes otherwise authorized or permitted by this Agreement shall not be deemed an amendment of this Agreement and may be done at any time and from time to time, as determined by the General Partner without the Consent of the Limited Partners and without any notice requirement. Section 14.2Meetings of the Partners A.General. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by Limited Partners holding Partnership Interests representing twenty-five percent (25%) or more of the Percentage Interest of the Class A Units (including Class A Units held by the Parent). The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners entitled to vote may vote in person or by proxy at such meeting. Whenever the vote or Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.1.A. Except as otherwise expressly provided in this Agreement, the Consent of holders of Partnership Interests representing a majority of the Percentage Interests of the Class A Units shall control (including Class A Units held by the Parent). B.Actions Without a Meeting. Except as otherwise expressly provided by this Agreement, any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by Partners holding Partnership Interests representing more than fifty percent (50%) (or such other percentage as is expressly required by this Agreement) of the Percentage Interest of the Class A Units (including Class A Units held by the Parent). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of Partners. Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the date on which written consents from the Partners holding the required Percentage Interest of the Class A Units have been filed with the General Partner. C.Proxy. Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership’s receipt of written notice thereof. D.Conduct of Meeting. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate. ARTICLE XV Section 15.1Addresses and Notice Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person, when sent by first class United States mail or by other means of written communication (including, but not limited to, via e-mail) to the Partner or Assignee at the address set forth in the Partner Registry or such other address as the Partners shall notify the General Partner in writing. Section 15.2Titles and Captions All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” “Sections” and “Exhibits” are to Articles, Sections and Exhibits of this Agreement. Section 15.3Pronouns and Plurals Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Section 15.4Further Action The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. Section 15.5Binding Effect This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 15.6Creditors Other than as expressly set forth herein with regard to any Indemnitee, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership. Section 15.7Waiver No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. Section 15.8Counterparts This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto. Section 15.9Applicable Law This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. Section 15.10Invalidity of Provisions If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. Section 15.11Power of Attorney A.General. Each Limited Partner and each Assignee who accepts Partnership Units (or any rights, benefits or privileges associated therewith) is deemed to irrevocably constitute and appoint the General Partner, any Liquidator and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to: (1)execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate of Limited Partnership and all amendments or restatements thereof) that the General Partner or any Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property, (b) all instruments that the General Partner or any Liquidator deem appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms, (c) all conveyances and other instruments or documents that the General Partner or any Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation, (d) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article XI, XII or XIII or the Capital Contribution of any Partner and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Partnership Interests; and (2)execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to effectuate the terms or intent of this Agreement. Nothing contained in this Section 15.11 shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Article XIV or as may be otherwise expressly provided for in this Agreement. B.Irrevocable Nature. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be relying upon the power of the General Partner or any Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner’s or Assignee’s Partnership Units and shall extend to such Limited Partner’s or Assignee’s heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or any Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner or any Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner’s or Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership. Section 15.12Entire Agreement This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes any prior written oral understandings or agreements among them with respect thereto. Section 15.13No Rights as Stockholders Nothing contained in this Agreement shall be construed as conferring upon the holders of the Partnership Units any rights whatsoever as stockholders of the Parent, including, without limitation, any right to receive dividends or other distributions made to stockholders of the Parent, or to vote or to consent or receive notice as stockholders in respect to any meeting of stockholders for the election of directors of the Parent or any other matter. [Remainder of page intentionally left blank, signature page follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Broad Street OP GP, LLC By: MedAmerica Properties Inc., its sole member /s/ Gary O. Marino Gary O. Marino By: MedAmerica Properties Inc. Signature Page to Agreement of Limited Partnership of FORM OF PARTNER REGISTRY CLASS A UNITS Name And Address Of Partner Partnership Units Initial Capital Account Percentage Interest LIMITED PARTNERS: MedAmerica Properties Inc. TOTAL CLASS A UNITS 100.00000 % CAPITAL ACCOUNT MAINTENANCE Capital Accounts of the Partners A.The Partnership shall maintain for each Partner a separate Capital Account in accordance with the rules of Regulations Section l.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions and any other deemed contributions made by such Partner to the Partnership pursuant to this Agreement and (ii) all items of Partnership income and gain (including income and gain exempt from tax) computed in accordance with Section 1.B and allocated to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C thereof, and decreased by (x) the amount of cash or Agreed Value of property actually distributed or deemed to be distributed to such Partner pursuant to this Agreement and (y) all items of Partnership deduction and loss computed in accordance with Section 1.B and allocated to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C thereof. B.For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Partners’ Capital Accounts, unless otherwise specified in this Agreement, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes determined in accordance with Section 703(a) of the Code (for this purpose all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments: (1)Except as otherwise provided in Regulations Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any adjustments to the adjusted bases of the assets of the Partnership pursuant to Sections 734(b) and 743(b) of the Code, provided, however, that the amounts of any adjustments to the adjusted bases of the assets of the Partnership made pursuant to Section 734 of the Code as a result of the distribution of property by the Partnership to a Partner (to the extent that such adjustments have not previously been reflected in the Partners’ Capital Accounts) shall be reflected in the Capital Accounts of the Partners in the manner and subject to the limitations prescribed in Regulations Section l.704-1(b)(2)(iv)(m)(4). (2)The computation of all items of income, gain, and deduction shall be made without regard to the fact that items described in Sections 705(a)(l)(B) or 705(a)(2)(B) of the Code are not includible in gross income or are neither currently deductible nor capitalized for U.S. federal income tax purposes. (3)Any income, gain or loss attributable to the taxable disposition of any Partnership property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Partnership’s Carrying Value with respect to such property as of such date. (4)In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year. (5)In the event the Carrying Value of any Partnership asset is adjusted pursuant to Section 1.D, the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset. (6)Any items specially allocated under Section 2 of Exhibit C to the Agreement hereof shall not be taken into account. C.A transferee (including any Assignee) of a Partnership Unit shall succeed to a pro rata portion of the Capital Account of the transferor in accordance with Regulations Section 1.704-1(b)(2)(iv)(l). D.(1)Consistent with the provisions of Regulations Section 1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the Carrying Values of all Partnership assets shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as of the times of the adjustments provided in Section 1.D(2), as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property and allocated pursuant to Section 6.1 of the Agreement. (1)Such adjustments shall be made as of the following times: (a) immediately prior to the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) immediately prior to the distribution by the Partnership to a Partner of more than a de minimis amount of property as consideration for an interest in the Partnership; (c) immediately prior to the liquidation of the Partnership within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g); (d) immediately prior to the grant of an interest in the Partnership (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership; (e) immediately prior to the issuance by the Partnership of a noncompensatory option to acquire an interest in the Partnership (other than an option for a de minimis interest); and (f) at such other times as are permitted by applicable Regulations and as determined in the discretion of the General Partner; provided, however, that adjustments pursuant to clauses (a), (b), (d), (e) and (f) above shall be made only if the General Partner determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership or to comply with applicable Regulations; provided further, however, that the issuance of any LTIP Unit shall be deemed to require a revaluation pursuant to this Section 1.D. (2)In accordance with Regulations Section 1.704- l(b)(2)(iv)(e), the Carrying Value of Partnership assets distributed in kind shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as of the time any such asset is distributed. (3)In determining Unrealized Gain or Unrealized Loss for purposes of this Exhibit B, the aggregate cash amount and fair market value of all Partnership assets (including cash or cash equivalents) shall be determined by the General Partner using such reasonable method of valuation as it may adopt, or in the case of a liquidating distribution pursuant to Article XIII of the Agreement, shall be determined and allocated by the Liquidator using such reasonable methods of valuation as it may adopt. The General Partner, or the Liquidator, as the case may be, shall allocate such aggregate fair market value among the assets of the Partnership in such manner as it determines in its sole and absolute discretion to arrive at a fair market value for individual properties. E.The provisions of the Agreement (including this Exhibit B and the other Exhibits to the Agreement) relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership, the General Partner, or the Limited Partners) are computed in order to comply with such Regulations, the General Partner may make such modification without regard to Article XIV of the Agreement, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Article XIII of the Agreement upon the dissolution of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section l.704-l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section l.704-1(b). No interest shall be paid by the Partnership on Capital Contributions or on balances in Partners’ Capital Accounts. No Withdrawal No Partner shall be entitled to withdraw any part of its Capital Contribution or Capital Account or to receive any distribution from the Partnership, except as provided in Articles IV, V, VII and XIII of the Agreement. SPECIAL ALLOCATION RULES Special Allocation Rules. Notwithstanding any other provision of the Agreement or this Exhibit C, the following special allocations shall be made in the following order: A.Minimum Gain Chargeback. Notwithstanding the provisions of Section 6.1 of the Agreement or any other provisions of this Exhibit C, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f)(6). This Section 1.A is intended to comply with the minimum gain chargeback requirements in Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each Partner’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 6.1 of the Agreement or this Exhibit C with respect to such Fiscal Year and without regard to any decrease in Partner Minimum Gain during such Fiscal Year. B.Partner Minimum Gain Chargeback. Notwithstanding any other provision of Section 6.1 of this Agreement or any other provisions of this Exhibit C (except Section 1.A), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each General Partner and Limited Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply with the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 1.B, each Partner’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 6.1 of the Agreement or this Exhibit C with respect to such Fiscal Year, other than allocations pursuant to Section 1.A. C.Qualified Income Offset. In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704-l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under Sections 1.A and 1.B with respect to such Fiscal Year, such Partner has an Adjusted Capital Account Deficit, items of Partnership income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain for the Fiscal Year) shall be specifically allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This Section 1.C is intended to constitute a “qualified income offset” under Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. D.Gross Income Allocation. In the event that any Partner has an Adjusted Capital Account Deficit at the end of any Fiscal Year (after taking into account allocations to be made under the preceding paragraphs hereof with respect to such Fiscal Year), each such Partner shall be specially allocated items of Partnership income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain for the Fiscal Year) in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit. E.Nonrecourse Deductions. Except as may otherwise be expressly provided by the General Partner pursuant to Section 4.2 of the Agreement with respect to other classes of Partnership Units, Nonrecourse Deductions for any Fiscal Year shall be allocated only to the Partners holding Class A Units and Class B Units in accordance with their respective Percentage Interests. If the General Partner determines in its good faith discretion that the Partnership’s Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized, upon notice to the Limited Partners, to revise the prescribed ratio for such Fiscal Year to the numerically closest ratio which would satisfy such requirements. F.Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i). G.Adjustments Pursuant to Code Section 734 and Section 743. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations. Allocations for Tax Purposes A.Except as otherwise provided in this Section 2, for U.S. federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C. B.In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, and deduction shall be allocated for U.S. federal income tax purposes among the Partners as follows: (1)(a)In the case of a Contributed Property, such items attributable thereto shall be allocated among the Partners consistent with the principles of Section 704(c) of the Code to take into account the variation between the Section 704(c) Value of such property and its adjusted basis at the time of contribution (taking into account Section 2.C of this Exhibit C); and (b)any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Partners in the same manner as its correlative item of “book” gain or loss is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C. (2)(a)In the case of an Adjusted Property, such items shall (i)first, be allocated among the Partners in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Exhibit B; (ii)second, in the event such property was originally a Contributed Property, be allocated among the Partners in a manner consistent with Section 2.B(1) of this Exhibit C; and (b)any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Partners in the same manner its correlative item of “book” gain or loss is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C. (3)all other items of income, gain, loss and deduction shall be allocated among the Partners in the same manner as their correlative item of “book” gain or loss is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C. C.To the extent Regulations promulgated pursuant to Section 704(c) of the Code permit a Partnership to utilize alternative methods to eliminate the disparities between the Carrying Value of property and its adjusted basis, the General Partner shall have the authority and sole discretion to elect the method to be used by the Partnership and such election shall be binding on all Partners. NOTICE OF REDEMPTION The undersigned hereby irrevocably (i) redeems Partnership Units in Broad Street Operating Partnership, LP (the “Partnership”) in accordance with the terms of the Agreement of Limited Partnership of the Partnership, as amended, and the Redemption Right referred to therein, (ii) surrenders such Partnership Units and all right, title and interest therein and (iii) directs that the Cash Amount or Shares Amount (as determined by the General Partner) deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if Shares are to be delivered, such Shares be registered or placed in the name(s) and at the address(es) specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has marketable and unencumbered title to such Partnership Units, free and clear of the rights of or interests of any other person or entity, (b) has the full right, power and authority to redeem and surrender such Partnership Units as provided herein and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consult or approve such redemption and surrender. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement of Limited Partnership of the Partnership. Name of Limited Partner: (Signature of Limited Partner) (Street Address) (City) (State) (Zip Code) Signature Guaranteed by: IF SHARES ARE TO BE ISSUED, ISSUE TO: Social Security or tax identifying number: EXHIBIT E NOTICE OF ELECTION BY PARTNER TO CONVERT LTIP UNITS INTO CLASS A UNITS The undersigned holder of LTIP Units hereby irrevocably (i) elects to convert LTIP Units in Broad Street Operating Partnership, LP (the “Partnership”) into Class A Units in accordance with the terms of the Agreement of Limited Partnership of the Partnership, as amended; and (ii) directs that any cash in lieu of Class A Units that may be deliverable upon such conversion be delivered to the address specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent to or approval of all persons or entities, if any, having the right to consent or approve such conversion. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement of Limited Partnership of the Partnership. EXHIBIT F NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION OF Broad Street Operating Partnership, LP (the “Partnership”) hereby irrevocably elects to cause the number of LTIP Units held by the holder of LTIP Units set forth below to be converted into Class A Units in accordance with the terms of the Agreement of Limited Partnership of the Partnership, (the “Agreement”). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement. Name of Holder: Date of this Notice: Number of LTIP Units to be Converted: Please Print: Exact Name as Registered with Partnership

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professional_accounting

- - - - Other Options - - - - * Login Required Graphs Java Charts Advanced Charts * Enhanced CSV HARMONY WebSite * Dividends * Price Details Latest News Stop Loss Consensus Forecasts * Set Alerts * Rank this Share. Quickshare Info. Quick Fundamentals. * Funds that Hold HARMONY * Fundamentals Download CSV HARMONY HARSBH (Underlying Warrant) HARSBI (Underlying Warrant) HARSBJ (Underlying Warrant) HARSBL (Underlying Warrant) HARSBT (Underlying Warrant) HARSBU (Underlying Warrant) HARMONY GOLD MINING COMPANY LIMITED - LAUNCH OF CONVERTIBLE BOND - HARMONY GOLD Release Date: 01/04/2004 07:58:12 Code(s): HAR MINING COMPANY LIMITED THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR TO US, CANADIAN, AUSTRALIAN OR JAPANESE PERSONS Harmony Gold Mining Company Limited Incorporated in the Republic of South Africa (Registration number 1950/038232/06) Share Code: HAR ISIN:ZAE 000015228 Convertible Bond Issue Harmony Gold Mining Company Ltd ("Harmony") today announces that it intends to issue ZAR1,700 million (c.US$270 million) of convertible bonds (the "Bonds"). The proceeds of the issue will be used primarily to refinance Harmony"s existing South African Rand debt, hence benefiting from the attractive financing opportunities currently available in the convertible bond market. Terms of the Bonds Subject to the terms and conditions of the Bonds, the Bonds will be issued by Harmony and will be convertible into approximately 14 million new Harmony ordinary shares (the "Shares"), representing approximately 5% of Harmony"s issued ordinary share capital. The Bonds will be denominated in Rand and will be issued at 100% of their principal amount. The coupon on the Bonds will be 4.875% payable semi-annually in arrears and the conversion price will be ZAR121. The Bonds are expected to settle on or about 21 May 2004. Applications will be made for the Bonds to be admitted to the Official List of the UK Listing Authority and to the London Stock Exchange plc"s market for listed securities. J.P. Morgan Securities Ltd. is the lead manager of the Bond issue. Ferdi Dippenaar Harmony +27 82 807 3684 Ian Hannam JPMorgan +44 207 325 Harmony is the largest gold producer in South Africa and the sixth largest gold producer in the world. Harmony is listed on stock exchanges in Johannesburg, New York, London, Paris, Berlin and Brussels, and has a market capitalisation of approximately US$ 4.0 billion. Since becoming an independent mining company in 1995, Harmony has implemented a successful strategy of delivering shareholder value by pursuing a focused strategy of growth through acquisitions. Harmony has completed some 25 acquisitions, many of which have also provided the company with opportunities for significant organic growth. As at 30 June 2003, Harmony"s mining operations in South Africa and Australia reported in aggregate total proven and probable reserves of approximately 61.9 million ounces, and a gold resource in excess of 410 million ounces. In the United Kingdom, this announcement is directed exclusively at persons who have professional experience in matters relating to investments who fall within Article 19 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. In the United Kingdom, the Bonds will only be issued to such persons. This announcement is not for distribution in or into the United States or to US persons. This announcement is not an offer of securities for sale in the United States or to US persons. The securities referred to herein may not be offered or sold in the United States or to US persons unless they are registered under the US Securities Act of 1933 or exempt from registration. There will be no public offering of the securities referred to herein in the United States. Date: 01/04/2004 07:58:14 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department Send e-mail to Email address protected by JavaScript. Please enable JavaScript to contact us. Home Terms & conditions Privacy Policy Security Notice Contact Details Market Statistics are calculated by Sharenet and are therefore not the official JSE Market Statistics. The calculation/derivation may include underlying JSE data.

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professional_accounting

2021 Tax Reform Expected to Be Substantial and Far-Reaching Alerts / April 14, 2021 With release by the White House and Treasury of initial details regarding Biden Administration proposed 2021 tax reform, a primary focus in Washington, D.C., for the next seven months or so will be expected changes to the tax code. The tax changes will be substantial and far-reaching, and will include corporate, individual and capital gains tax rate increases; international tax changes; and estate and gift tax changes. Expected Timing of Biden Administration Tax Changes Congressional committees in the House and Senate are already working on tax and budget proposals that will become part of the next budget reconciliation bill. The House and then the Senate will craft and approve a budget resolution to serve as the vehicle for the reconciliation process. Most expect committee action to begin in early May, with ultimate enactment of a comprehensive, single package in the fall. Only 51 votes are needed to pass budget reconciliation legislation in the Senate. The effective dates of the newly enacted provisions generally are expected to be Jan. 1, 2022, but certain provisions may have proposed effective dates tied to committee action or the date of enactment (for example, capital gains tax rate increases may be proposed to apply to sales occurring after the date of committee action in early October or the date of enactment of the legislation later in the fall). The effective dates of certain provisions may be phased in over time, and certain provisions may be enacted on a temporary basis to help keep the scored cost of the legislation within acceptable parameters. Depending on a taxpayer’s specific circumstances, significant tax savings may be achieved by those who anticipate the expected changes and take steps now to take advantage of existing tax provisions and rates. This alert addresses only a fraction of the tax changes expected to be enacted this fall; additional details will be released over time, including at the time Treasury publishes its so-called Green Book (“General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals”) in the coming weeks. Expected Corporate Tax Rate Increases and Related Changes Corporate tax rates are proposed by the Biden Administration to increase from 21 percent to 28 percent. Most believe the corporate rate will increase to no more than 25 percent. The Section 199A pass-through deduction is expected to become unavailable for taxpayers earning in excess of $400,000. NOL carrybacks are expected to be prohibited for tax returns not filed by the date of enactment. The Biden administration also is proposing: A 15 percent so-called minimum tax on corporations with more than $2 billion of “book income.” Doubling the global intangible low-taxed income (GILTI) tax rate on foreign sourced income from 10.5 percent to 21 percent and imposing it country by country and with no exclusion (or a lesser exclusion) for a deemed return on tangible assets. Elimination of the foreign-derived intangible income (FDII) regime. Replacing the base-erosion and anti-abuse tax (BEAT) with a so-called stopping harmful inversions and ending low-tax developments (SHIELD) proposal. SHIELD generally would deny tax deductions for certain related-party payments where the recipient is in a low-tax jurisdiction. Imposing an “offshoring penalty” surtax on U.S. company offshore production profits for sales back into the United States (10 percent surtax leading to a 30.8 percent effective tax rate; would also apply, for example, to offshore services or call centers serving the United States). Denying all deductions and expensing write-offs for moving jobs or production overseas. Establishing a 10 percent advanceable “Made in America” tax credit for certain service or call center jobs brought back to the United States. Providing or expanding tax credits and incentives for manufacturing, renewable energy, carbon capture and small businesses. Repealing fossil fuel tax preferences. Eliminating deductions for consumer drug advertising. Repealing bonus depreciation, including repealing the increase in bonus depreciation from 50 percent to 100 percent. Certain of these proposals are not yet well defined and may be difficult to draft and administer. Others may be achieved only in part. All the proposals are relevant in the sense that they provide insight into what the 2021 reconciliation bill may attempt to achieve. Changes in Social Security taxes, the minimum wage, and many other Biden administration or congressional proposals do not qualify for consideration as part of budget reconciliation legislation. Treasury’s Green Book is expected to include many of the corporate tax changes proposed in the Obama administration’s fiscal 2017 budget, released on Feb. 9, 2016. That Obama administration budget included more than 140 tax proposals, including a repeal of the last-in, first-out (LIFO) method of accounting for inventories. A copy of that Treasury Green Book is available here. Expected Changes to Existing Timeline for Certain Tax Cuts and Jobs Act Provisions Many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that currently are scheduled to change or expire in the coming years will be addressed in the budget reconciliation package this fall and, as a result, may change or expire earlier than previously provided. Expected Capital Gains and Dividend Tax Rate Increases for Higher-Income Individuals Capital gains and dividend tax rates are expected to increase for certain higher-income taxpayers from their current level of 23.8 percent (a 20 percent tax rate plus the 3.8 percent tax on net investment income) to as high as 43.4 percent (the expected higher ordinary income tax rate of 39.6 percent plus the 3.8 percent tax on net investment income). Higher rates are expected to apply to taxpayers with adjusted gross income in excess of $1 million, although that threshold could be as low as income in excess of $400,000. The Biden Administration proposal would tax higher-income individual taxpayers on their long-term capital gains and qualified dividends at the same rate as short-term capital gains and ordinary dividends. It appears that a number of senators may be uncomfortable with capital gains rates in excess of 28 percent (31.8 percent once you add the 3.8 percent tax on net investment income); for now, taxpayers should anticipate at least a nominal increase of 8 percentage points (8/20=40%; 8/23.8=33.6%), or effectively a 33.6 percent increase in capital gains rates. Most expect increased capital gains rates will apply to sales occurring on or after the date of enactment of the legislation, which we anticipate will be sometime in the last calendar quarter of 2021. Expected Carried Interest and Like-Kind Exchange Changes Profits from carried interest are expected to be further targeted (perhaps modestly so) for taxation at ordinary income tax rates. The like-kind exchange rules are expected to be repealed in their entirety. The effective date of like-kind exchange repeal is expected to be the date of the legislation’s enactment this fall. Expected Individual Income Tax Rate Increases and Changes For individuals (including households of joint filers) earning more than $400,000 in a calendar year, the top marginal income tax rate is expected to return from its current level of 37 percent to the pre-2018 level of 39.6 percent. The Section 199A pass-through deduction, which allows certain pass-through business owners to deduct up to 20 percent of their qualified business income (leading to a current-law marginal rate of 29.6 percent), may be repealed or may become unavailable to taxpayers with income in excess of $400,000. The $10,000 cap on state and local tax (SALT) deductions may be repealed and replaced with limitations on itemized deductions (i.e., phaseouts, a 28 percent cap on the value of itemized deductions, etc.) for taxpayers earning in excess of $400,000. The outright repeal of the SALT cap is expected to cost the government in excess of $600 billion over 10 years. Congress is looking for ways to score SALT repeal as a revenue neutral “adjustment” to the original cap provision; that type of change may have retroactive effect for certain taxpayers going back to calendar year 2018. Expected Estate and Gift Tax Increases and Changes The estate tax and lifetime gift tax exemption (which was temporarily doubled until 2025) is currently $11.7 million per person ($23.4 million for married couples). In addition, there is a $15,000 per donee gift tax exclusion ($30,000 if spouses agree). The current estate tax rate on amounts in excess of the exemption amounts is a flat 40 percent, and the tax basis in inherited assets is “stepped up” to the fair market value upon the death of the decedent. The Biden administration is expected to seek an increase in the estate tax rate to 45 percent and to reduce the exemption amounts to their pre-TCJA level ($5.3 million per person, $10.6 million for married couples). Some have proposed an even higher tax rate and a lower exemption amount. The tax basis of inherited assets is expected to carry over rather than step up. There also are proposals in both the House and the Senate to tax capital gains when a gift is made and when a person dies, though neither of those proposals is expected to be enacted. The portability of exemption amounts between spouses is expected to continue, but many of the planning techniques (including valuation discounts obtained in related-party transactions) presently utilized by taxpayers may be curtailed or eliminated entirely. While it is worth noting that (i) the Tax Reform Act of 1976 would have imposed carryover basis on inherited assets, but the provision was repealed before it could ever take effect, and (ii) the Economic Growth and Tax Relief Reconciliation Act of 2001 repealed the estate tax and curtailed step-up in basis, but only for one year (2010), Treasury Secretary Janet Yellen has stated that elimination of the step-up in asset basis at death is a priority for the Biden administration. Most believe that repeal will occur in legislation expected to be enacted this fall. Expected Additional Clarifications, Details and Changes As the administration and congressional committees continue to work on tax and budget proposals, clarifications and details regarding the various proposals will emerge. Some of the initial proposals may be abandoned and revised, and additional proposals may emerge. As noted above, depending on a taxpayer’s specific facts and circumstances, significant tax savings may be achieved by taxpayers who anticipate expected tax changes and take steps regarding their business plans, transactions pipelines, restructurings, operational affairs and estate plans in a manner that takes advantage of current tax provisions and rates. As soon as the Biden Treasury releases its Green Book, BakerHostetler will prepare additional analysis. Authorship Credit: Jeffrey H. Paravano and the BakerHostetler Tax Group Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. Related Emerging Issues Jeffrey H. Paravano [email protected]

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professional_accounting

Islamic Finance Systems in U.A.E. Aug 27, 2019 in Analysis Islamic finance denotes the process by which organizations of Muslim origin such as banks and other credit institutions raise money in accordance with Islamic laws, which are also referred to as Sharia regulations (Kettell, 2011). This phrase is also used with respect to business investments that are acceptable under Islamic laws. It is a peculiar type of socially responsible investment in that the Islam religion does not discriminate anyone on the basis of spirituality or secularity, hence its venture into the field of finance is versatile. Despite the fact that it is an upcoming sector, Islamic concept of economics has existed for a very long time. During the middle of the 12th century, numerous scholars who professed the Muslim faith had in fact proposed major concepts of Islamic economics that are still relevant in contemporary times. For a long period, social as well as political mayhem has interrupted its growth and this sector began receiving much attention from the 20th century. Taking a Loan in Islamic Banks in U.A.E. Islamic finance is founded on the teachings outlined in the Quran which states the foundations of Sharia regulations. According to this law, money has no inherent worth. Instead, it can only be used as a medium of exchange. This means that money should not be used to generate more cash, but it should be utilized in the course of legal dealings concerning goods and services. The provisions of the Institute of Islamic Banking and Insurance stipulate that as a matter of belief, a person professing the Muslim faith should not grant credit advances to or receive finances from another person with the expectation of drawing benefits through interest, which they also refer to as riba. This policy also applies when borrowing funds, since the creditor benefits from the interest charged. Therefore, in order for any credit advances to comply with Islamic law, the loan should be Qard, which means that it should not have profit driven motives (Bley & Kuehn, 2004). Continue 00.00 Taking a loan from an Islamic bank involves the formation of a business contract between the banker and the debtor. The borrower manages the business as the banker oversees it. In one way or another, the benefits gained as a result of using the credit advance are shared according to fixed rates prior to the formation of the agreement. In this case, what makes it different from other banks is the fact that the percentages used to establish the profits need to conform to Islamic laws, and a copy of the percentage quotation agreed on should be sent to the UAE Central Bank for publication. The Islamic bank may also make provisions for services and charge money. There are various types of loans classified as interest-free loans which meet the criteria laid down by Islamic regulations (Wilson, 2012). They include among others the time multiple counter loans, where a customer who is needy can be granted cash advancements devoid of making any interest payments to the bank. Other types of loans free of interest which fall under this category include a normal rate of return cash loan, inflation based loan indexation, overhead charge on loan and education loans. Due to the reasons deliberated on previously, in the Islamic banking division, there is no ideal lending business, because all creditors receive their ownership interest on the property that they finance, or obtain a proportion of the profit as a fee based compensation. In order for an Islamic bank to earn any profit from the cash that they lend to their borrowers, it is essential for them to acquire an equity or possession interest in an asset that is not monetary in nature. In such a case, the lender should also bear a portion of the associated risks. Buying Real Estate in Islamic Banks in U.A.E. Most Islamic banks have dedicated their efforts to the real estate sector due to the fact that it complies with the preset Islamic principles, which stipulate that there should be an underlying tangible asset in each transaction (Wigglesworth, 2009). There are three major types of Islamic agreements for purposes of buying real estates in Muslim banks. These contracts are free of any riba or interest charges on the mortgages. The contracts include Murabaha, Ijara and Musharaka (Wilson, 2012). In the first contract, the bank purchases the estate and then sells it to a customer at an elevated price, which is returned in installments. Ijara contracts are formed when the bank buys the property and leases it out to the person who purchased it. The buyer makes payments which cover the purchase of the equity in installments and rental fees for the utilization of the amount of equity still belonging to the bank. Musharaka, on the other hand, is also a famous method of mortgage financing for Islamic banking institutions. This type of contract occurs where the bank takes part in the sharing of profits as well as losses of a business venture for a specific period of time. A diminishing Musharaka agreement denotes a mortgage deal in which the bank’s stake decreases, while that of the customer increases over a particular period of time. Eventually, the ownership passes to the debtor. Murabaha has been condemned by various Islamic academicians for the reason that it acts as a method of concealing the charge of what is essentially a fixed interest. The Ijara contract has also attracted similar criticisms, because it appears to give a bank the opportunity to alter repayments under the agreement. Joint Investment between Islamic Bank and an Individual The economic principle of Islamic banking offers a middle ground between extreme capitalism and communism. The investment relationship provides an individual with the liberty to produce and create wealth while subjecting him to an environment controlled by the divine guidance of Allah. This environment sets the rules and norms, which require utmost sincerity of intent, which, when acted upon by both parties, produces peace and prosperity for the whole society. The relationships between Islamic banks, individual persons and corporates in terms of investment are grounded on several principles, which will be discussed in the subsequent paragraphs. The first principle is trusteeship, whereby the Quran postulates that a man is just but a trustee for the wealth bestowed upon him. This principle introduces a moral and spiritual element into commercial relations which include banking. Secondly, there is the principle of care for others. Under this principle, the perpetration of self-interest at the expense of others is prohibited. This implies that individuals are not permitted to create wealth by charging interest on others and reduction of charitable donations. The application of Sharia rulings to business forms another essential in relations between individuals and Islamic banks. These rulings of the Holy Book are aimed at removal of all ambiguities and misunderstandings of agreements which facilitate commercial relations. Sharia law forbids the charging of interest on individuals for commercial transactions and advices that contacts which regulate financial matters should be put in writing (Wilson, 2012). Another basic tenet of commercial relations between individuals and Islamic banks is mutual consultation. This principle postulates that a man is free to enter private contracts, but decisions concerning the general society’s well-being should be made on the basis of consultation. It in short disallows dictatorship. Another principle is the treatment of wealth as a means and not as an end. Beyond satisfaction of the primary needs of a human being, the ultimate aim of making and spending money ought to be moral and spiritual. The use of wealth for such purposes as gambling, exploitation or borrowing and lending for an interest is specifically prohibited in Islamic Banking. Similarly, the formation of cartels and monopolies by individuals is prohibited by Sharia law. Another principle forming the basis of Islamic and individual relations is Zakat. Zakat is a charge on certain types of wealth. This charge is compulsory on Muslims only and it applies to savings, agricultural harvests, certain kinds of jewellery and agricultural produce. It can be deducted by either the government or the bank on behalf of the government, and it perfectly serves the concept of wealth redistribution as well as social insurance. Last but not least of these principles is the principle of Qard Hasan, which means interest-free loans. Such loans are to be used majorly for purposes of productive economic enterprises so as to establish poor people in trade in agriculture. Profit sharing (Mudarahaba) entails an arrangement whereby the bank (rabb-ul-maal) provides financing to an individual entrepreneur to pursue business activity. Any profit generated from this business activity is shared between the bank and the entrepreneur according to a pro-rated ratio, while any losses incurred are suffered solely by the bank. The reason for this apparent unfairness is because the entrepreneur is deemed to have lost time and hard work put into the enterprise. If, however, the mudarahib has acted with negligence or caused the losses willfully, he will be liable for such losses. A key feature of this relationship is that it is only the mudarahib who has the right to participate in the management of the business. In terms of liability, the financier’s liability is limited to the amount of capital invested, and any extra liability is borne by the mudarahib. It is also important to note that any commodity that is being traded by the business is owned by the bank, and the entrepreneur is only entitled to income only when he makes profitable sales. Generally, there exist two types of Mudarabah depending on the rabb-ul-maal’s wishes. Where the financier restricts the entrepreneur as to the kind of business he or she can conduct, the arrangement is known as a restricted mudarahaba or al-mudarabah al-muqayyadah. Where the financier fails to impose any restrictions on the mode of business to be conducted by the trader, the deal is known as unrestricted mudarahaba or al-mudarabah al-mutalaqah (Kettell, 2011). In each of the above-mentioned arrangements, the amount of profits to be shared by the two parties is agreed between them, and this figure must solely be dependent on the profits that will be generated from the entity, as opposed to the amount of cash invested. In accordance with Islamic law, the parties are allowed to agree on the ratio of profits provided they do not peg it to the capital, since that will be deemed to be a return on the cash pumped into the business. Another important feature of this relationship is that either of the partners to the agreement may end the relationship at any time as long as they provide sufficient notice. Joint Investment between Islamic Bank and Corporation The concept usually applied in this case is known as a Musharakah, which denotes a joint venture or business partnership (Wilson, 2012). This model is utilized in place of interest bearing loans. In this partnership, the gains made from trade are distributed between the partners at an agreed ratio. The losses made, on the other hand, are based on the ratio of contribution of capital into the venture by the two parties. It is distinguishable from the mudarabah in the sense that capital put into the enterprise is contributed by both parties. In addition, unlike in mudarabah, all partners can engage in the managerial affairs of the concern. Another feature of the musharakah is that the liability of partners is unlimited, and in the event of liquidation all the partner’s private assets will be used to satisfy the excess debt. A further feature of this kind of arrangement is that all the properties of concern are mutually owned by the partners in accordance with their contribution ratio. These kinds of partnerships usually result in two kinds of funds, which include equity fund and commodity fund. Equity funds are the purest form of musharakah, where the capital contributed by both parties is invested in the shares of public limited companies. Profits from such ventures usually have the form of capital gains, whereby the shares are purchased at low prices only to be resold when their prices will have increased. Dividends distributable by the companies also form part of the profits of the ventures. There is, however, a restriction on the companies in which shares can be invested. According to Sharia law, such a company should neither borrow money on interest nor invest its surplus funds in an activity which generates income. Generally, there are two forms of equity financing. One is the permanent musharakah, where the Islamic bank provides equity financing for a venture and receives a profit with respect to the profit sharing agreement. The duration of this contract is usually unspecified and thus suitable for projects in which funds have been committed for a long period. Another form is diminishing musharakah, whereby profits from the venture will be shared in a pro rata basis. The formula via which the Islamic bank will keep reducing its amount of interest invested in the project and eventual transfer ownership of the venture to the corporation is provided. Such a deal provides for the payment to the bank of a greater share than the amounts due to it and ultimately buying the bank out. In a commodity fund kind of financing, the bank and the investing partner contribute funds which are used to purchase different types of goods for the purpose of resale. The profits generated from the purchased merchandise are distributed on a pro rata basis between the joint investors. For these profits to be acceptable, they must be Sharia compliant and meet the following criteria concerning the rules regulating commercial relations. First, the seller of the good must be the owner, that is, sales made before a person becomes an owner are prohibited. Next, the goods being sold must not be outlawed - for instance alcohol, pork, among others. Thirdly, in addition to being in possession of the goods, the seller must be the constructive owner of those goods. Lastly, the selling price of the goods has to be determinable and cognizant to both parties to the sale. In addition, such price must not be contingent upon certain outcomes. If commodity transaction is legitimate and meets the above conditions, then a commodity fund may be established. From the above discussion, it can be noted that Islamic financing that is predominant in the U.A.E. has some unique features that differ from the normal methods of financing. It is based on principles from the Quran, which prohibits making money from lending activities, and, therefore, the loans of their banks are interest-free. Additionally, the money lent to develop real estate property is also subjected to the same principles. In relation to the business, the amounts advanced to corporations and individuals to carry out business activities are also subjected to the rules of Sharia law with modifications, which give the financier some degree of control over the venture. Islamic financing is, therefore, a promising sector that other non-Islamic entities and individuals ought to consider. 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professional_accounting

Amazon.Bond Convertibles Put in Back Seat, Driven There by Recommendation of a 'Net Bull Mark Veverka M errill Lynch may be bullish on Amazon.com shares, but it is no longer recommending the e-tailer's high profile convertible debt to clients. The brokerage dropped Amazon's 4.75% bond from its convertible model portfolio and has supplanted it with another Internet-related issue, says T. Anne Cox, the convertible bond analyst at Merrill who issued the research note. Merrill, the same firm that employs raging Amazon bull Henry Blodget, has replaced the company's convertible notes in its model with those jointly issued by America Online and the parent company of the Chicago Tribune. The 2%, 30-year exchangeable subordinated notes are issued by Tribune Co. at the stock price of AOL. "We did this Internet-related debt change based on the situation in the market and Henry's call," Cox explains. Blodget's call on AOL, that is. As much as the sell-side equity analyst is an Amazon fan, he is also a staunch supporter of AOL. And an AOL/Tribune combo trumps Amazon, Cox figures. "America Online is the leading consumer Internet stock, bar none. With 18 million subscribers and an estimated 100 million monthly users, AOL should benefit from strength in all three of the major value drivers: traffic, advertising and revenues," Cox writes, giving full credit to Blodget for his expert opinion. What's more, the Trib/AOL convertibles are the only Internet convert in Merrill's universe with an investment grade bond rating, an A3/A-bolstered by the stellar credit of the dead-tree publisher and major broadcaster. In fact, Cox maintains that Amazon's converts remain attractive but lack a top-grade credit rating, which is the primary reason why Cox says she opted to swap the Trib/AOL combo for Amazon. The Amazon bond fetches an unimpressive CCC/Caa3 rating, she notes. Amazon astonished Wall Street last January when it raised $1.2 billion in the largest convertible sale in history, which was as much as $500 million higher than originally expected. After tapping equity and high-yield markets, convertibles were considered the next logical step toward raising even more dough for building out the radical business plans of the profit-challenged Internet retailer. At the time, then-chief financial officer Joy Covey was widely praised by The Wall Street Journal, for one, for her shrewd convertible play. Coincidentally, however, Amazon revealed just last week that it is bumping Covey over to a newly created post, chief strategy officer, and replacing her with Warren Jenson, the CFO of Delta Air Lines . Jenson apparently made a favorable impression with Internet powerbrokers by urging Delta to become the first major airline to hook up with priceline.com , the name-your-price shopping site that sells airline tickets. Delta's stake in priceline is now worth more than $1 billion. One of the things reportedly being asked of Jenson in his new job is to smooth out the turbulence in Amazon's stock price. One of the unique characteristics of the Amazon convertibles is that they convert to stock when the Internet concern's shares trade at $234 for an extended period of time. Another controversial aspect of the Amazon converts are that they will increase the float by about 13%, which will further delay any prospects for per-share profitability. Considering that Amazon shares were as high as 110 5/8 , the 52-week price when the converts were issued, that lofty price wasn't that far above the clouds as seen by some eyes. But Amazon's shares have been flying at lower altitudes since then, closing Friday at 66 1/2 . Which brings us back to Merrill's Cox and her demotion of Amazon. She emphasizes that her decision was based on the strength of the AOL/Tribune bonds as opposed to the weakness of Amazon, but the debt analyst seems to be worried that some bond holders might get hurt. She points out that the hoopla behind the huge Amazon bond sale has lured many amateurs (read: day-traders) to the sophisticated world of convertible bonds, thinking they are capitalizing on the explosive upside of the hyper-growth e-tailer at a lower level of risk. Cox suggests that some of the newcomers may be in over their heads. "You're kidding yourself if you think the [downside] risk in a convertible bond of an Internet company is going to be any less than that in its shares," Cox says. "I think some people think this is 'risk-lite' or 'volatility-lite,' but that's not so. [The convertible bonds] really work in tandem with the stock," he notes. Y ou can't blame investors for trying to figure out how to sit at the Internet table without having to pay through the nose and assume boatloads of risk. But buying the big pricey consumer brand names, such as Yahoo , eBay and AOL, isn't the only way to play. Their price-to-sales ratios are pushing out beyond the outer reaches of our solar system, making it more difficult for holders to sleep at night. But the Internet is more than a stock category. If stockpickers start thinking about how the 'Net is causing a tectonic shift in technology and communications, they should find ample ways to profit from how these changes are affecting all businesses, especially Fortune 2000 companies, says James Moore, a sell-side analyst for Deutsche Banc Alex. Brown in San Francisco. Moore is expected to release a hefty 100-page research opus Monday on what he calls the "e-process revolution." Of course, analysts, like everybody else, are looking for marketing hooks to grab people's attention. And Moore is no different. But his report is a cogent and logical breakdown of how the Fortune 2000 are going to scramble to use the Web to compete in the next century. What's more, Moore focuses on dozens of companies that are poised to surge because they are geared toward making it easier for the Fortune 2000 to get loaded and wired for the ensuing digital war. Among three of his favorites in the universe are Ariba , Business Objects and Mercury Interactive . But before top technology execs can start spending on software that wires and links their operations to the Web, companies are going to have to clear their decks of some nettlesome issues, Moore says. Information Technology czars are going to have to weather the much-hyped Y2K storm, meet their immediate enterprise software needs and, most important, attack internal cultural conflicts on how embracing the 'Net will wreak havoc with the status quo. "There's a lot of gnashing of teeth as to whether Internet integration will cannibalize existing distribution channels, for example," says Moore. However, top companies will jump these hurdles simply because they'll have to. "These things will be driven by fear," Moore says. Thus, Moore predicts that his "e-process" companies are going to see their order flow start to surge in the second quarter of next year. And of the stocks that are in his universe, here are three of his favorites. A riba. It is the market-leading company that allows corporations to buy goods and services via the 'Net. Using Ariba can shave days off of procurement times, Moore says. Of course, at 140 15/16 a share, and price-to-sales hovering around 200, Ariba is far from a bargain. But with an annual projected growth rate of 75%, Ariba may be one of those stocks you need to own, says Moore, whose firm, Deutsche Banc, was a co-manager of Ariba's IPO. His 12-month target is $175. Aside from Ariba, we asked Moore to offer picks to which his firm has no recent investment banking ties. His selections: M ercury Interactive. Moore says Mercury dominates the market for testing new Internet servers and software, making sure systems don't crash. At 65 1/4 , he contends, Mercury's stellar Internet applications are being overlooked by the market and the stock is undervalued. With a 12-month price target of $70, Mercury is Moore's top mid-cap pick. "They test these outward-facing systems before they come on line, and where there is zero-tolerance for failures," Moore says. B usiness Objects. With a market cap of about $902 million, this company is Moore's favorite small-cap name. A French import with U.S. operations in San Jose, California, Business Objects makes support software that opens the databases of back-office operations and makes them available to customers and suppliers. Business Objects closed Friday at 55. Moore's 12-month target is $60. "Any company, like this, that creates efficient information flow across company borders has value," Moore says. M errill Lynch may be bullish on Amazon.

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Navigating Tax Returns This piece is designed to assist family law attorneys and their clients better understand tax returns because knowing how to navigate tax returns can be very useful in divorce proceedings. The information contained in tax returns can provide support for marital assets and liabilities, sources of income and potential further analyses. Reviewing multiple years of tax returns and accompanying supplemental schedules may provide helpful information on trends and/or changes and could indicate the need for potential forensic investigations. This information originally appeared in Mercer Capital’s Family Law Valuation and Forensics Insights newsletter, a monthly publication distributed by email as well as located on our website. While we do not provide tax advice, Mercer Capital is a national business valuation and advisory firm and we provide expertise in the areas of financial, valuation, and forensic services. To download the complimentary PDF, click “Add to Cart” or you can click here. Understanding the Importance of Defining the Assignment in a Business Valuation To celebrate a new year and everything that comes with new beginnings, the Mercer Capital Litigation Support Services Team has decided to start the year with a blog emphasizing the importance of the beginning of a family law engagement, defining the assignment. What Is an “Assignment Definition” in a Business Valuation and Why Is it Important? In an engagement that requires a business valuation, the first step that attorneys and valuation experts should take is to define the assignment. This process involves the following: What interest is being valued. Sometimes this answer is simple, but sometimes it can be complex with multi-tiered entities or multiple ownerships. It is not uncommon to receive organizational structures with multiple holding companies and operating businesses, and the engagement letter should clearly state what is being valued. However, sometimes just that falls within our scope of engagement, so, the engagement letter may allude to a “TBD” [to be determined] ownership percentage. Owning 100% of a Company is different than owning 10%. This discussion can also lead to conclusions around the “level of value” of the engagement, a concept which will be discussed later in this blog. The “as of” date for the appraisal. A valuation conclusion pertains to a specific subject interest (see above) as of a specific date. Markets change, business factors change, and the value of a business or business interest is not static across time. For reference, consider: the public market, where publicly traded companies change price and as a result, value, daily. For most engagements, the valuation report is issued after the “as of” date. In other words, there is usually lag between the effective date for the conclusion and when that conclusion is rendered. Some states require current date as close to dissolution as possible, which may in turn require additional services, such as an update, or another valuation as of a more current date. See this newsletter for a more detailed explanation of the importance of the valuation date in a valuation engagement. Fees. While some valuation engagements can be performed for a fixed fee, most litigation engagements are an hourly basis due to our open-ended involvement. This open-endedness comes from the nature of litigation, where depositions, testimonies and prep for the opposing experts may be required by the valuation expert. Throughout the course of the engagement, other requested services can include forensic accounting services or an estimation of damages. In either case, the engagement letter should spell out how fees will be calculated and terms on billings and collections. Standard of Value and Level of Value. The standard of value and level of value are both valuation concepts that are very important to the valuation experts work and conclusions. While we do not intend to dive too deep into valuation theory in this blog, we will briefly discuss the standard of value and level of value below: Standard of Value While defining the assignment, the Standard of Value is another important consideration. Some simple questions that can help determine the standard of value include: Will the business continue to operate as a going concern or is a liquidation value more appropriate? Is “fair market value” or “fair value” required by the letter of the law for that specific engagement? There are four standards of value that should be considered when defining a valuation assignment: Fair Market Value (“FMV”) Business valuations performed using the FMV standard are valued from the perspective of a rational, third-party investor who is not under any compulsion to buy or sell. In marital dissolution matters, FMV is typically appropriate and most common. Depending on the assignment definition, it is important to note that valuations of a business interest under FMV can include valuation discounts like a minority interest discount or a discount for lack of marketability, which are explained in more detail in this whitepaper. Check out this blog post by Mercer Capital for a more in-depth look at Fair Market Value. Fair Value. Business valuations performed using the Fair Value standard are slightly different from FMV. Shareholder oppression cases are an example where Fair Value is typically used. It is important to note that valuation discounts are not typically applied under the Fair Value standard. Check out this whitepaper by Mercer Capital for a more in-depth look at Statutory Fair Value. Investment Value. Business valuations performed using the Investment Value standard represent the value of a business interest to a particular, specific investor. The value of the business to a party such as a competitor, supplier, or customer is typically higher than it would be for a rational third-party investor due to the expectation of business synergies. Investment value varies depending on the value of the business to the specific purchaser; the business may well be more valuable to one competitor than to another, for example. Liquidation Value. The other standards of value listed above all assume a “going concern” premise, where that the business will continue operations, either independently or as a part of an acquiring company. However, there are circumstances such as distressed companies or a sale of a material asset where the liquidation value is more applicable. As a result, liquidation value will look at value from the context of the business being terminated or materially altered. Each of these four business valuation standards may result in a different number to represent the value of the business, depending on the circumstances. Selecting the appropriate Standard of Value is crucial, and an experienced business valuation professional should be well-versed in selecting the standard of value that is most appropriate for the subject business interest being valued. Levels of Value Business appraisers also refer to different kinds of values for businesses and business interests in terms of “levels of value.” As we noted in the Standards of Value section of this blog, the Fair Market Value standard of value opens the door for valuation discounts or premiums to be applied, which means that business appraisers may need to determine the appropriate Level of Value. See the chart below for the different Levels of Value that can be assigned to a valuation assignment: To provide some examples, if the subject interest in a valuation assignment is a non-controlling minority investor, then the Nonmarketable Minority Value would likely be most appropriate. If the subject interest is a controlling owner, then the Financial Control Value could be considered. An experienced valuation expert should be able to help determine the appropriate level of value for an engagement and should also be able to quantify any Minority Interest Discount or Discount for Lack of Marketability that is deemed necessary in that engagement. Check out this blog post by Mercer Capital for a more in-depth look at the Levels of Value. Important Takeaways for Attorneys and Valuation Experts Defining the assignment in a valuation engagement can seem like a tall task but asking the right questions and having the right discussions with the right valuation expert at the beginning of an engagement can assist the process. You can think of the assignment definition process as building a road map for the valuation. Mercer Capital has extensive experience with a variety of valuation matters, including industry-expertise and complex scopes. Bank M&A 2022 — Turbulence At this time last year, we thought bank M&A would be described as a second year of “gaining altitude” after 2020 was spent on the tarmac following the short, but deep recession in the spring of 2020. Our one caveat was that bank stocks would have to avoid a bear market following a strong performance in 2021 because bear markets are not conducive to bank M&A. The caveat was correct. Bear markets developed in both bank stocks and fixed income that included the most deeply inverted U.S. Treasury curve since the early 1980s. Among the data points: The NASDAQ Bank Index declined 19% through December 28; The Fed raised the Fed Funds target rate 425bps to 4.25% to 4.50%; The yield on the 10-year US Treasury rose 236bps to 3.88%; and Credit spreads widened, including 150bps of option adjusted spread (OAS) on the ICE BofA High Yield Index to 4.55% from 3.05%. The outlook for deal making in 2023 is challenged by significant interest rate marks (i.e., unrealized losses in fixed-rate assets), credit marks given a potential recession, soft real estate values, and the bear market for bank stocks that has depressed public market multiples. For larger deals, an additional headwind is the significant amount of time required to obtain regulatory approval. However, core deposits are more attractive for acquirers than in a typical year given rising loan-to-deposit ratios, the high cost of wholesale borrowings and an inability to sell bonds to generate liquidity given sizable unrealized losses. A rebound in bank stocks and even a modest rally in the bond market that lessens interest rate marks could be the catalysts for an acceleration of activity in 2023 provided any recession is shallow. A Recap of 2022 As of December 28, 2022, there have been 167 announced bank and thrift deals compared to 216 in 2021 and 117 in 2020. During the halcyon pre-COVID years, about 270 transactions were announced each year during 2017-2019. As a percentage of charters, acquisition activity in 2022 accounted for 3.5% of the number of banks and thrifts as of January 1. Since 1990, the range is about 2% to 4%, although during 2014 to 2019 the number of banks absorbed each year exceeded 4% and topped 5% in 2019. As of September 30, there were 4,746 bank and thrift charters compared to 4,839 as of year-end 2021 and about 18,000 charters in 1985 when a ruling from the U.S. Supreme Court paved the way for national consolidation. Also notable was the lack of many large deals. Toronto-Dominion’s (NYSE: TD) pending $13.7 billion cash acquisition of First Horizon (NYSE: FHN) represents 61% of the $23 billion of announced acquisitions this year compared to $78 billion in 2021 when divestitures of U.S. operations by MUFG and BNP and several larger transactions inflated the aggregate value. Pricing—as measured by the average price/tangible book value (P/TBV) multiple—was unchanged compared to 2021. As always, color is required to explain the price/earnings (P/E) multiple based upon reported earnings. The median P/TBV multiple was 154% in 2022. As shown in Figure 1, the average transaction multiple since the Great Financial Crisis (GFC) peaked in 2018 at 174% then declined to 134% in 2020 due to the impact of the short but deep recession on economic activity and markets. The median P/E in 2022 eased slightly to 14.6x from 15.3x in 2021; however, buyers focus on pro forma earnings with fully phased-in expense saves that often are on the order of 7x to 8x unless there are unusual circumstances. Accretion in EPS is required by buyers to offset day one dilution to TBVPS and to recoup the increase in TBVPS that would be realized on a stand-alone basis as investors expect TBVPS payback periods not to exceed three years. Figure 1 :: 1990-2022 National Bank M&A Multiples Click here to expand the image above Public Market Multiples vs Acquisition Multiples Figure 2 compares the annual average P/TBV and P/E for banks that were acquired for $50 million to $250 million since 2000 with the average daily public market multiple each year for the SNL Small Cap Bank Index.1 Among the takeaways are the following: Acquisition pricing prior to the GFC as measured by P/TBV multiples approximated 300% except for the recession years of 2001 and 2002 when the average multiples were 248% and 267%. Since 2014, average P/TBV multiples have been in the approximate range of 160% to 180% except for 2020. The reduction in both the public and acquisition P/TBV multiples since the GFC reflects a reduction in ROEs for the industry since the Fed adopted a zero-interest rate policy (ZIRP) other than 2017-2019 and 2022. Since pooling of interest accounting ended in 2001, the “pay-to-trade” multiple as measured by the average acquisition multiple relative to the average index multiple has remained in a relatively narrow range of roughly 0.9 to 1.15 other than during 2009 and 2010. P/E multiples based upon unadjusted LTM earnings have approximated or exceeded 20x prior to 2019 compared to 14-18x since then. Acquisition P/Es have tended to reflect a pay-to-trade multiple of 1.25 since the GFC but the pay-to-trade multiples are comfortably below 1.0x to the extent the pro forma earnings multiple is 7-8x, the result being EPS accretion for the buyer. Figure 2 :: 2000-2022 Acquisition Multiples vs Public Market Multiples Figure 3 :: 2000-2022 M&A TBV Multiples vs. Index TBV Multiples Premium Trends Subdued Investors often focus on what can be referred to as icing vs the cake in the form of acquisition premiums relative to public market prices. Investors tend to talk about acquisition premiums as an alpha generator, but long-term performance (or lack thereof) of the target is what drives shareholder returns. As shown in Figure 4, the average five-day premium for transactions announced in 2022 that exceeded $100 million in which the buyer and usually the seller were publicly traded was about 20%, a level that is comparable to recent years other than 2020. For buyers, the average reduction in price compared to five days prior to announcement was 2.5%. There are exceptions, of course, when investors question the pricing (actually, the exchange ratio), day one dilution to TBVPS and earn-back period. For instance, Provident Financial (NASDAQ: PFS) saw its shares drop 12.5% after it announced it would acquire Lakeland Bancorp (NASDAQ: LBAI) for $1.3 billion on September 27, 2022. M&A entails a lot of moving parts of which “price” is only one. It is especially important for would be sellers to have a level-headed assessment of the investment attributes of the acquirer’s shares to the extent merger consideration will include the buyer’s common shares. Mercer Capital has 40 years of experience in assessing mergers, the investment merits of the buyer’s shares and the like. Please call if we can help your board in 2023 assess a potential strategic transaction. MedTech & Device – Industry Scan 2022 For this quarterly update, we bring together a couple of strands of our medtech and device industry practice. First, as long-term observers, public market developments in 2022 were interesting and perhaps marked an inflection point for the short to medium term. Second, in October, we attended a medtech industry conference, where we were able to gather a rich set of perspectives. The implications for some of the larger companies in the space are probably clear-cut. The downstream reverberations to private, development stage companies may be less straightforward. Nevertheless, since development stage companies are typically constrained by currently available funds and continually contemplating the next funding round, these developments are of critical importance. 2022: A Brief Review A tumultuous year in the public markets is coming to a close. By the end of the third quarter 2022, the S&P 500 was down nearly 25%, marking a near-bottom for the year. The broader medtech and devices industry largely followed suit. On the brighter side, established large, diversified companies, while lagging their own previous benchmarks, outperformed the broader market. As a group, some biotech and life sciences companies (see next section) also seemed to fare relatively well. A closer look reveals that within the group some of the larger companies with more diversified revenue bases and, perhaps more importantly, profitable operations performed much better than smaller companies promising higher growth but deferred profits. Current profitability also appeared to differentiate better stock price performers among the medical device and healthcare technology companies. At the same time, negative sentiment was more apparent for wide swathes of these two groups compared to the broader industry. It is obvious in hindsight but over the course of 2022, as interest rates rose and remained high, markets seemed to prefer existing earnings and nearer-term cash flows over future (rosier) prospects. The shift towards more caution also manifested in other measures of market sentiment and activity. Wholesale downward revisions of earnings (growth) estimates have not occurred so far (this may yet come to pass), so much of the price decline reflects compressing valuation multiples. The pace of M&A transactions, which had gone from strength to strength during 2020 and 2021 despite myriad disruptions and distractions, decelerated significantly in 2022. By our measure, total transactions volume in the industry through the first three quarters of 2022 was roughly equal to that of just the fourth quarter of 2021. The number of IPOs also slowed to a trickle. Looking Ahead to 2023 and Beyond: A Few Notes for Development Stage Companies No industry is an island but as we and others have pointed out, several long-term trends, demographic and otherwise, suggest a favorable overall outlook for the medtech and device space. Even against the seemingly dour recent market backdrop, a multitude of attendees at the medtech conference agreed on the relative merits of the industry compared to the broader economy and market. We work with a number of development stage medtech and device companies over the course of a typical year. From that perspective, we find the long-term trends interesting because of the structural emphasis on continual innovation that improve outcomes for patients and clinicians. A defining feature of medtech innovation funding is that it occurs over multiple tranches as the technologies and companies achieve various developmental milestones. In this context, some observations for development stage companies: An obvious first order effect of the recent public market developments over the past year is that development stage companies should expect generally lower valuations for funding rounds (at least) over the next couple of years. Lackluster exit activity, via either M&A or IPO, delays and/or reduces deployable capital for venture capital funds, which will make them more cautious in considering investment decisions. The sentiment shift towards more caution is shared by all investors, although the degrees will differ. Accordingly, in addition to valuation compression, some types of companies (for example, those at the pre-clinical stage) will find fundraising to be extremely difficult. As a corollary, investors are likely to prize clean clinical data. Companies focused on demonstrating good clinical outcomes will be better prepared for future funding rounds. Similarly, companies that can stretch their existing funds until they can achieve a good (clinical) milestone will be better rewarded in the next funding round. Commercial traction after hurdling regulatory approval remains an important structural consideration, especially for the non-corporate investors. Beyond the near-term market dynamics, a key conference takeaway for us was that the medtech funding eco-system is deep and diverse. We met and heard from traditional venture capital investors, corporate investors, and folks who operate in the continuum between them. The goals for the various investors differ to some degree, with some focused on financial attributes while others (like corporate VCs) include strategic considerations in the mix. Investors with broader goals and considerations are, to an extent, less sensitive to the prevailing market conditions and can afford to take a longer-term view. Even among these investors, financial terms and preferred deal structures vary considerably. For development stage companies contemplating fundraising efforts, a deep and diverse investor eco-system can provide plenty of optionality. In keeping with a recurring theme of this update, a note of caution – evaluating a potential funding round requires both an examination of the financial terms and an understanding of the structural features and their longer-term implications. Mercer Capital has broad experience in providing valuation services to medtech and device start-ups, larger public and private companies, and private equity and venture capital funds involved in the sector. Please contact us to discuss how we may be of help. For a more in-depth review of the industry, take a look at our most recent newsletter. 5 Things to Know About the SEC’s New Pay Versus Performance Rules In August 2022, the SEC adopted final rules implementing the Pay Versus Performance Disclosure required by Section 953(a) of the Dodd-Frank Act. These rules go into effect for the 2023 proxy season and introduce significant new valuation requirements related to equity-based compensation paid to company executives. What does this mean, and how does it apply to you? What are the requirements, and why might there be significant valuation challenges involved? We discuss all that and more below. The new SEC proxy disclosure rules introduce several new requirements, including that registrants calculate and disclose a new figure (Compensation Actually Paid), alongside existing executive compensation information. For most registrants, the rules will apply to upcoming 2023 proxy season. A new Pay Versus Performance table will detail the relationship between the Compensation Actually Paid, the financial performance of the registrant over the time horizon of the disclosure, and comparisons of total shareholder return. The newly introduced concept of Compensation Actually Paid will require companies to measure the period-to-period change in the fair value of all equity-based compensation awarded to named executive officers. The type of equity awards that have been granted will determine the complexity of the valuation process. Equity-based awards such as stock options might require updated Black Scholes or lattice modeling, while awards with performance or market conditions may require more complex Monte Carlo simulations. Registrants should understand that if equity awards have been granted on a consistent basis for a period of years, the new rules could require a large number of historical valuations for this initial proxy season and a significant amount of disclosure complexity. Advance planning and processes will be needed to establish the scope and complexity of complying with the new rules, including identifying how many equity-based awards will require updated valuations to measure the period-to-period changes. 1. Overview and Background The new disclosures were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and were originally proposed by the SEC in 2015. These rules will add a new item 402(v) to Regulation S-K and are intended to provide investors with more transparent, readily comparable, and understandable disclosure of a registrant’s executive compensation. The new provisions apply to all reporting companies other than (i) foreign private issuers, (ii) registered investment companies, and (iii) emerging growth companies. The rules apply to any proxy and information statement where shareholders are voting on directors or executive compensation that is filed in respect of a fiscal year ending on or after December 16, 2022. As such, the vast majority of registrants will be required to include related disclosure for their 2023 proxy statements, though there are relaxed requirements for smaller reporting companies. 2. The Pay Versus Performance Table The new rules require registrants to describe the relationship between the Executive Compensation Actually Paid (“CAP”) and the financial performance of the registrant over the time horizon of the disclosure. Additional items include disclosure of the cumulative Total Shareholder Return (“TSR”) of the registrant, the TSR of the registrant’s peer group, the registrant’s net income, and a company-selected measure chosen by the registrant as a measure of financial performance. These items are to be disclosed in tabular form (based on an example included in the final rule), which is replicated below. Click here to expand the table above The table includes the following components: Year. The form applies to the five most recent fiscal years (or three years for smaller reporting companies) Summary Compensation Table Total for Primary Executive Officer (PEO). These are the same total compensation figures as reported under existing SEC proxy disclosure requirements. However, additional columns may need to be added if there was PEO turnover in the relevant periods. Compensation Actually Paid to PEO. For each fiscal year, registrants are required to make adjustments to the total PEO compensation reported in Item (b) for pension and equity awards that are calculated in accordance with US GAAP. This item is potentially complex and is discussed in detail below. Average Summary Compensation Table Total for Non-PEO Named Executive Officers (NEOs). These average figures would be calculated using the same compensation figures as reported under existing SEC proxy disclosure requirements for NEOs. Different individuals may be included in the average throughout the five (or three) year period. Footnote disclosure is required to list the individual NEOs. Average Compensation Actually Paid to Non-PEO NEOs. These amounts would be calculated using the same methodology as in Item (c), but then averaging the amounts in each year. Total Shareholder Return. The registrant’s TSR is to be determined in the same manner as is required by existing Regulation S-K guidance. TSR is calculated as the sum of (1) cumulative dividends (assuming dividend reinvestment) and (2) the increase or decrease in the company’s stock price for the year, divided by the share price at the beginning of the year. Peer Group Total Shareholder Return. This is calculated consistently with the methodology used for Item (f). Registrants are required to use the same peer group they use for existing performance graph disclosures or compensation discussion and analysis. Net Income. This is simply GAAP net income for the relevant period. Company Selected Measure. This item is intended to represent the most important financial performance measure the registrant uses to link compensation paid to its PEOs and other NEOs to company performance. The registrant can select a GAAP or non-GAAP financial measure. The remainder of this article focuses on the two shaded columns (c) and (e) which address Compensation Actually Paid and the valuation inputs that support these disclosures. 3. What Is Compensation Actually Paid? For each fiscal year, registrants are required to adjust the total compensation reported in Columns (b) and (d) for pension and equity awards that are calculated in accordance with US GAAP. The following table describes these adjustments in detail. The pension-related adjustments should be calculated using the principles in ASC 715, Compensation – Retirement Benefits. The equity-based compensation adjustments will require registrants to disclose the fair value of equity awards in the year granted and report changes in the fair value of the awards until they vest. This means that it will be necessary to measure the year-end fair value of all outstanding and unvested equity awards for the PEO and other NEOs under a methodology consistent with what the registrant uses in its financial statements. For most registrants, this will be ASC 718, Compensation – Stock Compensation. Appropriate footnote disclosure may also be required to identify the amount of each adjustment and any valuation assumptions that materially differ from those disclosed at the time of the equity grant. 4. What Are the Different Types of Equity Awards? The procedures used to calculate fair value will vary depending on the type of equity award. For restricted stock and restricted stock units (RSUs), fair value can be calculated using observed share prices at the grant date, fiscal year-end, and the vesting date. The change in fair value would simply be the difference between these dates. For stock options and stock appreciation rights (SARs), fair value at the grant date is often calculated using a Black-Scholes or lattice model. Therefore, updated fair values at year-end and at the vesting date should be based on updated assumptions in those models, including current stock price, volatility, expected term, risk-free rate, dividend yield, and consideration of a sub-optimal exercise factor (in a lattice model). Care should be taken to ensure that expected term appropriately considers moneyness of the options at the new date. The use of historical and/or option-implied volatility should be evaluated for consistency and continued applicability. For performance shares and performance share units (PSUs), the fair value calculations may be more complex due to the presence of a performance condition (e.g., the award vests if revenues increase by 15% and EBITDA margin is at least 20%) or a market condition (e.g., the award vests if the registrant’s total shareholder return over a three-year period exceeds its peer group by at least 5%). The performance condition will require updated probability estimates at year-end and at the vesting date. Awards with market conditions are typically valued at their grant date using Monte Carlo simulation and so a reassessment at subsequent dates using a consistent simulation model with updated assumptions will be necessary. 5. Special Considerations for Market Condition Awards Using Monte Carlo Simulation Market condition awards come in many different flavors. Three of the most common types of plans include: Market condition based upon performance in the registrant’s own stock. In this plan, vesting might be achieved if the registrant’s share price exceeds a certain level for a defined number of trading days or reaches an agreed-upon measure of total shareholder return. Market condition based upon relative total shareholder return. In this plan, the award vests based upon the registrant’s TSR in comparison to a similarly calculated TSR for a broad market benchmark index, an industry index, a peer company, or group of peer companies. Some plans employ a modification factor that adjusts the size of the award based upon varying levels of relative TSR performance. Market condition based upon ranked total shareholder return. In these plans, award vesting is based upon a numerical ranking of the registrant’s TSR against the TSRs of a group of peer companies or all of the companies on a particular broad market or industry index. The numerical or percentile ranking then determines the modification factor that adjusts the size of the award. Each of the above plans has inputs and assumptions that drive the Monte Carlo simulation. When performing a subsequent year-end or vesting date fair value analysis, each of the grant-date assumptions will need to be reevaluated. For example, for a relative TSR plan with a three-year term, the subsequent year-end valuations will necessarily have shorter terms (2-year and 1-year), which will require new inputs for volatility and correlation factors. Shorter terms may make the use of option-implied volatility more relevant if sufficient market data is available. For relative TSR plans that reference a group of companies or an index, some of the peers may have been acquired or merged in the subsequent periods. The plan documentation will often describe the steps to be taken when the composition of the peer group changes or there is a change in the benchmark index. A different group (or number) of companies will affect the correlation assumption as well as the percentile calculations in a ranked plan. Regardless of the type of plan, it is important for registrants to understand how even a relatively simple award, if granted consistently for a period of years, can lead to a large number of Monte Carlo simulations for this initial proxy season and a significant amount of disclosure complexity. As shown in Figure 3 below, if a company has made annual PSU grants (with a market condition) for each of the last five years, then up to eight Monte Carlo valuations could be required to calculate the CAP in each period. Click here to expand the example above In the example above, the blue boxes indicate when a valuation of prior grants would be necessary to calculate the change in fair value for each period of the CAP disclosure. For the final period of a relative TSR market condition plan, the company could use the actual market performance of its stock (and the comparative index) to calculate the expected value of the award. Summary and Next Steps While the new SEC Pay Versus Performance disclosure rules can seem daunting, they can be managed with proper planning and a systematic approach. For the CAP disclosures, registrants need to understand the details of all equity awards that have been awarded to named executive officers (how many and what type of award). The award characteristics will determine which valuation method is most appropriate and how many valuations need to be performed. If you have questions about the valuation techniques used for the various types of equity compensation awards or would like to discuss the process, please contact a Mercer Capital professional. Bond Portfolio Update The U.S. bond market is undergoing its worst bear market in decades. Barclays U.S. Aggregate Bond Market Index produced a total return of negative 14.5% through September 30, 2022 and negative 16.0% through November 8, 2022. Excluding coupon income, the year-to-date loss was 17.2% which speaks to how low coupon income is given the nominal difference between price change and total return. As shown in the figure below, U.S. commercial banks have suffered unrealized losses in their bond portfolios equal to roughly 10% of the cost basis of both AFS and HTM classified portfolios as of September 30, which compares to a price reduction of 15.6% in the Barclay’s index as of quarter end. The less-worse performance by U.S. banks likely reflects less duration than the index, which has an effective duration of 6.25 years and weighted average maturity of 8.25 years. Our observation is that for the most part outsized losses among U.S. banks reflect an outsized position in municipals and/or MBS. The index composition is heavily skewed to U.S. Treasuries and U.S. Agency obligations given the heavy issuance of government backed debt the past 15 years or so. While management and directors at most banks are unhappy with their bond portfolios, institutional investors have taken a more nuanced view of the impact of rising rates based upon the tenor of third quarter earnings calls and the reaction of most stocks upon the release of earnings. Rising rates have supported bank earnings even though fixed-rate loan and bond portfolios are slow to reprice as floating-rate loans have repriced and banks have lagged deposit rates. Investor concern is more focused on liquidity risks. Some (or many) banks eventually may have to raise deposit rates sharply to stem outflows and/or fund loan growth because selling bonds is not a viable option given the magnitude of unrealized losses that if realized will reduce regulatory capital. Our prior commentary on bank bond portfolios following the release of the first and second quarter Call Reports can be found here and here. Community Bank Loan Portfolios Have Unrealized Losses Too Fixed income is undergoing one of the deepest bear markets in decades this year. There has been a lot of discussion surrounding the impact of rising rates on bank bond portfolios and bank stocks as rising rates have resulted in large unrealized losses in bank bond portfolios. My colleague, Jeff Davis, provides an update to his previous commentary on the topic based on third quarter Call Report data here. If subjected to mark-to-market accounting like the AFS securities portfolio, most bank loan portfolios would have sizable losses too given higher interest rates and wider credit spreads; however, unrealized “losses” in loan portfolios do not receive much attention because there is not an active market for most loans unlike most bonds that populate bank portfolios. Further, accounting standards do not mandate mark-to-market for loans other than those held-for-sale. While the trend in loan portfolio fair values is harder to examine given the lack of data, the following charts provide some perspective based on a survey of periodic loan portfolio valuations by Mercer Capital. To properly evaluate a subject loan portfolio, the portfolio should be evaluated on its own merits, but markets do provide perspective on where the cycle is and how this compares to historical levels. Fair value is guided by ASC 820 and defines value as the price received/paid by market participants in orderly transactions. It is a process that involves a number of assumptions about market conditions, loan portfolio segment cash flows inclusive of assumptions related to expected prepayments and expected credit losses, appropriate discount rates, and the like. The fair value mark on a subject loan portfolio includes two components – an interest rate mark and a credit mark. The interest rate mark is driven by the difference in the weighted average discount rate and weighted average interest rate of the subject portfolio. The discount rate that is applied to a subject loan should reflect a rate consistent with the expectations of market participants for cash flows with similar risk characteristics. The credit mark captures the risk that the borrower will default on payments and not all contractual cash flows will be collected. Since the end of 2021, rising market interest rates have been the predominant factor driving the change (i.e., reduction) in loan portfolio fair values. As shown in Figure 1, the median interest rate mark for our data sample has fallen from a modest 0.55% premium at December 31, 2021 to a 5.65% discount as of September 30, 2022. While bank earnings benefit from a higher rate environment and net interest margin expansion, it takes time for the increase in market rates to be passed on to customers via higher loan rates and for lower, fixed-rate loans to roll out of the portfolio. In talking with Mercer Capital clients and in our loan portfolio valuation practice, so far it seems that banks have been unable to fully pass on the increase in rates to loan customers. Figure 1: Trends in Interest Rate Marks The shift in the valuation adjustment attributable to interest rates reflects an increase in market interest rates. Figure 2 depicts the LIBOR forward curve at December 31, 2021, March 31, 2022, June 30, 2022, and September 30, 2022. Relative to December 31, 2021, forward LIBOR rates have increased 66 bps to 394 bps on average with the largest increases occurring for periods ranging from 1 to 12 months following the valuation date. Figure 2: LIBOR Forward Curve Figure 3 depicts the trend in the credit mark for our data sample relative to credit spreads. Credit spreads provide perspective on a number of factors, including where the credit cycle has been and where we may be headed. Figure 3: Trends in Credit Marks Over the period shown in Figure 3, credit marks peaked at the start of the pandemic given the uncertainty and expectation of higher losses on loan portfolios. Credit marks trended down from the March 31, 2020 peak through the first quarter of 2022, as did banks’ loan loss provisions, as credit quality remained stable. While credit quality continues to remain strong, both credit spreads and credit marks have ticked up in 2022 with the weakening economic outlook and concerns that the Federal Reserve’s tightening interest rate policy may trigger a sharper downturn in economic activity. Mercer Capital has extensive experience in valuing loan portfolios and other financial assets and liabilities including depositor intangible assets, time deposits, and trust preferred securities. Please contact us if we can be of assistance. 2022 Family Law Team Conference Wrap-Up In-person conferences are back in 2022 and so are we. Our professionals have been speaking at and attending numerous conferences, so we thought it a good idea to reflect on a few of these conferences and share selected PowerPoint decks with you. Why? Because there are valuable materials on valuation, forensic and financial topics included in these PowerPoint decks. If your organization needs a speaker at your next conference or meeting, feel free to contact us. We hope you have enjoyed our content in 2022 and we look forward to connecting further in 2023! Selected Speaking Engagements Nashville Bar Association | February 28, 2022 Business Valuations in Litigation: A Guide for Attorneys Scott A. Womack, ASA, MAFF In this presentation, we ask and answer the questions “what is the purpose of a business valuation?”, “when and why a valuation is needed?” and explore what to look for in a valuation expert. In addition, this presentation provides an overview of valuation approaches and common valuation discounts. Active vs. passive appreciation and personal vs. enterprise goodwill are also presented. If you need a solid valuation overview, download the deck. >> Download PowerPoint Deck Knoxville Estate Planning Council | March 24, 2022 The Art and Science of Business Valuations: A Guide for Attorneys/Advisors Is valuation an art or a science? This presentation begins with an overview of valuation theory. In addition, we include common flaws in valuations, provides an example of double/triple counting, and includes a valuation report checklist. For more, download the powerpoint deck. AAML Connecticut Chapter May CLE Meeting | May 2, 2022 The Double Dip … Debate – Plus: Does Personal / Enterprise Goodwill Factor into the Analysis? Karolina Calhoun, CPA, ABV, CFF Particularly when the marital estate includes a business asset, subject to a valuation, the topic of double counting must be considered. Is the same income stream which is creating a valued asset on the marital balance sheet also being used for income determination for support? Or, has compensation and business earnings properly been allocated to the asset and to the income? Further, what if there is a carve out to personal goodwill – how, if at all, does this impact the asset division as well as the income basis for support? We address these questions in this presentation. 2022 Forensic Accounting and Litigation Conference: Society of Kentucky Certified Public Accountants | August 18, 2022 Critical Issues in Valuation for Divorce Purposes What are the nuances and critical issues of valuation, forensic, and other analyses for marital dissolution? In this presentation, we delve into specific issues that must be considered since they are unique to marital dissolution as well as state statute and precedent. Specifically, we touch on if a marital asset ever become a separate asset or vice-versa, personal vs. enterprise goodwill, valuation adjustments in marital dissolution engagements, double-dipping, asset tracing, and how to construct a lifestyle (pay and need) analysis. NACVA 2022 Business Valuation & Financial Litigation Hybrid Super Conference | August 19, 2022 The State of the Business Valuation Profession Z. Christopher Mercer, FASA, CFA, ABAR Chris Mercer is one of the founding fathers of business valuation. Given his place in the profession, he is one of the few qualified to opine to the future of the business valuation profession. In this presentation, he begins by discussing the profession’s current realities and then ventures into what the future might hold about the profession, valuation theory, and how to reach the market. 2022 AAML/BVR National Divorce Conference 2022 | August 19, 2022 All in the Family-Related Companies in Divorce In this presentation, our Karolina Calhoun along with Kevin Segler from Koons Fuller, covered all things related-party in divorce valuation, including entity structure issues, multi-layering with discounts, and tracing marital vs. separate asset ownership with complex multi-entity ownerships. Karolina and Kevin also discussed related parties in the business and said impact on ownership, valuation, and division – including the consideration of classes of stock in division, such as GP vs. LP or voting vs. non-voting. The Association of Divorce Financial Planners 2022 Virtual Retreat | November 4, 2022 Business Valuation, Legal, and Tax Risks Panel David Harkins joined Karen Shapiro of Stein Sperling and Michele Laws of Turning Point Financial Group on a panel moderated by Cheryl Panther of Panther Financial Planning, to discuss the nuances of a case study presented to members of the ADFP. The case had numerous potential pitfalls with considerations for attorneys and divorce financial planners alike. Topics included business valuation, fraud, forensics, separate vs marital, etc. The crowd had numerous thought-provoking questions which led to an enlightening dialogue for all involved. The 2022 AICPA & CIMA Forensic & Valuation Services Conference | November 14, 2022 Personal vs. Enterprise Goodwill: How the Analysis Lies Within the Facts Karolina Calhoun and Audra Moncur of Wipfli, LLP tackled the questions: what is goodwill?; what is personal vs. enterprise goodwill?; and why is personal vs. enterprise goodwill important in valuations for divorce or transactions? They also presented an illustration of goodwill in transactions and presented case precedent for goodwill in divorce along with methods and considerations for determination allocation to personal and enterprise goodwill. Selected Sponsorships The AAML Florida Chapter 44th Annual Institute May 6 – 7, 2022 | St. Petersburg, Florida As we assist with complex financial and valuation issues on many Florida matters, this year we decided to sponsor and attend the AAML Florida Chapter Annual Institute. We enjoyed meeting and seeing familiar faces, and also appreciated conversations about complex valuation and financial issues. Mercer Capital’s Litigation Team looks forward to attending in future years! Attending the Conference was: The AAML Foundation Lifetime Members Luncheon November 10, 2022 | Chicago, Illinois We were honored to be a Diamond Sponsor of the AAML Foundation Lifetime Members Luncheon, supporting the Foundation’s mission to assist families and children. Chris Mercer, Karolina Calhoun, and Scott Womack are members of the Forensic & Business Valuation Division of the AAML Foundation. Attending the Luncheon were: The AAML Florida Chapter 44th Annual Institute Pictured (L-R): Carlos M. Lastra (Cipriani & Werner, P.C.) and Karolina Calhoun Pictured (L-R): Karolina Calhoun and Susan Stafford (Director of the Florida AAML Chapter) 2022 AICPA & CIMA Forensic & Valuation Services Conference Pictured (L-R): Bethany Hearn (CLA), Karolina Calhoun, Natalya Abdrasilova (BDM), and Nicole Lyons (WithumSmith+Brown) 2022 AAML Foundation Lifetime Members Luncheon Pictured (L-R): Scott Womack, Karolina Calhoun, and David Harkins Pictured (;-R): David Harkins, Bill Dameworth (Forensic Strategic Solutions), Jay Fishman (Financial Research Associates), Karolina Calhoun, and Scott Womack Pictured (L-R): Paul Thiel (Northern Trust), Scott Womack, Karolina Calhoun, and David Harkins How Are Tech-Forward Banks Performing? In the year-to-date period, the KBW Nasdaq Bank Index has declined 22%, compared to a decline of 20% in the S&P 500 through October 27. Tech-forward banks have underperformed the broader banking sector, down 60% in the year-to-date period.1 This is a reversal of the trend in 2021 when tech-forward banks outperformed the broader banking sector, logging a 70% increase compared to an increase of 35% in the KBW Nasdaq Bank Index. Figure 1 :: Year-To-Date Performance (Through October 27, 2022) Source: S&P Capital IQ Pro. Figure 2 :: 2021 Performance The tech-forward bank landscape encompasses a variety of business models but generally refers to banks utilizing technology or partnering with fintechs to deliver financial products or services. Banks that partner with fintechs are often referred to as providing “banking as a service (BaaS)”. This model involves an FDIC member bank offering bank products to fintech customers, for example, credit and debit cards or personal loans. The bank holds the deposits associated with the accounts and earns a fee based on a percentage of interchange income specified in an agreement negotiated with the fintech partner. Other models are focused on facilitating payments or providing financial services to a specific niche, such as cryptocurrency. While the largest banks have the resources to be at the forefront of technology adoption, many smaller banks have partnered with fintechs in recent years. This is due in part to the Durbin Amendment which places limits on interchange income for banks above $10 billion in assets. In many cases, the partnerships have accelerated growth and created new income streams for the bank partners. However, bank partners also face unique risks. As displayed in the market performance, tech-forward banks have been more volatile than traditional banks. Tech-forward bank performance has been moored, to some degree, to more volatile technology stocks, which explains the stock market outperformance in 2021 followed by a larger retrenchment in 2022. For a community bank pursuing a fintech partnership strategy, there are multiple considerations, including the following. Deposit Growth Many fintech partner banks have continued growing deposits this year even though most banks have seen deposit growth stagnate or turn negative in the rising rate environment. An analysis performed by S&P Global Market Intelligence showed that fintech partner banks with assets between $1 billion and $3 billion experienced deposit growth of 15% (annualized) in the first half of 2022. This compares to deposit growth of 3% for commercial banks in the same asset size range. The deposits generated from fintech partnerships are often noninterest bearing accounts, which are especially valuable in the current rising rate environment. Bank partners earn spread income from the deposits, often holding them at the Federal Reserve due to their volatility and uncertain duration. Balances at the Fed reprice immediately with changes to the Fed’s benchmark rate. The largest impact on the revenue side typically shows up in noninterest income. Fintech partner banks tend to have a higher ratio of noninterest income to total income relative to traditional banks as they earn a share of the interchange income. In a period of flat or declining interest rates, this diversification of revenue can help to offset net interest margin compression. For the tech-forward banks included in Figure 1 and 2, the median ratio of noninterest income to operating revenue was 29% in the trailing twelve month period. Concentration Risk While fintech partnerships can be a source of growth, bank partners should be cautious about revenue or deposit concentrations. Fintechs can grow rapidly, and, as a result, a bank partner may develop a concentration within their deposit base or revenues. Banks must periodically renegotiate contracts with fintech partners, and there is a risk that the fintech will find another bank partner or demand more favorable terms. This single event could eliminate a major source of deposits or reduce noninterest income, causing a much greater impact than the ordinary loss of traditional bank customers. For example, Green Dot Corporation (GDOT) provides the Walmart MoneyCard product and offers other deposit account products at Walmart. Green Dot’s second quarter 10-Q discloses that approximately 21% of its operating revenue in the year-to-date period was derived from products and services sold at Walmart locations. Regulators have stepped up their scrutiny of bank-fintech partnerships this year, focusing on risk management controls. Many banks partnering with fintechs have less than $10 billion in assets, and banks that do not currently serve fintechs may not have the necessary compliance infrastructure to effectively manage potential fintech relationships. Compliance capability must be built over a long period of time and serves as somewhat of a barrier to entry for banks desiring to pursue this strategy. Additionally, certain fintech partnerships may present an added element of risk as the bank could be impacted by the regulatory and compliance practices of the fintechs or the evolving regulatory/compliance landscape. One recent example of this risk arose in the crypto fintech niche as the FDIC released an order to a crypto brokerage firm demanding that it cease and desist from making false and misleading statements about its deposit insurance status, while the FDIC contemporaneously issued an advisory to insured institutions regarding FDIC deposit insurance and dealings with crypto companies.2 Valuation & Performance Bank stocks’ underperformance in 2022 has largely been attributed to economic uncertainty and the potential for recession brought on by the Fed’s aggressive rate hikes. Fintech partner banks have been more volatile than the broader banking market. The business models entail certain risks, as detailed above, that do not pertain to traditional banks to the same degree. In addition, the earnings from fintech partnerships are less predictable and potentially further out in the future. As seen in figure 3, the range of valuation multiples observed for tech forward banks is wide, with forward P/Es ranging from 6.6x to 16.1x but most trade at 7x to 9x estimated 2023 earnings. It is important to note that the banks included in the table above represent a variety of sizes, strategies and niches, so comparability may be somewhat limited. Tangible book multiples likewise exhibit a wide range, but in general are high relative to the broader banking sector. In valuing fintech partner banks, investors weigh the growth potential provided by the partnership versus the risk that earnings growth does not materialize. Figure 3 :: Multiples and Price Change of Tech-Forward Banks Mercer Capital has experience valuing and advising both banks and fintechs. If you are considering partnership opportunities or have questions regarding their valuation implications, please contact us. 1Tech-forward banks include AX, CCB, GDOT, LC, LOB, MVBF, CASH, SI, SIVB, TBBK, and TBK. Year-to-date performance through 10/27/22 2https://www.arnoldporter.com/en/perspectives/advisories/2022/08/regulators-crack-down-on-fintechs Five Trends to Watch in the Medical Device Industry: 2022 Update The medical device manufacturing industry produces equipment designed to diagnose and treat patients within global healthcare systems. Medical devices range from simple tongue depressors and bandages to complex programmable pacemakers and sophisticated imaging systems. Major product categories include surgical implants and instruments, medical supplies, electro-medical equipment, in-vitro diagnostic equipment and reagents, irradiation apparatuses, and dental goods. The following outlines five structural factors and trends that influence demand and supply of medical devices and related procedures. 1. Demographics The aging population, driven by declining fertility rates and increasing life expectancy, represents a major demand driver for medical devices. The U.S. elderly population (persons aged 65 and above) totaled 40.3 million in 2021 (13% of the population). The U.S. Census Bureau estimates that the elderly will more than double by 2060 to 95 million, representing 23% of the total population. The elderly account for nearly one third of total healthcare consumption in the U.S. Personal healthcare spending for the population segment was approximately $19,000 per person in 2014, five times the spending per child (about $3,700) and almost triple the spending per working-age person (about $7,200). According to United Nations projections, the global elderly population will rise from approximately 608 million (8.2% of world population) in 2015 to 1.8 billion (17.8% of world population) in 2060. Europe’s elderly are projected to reach approximately 29% of the population by 2060, making it the world’s oldest region. While Latin America and Asia are currently relatively young, these regions are expected to undergo drastic transformations over the next several decades, with the elderly population expected to expand from approximately 8% in 2015 to more than 21% of the total population by 2060. 2. Healthcare Spending and the Legislative Landscape in the U.S. Demographic shifts underlie the expected growth in total U.S. healthcare expenditure from $4.1 trillion in 2020 to $6.2 trillion in 2028, an average annual growth rate of 5.4%. This projected average annual growth rate is faster than the observed rate of 3.9% between 2009 and 2018. Projected growth in annual spending for Medicare (4.3%) and Medicaid (5.6%) is expected to contribute substantially to the increase in national health expenditure over the coming decade. However, growth in national healthcare spending has slowed in 2021 to 4.2%, down from 9.7% in 2020. Healthcare spending as a percentage of GDP is expected to remain virtually unchanged from 19.7% in 2020 to 19.6% by 2030. Since inception, Medicare has accounted for an increasing proportion of total U.S. healthcare expenditures. Medicare currently provides healthcare benefits for an estimated 60 million elderly and disabled people, constituting approximately 15% of the federal budget in 2018 and is expected to rise to 18% by 2028. Medicare represents the largest portion of total healthcare costs, constituting 20% of total health spending in 2020. Medicare also accounts for 25% of hospital spending, 30% of retail prescription drugs sales, and 23% of physician services. Due to the growing influence of Medicare in aggregate healthcare consumption, legislative developments can have a potentially outsized effect on the demand and pricing for medical products and services. Net mandatory benefit outlays (gross outlays less offsetting receipts) to Medicare totaled $776 billion in 2020 and are expected to reach $1.5 trillion by 2030. The Patient Protection and Affordable Care Act (“ACA”) of 2010 incorporated changes that are expected to constrain annual growth in Medicare spending over the next several decades, including reductions in Medicare payments to plans and providers, increased revenues, and new delivery system reforms that aim to improve efficiency and quality of patient care and reduce costs. While political debate centered around altering the ACA has been a continuous fixture in American politics since its passing, it is unlikely that material reform to the ACA occurs in the near future under the Biden Administration. Total Medicare spending is projected to grow at 5.6% annually between 2025 and 2030, compared to year over year growth of 11.3% in 2021 and 3.5% in 2020. 3. Third-Party Coverage and Reimbursement The primary customers of medical device companies are physicians (and/or product approval committees at their hospitals), who select the appropriate equipment for consumers (patients). In most developed economies, the consumers themselves are one (or more) step removed from interactions with manufacturers, and therefore pricing of medical devices. Device manufacturers ultimately receive payments from insurers, who usually reimburse healthcare providers for routine procedures (rather than for specific components like the devices used). Accordingly, medical device purchasing decisions tend to be largely disconnected from price. Third-party payors (both private and government programs) are keen to reevaluate their payment policies to constrain rising healthcare costs. Several elements of the ACA are expected to limit reimbursement growth for hospitals, which form the largest market for medical devices. Lower reimbursement growth will likely persuade hospitals to scrutinize medical purchases by adopting i) higher standards to evaluate the benefits of new procedures and devices, and ii) a more disciplined price bargaining stance. The transition of the healthcare delivery paradigm from fee-for-service (FFS) to value models is expected to lead to fewer hospital admissions and procedures, given the focus on cost-cutting and efficiency. In 2015, the Department of Health and Human Services (HHS) announced goals to have 85% and 90% of all Medicare payments tied to quality or value by 2016 and 2018, respectively, and 30% and 50% of total Medicare payments tied to alternative payment models (APM) by the end of 2016 and 2018, respectively. A report issued by the Health Care Payment Learning & Action Network (LAN), a public-private partnership launched in March 2015 by HHS, found that 35.8% of payments were tied to Category 3 and 4 APMs in 2018, compared to 32.8% in 2017. In 2020, CMS released guidance for states on how to advance value-based care across their healthcare systems, emphasizing Medicaid populations, and to share pathways for adoption of such approaches. Ultimately, lower reimbursement rates and reduced procedure volume will likely limit pricing gains for medical devices and equipment. The medical device industry faces similar reimbursement issues globally, as the EU and other jurisdictions face similar increasing healthcare costs. A number of countries have instituted price ceilings on certain medical procedures, which could deflate the reimbursement rates of third-party payors, forcing down product prices. Industry participants are required to report manufacturing costs, and medical device reimbursement rates are set potentially below those figures in certain major markets like Germany, France, Japan, Taiwan, Korea, China, and Brazil. Whether third-party payors consider certain devices medically reasonable or necessary for operations presents a hurdle that device makers and manufacturers must overcome in bringing their devices to market. 4. Competitive Factors and Regulatory Regime Historically, much of the growth of medical technology companies has been predicated on continual product innovations that make devices easier for doctors to use and improve health outcomes for the patients. Successful product development usually requires significant R&D outlays and a measure of luck. If viable, new devices can elevate average selling prices, market penetration, and market share. Government regulations curb competition in two ways to foster an environment where firms may realize an acceptable level of returns on their R&D investments. First, firms that are first to the market with a new product can benefit from patents and intellectual property protection giving them a competitive advantage for a finite period. Second, regulations govern medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotions, sales and distribution, export and import, and post market surveillance. Regulatory Overview in the U.S. In the U.S., the FDA generally oversees the implementation of the second set of regulations. Some relatively simple devices deemed to pose low risk are exempt from the FDA’s clearance requirement and can be marketed in the US without prior authorization. For the remaining devices, commercial distribution requires marketing authorization from the FDA, which comes in primarily two flavors. The premarket notification (“510(k) clearance”) process requires the manufacturer to demonstrate that a device is “substantially equivalent” to an existing device (“predicate device”) that is legally marketed in the U.S. The 510(k) clearance process may occasionally require clinical data and generally takes between 90 days and one year for completion. In November 2018, the FDA announced plans to change elements of the 510(k) clearance process. Specifically, the FDA plan includes measures to encourage device manufacturers to use predicate devices that have been on the market for no more than 10 years. In early 2019, the FDA announced an alternative 510(k) program to allow medical devices an easier approval process for manufacturers of certain “well-understood device types” to demonstrate substantial equivalence through objective safety and performance criteria. The plans materialized as the Abbreviated 510(k) Program later in the year. The premarket approval (“PMA”) process is more stringent, time-consuming, and expensive. A PMA application must be supported by valid scientific evidence, which typically entails collection of extensive technical, preclinical, clinical, and manufacturing data. Once the PMA is submitted and found to be complete, the FDA begins an in-depth review, which is required by statute to take no longer than 180 days. However, the process typically takes significantly longer and may require several years to complete. Pursuant to the Medical Device User Fee Modernization Act (MDUFA), the FDA collects user fees for the review of devices for marketing clearance or approval. The current iteration of the Medical Device User Fee Act (MDUFA IV) came into effect in October 2017. Under MDUFA IV, the FDA is authorized to collect almost $1 billion in user fees, an increase of more than $320 million over MDUFA III, between 2017 and 2022. Intended to begin in 2020, negotiations for MDUFA V were delayed due to the COVID-19 pandemic. The FDA and industry groups reached a deal for MDUFA V, slated to go into effect beginning fiscal 2023, which would generate up to $1.9 billion in fees to the agency over five years. The U.S. House of Representatives passed MDUFA V in June 2022 and the Senate is expected to follow suit by September 2022. Regulatory Overview Outside the U.S. The European Union (EU), along with countries such as Japan, Canada, and Australia all operate strict regulatory regimes similar to that of the FDA, and international consensus is moving towards more stringent regulations. Stricter regulations for new devices may slow release dates and may negatively affect companies within the industry. Medical device manufacturers face a single regulatory body across the EU. In order for a medical device to be allowed on the market, it must meet the requirements set by the EU Medical Devices Directive. Devices must receive a Conformité Européenne (CE) Mark certificate before they are allowed to be sold in that market. This CE marking verifies that a device meets all regulatory requirements, including EU safety standards. A set of different directives apply to different types of devices, potentially increasing the complexity and cost of compliance. 5. Emerging Global Markets Emerging economies are claiming a growing share of global healthcare consumption, including medical devices and related procedures, owing to relative economic prosperity, growing medical awareness, and increasing (and increasingly aging) populations. According to the WHO, middle income countries, such as Russia, China, Turkey, and Peru, among others, are rapidly converging towards outsized levels of spending as their incomes increase. When countries grow richer, the demand for health care increases along with people’s expectation for government financed healthcare. Middle income country share, the fastest growing economic sector, increased from 15% to 19% of global spending between 2000 and 2017. As global health expenditure continues to increase, sales to countries outside the U.S. represent a potential avenue for growth for domestic medical device companies. According to the World Bank, all regions (except Sub-Saharan Africa and South Asia) have seen an increase in healthcare spending as a percentage of total output over the last two decades. Global medical device sales are estimated to increase 5.4% annually from 2021 to 2028, reaching nearly $658 billion according to data from Fortune Business Insights. While the Americas are projected to remain the world’s largest medical device market, the Asia Pacific and Western Europe markets are expected to expand at a quicker pace over the next several years. Demographic shifts underlie the long-term market opportunity for medical device manufacturers. While efforts to control costs on the part of the government insurer in the U.S. may limit future pricing growth for incumbent products, a growing global market provides domestic device manufacturers with an opportunity to broaden and diversify their geographic revenue base. Developing new products and procedures is risky and usually more resource intensive compared to some other growth sectors of the economy. However, barriers to entry in the form of existing regulations provide a measure of relief from competition, especially for newly developed products. FreightTech Update Automated Trucks, VC Frenzy, and the Rise of Brokerages The COVID-19 pandemic brought economic hardship to many. The second quarter of 2020 might go down as one of the quickest economic downturns ever recorded. However, in an effort to protect the economy, the Fed created an extremely hospitable environment for venture capital, and with the glaring supply chain issues, FreightTech became a cushy landing place for investor’s money. We have written about venture capital and FreightTech before, and it has only gotten bigger since then. In the fourth quarter of 2020, American and European FreightTech companies raised a combined $4.1 billion from venture capitalists. This was a 21% increase quarter-over-quarter, and an increase of 49% on an annual basis. In less than twelve months, 2020 went from a dark and gloomy place for businesses to a 4th of July fireworks parade, during which $12.6 billion was poured into 555 deals in America and Europe. The parade continued marching into 2021, with average pre-money valuations increasing by 28.4% to $30 million, and late-stage valuations increasing by 95.3% to $120 million. During these six quarters, companies like Loadsmith continued to introduce digital technologies that seek to revolutionize the brokerage industry and allow smaller brokerages and 3PLs to compete with the largest asset-based carriers. Self-driving trucks have also remained a point of focus. Though one of our clients maintains that self-driving trucks are “always ten years away,” they are the holy grail of FreightTech. The trucking industry has long struggled with an exodus of workers, and during COVID a large portion of its aging labor force decided to either retire due to fears of contracting the virus or moved on to less-regulated sectors. To prevent driver shortages and reduce turnover, many companies are increasing driver pay. For example, Walmart began paying their drivers $110,000 in their first year. With a fleet of 12,000 drivers, that is a very expensive endeavor, so it is no surprise that companies like TuSimple, that develop self-driving trucks, already have deals in place with ready-to-pay customers. The CEO of Werner Enterprises was quoted as saying that “We look forward to building a hybrid world where drivers continue to haul freight while autonomous trucks supplement rising demand,” showing that self-driving freight modes are no longer only a fantasy of Silicon Valley, but a future of the industry. Despite all the positive growth between the third quarter of 2020 and the fourth quarter of 2021, the proverbial truck ran into a roadblock. As the Federal Reserve increased interest rates in its efforts to tame inflation, the first quarter of 2022 recorded decreases of 3.6% and 20.4% on a quarterly and annual basis, respectively. Startups raised only $14 billion. The number of IPO listings decreased dramatically, alongside the average valuations of FreightTech firms. While the number of new FreightTech startups has decreased, an opportunity in the form of higher gas prices, created by the Russia-Ukraine conflict, emerged. High gas prices have made electric vehicles much more attractive both to the consumer as well as the manufacturers. Ford begun production on the first ever electric pickup truck (beating Tesla’s Batmobi…excuse me Cybertruck to the punch), and GM has promised to release its own fully electric truck in the spring of 2023. Artificial intelligence has also evolved in the FreightTech world, running robots in warehouses (which exponentially increases efficiency in over-capacity facilities) and even analyzing space and creating the mathematically most optimal way of storing items in a container for maritime shipping. Even though the current economic outlook can appear somewhat gloomy, the transportation sector can still expect money to be available for startups, though it might be harder to get. Ryan Schreiber, Vice President of Growth and Industry for supply chain consultant Metafora stated that “One founder described it to me as saying in early ’21, if you had any revenue, you could raise and at a valuation you preferred,” compared to the current situation where “You’ve got to have a $1.5 million annual recurring revenue, and you are going to be grateful to get any valuation.” Schreiber advises FreightTech firms to not burn through their runway, and to not sell equity unless for a very good reason. There is also good news for FreightTech entrepreneurs. A McKinsey survey revealed that 77% of supply chain executives intend on investing in supply chain visibility, among other things. That combined with the growth of the e-commerce industry, it is fair to anticipate a decent amount of investment to still be poured into the sector. The best inventions often came from times of crisis. Nuclear fission was invented during World War II, antiseptic disinfectant was invented to stop a cholera epidemic in Germany, and in the midst of the ‘08 financial crisis, Beyonce released her hit single “Single Ladies.” So it is no surprise that the COVID-19 pandemic and the Russia-Ukraine war have sparked a new wave of innovation in the FreightTech industry. And while, perhaps, startups are no longer getting as much funding as they did in 2021, it is clear that it will remain a hot sector for as long as we face supply chain bottlenecks and restrictions. The Importance of Normalizing Financial Statements for a Business Valuation What is normal? A question we seem to have been asking ourselves for the last few years. When it comes to making sense of the “normal” in this new day and age, we cannot offer any advice there. But we can speak on the process and importance of normalizing financial statements for a business valuation. It is common for a business valuator to make adjustments to reported financial statements to more accurately reflect ongoing, operating cash flows of a business. These adjustments are part of the “normalization” process, with an ultimate goal of determining the earnings capacity of the business. In litigation, when two financial experts’ valuation reports are compared, both the adjustments deemed necessary, and the dollar amount attributed to each can be a factor in the differences in valuation conclusions. Understanding Before Adjusting To perform an accurate business valuation, appraisers must have a clear understanding of the subject company’s true financial position and historical earnings capacity. This knowledge is vital to comprehend the company’s future income-generating ability and assess its financial performance relative to industry peers as well as its own historical performance. Valuators obtain multiple years of financial statements (typically 5 years), most commonly the income statement and balance sheet. These statements should be analyzed thoroughly to evaluate historical operating results and the conditions under which they were achieved, accounting methods, etc. This is generally the first step in the normalization process: holistically understanding the normal operating conditions of a company in context of itself, its industry, and the grander economy, to in turn understand if any conditions are potentially present for normalizations. Reviewing historical trends of the subject business and its peers, comparing current financial results to prior year(s), utilizing ratio and margin analysis, as well as historical common-sized statements, are all examples of procedures to examine where potential adjustments could exist. Only once the appraiser has completed the due diligence required to understand the nature of a company’s operations and the industry in which it operates, can relevant and appropriate informed adjustments be made. While adjustments can come in many shapes and sizes, we have selected a few common and/or recent types of adjustments that we regularly encounter. Unusual, Nonrecurring Income or Expenses A company may receive income or incur an expense as the result of an event that is abnormal, unrelated to the company’s ordinary day-to-day operations, or unlikely to reoccur in the foreseeable future. As we discussed earlier, a thorough understanding of what the business does operationally on a day-to-day basis can pinpoint if an expenditure can be classified as non-recurring or a regular business expense. These items are often referred to as nonrecurring, extraordinary, or unusual gains/losses often the result of events such as: PPP income Litigation expenses which are related to non-recurring and/or one-off situation One-time expenses Gains/losses on sale of assets Insurance payouts Discontinued business operations The objective of adjusting for unusual, extraordinary, and nonrecurring items is to present the financial results associated with normal operating conditions that can be indicative of future operating performance. Additionally, these adjustments enhance comparability among the subject company and guideline public companies, i.e., provide a ‘public equivalent.’ Owner/Officer Compensation & Other Discretionary Expenses Privately held business owners may have discretion over the amount and type of compensation they receive, as well as perquisites paid for by the business such as vehicles, cell phones, travel, meals, insurance, etc. The goal is to understand the total compensation paid to management and the business owner(s) and for what roles and responsibilities. From a business valuation perspective, we assume that a hypothetical buyer of subject company would need to pay market rates to replace subject management and/or owner(s). A review of historical salary trends for all owners, investigating potential deferral of bonus or payroll, as well as evaluating professional resources to examine the specific industry owner’s estimated compensation, is vital to determine if an adjustment is necessary. A company may pay above or below-market rent to a related party, such as a holding company or a family member that owns the property. In this case, an appraiser may normalize rent expense to related parties by adjusting the rent expense to market rate for similar properties. By adjusting the rent to market rates, the financial statements are adjusted to be representative of a normal condition of the subject company as of the business valuation date. In an alternative hypothetical scenario, the company may own facilities that it rents to a third party. If the company’s real estate is not related to the core operations of a business, it is a non-operating asset and should be treated as separate from the company’s operations, removed from the balance sheet, along with any loans associated on the real estate. Also, rental income and further related expenses would be removed. Fact Pattern #1: Manufacturing company has a plant fire that destroys the factory. The company did own an insurance policy covering part of the costs to repair the plant. Any reported loss resulting from the extraordinary event, and the income recognized from the insurance payout should be normalized. Additionally, adjustments to cash may be necessary representing unusual, one-time insurance proceeds. Fact Pattern #2: Car dealership has an investment in an unrelated company. Although the investment may provide an income stream, this income typically would not be considered to represent the company’s normal operations. As a result, the income stream could be reasonably removed, as would the asset from the book value. Following this potential methodology, this investment would be added as a non-operating asset to the estimated operating value of the subject company for an adjusted value. Fact Pattern #3: Manufacturing company incurs significant expense to update equipment. In this example, the business cycle must also be considered. During the analysis of the industry and its corresponding business cycle, the expert finds it is common for a manufacturing company to update its productive equipment every five years. Thus, these updates could be “normal” capital maintenance or investment, and would, therefore, not need to be adjusted or excluded. Alternatively, the appraiser could ‘smooth’ out the expense, meaning removing the hit from the single year and add an average expense for the five-year period analyzed. This is an example where the appraiser must understand the accounting used by the company – have they depreciated the full expense in Year 1? Or have they used straight-line depreciation? There are variations from company to company and this is but one of the many factors a valuator reviews during due diligence. Normalizing financial statements is a component of the valuation process. Further, this tends to be one of the more common areas where experts may disagree. Adjusting for significant revenue or expense items that appear to be related to the operating interests of a company requires the informed judgment of a financial expert. A competent and qualified valuation expert is necessary to the process to diligently examine the historical financial statements and further information to understand the true nature of the company’s operations. 2022 Core Deposit Intangibles Update On September 21, 2022, the Federal Reserve increased the target federal funds rate by 75 basis points, capping off a collective increase of 300 basis points since March 2022. With the expectation of additional rate increases this year, it’s a good time to evaluate recent trends in core deposit values and discuss expectations for deposit valuations in the coming months. Mercer Capital previously published articles on core deposit trends in August 2020 during the early stages of the pandemic and again in August 2021. In those articles, we described a decreasing trend in core deposit intangible asset values. In response to the pandemic, the Fed cut rates effectively to zero, and the yield on the benchmark 10-year Treasury reached a record low. While many factors are pertinent to analyzing a deposit base, a significant driver of value is market interest rates. As shown below, we find ourselves in a very different interest rate environment today. Figure 1 :: U.S. Treasury Yield Curve Trends In CDI Values Using data compiled by S&P Capital IQ Pro, we analyzed trends in core deposit intangible (CDI) assets recorded in whole bank acquisitions completed from 2000 through mid-September 2022. CDI values represent the value of the depository customer relationships recorded by acquirers as an intangible asset. CDI values are driven by many factors, including the “stickiness” of a customer base, the types of deposit accounts assumed, the level of noninterest income generated, and the cost of the acquired deposit base compared to alternative sources of funding. For our analysis of industry trends in CDI values, we relied on S&P Capital IQ Pro’s definition of core deposits.1 In analyzing core deposit intangible assets for individual acquisitions, however, a more detailed analysis of the deposit base would consider the relative stability of various account types. In general, CDI assets derive most of their value from lower-cost demand deposit accounts, while often significantly less (if not zero) value is ascribed to more rate-sensitive time deposits and public funds. Non-retail funding sources such as listing service or brokered deposits are excluded from core deposits when determining the value of a CDI. Figure 2 summarizes the trend in CDI values since the start of the 2008 recession, compared with rates on 5-year FHLB advances. Over the post-recession period, CDI values have largely followed the general trend in interest rates—as alternative funding recorded by acquirers became more costly in 2017 and 2018, CDI values generally ticked up as well, relative to post-recession average levels. Throughout 2019, CDI values exhibited a declining trend in light of yield curve inversion and Fed cuts to the target federal funds rate during the back half of 2019. This trend accelerated in March 2020 when rates were effectively cut to zero. Figure 2 :: CDI as % of Acquired Core Deposits CDI values have showed some recovery in the past few quarters (with an average CDI value of 93 basis points year-to-date in 2022 as compared to 64 basis points for all of 2021). Despite the recent uptick, CDI values remain below the post-recession average of 1.29% in the period presented in the chart and meaningfully lower than long-term historical levels which averaged closer to 2.5% to 3.0% in the early 2000s. They are also markedly lower than one might expect, given the current cost of wholesale funding. As shown above, reported CDI values have not increased in tandem with the recent increase in FHLB rates. The average CDI value increased just 25 basis points from September 2021 to September 2022, while the five-year FHLB advance increased a dramatic 228 basis points over the same period. In late-2018 the 5-year FHLB rate approximated the current, mid-September 2022 level, but the average CDI value at that time was 2.42% (compared to the third quarter 2022 average value of 0.75%). The CDI values in recent quarters are somewhat counterintuitive. There are likely three drivers for the relationship between recently reported CDI values and market interest rates: Reporting time lag. The increase in the 5-year FHLB rate has occurred rapidly over the past few months. The deals that closed in the second and third quarters of 2022 were announced in an extremely low interest rate environment. Following third quarter 2022 filings, we expect some upward migration in CDI values to occur as recently announced deals are completed, which reflect the Federal Reserve’s recent rate actions. Deposit levels. Since the beginning of the pandemic, banks have been inundated with deposits. It was initially expected that the increase in deposits would be transient in nature as the economy re-opened, PPP funds were spent or invested, and consumer confidence improved. However, deposit growth continued through 2021 for nearly all banks and into 2022 for some banks. The growth rate in deposit balances is slowing, and September 2022 balances ($17.95 trillion) were lower than August 2022 balances ($18.0 trillion). Given the low average loan-to-deposit ratios, banks have not been in a hurry to increase deposit rates. With the excess of deposits, there may have been a tendency for bank acquirers to discount core deposit value given the lack of immediate funding needs or concern that, with higher market rates, the long anticipated reversal of the pandemic-related deposit influx may finally occur. Uncertain Rate Outlook. While rates are expected to continue rising in the near-term, some market participants may remain concerned that a zero rate environment will remain the long-term norm. If this view is correct, which implicitly assumes that the Federal Reserve can choke inflation, CDI values will remain constrained. Nineteen deals were announced in August and September 2022, and five of those deals provided either investor presentations or earnings calls containing CDI estimates. These CDI estimates ranged from 1.5% to 2.0%, which is more in line with the numbers we have observed in our valuation analyses. We expect CDI values to continue rising in concert with market interest rates. However, market interest rates are not the only driver of CDI value, and there are some potentially mitigating factors to CDI values in the near term. Deposit levels. Over the past year, consumers were likely hesitant to go to the trouble of seeking higher interest rates as the marginal benefit of a rate enhancement would have been low in comparison to the necessary expenditure of effort. This inertia is not expected to last indefinitely. There is already evidence that excess deposit balances are beginning to exit the system. Higher attrition rates, all else equal, translate into a lower CDI value. Deposit mix. Over the past decade, nationwide average deposit mix has shifted in favor of noninterest bearing deposits. In 2007, retail time deposits constituted an average of 31% of financial institution deposits with noninterest bearing deposits comprising 16%. In 2022, this mix is nearly reversed (28% of balances in noninterest-bearing accounts and 15% in retail time deposits). As banks face increasing interest rate pressure, the deposit mix is likely to begin shifting in favor of interest-bearing deposits that have lower CDI values. Figure 3 :: Deposit Mix Overtime Service charge income. The industry is facing pressure from regulators and the public to reduce overdraft charges and other fees. Lower service charge income produces lower CDI values, all else equal. Deposit interest rate betas. Historical average deposit betas may be insufficient to forecast future deposit interest rates over the life of an acquired deposit base. For example, deposit betas for money market accounts have historically averaged approximately 50%. At September 23, 2022 the national average money market rate was 0.15%. A 50% beta may not be aggressive enough to yield a reasonable ongoing interest rate for an acquired deposit base with a starting interest rate of 0.15%. Using an inappropriately low beta would artificially enhance core deposit value by understating future interest rates on the acquired deposit base. Trends In Deposit Premiums Relative To CDI Asset Values Core deposit intangible assets are related to, but not identical to, deposit premiums paid in acquisitions. While CDI assets are an intangible asset recorded in acquisitions to capture the value of the customer relationships the deposits represent, deposit premiums paid are a function of the purchase price of an acquisition. Deposit premiums in whole bank acquisitions are computed based on the excess of the purchase price over the target’s tangible book value, as a percentage of the core deposit base. While deposit premiums often capture the value to the acquirer of assuming the established funding source of the core deposit base (that is, the value of the deposit franchise), the purchase price also reflects factors unrelated to the deposit base, such as the quality of the acquired loan portfolio, unique synergy opportunities anticipated by the acquirer, etc. As shown in Figure 4, deposit premiums paid in whole bank acquisitions have shown more volatility than CDI values. Deposit premiums in the range of 6% to 10% remain well below the pre-Great Recession levels when premiums for whole bank acquisitions averaged closer to 20%. Additional factors may influence the purchase price to an extent that the calculated deposit premium doesn’t necessarily bear a strong relationship to the value of the core deposit base to the acquirer. This influence is often less relevant in branch transactions where the deposit base is the primary driver of the transaction and the relationship between the purchase price and the deposit base is more direct. Figure 5 (on the next page) presents deposit premiums paid in whole bank acquisitions as compared to premiums paid in branch transactions. Deposit premiums paid in branch transactions have generally been less volatile than tangible book value premiums paid in whole bank acquisitions. Branch transaction deposit premiums averaged in the 3.0% to 7.5% range during 2020, up from the 2.0% to 4.0% range observed in the financial crisis. During 2021 and the first quarter of 2022, branch transaction deposit premiums averaged 2.5% to 5.25%. Unfortunately, none of the branch transactions completed in the second or third quarters of 2022 reported franchise premium data. Figure 4 :: CDI Recorded vs. Deposit Premiums Paid Figure 5 :: Average Deposit Premiums Paid Some disconnect appears to exist between the prices paid in branch transactions and the CDI values recorded in bank M&A transactions. Beyond the relatively small sample size of branch transactions, one explanation might be the excess capital that continues to accumulate in the banking industry, resulting in strong bidding activity for the M&A opportunities that arise–even in situations where the potential buyers have ample deposits. Accounting For CDI Assets Based on the data for acquisitions for which core deposit intangible detail was reported, a majority of banks selected a ten-year amortization term for the CDI values booked. Less than 10% of transactions for which data was available selected amortization terms longer than ten years. Amortization methods were somewhat more varied, but an accelerated amortization method was selected in approximately half of these transactions. Figure 6 :: Selected Amortization Term (Years) Transactions Completed 2008 – September 25, 2022 Figure 7 :: Selected Amortization Method For more information about Mercer Capital’s core deposit valuation services, please contact a member of our Depository Institution Services Team. 1 S&P Capital IQ Pro defines core deposits as, “Deposits in U.S. offices excluding time deposits over $250,000 and brokered deposits of $250,000 or less.” Importance of an Independent Informed Valuation In contested cases where a business interest comprises a significant portion of a divorcing couple’s net worth, it is common for one or both parties to retain a business appraiser to value the business. Post-divorce, if only one spouse retains an interest in the business, all else equal, a higher business interest value typically implies the other party will receive a greater share of the remaining marital assets, as compared to a lower business interest value. As we will discuss in this article, the facts and circumstances of the business interest being valued may reasonably support various assumptions when comparing two valuation conclusions. As the client, attorney, or judge, it can be difficult to receive two appraisals that differ significantly in their conclusions. Which one is right? While there is not typically an absolute “right” answer, one may well be more reasonable than the other. In this article, we examine how changes to one or a few assumptions can lead to possible material changes in valuation conclusions. Disclaimer: the following examples and narrative are for instructional purposes and do not represent absolute opinions. Facts, circumstances, and time differ thus, no two valuations are the same, even for the same company as of different dates. Facts and circumstances should support assumptions and conclusions within a range of reasonableness. The goal of this article is to illustrate differences between valuations and the drivers behind those differences, not to opine that a specific discount rate, growth rate, or methodology to analyze earnings trends is “right” or “wrong.” Always and never should generally be avoided. Ideally, appraisers would be given the same qualitative and factual overview of the company including history, future outlook, growth and risk. Sometimes, this isn’t the case, and appraisers may receive different versions leading to variations in interpreting the risk profile and/or earning potential of the business, which can lead to differences in concluded values between appraisers. An independent, prudent valuator will be able to analyze the ebbs and flows of historical earnings, though an important step in the valuation process is discussing these trends with management. Management’s perspective behind the numbers can be helpful in understanding the trajectory of the business. In the context of litigation, it may be important for the appraiser to consider the sources of the information they are receiving. An Illustrative Example of Valuation Math Under the income approach, there are two general methods to value a business: Single period earnings capitalization Discounted future earnings (or benefits) If a company/management provides the two appraisers with projections of future financial performance, these may be assessed in the multi-period discounted cash flow method. However, projections may not be available, and in such cases, the single period earnings capitalization method is more commonly employed. To value a business under the single period income capitalization method, appraisers must specify three valuation elements: the expected cash flow (earnings) the appropriate discount rate (r), and the expected long-term growth rate in earnings (g) The basic valuation equation is: Value = Expected Cash Flow / (r – g) The denominator is (r – g), and 1 / (r – g) is the implied multiple of earnings. (r – g) is also sometimes referred to as a capitalization rate or cap rate. This equation is generalized. Depending on the measure of expected earnings or cash flow, the appropriate discount rates and expected growth rates must be used. For this example, assume the following: Ongoing earnings is $5.0 million. The discount rate is 16.0%. The expected long-term growth rate is 3.5%, which means that ongoing earnings will grow at that rate into the future. Based on the valuation equation above, we determine the appropriate multiple to be 8.0x, calculated by 1 / (16.0% – 3.5%). With our assumptions, we can develop a valuation indication using the single-period income capitalization method. As seen in the figure above, the analysis can be synthesized into simple multiplication. Higher earnings or a higher multiple will lead to a higher value and vice-versa. The multiple is a function of a company’s discount rate (or risk profile) and growth rate. All else equal, companies that are growing slower or are deemed riskier, as compared to peers, the industry, and historical performance, typically Both ongoing earnings and the multiple have numerous inputs and assumptions, and appraisers frequently use many of the same sources for the inputs in their analysis. For example, one of the first steps of a valuation is to request historical financials statements, to which appraisers make appropriate normalization adjustments to place the reported financial statements at market levels. Cost of capital data is used to assess risk and return, and appraisers commonly use similar sources in determining the risk of a business. Range of Reasonableness There are numerous reasons why appraisers may ultimately determine different values for the same subject business, so we won’t try list them all. Using our above example, if this valuation was the “right” answer for the purposes of this example, let’s make modest adjustments on both ends to show how much the answer might change with an optimist’s view and a pessimists’ view. For simplicity, we will assume the appraisers used the same risk-free rate, beta, size premium, growth rate, and level of earnings (which are highlighted in the below diagram in gray). The scenarios differ in the equity risk premium and specific company risk premium. While many of the components of the discount rate are similar, the concluded discount rates are different and range from 13.5% to 18.5%. On the surface, neither the equity risk premium nor specific company risk premium utilized by either the optimist or pessimist appear “too far” away from what we are calling the “correct” appraisal, based on the facts and circumstances of this hypothetical case. Despite seemingly small differences, the optimist’s conclusion is 50% higher than that of the pessimist. This is where the expertise and experience of an independent appraiser is key in determining what makes the most sense within a range of reasonableness. In an ideal world, two appraisers would not be 50% apart, but, as we’ve demonstrated above, reasonable assumptions could lead appraisers to have conclusions that are significantly apart.>>> Appraisals Bordering on Advocacy While reasonable appraisers may disagree, there comes a point at which certain assumptions border on aggressive and in the context of other assumptions, yield a conclusion that is unreasonable based on the facts and circumstances present. An appraiser might be on the high side of earnings and growth assumptions and on the low side on the corresponding risk assumption. Unless the assumptions are supported by the facts and circumstances for the specific company, the conclusion may become too aggressive and vice versa. In the figure below, we have illustrated how different assumptions can impact value. Only the risk-free rate, beta, and size premium (all highlighted gray) are the same. For the highest and lowest indications, we use more even more divergent specific company risk premiums, growth rates, and ongoing earnings levels. Given the assumptions in the figure, the “high” conclusion is more than quadruple the conclusion of the “low” appraisal ($92.3 million versus $21.6 million). As presented above among the scenarios, i.e., next to the more reasonable range, neither the high or low is reasonable and are examples of conclusions that are likely advocative in nature, rather than providing independent conclusions of value. Many assumptions that make up an appraisal are interrelated. Risk is a function of the assessment of ongoing earnings. If earnings are assumed to be much lower than the company has recently demonstrated, it makes sense that the risk in achieving lower performance would be lower than assuming the status quo or further increases in earnings. With earnings and risk being two of the key inputs in a valuation, it is important that each are reasonable on their own and when considered together. In the “high” example above, the appraiser uses high-end earnings and growth and low-end risk assumptions. There is likely a double counting of positive factors. In the “low” example, the appraiser uses low-end earnings and growth, and high-end risk assumptions. There is likely some double counting of negative factors there. NIB Deposits Anesthetize Bond Pain The August Bank Watch looks at unrealized losses in bank bond portfolios based upon Call Report data as of June 30, 2022. Our review of unrealized losses as of March 31 can be found here. Fed Chair Powell gave a short 8-minute speech on August 26 at the annual Jackson Hole, Wyoming economic summit that is hosted by the Federal Reserve Bank of Kansas City. The gist of Powell’s speech is that the Fed is solely focused on reducing inflation. Powell’s speech in 2021 discussed “transitory” inflation and the timing of when the Fed might begin to reduce its monthly purchase of $120 billion of U.S. Treasuries (“UST”) and Agency MBS. At the time consumer prices were then advancing around 5% vs 9% now. Last year, equity markets liked what it heard from Powell at Jackson Hole regarding the liquidity spigot; not so this year as the S&P 500 declined 3.4% and the NASDAQ declined 3.9% the day Powell spoke. The NASDAQ Bank Index declined 2.4% and is down 12.8% year-to-date through August 26. Interestingly, UST yields did not move much even though Powell said it would not be appropriate to stop hiking at a “neutral” rate. As such, bank bond portfolios did not incur additional losses. In fact, the peak loss for most bank bond portfolios was in mid-June when the yield on the 10-year UST rose to 3.49% compared to 2.98% on June 30 and 3.04% on August 26. Based upon our review of bank second quarter earnings calls and analysts’ write-ups, investors seem to be taking the losses in stride given solid growth in spread revenues as NIM expansion has been dramatic. Last spring that was not the case when the ~150bps increase in intermediate- and long-term rates produced significant losses in bond portfolios given little coupon to cushion the higher term structure. As shown in Figure 1, the Fed has hiked the Funds target rate much faster and by a greater magnitude than it did in 1994 when the Fed waylaid the bond market with 300bps of hikes. Bond portfolios were hammered as the hikes and an upturn in inflation drove longer-term rates higher by ~275bps. The curve became flatter but never inverted as investors assumed a recession would not develop.1 Figure 1: 1994 Bond Bear Market vs 2022 Bond Bear Market Powell’s comments last week imply short-term policy rates may go as high as 4% by next Spring based upon futures markets. Given little movement in UST yields, bond investors are pricing in slowing economic activity and possibly lower yields to come. If so, the inverted UST curve prospectively will become more inverted if the Powell Fed can stomach the seemingly probable fallout as it pushes short rates higher. Figure 2: Unrealized Bond Portfolio Losses vs Cost Basis and Tier 1 Capital Click here to enlarge the image above As shown in Figure 2, unrealized losses as of June 30 were significant though losses and gains are excluded from regulatory capital for all but the largest banks. Unrealized losses in available-for-sale (“AFS”) designated portfolios ranged from an average of 5.7% of cost for banks with less than $100 million of assets to 8.0% for banks with $1 billion to $3 billion of assets. As a percent of tier one capital the range was from 11.3% for banks with $100 billion to $250 billion of assets to 22.5% for banks with $100 million to $500 million of assets. Figure 3 provides the same data as of year-end 1994 when the ten-year UST was near a cyclical peak of ~8%. The bear market of 2022 is far worse than the 1994 bear market. Unlike 1994, portfolios today have little coupon to cushion the impact of rising rates. Also, duration may be longer today. The “coupon issue” today is reflected in low portfolio yields. As an example, the average taxable equivalent portfolio yield for banks with $1 billion to $3 billion of assets was only 1.96% in 2Q22 compared to 1.80% in 4Q21 immediately before the Fed began to hike. By way of comparison, the yield on one-month T-bills as of August 26 was 2.21% and 30-day LIBOR was 2.49%. Cash yields more than bond portfolios and prospectively will yield much more if the Fed pushes the Funds target to 4% by next spring. The good news is that portfolio cash flow should be reinvested at much higher yields to the extent it is not used to fund loan growth or deposit run-off. The same applies to fixed rate loans, which are not marked-to-market but may have comparable losses given both higher rates and wider credit spreads. The exceptionally good news is that non-interest-bearing (“NIB”) deposits, which are the core of core deposits, are driving NIM expansion and growth in spread revenues. Rate hikes this year are inflating the value of NIB deposits. There is no mark-to-market report for a board to see this; rather, the value is in the income statement. The unknowable question is if the Fed can push short-term rates higher without producing a sharp downturn or serious credit event that forces the Fed to blink again. The downturn in bank stocks this year primarily reflects investor expectations about the potential impact a recession would have on credit costs next year; it is not about unrealized losses in bond portfolios. Figure 4: Credit Spreads Widen Mercer Capital is a national valuation and transaction advisory firm that has advised banks for 40 years through bear and bull markets. Please call if we can be of assistance. 1 The Fed rate hiking campaigns of 2004-2006 (425bps of cumulative hikes to 5.25%) and 2015-2018 (225bps to 2.50%) did not produce as great of losses as the current cycle and 1994. The curve was exceptionally steep in 2004 such that long-term UST rates rose less than 100 bps (Greenspan called it a “conundrum”) while it took a couple of years for long-term yields to peak in 2018 around 3% vs the “all-at-once” episode this year. The Importance of Purchase Price Allocations to Acquirers This is the final article in a series on buy-side considerations. In this series, we will cover buy-side topics from the perspective of middle-market companies looking to enter the acquisition market. If you wish to read the rest of the series, click here. Growing up an avid sports fan, I always enjoyed picking up the paper and flipping to the sports section to see the box scores from the prior day’s games. While the headline score told you who won or lost, the box score gave more information and insights into who played well and the narrative of the game. For example, the box score might tell you that even though your favorite team won, they were dominated by the other team in all the categories except turnovers, or that the team that lost actually “won” each quarter except the fourth and their star player had a bad game. In my view, a purchase price allocation is similar to a box score in that it provides greater detail from which to derive insights on a particular transaction. While a purchase price allocation (PPA) analysis is primarily an accounting (and compliance driven) exercise, it is also a window into the objectives and motivations behind the transaction. When used proactively and/or during the M&A process, the disciplines of PPA analysis can provide buyers with important perspective concerning the unique value attributes of the target’s intangible asset base, which can help rationalize strategic acquisition consideration or forewarn of potentially unstable or short-lived intangible asset value. Below we explore PPAs further with a broad overview and then a deeper look into the pitfalls and best practices related to them. Introduction to PPAs Acquirers conduct PPAs to measure the fair value of various tangible and intangible assets of the acquired business. Any excess of the total asset value implied by the transaction over the fair values of identified assets is ascribed to the residual asset, goodwill. Intangible assets commonly identified and measured as part of PPA analyses include: Trade name – Trade name intangibles may be valuable if they enhance the expected future cash flows of the firm, either through higher revenue or superior margins. The relief from royalty method, which seeks to simulate cost savings due to the ownership of the name, is frequently used to measure the value of trade names. Customer relationships – Customer relationships can be valuable because of the expectation of recurring revenue. Technology – Technologies developed by the target business are valuable because the acquirer avoids associated development or acquisition costs. Patents and other forms of intellectual property may provide legal protection from competition and help secure uniqueness and/or differentiation. IPR&D – Ongoing R&D projects can give rise to in-process research and development intangible assets, whose values are predicated on expected future cash flows. Contractual assets – Contracts that lock in pricing advantages – above market sales prices or below market costs – create value by enhancing cash flow. Employment / Non-competition agreements – Employment and non-competition agreements with key executives ensure a smooth transition following an M&A transaction, which can be vital in reducing the likelihood of employee or customer defection. The value of an enterprise is often greater than the sum of its identified parts (both tangible and intangible), and the excess is usually reflected in the residual asset, goodwill. GAAP goodwill also captures facets of the target that may be value-accretive, but do not meet certain criteria to be identified as an intangible asset. Notably, fair value measurement presumes a market participant perspective. Goodwill may also include acquirer-specific synergistic or strategic considerations that are not available to other market participants. Consequently, goodwill has tended to account for a significant portion of allocated value in truly strategic business combinations. Pitfalls and Best Practices of PPAs Below we highlight some pitfalls and best practices gleaned from providing purchase price allocations to acquirers since the advent of fair value accounting. What are some of the pitfalls in purchase price allocations? Sometimes differences arise between expectations or estimates prior to the transaction and fair value measurements performed after the transaction. An example is contingent consideration arrangements – estimates from the deal team’s calculations could vary from the fair value of the corresponding liability measured and reported for GAAP purposes. To the extent amortization estimates are prepared prior to the transaction, any variance in the allocation of total transaction value to amortizable intangible assets and non-amortized, indefinite lived assets – be they identifiable intangible assets or goodwill – could also lead to different future EPS estimates for the acquirer. What are the benefits of looking at the allocation process early? The opportunity to think through and talk about some of the unusual elements of the more involved transactions can be enormously helpful. Similar to a coach who may look at the box score from the first half of a game during the halftime break, we view the dialogue we have with clients when we prepare a preliminary PPA estimate prior to closing as a particularly important part of the M&A project. This deliberative process results in a more robust – well-reasoned analysis that is easier for the external auditors to review, and better stands the test of time requiring fewer true-ups or other adjustments in the future. Surprises are difficult to eliminate, but as they say, forewarned is forearmed. Can goodwill be broken into different components?If so, what are the different components and how are they delineated? In the world of FASB, goodwill is not delineated into personal goodwill and corporate or enterprise goodwill. However, in the tax world, this distinction can be of critical importance and can create significant savings to the sellers of a C corporation business. Many sellers prefer that a transaction be structured as a stock sale, rather than an asset sale, thereby avoiding a built in gains issue and its related tax liability. Buyers want to do the opposite for a variety of reasons. When a C corporation’s assets are sold, the shareholders must realize the gain and face the issue of double taxation whereby the gain is taxed at both the corporate level, and again at the individual level when proceeds are distributed to the shareholders. Proceeds that can be allocated to the sale of a personal asset, such as personal goodwill, may mitigate the double taxation issue. The Internal Revenue Service defines goodwill as “the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.”1 Recent Tax Court decisions have recognized a distinction between the goodwill of a business itself and the goodwill attributable to the owners/professionals of that business. This second type is typically referred to as personal (or professional) goodwill (a term used interchangeably in tax cases). Personal goodwill differs from enterprise goodwill in that personal goodwill represents the value stemming from an individual’s personal service to that business, and is an asset owned by the individual, not the business itself. This value would encompass an individual’s professional reputation, personal relationships with customers or suppliers, technical expertise, or other distinctly personal abilities which provide economic benefit to a business. This economic benefit is in excess of any normal return earned on other tangible or intangible assets of the company. What other problems/issues beyond a PPA can you help acquirers navigate? As part of our full suite of services for acquirers, we can handle a number of different kinds of special projects that corporate finance departments may be looking to outsource, completely or partially. For example, our firm helps clients think through certain financial or strategic questions – what level of cash flow reinvestment will best balance competing shareholder interests? Or, what is the appropriate hurdle rate when evaluating internal projects vs. acquisitions for capital budgeting exercises? In other instances, we perform financial due diligence and quality of earnings analyses for transactions. As the “box score” of transactions, PPAs can be an important tool for acquirers and provide greater insight into the motivations and narrative behind a transaction by illustrating the value of various intangible components of a business beyond the collection of tangible assets and how those compare to the purchase price being paid. Our purchase price allocations can be more robust with fewer surprises when we have also worked with the clients before the close of the transaction on elements such as financial due diligence or contingent consideration estimates, or even broader corporate finance and PPA studies. Mercer Capital has extensive experience valuing intangible assets for purchase price allocations (ASC 805), impairment testing (ASC 350), and fresh-start accounting (ASC 852) and assisting buyers during financial due diligence. Call us – we would like to help. 1 IRS Publication 535: Business Expenses, Ch. 9, Cat. No. 15065Z Navigating Tax Returns | Tips and Key Focus Areas for Family Law Attorneys and Divorcing Individuals/Business Owners This piece is designed to help you better understand how to navigate tax returns on behalf of your clients. Why? The information contained in tax returns can provide support for marital assets and liabilities, sources of income, business ownership(s), and can lend cause for further analysis. Reviewing multiple years of tax returns and accompanying supplemental schedules may provide helpful information on trends and/or changes and could indicate the need for forensic investigations. We know you are not a forensic or finance specialist but in your role as a family law attorney, understanding the tax returns schedules, disclosures, and why that information is important can be valuable. That is what this short piece provides you. Form 1040, Schedule A (Itemized Deductions), Schedule K-1 and other relevant business-related schedules are addressed in this short, easy to read and easy to understand piece. We hope you will find this a handy reference that will become a well-worn resource in your practice. Mercer Capital is a national business valuation and advisory firm providing subject matter and industry-related expertise in financial, valuation, and forensic services. You’ll find more information about our national litigation team in this piece and here. When your clients have business valuation and/or forensic needs, please don’t hesitate to contact us. Buy-Side Solvency Opinions This is the ninth article in a series on buy-side considerations. In this series, we will cover buy-side topics from the perspective of middle-market companies looking to enter the acquisition market. If you wish to read the rest of the series, click here. With the potential rise of corporate bankruptcies, if the U.S. enters a sufficiently deep recession next year, debt funded acquisitions and dividend recap transactions that were common the past couple of years after rates plunged may be subject to intense scrutiny. Of course, if there is no recession or only a shallow recession, then these musings may be premature. Nonetheless, acquirers who anticipate levering a target’s capital structure and owners who are contemplating a dividend recap should be familiar with solvency opinions and the concept of fraudulent conveyance, concepts that were litigated in the 2020 bankruptcy of Neiman Marcus. Neiman Marcus: A Restructuring Case Study What Is a Solvency Opinion? The Business Judgement Rule, an English case law doctrine followed in the US and Canada, provides directors with great latitude in running the affairs of a corporation provided directors do not breach their fiduciary duties to act in good faith, loyalty and due care. However, there are instances when state law prohibits certain actions including the fraudulent transfer of assets to stockholders that would leave a company insolvent. This straightforward statutory prescription has taken on more meaning over the past decade because Corporate America has significantly increased its use of debt given very low interest rates. Investors have been willing to fund the increase because negligible rates on “safe” assets have pushed individuals and institutions further out the risk curve to produce income. Transactions that may meaningfully alter the capitalization of a company include leveraged dividend recapitalizations, leveraged buyouts, significant share repurchases, and special dividends funded with existing assets. Often a board contemplating such actions will be required to obtain a solvency opinion at the direction of its lenders or corporate counsel to provide evidence that the board exercised its duty of care to make an informed decision should the decision be challenged. A solvency opinion addresses four questions Does the fair value of the company’s assets exceed its liabilities after giving effect to the proposed action? Will the company be able to pay its debts (or refinance them) as they mature? Will the company be left with inadequate capital? Does the fair value of the company’s assets exceed its liabilities and surplus to fund the transaction? A solvency opinion is typically performed by a financial advisor who is independent, meaning the advisor has not arranged financing or provided other services related to the contemplated transaction. The opinion is based upon financial analysis to address the valuation of the corporation and its cash flow potential to assess its debt service capacity. Also, the opinion is just that—it is an informed opinion. It is not a pseudo statement of fact predicated upon the “known” future performance of the Company. It provides a reasonable perspective concerning the future performance of the Company while neither promising to stakeholders that those projections will be met, nor obligating the Company to meet those projections. Test 1: The Balance Sheet Test Does the fair value and present fair saleable value of the Company’s total assets exceed the Company’s total liabilities, including all identified contingent liabilities? The balance sheet test is a valuation test in which the value of the company’s liabilities are subtracted not from the assets recorded on the balance sheet, but rather the fair market value of the firm on a total invested capital basis. The value of the firm on a debt-free basis is estimated via traditional valuation methodologies, including Discounted Cash Flow (“DCF”), Guideline Public Company and Guideline Transactions (M&A) Methods. In some instances, the Net Asset Value (“NAV”) Method may be appropriate for certain types of holding companies in which assets can be marked-to-market. Test 2: The Cash Flow Test Will the Company be able to pay its liabilities, including any identified contingent liabilities, as they become due or mature? This question addresses whether projected cash flows are sufficient for debt service. A more nuanced view evaluates the question along three general dimensions: Revolver Capacity: If financial results approximate the forecast, does the Company have sufficient capacity, relying upon its revolving credit facility if necessary, to manage cash flow needs through each year? Covenant Violations: Does the projected financial performance imply that the Company will violate covenants of the credit or loan agreement, or the terms of any other credit facility currently in place or under consideration as part of the subject transaction? Ability to Refinance: Is it likely that the Company will be able to refinance any remaining balance at maturity? Test 3: The Capital Adequacy Test Does the Company have unreasonably small capital with which to operate the business in which it is engaged, as management has indicated such businesses are now conducted and as management has indicated such businesses are proposed to be conducted following the transaction? The capital adequacy test is related to the cash flow test. A company may be projected to service its debt as payments come due, but a proposed transaction may leave the margin to do so too thin to address operating needs—something many companies discovered this year during which they were able to operate with high leverage as long as business conditions were favorable. There is no bright line test for what “unreasonably small capital” means. We typically evaluate this concept based upon pro forma and projected leverage multiples (Debt/EBITDA and EBITDA/Interest Expense) relative to public market comps and rating agency benchmarks. While management’s projections represent a baseline scenario, alternative downside scenarios are constructed to asses the “unreasonably small capital” question in the same way downside scenario analyses are constructed to address the question of whether debts can be paid or refinanced when they come due. Test 4: The Capital Surplus Test Does the fair value of the Company’s assets exceed the sum of (a) its total liabilities (including identified contingent liabilities) and (b) its capital (as such capital is calculated pursuant to Section 154 of the Delaware General Corporation Law)? The capital surplus test replicates the valuation analysis prescribed under the balance sheet test, but also includes the Company’s capital in the subtrahend (Hey! There is a word we haven’t seen since early primary school. The subtrahend is the value being subtracted.) Section 154 of the Delaware General Corporation Law defines statutory capital as (a) the par value of the stock; or in stances when there is no par value as (b) the entire consideration received for the issuance of the stock. Capital as defined here is nuanced. Often it may be a small amount if par is some nominal amount such as a penny a share, but that may not always be the case. What is excluded is retained earnings (or deficit) from the equity account. The Mosaic of Solvency The tests described above are straightforward. Sometimes proposed transactions are straightforward regarding solvency, but often it is less clear—especially when the subject company operates in a cyclical industry. Every solvency analysis is unique to the subject transaction and company under review and requires an objective perspective to address the solvency issue. Mercer Capital renders solvency opinions on behalf of private equity, independent committees, lenders and other stakeholders that are contemplating a transaction in which a significant amount of debt is assumed to fund shareholder dividends, an LBO, acquisition or other such transactions that materially lever the company’s capital structure. Solvency Analysis as a Decision Tool Not only is a solvency opinion a prudent tool for board members and other stakeholders, but the framework of solvency analysis is ready made to score strategic alternatives and facilitate capital deployment. If your board, senior management team, or capital providers need to discuss a significant financing in confidence, Mercer Capital’s advisory team is prepared to serve your needs. >> Learn More About Our Solvency Opinion Services Strategic Benefits of Stress Testing in an Uncertain Economic Environment Having gone on many a camping trip over the years, the only consistency between these trips into the woods is that there is no consistency. While some trips might have beautiful weather, others might be plagued with storms, cold fronts, heat waves, or strong winds. The campsite may or may not have amenities. And most importantly, contending with the wildlife adds another variable that can’t be predicted. However, the key element of how the trip goes is how prepared we are. The trips where we assumed blue skies were by far the most stressful. If we prepared for different outcomes and weather based on the uncertainty of going into the woods, the trip could always be salvaged. Banks and credit unions are currently facing a similar “into the woods” predicament, as the economic environment seems to grow more volatile and contradictory day by day. While hiring remains strong and unemployment continues to stay near historically low levels with the Bureau of Labor Statistics reporting 3.6% as of June 2022, other indicators are flashing warning signs. Inflation concerns continues to plague the economy after accelerating to 9.1% in June 2022, the highest increase since November 1981. Drivers of inflation in the past several months include rising food and gas prices as global supply remains disrupted from Russia’s invasion of Ukraine and the remnants of the pandemic. Economists are taking notice, with nearly 70% of economists surveyed by the Financial Times and the Initiative on Global Markets believing that the National Bureau of Economic Research (NBER) will make a call at some point in 2023 identifying a recession. These conflicting indicators are convoluting the economic forecast through the rest of 2022 and 2023, and the differing potential circumstances would have very different impacts on banks and credit unions. Though this uncertainty can certainly cause headaches and stress for banks and credit unions worried about their capital positions in a severely adverse economic scenario, stress testing can help to prepare your bank or credit union in the face of uncertainty and help to optimize strategic decisions. Stress Test Overview A stress test is defined as a risk management tool that consists of estimating the bank’s financial position over a time horizon – approximately two years – under different scenarios (typically a baseline and severely adverse scenario). The OCC’s supervisory guidance in October 2012 stated “community banks, regardless of size, should have the capacity to analyze the potential impact of adverse outcomes on their financial conditions.” 1 Further, the OCC’s guidance considers “some form of stress testing or sensitivity analysis of loan portfolios on at least an annual basis to be a key part of sound risk management for community banks.” 2 A stress test can be defined as “the evaluation of a bank’s financial position under a severe but plausible scenario to assist in decision making with the bank.” 3 There are a few different types of stress tests that banks and credit unions can utilize in estimating their financial position: Transaction Level Stress Testing: This method is a “bottom up” analysis that looks at key loan relationships individually, assesses the potential impact of adverse economic conditions on those borrowers, and estimates loan losses for each loan. Portfolio Level Stress Testing: This method involves the determination of the potential financial impact on earnings and capital following the identification of key portfolio concentration issues and assessment of the impact of adverse events or economic conditions on credit quality. This method can be applied either “bottom up,” by assessing the results of individual transaction level stress tests and then aggregating the results, or “top down,” by estimating stress loss rates under different adverse scenarios on pools of loans with common characteristics. Enterprise-Wide Level Stress Testing: This method attempts to take risk management out of the silo and consider the enterprise-wide impact of a stress scenario by analyzing “multiple types of risk and their interrelated effects on the overall financial impact.” 4 The risks might include credit risk, counter-party credit risk, interest rate risk, and liquidity risk. In its simplest form, enterprise-wide stress testing can entail aggregating the transaction and/or portfolio level stress testing results to consider related impacts across the firm from the stressed scenario previously considered. By utilizing one or more of these stress testing exercises, banks and credit unions can better position themselves for multiple different economic scenarios in order to assure they have sufficient capital and financial strength to withstand an economic downturn if there is one. Economic Scenarios Overview One question that often arises is: Given the uncertainty, what economic scenarios should we consider in our stress testing? While it is difficult to answer this question, the most recent Stress Test scenarios prepared by the Federal Reserve are described in a February 2022 report, 2022 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule, and provide some guidance to assist with this decision. The scenarios start in the first quarter of 2022 and extend through the first quarter of 2025. Each scenario includes 28 variables, nineteen of which are related to domestic variables in the U.S. While the more global economic conditions detailed in the Fed’s supervisory scenarios may not be applicable to community banks or credit unions, certain domestic variables within the scenarios could be useful when determining the economic scenarios to consider. The domestic variables include six measures of real economic activity and inflation, six measures of interest rates, and four measures of asset prices. The baseline scenario includes an economic expansion over the 13-quarter scenario period, while the severely adverse scenario is a hypothetical scenario that includes a severe global recession, accompanied by heightened stress in commercial real estate and corporate debt markets. Below, we have included charts of some of the more relevant domestic variables (GDP, unemployment rates, the Prime Rate, and commercial/residential real estate prices) and their historical levels through year-end 2021 as well as the Fed’s assumptions for those variables in the baseline and severely adverse scenarios. 2022 Supervisory Economic Scenarios Overview Benefits of the Stress Test As the U.S. moves into a more uncertain economic environment, a financial institution’s preparation for its trip “into the woods” of this uncertain economic environment can reap dividends. Improved valuation, performance enhancement from enhanced strategic decisions, and risk management are some of these benefits. Greater clarity into the bank or credit union’s capital position, credit risk, and earnings outlook under different economic circumstances helps management to make more informed operational decisions. We acknowledge that bank and credit union stress testing can be a complex exercise. The bank or credit union must administer the test, determine and analyze the outputs of its performance, and provide support for key assumptions/results. There is also a variety of potential stress testing methods and economic scenarios to consider when setting up their test. In addition, the qualitative, written support for the test and its results is often as important as the results themselves. For all of these reasons, it is important that bank and credit union management begin building their stress testing expertise sooner rather than later. In order to assist financial institutions with this complex and often time-consuming exercise, we offer several solutions, including preparing custom stress tests for your institution or reviewing ones prepared by the institution internally, to make the process as efficient and valuable as possible. To discuss your stress testing needs in confidence, please do not hesitate to contact us. For more information about stress testing, click here. 1OCC 2012-33 “Supervisory Guidance” on Community Bank Stress Testing dated October 18, 2012 and accessed at www.occ.gov/news-issuances/bulletins/2012/bulletin-2012-33.html. 2 Ibid. 3 “Stress Testing for Community Banks” presentation by Robert C. Aaron, Arnold & Porter LLP, November 11, 2011. 4 OCC 2012-33 “Supervisory Guidance” on Community Bank Stress Testing dated October 18, 2012 and accessed at www.occ.gov/news-issuances/bulletins/2012/bulletin-2012-33.html. Buy-Side Fairness Opinions: Fair Today, Foul Tomorrow? This is the eighth article in a series on buy-side considerations. In this series, we will cover buy-side topics from the perspective of middle-market companies looking to enter the acquisition market. If you wish to read the rest of the series, click here. Directors are periodically asked to make tough decisions about the strategic direction of a company. Major acquisitions are usually one of the toughest calls boards are required to make. A board’s fiduciary duty to shareholders is encapsulated by three mandates: Act in good faith; Duty of care (informed decision making); and Duty of loyalty (no self-dealing; conflicts disclosed). Directors are generally shielded from courts second guessing their decisions by the business judgment rule provided there is no breach of duty to shareholders. The presumption is that non-conflicted directors made an informed decision in good faith. As a result, the burden of proof that a transaction is not fair and/or there was a breach of duty resides with the plaintiffs. An independent fairness opinion helps demonstrate that the directors of an acquiring corporation are fulfilling their fiduciary duties of making an informed decision. Fairness opinions seek to answer the question whether the consideration to be paid (or received from a seller’s perspective) is fair to a company’s shareholders from a financial point of view. Occasionally, a board will request a broader opinion (e.g., the transaction is fair). A fairness opinion does not predict where the buyer’s shares may trade in the future. Nor does a fairness opinion approve or disapprove a board’s course of action. The opinion, backed by a rigorous valuation analysis and review of the process that led to the transaction, is just that: an opinion of fairness from a financial point of view. Delaware, the SEC and Fairness Fairness opinions are not required under Delaware law or federal securities law, but they have become de rigueur in corporate M&A ever since the Delaware Supreme Court ruled in 1985 that directors of TransUnion were grossly negligent because they approved a merger without adequate inquiry and expert advice. The court did not specifically mandate the opinion be obtained but stated it would have helped the board carryout its duty of care had it obtained a fairness opinion regarding the firm’s value and the fairness of the proposal. The SEC has weighed in, too, in an oblique fashion via comments that were published in the Federal Register in 2007 (Vol. 72, No. 202, October 19, 2007) when FINRA proposed rule 2290 (now 5150) regarding disclosures and procedures for the issuance of fairness opinions by broker-dealers. The SEC noted that the opinions served a variety of purposes, including as indicia of the exercise of care by the board in a corporate control transaction and to supplement information available to shareholders through a proxy. Dow’s Sour Pickle Buy-side fairness opinions have a unique place in corporate affairs because the corporate acquirer has to live with the transaction. What seems fair today but is deemed foul tomorrow, may create a liability for directors and executive officers. This can be especially true if the economy and/or industry conditions deteriorate after consummation of a transaction. For instance, The Dow Chemical Company (“Dow”), a subsidiary of Dow Inc. (NYSE: DOW), agreed to buy Rohm and Haas (“RH”) for $15.4 billion in cash on July 10, 2008. The $78 per share purchase price represented a 75% premium to RH’s prior day close. The ensuing global market rout and the failure of a planned joint venture with a Kuwait petrochemical company led Dow to seek to terminate the deal in January 2009 and to cut the dividend for the first time in the then 97 years the dividend had been paid. Ultimately, the parties settled litigation and Dow closed the acquisition on April 1, 2009 after obtaining an investment from Berkshire Hathaway (NYSE: BRK.A) and seller financing via the sale of preferred stock to RH’s two largest shareholders. Dow was well represented and obtained multiple fairness opinions from its advisors (Citigroup, Merrill Lynch and Morgan Stanley). One can question how the advisors concluded a 75% one-day premium was fair to Dow’s shareholders (fairness is a mosaic and maybe RH’s shares were severely depressed in the 2008 bear market). Nonetheless, the affair illustrates how vulnerable Dow’s Board of Directors or any board would have been absent the fairness opinions. Fairness and Elon Before Elon Musk reneged on his planned acquisition of Twitter, Inc. (NYSE: TWTR) on July 8, 2022, one of the most recent contentious corporate acquisitions was the 2016 acquisition of SolarCity Corporation by Tesla Inc. (NASDAQGS: TSLA). Plaintiffs sought up to $13 billion of damages, arguing that (a) the Tesla Board of Directors breached its duty of loyalty, (b) Musk was unjustly enriched (Musk owned ~22% of both companies and was Chairman of both); and (c) the acquisition constituted waste. Delaware Court of Chancery Judge Joseph Slights ruled in favor of Tesla on April 27, 2022. Slights noted courts are sometimes skeptical of fairness opinions; however, he was not skeptical of Evercore’s opinion, noting extensive diligence, the immediate alerting of the Tesla Board about SolarCity’s liquidity situation and the absence of prior work by Evercore for Tesla. Tesla Walks the Entirely Fair Line with SolarCity In March 2016, Jonathan Goldsmith retired from a long advertising stint for Dos Equis beer as the Most Interesting Man in the World with a final commercial in which he was sent on a one-way trip to Mars. The same month Elon Musk, arguably the most interesting man in global business then and now, was laying the ground work for the merger of Telsa, Inc. (NASDAQ: TSLA) and SolarCity Corporation of which he owned about 22% of both companies. Fairness as an adjective means what is just, equitable, legitimate and consistent with rules and standards. As it relates to transactions, fairness is like valuation in that it is a range concept: transactions may not be fair, a close call, fair or very fair. This presentation looks at the issues raised by plaintiffs who alleged Musk orchestrated the deal to bail-out SolarCity, and how the Delaware Court of Chancery ruled on the issues on April 27. 2022 under the entire fairness standard rather than deferential business judgment rule. Valuing Stock Options of Start-up Companies: A Complex Issue in Marital Dissolutions The valuation of stock options is a complex issue that divorcing parties may face during the determination and division of the marital estate. Designed as compensation to both reward past performance and retain employees in the future, these benefits can be difficult to value, particularly at a specific point in time for the purpose of marital dissolution. We previously wrote about the valuation models as set forth by the AICPA Quick Reference Guide. In this piece, we walk through an example of how to value a not so simple stock option situation – one in a start-up company. Stock options ultimately derive their value from the value of the underlying business. While pricing data of publicly traded companies is readily available, that is not the case for privately owned businesses since by definition they are not traded daily on an active market. Overview of Stock Options & Importance in Marital Dissolution A stock option is a contract that provides the owner the right, but not the obligation, to purchase stock in the company at a specified price. These options can be issued by publicly traded or privately held companies. In its most basic structure, an option contract consists of: Grant Date and number of options granted Vesting Date: date when the granted shares become exercisable Exercise (or Strike) Price: the price at which the stock can be purchased Expiration Date: the date the stock option expires The vesting schedule is important, particularly in the context of marital dissolution, as the options may not be immediately exercisable and vest ratably over a period of time. A vesting schedule sets out the period of time over which options vest and become exercisable. For example, a common vesting schedule may provide for an equal amount of the options of a specific grant to become exercisable each year over a certain period, perhaps four or five years. If an employee leaves the company, he or she may forfeit unvested options. The terms differ by company and sometimes even by grant, so one should carefully review the terms as specified in the plan documents. An example of a vesting schedule over a four-year period is shown below. In the context of marital dissolution, there are many important factors to consider relative to stock options, most notably what is marital vs. separate and what is the value of said options. First, what is marital versus separate may vary by state statute. This extends to stock options regarding vested and those which are still vesting as of the date under consideration which may be date of marriage, separation and/or divorce. Next, what is the value of the options? If the parties intend to split options based on a percentage, perhaps the value is less of a consideration, but, if the parties intend to offset the value of the stock options with another asset of the marital estate, valuing the stock options bears much more importance. Valuing Stock Options In the case of options issued by a publicly traded company, the intrinsic value can be easily determined as the value of the option if it were exercised today. Simply, intrinsic value is the option strike price relative to the share price today. The option is said to be “in-the-money” if the strike price is below the current market value. A simple example calculation of the intrinsic value of an option to purchase stock of a hypothetical public company is shown below. Using the example from above, if Current Public Co stock price is $120 or below, the stock option owner would likely not exercise their right to purchase the stock. The option would have little to no intrinsic value today if the current stock price were below the option strike price, but it may still have time value. The other component of the option value is time value, which relates to the premium relative to the time remaining until an option expires. The time value represents the value of holding a stock option over time. We have previously written about stock option valuation models, such as lattice, Black-Scholes, and Monte Carlo models. These models are useful when dealing with options issued by publicly traded companies, particularly because the assumptions and inputs for the Black-Scholes model can be taken directly from the respective public company’s public filings and historical pricing data. Unique Considerations for Valuing Start-Up Stock Options for Marital Dissolution In many instances, start-up companies issue stock options to employees, typically as a form of compensation called incentive-based compensation. The valuation of these options can be especially difficult given the lack of an active market for the company’s shares and the uncertainty and potential volatility associated with early-stage companies with limited operating history. While the option exercise, or strike price, is defined with the option grant, the underlying share price as of a specific date may be more complex to determine for a start-up company. Funding rounds and respective 409A valuations can provide useful valuation information for start-up companies. Start-ups seek to raise capital from investors such as venture capitalists and private equity funds. Capital raises are a primary indication of investors’ views and pricing activity on the company. 409A valuations are performed in conjunction with a company issuing equity or options and thus occur concurrently to funding rounds. However, funding rounds happen sporadically, and the time period between each round may vary between start-ups. In the case of a fast-growing company, valuations can change considerably between funding rounds as different milestones are achieved. Alternatively, a valuation may be down between funding rounds due to poor performance or general downward macroeconomic trends, perhaps such as during a recessionary time. In the context of marital dissolution, funding rounds, time since last round, and 409A valuations are important pieces of information to gather. Another possible piece of information to gather is any recent transactions or buy-sell offers for the start-up stock; one such example would occur for a departing employee who may be soliciting offers to sell his/her vested interest. As discussed above, the considerations of marital versus separate and the vesting schedule are also important during this process unique to start-ups. However, in the following discussion, we will focus on the unique attributes of valuing start-up stock options using the information gleaned from funding rounds, 409A valuations and any recent transactions data of the underlying stock. For marital dissolution purposes, unless stock options are divided based on percentage, the key question is what is the value as of a specific date? Perhaps the value is necessary as of multiple dates (marriage, separation and/or divorce date). Since the price as of a specific date is necessary, hence arises the difficulty unique to start-up stock option valuations – because funding rounds are sporadic and value as of a certain date is necessary, the financial expert must have the skills to value these situations. As a clear example, it is unlikely a funding round occurred exactly on the date of marriage. Similarly, a funding round likely did not close on the exact date of divorce. If the dates of marriage, separation and/or divorce fall on or proximate to a funding round, the financial expert could base the determination of value of the stock options on the per share value implied by the funding round. However, if the relevant dates are between two funding rounds, the financial expert must carefully evaluate the implied pricing at that point in time. One reasonable method is the mathematical process of interpolation to determine the implied value at those dates. Interpolation determines the implied value between two dates by assuming a liner relationship between the value at the most recent funding round prior to the valuation date and the funding round most immediately following the valuation date. While early-stage companies could possibly be more volatile and have periods of exponential growth, using a linear relationship is supported by the comparison of the growth between the two funding round dates and can be understood by a layperson. The chart below shows an example of interpolation of value implied by a series of funding rounds for a hypothetical start-up company. The x-axis represents the date, and the y-axis is the share price; to illustrate, the first funding round was on December 1, 2015 for a $5.00 share price, followed by a funding round on May 1, 2017 for a $15.00 share price and so on, with the last funding round on March 31, 2021 for an $80.00 share price. In this example, the date of marriage (“DOM”) is December 31, 2016, which falls between two funding rounds, and the date of separation (“DOS”) is December 31, 2020, also falling between two funding rounds. Neither date falls directly on or just after a funding round. The orange dots on the chart represent the interpolated values at the date of marriage and date of separation. The magnitude of using interpolated values versus choosing a previous funding round share price can have a meaningful impact, depending on the number of shares owned. While interpolation may be a reasonable methodology in certain situations, there may be other reasonable methodologies of determining the value of a start-up company’s share price at a point in time which falls outside of funding rounds. The financial expert may also consider an independent business valuation, during which the expert considers quantitative and qualitative elements of the company, as well as performance expectations as of the current date. Individual Transactions of Start-Up Shares Typically, individual seller’s shares transact at a discount to the value implied by the most recent funding round, while 409A valuations are often seen as a floor for any potential transactions or investments. However, if there is strong demand for the start-up, or other buyer motivation, a premium to the funding round is not out of the realm of possibilities, particularly if the company is growing quickly or has hit certain milestones since the last funding round. But, let’s hone in on the possible discount – the discount relative to the share price of the most recent funding round reflects considerations such as the lack of an active market for the shares and the lack of influence available to a minority shareholder. As an example, lets say the start-up offers at-home cooking classes and the last funding round was during the pandemic; now, two years later and with the pandemic behind us (hopefully), people are back to dining at restaurants and spending disposable income on travel, pushing demand for at-home cooking classes down. Even though there is not a current funding round to support a decline in the share price valuation, one can discern a likelihood of downward trend on pricing. Discounts (and/or premiums) can vary based on the situation, and there is no standard discount, as facts and circumstances vary tremendously between start-up companies. However, such transactions among individual stockholders or offers received by shareholders can provide potential indications of an appropriate discount, which may then be appropriate for value determination for marital dissolution as of a certain date (marriage, separation and/or divorce). If the options are vested, or exercisable at the valuation date, a similar process of the intrinsic value calculation, presented earlier, can be used. This provides an estimate of value based on the profit that could be realized if the options were exercised on the valuation date. In summary, stock options entail unique valuation considerations compared to a traditional business valuation. A start up company’s stock options also have unique attributes that must be considered and valued carefully. In certain situations, start-up stock options may comprise a significant component of the marital balance sheet. An experienced financial expert can accurately value these complex assets. Mercer Capital has experience in valuing stock options for private, publicly traded and start-up companies. Bond Pain and Perspective on Bank Valuations Equity investors define a bear market as a 20% or greater reduction in price from the most recent high price. There is no consensus for fixed income. A bond’s maturity and coupon are key variables in determining the sensitivity of price except when overlaying credit and prepayment variables when applicable. A simple definition might be when the price falls more than three times the annual income for any bond with a maturity greater than five years. If so, it is a low bar when coupons are as low as they are. Definitions aside, the bond market is in a bear market. Figure 1 :: 1994 Bear Market vs 2022 Bear Market The yield on the 10-year U.S. Treasury note (“UST”) was 3.21% on June 27, up from 1.51% as of year-end. Ignoring the impact of the intervening six months for what would be a bond with 9.5 years to maturity, the increase in yield has produced a ~14% loss in value. The last bond bear market that was brutal occurred in 1994 when the Fed raised the Fed Funds target rate from today’s aspirational rate of 3.0% beginning in February to 6.0% by February 1995. The yield on the 10-year UST rose from 5.19% on October 15, 1993 to a peak of 8.05% on November 7, 1994 once the market could see the last few Fed hikes to come. The 286bps increase in yield pushed the price of the 10-year UST down by 17%, which modestly exceeds the 14% loss this year. Coupons matter. Fixed income investors entered the current rising rate environment with little coupon to cushion rising yields unlike in the years immediately after the Great Financial Crisis when the Fed first implemented a zero-interest rate policy (“ZIRP”). Worse, banks entered the current bear market with much bigger securities portfolios given the system was inundated with excess deposits because of actions taken by the Fed and government to offset the COVID-19 recession. To get a sense of the damage in bank bond portfolios consider Figures 2 and 3 where we have compared the unrealized losses in bank bond portfolios as of March 31 with the unrealized losses as of year-end 1994, which roughly corresponded to the bottom of the 1994 bear market. The data reflects averages. Figure 2 :: Unrealized Losses in Bank Portfolios as of March 31, 2022 Figure 3 :: Unrealized Losses in Bank Portfolios as of December 31, 1994 We make the following observations for banks with $1 billion to $3 billion of assets: Banks are better capitalized with average leverage and tier one capital ratios of 10.6% and 17.0% as of March 31, 2022 compared to 8.3% and 12.9% as of year-end 1994. Securities classified as available-for-sale (“AFS”) and held-to-maturity (“HTM”) averaged 19.0% and 2.5% of assets as of March 31, 2022 compared to 11.2% and 14.6% as of year-end 1994. The unrealized loss in the AFS portfolio equated to 4.7% of the cost basis and 11.3% of tier one capital (excludes the deferred tax asset adjustment) as of March 31, 2022 compared to 2.8% and 5.7% as of year-end 1994. 1 Unrealized losses in HTM portfolios in Figure 2 may appear too small even though many banks classify long-dated municipals as HTM because these illiquid bonds had not been adequately marked yet to reflect a rapidly declining market. Unrealized losses will increase once June 30 data is available because UST rates have risen ~75bps since March 31. Banks are sitting on large unrealized losses today. Investors know that. The bear market in bank stocks (the NASDAQ Bank Index is down ~19% YTD) primarily reflects investor expectations about the potential impact a recession would have on credit costs next year even though NIMs will increase this year (excluding the impact of PPP loan fees) and next provided the Fed does not pivot and reduce rates. The current equity bear market is not about unrealized losses in bond portfolios; it is about the economic outlook. From a valuation perspective, we primarily look to the impact of rising (or falling) rates on a bank’s earnings rather than how changes in rates have impacted the value of the bond portfolio and tangible book value. Assuming an efficient market, the unrealized losses represent the opportunity cost of holding bonds with coupons below the current market rate. If the underwater bonds are sold and immediately repurchased, then the bonds repurchased will produce enough extra income over the life of the bonds to recoup the loss (assuming an efficient market). Further, the AFS securities portfolio is the only asset for most banks that is marked-to-market other than mortgage loans pending sale. Fixed rate residential and CRE loans would have sizable losses, too, if subjected to mark-to-market. Rates have risen, prepayment speeds have slowed and in the case of CRE credit spreads have widened. Also not marked-to-market are deposits. Though a liability, core deposits are the key “asset” for commercial banks. Value for deposits—especially non-interest-bearing deposits—are soaring given a low beta to changes in market interest rates when loan-to-deposit ratios are low. The monthly report that really matters is not the bond report but the asset-liability model (“ALM”). Banks manage net interest margin (price) and assets (volume) to drive earnings; and earnings (or cash flow) drive stocks over time. Earnings also build book value to the extent earnings are retained. Rising rates—gradually rather than rapid—are a positive development given the commercial bank business model, assuming that credit quality does not deteriorate. Having said that, we cannot completely dismiss the unrealized losses in the bond portfolios. Some investors focus on tangible book value, though we view it as a proxy for earning power because tangible book value is levered to produce net interest income. Also, M&A is more challenging because day one dilution to tangible BVPS is greater to the extent unrealized bond losses are recognized via fair value marks applied to all assets. Of course, earnings then increase from accreting the discounts as additional yield. Aside from the soaring value of core deposits, the glass half full view is bonds and fixed rate loans eventually mature. In the interim, cash flows should be reinvested to produce better yields. Mercer Capital is a national valuation and transaction advisory firm that has advised banks for 40 years through bear and bull markets. Please give one of our professionals a call if we can be of assistance. Considering Contingent Consideration This is the seventh article in a series on buy-side considerations. In this series, we will cover buy-side topics from the perspective of middle-market companies looking to enter the acquisition market. If you wish to read the rest of the series, click here. Contingent consideration is a common feature of M&A when both parties are private, or the acquirer is public, and the target is private. There are many forms of contingent consideration in M&A. These include post closing purchase price adjustments that can alter total transaction value or that can alter the payment and realization of net proceeds through the recovery of transaction set-asides such as escrow balances or the payment of holdbacks and deferrals. What Do Earnouts Entail? The most common contingent payment is an “earn-out” that bridges the buyer’s bid and the seller’s ask by ensuring the business produces an agreed upon level of revenues and/or earnings (typically EBITDA) within an agreed timeframe before the payment is made. Earn-outs could be considered the ultimate form of confirmatory due diligence. From a buyer’s perspective, earn-outs reduce risk by reducing up-front cash and the likelihood of materially overpaying absent an adverse turn in the economy or industry conditions. From a seller’s perspective, contingent consideration allows sellers to obtain an acceptable price and sometimes a premium or stretch valuation if the Company attains the agreed-upon targets. Further, earnouts create an alignment of interests to the extent roll-over management and ownership is incented to optimize the company’s performance. In our experience, most buyers are willing to pay in a range of value that produces an acceptable return based upon conservative assumptions about the business’ future earning power (EBITDA or EBITDA less capex) and growth rate. Unless the business is viewed as having above average risk, most buyers’ required rate of return on an unlevered basis will be conservative but not ridiculously high. This reflects buyers’ natural aversion to risks that may not be readily apparent to most sellers. An earn-out is a means by which to close or narrow this gap. When earnouts are involved, buyers and sellers must understand the waterfall of post-closing events, and their respective timing and terms to gain a full understanding of transaction consideration. Earnouts are a form of purchase consideration where acquirers tender value to the target seller if certain future events occur. Earnouts provide sellers with potential value fulfillment or upside while simultaneously allowing buyers to defer payment of consideration with the possibility of recovering a designated portion of the purchase price if post-closing hurdles are not achieved. By its nature, contingent consideration adds complexity for both buyers and sellers, particularly when the features of the earnout reflect significant speculation on post-closing outcomes. These might include high growth, reversals of trend, or specific events such as new business developments or failed business retention. Despite the complexities, earnouts and other forms of contingent consideration can be critical to achieving a successful closing when market conditions are ebbing more than flowing or when winning the day requires the buyer to make a stretch offer. Mid-Market Deals Increasingly Reflect Up-Market Deal Structures According to GF Data®, a firm that provides data on private equity-sponsored M&A transactions with an enterprise value of $10 to $250 million, 38% of 432 transactions in 2021 entailed either seller financing or earnouts compared to 44% of 329 deals in 2020. The reduction last year reflected a seller’s market that was characterized by too much capital chasing a limited pool of sellers. Given tighter financial conditions this year that may lead to a recession later this year or next, it would not surprise us to see the percentage of deals with an earnout increase because the risk to a target’s earnings and maybe long-term growth prospects will rise. A financial advisor can be an important intermediary for both buyer and seller to craft a well structured earnout to facilitate successful deal negotiations rather than letting a poorly crafted and/or poorly socialized earnout create a negotiation wedge that can delay or overwhelm momentum required to finalize a purchase agreement. Buyer Awareness and Financial Reporting While it should not impact the economics of a transaction, buyers face the added burden of accounting for contingent consideration per FASB’s ASC 805, which addresses business combinations. It requires that the fair value of contingent consideration be recorded as a liability at the acquisition date, resulting in an increased amount of goodwill or other intangible asset depending upon how value is allocated to the acquired assets. Fair value also must be re-measured for each subsequent reporting period until the contingency is settled. Mercer Capital’s years of M&A purchase price allocation work for both strategic and financial acquirers gives us unique insight into the sometimes nettlesome issues of purchase price allocations in M&A transactions. While this article is an installment in our larger buy-side series of content, it is important to draw advice for buyers from our near universal advice to sellers. We often advise sellers to be content with the consideration they receive at closing and to assess contingent consideration with a healthy degree of skeptical risk, particularly when achieving the earnout represents a stretch in future outcomes. A logical extension of that advice for buyers is to be prepared to pay even if the benchmarks are deemed a stretch. The occasional extraordinary outcome can create significant buyer liability. Whether the net effect on the buyer is a beneficial deferral of payment or a deal premium (or otherwise) must be assessed in the context of the overall offering stack. Buyers should determine the reason for using an earnout and then determine an appropriate design for the earnout. Clear, unambiguous terms and measurements are recommended to minimize negotiating friction and incent smooth post-closing integration and alignment of interests both operationally and financially. If your development needs involve growth through acquisition, and you find the market for quality targets requires the thoughtful use of earnout consideration, Mercer Capital can provide useful insight while helping quantify the real-time financial equivalency of any earnout consideration offered. Featured Newsletter Featured Whitepaper

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professional_accounting

ACE Reports First Quarter Operating Income of $745 Million or $2.25 per Share, P&C Combined Ratio of 88.4% and Operating Return on Equity of 10.8% Global P&C net premiums written, which exclude Agriculture, up 5% in constant dollars P&C underwriting income of $402 million, up 7.8% in constant dollars Net investment income of $551 million Operating cash flow of $1.1 billion Unfavorable foreign currency movement negatively impacted operating income by $20 million, or $0.06 per share, compared with the prior year, reduced Global P&C net premiums written growth by five percentage points and reduced book value by $441 million in the quarter ZURICH--Apr. 21, 2015--(BUSINESS WIRE)--ACE Limited (NYSE: ACE) today reported net income for the quarter ended March 31, 2015, of $2.05 per share, compared with $2.14 per share for the same quarter last year.(1) Operating income was $2.25 per share, compared with $2.27 per share for the same quarter last year. Operating return on equity for the quarter was 10.8%. The property and casualty (P&C) combined ratio for the quarter was 88.4%. Book value and tangible book value per share increased 0.9% and 1.8%, respectively, from December 31, 2014. Book value and tangible book value per share now stand at $90.81 and $73.94, respectively. Excluding unfavorable foreign currency movement, book value per share and tangible book value per share increased 2.4% and 3.0%, respectively. Year-over-year results were adversely impacted by foreign exchange in the period, as noted above, and a number of favorable items from the prior year that did not repeat. In the prior year, North American P&C underwriting income was favorably impacted by $25 million of premium-related items. Life underwriting income was favorably impacted in the prior year due to a non-recurring $6 million reserve adjustment. In addition, 2014 benefited from lower taxes of $16 million related to prior period development emerging in lower tax jurisdictions. These items and foreign exchange had a negative impact of $0.18 per share on operating income. First Quarter Summary (in millions, except per share amounts) (Per Share - Diluted) 2015 2014 Change 2015 2014 Change Operating income, net of tax $ 745 $ 777 (4.2)% $ 2.25 $ 2.27 (0.9)% Adjusted net realized losses, net of tax (64 (43 ) 46.6% (0.20 ) (0.13 ) 53.8% Net income $ 681 $ 734 (7.2)% $ 2.05 $ 2.14 (4.2)% Evan G. Greenberg, Chairman and Chief Executive Officer of ACE Limited, commented: “ACE’s first quarter earnings per share were essentially flat with prior year – a good result for a global, dollar-based insurer. We overcame unfavorable foreign exchange movement and a number of favorable items from prior year to produce after-tax operating income of $745 million, or $2.25 per share. Our earnings benefited from excellent underwriting and investment income results, highlighted by a P&C combined ratio of 88.4% and investment income that was flat with prior year. We generated an operating ROE of nearly 11% while per share book and tangible book value grew 2.4% and 3%, respectively, in constant dollars. Foreign exchange negatively impacted per share book value by 1.5 points. “Global P&C net premiums written grew 5% on a constant-dollar basis with the strong dollar taking about five percentage points off our company’s premium growth. We obviously have the headwinds of foreign exchange, an underwriting environment that continues to grow more competitive for our commercial P&C businesses, as well as low interest rates. Given our excellent diversification by product, geography and consumer segment, many areas of our business present attractive growth prospects, particularly in the U.S., Latin America and Asia, and as a result we expect our premium revenue growth for the balance of the year to be in the mid-single digits on a published basis.” Operating highlights for the quarter ended March 31, 2015, were as follows: (in millions of U.S. dollars except for percentages) 1Q Net premiums written $ 3,585 $ 3,691 (2.9)% Net premiums written constant-dollar $ 3,524 1.7% Underwriting income $ 402 $ 390 3.2% Combined ratio 88.4% 88.8% Current accident year underwriting income excluding catastrophe losses $ 370 $ 381 (2.8)% Current accident year combined ratio excluding catastrophe losses 89.3% 88.9% Global P&C (excludes Agriculture) Net premiums written $ 3,497 $ 3,497 0.0% Underwriting income $ 355 $ 421 (15.7)% Net premiums written $ 88 $ 194 (54.6)% Underwriting income (loss) $ 47 $ (31) NM Combined ratio 26.4% 130.3% Current accident year underwriting income excluding catastrophe losses $ 15 $ 8 107.6% P&C net premiums earned increased 3.5% and Global P&C net premiums earned increased 4.8% in constant dollars. The P&C expense ratio was 31.3%, compared with 31.1% last year. The Global P&C expense ratio, which excludes Agriculture, was 32.0% compared with 31.9% last year. The Agriculture expense ratio was (6.9)% compared with 5.7% last year. Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $51 million (1.5 percentage points of the combined ratio) and $40 million, respectively, compared with $53 million (1.5 percentage points of the combined ratio) and $43 million, respectively, last year. Favorable prior period development pre-tax and after-tax were $83 million (2.4 percentage points of the combined ratio) and $67 million, respectively, compared with $62 million (1.6 percentage points of the combined ratio) and $63 million, respectively, last year. Operating cash flow was $1.1 billion. Net loss reserves decreased $112 million in the quarter after adjusting for foreign exchange. Net investment income was $551 million compared with $553 million last year. This quarter was negatively impacted by foreign currency movement of $7 million. Net realized and unrealized losses pre-tax totaled $27 million. Net realized losses of $63 million included a loss of $57 million from derivative accounting related to variable annuity reinsurance. Net unrealized gains of $36 million included an unrealized gain of $444 million in the investment portfolio, partially offset by an unrealized foreign exchange loss of $421 million. Operating return on equity was 10.8%. Return on equity computed using net income was 9.2%. Share repurchases totaled $340 million, or approximately 3.0 million shares, during the quarter. The company has repurchased approximately 650,000 shares for $73 million through April 20, 2015. Book value per share increased 0.9% to $90.81 from $90.02 at December 31, 2014. Excluding unfavorable foreign currency movement, book value per share increased 2.4%. Tangible book value per share increased 1.8% to $73.94 from $72.61 at December 31, 2014. Excluding unfavorable foreign currency movement, tangible book value per share increased 3.0%. Details of financial results by business segment are available in the ACE Limited Financial Supplement. Key segment items for the quarter ended March 31, 2015, include: Insurance – North American P&C: Net premiums written increased 0.8%. The combined ratio was 89.6% compared with 84.7%. The current accident year combined ratio excluding catastrophe losses was 87.9% compared with 87.1%. The prior year underwriting income was favorably impacted by two items that did not repeat totaling $25 million ($18 million after-tax), which includes $16 million ($12 million after-tax) due to lower excess of loss premiums ceded under the company’s 2014 catastrophe reinsurance program and a $9 million ($6 million after-tax) favorable settlement related to prior year state premium assessments. Excluding the impact of these items, the current accident year combined ratio excluding catastrophe losses was 87.9% compared with 88.5%. Insurance – North American Agriculture: Net premiums written decreased 54.6% due to lower premium retention as a result of a timing difference in premium recognition between the fourth quarter of 2013 and the first quarter of 2014. Additionally, the premium-sharing formulas with the U.S. government resulted in a large positive true-up in 2014 due to the 2013 crop year loss estimates. The combined ratio was 26.4% compared with 130.3%. The current period included $33 million of favorable prior period development, compared with $38 million of unfavorable prior period development in the prior year. The current accident year combined ratio excluding catastrophe losses was 76.7% compared with 88.9% principally due to more favorable expense adjustments in the current period related to the 2014 crop year true-up with the government. Insurance – Overseas General: Net premiums written increased 1.3%, or 11.0% on a constant-dollar basis. The combined ratio was 89.1% compared with 90.1%. The current accident year combined ratio excluding catastrophe losses was 90.3% compared with 90.5%. Global Reinsurance: Net premiums written decreased 11.4%, or 9.1% on a constant-dollar basis. The combined ratio was 73.2% compared with 72.9%. The current accident year combined ratio excluding catastrophe losses was 75.5% compared with 75.1%. Life segment: Operating income was $66 million compared with $77 million. The decrease was primarily related to the runoff of the company’s life reinsurance business and a one-time prior year benefit in the company’s international life insurance business of $6 million (pre-tax and after-tax). International life insurance net premiums written and deposits collected increased 18.4% on a constant-dollar basis. Please refer to the ACE Limited Financial Supplement, dated March 31, 2015, which is posted on the company's website in the Investor Information section, and access Financial Reports for more detailed information on individual segment performance, together with additional disclosure on reinsurance recoverable, loss reserves, investment portfolio and capital structure. ACE will hold its first quarter earnings conference call on Wednesday, April 22, 2015, beginning at 8:30 a.m. Eastern. The earnings conference call will be available via live webcast at www.acegroup.com or by dialing 888-523-1245 (within the United States) or 719-457-2657 (international), passcode 9701050. Please refer to the ACE Group website in the Investor Information section under Calendar of Events for details. A replay of the call will be available until Wednesday, May 6, 2015, and the archived webcast will be available for approximately one month. To listen to the replay, please dial 888-203-1112 (in the United States) or 719-457-0820 (international), passcode 9701050. About ACE Group ACE Group is one of the world’s largest multiline property and casualty insurers. With operations in 54 countries, ACE provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. ACE Limited, the parent company of ACE Group, is listed on the New York Stock Exchange (NYSE: ACE) and is a component of the S&P 500 index. Additional information can be found at: www.acegroup.com. (1) All comparisons are with the same period last year unless specifically stated. Regulation G - Non-GAAP Financial Measures In presenting our results, we included and discussed certain non-GAAP measures. These non-GAAP measures, which may be defined differently by other companies, are important for an understanding of our overall results of operations and financial condition. However, they should not be viewed as a substitute for measures determined in accordance with generally accepted accounting principles (GAAP). Throughout this document there are various measures presented on a constant-dollar basis (i.e., excludes the impact of foreign exchange). We believe it is useful to evaluate the trends in our results, exclusive of the effect of fluctuations in exchange rates between the U.S. dollar and the currencies in which our international business is transacted, as these exchange rates could fluctuate significantly between periods and distort the analysis of trends. The impact is determined by assuming constant foreign exchange rates between periods by translating prior period results using the same local currency exchange rates as the comparable current period. Adjusted net realized gains (losses), net of tax, includes net realized gains (losses) and net realized gains (losses) recorded in other income (expense) related to unconsolidated subsidiaries, and excludes realized gains and losses on crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impacts underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations, and therefore realized gains and losses from these derivatives are reclassified to adjusted losses and loss expenses. The P&C combined ratio includes adjusted losses and loss expenses in the ratio numerator. Underwriting income, P&C underwriting income, and Global P&C underwriting income are calculated by subtracting losses and loss expenses, policy benefits, policy acquisition costs and administrative expenses from net premiums earned. P&C underwriting income also includes gains (losses) on crop derivatives. We use underwriting income and operating ratios to monitor the results of our operations without the impact of certain factors, including net investment income, other income (expense), interest and income tax expense and adjusted net realized gains (losses). Current accident year underwriting income excluding catastrophe losses is underwriting income adjusted to exclude catastrophe losses and prior period development (PPD). We believe it is useful to exclude catastrophe losses, as they are not predictable as to timing and amount, and PPD as these unexpected loss developments on historical reserves are not indicative of our current underwriting performance. We believe the use of these measures enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Operating income or income excluding adjusted net realized gains (losses), net of tax is a common performance measurement for insurance companies. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. We exclude adjusted net realized gains (losses) because the amount of these gains (losses) is heavily influenced by the availability of market opportunities. In addition, we disclose operating income excluding the impact of foreign exchange in order to adjust for the distortive effects of fluctuations in exchange rates. P&C combined ratio excluding catastrophe losses and PPD and current accident year P&C combined ratio excluding catastrophe losses exclude impacts of catastrophe losses and PPD. We believe this measure provides a better evaluation of our core underwriting performance and enhances the understanding of the trends in our property and casualty business that may be obscured by these items. Global P&C performance metrics comprise consolidated operating results (including corporate) and exclude the operating results of the company’s Life and Insurance – North American Agriculture segments. We believe that these measures are useful and meaningful to investors as they are used by management to assess the company’s global P&C operations which are the most economically similar. We exclude the Insurance – North American Agriculture and Life segments because the results of these businesses do not always correlate with the results of our global P&C operations. International life net premiums written and deposits collected, is adjusted to include deposits collected on universal life and investment contracts (life deposits). Life deposits are not reflected as revenues in our consolidated statements of operations in accordance with GAAP. However, we include life deposits in presenting growth in our life insurance business because new life deposits are an important component of production and key to our efforts to grow our business. Operating return on equity (ROE) or ROE calculated using operating income is an annualized financial measure. The ROE numerator includes income adjusted to exclude adjusted net realized gains (losses), net of tax. The ROE denominator includes the average shareholders' equity for the period adjusted to exclude unrealized gains (losses) on investments, net of tax. To annualize a quarterly rate, multiply by four. Annualized ROE calculated using operating income is a useful measure as it enhances the understanding of the return on shareholders' equity by highlighting the underlying profitability relative to shareholders' equity excluding the effect of unrealized gains and losses on our investments. Tangible book value per common share is shareholders' equity less goodwill and other intangible assets divided by the shares outstanding. We believe that goodwill and other intangible assets are not indicative of our underlying insurance results or trends and make book value comparisons to less acquisitive peer companies less meaningful. In addition, we disclose per share measures for book value and tangible book value that exclude the impact of foreign currency fluctuations during 2015 in order to adjust for the distortive effects of fluctuations in exchange rates. Other income (expense) – operating excludes from consolidated Other income (expense) the portion of net realized gains and losses related to unconsolidated entities and gains and losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. Net realized gains (losses) related to unconsolidated entities is excluded from operating income in order to enhance the understanding of our core results of operations as they are heavily influenced by, and fluctuate in part according to market conditions. See reconciliation of Non-GAAP Financial Measures on pages 22-24 in the Financial Supplement. These measures should not be viewed as a substitute for net income, return on equity, or effective tax rate determined in accordance with GAAP. NM - not meaningful comparison Cautionary Statement Regarding Forward-Looking Statements: Forward-looking statements made in this press release, such as those related to company performance including 2015 performance and growth opportunities, reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the following: competition, pricing and policy term trends, the levels of new and renewal business achieved, the frequency of unpredictable catastrophic events, actual loss experience, uncertainties in the reserving or settlement process, integration activities and performance of acquired companies, new theories of liability, judicial, legislative, regulatory and other governmental developments, litigation tactics and developments, investigation developments and actual settlement terms, the amount and timing of reinsurance recoverable, credit developments among reinsurers, rating agency action, possible terrorism or the outbreak and effects of war, economic, political, regulatory, insurance and reinsurance business conditions, potential strategic opportunities including acquisitions and our ability to achieve and integrate them, as well as management's response to these factors, and other factors identified in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ACE Limited Summary Consolidated Balance Sheets (in millions of U.S. dollars, except per share data) Investments $ 63,894 Insurance and reinsurance balances receivable 5,026 Reinsurance recoverable on losses and loss expenses 11,588 Other assets 16,942 Total assets $ 98,398 Unpaid losses and loss expenses $ 37,326 Unearned premiums 8,182 Other liabilities 23,188 Total liabilities 68,696 Shareholders' equity Total shareholders' equity 29,702 Total liabilities and shareholders' equity $ 98,398 Book value per common share $ 90.81 Summary Consolidated Financial Data (in millions of U.S. dollars, except share, per share data, and ratios) Gross premiums written $ 5,322 Net premiums written 4,076 Net premiums earned 3,927 Losses and loss expenses 2,122 Policy benefits 142 Policy acquisition costs 707 Administrative expenses 554 Net investment income 551 Net realized gains (losses) (89 ) Interest expense 68 Gains (losses) from separate account assets 11 Other (6 ) Income tax expense 120 Net income $ 681 Diluted earnings per share: Operating income $ 2.25 Net income $ 2.05 Weighted average diluted shares outstanding 331.7 P&C combined ratio Loss and loss expense ratio 57.1 % Policy acquisition cost ratio 17.4 % Administrative expense ratio 13.9 % P&C combined ratio 88.4 % P&C underwriting income $ 402 Other income (expense) - operating $ (32 ) Consolidated Supplemental Segment Information (in millions of U.S. dollars) Gross Premiums Written Insurance – North American P&C $ 2,125 $ 2,024 Insurance – North American Agriculture 128 234 Insurance – Overseas General 2,255 2,261 Global Reinsurance 292 333 Life 522 522 Total $ 5,322 $ 5,374 Net Premiums Written Insurance – North American Agriculture 88 194 Net Premiums Earned Operating Income (loss) Insurance – North American P&C $ 345 $ 411 Insurance – North American Agriculture 35 (25 ) Insurance – Overseas General 241 239 Life 66 77 Corporate (70 ) (69 ) Total $ 745 $ 777 ACE®, ACE logo®, and ACE insured® are trademarks of ACE Limited. Helen Wilson, 441-299-9283 [email protected] Jeffrey Zack, 212-827-4444 [email protected]

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Portada » Marginal Cost Calculator Marginal Cost Calculator Por Admin_User01 octubre 21, 2021 agosto 8, 2022 Bookkeeping How to Calculate a Marginal Cost Curve Use charts, linear equations, and nonlinear equations to determine costs What Jobs Use the Marginal Cost Formula? How to calculate the marginal cost Part 2 of 3:Pinpointing the Change in Cost Example of marginal revenue Long-run marginal cost A demand function tells you how many items will be purchased given the price. In other words, the marginal cost (i.e., the additional expenditure to make another unit) is $100 per table. Variable costs are things like your raw materials, labor hours, and additional transportation costs. Companies must be mindful of when increasing production necessitates results in step costs due to changes in relevant ranges (i.e. additional machinery or storage space needed). To determine the changes in quantity, the number of goods made in the first production run is deducted from the volume of output made in the following production run. Analyzing marginal cost offers several potential benefits, including cost advantages through increased production efficiencies and whether or not product prices should increase based on any losses. For example, Business A produces 100 motor vehicles that cost $10,000 each, bringing the total cost to $1,000,000 or $1 million for short. This might be as a result of the firm becoming too big and inefficient, or, a managerial issue where staff becomes demotivated and less productive. Whatever the reason, firms may face rising costs and will have to stop production when the revenue they generate is the same as the marginal cost. Costs of production include both variables as well as fixed costs. Change in costs is the level of output that determines an increase or decrease in cost because when the output is high, it will lead to high costs, and vice versa, lower outputs mean lower costs. Marginal cost is referred to as incremental cost and is defined as the increase or decrease in the cost of production of more units or serving just one more customer. As there is no change in the fixed costs, the only factor to influence the marginal cost is the variations in the variable cost. Therefore, the conclusion is that the cost of production of additional units equals to the income from the sale. What is a marginal cost example? Marginal costs include more than just the cost of materials. The marginal cost of production includes everything that varies with the increased level of production. For example, if you need to rent or purchase a larger warehouse, how much you spend to do so is a marginal cost. It’s more than likely that the 1500 units will need to be sold at a lower price point to sell out. Perhaps, at 2000 units, the marginal revenue has decreased so much that it is now lower than the marginal cost. To summarize, calculating marginal revenue is a financial exercise in determining whether a business can generate more revenue from selling additional units. How to Calculate Marginal Cost Learning how to calculate marginal revenue can help analyze consumer demand, forecast production schedules, and set the pricing of units. If a business were to produce too few units, they could lose on potential sales, and producing too many units will incur unnecessary costs. Marginal revenue is the additional income gained from selling one more unit of product. Marginal cost is the expenses needed to manufacture one incremental good. As a manufacturing process becomes more efficient or economies of scale are recognized, the marginal cost often declines over time. However, there is often a point in time where it may become incrementally more expensive to produce one additional unit. If the hat factory was unable to handle any more units of production on the current machinery, the cost of adding an additional machine would need to be included in marginal cost. The 1,500th unit would require purchasing an additional $500 machine. In this case, the cost of the new machine would need to be considered in the marginal cost of production calculation as well. A company can maximize its profits by producing to where marginal cost equals marginal revenue . For example, if it costs you $500 to produce 500 widgets and $550 to produce 600 widgets, your change in cost would be $50. If you produced more than 1,000 cupcakes, your fixed costs would change because you would have to buy an additional oven. This concept was outlined by Adam Smith, who felt that this could be achieved through labor division. In classical economics, the marginal cost of production is expected to increase until there is a point where producing more units would increase the per-unit production cost. This can help a company by reducing transportation and inventory storage expenses. Such production creates a social cost curve that is below the private cost curve. Resources such as cash to pay for operating expenses or to purchase assets to facilitate business operations. When he isn’t helping others in the SaaS world bring their ideas to the market, you can find him relaxing on his patio with one of his newest board games. Baremetrics makes it easy to collect and visualize all of your sales data. It can be difficult to calculate your MRR, ARR, LTV, and so much more. In economic theory, marginal cost is widely used as an indicator of maximizing production profits. The formula for calculating the marginal cost consists of two key elements. If you decide to use a marginal cost calculator, all you have to do is enter the given data into https://www.bookstime.com/ the calculator, and it will calculate the final result for you. As such, we really don’t need to do any calculation to determine the marginal cost of capital. That’s when the marginal cost of capital increases as equity can be more costly than debt or preference shares. The marginal cost of production and marginal revenue are economic measures used to determine the amount of output and the price per unit of a product that will maximize profits. If the price an item is sold for is higher than the marginal cost of an item, then a business stands to see increased profits. So, because the tangent line is a good approximation of the cost function, the derivative of C — called the marginal cost — is the approximate increase in cost of producing one more item. Pricing will vary based on various factors, including, but not limited to, the customer’s location, package chosen, added features and equipment, the purchaser’s credit score, etc. It shows that the marginal cost of increasing the output by a single unit is 14 dollars. When used in conjunction with skilled planning and marketing, margin cost pricing can be an excellent tool to use in sales, increasing liquidity, and so on. Get rid of old stock and clear their distribution chain for new products. This can help a company by reducing transportation and inventory storage expenses. This is an important formula for cost projections and determining whether or not a business activity is profitable. He has also served as a Vice President for one of the top five Private Equity Firms. The production of these units increases the average total cost of production to $2.17 ($26/12). To calculate marginal cost, you need to know the total cost to produce one unit of whatever product or service you sell. Fixed costs should stay the same throughout your cost analysis, so you need to find the output level at which you would have to increase those fixed expenses. As we can see, fixed costs increase because new equipment is needed to expand production. Variable costs also increase as more staff and raw materials are needed. At the same time, the number of goods produced and sold increases by 25,000. The marginal cost of these is therefore calculated by dividing the additional cost ($20,000) by the increase in quantity , to reach a cost of $0.80 per unit. That 100th toy soldier sells for $15, meaning the profit for this toy is $10. Now, suppose the 101st toy soldier also costs $5, but this time can sell for $17. The profit for the 101st toy soldier, $12, is greater than the profit for the 100th toy soldier. Marginal revenue measures the change in the revenue when one additional unit of a product is sold. Assume that a company sells widgets for unit sales of $10, sells an average of 10 widgets a month, and earns $100 over that timeframe. This means that the marginal cost of each additional unit produced is $25. ABC has sold all possible units at its normal price point of $10.00, and still has residual production capacity available. Direct labor is rarely completely variable, since a minimum number of people are required to crew a production line, irrespective of the number of units produced. She practiced in various “Big Law” firms before launching a career as a business writer. When marginal cost is less than average cost, the production of additional units will decrease the average cost. When marginal cost is more, producing more units will increase the average. If we are looking at the second set of units, then $12,000 – $11,000 leaves us at $1,000 for the change in costs. The marginal cost of production is used to optimize production levels. Having a strong understanding of how costs change unit by unit gives companies the information they need to pick the production level that matches their goals. ABC International has designed a product that contains $5.00 of variable expenses and $3.50 of allocated overhead expenses. ABC has sold all possible units at its normal price point of $10.00, and still has residual production capacity available. A customer offers to buy 6,000 units at the company’s best price. Deduct the costs for the smaller production interval or output level from the costs for the larger one. This amount is your change in cost for that particular interval. So if you planned to produce 10 units of your product, the cost to produce unit 11 is the marginal cost. Finance teams can run into trouble when forecasting marginal cost into the future. As your organization changes, your marginal cost formula may have to change with it. Updating that formula over time based on the completion or implementation of capital projects and initiatives can be a daunting task in a spreadsheet-based financial model. Subtract the old cost from the new cost to get the change in cost. Your change in cost is measured in the same way that the change in quantity is. If it will cost $12.50 to make the 1,001st toy, but will only sell for $12.49, the company should stop production at 1,000. For example, a toy manufacturer could try to measure and compare the costs of producing one extra toy with the projected revenue from its sale. Watch this clip as a continuation from the video on the previous page to see how average variable cost, average fixed costs, and average total costs are calculated. The marginal cost is the cost to produce each additional unit of production. In this case, when the marginal cost of the (n+1)th unit is less than the average cost, the average cost (n+1) will get a smaller value than average cost. It goes the opposite way when the marginal cost of (n+1)th is higher than average cost. In this case, The average cost(n+1) will be higher than average cost. In economics, the marginal cost is the change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity. In some contexts, it refers to an increment of one unit of output, and in others it refers to the rate of change of total cost as output is increased by an infinitesimal amount. For instance, say the total cost of producing 100 units of a good is $200. However, the marginal cost for producing unit 101 is $4, or ($204 – $200) ÷ ( ). On the other hand, average cost is the total cost of manufacturing divided by total units produced. The average cost may be different from marginal cost, as marginal cost is often not consistent from one unit to the next. If the selling price for a product is greater than the marginal cost, then earnings will still be greater than the added cost – a valid reason to continue production. When performing financial analysis, it is important for management to evaluate the price of each good or service being offered to consumers, and marginal cost analysis is one factor to consider. Allows for increased and decreased costs of production, which helps a company evaluate how much they pay to produce more items. For example, suppose you want to calculate the marginal cost of producing 600 widgets a day, up from 500 widgets a day. Your change in cost is $50 and your change in quantity is 100. For example, if you own a cupcake bakery, your ovens are a fixed expense. If your ovens are capable of baking 1,000 cupcakes a day, then 1,000 would be the maximum quantity of cupcakes you would consider for your marginal cost analysis. If you produced more than 1,000 cupcakes, your fixed costs would change because you would have to buy an additional oven. Your marginal cost is the cost you will incur if you produce additional units of a product or service. What is marginal costing PDF? Marginal costing is used to provide a basis for the interpretation of cost data to measure the profitability of different products, processes and cost centres in the course of decision making. Then the total cost per case would be $4.7, which shows us that there has been a reduction in marginal costs. The marginal cost of something is the expense incurred to produce one additional unit of a good or service. It is the change in total cost for an incremental change in production. It is calculated by dividing the change in total cost by the change in output. It would be as if the vertical axis measured two different things. Using the figures from the previous example, the total cost of producing 40 haircuts is $320. If you graphed both total and average cost on the same axes, the average cost would hardly show. Earlier their cost of production was only 10 dollars, but an increase in the prices of variable costs has increased the marginal cost to 14 dollars. Let’s say it’s about a jewelry company that produces the products made of a particular type of rope and shells. The material needed to make it belongs to the group of variable costs, and the price of the material is $3. In addition to these costs, the company incurs fixed monthly costs of $1,700. Consider the situation that 850 pieces are produced monthly and that each product requires $2 of fixed costs. Marginal costs are an essential element of calculation in companies, as they can help maximize profits. By including marginal costs in the calculation formula, materials and labor need to be considered. Strona Oficjalna Zakłady Plus Kasyno Online Why Do Persons Use Online dating services?

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Corporate Event Gallery Accounting and Tax Planning Forensic Investigative Accounting Accounting Expert Witness & Litigation Support Quoted Opinions / Press The Bankler Report RSS Expand/Collapse Accounting and Planning (27) RSS Expand/Collapse Forensic Accounting (2) RSS Expand/Collapse Expert Witness and Litigation Support (4) RSS Expand/Collapse General (29) asset protection bankruptcy business business owners business structure capital gains capital losses credit defer income family business structure Printable Newsletters December, 2013 – Minimizing the 3.8% Net Investment Income Tax November, 2013 – Deciding When to Start Receiving Social Security Benefits October, 2013 – Fourth Quarter Tax Planning September, 2013 – Partial Restoration of Lost Social Security Benefits August, 2013 – The Affordable Care Act July, 2013 – The Marriage Penalty June, 2013 – Use a QDRO to Divide Qualified Plan Assets in Divorce May, 2013 – Tax Breaks for Families and Students April, 2013 – Impact of Higher Individual Federal Tax Rates March, 2013 - American Taxpayer Relief Act of 2012 Prepaid Forward Contracts: Litigation Financing With Significant Tax Advantages Author: Alexander Carr Litigation financing has been booming in the U.S. for about a decade. As MarketWatch reports, third-party investors are pouring up to $100 billion into funding lawsuits as a way to seek returns that can far surpass equity and fixed-income investments. Plus, as Forbes Tax Contributor Robert W. Wood points out, “Litigation funders help to level the playing field, just as contingent fee arrangements for lawyers did a generation ago.” Hard Lesson: CPA Firms Issuing Opinion Financial Statements Have Ethical Responsibilities A shocking grand jury indictment that was recently unsealed proves that attempts to game the system when it comes to audit oversight are a very, very bad idea Big Change in the Business Meals & Entertainment Deduction One of the biggest caveats for business owners in the new Tax Cuts and Jobs Act (TCJA) is the complete loss of the business entertainment deduction. No longer can you deduct 50% of qualified business entertainment like ending a productive day with a client at the ballpark. But what about business meals, or meals that include some element of entertainment? That area is less defined. Cryptocurrency 101 for Small Businesses Bitcoin and other cryptocurrencies are all over the news lately, yet it remains a mystery to many small business owners. We know you’ve got questions, so we compiled a simple Q&A using advice from cryptocurrency experts to help explain what cryptocurrency is, when it might be a good idea for small businesses, and how it’s taxed. Our Annual Charitable Giving Guide Are you closing out the year on a high note? If so, consider giving to charities to offset potential capital gains taxes. With so many questions surrounding possible new tax laws in 2018, it may be more important than ever to take advantage of charitable giving opportunities before the end of the year. That’s because if your tax burden reduces in 2018, so will the tax value of those charitable contributions. If you are unsure of which charity you wish to support, you can always open and fund a Donor Advised Fund. The contributions made before December 31 are deductible, even though you don’t designate the charities until 2018 or even further into the future. Also, there are laws in place right now that can make giving even more beneficial. For example, if you’re 70 ½ or older, you can donate up to $100,000 from your IRA as part of your Required Minimum Distribution to charity each year, tax free. 7 Signs Your Business Entity Needs to Change Choosing the right business entity at the right time may be a good way to minimize your taxes, reduce creditor liabilities, and offer more flexibility in your succession plan. While the decision shouldn’t be taken lightly and could incur significant costs, reviewing your options should be something you do on a regular basis, similar to performing regular maintenance on your car so it continues to run smoothly. Even seemingly small changes could signify a structure modification is in order, like an LLC instead of a sole proprietorship or a corporation. Fewer Family Businesses Are Staying in the Family It was once common for an entrepreneur to pass a business down to the next generation in the family. In fact, the practice crossed industry lines, with retail stores, plumbing businesses, law firms, and even physician practices commonly being passed down to the children who had been groomed from an early age to carry on the family business. The Dire Consequences of “Accidentally” Incorporating Online legal services make it seem very easy to start and incorporate a business. But, through the eyes of the IRS, the difference between a sole proprietorship and a corporation is more dramatic than just being able to add “Inc.” to your business name. A Michigan tax case involving a small family business illustrates this point. What started with an innocent mistake by a well-meaning son ended in thousands of dollars of back taxes owed by a widowed business owner. Steven Bankler Featured in New Book on Changing the Face of Accounting We’re thrilled to announce that Steven Bankler is featured in Ian Welham’s new book entitled Changing the Face of Accounting: Forward Thinking Conversations About Reinventing the CPA Field. Welham dedicated an entire chapter to Steven, featuring an interview that highlights the many ways in which Steven Bankler, CPA, Ltd. does things differently from typical CPA firms When you hire Steven Bankler and his team of certified public accountants, you get seasoned, knowledgeable CPAs. Rather than experienced bookkeepers, promising CPAs-in-training or studious interns in the process of completing their accounting degrees, you get professional CPAs. We Solve Problems. 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View his detailed experience here: Quoted Opinions For over 30 years, daily newspapers, television networks and affiliates and prominent newstalk radio programs have published and broadcasted Steven Bankler’s insights on a wide range of forensic accounting and tax topics. His expert opinion is highly regarded in informing and educating the public, as well as judges, and juries on complex issues. Copyright © 1995- 2020 Steven Bankler - Call 210.691.3133 NETWORK WITH US ON LINKEDIN

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PBCO Financial Corporation Reports Q4 and 2022 Earnings By Tina Owens Last updated Jan 26, 2023 MEDFORD, Ore., January 26, 2023–(BUSINESS WIRE)–PBCO Financial Corporation (OTC PINK: PBCO), the holding company (Company) of People’s Bank of Commerce (Bank), announced today its financial results for the fourth quarter of 2022 and for year-end 2022. Net income of $2.0 million in the quarter, or $0.38 per diluted share Loan growth of $27.3 million in the quarter, an increase of 6.1% compared to Q3 2022 Net interest margin of 3.74%, an increase of 34 basis points compared to Q3 2022 Cost of deposits was 0.16%, an increase of 3 basis points compared to Q3 2022 Hired team of commercial bankers in Eugene, Oregon Net income of $9.9 million for 2022 year-end, or $1.92 per diluted share The Company reported net income of $2.0 million, or $0.38 per diluted share, for the fourth quarter of 2022 compared to net income of $3.0 million, or $0.56 per diluted share, in the same quarter of 2021. Earnings for the full year 2022 were $9.9 million or $1.92 per share, down from $11.5 million or $2.33 per share for 2021. The reduction in earnings in 2022 is due to lower mortgage income of $1.7 million and absence of PPP fee revenue, which was $4.7 million in 2021, coupled with one-time income and expenses related to the merger with Willamette Community Bank in March 2021. “Despite a challenging operating environment in 2022, the Company proved resilient with strong profitability in fourth quarter and full year 2022,” commented Ken Trautman, Chief Executive Officer. “Further, we continue to identify opportunities to grow the Bank and remain focused on serving our customers and delivering strong financial results for shareholders. We recently hired a team of commercial bankers to lead our expansion into Eugene, Oregon, and believe we are well positioned to take advantage of growth opportunities in this market. Deposits decreased $45.8 million in the quarter, a 6.2% decline from the third quarter of 2022. Over the last twelve months, deposits decreased $71.4 million, a decline of 9.3%. “A core strength of the Bank is the deposit mix with non-interest bearing balances accounting for 47% of total deposits at year-end,” commented Joan Reukauf, Chief Operating Officer. “We maintained a low cost of deposits at 0.16% for the fourth quarter, but total deposit balances declined in the quarter as some customers sought higher yielding rates in alternative investments.” Loans increased $27.3 million in the quarter, or 6.1% growth compared to the third quarter of 2022. “We saw higher loan growth in fourth quarter than prior quarters in the year, as we remain focused on quality loan production at attractive rates,” commented Julia Beattie, President. “The Bank had relatively muted loan growth in the first nine months of the year due to our decision to remain disciplined when loans were at historically low interest rates.” The investment portfolio decreased $5.3 million or 2.2% from the fourth quarter of 2021. During the most recent quarter, investments decreased $10.2 million from the third quarter of 2022, or 4.2%, and the average life of the portfolio remained at 4.6 years as short-term investments matured and were not replaced. Securities income was $1.06 million during the quarter, a yield of 1.7%, versus $979 thousand or a yield of 1.5% for the third quarter of 2022. Non-performing assets increased in Q4 as total loans past due or on non-accrual increased to 0.56%, as a percentage of total loans, versus 0.38% as of Q3 2022. “The Bank’s overall asset quality remains strong, but we did see an increase in non-performing assets for the quarter. This increase was due to a hospitality credit that has not fully recovered from the pandemic shutdown,” noted Bill Whalen, Chief Credit Officer. During the fourth quarter, the Allowance for Loan and Lease Losses (ALLL) increased by $348 thousand due to new loan growth as well as net charges offs of $56 thousand during the quarter. As of December 31, 2022, the ALLL was 1.09% of portfolio loans and the unallocated reserve stood at $839 thousand or 16.2% of the ALLL. Fourth quarter 2022 non-interest income totaled $2.4 million, a decrease of $583 thousand from the third quarter of 2022. During Q4 2022, Steelhead Finance factoring revenue decreased $341 thousand, an 18.0% decrease from the prior quarter, while increasing $774 thousand year-over-year, or 11.6%. “A majority of revenue generated by Steelhead Finance comes from our factoring partnerships in the freight industry,” commented Bill Stewart, Steelhead Division President. “The spot market freight surge, which yielded record freight margins in 2021 and into 2022, came to an end in the fourth quarter of 2022 and has returned to a more normalized level as reflected in Q4 revenue,” added Stewart. Increased mortgage rates in 2022 led to a significant decrease in mortgage production, and consequently, mortgage income decreased $136 thousand, or 48.2%, from the third quarter of 2022 and decreased $1.7 million, or 54.9%, for full year compared to 2021. Additionally, the Bank had a non-recurring one-time bargain purchase gain of $1.7 million from its merger with Willamette Community Bank in March of 2021 that inflated non-interest income during 2021. Non-interest expense totaled $6.2 million in the fourth quarter, up $699 thousand from the previous quarter. The primary reason for the increase in expense was attributed to salaries and personnel benefits due to an accrual adjustment. On an annual basis, salaries and benefits were up $1.2 million, a 9.1% increase over 2021. Advertising expense was down $1.0 million compared to prior year as the Bank made a one-time donation in 2021 to provide housing relief for the survivors of the 2020 Alameda Fire in Jackson County. In addition, the Bank incurred one-time merger related expenses of $2.5 million during 2021. As of December 31, 2022, the Tier 1 Capital Ratio for PBCO Financial Corporation was 10.92% with total shareholder equity of $68.4 million. During the quarter, the Company was able to augment capital through earnings while assets also decreased due to lower deposit balances. The Tier 1 Capital Ratio for the Bank was 12.55% at quarter-end, down from 12.84% as of September 30, 2022. The Company had unrealized losses on its investment portfolio, net of taxes, of $22.7 million down from $23.6 million the prior quarter. “The Bank has a very strong capital position that continues to be well above the threshold to be considered well-capitalized, which was augmented by a successful sub debt offering in March of 2022 totaling $25 million,” commented Lindsey Trautman, Chief Financial Officer. About PBCO Financial Corporation PBCO Financial Corporation’s stock trades on the over-the-counter market under the symbol PBCO. Additional information about the Company is available in the investor section of the Company’s website at: www.peoplesbank.bank. Founded in 1998, People’s Bank of Commerce is a full-service, commercial bank headquartered in Medford, Oregon with branches in Albany, Ashland, Central Point, Grants Pass, Jacksonville, Klamath Falls, Lebanon, Medford, and Salem, with a loan production office in Eugene. “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as People’s Bank or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements herein that describe People’s Bank’s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. (Dollars in 000’s) Federal funds sold Interest bearing deposits Loans held for investment, net of unearned income Total Loans, net of deferred fees and costs Bank owned life insurance Demand – non-interest bearing Demand – interest bearing Money market and savings Time deposits of less than $250,000 Time deposits of more than $250,000 Borrowed funds Common stock, surplus & retained earnings Accumulated other comprehensive income, net of tax Total liabilities & stockholders’ equity **As a result of the PBCO Financial Corporation reorganization and merger effective February 28, 2022, the current and prior quarter financial discussion and summary balance sheet and income statement in this release reflect PBCO Financial Corporation on a consolidated basis, while the comparative prior period for fourth quarter 2021 reflects People’s Bank of Commerce results only. As the results of operations presented are substantially from the performance of People’s Bank of Commerce, management believes there is not a material difference related to disclosing the current and comparative results as presented. Federal funds sold and due from banks Total interest income Total interest expense Provision for loan losses Net interest income after provision for loan losses NONINTEREST INCOME Mortgage lending income Steelhead finance income Bargain purchase gain BOLI Income Other non-interest income Total noninterest income NONINTEREST EXPENSE Salaries and employee benefits Occupancy & equipment expense Advertising expense Professional expenses Data processing expense Other operating expenses Income before taxes Shares Outstanding End of Quarter Average shares outstanding* *Adjusted for stock dividend 11/10/22 Total loans Steelhead Finance contribution, pre-tax Mortgage contribution, pre-tax Performance Ratios Return on average assets Return on average equity Net interest margin Yield on loans Cost of deposits Efficiency ratio Full-time equivalent employees Bank Leverage Ratio Tangible book value per share Asset Quality Allowance for loan losses (ALLL) Nonperforming loans (NPLs) Nonperforming assets (NPAs) Classified assets(2) ALLL as a percentage of net loans ALLL as a percentage of NPLs Net charge offs (recoveries) to average loans Net NPLs as a percentage of total loans Nonperforming assets as a percentage of total assets Classified Asset Ratio(3) Past due as a percentage of total loans End of period balances Total securities and short term deposits Total loans, net of allowance Total earning assets Total noninterest bearing deposits Average balances Effective March 31, 2020, People’s Bank of Commerce opted into the Community Bank Leverage Ratio and is no longer calculating risk based capital ratios. Classified assets are defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned. Classified asset ratio is defined as the sum of all loan related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by bank Tier 1 capital, plus the allowance for loan losses. Ken Trautman, CEO (541) 774-7654, [email protected] Portland metro area ‘Point in Time’ count underway University of Oregon working out a deal for a new indoor practice facility | news Who is Justin Baldoni? – Opoyi People’s Bank Announces the Retirement of Ken Trautman, Chief… Lithia Motors in talks to buy Jardine Motors in UK, report says A Financial Review in Early 2023 Can Optimize Your Strategy Nearly half of Bend residents think tourism costs… Portland events to attend this weekend | Jan 27-29 Cops hunt Oregon torture suspect jailed in Vegas kidnap…

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professional_accounting

Quanta Display prices CB Books close ten times covered in a surprisingly strong debut. Jackie Horne Lehman Brothers priced Asia's second convertible of the year yesterday (Wednesday), with a $150 million issue for TFT-LCD manufacturer Quanta Display. Following a couple of weeks of soft marketing, the deal received final SFC approval on Tuesday, allowing launch to take place the next day under an accelerated one-and-a-quarter hour bookbuild. In the face of critics who believed that a large deal from a weak sector would struggle to attract demand, Quanta managed to amass total demand of $1.6 billion, with participation by 170 accounts. Final terms comprise a five-year final maturity with a zero coupon, zero yield and par redemption structure. The deal is callable after two-years subject to a 125% hurdle and puttable at par at the end of years one, two and three. The conversion premium came at the aggressive end of a 14% 19% range and was priced at 19% to a spot close of NT$13.9. There is also a $30 million greenshoe. On full conversion, the deal accounts for 20% of the market cap and roughly 37% of the freefloat. One of the most interesting aspects of the transaction is its use of re-set options. The first re-set after six months subject to an 80% floor has been used before, but the second marks a new departure for convertible structures in Asia. This re-set kicks in should Quanta Display proceed as planned with a 410 million new share GDR offering via UBS Warburg, originally scheduled for the first half of the year. If the GDR does take place, the conversion price will automatically be re-set to the DR price plus 19% conversion premium. The structural twist makes the deal an attractive bet for hedge funds, which believe a GDR is likely and in some respects the new deal mirrors a similar successful strategy adopted by Lehman for a UMC exchangeable into AU Optronics completed in May 2002. At the time AU had yet to be listed on the New York Stock Exchange and therefore had no stock borrow available. Underlying assumptions for Quanta Display’s deal comprise a bond floor of 96%, theoretical value of about 107.61% and implied volatility of 19%. This is based on a credit spread of 250bp over Libor, 35% volatility assumption, zero dividend and currently zero stock borrow. The second key aspect of the deal is the bond floor. Should a GDR fail to materialize, funds are likely to have still been attracted to the deal because of the defensive bond floor and credit subsidy implied by a 250bp spread. At the widest end of the spectrum, some convertible specialists quote Quanta Display at well over 400bp over Libor. Others argue that the halo effect of Quanta Computer, which has an implied investment grade rating, means that a roughly 75bp premium to the parent is aggressive, but acceptable. As it was, there was asset swap demand for just 20% of the book. Geographically, the book was said to have split 20% Asia, 25% US and 55% Europe. Co-leads are Chinatrust, ICBC and Barits Securities. Year-to-date, Quanta is up 18.3%, though remains at a historically low price to book of 1.4 times earnings. As such, the lead appears to have timed the deal extremely well, taking advantage of a pre Chinese New Year surge in positive momentum towards the Taiwanese tech sector. Bankers also point out that a number of investment banks have recently upgraded their outlook towards the notoriously volatile TFT-LCD industry, although two of the most recent - Morgan Stanley and Salomon Smith Barney - both have house clients in the sector - Chi Mei and AU Optronics. Many local bankers, however, remain divided over the sustainability of the rally, arguing that there is no visibility over panel prices and the rally is running ahead of itself. #quanta #display #prices

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professional_accounting

LINDER LANNI Chartered Professional Accountant ON - Online calculator available for 2019-20 Ontario tax credits The province of Ontario provides residents with a number of refundable tax credits, with eligibility for those credits based on age, income, and type and place of residence. The current benefit year f... ON - Interest Rates - 2019 The province of Ontario charges and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates levied and paid f... ON - Updated bulletin issued on non-resident speculation tax (NRST) Ontario imposes a 15% non-resident speculation tax (NRST) on purchases of residential property located in the Greater Golden Horseshoe Region (GGH) by individuals who are not citizens or permanent res... 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ON - July 1st start of 2018-19 tax credit benefit year The province provides eligible Ontario residents with a number of refundable tax credits and benefits. Those benefits are paid on a monthly basis, and eligibility for most benefits is based, in part, ... ON - Provincial R&D tax credit enhanced The Ontario Research and Development Tax Credit (ORDTC) is a 3.5% non-refundable tax credit earned on eligible R&D expenditures. As announced in this year’s provincial Budget, elig... ON - 2018-19 Budget changes affecting seniors enacted The Ontario government recently enacted legislation to implement announcements made in this year’s provincial budget. Those announcements include two changes affecting seniors in the province, a... ON - Increased consumer access to credit reporting information The provincial government has announced changes that will provide Ontario residents with increased access to personal information held by credit reporting agencies. 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ON - Changes to employment standards laws to take effect April 1, 2018 Previously announced changes to Ontario’s employment standards laws will take effect on April 1, 2018. The upcoming changes will, for the most part, affect temporary, part-time, and seasonal em... ON - Province announces date for 2018-19 Budget The provincial government has announced that Ontario’s 2018-19 Budget will be brought down by the Minister of Finance on Wednesday, March 28 at around 4 p.m. Once the Budget is announced, the B... ON - Province bans unsolicited door-to-door sales of specified home products The provincial government has announced that, effective as of March 1, 2018, unsolicited door-to-door sales of the following appliances will no longer be permitted: air cleaners, air conditioner... ON - Province releases third-quarter fiscal results for 2017-18 The release of Ontario’s Third Quarter Finances report indicates that the province remains on track to balance the budget for the 2017-18 fiscal year, although the amount of the projected surplu... ON - Province to require standard form residential lease as of April 30 The provincial government has announced that, effective for leases signed on or after April 30, 2018, residential landlords in Ontario will be required to use a new standard-form, plain-language lease... ON - Personal income tax rates and brackets for 2018 For the 2018 tax year, the province of Ontario will levy personal income tax based on the following tax rates and brackets. 05% on taxable income between $10,354 and $42,960; 15% on taxable in... ON - Payment dates for Ontario Trillium Benefit for 2018 The province of Ontario provides a number of refundable tax credits to individual residents of the province. Several of those credits are combined and paid as a single monthly benefit — the Onta... ON - Consultation process for 2018-19 provincial Budget announced The government of Ontario has announced the launch of its pre-budget consultation process leading to the release of the province’s 2018-19 Budget. That budget consultation process has several c... ON - CRA releases 2017 T1 tax return form for Ontario residents The Canada Revenue Agency has released the 2017 T1 Individual Income Tax Return and Benefit form to be used by individuals who were residents of Ontario at the end of that year. The T1 form package (w... ON - 2018 payroll deduction tables for provincial income tax released The Canada Revenue Agency (CRA) has issued the payroll deduction tables which Ontario employers will use to determine employee source deductions for federal and provincial income tax, Canada Pension P... ON - 2018 Ontario TD1 Form and TD1 Worksheet released The Canada Revenue Agency has issued the Ontario TD1 form and worksheet which will be used by taxpayers resident in the province, and their employers, to determine required provincial income tax sourc... ON - Changes enacted to provincial employment standards The Ontario government has enacted a number of changes to the province’s employment standards laws, and those changes include the following: the Ontario minimum wage will increase to $14 per ... ON - Apprenticeship training tax credit eliminated The province of Ontario provided employers who hired and trained eligible apprentices in designated construction, industrial and motive power, and certain service trades with a refundable tax credit, ... ON - Province to reduce small business tax rate in 2018 In the 2017 Economic and Fiscal Review issued on November 14, Ontario’s Minister of Finance announced that the provincial small business tax rate would be reduced, effective as of January 1, 201... Bank of Canada leaves interest rates unchanged In its regularly scheduled interest rate announcement made on July 10, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the bank rate remains at 2%. ... Prescribed interest rates for the first three quarters of 2019 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the first three quarters of 2019, as well as the rates that will apply for th... Increases to GST/HST credit and Canada Child Benefit payment rates July 1, 2019 is the start of the 2019-20 benefit year for many provincial and federal child and tax benefits, including the federal GST/HST credit and the Canada Child Benefit. As of that date, the p... OAS payment rates for third quarter of 2019 The federal government has announced the Old Age Security (OAS) and related amounts which will be paid during the third quarter (July 1 to September 30) of 2019. OAS payments are indexed quarterly to ... Prescribed interest rate for leasing for July The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of July 2019. The prescribed rate for July is 2.75%. A chart sho... Inflation rate for May at 2.4% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of May 2019, as measured on a year-over-year basis, stood at 2.4%. Inflation d... Finance holding consultations on upcoming changes to stock option rules Under the Canadian tax system, employee stock options receive preferential tax treatment. In this year’s Budget the federal government indicated that, in its view, the existing rules on stock op... First-time home buyer’s incentive to launch September 2, 2019 In this year’s federal Budget, a new program was announced to benefit first-time home buyers. Under that program, the First-Time Home Buyer’s Incentive, the Canada Mortgage and Housing Cor... Increases to Canada child benefit effective July 1, 2019 Effective as of July 2019, the amount of Canada Child Benefit (CCB) payable to eligible Canadian families will be increased to account for inflation. Starting with the July payment (which will be mad... Unemployment rate down slightly in May The most recent release of Statistics Canada’s Labour Force Survey shows a small decline in the overall unemployment rate recorded for the month of May. The unemployment rate for that month stoo... Prescribed interest rates for leasing for June 2019 The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will be in effect during the month of June 2019. The prescribed rate for that month will be increas... Individual income tax instalment payment due June 17 Individual taxpayers who pay income tax by instalments must make their second instalment payment for 2019 on or before June 17, 2019. Such taxpayers will have received an instalment notice setting ou... 2018 returns for self-employed taxpayers due June 17, 2019 Self-employed taxpayers (and their spouses) have until Monday June 17, 2019 to file their income tax returns for the 2018 tax year. Returns filed after that date will be subject to late-filing penalti... Bank of Canada maintains interest rates at current levels In its regularly scheduled interest rate announcement made on May 29, the Bank of Canada indicated that, in its view, no change was needed to current interest rates. Consequently, the Bank Rate remain... Filing of 2018 tax return required to receive federal tax benefits The federal government and many of the provinces provide benefit programs for which both entitlement and benefit amount are based, at least in part, on the income of the recipient taxpayer. Those bene... Overall inflation rate for April 2019 at 2% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of April stood at 2%, as measured on a year-over-year basis. Seven of the eigh... CRA confirms June 17 filing deadline for self-employed taxpayers The Canada Revenue Agency (CRA) has issued a Tax Tip confirming that the filing deadline for individual income tax returns filed for the 2018 tax year by self-employed individuals and their spouses is... Good employment news for the month of April The most recent release of Statistics Canada’s Labour Force Survey shows growth in employment during the month of April for nearly all demographic groups. The overall unemployment rate for the m... CRA issues warning on Health Spending Account tax schemes The Canada Revenue Agency (CRA) has issued a warning about a current tax scheme involving Health Spending Accounts (HSAs) which are being marketed to small businesses. HSAs are self-insured health pla... Canada Child Benefit rates to increase in July The federal government has announced that, effective with the July 2019 payment, Canada Child Benefit rates will increase.As of July, the maximum benefit for a child under the age of 6 will increase t... Prescribed interest rate for leasing for May 2019 The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will be in effect during the month of May 2019. The prescribed rate for that month will be reduced ... CRA reminds flood-affected taxpayers of available relief The Canada Revenue Agency (CRA) has issued a press release reminding taxpayers who have been affected by this spring’s floods of the availability of relief with respect to their obligation to fi... Increase in rate of inflation for March 2019 The most recent release of Statistics Canada’s Consumer Price Index shows a significant increase in the rate of inflation recorded for the month of March 2019. During that month, the CPI rose 1.... The Bank of Canada, in its regularly scheduled interest rate announcement made on April 24, determined that no change was needed to current rates. The Bank Rate therefore remains at 2%. The press rel... OAS rates unchanged for the second quarter of 2019 The federal government has announced the Old Age Security payment rates which will be in effect for the second quarter (April 1 to June 30) of 2019. OAS payment rates are indexed quarterly to inflati... April 30 deadline for payment of 2018 individual income taxes All payments of individual income tax owed for the 2018 taxation year must be received by the Canada Revenue Agency (CRA) on or before Tuesday April 30, 2019. There are a number of means by which pay... CRA issues guide to medical expense claims for 2018 The Canada Revenue Agency (CRA) has issued an updated guide to be used by taxpayers who are claiming medical expenses on their income tax returns for 2018. Individual taxpayers are entitled to claim ... Unemployment rate unchanged in March The most recent release of Statistics Canada’s Labour Force Survey indicates that there was no change in the overall unemployment rate for the month of March. That rate remained at 5.8%. Employ... Prescribed interest rates for leasing for April The Canada Revenue Agency has announced the prescribed interest rates for leasing rules which will be in effect during the month April 2019. The prescribed rate for the upcoming month is 3.1%. A cha... Prescribed interest rates for the first half of 2019 The Canada Revenue Agency has announced the interest rates which will apply to amounts owed to and by the Agency for the first half of 2019, as well as the rates that will apply for the purpose of cal... CRA posts Tax Tips for students and seniors The Canada Revenue Agency (CRA) has posted a number of Tax Tips for seniors and students on its website. Those Tax Tips list and explain particular credits, deductions, or benefits which are most like... Inflation increases by 1.5% in February The most recent release of Statistics Canada’s Consumer Price Survey indicates that the rate of inflation for the month of February, as measured on a year-over-year basis, stood at 1.5%. The com... Budget 2019: Adjusting the Rules for Cannabis Taxation Budget 2019 is proposing that the excise duty framework for cannabis products be amended to more effectively apply the excise duty on new classes of cannabis products, as well as to cannabis oils, whi... Budget 2019: Expanding Health-Related Tax Relief Budget 2019 proposes to expand health-related tax relief under the Goods and Services Tax/Harmonized Sales Tax (GST/HST) system to better meet the health care needs of Canadians by: providing GST/H... Budget 2019: Employee Stock Options Budget 2019 announces the Government’s intent to limit the use of the current employee stock option tax regime and move toward aligning the tax treatment with the United States for employees of ... Budget 2019: Electronic Delivery of Requirements for Information Budget 2019 proposes that the Canada Revenue Agency (CRA) will be allowed to send requirements for information electronically to a bank or credit union only if the bank or credit union notifies the CR... Budget 2019: Carrying on Business in a Tax-Free Savings Account Budget 2019 proposes that the joint and several liability for tax owing on income from carrying on a business in a TFSA be extended to the TFSA holder. The joint and several liability of a trustee of ... Budget 2019: Mutual Funds: Allocation to Redeemers Methodology Budget 2019 proposes to introduce a new rule that would deny a mutual fund trust a deduction in respect of the portion of an allocation made to a unitholder on a redemption of a unit of the mutual fun... Budget 2019: Pensionable Service Under an Individual Pension Plan (IPP) Budget 2019 proposes to prohibit Individual Pension Plans (IPPs) from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of... Budget 2019: Contributions to a Specified Multi-Employer Plan (SMEP) for Older Members To bring the Specified Multi-Employer Plan (SMEP) rules in line with the pension tax provisions that apply to other defined benefit RPPs, Budget 2019 proposes to amend the tax rules to prohibit contri... Budget 2019: Medical Expense Tax Credit Amounts paid for cannabis products may be eligible for the medical expense tax credit where such products are purchased for a patient for medical purposes in accordance with the Access to Cannabis for... Budget 2019: Supporting Donations of Cultural Property A recent court decision related to the interpretation of “national importance” has created uncertainty about the availability of these tax incentives. Budget 2019 proposes to introduce leg... Budget 2019: Tax Measures for Kinship Care Providers, Tax Treatment of Financial Assistance Payments Budget 2019 proposes to amend the Income Tax Act to clarify that financial assistance payments received by care providers under a kinship care program are neither taxable nor included in income for th... Budget 2019: Tax Measures for Kinship Care Providers, Canada Workers Benefit Budget 2019 proposes to amend the Income Tax Act to clarify that an individual may be considered to be the parent of a child in their care for the purpose of the Canada Workers Benefit, regardless of ... Budget 2019: Improvements to the Registered Disability Savings Plan (RDSP) To ensure that the Registered Disability Savings Plan (RDSP) continues to respond to the needs of Canadians with disabilities, Budget 2019 proposes two changes that will better protect the long-term s... Budget 2019: Variable Payment Life Annuities Budget 2019 proposes to amend the tax rules to permit PRPPs and defined contribution RPPs to provide a variable payment life annuity (VPLA) to members directly from the plan. A VPLA will provide payme... Budget 2019: Advanced Life Deferred Annuities Budget 2019 proposes to amend the tax rules to permit an advanced life deferred annuity (ALDA) to be a qualifying annuity purchase, or a qualified investment, under certain registered plans. An ALDA w... Budget 2019: Change in Use Rules for Multi-Unit Residential Properties To improve the consistency of the tax treatment of owners of multi-unit residential properties in comparison to owners of single-unit residential properties, Budget 2019 proposes to allow a taxpayer t... Budget 2019: Modernizing the Home Buyers’ Plan (HBP) Budget 2019 proposes to increase the Home Buyers’ Plan (HBP) withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019. Budget 2019 also proposes to extend a... Budget 2019: Canada Training Credit Budget 2019 proposes this new, non-taxable credit that would help Canadians pay for training fees. Every year, eligible workers between the ages of 25 and 64 would accumulate a credit balance of $250 ... Budget 2019: Strengthening Canada’s International Tax Rules Budget 2019 proposes to: extend the foreign affiliate dumping rules in the Income Tax Act to prevent a corporation resident in Canada that is controlled by a non-resident individual or trust from r... Budget 2019: Strengthening Beneficial Ownership Transparency In Budget 2019, the Government proposes further amendments to the Income Tax Act to make the beneficial ownership information maintained by federally incorporated corporations more readily available t... Budget 2019: Character Conversion Transactions Budget 2019 proposes an amendment that introduces an additional qualification for the commercial transaction exception in the definition “derivative forward agreement” as the exception app... Budget 2019: Canadian-Belgian Co-productions - Canadian Film or Video Production Tax Credit Budget 2019 proposes to add The Memorandum of Understanding between the Government of Canada and the Respective Governments of the Flemish, French and German-speaking Communities of the Kingdom of Bel... Budget 2019: Improving Support for Small, Growing Companies Budget 2019 proposes to repeal the use of taxable income as a factor in determining a CCPC’s annual expenditure limit for the purpose of the enhanced SR&ED tax credit. As a result, small CCP... Budget 2019: Small Business Deduction - Farmers and Fishers Budget 2019 proposes to eliminate the requirement that sales be to a farming or fishing cooperative corporation in order to be excluded from specified corporate income. As such, this exclusion will ap... Budget 2019: Supporting Business Investment in Zero-Emission Vehicles Budget 2019 proposes that these vehicles be eligible for a full tax write-off in the year they are put in use. Qualifying vehicles will include electric battery, plug-in hybrid (with a battery capacit... Budget 2019: Support for Canadian Journalism Budget 2019 proposes to introduce three new tax measures to support Canadian journalism: allowing journalism organizations to register as qualified donees; a refundable labour tax credit for quali... Unemployment rate unchanged in February The most recent release of Statistics Canada’s Labour Force survey shows that, while the rate of unemployment for the month of February was unchanged, employment grew by 56,000 positions. The un... In its regularly scheduled interest rate announcement made on March 6, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate remains at 2% ... Inflation down to 1.4% for January 2019 The most recent release of Statistics Canada’s Consumer Price Index (CPI) shows a drop in the rate of inflation for the month of January. That rate, as measured on a year-over-year basis, was 1.... First instalment payment of 2019 due March 15 The first instalment payment of individual income taxes for the 2019 tax year is due on or before Friday March 15, 2019. Individuals who have previously paid tax by instalments will have received an i... CRA providing extended hours for individual tax help line The Canada Revenue Agency (CRA) has announced that its Individual Income Tax Enquiries line (1-800-959-8281) is now available for extended hours. Until April 30, 2019, telephone agents will be availa... Date announced for 2019-20 federal Budget The Minister of Finance has announced that the 2019-20 federal Budget will be brought down on Tuesday, March 19, 2019. Once the Budget is released, at around 4 p.m., the Budget Papers will be posted ... Obtaining a 2018 tax return form and guide The 2018 T1 Individual Income Tax Return and Guide package is now available on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packag... NETFILE available for filing of 2018 individual income tax returns The Canada Revenue Agency (CRA) has announced that its NETFILE service for the filing of individual income tax returns is available as of Monday, February 18, 2019. The current NETFILE service (which... CRA issues tax filing tips for students The Canada Revenue Agency (CRA) has issued a Tax Tip for post-secondary students and graduates who will be filing an income tax return for the 2018 tax year. That Tax Tip, which can be found on the C... Small increase in unemployment rate for January During the month of January, the number of people employed in Canada rose by 67,000, with that figure attributable for most part to increased employment of those aged 15 to 24 and those working in the... Prescribed interest rate for leasing The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of March 2019. That prescribed rate for the month of March will b... CRA issues tax filing tips for seniors The Canada Revenue Agency (CRA) has posted a Tax Tip which lists the tax deductions and credits which are most relevant to seniors, and which can be claimed by eligible seniors when preparing and fili... NETFILE service for 2018 returns available February 18 The Canada Revenue Agency (CRA) has announced that its NETFILE service for the filing of individual income tax returns for the 2018 tax year will be available online on Monday February 18, 2019. The N... Upcoming changes to the CRA’s e-mail service Effective as of February 11, 2019, the Canada Revenue Agency (CRA) will be merging its online mail and account alerts services. Notification of the change is being sent to users of those services, and... Pre-Budget consultations ending on January 29 Finance Canada has issued a reminder that the current consultation process with respect to the upcoming 2019-20 federal Budget will end on Tuesday, January 29, 2019. Interested stakeholders can make ... Inflation rate increases to 2% in December The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation, as measured on a year-over-year basis, stood at 2% during the month of December 2018. The eq... Finance announces automobile allowance limits and rates for 2019 Finance Canada has announced the automobile deduction limits and expense benefit rates which will apply to businesses and their employees during the 2019 taxation year. Most of the limits which appli... Bank of Canada maintains interest rates at current level In its regularly scheduled interest rate announcement made on January 9, 2019, the Bank of Canada indicated that no change would be made to current interest rates. The Bank Rate therefore remains at 2... Prescribed interest rates for leasing for January and February The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will be in effect during the months of January and February 2019.The prescribed rate for January is ... Prescribed interest rates for the first quarter of 2019 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the first quarter of 2019, as well as the rates that will apply for the purpo... Canada Pension Plan changes to take effect January 1, 2019 Over the next seven years, significant changes will be made to the Canada Pension Plan. Those changes will result, overall, in an increase of about 50% in the maximum retirement benefit. The first su... Inflation for November down to 1.7% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of November, as measured on a year-over-year basis, stood at 1.7%. The comparab... NETFILE service for prior years available until January 25, 2019 Taxpayers who have not yet filed their individual income tax returns for 2017 (or the three prior years) can file those returns on NETFILE until Friday, January 25, 2019. Until that date, the Canada R... Prescribed leasing interest rate for January 2019 The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of January 2019. The prescribed rate for that month will be 3.39%... December 31, 2018 deadline for 2008 tax fairness applications Where taxpayers fail to meet their tax filing or payment obligations, penalties and interest are usually levied for that failure. However, the Minister of National Revenue has the authority to forgive... Unemployment rate for November at 42-year low The most recent release of Statistics Canada’s Labour Force Survey shows that the unemployment rate for the month of November was the lowest recorded since 1976. The unemployment rate for the m... In its regularly scheduled interest rate announcement made on December 5, the Bank of Canada indicated that, in its view, no change to current interest rates was needed. Accordingly, the Bank Rate rem... Personal tax credit amounts for 2019 The federal government will provide the following personal tax credit amounts for 2019: Basic personal amount ……………………………&... Inflation rate up slightly in October The most recent release of Statistics Canada’s Consumer Price Index shows a slight increase in the rate of inflation rate for the month of October. That rate rose 2.4%, following a 2.2% increase... Finance announces start of 2019-20 federal Budget consultation process Finance Canada has announced details of the consultation process leading up the release of the 2019-20 Federal Budget next spring. The budget consultation process will include both in-person and digi... New tax credits to support news organizations In the 2018-19 Fall Economic Statement, the Minister of Finance announced that three new tax initiatives would be introduced to support both traditional and digital news organizations. Those changes ... Federal government announces new business tax incentives In the Fall Economic Statement issued on November 21, the Minister of Finance announced new tax measures that would: allow businesses to immediately write off the cost of machinery and equipment us... CRA issues 2018 employer’s guide to taxable benefits Some of the non-monetary benefits which employers provide to their employees must be included in the employee’s income and taxed as such. Each year, employers must include the amount of any such... CRA announces enhancements to BizApp The Canada Revenue Agency (CRA) provides a mobile web app for small business owners and sole proprietors which enables them to manage their business tax accounts on any browser-enabled mobile device. ... Unemployment rate down slightly for September The most recent release of Statistics Canada’s Labour Force Survey shows a small decline in unemployment during the month of September. That rate stood at 5.8%, down 0.1% from the rate posted fo... Canada Pension Plan contribution rates for 2019 The Canada Revenue Agency has announced the contribution rates and amounts for the Canada Pension Plan which will apply during the 2019 calendar year, and that announcement can be found at https://www... Prescribed interest rate for leasing for November The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of November. The prescribed rate for that month will be 3.43%. A... CRA announces contingency plans for postal disruption The Canada Revenue Agency (CRA) (as well as other federal government departments and agencies) has issued information indicating how government payments will be handled during the current postal disru... Inflation rate at 2.2% for September The most recent release of Statistics Canada’s Consumer Price Index shows that the inflation rate for the month of September stood at 2.2%, as measured on a year-over-year basis. The comparable ... Bank of Canada raises interest rates again In its regularly scheduled interest rate announcement made on October 24, the Bank of Canada once again increased the bank rate, which now stands at 2%.In the press release announcing the increase, wh... OAS payment rates for the fourth quarter of 2018 The federal government has announced the maximum Old Age Security (OAS) benefit amount which will be paid to eligible recipients in the last quarter — October, November, and December — of ... CRA issues updated forms for reduced source deductions In some circumstances, taxpayers are entitled to request a reduction in the amount of tax being deducted at source from their income. An employee can request that the amount of income tax being deduct... CRA to hold webinar on CPP changes for the self-employed A number of changes have been made over the past few years to the Canada Pension Plan (CPP), with those changes generally providing greater flexibility to CPP contributors. Some of those changes parti... Slight decline in unemployment rate for September The most recent release of Statistics Canada’s Labour Force Survey shows a small decrease in the overall unemployment rate for the month of September. That rate decreased from the 6% rate record... Prescribed interest rate for leasing for October The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of October. The prescribed rate for that month will be 3.33%. A ... Prescribed interest rates for the fourth quarter of 2018 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the fourth quarter of 2018, as well as the rates that will apply for the purp... NETFILE still available for filing of 2017 returns While the deadline for filing of individual income tax returns for the 2017 tax year (for both employees and the self-employed) has passed, the Canada Revenue Agency’s (CRA’s) NETFILE serv... Inflation rate down slightly in August The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of August 2018 stood at 2.8%, as measured on a year-over-year basis. The compar... CRA updates fact sheet for temporary Canadian workers Canada’s tax system is one based on residency, and individuals who are considered to be residents of Canada are subject to federal and provincial tax. The federal government has issued a fact s... Employment insurance premium rate for 2019 The Minister of Finance has announced that the employment insurance premium rate payable by employees and the self-employed for the 2019 tax year will be reduced. The premium rate for that year will ... CRA issues updated guide to federal and provincial child benefits The federal government has updated and re-issued its guide to child benefits paid by the federal and several provincial governments. The updated guide (T4114), which is available on the Canada Revenu... Slight increase in unemployment rate for August The most recent release of Statistics Canada’s Labour Force Survey shows a small increase in the unemployment rate posted for the month of August. That rate rose by 0.2%, from 5.8% to 6%. Most ... Relief available to taxpayers affected by wildfires The Canada Revenue Agency (CRA) can provide interest and penalty relief to taxpayers who are unable to meet their tax filing or payment obligations due to circumstances beyond their control, including... In its scheduled interest rate announcement made on September 5, the Bank indicated that no change would be made to current interest rates. Accordingly, the Bank Rate remains at 1.75%. The Bank ackno... CRA issues Tax Tip on benefit review process Each year the Canada Revenue Agency (CRA) sends a letter and questionnaire to approximately 350,000 taxpayers, seeking to determine whether such taxpayers are receiving the correct tax credits and ben... Upcoming tax instalment due date for individuals The due date for the third instalment payment of 2018 income taxes by individuals falls on September 15, 2018. As that date is a Saturday, instalment payments will be considered to be made on time if ... Amendments to be made to rules on political activities of charities The federal government has announced that changes will be made to the administrative rules governing the extent to which charities can engage in non-partisan political activities. The intended amendm... Rate of inflation at 3% for July The most recent release of Statistics Canada’s Consumer Price Survey shows a significant increase in inflation for the month of July. That rate, as measured on a year-over-year basis, stood at 3... Unemployment rate down slightly for July The most recent release of Statistics Canada’s Labour Force Survey indicates that the overall rate of unemployment was down slightly for the month of July. That rate stood at 5.8%, down by 0.2% ... Finance announces lower payment card fees for small businesses The Minister of Finance has announced that two major payment card networks have agreed to lower costs charged to small and medium-sized businesses. Both VISA and Mastercard have agreed to reduce dome... CRA podcasts and webinars for small businesses The Canada Revenue Agency (CRA) prepares and posts on its website a number of podcasts and webinars covering tax and tax-related issues of particular interest to small businesses. There are currently... Bank of Canada 2019 interest rate announcement dates The Bank of Canada has issued a listing of the dates on which it will make announcements during the 2019 calendar year with respect to current interest rates. There are eight such interest rate annou... Upcoming changes to mortgage lending assessments for self-employed taxpayers The Canada Mortgage and Housing Corporation (CMHC) has announced that, effective as of October 1, 2018, changes will be made to the process by which self-employed taxpayers are assessed for mortgage f... CRA issues new direct deposit form for businesses The Canada Revenue Agency (CRA) has updated and re-issued its Form RC366, which allows businesses to have amounts owed to them deposited directly to a bank account. The updated form can be used to ei... CRA issues updated guide to RESPs The Canada Revenue Agency (CRA) has updated and re-issued its publication RC4092(E) on Registered Education Savings Plans. The updated publication incorporates changes, originally announced as part o... Inflation rate up by 2.5% in June The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of June, as measured on a year-over-year basis, stood at 2.5%. That cha... Prescribed interest rates for leasing rules The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will apply during the months of July and August 2018. Those prescribed rates will be 3.28% for July... CRA issues updated guide to taxation of RRIF on death The Canada Revenue Agency has updated and re-issued its publication outlining the tax treatment of funds held in a RRIF on the death of the RRIF annuitant. The updated publication (RC4178(E)) also re... Slight increase in unemployment rate for June While employment rose by 32,000 during the month of June, the unemployment rate was also up, by 0.2%, a result attributed by Statistics Canada an increase in the number of individuals seeking to enter... Bank of Canada increases benchmark interest rate In its regularly scheduled interest rate announcement made on July 11, the Bank of Canada indicated that it was increasing its benchmark interest rate by one-quarter of a percentage point. Accordingly... CRA issues Tax Tip on return review process Each year, the Canada Revenue Agency reviews approximately 3 million returns which have already been filed and assessed. Generally, such reviews are carried out to confirm income amounts reported, and... Old Age Security benefits to increase by 1.2% in third quarter Old Age Security (“OAS”) benefits received by Canadians are indexed to changes in the overall Consumer Price Index, and are adjusted each quarter to reflect increases in that Index.The fed... No change to inflation rate for May The most recent release of Statistics Canada’s Consumer Price Index indicates the rate of inflation for the month of May stood at 2.2%. The same rate was recorded for the month of April, and bot... CRA issues updated source deductions online calculator The Canada Revenue Agency (CRA) has re-issued the payroll deductions online calculator to be used by employers in calculating employee source deductions as of July 1, 2018. The updated version of tha... The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of July. The prescribed rate for that month will be 3.28%. A cha... Prescribed interest rates for the third quarter of 2018 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the third quarter of 2018, as well as the rates that will apply for the purpo... CRA updates and re-issues Notice of Objection form The Canada Revenue Agency has updated and re-issued its standard form for filing an objection to a Notice of Assessment or Reassessment. The 2018 T-400A E, Notice of Objection, can be found on the CRA... No change in unemployment rate for May The most recent release of Statistics Canada’s Labour Force Survey shows little change in unemployment during the month of May. For the fourth consecutive month, that rate stood at 5.8%. There ... June 15 filing deadline for self-employed taxpayers The filing deadline for individual income tax returns for the 2017 year for self-employed individuals and their spouses is midnight Friday June 15, 2018. Returns can be filed using the Canada Revenue... For Canadians who make quarterly instalment payments of personal income tax, the next due date for such payment is Friday June 15, 2018. The Canada Revenue Agency has posted a notice on its website i... Taxpayer relief available for Canadians affected by spring floods The Canada Revenue Agency (CRA) has issued a reminder to taxpayers who have been affected by this spring’s floods of the availability of administrative tax relief. Under the federal government&... In its regularly scheduled interest rate announcement made on May 30, the Bank of Canada indicated that, in its view, no change was needed to current interest rates. Accordingly, the Bank Rate remains... CRA issues updated payroll deduction formulas for July 1, 2018 The Canada Revenue Agency (CRA) has issued updated payroll deduction formulas for use by employers for payroll periods beginning after July 1, 2018. The updated formulas reflect changes in provincial ... Inflation rate for April at 2.2% The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of April stood at 2.2%, as measured on a year-over-year basis. The rate... Changes to distribution of GST/HST reporting/remittance forms for small businesses The Canada Revenue Agency (CRA) will be making changes to its distribution method for GST/HST reporting and remittance forms for small businesses, with those changes generally directed toward reducing... Unemployment rate unchanged in April The most recent release of Statistics Canada’s Labour Force Survey indicates that there was no change during the month of April to either employment figures or the overall unemployment rate. Th... CRA tax topic podcasts available for download The Canada Revenue Agency prepares and posts podcasts on a number of different tax topics, both individual and corporate. Those podcasts are available for download from the CRA website. The current s... Prescribed interest rates for May and June The Canada Revenue Agency has announced the prescribed interest rates for leasing rules which will be in effect during the months of May and June 2018. Those prescribed rates will be 3.22% during the... Getting information about your tax refund Taxpayers who have filed their return for the 2017 tax year and are expecting to receive a refund can track the status of that refund payment through a toll-free telephone line. That line, the CRA&rsq... CRA issues warning on filing season tax scams The Canada Revenue Agency (CRA) has issued a warning to taxpayers of the need to be particularly vigilant with respect to fraudulent text, telephone, and e-mail communications, which increase during t... Inflation rate for March reaches 2.3% The most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation stood at 2.3% during the month of March 2018, as measured on a year-over-year basis. The ... April 30 due date for all 2017 individual taxes owed The Canada Revenue Agency (CRA) has issued a reminder that all individual income tax balances owed for the 2017 tax year must be paid on or before Monday April 30, 2018. April 30 is also the deadline... The most recent release of Statistics Canada’s Labour Force Survey shows that the rate of unemployment for the month of March 2018 stood at 5.8%. The same rate was recorded for February 2018. E... In its regularly scheduled interest rate announcement made on April 18, the Bank of Canada indicated that no change was required to current interest rates. Accordingly, the Bank Rate will remain at 1.... ReFILE service for changing individual income tax returns It is not uncommon for taxpayers to discover an error or omission in an already-filed return, and the usual means by which such error can be corrected is the filing of a T1-Adjustment form. While a co... CRA issues reminder of taxability of income from “sharing economy” The Canada Revenue Agency (CRA) has issued a reminder to taxpayers who receive income from the “sharing economy” that such income is taxable and must be reported on the annual tax return. ... Bank of Canada interest rate announcement dates for 2018 The Bank of Canada’s regularly scheduled interest rate announcement dates for the remainder of calendar year 2018 are as follows: April 18, 2018; May 30, 2018; July 11, 2018; S... CRA issues update on home sale reporting requirements Proceeds received from the sale of one’s principal residence are, in most circumstances, not taxable, as such sales are eligible for the principal residence exemption. However, as of the 2016 ta... Significant increase in inflation rate for February The most recent release of Statistics Canada’s Consumer Price Index shows a sharp increase in inflation for the month of February. That rate stood at 2.2%, while the rate for January 2018 was 1.... Prescribed interest rates for second quarter of 2018 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the CRA for the second quarter of 2018, as well as the rates that will apply for the purpose... CRA issues warning on tax scams While taxpayers fall victim to tax scams year-round, such scams are more prevalent during and just following tax filing season. During that time, taxpayers expect to hear from the tax authoritie... CRA publication on changes to Voluntary Disclosure Program available online In December 2017, the Canada Revenue Agency (CRA) announced that substantive changes would be made to the Agency’s Voluntary Disclosure Program (VDP). That program enables taxpayers who are in d... CRA issues e-filers manual for 2017 returns The Canada Revenue Agency has issued its Guide RC4018, Electronic Filers Manual for 2017 Income Tax and Benefit Returns. That guide is for use by certified e-filers in filing individual income tax ret... Unemployment rate down slightly in February The most recent release of Statistics Canada’s Labour Force Survey shows a small decline in the overall unemployment rate for the month of February 2018. That rate declined from 5.9% in the mont... Increase in Consumer Price Index for January The most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation for the month of January 2018 stood at 1.7%. The rate for the previous month was 1.9%. I... In its regularly scheduled interest rate announcement made on March 7, the Bank of Canada indicated that no change would be made to current interest rates. Accordingly, the bank rate remains at 1.5%. ... Budget 2018 - Personal tax credits Budget 2018: No personal tax credits have been repealed, and there are no new personal tax rate changes.... Budget 2018 - Foreign-born Status Indians Budget 2018: Foreign-born Status Indians may now be eligible for child benefits, retroactive to 2005.... Budget 2018 - Service animals Budget 2018: Eligibility of specially trained service animals will be expanded for the purposes of the medical expense tax credit.... Budget 2018 - Canada Workers Benefit Budget 2018: Taxpayers will no longer need to apply when filing their return in order to receive the Canada Workers Benefit.... Budget 2018 - Working Income Tax Benefit amounts Budget 2018: The Working Income Tax Benefit amounts are enhanced as of 2019, and the credit is renamed the Canada Workers Benefit... Budget 2018 - Non-resident surplus stripping rules Budget 2018: The non-resident surplus stripping rules are tightened to address the use of partnerships and trusts.... Budget 2018 - CRA compliance orders Budget 2018: Where a CRA compliance order or information requirement is contested, a new rule will “stop the clock” to prevent the tax year from being statute barred.... Budget 2018 - RDTOH Budget 2018: A corporation will have two RDTOH accounts going forward: eligible and non-eligible RDTOH.... Budget 2018 - Investment income Budget 2018: A corporation with $100,000 of investment income will have its small business limit reduced to $250,000.... Budget 2018 - Corporations' small business limit Budget 2018: A corporation’s small business limit will be reduced where the corporation earns investment income exceeding $50,000.... Extended hours for CRA telephone help line The Canada Revenue Agency (CRA) provides a 1-800 telephone service to provide tax information to Canadian taxpayers. Such information can be general in nature, or can involve the specific tax affairs ... CRA issues list of approved software for NETFILING of 2017 returns The Canada Revenue Agency’s NETFILE service for filing of individual income tax returns will be available starting Monday February 26, 2018. Taxpayers do not need to obtain an access code to fi... Unemployment rate up slightly in January The most recent release of Statistics Canada’s Labor Force Survey shows a slight increase in the overall unemployment rate for the month of January. That rate rose by 0.1%, from 5.8% to 5.9%. T... 2018-19 Federal Budget date announced The Federal Minister of Finance has announced that the 2018-19 federal Budget will be brought down on Tuesday, February 27, 2018. The Budget will be released at around 4 p.m. and the full Budget Pape... Obtaining hard copy of a 2017 income tax return package This year, the Canada Revenue Agency (CRA) will be providing taxpayers with hard copies of the 2017 Income Tax and Benefit package through a variety of means, and at various dates. Individuals who pa... CRA announces NETFILE service availability dates for 2017 returns The Canada Revenue Agency (CRA) has announced the date on which NETFILE service for the filing of individual income tax returns for the 2017 tax year will be available. NETFILE service will be availa... CRA to mail tax return packages to selected taxpayers While the majority of Canadians now file their individual income tax returns electronically, there is still a significant minority of tax filers who file using a printed return. The Canada Revenue Ag... CRA announces change to 2017 individual tax return forms The Canada Revenue Agency (CRA) has posted a notice on its website that an “update” has been made to individual 2017 tax forms. Those forms are to be used by individual Canadians to file t... CRA reinstates telephone tax return filing service For a number of years, taxpayers whose tax situation was relatively straightforward were able to file their return by telephone. That service, which was called TELEFILE, was withdrawn a few years ago.... Prescribed interest rates for first quarter of 2018 Bank of Canada raises interest rates As widely expected, the Bank of Canada indicated, in its regularly scheduled interest rate announcement made on January 17, that an increase in the bank rate was required. The Bank’s announceme... Federal Budget 2018-19 consultations to end January 26 Finance Canada has announced that the consultation process leading to the release of the 2018-19 federal Budget will conclude on Friday January 26, 2018. Canadians can provide input by submitting the... CRA issues individual T1 Tax Return Form and Guide for 2017 The Canada Revenue Agency has released the T1 Individual Income Tax Return and Benefit form to be used by individual Canadian taxpayers in filing their return for the 2017 tax year. The T1 form is ava... Unemployment rate for December 2017 down to 5.7% The most recent release of Statistics Canada’s Labour Force Survey indicates that the unemployment rate for the month of December 2017 stood at 5.7%. The last period for which that rate was reco... Small business tax rate reduced effective January 1 As previously announced, the federal small business tax rate is reduced to 10.0%, effective as of January 1, 2018. There is no change in the federal small business limit, which remains at $500,000. T... Automobile deduction and benefit limits for 2018 Finance Canada has announced the limits and thresholds which will apply for purposes of determining automobile benefits and deductions during 2018. Most such deduction limits and thresholds are uncha... CRA issues guidance on upcoming changes to small business tax rules Planned changes to the federal income tax rules governing the taxation of small incorporated Canadian businesses are to take effect for 2018. One of those changes will include greater restrictions on ... Changes to be made to Voluntary Disclosure Program The Canada Revenue Agency (CRA) provides an administrative program under which taxpayers who have failed to file returns or pay taxes on a timely basis can bring their tax affairs into compliance, usu... Age 71 final RRSP contribution to be made by December 31 Taxpayers who are turning age 71 during the year and who have available contribution room are entitled to make a final RRSP contribution for that year. Such contributions must be made by the end of t... NETFILE service for 2016 returns available until January 19 Taxpayers who have not yet filed their return for the 2016 tax year will have until January 19, 2018 to file that return using NETFILE. Until that date, returns for the 2013, 2014, 2015, and 2016 tax ... In its regularly scheduled interest rate announcement made on December 6, the Bank of Canada indicated that, in its view, no change is required to current rates. Accordingly, the bank rate remains at ... Unemployment rate down in November The most recent release of Statistic’s Canada’s Labour Force Survey shows a slight decline in the overall unemployment for the month of November. That rate declined by 0.4%, to 5.9%. The N... T4127 for 2018 payroll deduction amounts released The Canada Revenue Agency has issued the 2018 version of its publication T4127(E), Payroll Deductions Formulas. The guide is intended for use by payroll software providers and by employers which manag... CRA issues federal TD1 Form and TD1 Worksheet for 2018 The Canada Revenue Agency has issued the federal TD1 Form and Worksheet which will be used by taxpayers and their employers to determine required federal income tax source deductions for the upcoming ... Inflation rate up by 1.4% in October The most recent release of Statistics Canada’s Consumer Price Index (CPI) shows an inflation rate of 1.4% for the month of October, as measured on a year-over-year basis. The equivalent rate for... Finance launches pre-budget consultations Finance Canada has begun the consultation process leading to the release of the 2018-19 federal Budget. As part of that budget consultation process, the Minister of Finance is holding in-person publi... CRA to provide online filing for trust tax and information returns Effective as of January 8, 2018, administrators and representatives of qualifying Canadian trusts will be able to file trust income tax and information returns online, through the Canada Revenue Agenc... Employment Insurance premium rates for 2018 The federal government has announced the premium rates and maximum insurable earnings amount which will be in place for the 2018 calendar year. The premium rate for the year for employees has been se... CRA announces CPP contribution rates and amounts for 2018 The Canada Revenue Agency (CRA) has announced the contribution rates and amounts for both employers and employees which will apply for 2018. Maximum pensionable earnings for the year will be $55,900 ... A mid-year check up on your taxes (June 2019) Most Canadians have now filed their individual income tax return for the 2018 tax year and received a Notice of Assessment outlining their tax position for that year. Those who receive a refund will celebrate that fact or, less happily, those who receive a tax bill will pay up the tax amount owed. Both groups of taxpayers are then likely to forget about taxes until it’s tax filing time again in the spring of 2020. The fact is, however, that mid-year is very good time to assess one’s tax position for the current year and is particularly a good idea for taxpayers who have received a large refund or a bill for tax owing. Although few Canadians have this perspective, the reality is that getting either a big tax refund or having to pay a large tax bill is a sign that one’s tax affairs need attention. A refund, especially a large refund, means that the taxpayer has overpaid his or her taxes for the previous year and has essentially provided the Canada Revenue Agency (CRA) with an interest-free loan of funds that could have been put to better use in the taxpayer’s hands. The other outcome — a large bill — means that taxes have been underpaid for the previous year and could mean paying interest charges to the CRA. Either way, it’s in the taxpayer’s best interests to ensure that tax paid throughout the year is sufficient to cover his or her taxes, without overpaying or underpaying. The best-case scenario is to complete one’s tax return and to then receive a Notice of Assessment which indicates that there is neither a refund payable nor any amount owing. All of this makes the mid-point of the tax year a good time to make sure that everything is on track, and put in place any adjustments needed to help ensure that there are no tax surprises when filing one’s tax return for 2019 next spring. And, as the calendar year goes on, the opportunities to make a significant difference to one’s current year tax situation diminish. The first step in doing that review is to get a sense of how much tax one will have to pay for 2019. The income of most taxpayers doesn’t change significantly from year to year and, by mid-year, most taxpayers will have a good sense of what their income will be for 2019. Consequently, where income hasn’t changed much, the amount of tax which was paid for 2018 (a number which can be found on Line 435 of the Summary on page 3 of one’s 2018 Notice of Assessment) serves as a good starting point. (In most cases, owing to increases in tax brackets and credits, the amount of tax payable by taxpayers whose income doesn’t change significantly between 2018 and 2019 will decrease slightly.) There are two ways of paying taxes throughout the year. The majority of Canadians (including all employees) have income taxes deducted from their paycheques and remitted to the federal government on their behalf — known as source deductions. Taxpayers who do not have income tax deducted at source — which would include self-employed individuals and, frequently, retired taxpayers — make tax payments directly to the federal government (four times a year, on the 15th of March, June, September, and December) through the tax instalment system. Once a rough idea of one’s tax liability for 2019 is arrived at, it’s necessary to figure out whether income tax payments made to date, either by source deductions or instalment payments, match up with that tax liability figure, recognizing that by this point in the year, approximately one-half of 2019 taxes should already have been paid. If they haven’t, and particularly if there is a shortfall which will mean a balance owing when the tax return for 2019 is filed next spring, the taxpayer will need to take steps to remedy that. Where the individual involved pays tax by instalments, the solution is simple. He or she can simply increase or decrease the amount of remaining instalment payments made in 2019 so that the total instalment payments made over the course of 2019 accurately reflect the total tax payable for the year. The only caveat in that situation is that the individual should err on the side of caution to ensure that there isn’t a shortfall in instalment payments, which could result in interest charges being levied by the CRA. The situation is a little more complex for employees, or for anyone who has tax deducted at source. Often when such individuals discover that they are overpaying taxes through source deductions, it’s because other deductions which they claim on their return for the year — for expenditures like deductible support payments, child care expenses or contributions to a registered retirement savings plan (RRSP) — aren’t taken into account in calculating the amount of tax to deduct at source. The solution for employees who find themselves in that situation is to file a Form T1213, Request to Reduce Tax Deductions at Source, which is available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html with the Agency. On that form, the taxpayer identifies the additional amounts which will be deducted on the return for the year and, once the CRA verifies that those deductible expenditures are being made, it will authorize the taxpayer’s employer to reduce the amount of tax which is being withheld at source, so as to reflect the reduced tax payable for the year by the employee/taxpayer. Where it’s the opposite situation and a taxpayer finds that source deductions being made will not be sufficient to cover his or her tax liability for the year (meaning a tax bill to be paid next spring) the solution is to have those source deductions increased. To do that, the employee needs to obtain a TD1A form for their province of residence for 2019, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html. On the reverse side of that Form TD1, there is a section entitled “Additional tax to be deducted”, in which the employee can direct his or her employer to deduct additional amounts at source for income tax, and can specify the dollar amount which is to be deducted from each paycheque, on a go-forward basis. A final note — while no one likes getting a tax bill, there are taxpayers who simply like getting a tax refund and overpay their taxes through the year to create that result. Some of them view that approach as a kind of “forced” savings plan, while others simply like the idea of getting an annual cheque or direct deposit from the tax authorities. There is nothing inherently wrong with that approach, so long as the taxpayer understands that a tax refund is simply money which was always theirs and is simply being returned to them by the CRA (without interest). Those who would rather not loan money to the CRA interest-free and who don’t want to face a tax bill each spring can avoid both scenarios by investing a couple of hours of time and a little paperwork to ensure that this year’s tax payments are on track. The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation. Canadian households set (another) new debt record (June 2019) It’s the financial “achievement” no one wants to have, but Canadians keep setting new records when it comes to the size of their household debt. And, as of the last quarter of 2018, they did so again. The most recent release of “Mortgage and Consumer Credit Trends” issued by the Canada Mortgage and Housing Corporation shows that the debt-to-income ratio of Canadians reached 178.5% as of the fourth quarter of 2018. In other words, Canadian households were carrying, on average, $1.78 in debt for every $1 of household income. Just fifteen years previously, in 2005, Canadians held less than $1 of debt for every dollar of household income — the debt to household income ratio was then 93%. The figures published by CMHC for 2018 are of particular interest, as new rules designed to rein in excessive mortgage lending took effect in April of that year. It’s not surprising, then, that the figures show that mortgage activity during the year slowed. Of greater concern is the fact that non-mortgage borrowing by mortgage holders has accelerated, as average balances for credit cards and lines of credit held by such mortgage-holders grew at a faster pace in 2018 than they had in 2017. That trend was particularly apparent when it came to mortgage holders in Toronto and Vancouver, the two most expensive housing markets in the country. The other group for whom the debt statistics are notable are those aged 55 and older. The CMHC report notes that the share of mortgage holders aged 55 or older continued to grow during 2018. In addition, mortgage delinquency rates for those aged 65 and older have been increasing — that age group has had, since late 2015, the highest mortgage delinquency rate. For most Canadians, the size of their overall debt load is, on a day-to-day basis, likekly less significant than the monthly cost of servicing that debt out of current cash flow. Unfortunately, the news in that respect was also not good. As reported by CMHC “average monthly obligations per consumer increased by 4.5% in the fourth quarter of 2018 compared to a year earlier. Over the same period average disposable income rose by 2.5%. Therefore, for the average Canadian, the monthly obligation burden has increased from last year relative to their income”. That’s especially not good news for older Canadians, many of whom are retired or semi-retired, with limited ability to generate the additional income to meet higher debt-servicing costs. If there is good news in the CMHC report, it’s that despite high levels, loan delinquency rates, including mortgage delinquency rates, remain low. It seems that, despite ever-increasing debt loads, most Canadians are still managing to keep their lines of credit, car loans, and credit cards in good standing. The full CMCH report can be found on the Agency’s website at https://www.cmhc-schl.gc.ca/en/housing-observer-online/2019-housing-observer/mortgage-consumer-credit-trends-q4-2018. New assistance for first-time home buyers (June 2019) It would be entirely reasonable for Canadians seeking to buy their first home to feel that the odds are very much against them, for a number of reasons. Many of them, especially those in their twenties and thirties, must put together an income from short-term contracts and/or multiple part-time jobs, making it almost impossible to have any certainty of income, over either the short or the long term. Mortgage lenders are understandably reluctant to lend to those who don’t know what their income will be for the current year, much less for future years. As well, increases in home prices over the last decade mean that the average home price in Canada is now $470,000, meaning that a minimum 5% downpayment is just under $25,000, and those who can put together such a down payment will be carrying a mortgage of just under $450,000. The interest rate levied on that mortgage has steadily increased over the past 18 months, with changes in the bank rate. Finally, as of April 2018, the federal government imposed a new mortgage “stress test”, which requires prospective borrowers to qualify for a mortgage at rates in excess of current rates. All in all, there is a “perfect storm” of factors in place which keep younger Canadians from attaining that elusive first step on the property ladder. That reality led the federal government, in this year’s Budget, to announce a new program intended to help first-time home buyers, of (relatively) modest means, to purchase their first home. Under that program — the First-Time Home Buyer Incentive — a portion of the mortgage principal amount on the purchase of a first home can be financed through a shared equity mortgage with the Canada Mortgage and Housing Corporation. Essentially, CMHC will assume responsibility for a portion of the mortgage and the homeowner will not be required to make payments on that CMHC portion. The CMHC portion will be 5% for purchases of existing properties and 10% on purchases of newly built homes. An example provided by CMHC illustrates the calculation, as follows. A borrower purchases a new $400,000 home with a 5% down payment and a 10% CMHC shared equity mortgage ($40,000). The borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing monthly mortgage costs by as much as $228. There are, of course, limitations and criteria which apply to those seeking to take advantage of the new program. First, it is available only to those who are first-time home buyers and who have total household income of less than $120,000 per year. As well, in order to qualify for the shared equity program, the total mortgage amount (including the shared equity portion) cannot be more than four times the purchaser’s annual household income. Since the upper income limit to qualify for the program is $120,000, a qualifying mortgage therefore cannot be, in total, more than $480,000, and so the maximum home purchase price (assuming a 5% down payment) is, as confirmed by CMHC, $505,000. The Budget papers did not, unfortunately, provide much detail with respect to exactly how the new incentive will operate. CMHC has since issued a press release outlining some additional details and that press release is available at https://www.cmhc-schl.gc.ca/en/media-newsroom/making-housing-more-affordable-first-time-home-buyer-incentive. There are however, still a number of questions remaining and a number of details to be worked out. In addition, CMHC has indicated that it will need to consult with lenders before the program can be up and running. The remaining details should, however, be available in the not-too-distant future, as CMHC has indicated that it expects the First Time Home Buyer Incentive program to be operational in September of 2019. Objecting to your 2018 Notice of Assessment (June 2019) By May 20, 2019, the Canada Revenue Agency (CRA) had processed just over 27 million individual income tax returns filed for the 2018 tax year. Just under 17 million of those returns resulted in a refund to the taxpayer, while about 5.5 million resulted in the required payment of a tax balance by the taxpayer. No matter what the outcome of the filing, all returns filed with and processed by the CRA have one thing in common — they result in the issuance of a Notice of Assessment (NOA) by the Agency, outlining the taxpayer’s income, deductions, credits, and tax payable for the 2018 tax year. In most cases, the information contained in the NOA is the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. In a minority of cases, the information presented in the NOA will differ from that provided by the taxpayer in the return. Where that difference means an unanticipated refund, or a larger refund than expected, it’s a happy day for the taxpayer. In some cases, however, the NOA will inform the taxpayer that additional amounts are owed to the CRA. When that happens, the taxpayer has to figure out why, and to decide whether or not to dispute the CRA’s conclusions. Many such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information from a variety of sources is reported on even the most straightforward of returns and it’s easy to overlook, for instance, a T5 slip reporting a small amount of interest income earned. Even where tax software is used to prepare the return, errors can still occur. Such tax software relies, in the first instance, on information input by the user with respect to amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income information which the taxpayer hasn’t provided. In other cases, the taxpayer might transpose figures when entering them, such that an income amount of $26,353 on the T4 becomes $23,653 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect, and calculates tax owing on the basis of the figures provided. Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return, and the CRA’s figures are correct, disputing the assessment doesn’t really make sense. There is, as well, a persistent tax “myth” that if a taxpayer doesn’t receive an information slip (T4 or T5, as the case might be) for income received during the year, that income doesn’t have to be reported and therefore isn’t taxable. The myth, however, is just that. All taxpayers are responsible for reporting all income received and paying tax on that income, and the fact that an information slip was lost, mislaid or never received doesn’t change anything. The CRA receives a copy of all information slips issued to Canadian taxpayers, and its systems will cross-check to ensure that all income is accurately reported. There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, which the taxpayer believes to be legitimate. Whatever the nature of the dispute, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not provide the detail to show precisely how and why the taxpayer and the CRA disagree on the actual amount of income tax which the taxpayer must pay for the year. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, where agents who have access to the taxpayer’s return can explain any changes which were made during the assessment process. If that call doesn’t resolve the taxpayer’s questions, or there is still a disagreement, the taxpayer has to decide whether to take the next step of filing a formal objection to the Notice of Assessment. Doing so formally advises the CRA that the taxpayer is disputing his or her tax liability for the taxation year in question. Not incidentally, the filing of an Objection also brings to a halt most efforts undertaken by the CRA to collect taxes which it considers owing for the taxation year under dispute (although, if the taxpayer is eventually found to owe the amount in dispute, interest will have accumulated in the interim). Where the taxpayer files an Objection, the CRA’s collection efforts are suspended until 90 days after the date the CRA’s decision on that Objection is sent to the taxpayer. In some cases, however, those collection efforts will not be brought to a halt, in whole or in part. Tax collection efforts by the CRA are not deferred where the amounts in dispute are those which the taxpayer was required to withhold and remit to the CRA, such as employee income tax deductions at source. As well, the CRA is required to postpone collection action on only 50% of the amount in dispute where that dispute involves a charitable donation tax credit or deduction claimed in connection with a tax shelter arrangement. There is a time limit by which any Objection must be filed, albeit a reasonably generous one. Individual taxpayers must file an Objection by the later of 90 days from the mailing date of the Notice of Assessment (the date found at the top of page 1) or one year from the due date of the return which is being disputed. So, for tax returns for the 2018 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2020 (or June 15, 2020 for self-employed taxpayers and their spouses). As with most things related to taxes, it’s best not to put it off. At the very least, if the taxpayer is ultimately found to owe some or all of the taxes assessed by the CRA, interest will have accrued on those taxes for the entire period since the filing due date and, if the filing of the Objection is delayed, the CRA may well have already commenced its collection efforts. Certainly, if the deadline is imminent, it is necessary to file a Notice of Objection in order to preserve the taxpayer’s appeal rights, even if discussions with the CRA are still ongoing. Taxpayers who have registered with the CRA’s online services feature My Account can file their Notice of Objection online at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html.The taxpayer provides information with respect to the assessment being disputed and the reasons why the assessment is being disputed and submits those reasons by clicking on the Submit button at the bottom of the "Register my formal dispute — review" page. Taxpayers who are disputing their tax assessment can also upload supporting documents relating to that dispute to the Agency’s website. While filing a dispute through My Account is certainly faster than mailing hard copy of the Notice of Objection, not all taxpayers want to use that option. In particular, those who are not already registered with My Account may not wish to undertake the registration process simply in order to file a single Notice of Objection. Taxpayers who choose instead to mail hard copy of a Notice of Objection can find the most current version of the CRA’s standardized T400A Objection (which was updated and re-issued in July 2018) on the Agency’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t400a/t400a-09-18e.pdf. Taxpayers aren’t obligated to use the CRA’s official Notice of Objection form; any communication which makes it clear that the taxpayer is objecting to his or her Notice of Assessment will do. Nonetheless, there’s no reason not to use the standardized form, and there are benefits to doing so. Using the T400A form will make it clear to the CRA that a formal objection is being filed, will present the necessary information in a format with which the CRA is familiar, and will also mean that no required information is inadvertently omitted. It is also helpful to include a copy of the Notice of Assessment which is being disputed. Taxpayers should also consider ensuring proof of both delivery and time of delivery by sending the form in a way which provides for tracking and proof of delivery (e.g., registered mail or courier). Taxpayers whose postal code begins with letters A to P should send their documents to the Eastern Appeals Intake Centre, while objections file by those with postal codes beginning with letters R to Y should be sent to the Western Appeals Intake Centre. The addresses for the two centres are as follows. Chief of Appeals Eastern Appeals Intake Centre North Central Ontario TSO 1050 Notre Dame Avenue, Sudbury ON P3A 5C1 Western Appeals Intake Centre Fraser Valley and Northern TSO, 2nd floor, 9755 King George Boulevard, Surrey BC V3T 5E1 It’s also possible to contact either of the Appeals Intake Centres by phone or fax, and the numbers for both can be found at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/complexity-level-processing-time.html. The time required for the CRA to consider the objection and make its decision ranges from several weeks to several months, depending on the number and complexity of the issues involved. Eventually, however, the CRA will respond to the objection. In the course of making its decision, the CRA may or may not contact the taxpayer for further discussions of the issues in dispute. Should the taxpayer be contacted, he or she may be asked to provide representations outlining his or her position, in writing or at a meeting. Through such representations and meetings, it may be possible for the taxpayer and the CRA to come to an agreement on the taxpayer’s tax liability. In either case, the CRA will either confirm its original assessment or change it. If the original assessment is changed, the CRA will issue a Notice of Reassessment outlining the changes. If the taxpayer continues to disagree with the CRA’s position, the next step is an appeal to the Tax Court of Canada, which must be filed within 90 days after the CRA issues its assessment or reassessment. While in many instances (generally where amounts in dispute are relatively small) taxpayers can represent themselves before the Tax Court, it is generally a good idea, once things reach this point, to consult a tax lawyer before taking that next step. The CRA also publishes a useful pamphlet entitled Resolving Your Dispute: Objection and Appeal Rights under the Income Tax Act, and the most recent release of that publication can be found on the CRA website at http://www.cra-arc.gc.ca/E/pub/tg/p148/README.html. New Quarterly Newsletters (May 2019) Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues. Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues. They can be accessed below. Issue #48 Corporate Issue #48 Personal Coming clean with the tax authorities (May 2019) Although virtually no one looks forward to the task, the vast majority of Canadians do file their tax returns, and pay any taxes owed, by the applicable tax payment and filing deadlines each spring. There is, however, a significant minority of Canadians who do not file or pay on a timely basis and, for some, that’s a situation which can go on for years. Part of the problem, of course, is that once a taxpayer is behind on his or her filing or payment of taxes, the problem snowballs. A taxpayer who has already failed to file a tax return may be reluctant to file the subsequent year’s return, for fear of bringing the matter to the attention of the tax authorities. And, of course, where taxes aren’t paid in a particular year, it’s that much more difficult to come up with enough money the next year to pay the bill covering taxes owed for two years. The reasons why some taxpayers don’t file or pay on time are many. Some don’t file because they believe that there’s no reason to do so if they don’t owe anything and aren’t expecting a refund. While that can be true, it is also the case that it is necessary to file in order to receive a number of income-tested tax credits and benefits, including the HST credit, the Canada child benefit, and a range of provincial tax credits. Those who don’t file can’t have their eligibility for such credits determined and so no credits can be paid to them. Others don’t file because they have a balance owing but don’t have the funds to pay that balance on filing. That, too, is the wrong approach, as anyone who owes taxes but doesn’t file a return by the filing deadline gets hit with an immediate penalty of at least 5% of the outstanding amount owed. In such circumstances, the right approach is to file on time and to contact the Canada Revenue Agency (CRA) in order to come to an agreement on a payment arrangement over time. Finally, there is a persistent (and completely false) tax myth that has been circulating for decades, that the federal government does not have the legal right to collect taxes and every year some taxpayers fall victim to someone peddling that myth. There are also a number of Canadians who file returns in which income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed. While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate isn’t high, there are a lot of such returns when measured by absolute numbers. And, although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover it. With all of that in mind, several years ago the CRA instituted a program — the Voluntary Disclosure Program (VDP) — intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arose from the fact that, in most cases, such taxpayers would have to pay outstanding tax amounts owed, plus interest, but would avoid the payment of penalties and the risk of criminal prosecution. In 2018 changes were made to the VDP which narrowed the eligibility criteria and imposed additional conditions on participants. The requirements for participation in the VDP, and the procedure to be followed to pursue it, are now as follows. To qualify for relief, an application must: be voluntary (meaning that it is done before the taxpayer becomes aware of any compliance or enforcement action by the CRA); be complete; involve the application or potential application of a penalty; and include information that is at least one year past due. Applications made for disclosure under the VDP are assigned to one of two tracks — the Limited Program or the General Program, and that determination, which is made on a case-by-case basis, will affect the kind of relief provided and the extent of that relief. The intention, however, is to restrict the Limited Program to instances in which applications disclose non-compliance that appears to include intentional conduct on the part of the taxpayer. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following: the sophistication of the taxpayer; whether efforts were made to avoid detection through the use of offshore vehicles or other means; and whether disclosure is made following a CRA statement regarding its intended specific focus of compliance or the issuance by the Agency of broad-based correspondence about a particular compliance issue. Those whose applications are accepted under the Limited Program will not be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer. Interest on outstanding tax balances will be payable, however, and other penalties will be levied. Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief (usually 50% of the interest assessed), specifically for the years preceding the three most recent years of returns required to be filed. However, full interest charges are assessed for the three most recent years of returns required to be filed. There is also now a requirement that taxpayers who make an application under the VDP pay the estimated taxes owing as a condition of qualifying for the Program. Where the taxpayer is financially unable to do so, he or she can request that the CRA consider a payment arrangement. As well, the CRA previously offered what was termed a “no-names disclosure”. That option is no longer provided, but has been replaced by a “pre-disclosure discussion” service. That service will still allow a taxpayer to discuss his or her tax affairs with a representative of the CRA on an anonymous basis, but such discussion is not binding on either party, and does not constitute acceptance into the VDP or preclude the Agency from initiating an audit or referring the case for criminal prosecution. The CRA provides detailed information on its website with respect to the VDP, covering both the criteria for participation, the kind(s) of relief which may be provided, and the procedure involved in seeking that relief. All of that information can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html and https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-income-tax-overview.html. Getting relief from the high cost of driving (May 2019) As every Canadian driver knows, gas prices seem to rise every spring, seemingly in lockstep with the warmer weather. This year, that annual trend has been given an extra push by the implementation of federal and provincial carbon taxes. As of the end of April, gas prices ranged from $1.19 to $1.56 per litre, depending on the province, and most forecasts call for those prices to increase over the summer. While in some cases Canadians can reduce the impact of gas price increases by reducing the amount of driving they do, the practical reality is that, even for those who wish to do less driving and to thereby reduce their carbon footprint, driving less just isn’t a realistic option. While major urban centres are usually well-served by public transit, it is a different picture outside those centres, where in many cases the public transit option is either non-existent or impractical. As well, as housing prices in major urban areas either continue to increase (or are already out of the reach for the average Canadian), individuals and families must move further from their workplaces in search of affordable housing. Doing so means a longer commute to work, and that commute must often be done by car. For a number of reasons, then, the cost of driving is often an unavoidable, non-discretionary expense. And, as that cost increases, many wonder whether there are any deductions or credits which can be claimed to help offset that cost. Unfortunately, for most taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving as the cost of driving to work and back home, as well as the cost of driving that isn’t work related, is considered a personal expense for which no deduction or credit can be claimed, no matter how great the cost. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel. Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities and be expected to use his or her own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses and that no tax-free allowance was provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include the following: fuel (gasoline, propane, oil); maintenance and repairs; licence and registration fees; interest paid on a loan to purchase the vehicle; eligible leasing costs for the vehicle; and depreciation, in the form of capital cost allowance. In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. And, of course, receipts must be kept in order to document all expenses incurred and claimed. While no limits (other than the general limit of reasonableness) are placed on the amount of costs which can be deducted in the first four categories listed above, there are limits and restrictions with respect to allowable deductions for interest, eligible leasing costs and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html. In larger urban centres, and in the nearby cities and suburbs which are served by inter-city transit, many commuters utilize that transit as a way of avoiding both the stress of a drive to work in rush hour traffic and the associated costs. And, for a time, such commuters were able to claim a tax credit to help mitigate the cost of using such transit. Unfortunately, the federal public transit tax credit was eliminated in 2017 and has never been reinstated. No amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But, that said, seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain. When you can’t file or pay on time – the Taxpayer Relief Program (May 2019) The deadline for payment of all individual income taxes owed for the 2018 tax year was April 30, 2019. For all individuals except the self-employed and their spouses, that date was also the filing deadline for tax returns for the 2018 tax year. (The self-employed and their spouses have until June 17, 2019 to file.) Most Canadians file and pay on time, but there are exceptions. In some cases, the failure to file or pay by the deadline is a deliberate choice on the part of the taxpayer but such failure can also occur for reasons or circumstances which are outside of the taxpayer’s control. And, in such circumstances, there is relief available from the interest and penalty charges which would usually be levied. That relief is provided through the Taxpayer Relief Program offered by the Canada Revenue Agency (CRA). Under that program, the revenue authorities can waive any interest and penalty charges that would ordinarily result from a failure to file or pay on time. The basic criteria for such relief is that the taxpayer’s failure to file or pay on time was caused by or was the result of circumstances that were beyond the control of the taxpayer, and so prevented them from complying with their tax obligations. The circumstances which will justify relief can be personal in nature and specific to the taxpayer or can be the result of events affecting a large number of individuals. For the past few years those large-scale events have been, for the most part, recurring weather or climate related disasters. Whether it was forest fires in the Western provinces or spring floods in Central Canada and the Maritimes, taxpayers in virtually every province have been affected, and often displaced, by such weather events. As well, such events typically take place during the spring and summer months, which coincides with the deadlines for tax filing and payment. For anyone facing circumstances which threaten their economic or physical well-being dealing with tax obligations is, understandably, far down the list of priorities. And, in many instances, such individuals don’t in any case have access to their tax records or such records have been destroyed. This year, as in previous years, the federal government has issued a press release reminding individuals affected by this spring’s floods that they can apply for relief under the Taxpayer Relief Program, to ensure that they are not unfairly penalized when they can’t meet their tax obligations on a timely basis. That press release can be found at https://www.canada.ca/en/revenue-agency/news/2019/04/government-of-canada-offers-taxpayer-relief-to-canadians-affected-by-flooding.html. Where the failure to meet tax obligations arises from unavoidable personal circumstances, those circumstances can include anything from personal or family illness or death to financial hardship. It’s important to note that, whatever the reason for the application, only interest and penalty charges can be waived. The Minister has no authority, no matter how dire the circumstances, to waive the payment of actual taxes owed. It’s also the case that, regardless of the reason for the application for relief, the process is the same. The CRA issues a prescribed from – RC4288, Request for Taxpayer Relief, which can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc4288.html. While use of the form is not mandatory — a letter to the CRA will suffice — using the prescribed form will ensure that all of the information needed by the Agency to make a decision on the request for relief is provided. For each such request, that information includes: the taxpayer’s name, address, and telephone number; the taxpayer’s social insurance number (SIN), account number, partnership number, trust account number, business number (BN), or any other identification number assigned to the taxpayer by the CRA; the tax year(s) or fiscal period(s) involved; the facts and reasons supporting the view that the interest or penalties were mainly caused by factors beyond the taxpayer’s control; an explanation of how the circumstances affected the taxpayer’s ability to meet his or her tax obligations; the facts and reasons supporting the inability to pay the penalties or interest assessed or charged, or to be assessed or charged; any relevant documentation (such as doctor’s certificates, death certificates, or insurance documents); and a complete history of events including any measures that have been taken (e.g., payments and payment arrangements), and when they were taken to resolve the non-compliance. In addition, where the relief request is based on financial hardship, the taxpayer must provide full financial disclosure, including statements of income and expenses. In order to provide full financial disclosure, the CRA recommends that taxpayers use Form RC376, Taxpayer Relief Request — Statement of Income and Expenses and Assets and Liabilities for Individuals. That form is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc376.html. All relief requests are to be sent to a particular Tax Centre or Tax Services Office, depending on the taxpayer’s province of residence. A listing of the addresses of all such Centres and Offices is available on the CRA website at www.cra-arc.gc.ca/gncy/cmplntsdspts/sbmtrqst-eng.html, and the same information is included on the RC4288 form. The request cannot be e-mailed, as the CRA does not communicate taxpayer-specific information by e-mail. Each relief request is assigned to a CRA official, who may, if necessary, contact the taxpayer to obtain clarification of the information provided, or to seek additional information. In any case, a determination will be made of whether the taxpayer’s request for interest or penalty relief is to be approved in full, approved in part, or denied, based on the following considerations: the taxpayer’s history of compliance with his or her tax obligations; whether or not the taxpayer knowingly allowed an arrears balance to exist upon which arrears interest has accrued; whether or not the taxpayer exercised a reasonable amount of care in conducting his or her tax affairs, and whether or not negligence or carelessness has been demonstrated; and whether or not the taxpayer acted quickly to remedy any delay or omission. The decision made will be communicated to the taxpayer, with reasons provided where the request is only partially approved, or is denied. At the same time, the taxpayer will be given information on the options available where the CRA has made a decision with which the taxpayer does not agree. Finally, when a natural or man-made disaster occurs, individuals living in the immediate area are clearly those most affected, but they are not the only ones. The press release issued recently by the CRA noted that first responders who work to help in such circumstances may also seek relief under the program, where such work has meant that they were unable to meet their tax filing and/or payment obligations. Fixing a mistake in your (already filed) tax return (May 2019) For the majority of Canadians, the due date for filing of an individual tax return for the 2018 tax year was Tuesday April 30, 2019. (Self-employed Canadians and their spouses have until Monday June 17, 2019 to get their return filed.) In the best of all possible worlds, the taxpayer, or his or her representative, will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can go “off the rails” in any number of ways. By the third week of April 2019, over 18 million individual income tax returns for the 2018 tax year had been filed with the CRA. And, inevitably, some of those returns contain errors or omissions that must be corrected — in 2017 the CRA received about 2 million requests for adjustment(s) to an already-filed return. Over 90% of the returns which have already been filed for the 2018 tax year were filed through online filing methods, meaning that they were prepared using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetic error, like entering an amount on the wrong line or adding a column of figures incorrectly. However, no matter how good the software, it can work only with the information that is provided to it. Sometimes taxpayers prepare and file a return, only to later receive a tax information slip that should have been included on that return. It’s also easy to make an inputting error when transposing figures from an information slip (a T4 from one’s employer, for instance) into the software, such that $49,505 in income becomes $45,905. Whatever the cause, where the figures input are incorrect or information is missing, those errors or omissions will be reflected in the final (incorrect) result produced by the software. When the error or omission is discovered in a return which has already been filed, the question which immediately arises is how to make things right. The first impulse of many taxpayers is to file another return, in which the complete and correct information is provided, but that’s not the right answer. There are, however, several ways in which a mistake or omission on an already-filed tax return can be corrected, including online options. Starting last year, taxpayers who filed online, whether through NETFILE or EFILE, are able to advise the CRA of an error or omission in an already-filed return electronically, using the Agency’s ReFILE service. That service, which can be found at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-adjustments-efile-service-providers.html, allows taxpayers to make corrections to an already-filed return online, using the CRA website. Essentially, taxpayers whose returns have been filed online (through NETFILE or EFILE) can file a correction to that already-filed return, using the same tax return preparation software that was used to prepare the return. Those taxpayers who used NETFILE to file their return can file an adjustment to a returns filed for the 2016, 2017, or 2018 tax years. Where the return was filed using EFILE, the EFILE service provider can file adjustments for returns filed for the 2015, 2016, 2017, or 2018 tax years. There are limits to the ReFILE service. The online system will accept a maximum of 9 adjustments to a single return, and ReFILE cannot be used to make changes to personal information, like the taxpayer’s address or direct deposit details. There are also some types of tax matters which cannot be handled through ReFILE, like applying for a disability tax credit or child and family benefits. It is also possible to make a change or correction to a return using the CRA’s “My Account” service (through the “Change My Return” feature), but that choice is available only to taxpayers who have already registered for the My Account service. As well, the changes/corrections which can be made using ReFILE are the same as those which can be done through My Account, without the need to become registered for My Account, a process which takes a few weeks. Taxpayers who wish to make changes or corrections which cannot be made through ReFILE or My Account (or those who just don’t wish to use the online option) can paper-file an adjustment to their return. The paper form to be used is Form T1-ADJ E (2018), which can be found on the CRA website at http://www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html. Those who are unable to print the form off the website can order a copy to be sent to them by mail by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. There is no limit to the number of changes or corrections which can be made using the T1-ADJ E (2018) form. The use of the actual T1-ADJ form isn’t mandatory – it is also possible to file an adjustment request by sending a letter to the CRA – but using the prescribed form has two benefits. First, it makes clear to the CRA that an adjustment is being requested, and second, filling out the form will ensure that the CRA is provided with all the information needed to process the requested adjustment. Whether the request is made using the T1 Adjustment form or by letter, it is necessary to include any relevant documents – the information slip summarizing the income not reported, or the receipt for an expense inadvertently not claimed. A hard copy of a T1-ADJ (or a letter) is filed by sending the completed document to the appropriate Tax Center, which is the one with which the tax return was originally filed. A listing of Tax Centres and their addresses can be found on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. A taxpayer who isn’t sure any more which Tax Centre his or her return was filed with can go to www.cra-arc.gc.ca/cntct/tso-bsf-eng.html on the CRA website and select his or her location from the listing found there. The address for the correct Tax Centre will then be provided. Similar information is also provided on page 2 of the T1ADJ form. Where a taxpayer discovers an error or omission in a return already filed, the impulse is to correct that mistake as soon as possible. However, no matter which method is used to make the correction – ReFILE, My Account, or the filing of a T1-ADJ in hard copy, it is necessary to wait until the Notice of Assessment for the return already filed is received. Corrections to a return submitted prior to the time that return is assessed simply cannot be processed by the Agency. Once the Notice of Assessment is received, and an adjustment request is made, it will take at least a few weeks, usually longer, before the CRA responds. The Agency’s estimate is that such requests which are submitted online have a turnaround time of about two weeks, while those which come in by mail take about eight weeks. Not unexpectedly, all requests which are submitted during the CRA’s peak return processing period between March and July will take longer. Sometimes the CRA will contact the taxpayer, even before a return is assessed, to request further information, clarification or documentation of deductions or credits claimed (for example, receipts documenting medical expenses claimed, or child care costs). Whatever the nature of the request, the best course of action is to respond promptly, and to provide the requested documents or information. The CRA can assess only on the basis of the information with which it is provided, and it is the taxpayer’s responsibility to provide support for any deduction or credit claims made. Where a request for information or supporting documentation for a claimed deduction or credit is ignored by the taxpayer, the assessment will proceed on the basis that such support does not exist. Providing the requested information or supporting documentation can usually resolve the question to the CRA’s satisfaction, and its assessment of the taxpayer’s return can then be completed. Budget expands access to Home Buyers’ Plan (April 2019) Both changes in the job market and increases in real estate prices over at least the past decade have made the goal of home ownership an elusive or even impossible one for many Canadians, especially younger Canadians. There is no single solution for the multiple factors which prevent many Canadians from getting that first toehold on the “property ladder”. However, changes announced in this year’s federal Budget seek to make it a bit easier to become a first-time home owner. Those changes involved the expansion of an existing program — the Home Buyers’ Plan, which allows first-time home buyers to use funds withdrawn from their registered retirement savings plans (RRSPs) to make part or all of a down payment on a home purchase. Any such amounts can be withdrawn tax-free, but must then be re-contributed or repaid to the RRSP in prescribed amounts, and on a prescribed schedule, over the next 15 years. While access to the HBP is limited to first-time home buyers, the definition of that term is more expansive than it might seem. Under the HBP rules, a first-time home buyer is someone who has not owned and lived in a home either in the current year or any of the four previous years. Where that person is married, his or her spouse must also meet the same criteria. Where an individual and his or her spouse meet the HBP criteria, each could withdraw up to $25,000 from his or her RRSP and use those funds for a down payment. The Budget measures propose to increase the maximum amount which can be withdrawn from an RRSP under the HBP from $25,000 to $35,000. Consequently, a couple can now withdraw up to $70,000 under the HBP, as the change is effective for withdrawals made under the HBP after the Budget date of March 19, 2019. One further change to the HBP program was announced in the Budget, and that change applies where a marriage or common-law partnership breaks down. When spouses separate, it is often the case that one or both of them must purchase another home. The Budget measures propose to extend access to the HBP for individuals who are in that situation, regardless of whether they meet the definition of first-time home buyer. Where a former spouse purchases a new residence using the HBP, any previous place of residence must, in most instances, be disposed of within two years after the end of the year in which the HBP withdrawal is made. The change providing increased access to the HBP on the breakdown of a marriage or common law partnership is effective for HBP withdrawals made after the end of 2019. More details of the rules governing the HBP can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html. What to do when you can’t pay your tax bill (April 2019) Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst. Most taxpayers are, of course, hoping for a refund — the bigger the better. A lot would be happy to find that at least nothing is owed to the Canada Revenue Agency (CRA), or that an amount owing is not significant. The worst-case scenario, for all taxpayers, is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds. And while that will mean paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the CRA on the unpaid tax bill. If a tax bill can’t be paid in full out of either current resources or available credit, the CRA is open to making a payment arrangement with the taxpayer. While, like most creditors, the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the Agency provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement. There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. (For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2017 tax year). The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time. Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657 or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent. The CRA also provides on online tool, in the form of a payment arrangement calculator (available at https://apps.cra-arc.gc.ca/ebci/recc/pac/prot/lngg?request_locale=en_CA), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances). That calculator includes interest charges since, no matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2018 tax year which is not paid on or before April 30, 2019. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates. For the second quarter of 2019 (April 1 to June 30), that rate is 6%. Second, interest charges levied by the CRA are compounded daily, meaning that each day’s interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline. Finally, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount — and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed — and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Tuesday April 30, 2019. For self-employed taxpayers (and their spouses) the filing deadline is Monday June 17, 2019. However for all taxpayers, the payment deadline for all 2018 income tax owed is Tuesday April 30, 2019. Paying the taxman – how and when (April 2019) Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2018 must be remitted to the Canada Revenue Agency (CRA) on or before Tuesday, April 30, 2019 — no exceptions and, absent extraordinary circumstances, no extensions. It is very much in the CRA’s interests to make paying taxes as simple and as straightforward as it can be and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than seven separate options available to individual residents of Canada in paying their taxes for the 2018 tax year. The options open to taxpayers who must make a payment to the taxman are set out below. Pay using online banking Millions of Canadians transact most or all of their banking using the online services of their particular financial institution. The list of financial institutions through which a payment can be made to the CRA is a lengthy one (available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-online-banking.html), and includes all of Canada’s major banks and credit unions. The specific steps involved in making that payment will differ slightly for each financial institution, depending on how their online payment systems are configured. What’s important to remember is that the nature of the payment (i.e., current year tax return, as distinct from current year tax instalment payments) must be specified, and the taxpayer’s social insurance number must be provided, in order to ensure that the payment is credited to the correct account, for the correct taxation year. It is not necessary to access any particular CRA form in order to make an online payment of taxes through one’s financial institution website. Paying at your financial institution For those who don’t use online banking, or simply prefer to make a payment in person, it’s possible to pay a tax amount owed at the bank. Doing so, however, requires that the taxpayer have a personalized remittance form. Since that remittance is specific to the taxpayer, it’s not possible to simply print that form from the CRA website. However, taxpayers who wish to obtain such a personalized remittance form can do so by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959 8281 and requesting that one be sent to them by mail. Using the CRA’s My Payment The CRA also provides an online payment service called My Payment. There is no fee charged for the service, and it’s not necessary to be registered for any of the CRA’s other online services in order to use My Payment. What is necessary is that the taxpayer have a debit card with a VISA Debit, Debit MasterCard, or InteracOnline logo from a participating Canadian financial institution, as My Payment is set up to accept payment using only those cards. Anyone intending to use My Payment should first confirm that the amount of any payment to be made is within the daily or weekly transaction limits imposed by the particular financial institution. More details on this payment method can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html. While it’s possible to pay one’s taxes using a credit card, such payments can only be made through third-party service providers (that is, payments by credit card cannot be made directly to the CRA), and such third-party service providers will impose a fee for the service. There are only two such service providers listed on the CRA website, and links to each such service are available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-credit-card.html. Payment through a service provider There are a number of third-party service providers which will accept payments and remit them on the taxpayer’s behalf to the CRA. However, the majority of such services are more oriented toward providing services to businesses, and most of those listed on the CRA website do not handle payments of individual income tax amounts owed. The full listing of third-party service providers, and the types of payments they handle, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-a-service-provider.html. Payment by pre-authorized debit It’s possible to set up a pre-authorized debit (PAD) arrangement with the CRA, authorizing the Agency to debit one’s bank account for an amount of taxes owed, on dates specified by the taxpayer. Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2018 tax year. However, any PAD arrangement must be made at least five business days before the payment due date of April 30. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods. There is also another option for taxpayers who have their return prepared and E-FILED by an authorized electronic filer. Such taxpayers can have that E-FILER set up a PAD agreement on their behalf in order to make a one-time payment for a current-year tax amount owed. Such an arrangement is only for the payment of a current-year tax balance and can’t be used for other payments like instalment payments of tax. Details on how to set up a pre-authorized debit arrangement, whether for a single payment or for recurring payments, are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html. Payment by cash or debit card It is still possible to pay one’s taxes in cash, or by using a debit card. Such payments are made, not at CRA offices, but at Canada Post outlets. However, while a cash payment may be a low-tech option, the requirements for making a cash or debit card payment are not. In order to do so, the taxpayer will need a self-generated QR (quick response) code. Such code can be created by following a link found on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html. The QR code created is provided to a clerk at a Canada Post outlet, who uses the information in the code to properly credit the payment made. Service fees are levied for this payment method. It’s important for all taxpayers to realize that the payment deadline of April 30 requires that the CRA receive payment by that date. The Agency considers that a payment has been made only when it actually receives that payment, or the payment is received by a member of the Canadian Payments Association (which would include most Canadian financial institutions). The majority of payment options now available to Canadians involve online transactions or the use of third-party service providers. Both such methods can mean some delay in receipt of the payment by the CRA, as a result of the time required for processing of the payment by the financial institution or third party. Consequently, taxpayers who make their tax payments online or using a third-party service provider are well-advised to consider that time lag in deciding when to make their payment – waiting until April 30, especially late in the day, to do so isn’t a good idea. Those who make their payment in person at a financial institution (using a personalized remittance form, as outlined above) can make their payment on April 30, as the date stamped on the remittance form is considered to be the date on which such payment is received by the CRA. Some last-minute tax filing strategies - the timing of medical and charitable tax credit claims (April 2019) By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2018, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2018, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2019 in order to be deducted on the return for 2018. However, the fact that the clock has run out on most major tax planning opportunities for 2018 doesn’t mean that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2018 — by claiming all available deductions and credits on the return and also by making sure that those deductions and credits are claimed in the way which will give the taxpayer the most “bang for the buck”. Everyone’s tax situation (and therefore their tax return) is different, of course, but most taxpayers make claims on their annual returns for medical expenses incurred and/or charitable donations made. It may seem counterintuitive, or even illogical, to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, for both medical and charitable tax credit claims, albeit for different reasons, there are situations in which it makes sense to defer an available claim until a future year, or to transfer the claim to another person. Claiming charitable donations Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2018) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations. That credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 15% of the total donation, or $30. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200. Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where he or she claims that donation on the annual return each year, that claim will result in a federal credit of $320 ($200 × 15%, plus $1,000 × 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, he or she will receive a federal credit of $668. ($200 × 15%, plus $2,200 × 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 × 15%, plus $5,800 × 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provide a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit. Medical expense tax credit Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs. The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates. Many taxpayers find the rules on the calculation of a medical tax credit claim confusing, with some justification. First, there is an income threshold imposed. Eligible medical expenses are those expenses which exceed 3% of net income, or (for 2018) $2,302, whichever is less. Put more practically, for 2018 taxpayers who have net income of $76,750 or less can claim medical expenses incurred over $2,302. Those with higher incomes can claim medical expenses which exceed 3% of that higher net income. The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, this rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again. While only expenses which exceed the $2,302/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for all children born in 2001 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold. In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,302 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit. Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances, are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. A listing of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-330-331-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns. Deciding when to start receiving Old Age Security benefits (March 2019) The Old Age Security program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the first quarter of 2019 (January to March 2019), that maximum monthly benefit is $601.45. For many years, OAS was automatically paid to eligible recipients once they reached the age of 65. However, since July 2013 Canadians who are eligible to receive OAS benefits have been able to defer receipt of those benefits for up to five years, when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received would increase by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%. It can, however, be difficult to determine, on an individual basis, whether and to what extent it would make sense to defer receipt of OAS benefits. Some of the difficulty in deciding whether to defer, and for how long, lies in the fact there are no hard and fast rules, and the decision is very much an individual one. Fortunately, however, there are a number of factors which each individual can consider when making that decision. The first such factor is how much total income will be required, at the age of 65, to finance current needs. It is also necessary to determine what other sources of income (employment income from full-time or part-time work, Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, annuity payments, and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income fund (RRIFs)) are available to meet those needs, both currently and in the future, and when receipt of those income amounts can or will commence or cease. Once income needs and the sources and possible timing of each is clear, it is necessary to consider the income tax implications of the structuring and timing of those sources of income. The ultimate goal, as it is at any age, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits. In making those calculations, the following income tax thresholds and benefit cut-off figures are a starting point. Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2019, that second income tax bracket begins when taxable income reaches $47,630. The Canadian tax system provides (for 2019) a non-refundable tax credit of $7,494 for taxpayers who are over the age of 65 at the end of the tax year. That amount of that credit is reduced once the taxpayer’s net income for the year exceeds $37,790. Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2019, the full credit is payable to individual taxpayers whose family net income is less than $37,789. Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or clawback. For the July 2019 to June 2020 benefit period, taxpayers whose income for 2018 was more than $75,910 will have a portion of their OAS benefit entitlement “clawed back”. What other sources of income are currently available? More and more, Canadians are not automatically leaving the work force at the age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when he or she turns 65, may be able to postpone receipt of OAS benefits. Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence? Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred and received any time up to the age of 70. As is the case with OAS benefits, CPP retirement benefits increase with each month that receipt of those benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income. Does the taxpayer have private retirement savings through an RRSP? Taxpayers who were not members of an employer-sponsored pension plan during their working lives generally save for retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the option chosen (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity) will mean that the taxpayer will begin receiving income amounts from those RRSP funds in the following year. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider that they will have an additional (taxable) income amount for each year after they turn 71. The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none can be considered in isolation from the others. Individuals who are facing that decision-making process will find some assistance on the Service Canada website. That website provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received, and the taxpayer can obtain that information by calling Service Canada at 1-800 277-9914. The Retirement Income Calculator can be found at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html. When and how to file this year’s tax return (March 2019) Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for the 2018 show that the vast majority of Canadian individual income tax returns — nearly 87%, or almost 26 million returns — were filed online, using one or the other of the CRA’s web-based filing methods. The remaining 13% of returns were, for the most part, paper-filed, and a very small percentage (0.1%) were filed using the File My Return service, in which returns are filed by telephone. Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and those who choose electronic filing this year have two choices — NETFILE and E-FILE. The first of those — NETFILE, which was used last year by just under 30% of tax filers) — involves preparing one’s return using software approved by the CRA and filing that return on the Agency’s website, using the NETFILE service. E-FILE involves having a third party file one’s return online. Almost always, the E-FILE service provider also prepares the return which they are filing. And, it seems that most Canadians want to have little to do with the preparation of their own returns, as last year 57.3% of all the individual income tax returns filed came in by E-FILE. The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about E-FILE on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/fl-nd/menu-eng.html. That site will also provide a listing (searchable by postal code) of authorized E-FILE service providers across Canada, and that listing can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action. Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service, and information on that service can be found at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be NETFILED (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2018 or 2019), the vast majority of Canadians who wish to do so will be able to NETFILE their return. As well, while it was once necessary to obtain an access code in order to NETFILE, that’s no longer the case. The CRA’s NETFILE security procedures can be satisfied by providing specific personal identifying information, including one’s social insurance number and date of birth. A return can be filed using NETFILE only where it is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere at this time of year, approved software which can be used free of charge is also available. A listing of free and commercial software approved for use in preparing individual returns for 2018 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html. Copies of the 2018 tax return and guide package can also be ordered online, at https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20, to be sent to the taxpayer by regular mail. Taxpayers can also download and print hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html. Finally, the CRA has made a “limited” number of tax packages available at Service Canada offices and post offices across the country. Last year the CRA reinstated (for some taxpayers) a tax return filing option that was previously discontinued. For several years, taxpayers with simple returns had the option of filing their returns using a touch-tone telephone. That option, now called File my Return service (FMR) will be available to eligible Canadians with low or fixed incomes whose situations remain unchanged from year to year, even if they have no income to report, so that they receive the benefits and credits to which they are entitled. The FMR option is, however, available only to taxpayers who are advised by the CRA of their eligibility, and those individuals will have been notified by letter during the month of February. Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship, have another option. During tax filing season, there are a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers. A listing of such clinics (which is regularly updated during tax filing season) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html. While there are a number of filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for 2018 tax returns. All individual Canadians must pay the balance of any taxes owed for 2018 on or before Tuesday April 30, 2018, with no exceptions and, absent very unusual circumstances, no extensions. For the majority of Canadians, the tax return for 2018 must also be filed on or before Tuesday April 30, 2019. Self-employed taxpayers and their spouses have until Monday June 17, 2018 to file their returns for 2018 (but they too must pay any 2018 taxes owing on or before April 30, 2019). It’s tax filing – and tax scam – season (March 2019) For many years now, there has been a persistent tax scam operating in Canada in which Canadians are contacted, usually by phone, by someone who falsely identifies himself or herself as being a representative of the Canada Revenue Agency (CRA). The taxpayer is told that money — sometimes a substantial amount of money — is owed to the government. The identifier for this particular scam is that the caller insists that the money owed must be paid immediately (usually by wire transfer or pre-paid credit card) and, if payment is not made right away, significant negative consequences will follow, including immediate arrest or seizure of assets, confiscation of the taxpayer’s Canadian passport, or deportation. Of course, none of those consequences are remotely possible, even in circumstances where a legitimate tax debt is owed. However, the individuals or groups perpetrating this scam have, over the years, become both increasingly sophisticated — to the point of having a call display which shows the call as coming from the CRA — and increasingly successful, and many Canadians have suffered significant financial losses as a result. To combat this, the CRA and other authorities have provided many warnings to taxpayers on how to avoid getting cheated, such that by now almost everyone has heard of this particular tax scam. However, there has also been an unintended result, as outlined by the CRA on its website: “Scammers posing as Canada Revenue Agency (CRA) employees continue to contact Canadians, misleading them into paying false debt. These persistent scammers have created fear among people who now automatically assume that any communication from someone representing the CRA is not genuine.” As we move into tax filing season, it is more likely that the CRA will be in touch with taxpayers for legitimate reasons. This poses two potential problems. First, there is likely to be an increase in the activity of tax scammers, who are relying on the fact that taxpayers are more likely to expect contact from the CRA during tax filing season. Second, the tax administration process can’t function efficiently if taxpayers don’t respond to legitimate communications from the CRA out of fear that such communications are just in furtherance of another tax scam. To address this problem, the CRA has provided comprehensive information on the methods by which it does and does not contact taxpayers, and what it will and will not ask for in communications with taxpayers. That information, which is posted on the CRA website, is as follows. The CRA may verify your identity by asking for personal information such as your full name, date of birth, address, account number, or social insurance number ask for details about your account, in the case of a business enquiry call you to begin an audit process The CRA will never ask for information about your passport, health card, or driver's license demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards, or gift cards from retailers such as iTunes, Amazon, or others use aggressive language or threaten you with arrest or sending the police leave voicemails that are threatening or give personal or financial information notify you by email when a new message or a document, such as a notice of assessment or reassessment, is available for you to view in secure CRA portals such as My Account, My Business Account, or Represent a Client email you a link to a CRA webpage, form, or publication that you ask for during a telephone call or a meeting with an agent (this is the only case where the CRA will send an email containing links) give or ask for personal or financial information by email and ask you to click on a link email you a link asking you to fill in an online form with personal or financial details send you an email with a link to your refund threaten you with arrest or a prison sentence ask for financial information such as the name of your bank and its location send you a notice of assessment or reassessment ask you to pay an amount you owe through any of the CRA's payment options take legal action to recover the money you owe, if you refuse to pay your debt write to you to begin an audit process set up a meeting with you in a public place to take a payment Text messages/instant messaging The CRA never uses text messages or instant messaging such as Facebook Messenger or WhatsApp to communicate with taxpayers under any circumstance. If a taxpayer receives text or instant messages claiming to be from the CRA, they are scams! Fraud isn’t new, and it isn’t going away any time soon. However, the speed and anonymity of electronic communication and the extent to which most people are now comfortable transacting their tax and financial affairs online or over the phone makes it easier in many ways for fraud artists to succeed. The best defence against becoming a victim of such scams is a healthy degree of caution, even skepticism, and a refusal to provide any personal or financial information, whether by phone, e-mail, text, or online, without first verifying the legitimacy of the request. The CRA suggests that anyone who is contacted by phone by someone claiming to be a CRA employee take the following steps: Ask for or make a note of the caller's name, phone number, and office location and tell them that you want to first verify their identity. Check that the employee calling you about your taxes works for the CRA or that the CRA did contact you by calling 1-800-959-8281 for individuals or 1-800-959-5525 for businesses. If the call you received was about a government program such as Student Loans or Employment Insurance, call 1-866-864-5823. What’s new on this year’s tax return? (March 2019) While Canadian taxpayers must prepare and file the same form – the T1 Income Tax and Benefit Return – every spring, that return form is never the same from one year to the next. The one constant in tax is change, and every year taxpayers sit down to face a different tax return form than they dealt with the previous year. First, there are “automatic” changes to the tax rules which are reflected on the return every year. The basic personal credits which can be claimed by most taxpayers increase every year, as do the income brackets which determine the tax rate which applies at each level of income, as both are changed to reflect the rate of inflation. Changes in tax credit amounts or tax bracket figures are largely invisible to the average taxpayer, as they don’t require any change to the layout or organization of the tax return form, or the process of completing it. The more significant changes are those which provide new credits or deductions to qualifying taxpayers or, conversely, eliminate such credits or deductions which taxpayers might have claimed in previous years. What follows is a listing of such changes which taxpayers will find when completing their return for the 2018 tax year. Climate Action Incentive Perhaps the best news in the 2018 tax return, for taxpayers who are residents of Saskatchewan, Ontario, Manitoba, or New Brunswick, is the new Climate Action Incentive (CAI) – a refundable tax credit intended to help mitigate the impact of carbon taxes. The Incentive is extremely broad-based; it is, with few exceptions, claimable by any resident of one of those provinces who is 18 years of age or older, has a spouse or common law partner, or is a parent who lives with his or her child. The CAI rates vary by province, with the basic incentive ranging from $128 in New Brunswick to $305 in Saskatchewan. An individual who has a spouse or common law partner, or a dependant, can claim an amount in respect of each, and a separate amount is claimable by a single parent in respect of each qualified dependant. As with the basic amount, the amounts claimable for spouses or common law partners and for qualified dependants will vary by province. The amount of the CAI is increased for individuals who live in rural areas, where the impact of a carbon tax is likely to be greater. Such individuals can increase their basic CAI claim (as outlined above) by 10% to arrive at the total amount claimable. The definition of what constitutes “rural area” for purposes of the CAI has been defined by the tax authorities and a listing of locations in each province which do not qualify as a rural area can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-449-climate-action-incentive/qualify-for-the-supplement.html. Finally, the CAI is a refundable credit, meaning that it is paid to the taxpayer even where no tax is payable for the year and, finally, there are no income restrictions when it comes to eligibility – all qualifying taxpayers receive the amounts outlined above, regardless of their income for the year. The list of medical and para-medical expenses for which the medical expense tax credit can be claimed is long and detailed and subject to continual revision. This year, that list has been expanded to include a variety of expenses relating to service animals specially trained to perform specific tasks for a patient with a severe mental impairment. Unfortunately, the two changes listed above are the only ones which are likely to put money in the taxpayer’s pocket this year. The other major changes which are effective for 2018 cancel existing credits or deductions which were formerly available. First-time donor super-credit expires In 2013, the federal government introduced a so-called “first time donor super credit”, which allowed individuals who had not claimed a charitable donation tax credit for a specified period to claim an enhanced credit for donations made in 2013 and the subsequent four years. The first-time super donor tax credit expired at the end of 2017 and consequently no such claim can be made on the 2018 return. Employee home relocation loan deduction eliminated Under general tax rules, employees who receive a loan from their employer are considered to have received a taxable benefit. Prior to 2018, preferential tax treatment in the form of a deduction was provided for employees who were required to relocate for work purposes and who received a loan from their employer to assist with related expenses. However, the employee home relocation loan deduction was eliminated as of January 1, 2018. Changes to the Return, Schedules, and Guide It’s not news to anyone that our tax system is complex, and that complexity is reflected in the annual tax return form, and in the guide which is intended to provide assistance to taxpayers in completing that return. The income tax return is composed of a four-page return form (the T1) and a number of schedules. Each of those schedules is used to calculate a particular amount – usually a tax credit or tax deduction amount, which is then transferred to a particular line on the return form. Anyone who has ever prepared a tax return is familiar with the sometimes frustrating process of moving back and forth from the return to the schedules to the guide (and back again!), searching for the information needed to figure out just how to complete a particular line or lines of the return. This year, the Canada Revenue Agency has made some changes in the return, the schedules, and the guide, which are intended to streamline and simplify that process. Specifically, instructions and information which are needed to complete a particular schedule have been moved from the guide and included on that schedule. As well, there are a number of schedules for which it is necessary to first complete some calculations on a worksheet. This year, such calculations, instead of being included in the guide, are incorporated with the worksheet for the particular schedule. Overall, the changes seek to gather in one place all of the information, instructions, and calculations needed to complete a particular schedule, hopefully reducing or eliminating the frustrating need to search through the entire guide for the needed information. New Quarterly Newsletters (February 2019) More debt … and more interest (February 2019) The fact that debt levels of Canadian households have been increasing over the past decade and a half can’t really be called news anymore. In particular, the ratio of debt-to-household-income, which stood at 93% in 2005, has risen steadily since then and, as of the third quarter of 2018, reached (another) new record of 177.5%. In other words, the average Canadian household owed $1.78 for every dollar of disposable (after-tax) income. (The Statistics Canada publication reporting those findings can be found on the StatsCan website at https://www150.statcan.gc.ca/n1/daily-quotidien/181214/dq181214a-eng.htm.) Repeated announcements of yet another increase in the average debt-to-household income ratio have become almost routine over the past 15 years — the latest statistics are reported in the media and concern is expressed by financial planners and, sometimes, government and banking officials, but there has not been any sustained change in consumer behavior. Starting a year and a half ago, however, something did change. Debt didn’t just get bigger, it got more expensive — five successive times. In June of 2016 the Bank Rate set by the Bank of Canada, on which financial institutions base their lending rates, was 0.75%, and had not changed in the previous two years. Starting in July 2016, that rate was increased in five separate announcements over the next 18 months and, as of January 2019, it stands at 2%. Like most economic events, the explosive growth in the average debt of Canadian households over the past fifteen years can’t be attributed to a single cause. What’s undeniable however, is that two of the major causes of that growth in debt were first, interest rates which were the lowest on record since before the Great Depression and second, a remarkable run-up in Canadian residential real estate values. Money was cheap and, when debt was secured against home equity, it was frequently incurred in the belief that the increased amount of such debt would soon be covered, or outstripped, by an increase in the value of the underlying real estate. And, since interest rates were so low, the cost of carrying that increased debt was very manageable. To some extent, both those circumstances have changed. Canadian real estate values are still high by historic standards and, while those values have softened in some areas of the country, there has been nothing like the “crash” in such real estate prices which happened in the late 1980s. However, the era of ultra-cheap money seems to be over, and interest rates are clearly on the increase. While it’s impossible to say how high interest rates will go, and how quickly, it’s prudent to assume at least that rates won’t be going down any time soon. As the Bank of Canada has announced successive increases in the bank rate, financial institutions have inevitably responded by increasing the interest rates charged on all forms of borrowing. In other words, even if the amount of debt carried by Canadian families hasn’t changed in the last 18 months, the cost of carrying that debt has certainly gone up. The effect of such change is measurable: as noted by the credit reporting agency Equifax, the proportion of Canadians who pay off their credit cards in full each month has declined (as measured on a year-over-year basis) each month since August 2017. There is no instant fix for anyone who has taken on debt and is now finding that repaying (or even servicing) that debt has become more difficult, or even impossible. There are, however, steps which can be taken to get that debt under control and even, eventually, to be become debt-free. And, there is help available through debt and credit counselling provided by any number of non-profit agencies. Those agencies work with individuals, and with their creditor(s), to create both a realistic budget and a manageable debt repayment schedule. More information on the credit counselling process, and a listing of such non-profit agencies can be found at http://creditcounsellingcanada.ca/. Responding to a tax instalment reminder from the CRA (February 2019) Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency (CRA). That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 17 of this year. Receiving an “Instalment Reminder” from the CRA won’t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. That’s because for most Canadians — certainly most Canadians who earn their income through employment — the payment of income tax throughout the year is an automatic and largely invisible process, requiring no particular action on the part of the employee/taxpayer. Federal and provincial income taxes, along with Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are deducted from each employee’s income and the amount deposited to an employee’s bank account is the net amount remaining after such taxes, contributions and premiums are deducted and remitted on the employee’s behalf to the CRA. While no one likes having to pay taxes, having those taxes paid “off the top” in such an automatic way is, relatively speaking, painless. Such is not, however, the case for the sizeable minority of Canadians who pay their income taxes by way of tax instalments The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an instalment reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2019) tax year and either of the two previous (2017 or 2018) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2019 and either 2017 or 2018. For residents of Quebec, that threshold amount is $1,800. Such obligation arises on a regular basis for those who are self-employed, or course, and generally for those whose income is largely derived from investments. The group of recipients of a tax instalment reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source – their paycheque – retirees often have multiple sources of income, including Canada Pension Plan (CPP) and Old Age Security (OAS) payments, private retirement savings and, sometimes, employer-provided pensions. And, while income tax is deducted automatically from one’s paycheque, that’s not the case for most sources of retirement income. Relatively few new retirees realize that it’s necessary to make arrangements to have tax deducted “at source” from either their government source income (like CPP or OAS payments) or private retirement income like pensions or registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals, who may be surprised and puzzled by the arrival of an unfamiliar “Instalment Reminder” from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same. First, the taxpayer can pay the amounts specified on the Reminder, by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2019. If the total of instalment payments made during 2019 turn out to more than the taxpayer’s total tax liability for the year, he or she will of course receive a refund when the annual tax return is filed in the spring of 2020. Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2018 tax year. Where a taxpayer’s income has not changed significantly between 2018 and 2019 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2019 will be slightly less than it was in 2018, as the result of the indexation of both income tax brackets and tax credit amounts. Third, the taxpayer can estimate the amount of tax which he or she will owe for 2019 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2018 to 2019, such that his or her tax bill will also be substantially reduced, this option can make the most sense. A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no tax payable when the return for the 2019 tax year is filed in the spring of 2020. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2019 — until March 31, 2019 — is 6%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000. Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above. RRSPs and TFSAs — making the annual contribution (February 2019) For most taxpayers, the annual deadline for making an RRSP contribution comes at a very inconvenient time. At the end of February, many Canadians are still trying to pay off the bills from holiday spending, the first income tax instalment payment is due two weeks later on March 15 and the need to pay any tax balance for the year just ended comes just 6 weeks after that, on April 30. And, while the best advice on how to avoid such a cash flow crunch is to make RRSP contributions on a regular basis throughout the year, that’s more of a goal than a reality for the majority of Canadians. Whether convenient or not, the deadline for making RRSP contributions which can be claimed on the return for 2018 is Friday March 1, 2019. The maximum allowable current year contribution which can be made by any individual taxpayer for 2018 is 18% of that taxpayer’s earned income for the 2017 year, to a statutory maximum of $26,230. Those are the basic rules governing RRSP contributions for the 2018 tax year. For most Canadians, however, those rules are just the starting point of the calculation, as millions of Canadian taxpayers have what is termed “additional contribution room” carried forward from previous taxation years. That additional contribution room arises because the taxpayer either did not make an RRSP contribution in each previous year, or made one which was less than his or her maximum allowable contribution for the year. For many taxpayers that additional contribution room can amount to tens of thousands of dollars, and the taxpayer is entitled to use as much or as little of that additional contribution room as he or she wishes for the current tax year. It’s apparent from the forgoing that determining one’s maximum allowable contribution for 2018 will take a bit of research. The first step in determining one’s total (current year and carryforward) contribution room for 2018 is to consult the last Notice of Assessment which was received from the Canada Revenue Agency (CRA). Every taxpayer who filed a return for the 2017 taxation year will have received a Notice of Assessment from the CRA, and the amount of that taxpayer’s allowable RRSP contribution room for 2018 will be summarized on page 2 of that notice. Taxpayers who have discarded (or can’t find) their Notice of Assessment can obtain the same information by calling the CRA’s Telephone Information Phone Service (TIPS) line at 1-800-267-6999. An automated service at that line will provide the required information, once the taxpayer has provided his or her social insurance number, month, and year of birth and the amount of income from his or her 2017 tax return. Those who don’t wish to use an automated service can call the CRA’s Individual Income Tax Enquiries Line at 1-800-959 8281, and speak to a client services agent, who will also request such identifying information before providing any taxpayer-specific data. Finally, for those who have registered for the CRA’s My Account service, the needed information will be available online. One question that doesn’t often get asked by taxpayers is whether it actually makes sense to make an RRSP contribution. The wisdom of making annual contributions to one’s RRSP has become an almost unquestioned tenet of tax and retirement planning, but there are situations in which other savings vehicles — particularly the Tax-Free Savings Account, or TFSA — may be the better short-term or long-term option or even, in some cases, the only one available. When it comes to making a contribution to one’s TFSA, the good news is the timelines and deadlines are much more flexible than those which govern RRSP contributions. A contribution to one’s TFSA can be made at any time of the year, and contributions not made during the current year can be carried forward and made in any subsequent year. On the other hand, determining one’s total TFSA contribution room is significantly more complex than figuring out one’s allowable RRSP contribution amount, for two reasons. First, the maximum TFSA amount has changed several times (increasing and decreasing) since the program was introduced in 2009. Second, and more important, individuals who withdraw funds from a TFSA can re-contribute those funds, but not until the year following the one in which the withdrawal is made. Especially where a taxpayer has several TFSA accounts, and/or a history of making contributions, withdrawals and re-contributions, it can be difficult to determine just where that taxpayer stands with respect to his or her maximum allowable TFSA contribution for 2019. In this case, there’s no help to be had from a Notice of Assessment, as the CRA no longer provides TFSA contribution information on that form. Information on one’s current year TFSA contribution limit can, however, be obtained from the CRA website, from the TIPS line at 1-800-267-6999 or its Individual Income Tax Enquiries line at 1-800-959-8281, as outlined above. It should be noted, however, that information on one’s 2019 TFSA contribution limit won’t be available through the TIPS line until mid-February 2019. Determining which savings vehicle is the better option for a particular taxpayer will depend, for the most part, on the taxpayer’s current and future tax situation, the purpose for which the funds are being saved, and the taxpayer’s particular sources of retirement income. Taxpayers who are saving toward a shorter-term goal, like next year’s vacation or even a down payment on a home should direct those savings into a TFSA. While choosing to save through an RRSP will provide a tax deduction on that year’s return and, possibly, a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP in a year or two. And, more significantly from a long-term point of view, repeatedly using an RRSP as a short-term savings vehicle will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn cannot be replaced. While the amounts involved may seem small, the loss of contribution room and the compounding of invested amounts over 25 or 30 years or more can make a significant dent in one’s ability to save for retirement. Taxpayers who are expecting their income to rise significantly within a few years (e.g., students in post-secondary or professional education or training programs) can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted from income which would be taxed at that higher tax rate. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made. Taxpayers who are currently in the work force and who are members of a registered pension plan (RPP) may find that saving through a TFSA is their only practical option. As outlined above, the starting point for calculating one’s current year contribution limit maximum amount which can be contributed to an RRSP and deducted on the tax return for 2018 is calculated as 18% of earned income for 2017. However, the maximum allowable contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under that pension plan. Where the RPP is a particularly generous one, RRSP contribution room may, as a result, be minimal, and a TFSA contribution the logical savings alternative. Canadians aged 71 and older will find the RRSP vs. TFSA question irrelevant, as the last date on which taxpayers can make RRSP contributions is December 31st of the year in which they turn 71. Many of those taxpayers will, however, have converted their RRSP savings to a registered retirement income fund (RRIF) and anyone who has done so is required to withdraw (and be taxed on) a specified percentage of those RRIF funds every year. Particularly where required RRIF withdrawals exceed the RRIF holder’s current cash flow needs, that income can be contributed to a TFSA. Although the RRIF withdrawals made must still be included in income for the year and taxed as such, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit. RRSPs and TFSAs are the most significant tax-free or tax-deferred savings vehicles available to Canadian taxpayers, and both have a place in most financial and retirement plans. To help taxpayers to make informed choices about their savings options, the CRA provides a number of dedicated webpages about both RRSPs and TFSAs, and those can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html and www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html. Taking advantage of pension income splitting (February 2019) Income tax is a big-ticket item for most retired Canadians. Especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide. There is, however, another income tax saving strategy which is not nearly as well-known. Even more unfortunate is the fact that the benefits of that strategy (and the ease with which it can be accomplished) aren’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting, and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice. That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to retirees. In addition, it’s one of the very few tax planning strategies which require no expenditure of funds on the part of the taxpayer, and which can be implemented after the end of the tax year, at the time the return for that tax year is filed. When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where recipient spouse is aged 65 or older) to make a notional reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result. Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2018, the federal tax rate applied to about the first $47,000 of taxable income is 15%, while the federal rate applied to the next $46,000 of such income is 20.5%. So, an individual who has $90,000 in taxable income would pay federal tax of about $15,900: if that $90,000 was divided equally between such individual and his or her spouse, each would have $45,000 in taxable income and the total federal family tax bill would be $13,500. The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to his or her spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Government source pensions, like the Canada Pension Plan or Old Age Security payments do not qualify for pension income splitting, regardless of the age of the recipient. The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income for 2018, with their annual tax return. That form, which is not included in the annual tax return package, can be found on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca/E/pbg/tf/t1032/README.html, or can be ordered by calling 1-800-959 8281. On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2018. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses — an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is actual recipient of the pension income to be split must deduct from income the pension income amount allocated to his or her spouse. That deduction is taken on Line 210 of his or her 2018 return. And, conversely, the spouse to whom the pension income amount is being allocated is required to add that amount to his or her income on the return, this time on Line 116. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on his or her 2018 tax return. By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2018. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through a little judicious income splitting. Those wishing to obtain more information on pension income splitting than is available in the 2018 General Income Tax and Benefit Guide should refer to the CRA website at www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available. Employment Insurance Premiums for 2019 (January 2019) The Employment Insurance premium rate for 2019 is decreased to 1.62%. Yearly maximum insurable earnings are set at $53,100, making the maximum employee premium $860.22. As in previous years, employer premiums are 1.4 times the employee contribution. The maximum employer premium for 2019 is therefore $1204.31. Quebec Pension Plan Premiums for 2019 (January 2019) The Quebec Pension Plan contribution rate for employees and employers for 2019 is 5.55%, and maximum pensionable earnings are $57,400. The basic exemption is $3,500. The maximum employee premium for the year is $2,991.45, and the maximum employer contribution is the same. Canada Pension Plan Contributions for 2019 (January 2019) The Canada Pension Plan contribution rate for 2019 is increased to 5.1% of pensionable earnings for the year. The maximum pensionable earnings for the year will be $57,400, and the basic exemption is unchanged at $3,500. The maximum employer and employee contributions to the plan for 2019 will be $2,748.90 each, and the maximum self-employed contribution will be $5,497.80. Federal individual tax credits for 2019 (January 2019) Dollar amounts on which individual non-refundable federal tax credits for 2019 are based, and the actual tax credit claimable, will be as follows. Credit Amount ($) Tax Credit ($) Basic personal amount 12,069 1,810.35 Spouse or common law partner amount 12,069 1,810.35 Eligible dependant amount 12,069 1,810.35 Age amount 7,494 1,124.10 Net income threshold for erosion of credit 37,790 Canada employment amount 1,222 183.30 Disability amount 8,416 1,262.40 Adoption expense credit 16,255 2,438.25 Medical expense tax credit 2,352 Maximum refundable medical expense supplement 1,248 Federal individual tax rates and brackets for 2019 (January 2019) The indexing factor for federal tax credits and brackets for 2018 is 2.2%. The following federal tax rates and brackets will be in effect for individuals for the 2019 tax year. Income level Federal tax rate $12,069 - $47,630 15% $47,631 - $95,259 20.5% $95,260 - $147,667 26% $147,668 - $210,371 29% Above $210,371 33% Tax deadlines and limits for the 2019 tax year (January 2019) Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax planning strategies. Some of the more significant dates and changes for individual taxpayers for 2019 are listed below. RRSP deduction limit increased The RRSP contribution limit for the 2018 tax year (for which the contribution deadline is Friday March 1, 2019) is $26,230. In order to make the maximum current year contribution for 2018, it will be necessary to have had earned income for the 2017 taxation year of $145,725. The RRSP contribution limit for the 2019 tax year is $26,500. In order to make the maximum current year contribution for 2019 (for which the contribution deadline will be Monday March 2, 2020), it will be necessary to have earned income for the 2018 taxation year of $147,225. TFSA contribution limit increased The TFSA contribution dollar limit for 2019 is increased to $6,000. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover of uncontributed or re-contribution amounts from previous taxation years. Taxpayers can find out their 2019 contribution limit by calling the Canada Revenue Agency’s (CRA’s) Individual Income Tax Enquires line at 1-800-959 8281. Those who have registered for the CRA’s online tax service My Account can obtain that information by logging into that service. Individual tax instalment deadlines for 2019 Millions of individual taxpayers pay income tax by quarterly instalments, which will be due on the 15th day of each of March, June, September, and December 2019, except where that date falls on a weekend or a statutory holiday. The actual tax instalment due dates for 2019 are as follows: Monday September 16, 2019 Old Age Security income clawback threshold The income level above which Old Age Security (OAS) benefits are clawed back is $77,580 for 2019. Individual tax filing and payment deadlines in 2019 For all individual taxpayers, including those who are self-employed, the deadline for payment of all income tax owed for the 2018 tax year is Tuesday April 30, 2019. Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2018 on or before Tuesday April 30, 2019. Self-employed taxpayers and their spouses must file a 2018 income tax return on or before Monday June 17, 2019. Tax changes effective January 1, 2019 (January 2019) The following tax changes are in effect January 1, 2019. The small business income tax rate will be reduced from 10% to 9% effective as of January 1, 2019. The province will introduce an Employer Health (payroll) Tax effective January 1, 2019. The provincial education tax credit is eliminated as of the 2019 tax year. Effective January 1, 2019, the business limit for income eligible for the provincial small business deduction will increase from $450,000 to $500,000. The Rental Housing Construction Tax Credit is eliminated as of 2019. For corporation tax years ending after December 31, 2018, the small business income tax rate is reduced from 4% to 3.5%. The basic personal credit amount is increased to $9,160. The province introduces an Innovation Equity Tax Credit for 2019 and later years. The 2018 Fall Economic Statement – some good news for business (December 2018) While there weren’t a great number of tax measures included in the 2018 Fall Economic Statement brought down by the Minister of Finance on November 21, 2018, the tax changes that were announced represented good news for Canadian businesses. Perhaps most notably, several of the measures announced include tax changes which will benefit Canadian businesses of all sizes and operating in all sectors of the economy. Generally, those changes involved enhancements to the existing rules which will provide businesses with accelerated write-offs of assets which are acquired after the Budget date. The Canadian tax system enables taxpayers to deduct (or write off) a specified percentage of the cost of newly-acquired capital property each year, through the capital cost allowance (CCA) system. In the year of acquisition, that deduction is, for most classes of assets, limited to one-half the usual percentage deduction (known as the “half-year rule”). The changes announced in the statement provide businesses with enhanced deductions under the existing capital cost allowance system – in some cases, allowing the entire cost of the property to be deducted in the year it is acquired. The most broad-based of the changes announced in the statement – the Accelerated Investment Incentive, or AII – will effectively suspend the half-year rule for eligible property, meaning that a full CCA deduction could be taken in the year that eligible property is acquired. In addition, the allowance claimable for that year will be calculated by applying the prescribed CCA rate for that class of property to one-and-a-half times the cost of the property acquired. For example, the combined effect of those changes is that where a property has a write-off rate of 20% per year, that write off will, under the AII, be equal to 30% of the cost of the property in the year the property is put in use. Significantly, such preferential treatment is not restricted to particular kinds or types of businesses or property. Rather, as stated in the statement, the AII will be available to “businesses of all sizes, across all sectors of the economy, that are making capital investments”. Such property, in order to be fully eligible for the AII, must be acquired and put in use by the taxpayer after November 20, 2018 and before 2024. The second significant change will allow taxpayers to fully deduct, in the year of acquisition, the cost of machinery and equipment acquired for use in Canada primarily in the manufacturing and processing of goods for sale or lease. Such machinery and equipment, in order to qualify, must be acquired after November 20, 2018, and be available for use before 2024. The enhanced 100% deduction will be phased out for otherwise qualifying property which becomes available for use between 2023 and 2028. Finally, clean energy equipment acquired by taxpayers in any industry already qualifies for preferential capital cost allowance treatment. That preferential treatment will be enhanced by a measure announced in the Statement which will provide a 100% deduction for such equipment which is acquired after November 20, 2018 and is available for use before 2024. Again, that enhanced deduction will be phased out where the otherwise qualifying property becomes available for use between 2023 and 2028. While the basics of the three CCA measures announced in the Update are fairly straightforward, the application of those measures, as with any tax change, involves more detailed rules and restrictions. Those rules and restrictions are summarized in an Annex to the 2018 Fall Economic Statement, and that Annex can be found on the Finance Canada website at https://www.budget.gc.ca/fes-eea/2018/docs/statement-enonce/anx03-en.html. Year-end planning for your RRSP and TFSA (December 2018) Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes after the end of the calendar year, around the end of February. There are, however, some instances an RRSP contribution must be (or should be) made by December 31st, in order to achieve the desired tax result, as follows. When you need to make your RRSP contribution on or before December 31st Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31st of that year. Once that deadline has passed, no further RRSP contribution is possible. Make spousal RRSP contributions before December 31 Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plans (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2018, the contributor can claim a deduction for that contribution on his or her return for 2018. The spouse can then withdraw that amount as early as January 1, 2021 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2019, the contributor can still claim a deduction for it on the 2018 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2022. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should there be an unforeseen need to withdraw funds. Accelerate any planned TFSA withdrawals into 2018 Each Canadian aged 18 and over can make an annual contribution to a Tax-Free Savings Account (TFSA) – the maximum contribution for 2018 is $5,500. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal. Consequently, it makes sense, where a TFSA withdrawal is planned within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31st, 2018 will have the amount which is withdrawn added to his or her TFSA contribution limit for 2019, which means it can be re-contributed as early as January 1, 2019. If the same taxpayer waits until January of 2019 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2020. The tax year is ending – some planning steps to take before December 31st (December 2018) For individual Canadian taxpayers, the tax year ends at the same time as the calendar year. And what that means for individual Canadians is that any steps taken to reduce their tax payable for 2018 must be completed by December 31, 2018. (For individual taxpayers, the only significant exception to that rule is registered retirement savings plan contributions, which can be made any time up to and including March 1, 2019, and claimed on the return for 2018.) While the remaining timeframe in which tax planning strategies for 2018 can be implemented is only a few weeks, the good news is that the most readily available of those strategies don’t involve a lot of planning or complicated financial structures – in many cases, it’s just a question of considering the timing of steps which would have been taken in any event. What follows is a listing of the steps which should be considered by most Canadian taxpayers as the year-end approaches. The federal government and all of the provincial and territorial governments provide a tax credit for donations made to registered charities during the year. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year – there are no exceptions. There is, however, another reason to ensure donations are made by December 31st. The credit provided by each of the federal and provincial or territorial governments is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. Where the taxpayer making the donation has taxable income (for 2018) over $205,843, charitable donations above the $200 threshold can receive a federal tax credit of 33%. As a result of the two-level credit structure, the best tax result is obtained when donations made during a single calendar year are maximized. For instance, a qualifying charitable donation of $400 made in December 2018 will receive a federal credit of $88 ($200 × 15% + $200 × 29%). If the same amount is donated, but the donation is split equally between December 2018 and January 2019, the total credit claimable is only $60 ($200 × 15% + $200 × 15%), and the 2019 donation can’t be claimed until the 2019 return is filed in April 2020. And, of course, the larger the donation in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level. It’s also possible to carry forward, for up to 5 years, donations which were made in a particular tax year. So, if donations made in 2018 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2013, 2014, 2015, 2016, or 2017 tax years can be carried forward and added to the total donations made in 2018, and the aggregate then claimed on the 2018 tax return. When claiming charitable donations, it is possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high-income surtax – currently, Ontario and Prince Edward Island – it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses. Doing so will reduce the tax payable by that spouse and thereby minimize (or avoid) liability for the provincial high-income surtax. Timing of medical expenses There are an increasing number of medical expenses which are not covered by provincial health care plans, and an increasing number of Canadians who do not have private coverage for such costs through their employer. In those situations, Canadians have to pay for such unavoidable expenditures – including dental care, prescription drugs, ambulance trips, and many other para-medical services, like physiotherapy, on an out-of-pocket basis. Fortunately, where such costs must be paid for partially or entirely by the taxpayer, the medical expense tax credit is available to help offset those costs. Unfortunately, the computation of such expenses and, in particular, the timing of making a claim for the credit, can be confusing. In addition, the determination of what expenses qualify for the credit and which do not isn’t necessarily intuitive, nor is the determination of when it’s necessary to obtain prior authorization from a medical professional in order to ensure that the contemplated expenditure will qualify for the credit. The basic rule is that qualifying medical expenses (a lengthy list of which can be found on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca/medical/#mdcl_xpns) over 3% of the taxpayer’s net income, or $2,302, whichever is less, can be claimed for purposes of the medical expense tax credit on the taxpayer’s return for 2018. Put in more practical terms, the rule for 2018 is that any taxpayer whose net income is less than $76,750 will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income over $76,750 can claim qualifying expenses which exceed the $2,302 threshold. The other aspect of the medical expense tax credit which can cause some confusion is that it’s possible to claim medical expenses which were incurred prior to the current tax year, but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2018 will produce the greatest amount eligible for the credit. That determination will obviously depend on when medical expenses were incurred so there is, unfortunately, no universal rule of thumb which can be used. Medical expenses incurred by family members – the taxpayer, his or her spouse, dependent children who were born in 2001 or later, and certain other dependent relatives – can be added together and claimed by one member of the family. In most cases, it is best, in order to maximize the amount claimable, to make that claim on the tax return of the lower income spouse, where that spouse has tax payable for the year. As December 31st approaches, it is a good idea to add up the medical expenses which have been incurred during 2018, as well as those paid during 2017 and not claimed on the 2017 return. Once those totals are known, it will be easier to determine whether to make a claim for 2018 or to wait and claim 2018 expenses on the return for 2019. And, if the decision is to make a claim for 2018, knowing what medical expenses were paid and when will enable the taxpayer to determine the optimal 12-month waiting period for the claim. Finally, it is a good idea to look into the timing of medical expenses which will have to be paid early in 2019. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis), it may make sense, where possible, to accelerate the payment of those expenses to December 2018, where that means they can be included in 2018 totals and claimed on the 2018 return. Reviewing tax instalments for 2018 Millions of Canadian taxpayers (particularly the self-employed and retired Canadians) pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total liability for the year. The final quarterly instalment for this year will be due on Monday December 17, 2018. By that time, almost everyone will have a reasonably good idea of what his or her income and deductions will be for 2018 and so will be in a position to estimate what the final tax bill for the year will be, taking into account any tax planning strategies already put in place, as well as any RRSP contributions which will be made before March 2, 2019. While the tax return forms to be used for the 2018 year haven’t yet been released by the CRA, it’s possible to arrive at an estimate by using the 2017 form. Increases in tax credit amounts and tax brackets from 2017 to 2018 will mean that using the 2016 form will likely result in a slight over-estimate of tax liability for 2018. Once one’s tax bill for 2017 has been calculated, that figure should be compared to the total of tax instalments already made during 2017 (that figure can be obtained by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281). Depending on the result, it may then be possible to reduce the amount of the tax instalment to be paid on December 15 – and thereby free up some funds for the inevitable holiday spending! The potential tax costs of holiday gifts and celebrations (December 2018) The holiday season is usually costly, but few Canadians are aware that those costs can include increased income tax liability resulting from holiday gifts and celebrations. It doesn’t seem entirely in the spirit of the season to have to consider possible tax consequences when attending holiday celebrations and receiving gifts; however, our tax system extends its reach into most areas of the lives of Canadians, and the holidays are no exception. Fortunately, the possible negative tax consequences are confined to a minority of fact situations and relationships, usually involving employers and employees, and are entirely avoidable with a little advance planning. During the month of December, it’s customary for employers to provide something “extra” for their employees, by way of a holiday gift, a year-end bonus or an employer-sponsored social event. And it’s certainly the case that employers who provide such extras don’t intend to create a tax liability for their employees. Unfortunately, it is the case that a failure to properly structure such gifts or other extras can result in unintended and unwelcome tax consequences to those employees. It’s even possible to feel some sympathy toward the tax authorities who have to deal with the tax treatment of employer-provided holiday gifts, as they are in something of a no-win situation. On an individual or even a company level, the amounts involved are usually nominal, and the range of situations which must be addressed by the related tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill will generated by imposing tax on holiday gifts and celebrations. Notwithstanding, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the Canada Revenue Agency (CRA) to ensure that such situations are caught by the tax net. There is, as a consequence, a detailed set of rules which outline the tax consequences of gifts and awards provided by the employer, and even in relation to annual holiday celebrations sponsored (and paid for) by an employer. The starting point for the rules is that any gift (cash or non-cash) received by an employee from his or her employer at any time of the year is considered to constitute a taxable benefit, to be included in the employee’s income for that year. However, the CRA makes an administrative concession in this area, allowing an unlimited number of non-cash gifts (within a specified dollar limit) to be received tax-free by an employee over the course of the tax year. In sum, the CRA’s administrative policy is simply that non-cash gifts to an arm’s length employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such gifts to that employee is $500 or less annually. Where the total fair market value of such gifts is more than $500, the amount over that $500 limit will be a taxable benefit to the employee, and must be included on the employee’s T4 for the year, and on which income tax must be paid. It’s important to remember the “non-cash” criterion imposed by the CRA, as the $500 per year administrative concession does not apply to what the CRA terms “cash or near-cash” gifts and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of the amount or frequency of the gifts. For this purpose, the CRA considers anything which could easily be converted to cash as a “near-cash” gift. Even a gift or award which cannot be converted to cash will be considered to be a near-cash gift if it, in the words of the CRA, “functions in the same way as cash”. So, a gift card or gift certificate which can be used by the employee to purchase his or her choice of merchandise or services would be considered a near-cash gift, and taxable as such. This time of year, the tax treatment of the annual employee holiday party also must be considered. The CRA’s current policy in this area is that no taxable benefit will be assessed in respect of employee attendance at an employer-provided social event, where attendance at the party was open to all employees, and the cost per employee was $100 or less. The $100 cost is meant to cover the party itself, not including any ancillary costs, such as transportation home, taxi fare, or overnight accommodation. Where the total cost of the event itself exceeds the $100 per person threshold, the CRA will assess the employee as having received a taxable benefit equal to the entire per person cost (i.e., not just that portion of the cost that exceeds $100.) It may seem nearly impossible to plan for employee holiday gifts and other benefits without running afoul of one or more of the detailed rules surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if a few basic principles are kept in mind. If the employer is planning to hold a holiday party, dinner or other social event, it is imperative that such event be open to all employees. Restricting attendance in any way will mean that the CRA’s concession with respect to the non-taxable status of such events does not apply. The cost of the event must, as well, be kept below $150 per person. While the CRA’s policy doesn’t specify, it seems reasonable to calculate that amount based on the number of employees invited to attend the event, rather than on the actual attendance, which can’t be accurately predicted in advance. Any cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, create a taxable benefit to the employee. Although gift certificates or pre-paid credit cards are a popular choice, they aren’t a tax-effective one, as they will invariably be considered by the CRA to create a taxable benefit to the employee. Where non-cash holiday gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee. New Quarterly Newsletters (November 2018) Designed by CCH Site Builder

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professional_accounting

SCHD vs. HYG: What’s The Difference? The Schwab U.S. Dividend Equity ETF (SCHD) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. SCHD is a Schwab ETFs Large Value fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between SCHD and HYG? And which fund is better? The expense ratio of SCHD is 0.42 percentage points lower than HYG’s (0.06% vs. 0.48%). SCHD also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, SCHD has provided higher returns than HYG over the past 8 years. In this article, we’ll compare SCHD vs. HYG. We’ll look at portfolio growth and risk metrics, as well as at their fund composition and industry exposure. Moreover, I’ll also discuss SCHD’s and HYG’s annual returns, holdings, and performance and examine how these affect their overall returns. SCHD HYG Name Schwab U.S. Dividend Equity ETF iShares iBoxx $ High Yield Corporate Bond ETF Category Large Value High Yield Bond Issuer Schwab ETFs iShares AUM 26B 20.03B The Schwab U.S. Dividend Equity ETF (SCHD) is a Large Value fund that is issued by Schwab ETFs. It currently has 26B total assets under management and has yielded an average annual return of 14.80% over the past 10 years. The fund has a dividend yield of 2.89% with an expense ratio of 0.06%. SCHD’s dividend yield is 1.55% lower than that of HYG (2.89% vs. 4.44%). Also, SCHD yielded on average 8.39% more per year over the past decade (14.80% vs. 6.42%). The expense ratio of SCHD is 0.42 percentage points lower than HYG’s (0.06% vs. 0.48%). SCHD Holdings Weight Merck & Co Inc 4.24% The Home Depot Inc 4.19% Texas Instruments Inc 4.16% Broadcom Inc 4.15% Amgen Inc 4.11% PepsiCo Inc 4.09% BlackRock Inc 4.05% Pfizer Inc 3.97% Cisco Systems Inc 3.96% SCHD’s Top Holdings are Merck & Co Inc, The Home Depot Inc, Texas Instruments Inc, Broadcom Inc, and Amgen Inc at 4.24%, 4.19%, 4.16%, 4.15%, and 4.11%. PepsiCo Inc (4.09%), BlackRock Inc (4.05%), and Pfizer Inc (3.97%) have a slightly smaller but still significant weight. Verizon Communications Inc and Cisco Systems Inc are also represented in the SCHD’s holdings at 3.96% and 3.96%. Mean Return 0 0.46 R-squared 0 4.1 Std. Deviation 0 6.96 Alpha 0 3.58 Beta 0 0.48 Sharpe Ratio 0 0.7 Treynor Ratio 0 10.01 The Schwab U.S. Dividend Equity ETF (SCHD) has a Alpha of 0 with a Beta of 0 and a Mean Return of 0. Its R-squared is 0 while SCHD’s Sharpe Ratio is 0. Furthermore, the fund has a Standard Deviation of 0 and a Treynor Ratio of 0. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Treynor Ratio of 10.01 with a Standard Deviation of 6.96 and a Sharpe Ratio of 0.7. Its Alpha is 3.58 while HYG’s Beta is 0.48. Furthermore, the fund has a R-squared of 4.1 and a Mean Return of 0.46. SCHD’s Mean Return is 0.46 points lower than that of HYG and its R-squared is 4.10 points lower. With a Standard Deviation of 0, SCHD is slightly less volatile than HYG. The Alpha and Beta of SCHD are 3.58 points lower and 0.48 points lower than HYG’s Alpha and Beta. Year SCHD HYG 2013 32.9% 5.9% 2011 0.0% 5.89% 2010 0.0% 12.07% SCHD had its best year in 2013 with an annual return of 32.9%. SCHD’s worst year over the past decade yielded -5.46% and occurred in 2018. In most years the Schwab U.S. Dividend Equity ETF provided moderate returns such as in 2012, 2014, and 2020 where annual returns amounted to 11.4%, 11.66%, and 15.11% respectively. SCHD $10,000 $28,823 14.80% A $10,000 investment in SCHD would have resulted in a final balance of $28,823. This is a profit of $18,823 over 8 years and amounts to a compound annual growth rate (CAGR) of 14.80%. With a $10,000 investment in HYG, the end total would have been $14,382. This equates to a $4,382 profit over 8 years and a compound annual growth rate (CAGR) of 6.42%. SCHD’s CAGR is 8.39 percentage points higher than that of HYG and as a result, would have yielded $14,441 more on a $10,000 investment. Thus, SCHD outperformed HYG by 8.39% annually.

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professional_accounting

Home /CPA Journal Content/ICYMI | Navigating the IRS’s Self-Dealing Rules for Private Foundations ICYMI | Navigating the IRS’s Self-Dealing Rules for Private Foundations By Usman Mohammad, JD and Emma Westerhof Uncategorized, Columns, April/May 2021, Taxation | The Donald J. Trump Foundation was undone by alleged acts of self-dealing involving its namesake, Donald J. Trump, who also allegedly used the foundation to promote his candidacy for president in 2016. The New York State Office of the Attorney General (OAG) alleged that the Trump Foundation violated New York’s prohibition on self-dealing transactions involving private foundations. The OAG levied a $2 million fine against the Trump Foundation, filed a petition for its involuntary dissolution, and also referred the matter to the IRS for further investigation and sanctions (see June 14, 2018, Letter from NYS OAG to IRS Commissioner, available at https://bit.ly/32dm68D). The trouble that befell the Trump Foundation is not unusual for private foundations. Private foundations are a popular vehicle for funding charitable causes, but many run into problems with “self-dealing” rules. IRC section 4941 prohibits nearly all financial transactions between a private foundation and individuals affiliated with the foundation, including substantial contributors, managers, entities in which these individuals have a substantial ownership interest, and their family members. Such individuals or entities are known as “disqualified persons,” and transactions between the foundation and such persons that violate IRC section 4941 may result in monetary sanctions in the form of excise taxes; such taxes can comprise as much as 200% of the monetary value of the transaction. The tax is levied on the self-dealer and the foundation manager. Timely correction of an act of self-dealing can reduce the amount of the excise tax. CPAs Can Help Private foundations must navigate self-dealing concerns on a year-round basis, including when filing their tax returns. Foundations must formally attest to the fact that there were no self-dealing transactions during the year by filing IRS Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation. Because of the complexity of Form 990-PF, tax preparers are regularly engaged to help foundations complete the form. But preparers may also be blamed when alleged acts of self-dealing go unreported. For example, in United States v. Wright [798 F. App’x 849 (6th Cir. 2019)], a taxpayer who was charged with, inter alia, willful failure to report self-dealing transactions with his private foundation asserted as a defense the taxpayer’s purported reliance on the advice of the accountant that prepared Form 990-PF for the foundation. As a result, the accountant was required to testify about the information he sought and received from the taxpayer, and the accountant’s thought processes in determining what should be reported as a self-dealing transaction on the form. This case illustrates that accountants are expected to spot self-dealing transactions that should be reported on Form 990-PF. To prepare Form 990-PF accurately, accountants must be familiar with what constitutes self-dealing, the exceptions to self-dealing, and the more nebulous aspects of the self-dealing rules such as “indirect” self-dealing and “incidental and tenuous benefits.” Overview of the IRS Self-Dealing Rules The general rule is that no financial transactions may take place between a private foundation and “disqualified persons.” IRC section 4946(a) defines disqualified persons as: 1) a foundation manager, including officers, directors, and trustees; 2) “substantial contributors” to the foundation; 3) individuals with a greater than 20% ownership interest in a corporation, partnership, or trust that is itself a substantial contributor to the foundation; 4) family members of a disqualified person; 5) corporations, partnerships, trusts, or estates in which a disqualified person has a greater than 35% ownership interest; and 6) certain government officials. Private foundations are a popular vehicle for funding charitable causes, but many run into problems with “self-dealing” rules. IRC section 4941(d) identifies six acts of prohibited self-dealing between a foundation and a disqualified person: 1) the sale, exchange, or leasing of property; 2) the lending of money or other extension of credit; 3) the furnishing of goods, services, or facilities; 4) payment of compensation, or reimbursement of expenses, by a foundation to a disqualified person; 5) transfer to, or use by or for the benefit of, a disqualified person of any income or assets of the foundation; and 6) an agreement by a foundation to pay money or assets to a government official. The first three categories of transactions are prohibited regardless of which party is the payor or recipient. The remaining three categories prohibit transactions in which the private foundation is the payor or transferor. For all categories, it is immaterial whether the transaction results in a benefit or a detriment to the foundation. Exceptions to Self-Dealing IRC section 4941(d)(2) and the applicable regulations at Treasury Regulations section 53.4941(d)-3 recognize several exceptions to the self-dealing rule, such as: 1) a private foundation providing goods, services, or facilities to a disqualified person when they are made available to the general public on at least as favorable a basis; 2) a disqualified person providing goods, services, or facilities to a private foundation free of charge so long as they are used by the foundation exclusively for charitable purposes; 3) a private foundation paying compensation to a disqualified person for personal services that are reasonable and necessary to carrying out the exempt purpose of the foundation, so long as the compensation is not excessive; 4) a disqualified person making an interest-free loan to a private foundation so long as the loan proceeds are used by the foundation solely for charitable purposes; and 5) certain transactions between a private foundation and a corporation that is a disqualified person, pursuant to any liquidation, merger, redemption, recapitalization, or other corporate reorganization. These exceptions appear to be strictly construed by the IRS. For example, in PLR 9325061, the IRS stated that a “conglomerate” of real estate management, brokerage, construction, marketing and advertising, and insurance brokerage services did not qualify for the “personal services” exception, resulting in the foundation’s payments to disqualified persons for such services being treated as prohibited self-dealing. Indirect Self-Dealing The six types of prohibited self-dealing transactions set forth in IRC section 4941(d) apply not just to transactions directly between a foundation and a disqualified person; they include indirect acts of self-dealing. Neither the code nor the regulations define the term “indirect self-dealing.” The applicable regulations set forth at Treasury Regulations section 53.4941(d)-1 do, however, provide guidance by identifying what does not constitute indirect self-dealing and by providing examples of situations involving indirect self-dealing. IRS private letter rulings provide further guidance on what constitutes indirect self-dealing. In PLR 9040063, the IRS stated that in general “indirect self-dealing occurs when a transaction is entered into between parties, none of whom is a private foundation, but to which a private foundation is indirectly a party, and which would constitute direct self-dealing if the private foundation were directly involved”; this “includes a transaction between a disqualified person and an organization controlled by a private foundation where such transaction, if entered into directly by the private foundation and the disqualified person, would be direct self-dealing.” Thus, indirect self-dealing generally involves a transaction between a disqualified person and an organization controlled by a private foundation. The regulations note that the “controlled” organization can be any type of exempt or nonexempt organization, including a school, hospital, operating foundation, or social welfare organization. The examples in the regulations illustrate that indirect self-dealing includes instances in which a foundation owns a controlling interest in a corporation and the corporation engages in a self-dealing transaction with a disqualified person or an entity controlled by the disqualified person. The IRS website notes that examples of indirect self-dealing include: 1) a grant by a private foundation to another organization controlled by the foundation, coupled with a transaction between the organization and a disqualified person; 2) contributions to public charities that are earmarked for the use of a disqualified person; and 3) the sale or exchange of property to a disqualified person while held by an estate or trust in which a foundation has an interest or expectancy. Indirect self-dealing does not include the following: 1) transactions that fall within an exception applicable to direct self-dealing; 2) business transactions involving a disqualified person and an entity controlled by the foundation where the transaction arose from a business relationship established before the transaction would have been considered an act of self-dealing and the transaction was offered on the same terms to the public; and 3) transactions in the normal and customary course of a retail business engaged in with the general public, where the total annual amounts involved in all transactions with any one disqualified person is no more than $5,000. Incidental and Tenuous Benefits Another consideration is the exception for incidental or tenuous benefits. Although IRC section 4941(d) provides that self-dealing occurs when a private foundation transfers any of its income or assets to, or for the use or benefit of, a disqualified person, the regulations at Treasury Regulations section 53.4941(d)-2(f) provide that incidental or tenuous benefits are not self-dealing. The regulations do not define “incidental or tenuous”; rather, they provide examples as guidance. Some clear examples of an incidental or tenuous benefit include when a disqualified person receives incidental advertising as a result of the foundation’s grants, or public acknowledgement by the foundation of a specific donation made. Indirect self-dealing generally involves a transaction between a disqualified person and an organization controlled by a private foundation. Determining whether a benefit qualifies as incidental or tenuous is not always clear. There are several IRS private letter rulings and technical advice memos that need to be consulted on this gray area. For example, the display of foundation-owned artwork in the private residence of a disqualified person may or may not qualify depending upon the facts and circumstances. The IRS ruled in Revenue Ruling 74-600 and TAM 8824001 that if foundation-owned artwork is displayed at the private residence of a disqualified person, it may be considered self-dealing, because the general public is not able to tour the premises to view the artwork. The benefit to the disqualified person was not incidental and tenuous. But in PLR 8842045, the IRS ruled that a disqualified person and a foundation may jointly own artwork and rotate the display of such work between the foundation’s offices and the private residence of the disqualified person without running afoul of the self-dealing rules. The joint ownership of the artwork appears to account for the difference in treatment. Steer Clear of Self-Dealing CPAs that work with private foundations should be familiar with what constitutes self-dealing under IRC section 4941 and the related Treasury Regulations. Form 990-PF is highly complex and fishes for compliance failures related to self-dealing. Lacking the significant time and expertise required to understand the nuances of this law, fiduciaries of private foundations can easily run afoul of the IRS’s stringent self-dealing rules—and become subject to substantial excise taxes as a result. Usman Mohammad, JD is of counsel at Kostelanetz & Fink LLP, New York, N.Y. Emma Westerhof is a paralegal, also at Kostelanetz & Fink, LLP. ICYMI | The Secure Act Ushers in Sweeping Retirement Plan Changes CPAJ News Briefs: FASB, IASB, GASB TAGS: NFPO Underpricing Leads to Undervaluing State Society Diversity, Equity, and… The CPA’s Role In Protecting… SSDI and SSI—Government Programs to… Current Developments in the Northeast ICYMI | Taxation of Cryptocurrency… The ABCs of the Taxation… Zagging to Tax Returns B Corporation Resources CFO of the Future Operational Compliance in a Highly… Key Personal Income Tax Decision ICYMI | Department of Labor… ICYMI | Recent California State… The Inflation Reduction Act of… ICYMI | Working from Home Rental Activity and Self-Employment Tax Taxation of Cryptocurrency Resources Tax-Advantaged Strategies for Inflation-Protected Investing Gift Tax Returns on Extension

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professional_accounting

Indonesia : Sustaining Growth During Global Volatility Thomas Rumbaugh Over the past decade, Indonesia has developed into an important regional and global economy, as well as an active participant in the G20. The chapters in this book document the substantial improvements in the quality of macroeconomic policy that Indonesia has achieved, while also clearly laying out an agenda of measures that should be taken to safeguard these gains and further lower vulnerabilities going forward. Rather than just demonstrating progress in key macroeconomic indicators, the contributors have delved into the ways that global volatility, especially since 2008, has affected Indonesia and how that country has adjusted its policies to meet the new challenges. togglePART I Macroeconomic Management with Greater Global Integration CHAPTER 1 Explaining Higher Inflation in Indonesia: A Regional Comparison CHAPTER 2 Inflation Uncertainty and the Term Premium CHAPTER 3 Maintaining Fiscal Sustainability Under Uncertainty CHAPTER 4 Volatility in External Demand: Indonesia’s Commodity Boom and Overall Competitiveness CHAPTER 5 Adequacy of Indonesia’s Foreign Exchange Reserves togglePART II The Impact of Volatility on the Corporate and Financial Sectors CHAPTER 6 Corporate Governance and Leverage Trends CHAPTER 7 Assessing Corporate Sector Vulnerabilities CHAPTER 8 Enhancing Financial Stability LITERATURE AND FRAMEWORK POLICY IMPLICATIONS Consumer Price Inflation (Year-on-year) Consumer Price Inflation Volatility Annual Inflation Deviation from Inflation Target Standard Deviation of Year-Ahead CPI Forecasts (12-month rolling average) Ten-Year Government Local Currency Debt Yield Term Premiums by Country Long-Term Inflation Expectations: Annual Average of Expected Inflation 5–10 Years Ahead Five-Year Forward Rates Indonesia’s Relative 5- to 10-Year Nominal Term Premium (Difference between Indonesia and other countries) Indonesia: Monetary Policy Stance Inflation and Interest Rate LAURA LIPSCOMB and UMA RAMAKRISHNAN Based on the term structure model for determining nominal bond yields, this chapter identifies the impact on the cost of borrowing of Indonesia’s relatively higher inflation level and volatility relative to its peers. The higher inflation volatility in Indonesia creates greater uncertainty in forecasting inflation, resulting in a relatively higher inflation risk premium. Indonesia’s consumer price inflation level and volatility have been historically higher than some of its peer emerging-market economies. Annual inflation in Indonesia, as measured by the consumer price index (CPI), has averaged nearly 12 percent since 1997 and 8.5 percent since the formal adoption of the inflation-targeting framework in July 2005 (Figure 2.1). By comparison, inflation rates for some of Indonesia’s Asian peers, such as Malaysia, Thailand, and the Philippines, have averaged about 3–6 percent since July 2005. Average inflation volatility in Indonesia has also been significantly higher than that of its peers (Figure 2.2). The spikes in Indonesia’s inflation volatility are correlated with administrative price adjustments (Table 2.1). Even core inflation in Indonesia has been highly volatile, as second-round effects from administered energy price increases pass through to the broader economy (correlation coefficient between core and energy inflation = 0.75). Deviations of the inflation outcome relative to annual inflation targets—which have typically been adjusted in anticipation of administrative price increases—are higher on average than those of the comparator group (Figure 2.3). Figure 2.1Consumer Price Inflation (Year-on-year) Source: IMF staff estimates. Figure 2.2Consumer Price Inflation Volatility Note: Twelve-month rolling volatility based on annual average inflation. TABLE 2.1Administrative Price Adjustments (percent) Gasoline 32.6 87.5 33.3 -12.5 -14.3 Kerosene 0.0 185.7 25.0 0.0 0.0 Auto diesel 27.3 104.8 27.9 -6.4 -6.8 Figure 2.3Annual Inflation Deviation from Inflation Target Note: Malaysia and India do not follow an inflation target. The historical volatility of Indonesia’s inflation appears to contribute to uncertainty about estimates of its future inflation. The dispersion of CPI survey forecasts can be used as a proxy for uncertainty about these forecasts (among others, Durham, 2006; and Wright, 2009). Based on data from Consensus Forecasts, the 12-month moving average standard deviation of forecasts for Indonesia’s year-ahead CPI historically has been much higher than those for Malaysia and Thailand (Figure 2.4). 1 Figure 2.4Standard Deviation of Year-Ahead CPI Forecasts (12-month rolling average) Both theoretical and empirical evidence show that high volatility and unpredictability of inflation creates economic costs. Studies have identified a negative relationship between both the inflation level and its volatility relative to income growth (see, for example, Judson and Orphanides, 1999). Among the channels through which high and volatile inflation creates economic costs is a higher cost of capital. 2 Indeed, Indonesia’s domestic (and international) borrowing costs have been higher than those of comparable emerging-market economies (Figure 2.5). 3 Figure 2.5Ten-Year Government Local Currency Debt Yield Against this background, this chapter examines the term premium on Indonesia’s domestic government yields relative to that of peers to illustrate the impact of inflation uncertainty on borrowing costs. The term premium—that is, the nominal premium sought by investors to compensate for delaying consumption (real term premium) and for inflation uncertainty (inflation risk premium) as explained in more detail in the next section—is calculated using two methodologies for Indonesia relative to other countries. The analysis finds Indonesia’s distant-horizon forward rates (which abstract from the near-term monetary policy stance) are consistently above those of its peers. The findings suggest that Indonesia’s term premium is on average higher than those of its peers, as would be expected as a result of higher inflation uncertainty. The results provide useful information for policymakers given that enhanced monetary policy credibility has been found to lower term premiums on developed-country government yield curves and, by extension, borrowing costs to the wider economy. A domestic economy’s benchmark borrowing cost is usually determined by government borrowing rates. Government bond yields comprise an average expected future real short-term interest rate over the length of the bond, expected inflation over the length of the bond, and a nominal term premium. The nominal term premium is made up of a real term premium and an inflation risk premium. The real term premium is what investors demand for tying up their funds and delaying consumption. The inflation risk premium is what they demand as additional compensation for uncertainty about expected inflation. Recent studies have used developed-country yield curves to estimate term premiums and explain downward shifts in long-term borrowing costs. These studies have grown out of the “conundrum” question as to why long-term interest rates in the United States and euro area countries underwent a sustained decline in the middle of the last decade. Kim and Wright (2005) show that much of the decline in long-term U.S. Treasury yields to 2004 can be explained by a decline in term premiums. Among the factors they suggest as possibly leading to a drop in the term premium are increased attractiveness of longer-maturity obligations resulting from better anchored inflation expectations and a decline in the volatility of real activity, foreign official reserve purchases of developed-country government debt, regulations that encourage pension funds to better match assets and liabilities, reduced home bias of foreign investors, and demographic trends. Likewise, in a cross-country study of developed-country yields, Wright (2009) finds that those countries that reduced inflation uncertainty saw a decline in term premiums. These studies, however, note the difficulty of isolating the factor—either the real term premium or the inflation risk premium—driving down the nominal term premium. For countries that issue inflation-indexed bonds, it is theoretically possible to isolate the inflation risk premium from the term premium, although the relative liquidity of nominal versus inflation-indexed notes is a major factor distorting estimates. The difference between the distant-horizon forward rate derived from yields on a nominal government bond curve and a similarly derived forward real rate from the inflation-indexed government bond curve comprises expected inflation, a (forward) inflation risk premium, minus a liquidity premium that investors charge to purchase less-liquid inflation-indexed securities. 4 Using well-developed surveys of inflation expectations for these countries, it would be possible to identify the value of the inflation risk premium minus the liquidity premium. However, given the lack of inflation-indexed bonds in a majority of emerging markets, so far such studies are limited. The analysis in this chapter is based on a term structure model for determining nominal bond yields. The basic relationship is defined as follows: the nominal forward interest rate (i) derived from government bond yields equals the sum of the expected short-term real rate (re), expected inflation (πe), real term premium (rTP), and inflation risk premium (πRP). The sum of real term premium and inflation risk premium (rTP + πTP) equals the nominal term premium. Thus, for a 1-year forward rate: As discussed above, the real term premium compensates investors for delaying consumption for one additional year, and the inflation risk premium is the additional premium investors demand to compensate them for inflation uncertainty. Rearranging equation (2.1) gives a simple measure of the term premium: The term premium is estimated as the n-year forward rate less the expected future short rate less expected inflation. The advantage of using distant-horizon forward rates is that they abstract from the current monetary policy stance and near-term monetary policy expectations. For the countries in the study, a number of data approximations were made to estimate the term premium. 5 Accordingly, two methodologies are applied to extract term premium estimates from nominal bond yields. In both methodologies, distant-horizon nominal forward rates are calculated using local currency government debt yields. Given data limitations, the findings are best interpreted as a relative measure—that is, the level of Indonesia’s term premium relative to other comparators—rather than an absolute estimate of the term premium for each country (see also footnote 7). Methodology I: The term premium identified in equation (2.2) is estimated using monthly data as follows. ◦ The distant-horizon forward rate is calculated as the 1-year rate, 9 years forward, and is called the “1-year forward rate” for simplicity. It is calculated using 9- and 10-year government debt yields. 6 The forward rate formula is where fm,n is the forward rate between m- and n- period bonds, Dn is the duration of the n- period bond, Dm is the duration of the m-period bond, Yn is the yield on the n- period bond, and Ym is the yield on the m- period bond7. For this study, the maturities used were n = 10 years and m = 9 years.8 As already noted, a distant-horizon 1-year forward rate, rather than a 1-year government bond yield, is used because distant-horizon rates abstract from the short-term monetary policy stance relative to the cyclical position. If the bond yield under consideration were to include short-term monetary policy expectations, isolating the term premium would be rendered even more difficult.9 ◦ The short-term expected real interest rate is proxied by a time-invariant rate that reflects the underlying real interest rate in the economy. To calculate this rate, the 1-month central bank bill rate and actual annual core inflation are used.10,11 The monthly real rate is then averaged for the period January 2001 to December 2010.12 ◦ As a proxy for expected inflation, it is assumed that investors have perfect foresight; that is, expected inflation was assumed to equal the 12-month-ahead actual core inflation. Methodology II: This method offers an alternative estimate of Indonesia’s term premium relative to its peers. For this method, it is assumed that the expected real short-term interest rate is the same across comparator countries. 13 Thus, the following equation gives the difference in the five-year term premiums between Indonesia and a comparator country. The equation does not give the level of term premium for each country. where YieldIDN is the nominal five-year rate five years forward (or the five-year forward rate, to simplify) for Indonesia, YieldCountry Y is the five-year forward rate for the comparator country, and E(Π) is expected inflation 5 to 10 years ahead as reported in Consensus Forecast survey results. 14 The sample period runs from 2003 to early 2011. Analysis of forward rates based on Methodology I illustrates that Indonesia has a relatively higher term premium than its peers. For the period June 2005 to February 2011, Indonesia’s term premium has, on average, been higher than those for Malaysia, the Philippines, and Thailand. Focusing on broad trends, although the term premiums for all the countries, including Indonesia, were trending down until about late 2007, Indonesia’s term premium subsequently rose substantially more than those of other countries and has stayed at a somewhat elevated level relative to the comparator group (Figure 2.6). Despite an increase in inflation volatility for all the sampled countries after the second half of 2008—when they were struck by the global food and fuel price shock of 2008 and the financial crisis in 2009—implying generally uniform shocks to all countries, Indonesia’s term premium increase has remained persistently higher, with the exception of a brief period in the second half of 2010 when Indonesia’s forward rates were briefly lower than those of some of its peers. 15 A simple regression of the term premium on core inflation volatility, with controls for seasonal movements, indicates that nearly two-thirds of the change in term premium during the selected time period arises from inflation volatility, suggesting that a higher inflation risk premium could be driving Indonesia’s higher term premiums. Figure 2.6Term Premiums by Country Analysis of forward rates based on Methodology II also suggests that, on average, Indonesia has a higher term premium than its peer countries. Through the period examined, Indonesia almost always had higher long-term inflation expectations than the peer group (Figure 2.7). Indonesia also had higher forward rates than comparator countries (Figure 2.8). Figure 2.7Long-Term Inflation Expectations: Annual Average of Expected Inflation 5–10 Years Ahead Source: Consensus Forecasts. Figure 2.8Five-Year Forward Rates The results from Methodology II also illustrate the extent to which higher expected inflation rates alone do not explain Indonesia’s higher forward rates. The additional returns that investors perpetually require in Indonesia in excess of the higher expected inflation (Πe IDN) relative to each peer country (Πe Country Y) are reflected in Indonesia’s higher term premium relative to comparator countries, with the exception of a few months in 2010 when Indonesia’s relative term premium was lower than that in the Philippines (Figure 2.9). Figure 2.9Indonesia’s Relative 5- to 10-Year Nominal Term Premium (Difference between Indonesia and other countries) Indonesia’s perpetually higher term premium illustrates the cost to the government, and by extension to the wider economy, of investor uncertainty about inflation risk. The higher term premium does not arise simply because investors expect higher inflation in Indonesia (estimating the term premium already accounts for the higher expected inflation using the actual 12-month-ahead inflation in Methodology I, and survey expectations in Methodology II). Term premium estimates quantify the compensation investors require, on top of their expectations for inflation, for their relative inability to predict inflation, which poses an additional risk to their real returns. The term premium imbedded in the yield curve could be useful for judging the extent to which monetary policy is anchoring inflation expectations. Large and persistent inflation fluctuations increase investor uncertainty about future inflation, and investors thus demand a higher premium as compensation for this risk. If a government is paying a large term premium because of a high inflation risk premium, financing costs could be lowered by issuing inflation-indexed bonds. 16 The relatively higher inflation volatility for Indonesia and larger deviation of actual inflation from forecasts compared with other countries suggest that investors have a higher degree of inflation uncertainty for Indonesia. In addition, the dispersion of survey forecasts indicates that survey participants are more uncertain about their forecasts of inflation in Indonesia than they are for the comparator countries. An explanation for higher inflation uncertainty in Indonesia is that monetary policy has not anchored inflation expectations as successfully as monetary policy in the peer group has. More specifically, ahead of the inflation bout in 2005–06—when one round of administrative price adjustments occurred—policy rates were low compared with Taylor rule estimates (Figure 2.10). 17 This stance may have exacerbated the subsequent inflation pressures rising from the administrative price hikes, leading to a large miss relative to the inflation target. In 2008, although policy accommodation was likely appropriate given external conditions, another large miss of inflation relative to target occurred, when an administrative price hike happened in tandem with the global food and fuel price shock (Figure 2.11). Notwithstanding the limitations of the estimated Taylor rule, these two episodes, combined with ongoing political discussions about the timing and extent of future administrative price hikes, could be contributing to higher perceived inflation risks. Even during periods of low global and domestic inflation, Indonesia’s term premium remains higher than that in comparator countries. This difference is likely related to investors’ continued uncertainty about the likelihood that an appropriate level of inflation will be realized on average over time. Figure 2.10Indonesia: Monetary Policy Stance Figure 2.11Inflation and Interest Rate Note: SBI = Bank Indonesia certificate. How can inflation expectations be anchored and the inflation risk premium lowered? As discussed in the literature, countries that established higher levels of monetary policy credibility saw a decline in the term premium on their domestic government debt. A relatively aggressive monetary policy response to emerging inflation pressures has a near-term cost to the economy because it dampens growth. However, in the long run, well-anchored inflation expectations will help depress the nominal cost of capital by lowering both expected inflation and the inflation risk premium, supporting long-term growth. Greater monetary policy credibility will be established with a track record of meeting inflation targets. In addition, effective communication with market participants about how inflation targets will be set and met is also necessary to better anchor expectations. In particular, Bank Indonesia (BI) could improve its signaling of adjustments to the monetary stance, thus clarifying the monetary policy reaction function. Communicating that BI is committed to meeting the middle of the inflation target band on average, over time, would be effective in dampening expected inflation volatility and the inflation risk premium. Targeting progressively lower levels of inflation going forward, in line with its trade partners, could help lower volatility and reduce Indonesia’s borrowing costs. Gaining policy credibility also requires that monetary operations be consistent with the announced monetary stance. Consistency and transparency of monetary operations in line with the announced stance are necessary to achieve policy credibility. 18 In this regard, the measures announced in 2010 for liquidity management and interbank market development are steps in the right direction to help improve monetary operations. 19 AcemogluD.S.JohnsonJ.Robinson and Y.Thaichar oen2003 “Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth,” Journal of Monetary Economics Vol. 50January pp. 49–123. CampbellJ.A.W.Lo and A.C.MacKinlay1996The Econometrics of Financial Markets (PrincetonNew Jersey: Princeton University Press). DurhamJ. Benson2006 “An Estimate of the Inflation Risk Premium Using a Three-Factor Affine Term Structure Model,” FEDS Working Paper No. 2006–42. Available via the Internet: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=951413. GoyalR. and M.Ruiz-Arranz2009 “Explaining Indonesia’s Sovereign Spreads,” in “Indonesia—Selected Issues,” IMF Country Report No. 09/231 (Washington: International Monetary Fund). HordahlP.2008 “The Inflation Risk Premium in the Term Structure of Interest Rates,” BIS Quarterly Review (September) pp. 23–38. JudsonRuth and AthanasiosOrphanides1999 “Inflation, Volatility and Growth,” International Finance Vol. 2 No. 1 (April) pp. 117–38. KimD.H. and J.H.Wright2005 “An Arbitrage-Free Three-Factor Term Structure Model and the Recent Behavior of Long-Term Yields and Distant-Horizon Forward Rates,” Finance and Economics Discussion Series 2005–33 (Washington: Board of Governors of the Federal Reserve System). PoirsonHelene2009 “Monetary Policy Communication and Transparency,” Chapter 10 in India: Managing Financial Globalisation and Growth ed. by KalpanaKochhar and CharlesF. Kramer (New Delhi: Business Standard Books). TaylorJohn B.1993 “Discretion versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy Vol. 39 pp.195–214. WrightJonathan H.2009 “Term Premiums and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset,” Finance and Economics Discussion Series 2008–25 (Washington: Board of Governors of the Federal Reserve System). Dispersion for the Philippines is not shown owing to lack of a long enough time series in Consensus Forecasts. Although high levels of inflation and volatility can be welfare reducing, low inflation and price stability are not sufficient conditions to achieve higher growth, especially if the supporting economic and institutional environment is weak (see Acemoglu and others, 2003). See Goyal and Ruiz-Arranz (2009) for factors determining Indonesia’s sovereign external spreads relative to its peers. See Durham (2006) and Hordahl (2008) and references therein for a review of previous studies. In addition to Indonesia, this analysis estimates term premiums for Malaysia, India, the Philippines, Thailand, and Mexico. Methodology I is not applied to India because of the absence of bond yield data of contiguous maturities necessary to estimate a 1-year forward yield. Generic government yield time series are used as constructed by Bloomberg (i.e., each benchmark 10-year bond yield rolls into the new issue). In the absence of zero-coupon yields, it is assumed that duration equals maturity, that is, D(n) = nand D(m) = m,for the 9- and 10-year bonds. A test was done using precise duration calculations for several data points and the magnitude of the difference in the forward rates was small. Because this simplification is applied across all the countries in the study, the comparative findings have greater meaning than absolute estimates of the term premium. For a detailed derivation of this formula, see Campbell, Lo, and MacKinlay (1997). In the absence of a complete data series on the 9- and 10-year government yields for the Philippines, the implied forward rate is calculated on the 4- and 5-year government yields. For example, the 1-year government bond yield will comprise the actual current short-term rate (say 1-month) and average expected short-term rates out to one year plus a term premium. The 1-month rate will be determined almost entirely by the current monetary stance, and expected future short-term interest rates will be determined almost entirely by expected monetary policy moves. The distant-horizon forward rate abstracts from monetary policy expectations and comprises a real return to capital (the time-invariant real rate used here), expected inflation, and a term premium. Using headline inflation is likely to bias inflation expectations upward and real rates downward because of the large spikes arising from the administered price changes. Using core inflation corrects this problem. Moreover, because the analysis uses distant-horizon forward rates, future changes in core inflation are a better approximation of expected inflation over time. A time-variant real rate was not used because sporadic negative real rates during periods of high inflation distort the underlying long-term economic real interest rate. In addition, the real return to capital adjusts slowly based on the capital-to-labor ratio and thus a long-term average is more appropriate than are monthly observations. In line with the explanation in footnote 14, the sporadic negative real rates are removed because they would otherwise bias the real rate downward. Such an assumption is suitable for emerging-market countries at broadly similar stages of economic and market development. The benefit of using long-term inflation expectations (e.g., average expected inflation 5–10 years ahead) is that these abstract from near-term factors that impact inflation expectations, such as administered price increases and commodity price pass throughs. Instead, long-term inflation expectations get to the level of inflation expected to be targeted or managed by monetary policy on average, over time. Five-year forward rates are used instead of 1-year forward rates in Methodology II because the 5-year forward rate matches up with the 5–10 years ahead annual inflation expectations as reported by Consensus Forecasts. Forward rates are calculated as described in Methodology I. This was also when the second-round inflationary effects related to Indonesia’s 2008 administrative price increase took hold. The caveats are, however, that governments will have to pay out relatively more on inflation-indexed bonds if actual inflation ends up higher than inflation expectations imbedded in nominal bond yields; also, the liquidity premium demanded by investors to buy less-liquid inflation-indexed bonds may erode savings from eliminating the inflation risk premium. Of course, issuing a greater proportion of short-term debt would lessen the term premium the government pays, but doing so would raise rollover risks, reduce liquidity in remaining longer-dated issues, and eliminate an important benchmark for private sector long-term borrowing. Taylor rule estimates are derived using potential output measures based on the Hodrick-Prescott filtering technique, and Bank Indonesia’s annual inflation targets. The Taylor rule provides a framework for evaluating the stance of monetary policy and the level of the nominal interest rate (see Taylor, 1993). Poirson (2008) delves into these issues in the discussion of monetary policy communication for India. On June 16, 2010, BI announced measures that include a 1-month minimum holding period on Bank Indonesia certificates (SBIs); lengthening of SBI maturity, including the introduction of 9- and 12-month bills; widening of the interest rate corridor by 100 basis points to 200 basis points; a 1-month term deposit facility; and an initiative to facilitate triparty repo trading.

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VanEck Vectors Uranium & Nuclear Energy ETF (NLR) The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Global Uranium & Nuclear Energy Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund's benchmark index. The index includes equity securities and depositary receipts issued by companies involved in uranium and nuclear energy. The fund is non-diversified. 'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.' The total return over 5 years of VanEck Vectors Uranium & Nuclear Energy ETF is 37.7%, which is smaller, thus worse compared to the benchmark SPY (58.9%) in the same period. During the last 3 years, the total return, or performance is 26.1%, which is lower, thus worse than the value of 33.9% from the benchmark. Compared with the benchmark SPY (9.7%) in the period of the last 5 years, the annual performance (CAGR) of 6.8% of VanEck Vectors Uranium & Nuclear Energy ETF is smaller, thus worse. During the last 3 years, the compounded annual growth rate (CAGR) is 8%, which is smaller, thus worse than the value of 10.2% from the benchmark. 'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.' The 30 days standard deviation over 5 years of VanEck Vectors Uranium & Nuclear Energy ETF is 19.7%, which is lower, thus better compared to the benchmark SPY (21.6%) in the same period. Looking at volatility in of 23.4% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (25%). The downside volatility over 5 years of VanEck Vectors Uranium & Nuclear Energy ETF is 14.3%, which is lower, thus better compared to the benchmark SPY (15.7%) in the same period. During the last 3 years, the downside risk is 17.1%, which is smaller, thus better than the value of 18.1% from the benchmark. Looking at the Sharpe Ratio of 0.22 in the last 5 years of VanEck Vectors Uranium & Nuclear Energy ETF, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.33) Compared with SPY (0.31) in the period of the last 3 years, the Sharpe Ratio of 0.24 is smaller, thus worse. 'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.' Looking at the ratio of annual return and downside deviation of 0.3 in the last 5 years of VanEck Vectors Uranium & Nuclear Energy ETF, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.46) During the last 3 years, the downside risk / excess return profile is 0.32, which is lower, thus worse than the value of 0.43 from the benchmark. Looking at the Downside risk index of 7.87 in the last 5 years of VanEck Vectors Uranium & Nuclear Energy ETF, we see it is relatively lower, thus better in comparison to the benchmark SPY (8.91 ) During the last 3 years, the Ulcer Ratio is 9.43 , which is smaller, thus better than the value of 11 from the benchmark. Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum drop from peak to valley of -34.3 days of VanEck Vectors Uranium & Nuclear Energy ETF is smaller, thus worse. Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum reduction from previous high of -34.3 days is lower, thus worse. 'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs) in days.' Looking at the maximum time in days below previous high water mark of 246 days in the last 5 years of VanEck Vectors Uranium & Nuclear Energy ETF, we see it is relatively smaller, thus better in comparison to the benchmark SPY (271 days) Looking at maximum days below previous high in of 246 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (271 days). Compared with the benchmark SPY (60 days) in the period of the last 5 years, the average time in days below previous high water mark of 74 days of VanEck Vectors Uranium & Nuclear Energy ETF is greater, thus worse. Compared with SPY (72 days) in the period of the last 3 years, the average days below previous high of 79 days is higher, thus worse. Performance results of VanEck Vectors Uranium & Nuclear Energy ETF are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use. Copyright © 2018-2023 Logical Invest. All Rights Reserved. See Terms of Use and Privacy Policy. (0.003) 9:46am EST

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LOGIN PORTALS GMT Client Alert Series France - Sweeping Tax Measures U.K. - New Statutory Residence Test U.S. - Affordable Healthcare Act U.S. - New IRS Amnesty Initiative for U.S. Citizens Overseas U.S. - New ITIN (Form W-7) Filing Rules U.S. - IRS Provides Tax Relief to Victims of Hurricane Isaac Implications for Global Assignees and Employers Expected Developing…since the new French Parliament swept into power earlier this year, the new government has been busy finalizing tax reforms encompassed in the 2012 Finance Act. International assignees and their employers are increasingly facing higher tax obligations in France as the Finance Act process comes to fruition. The second Amended Finance Bill for 2012 was adopted by the French Parliament on July 31, 2012 and has been subject to judicial review by the French Constitutional Court. Published last month were various provisions affecting individuals. Several other measures impacting individuals are expected before the end of the year with the 2013 Budget discussion due to start in late September. Note that many of the measures are not being “grandfathered in” and instead are retroactive to a particular earlier date. Measures objected to by the opposition party and being examined by the Constitutional Court regarding individual taxation are also highlighted below: HIGHLIGHTED MEASURES Increase in Employer/Employee Social Tax Contributions on Stock Options & Restricted Stock Employer social tax contributions, due at grant, in relation to stock options and restricted stocks are increased from 14% to 30%. These changes apply to options and stocks granted on or after July 11, 2012. Employee social tax contributions for these equity instruments have also increased from 8% to 10%. Increase in Social Taxes related to Non-Residents with certain Capital Gains Non-Residents in France with certain Real Estate income & Real Estate capital gains are now subject to French social security and social surtax (CSG and CRDS) levies of 15.5% on income and gains arising in respect of French real estate. The taxation’s effective dates are: a) real estate income received since January 1, 2012 and b) real estate capital gains arising since August 17, 2012. Temporary 2012 Wealth Tax Surcharge Individuals with a net taxable wealth equal to or exceeding Euros 3m (and non tax residents of France with a net taxable wealth above Euros 1.3m) should receive in October a specific tax return for their exceptional wealth contribution. This additional wealth tax contribution is calculated on the basis of the 2012 net assets when they exceed Euros 1.3m and by applying progressive rates identical to those that were applicable for the 2011 wealth tax (from 0.55% to 1.80%) with tax bands starting at Euros 800k. The 2012 wealth tax, calculated prior to any tax allowance, is deductible from this exceptional wealth tax contribution. The amount of the exceptional wealth contribution is due to be paid by November 15, 2012 with the filing of a tax return. These measures are being examined by the Constitutional Court. OT Hours now subject to Social Security and Income taxes No longer will overtime hours be exempt from social security and income taxes for employees. The suppression of the income tax exemption is applicable on remuneration related to additional hours performed as of August 1, 2012 and the suppression of the social security exemption is applicable on remuneration related to additional hours performed as of September 1, 2012. Employer social security contributions will also be due on employee additional worked hours except under certain conditions for companies with less than 20 employees. This employer measure is applicable on remuneration related to additional hours performed as of September 1, 2012. These measures are being examined by the Constitutional Court. POTENTIAL 2013 MEASURES Expectations are that the 2013 Finance Bill, which be enacted by the end of the 2012 year will include some or all of the following proposals: Creation of a new 45% income tax band, which does not include the 3% and 4% contribution for high-income earners. In addition, a possible 75% income tax rate for individuals who have earnings above Euros 1m. A global wealth tax reform is expected with rates and bands similar to 2011 (2011 progressive rates ranged from 0.55% to 1.8% with bands starting at Euros 800k). The threshold could also be set at Euros 800k (i.e. the 2012 threshold is currently set at Euros 1.3m). The capital gains tax rate (currently at 19%-34.5%, including CSG and CRDS tax of 15.5%) could be more closely aligned to the progressive income tax rates (up to 41% in 2011 and as much as 45% in 2012). An increase in the CSG and CRDS tax rates may also be included. The recent 2012 Amended Finance Bill includes many provisions that will likely affect many global assignees working in France. Keep an eye on further developments as the year progresses, which may affect your global assignees and look for further guidance from GMT on these topics. The changes above will generally increase tax costs of assignments to France. The new measures also involve a variety of different effective dates, so be wary of when measures become applicable. GMT recommends the following actions on the part of companies with international assignees in/to France in light of the above legislation and anticipated future legislation: Companies should begin re-calibrating assignment tax costs for tax-equalized assignees and also net-pay calculations for those being permanently transferred. Tax accrual revisions and hypothetical tax recalculations for those French assignees working abroad may also be required. Assignees may also benefit from understanding these tax changes as they relate to equity & capital gain transactions, overtime compensation and even wealth taxes for some. GMT can advise on these topics during our tax briefings with assignees. GMT also recommends companies review their foreign assignment policies to capture the potential tax risks of not accounting for the above changes. Please consult your GMT advisors for assistance with crafting a comprehensive Global Assignment Policy. Who is "Resident"? Clarity Forthcoming? Over the summer, the UK’s HM Treasury (HMT) issued a summary of responses and draft legislation to implement the NEW Statutory Residence Test (SRT) for the UK effective from the April 6, 2013 UK tax year. These sweeping changes are still in the review stages of UK legislation, but expect a close semblance to the following details in the final law due out soon. What is clear at this time is that organizations with international assignees should carefully consider the current proposals as they will likely impact how assignments are structured to and from the UK commencing in April of 2013. UK’s residency rules oftentimes are difficult to ascertain as they have evolved from case law over many decades. The HMT has stated that the NEW rules would be “clear, objective, and unambiguous”, which if true, would be welcome news indeed. The SRT Rules as currently comprised are formatted into a 3-Part Test. If you meet the conditions of Part A, you are deemed a Non-Resident; if you meet the conditions of Part B, you are considered a Resident; and if neither of the first 2 parts apply, then Part C will determine your residency status. Let’s look deeper into each Part below. SRT - Part A – NON-RESIDENTS Only ONE of the following tests needs to be met to be Non-Resident. A person: Who was not UK resident in the previous three UK tax years and is present in the UK for less than 46 days in the current UK tax year: or Who, having been resident in the UK in one or more of the previous three UK tax years, is present in the UK for less than 16 days in the current UK tax year; or Who leaves the UK to undertake full-time work abroad* and spends less than 91 days in the UK and less than 21 UK workdays** in the UK tax year *“Full-time Working Abroad” definition: Employment abroad is regarded as full-time where: The work covers one complete UK tax year (6 April to 5 April); and The taxpayer must be employed and/or self-employed with total working hours of at least 35 hours per week **“Less than 21 UK Workdays” defined: This test now includes any day working in the UK, including those spent on "incidental duties" ie training, reporting back to colleagues etc. The proposal defines any day worked for 3 hours or more in the UK will count as a UK workday. This already adds a complication as the individual may not be in the UK at midnight and so the day would not count as a UK residence day but may be a UK workday if the work-time during the day before midnight exceeded 3 hours. The Consultation Document recognizes this complication and has introduced two new proposals, either: A relaxation from less than 21 workdays to less than 26 workdays; or A relaxation from 3 hours to 5 hours being determined a UK workday. SRT - Part B – RESIDENTS Only ONE of the following tests needs to be met to be Resident. A person: Who has their only home in the UK*, or if they have more than one home, they are all in the UK; or Who is not working full-time abroad and spends at least 183 days in the UK in the UK tax year; or Who is working full-time in the UK. Full-time in the UK is deemed to cover a continuous period of more than nine months with no more than 25% of duties undertaken outside the UK. (Note: HMT is considering if this should be extended from 9 to 12 months). *“Only Home in the UK”: HMT has not defined in the proposed legislation what is meant by “only home in the UK”, but they have offered the following clarifications: A home does not need to be owned by the individual; Holiday homes, weekend homes and temporary retreats will not count as a home for these rules; Individuals who have a UK home and home(s) overseas will not meet the only home condition; If the home is available for less than 91 days, it will not meet the only home condition. SRT - Part C – Determining Residency (where Parts A or B are not conclusive) Individuals will need to consider the conditions of Part C if they cannot clearly establish their residency position under either Parts A or B above. Part C works by determining an individual's residency status considering a combination of connecting factors and days spent in the UK. The listed connecting factors are: Having spouse & children (family) in the UK; Having accommodations in the UK for at least one night, which includes holiday homes, weekend homes and temporary retreats; Has substantive UK employment or self-employment of at least 40 UK workdays where a workday is at least 3 hours long; Spending more than 90 days in the UK during the previous two UK tax years; More time spent in the UK than any other country or countries. These “connecting factors” are under Part C weighted against the amount of time spent in the UK. The “hope” by HMT is that most people’s residency will be determined by Parts A or B and that Part C will be seldom necessary. How these factors relate to days spent in the UK is set-out below: A) Individuals Not Resident in all of the previous three UK tax years (mainly UK In-bounds): Impact of connecting factors on residence Days spent in the UK Always Non-Resident Less than 46 days Resident if individual has 4 factors or more 46- 90 days Resident if individual has 3 factors or more 91 -120 days Resident if individual has 2 factor or more 121 - 182 days Always Resident 183 days or more B) Individuals resident in one or more of the previous three UK tax years (mainly UK Out-bounds) Impact on connecting factors on residence Days spent in the UK Resident if individual has 2 factor or more 91 -120 days The HMT is still working on finalizing details to clarify its position on some related UK tax concepts that will be affected by the SRT legislation, such as: Ordinary Residence- this concept, which has been a cornerstone in determining UK residency for many years, will be abolished starting in April 2013 with the advent of the new SRT concepts. However, transitional rules are expected for continued relief of “not ordinarily resident” status for up to 2 years for those grandfathered in. Overseas Workdays Relief- this will likely be retained and codified to a statutory basis. The rules for being eligible for such relief are expected to be slightly amended to be consistent with the new SRT. Split-Year Concession- presently if an individual is resident at any point in a UK tax year, they are considered resident for the whole year in calculating their UK tax liability. However, a concessionary treatment allows the tax year to be split into periods before and after arrival or departure when an individual comes to or leaves the UK during the year. This “split-year treatment" is now part of the draft SRT legislation. The HMT is seeking reaction and recommendations on their current proposals with draft legislation expected by the end of September 2012. A further draft of the legislation will be published in the Finance Bill 2013 later this year. A final version will then be published shortly after Budget 2013 (i.e. sometime in March 2013 for implementation effective from April 6, 2013). For more on the draft legislation thus far, please read from the HM Treasury: http://www.hm-treasury.gov.uk/d/consult_condoc_statutory_residence.pdf http://www.hm-treasury.gov.uk/consult_statutory_residence_test.htm#Responses GMT recommends the following actions on the part of companies with international assignees to/from the UK in anticipation of the above legislation due to be effective April 6, 2013: Companies should prepare for changes to assignment tax costs, accruals, and hypothetical taxes due to changes in UK tax residency determination for both in-bound and out-bound employees. Available workday reliefs and grandfathered concessions will likely also be part of the equation. GMT can assist with planning for all of the above. GMT also recommends companies review their foreign assignment policies & “timing” of pending assignments ahead of the April 6, 2013 effective date to ensure the proposals set forth above are considered. Concepts such as “full-time working abroad” and the definition of “UK workdays” should be considered. Please consult your GMT advisors for assistance in these areas as well. Implications to International Assignment Program Costs The Supreme Court’s decision over the summer to uphold the constitutionality of the Affordable Care Act mandated the survival of the new law's health-care surtax on investment income, which includes stock transactions. Beginning January 1, 2013, a 3.8% tax increase will be added to the existing capital gains tax for people with annual adjusted gross income (AGI) above $200,000 (above $250,000 for married joint filers). This surtax will also apply to sales of company stock from equity compensation. For these same taxpayers, Medicare taxes will also increase from 1.45% to 2.35%. 0.9% Medicare Tax Increase on Compensation With the final Supreme Court decision on Healthcare, there will be new Employer withholding rules for the new 0.9% Medicare tax. Beginning in 2013, an additional 0.9% Medicare tax is imposed on individuals who receive wages over $200,000 ($250,000 in the case of a joint return filing or $125,000 in the case of a married taxpayer filing separate). When added to the current 1.45% employee portion of the Medicare tax, a high-income taxpayer's wages will be subject to a 2.35% Medicare tax on wages above the threshold. There is no employer match for the additional Medicare tax - the employer's Medicare tax rate on wages paid to employees will continue to be 1.45%. Stock compensation events triggering the 0.9% Medicare increase include the exercise of nonqualified stock options and the vesting of restricted stock or restricted stock units. In July, the IRS released some additional guidance on company obligations to withhold this additional Medicare Tax. Some of the specific guidance included: Regardless of the employee's filing status, companies must withhold the additional 0.9% Medicare tax on compensation paid in excess of $200,000 during a calendar year - it doesn't matter if you are married and your combined joint income is below $250,000. Any excess Medicare tax that is withheld is credited on your tax return as additional income tax paid. Companies do not need to withhold this tax on the ENTIRE payment; meaning, income from a stock option exercise that pushes your yearly income above the $200,000 threshold should not have the tax withheld on the entire amount. The additional tax withholding only applies to compensation above the threshold. There are no special rules for nonresident aliens and U.S. citizens living abroad related to this provision. If an employee receives wages from an employer in excess of $200,000 and the wages include noncash fringe benefits, the employer calculates wages for purposes of withholding Additional 0.9% Medicare Tax in the same way that it calculates wages for withholding the existing 1.45% Medicare tax. The employer is required to withhold Additional Medicare Tax on total wages, including noncash fringe benefits, in excess of $200,000. The value of noncash fringe benefits must be included in wages and the employer must withhold the applicable Additional Medicare Tax and deposit the tax under the rules for employment tax withholding and deposits that apply to noncash fringe benefits. The IRS has published guidance in the form of Frequently Asked Questions (“FAQs”) to assist employers and payroll service providers when reviewing existing procedures and making changes to payroll processing systems that may be impacted by the law changes. The IRS also announced its plan to release drafts of revised payroll tax forms. Please find the IRS FAQ link here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax 3.8% Surtax on Net Investment Income The Supreme Court’s Affordable Care Act decision also ensures the survival of the new law's health-care surtax on investment income, including stock. Starting in 2013, an extra 3.8% tax will be added to the usual capital gains tax for taxpayers with yearly adjusted gross income (AGI) of more than $200,000 (more than $250,000 for married joint filers). Net Investment Income (NII) includes capital gains, interest, dividends, royalties, rents, and passive income. It does not include distributions from qualified retirement plans and IRAs. Also not included in NII is income on the exercise of compensatory options and income on the vesting of restricted stock. The net gain on incentive stock options would be subject to the 3.8% surtax, reducing the beneficial treatment of this equity. Also note that the additional 3.8% surtax applies to AMT as well. GMT recommends the following actions on the part of companies with international assignees and high-income individuals exceeding the income thresholds stated above: Companies should re-evaluate costs of assignments for these AHCA Medicare tax increases. Both the company and assignee may be impacted by these changes either with increased actual or hypothetical Medicare tax costs. As noted above, these costs may be relevant due to equity income or even taxable assignment benefits. Accruing for increased tax costs of current & future assignments and adjusting assignee hypothetical tax withholdings may be required. GMT can assist with all of the above cost projections. GMT also recommends companies review their foreign assignment policies to adjust for these changes specifically as it relates to hypothetical taxes on equity income. We can assist with re-drafting these policies. For high-income taxpayers, these surtaxes will also apply to sales of company stock from equity compensation. This change may present a tax planning opportunity to sell shares and accelerate income into 2012 before the end of this year. GMT can assist with this tax planning position. Correcting Compliance Gaps in Tax Returns and FBARs The IRS has unveiled a New initiative (IR-2012-65) to “help” US citizens residing overseas with filing back tax returns and Foreign Bank Account Reports (FBARs – Form TDF 90-22.1) with a launch date of September 1,2012. This “amnesty program” for low-risk filers (generally people who owe $1500 or less in back taxes for any year) is available for up to 3 years of delinquent tax returns (including certain elections like RRSP Forms 8891) and 6 years of unfiled FBARs. This program can be helpful or hurtful to taxpayers wishing to come into compliance, so the risks and benefits should be fully understood prior to entering the program. Previously, taxpayers with unreported offshore bank accounts are eligible for amnesty as long as they have not received an audit notice or under criminal investigation. Under the new program, taxpayers will no longer be eligible to apply for amnesty once the IRS learns about their unreported foreign bank accounts. This important change makes coming into compliance more urgent; however there are risks to be considered as noted below. The IRS’ plan to help U.S. citizens residing overseas, including dual citizens, is designed to have these taxpayers come into full compliance with their tax return filing obligations. To help these taxpayers, the new procedures allow taxpayers who are low-compliance risks to become current with their tax filing requirements without facing penalties or additional enforcement action. These people generally will owe $1,500 or less in tax for any of the covered years. The new procedures will also allow the reporting of certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans) to come into compliance. In some cases, dual income tax treaties allow for deferral of income from these pensions under U.S. tax law, but only if an election is made on a timely basis. The new procedures will allow low-compliance risk taxpayers to make this election even though not timely made. The Amnesty Process The new amnesty program is available for U.S. citizens who have resided outside of the U.S. since January 1, 2009 and who have not filed a U.S. tax return during the same period. Taxpayers opting under the program must file their delinquent tax returns for the past three years and to file delinquent FBARs for the past six years. If you filed during this period and seek and amended return, you cannot use this program. The “level” of review will vary according to the level of compliance risk presented by each submission. Taxpayers will be required to submit: (1) delinquent tax returns for the past three years, (2) delinquent FBARs for the past six years, and (3) any additional information regarding compliance risk factors required by inspectors. Payment of any federal tax and interest due must also be made with the filing. Any taxpayer claiming reasonable cause for failure to file a tax return, information return, or FBAR will have to submit a statement, signed/dated under penalties of perjury, explaining why there is reasonable cause for previous failure to file. Any taxpayer seeking relief for failure to timely elect deferral of income from certain retirement or savings plans, where permitted by treaty, will be required to submit: • A statement requesting extension of time to elect to defer income tax and identifying the treaty position, • For RRSP Canadian plans, a Form 8891 for each tax year and description of the type of plan, and • A statement describing: a) The events that led to the failure to make the election, b) The events that led to the discovery of the failure, and c) If the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities. Compliance Risk The IRS will determine the level of “compliance risk” with each submission based on certain information provided on the tax returns and based on other required information. Low risk will apply to simple returns with little or no U.S. tax due. Where no high risk factors reside, submitted tax returns with less than $1,500 in tax due in each of the years should be treated as low risk. In general, the risk level will increase in proportion to the level of income and assets of the taxpayer. If there is evidence of sophisticated tax planning or if there is material economic activity in the U.S., the risk level will also rise. The risk level may also rise if any of the following are present: If any of the returns submitted through this program claim a refund; If the taxpayer has not declared all of his/her income in his/her country of residence; If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter; If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence; For those taxpayers with a low-compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. Submissions with higher compliance risk are not eligible for the expedited review and will be subject to a more thorough review, and possibly a full tax audit, which in some cases may include more than three years! Tax, interest and penalties may be imposed in these cases. In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans, where deferral is permitted by relevant treaty, will be available through this process. The proper deferral elections with respect to such arrangements must be made with the submission. Other Points to Consider Taxpayers who are concerned about risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution should consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on January 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant. It should be noted, however, that once a taxpayer makes a submission under the new procedure described here, OVDP is no longer available. It should also be noted that taxpayers who are ineligible to participate in OVDP are also ineligible to participate in this procedure. For much more on this program, please visit the IRS website at: http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers for frequently asked questions and answers about the program. There are new Streamlined Procedures for filing released by the IRS on August 31, 2012, which should be reviewed prior to any submissions. GMT recommends the following actions on the part of companies with US citizen assignees who may not be in full US tax return (last 3 years) or FBAR (last 6 years) compliance: The IRS is offering this amnesty program for “low risk” taxpayers, which are described in part above. Any higher risk taxpayer may be putting themselves in “harm’s way” with this IRS initiative and could face prosecution or at least an expanded review of their tax affairs. This is a program that warrants careful consideration with tax professionals such as your GMT advisors and possibly also legal counsel. Companies should carefully consider potential future IRS compliance risks as this program is unlikely to continue much farther into 2013. Understanding that the IRS is ratcheting up their enforcement of non-compliers should require companies to further support strict compliance with tax filings both in the US & Abroad for its assignees. Enhancing a Tax Equalization Policy or International Assignment Letter with language directed at this issue should be considered. This program further highlights the IRS direction of its international enforcement program – to uncover foreign assets and accounts. GMT highlights this increased enforcement focus in our Tax Briefings and Tax Return Process to make sure all foreign assets and FBARs are properly and timely reported. Interim Process Changes Revealed The IRS recently released an important interim change to its procedure for issuing new Individual Taxpayer Identification Numbers (ITINs) from now through the end of the year. Designed specifically for tax-administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number. These interim procedures apply to applicants seeking ITINs on Form W-7 for the purposes of filing U.S. individual income tax returns. Changes for New Applicants Filing U.S. Tax Returns during the Interim Period The IRS has implemented interim guidelines — effective immediately — and will only issue ITINs when applications include original documentation, such as passports and birth certificates, or certified copies of these documents from the issuing agency. During this interim period, ITINs will not be issued based on applications supported by notarized copies of documents. In addition, ITINs will not be issued based on applications submitted through certified acceptance agents unless they attach original documentation or copies of original documents certified by the issuing agency. During this interim period, people who need ITINs to get their tax return processed can do so by submitting by mail their original documentation or certified copies of their documentation. Documentation will be accepted at IRS walk-in sites but will be forwarded to the ITIN centralized site for processing. The changes for the interim period are designed to minimize impact on taxpayers and protect the integrity of the ITIN process. Final rules will be issued before the start of the 2013 filing season when most ITIN requests come in. Some Applicants Not Impacted By Changes Some categories of applicants are not impacted by these interim changes, including spouses and dependents of U.S. military personnel who need ITINs. People who should follow the current procedures outlined in the Form W-7 instructions include: Military spouses and dependents without an SSN who need an ITIN (Military spouses use box e on Form W-7 and dependents use box d). Exceptions to the new interim document standards will be made for military family members satisfying the documentation requirements by providing a copy of the spouse or parent’s U.S. military identification, or applying from an overseas APO/FPO address. Nonresident aliens applying for ITINs for the purpose of claiming tax treaty benefits (use boxes a and h on Form W-7). Non-resident alien applicants sometimes need ITINs for reasons besides filing a U.S. tax return. This is necessary for nonresident aliens who may be subject to third-party withholding for various income or need an ITIN for information reporting purposes. ITIN applications of this category that are accompanied by a US tax return will be subject to the new interim document standards. GMT recommends the following action on the part of companies with US assignees and their family members who may require an ITIN as part of this new legislation: Initiate exit tax briefings with your Tax Service Provider prior to transfer in order to analyze whether this application requirement will exist for your US assignees and their families. The required documentation may be more easily obtained if acquired before the transfer takes place. Return Filing and Tax Payment Deadlinee Extended to January 11, 2013 The IRS is providing tax relief to individuals and businesses affected by Hurricane Isaac. Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced on September 5th that affected taxpayers in Louisiana and Mississippi will receive tax relief, and other locations may be added in coming days based on additional damage assessments by FEMA. The tax relief postpones various tax filing and payment deadlines that occurred on or after Aug. 26. As a result, affected individuals and businesses will have until Jan. 11, 2013 to file these returns and pay any taxes due. This includes corporations and businesses that previously obtained an extension until Sept. 17, 2012, to file their 2011 returns and individuals and businesses that received a similar extension until Oct. 15. It also includes the estimated tax payment for the third quarter of 2012, normally due Sept. 17. The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. In addition, the IRS is waiving failure-to-deposit penalties for federal employment and excise tax deposits normally due on or after Aug. 26 and before Sept. 10, if the deposits are made by Sept. 10, 2012. Details on available relief, including information on how to claim a disaster loss by amending a prior-year tax return, can be found on the disaster relief page on IRS.gov. The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA. For information on disaster recovery, individuals should visit disasterassistance.gov. So far, IRS filing and payment relief applies to the following localities: In Louisiana: Ascension, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist and St. Tammany parishes; In Mississippi: Hancock, Harrison, Jackson and Pearl counties. 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Ask for free! Cyprus Company Formation, Holding Cyprus, Cyprus Investment Firm, Offshore Company Formation Company Formation Cyprus: Procedure of Incorporation Index Company Formation Cyprus Tax planning via a network of international tax advisers and attorneys Offshore Company Formation: Tax haven rankings Cyprus Holding – Cyprus DTAs Services Company Formation Cyprus Examples for the legal reduction of corporate taxes DTA permanent establishment concept –Our services and fees Parent companies and their subsidiaries in the European Union OECD: Articles of the Model Convention with Respect to taxes on income and on capital Beware of cheap founders! Information about the company formations in English Basic considerations within the framework of international taxation Company Formation Cyprus: – hide+ expand Comparative Overview of Services Full Service Package Procedure of Incorporation Cyprus Holding Cyprus DTAs Accounting, Bookkeeping & Audit Services Cyprus Investment Firm IFRS Compliant Accounting Standards VAT Tax Cyprus Types of Company Banking Law Cyprus Cyprus International Collective Investment Schemes Headoffice Cyprus Company Formation Cyprus – Procedure of Incorporation The most popular type of Cyprus Company is a Limited Liability Company. Cyprus Offshore Company Formation and administration is done under the Cyprus Company Law Cap.113 which is a virtual copy of the English Companies Act of 1948. The procedure for Incorporation is as follows: An application form is filled in, signed and scanned containing information about a preferred name and details of directors and shareholders A beneficial owner declaration is filled in, signed, scanned and sent to ETC A scanned copy of a passport for directors and shareholders is required A scanned copy of proof of residence. This can be in the form of a utility bill, bank statement or bank reference and must not be older than 3 months. At this point ETC will issue an invoice for a Cyprus Offshore Company Formation Upon receipt of money in our bank account for Formation of a Cyprus Offshore Company, we start the formation process by submitting a preferred name for approval of Cyprus Registrar of Companies. This takes up to 5 working days. Once the Cyprus Offshore Company name is approved, a shareholder of a Cyprus Company signs the Memorandum and Articles of Association (M&AA) and sends the originals to ETC by courier. Upon receipt of the signed M&AA, we start the Cyprus Offshore Company Incorporation process. It takes up to 15 working days for a Cyprus Offshore Company Formation and Apostille of Incorporation Certificates and up to a maximum of 5 working days for courier delivery. Company Formation Cyprus: Company Administration Guidelines Share Capital: Authorized and Issued Share Capital – The minimum authorized share capital is €1,000 with 1 share of €1.00. Classes of shares permitted – Registered shares of par value is the standard however preference shares, redeemable preference shares and shares with no voting rights are also permitted. Shareholders – The minimum number of shareholders is 1. There are no restrictions on foreign individuals or corporate bodies to be shareholders. The minimum number of directors required is one and names appear on public record but anonymity can be obtained by using nominees. There is no restriction for foreign nationals to act as a director of a Cyprus International Business Company and corporate directors are allowed in Cyprus. Although there is no requirement for a local resident to be a director it is recommended to use a local nominee director in order to obtain a tax residence certificate in Cyprus. An annual general meeting of directors must be held, this must take place within 15 months of the previous one. Restrictions on Name & Activity: Cyprus International Companies name must end with ‘Limited’ The following cannot be used ; Assurance, Bank, Building Society or any words deemed sensitive or offensive Local Requirements: Secretary – It is obligatory to appoint a company secretary. They may be either an individual or corporate body however it is advisable to appoint a resident company secretary. The secretary is responsible for keeping and filing corporate documents with the Registrar of Companies. Eltoma Corporate Services can provide company secretarial services for an annual fee. Registered Office – It is compulsory for a Cyprus International Company to have a registered office in Cyprus which is used as the business address of the company. A register of Directors, Shareholder, Secretary and minutes of general and director meetings are kept at this location. All changes have to be filed with the Registrar of Companies within a month from the date of change. ETC can provide the use of an office address if required. All details of directors and shareholders appear in the public records. In order to protect confidentiality nominees can be used Statutory secrecy provisions protect details of the beneficial owners supplied to the Central Bank Timescale: From the receipt of the required documentation to the incorporation of a Cyprus International Company the approximate time period is 10 working days. Company Formation Cyprus: Taxation of Income double taxation agreements (DTA) Yes, with most countries Corporate tax 10% tax free receipt of foreign dividends Yes EU Parent-Subsidiary Directive applicable Yes Holding company privileges Yes Banking secrecy High Nominee relationships allowed Yes Cyprus has double taxation agreements = DTA with most countries. Freedom of establishment in the European Union is applicable. From a European point of view, NO commercially equipped business operation is required for approval of a permanent establishment regarding the tax legislation in Cyprus, and neither is the proof of active business in Cyprus. The profit tax in Cyprus amounts to only 10%, irrespective of the amount of profits. Distributions of profits are not taxed. Any person (natural or legal) resident of Cyprus is taxable with its whole world income. Non tax-resident persons are liable for taxation with their income derived in Cyprus. A legal person (company, corporate body) is deemed to be resident of Cyprus if the management and the control of the company are located in Cyprus. Although there is no definition of “resident” in the sense provided by relevant laws, it is assumed that a company is a resident of Cyprus if the majority of the directors resides in Cyprus or if Board Meetings are regularly held in Cyprus. A natural person is considered to be resident of Cyprus if he/she is staying in Cyprus at least 183 days a year. The Cypriot Income Tax Law prescribes a uniform taxation of corporations of 10% of the taxable income. The taxable income includes: profits deriving from business profits from interest profits from licensing fees, profits from rental income of real estate, capital gains from securities Ship management companies may choose to be either taxed by a corporate tax of a 4,24% tax on their profits or a taxation based on tonnage. There is no limit to loss carry-forwards. Within a firm group, gains of one company can be set off against the losses of another company. Group profit will be taxed in this case. Company Formation Cyprus: Foreigners and their companies generally remain unaffected by the defence tax. According to the Law on Special Contribution to Defence Tax (Defence Tax Law), a natural person resident of Cyprus, has to pay a 15% Defense Tax on its paid dividends. If the recipient of the dividends is a legal entity, that entity is exempt from the tax defense, unless the legal entity itself pays no dividends for at least two years. Residents of Cyprus (natural or legal persons) pay 10% defense tax on income deriveed from interest. It is therefore appropriate to distribute profits or, if they are not to be distributed, to invest them in securities. Interest income on bank accounts in Cyprus of non-resident persons (foreigners as a natural or legal person) is not subject to Defence Tax. Should your company distribute dividends to its shareholders, these dividends may thus remain on a Cyprus bank account in the name of the shareholder; defence Tax will not be applied. Company Formation Cyprus: Income from dividends is categorically not taxable in Cyprus. Income of a company taxable in Cyprus, which consists of dividends paid from another taxable company in Cyprus, is not subject to the Law on Special Duty to Defence tax. Income of a taxable company in Cyprus, which consists of dividends paid from another non-taxable company in Cyprus is not subject to the Law on Special Contribution to Defence Tax, if the taxable company holds at least 1% shares of the company paying the dividends. Income of a taxable company in Cyprus, which consists of dividends paid from a company out of Cyprus is not subject to the Law on Special Contribution to Defence Tax and is also not taxable according to the Income Tax Law. The above exemptions do not apply if; more than 50% of the income of the company paying the dividends comes from income occurred from financial investments and the profits of the company paying the dividends are taxed with half or less than half of the Cypriot Corporate Tax, i.e. 5% or less. Both above conditions must be met in order to occur non-applicability. In Cyprus, there is no Capital Gain Tax, Tax Deductable at Source or Withholding Tax on dividends paid to non-residents. The Cypriot tax legislation basically distinguishes between interest income from bank deposits and interest income occurring within the ordinary course of business. Interest income from bank deposits 50% of interest income from bank deposits is exempted from income tax. This concerns taxable residents of Cyprus (natural or legal). However, according to the Law on Special Contribution to Defence Tax, interest income from bank deposits is taxed by 10%. Thus, the total tax duty for interest income from bank deposits is 15%. Interest income from deposits on current accounts and business accounts is exempted from the above provisions (see below). It is advisable therefore, to invest dividends either in securities, for example, or to distribute them. Interest Income from Ordinary Course of Business of a Company Interest income related to business activities is part of a company’s profit and therefore subject to 10% income tax of the company (corporate tax). Special contributions in accordance with the Law on the Special Contribution of Defense Tax do not apply. As per definition in the official circulars of the Cyprus Tax Authority, the following activities are deemed to be business activities of companies: account activities (current and business accounts) for finance companies: interest income from loans, financing and leasing business interest from debtors of the company interest income of insurance companies interest income of intra-group finance companies Company Formation Cyprus: Non-taxable companies (whose management and operations are located outside of Cyprus) are exempt from any income tax and special contributions. Royalties received by taxable persons (natural or legal persons) resident of Cyprus are fully booked as profits; correspondingly, royalties paid are fully booked as expenses of the company. Royalties for the use of rights within Cyprus are subject to a withholding tax of 10%. Royalties for the use of rights outside of Cyprus are not subject to withholding tax. Non-taxable companies (whose management and operations are located outside of Cyprus) are not subject to withholding tax mentioned above. Income deriving from the holding or purchase and sale of securities is not subject to any income tax. The income derived from holding or the disposal of securities is not subject to any capital gains tax. Exception: If the securities are shares of a company which owns real estates in Cyprus, income from holding or from the disposal of such securities will be taxed with flat capital gains tax of 20%. Securities in this sense are: Governmental Bonds Founder’s shares and other legal shares of companies incorporated within and outside of Cyprus as well as options on the aforementioned. Comprehensive revisions since the beginning of 2009: The Tax Authority of Cyprus (“Commission for Income and Tax”) has announced an expanded redefinition of the scope of securities in an official circular! As a result, income from holding of and the trade with the following securities is basically not subject to any income tax: Ordinary shares Founder’s shares Preference shares Options on aforementioned shares Debentures (obligations) Short Positions on titles Future and Forward Contracts on titles Exchange contracts (swaps) on titles Certificates of Deposit i.e.: Global Depositary Receipts on titles (GDRs) and American Depository Receipts (ADR) Claim rights on obligations and bonds (but not claim rights on interest thereof) Index certificates if they are conceptual designed on titles Repurchase rights or repos, if these are conceptual designed on titles Shares in companies (namely such as the Russian OOO and ZAO, the American LLC, provided that those are subject to taxation, the Romanian SA and SRL and the Bulgarian AD and OOD) Shares of open or closed investment vehicles, provided such do operate in the country of incorporation and are registered and regulated in that country. Examples of such investment vehicles are: All kind of open and closed funds State funds Other similar investment funds of any kind This latest revision is undoubtedly a significant step towards a first-class global financial center. Loss Carried Forward Losses from business activities may be set off against future profits for an unlimited period of time. Offset of Losses for Groups of Companies Losses of company that belongs to a group of companies can be set off against profits of companies which belong to the same group of companies. The condition to be complied with is that the companies are incorporated in Cyprus and belong to the same group of companies. Both companies must belong to the group of companies throughout the entire tax year. Group of companies in this sense means that either at least 75% of one of the two companies belong to the other company, or that at least 75% of both the companies belong to a third company. ‘Belonging’ means that a company holds directly or indirectly at least 75% of the voting shares of the other company, and the holding company is entitled to at least 75% of the dividends, as well as to at least 75% of the values of the held company in the event of its liquidation. Losses of a Permanent Establishment Abroad Business losses of a permanent establishment of a Cypriot company abroad may be set off against the profits of the Cypriot company. If the permanent establishment abroad shows profits again, an amount equal to the former loss of the foreign permanent establishment shall be counted towards the profits of the Cypriot company. The exceedingly profitable EU Merger Directive fully applies in Cyprus. All stipulations of the EU Merger Directive have been incorporated in the Income Tax Law and other applicable laws. In several cases, the rules of the Merger Directive have been enhanced in favour of the persons concerned, provided that these extensions remained within the framework of the intention of the merger guidelines. The EU provides for the application of the Merger Directive to companies. Since partnerships of natural and/or legal persons constitute a corporation under Cypriot law, the Merger Directive applies to them consequently. The Cypriot legislation has expanded the applicability of tax-neutral reorganizations of groups of companies to company mergers from outside the EU. The EU merger guidelines are not only applied to cross-border reorganizations, as provided by the EU Directive, but also to the reorganization of groups of companies within Cyprus. Furthermore, Merger Directive is not only applied to capital gains tax, as provided by the EU Directive, but also to stamp duty and purchase tax (VAT). Scope of Applicability The rules of the EU Merger Directive are applied to mergers, divisions, transfers of assets and exchanges of shares. The transfer of assets and liabilities, including provisions and reserves, does not cause any tax liability for the transferring company. Accumulated losses of a corporation may be transferred to the new company. If a transfer receiving company is shareholder of the transferring company, no tax liability arises to the receiving company on revenues from this transfer, even if the receiving company will loose its holdings of the transferring company during the reorganization. The exchange of shares is not subject to taxation. The value of newly subscribed shares is the same value as the value of the exchanged shares before the reorganization. Cyprus maintains Double Taxation Treaties with the countries on the list below. Taxes that were paid in a DTT partner country of Cyprus, are booked as a credit on the tax account of the same type of income of the Cypriot company. Any tax obligations of the Cypriot company that arise from the Income Tax Law or the Law on Special Contribution to Defense Tax may be set off against this tax credit. Cyprus’ Unilateral Warranty: Should there be no DTT in place between Cyprus and another country, or should the Cypriot company not qualified for the provisions of the EU Parent-Subsidiary Directive, then Cyprus unilaterally guarantees a tax credit for the tax paid in the other state. The tax credit cannot exceed the amount of taxes paid in the other state. Company Formation Cyprus: List of DTTs of Cyprus Withholding tax % * Received in Cyprus Paid from Cyprus ** Armenia*** Null Null Null Null Null Null Austria 10 Null Null 10 Null Null Belarus 5 5 5 5 5 5 Belgium 10 10 Null 10 10 Null Bulgaria 5 7 10 5 7 10 Canada 15 15 10 Null 15 10 China 10 10 10 10 10 10 Czech Republic**** 10 10 5 Null 10 5 Denmark 10 10 Null 10 10 Null Egypt 15 15 10 15 15 10 France 10 10 Null Null 10 Null Germany 15 10 Null Null 10 Null Greece 25 10 Null 25 10 Null Hungary 5 10 Null Null 10 Null India 10 10 15 10 10 15 Ireland Null Null Null Null Null Null Italy 15 10 Null Null 10 Null Kuwait 10 10 5 Null 10 5 Kyrgyzstan*** Null Null Null Null Null Null Libanon 5 5 Null 5 5 Null Malta Null 10 10 15 10 10 Mauritius Null Null Null Null Null Null Moldova 10 5 5 10 5 5 Norway 5 Null Null Null Null Null Poland 10 10 5 10 10 5 Qatar Null 10/15 5 Null Null Null Romania 10 10 5 10 10 5 Russian Federation 5 Null Null 5 Null Null San Marino Null Null Null Null Null Null Serbia-Montenegro***** 10 10 10 10 10 10 Seychelles ****** Null Null 5 Null Null 5 Singapore Null 7/10 10 Null 7/10 10 Slovakia**** 10 10 5 Null 10 5 Slovenia***** 10 10 10 Null 10 10 South Africa Null Null Null Null Null Null Sweden 5 10 Null 5 10 Null Syria 0/15 10 5 0/15 10 10/15 Tadzhikistan*** Null Null Null Null Null Null Thailand 10 10 5 10 10 5 Ukraine*** Null Null Null Null Null Null United Kingdom 15 10 Null Null 10 Null USA 5 10 Null Null 10 Null Uzbekistan*** Null Null Null Null Null Null Please note that only basic information is provided above. there are important exceptions and special rules in many DTts. You should therefore pay attention to the specific DTT that may apply. Explanatory notes: * Only ratified DTTs are listed. A total of 32 DTT s has been ratified, covering 42 States. ** According to Cypriot legislation, dividends paid to nonresident persons are not subject to withholding tax in Cyprus. *** The DTT between Cyprus and the former Soviet Union applies. **** The DTT between Cyprus and former Czechoslovakia applies. ***** The DTT between Cyprus and former Yugoslavia applies. ****** Since 1st of January, 2007. Company Formation Cyprus: Application of all relevant EU directives The EU aims to establish, within its borders, a uniform economic region to its greatest possible extend. Within this process, national states increasingly loose importance. Basically, this phenomenon is the continuation of an ongoing process since the mediaeval times. While today’s Germany, for eample, was a conglomerate of regional principalities during the Middle Ages, each one applying their own fiscal and tax policies, it is now, since the founding of the Federal Republic, a unitary state, apart from the territory (federal) distinctions. Germany is a founding member of the EU and continuously undergoes transformations. More and more laws and regulations are changed to comply with EU law. Just as the principalities of Germany waived their sovereign rights piece by piece and submitted to a common idea, the German idea, during the late Middle Ages, nowadays more and more German rights are replaced by European law, convinced of the advantageousness of a unitary European legal area. For sure this is not a homogeneous process; there are always voices militating against giving up existing rights and privileges, but always there are other voices that are convinced of the idea and superiority of a unitary Europe and that vehemently support the process. It cannot be stopped anymore, anyway. The Republic of Cyprus joined the EU in May 2004 as a full member. During the period of legal adaption of EU laws during the years prior to the accession, Cyprus has abolished its former “offshore” legislation and completely reissued, inter alia, its economic and tax-relevant laws. This process did provide the chance to implement EU regulations from the scratch, without the need to „alter” existing laws. Cyprus has fully adapted all relevant EU directives in its legislation and has even optimized them in some points. Below you will find some example court decisions regarding the Freedom of Establishment: Centros (1999) With its Centros Decision, the European Court of Justice (ECJ) extended the Freedom of Establishment to so called foreign sham companies. The Court ruled that the Freedom of Establishment does prohibit local authorities to subject a foreign EU company to local legislation and to refuse the registration of the branch or establishment of such a company on the grounds that said company is only pretending to be a foreign company. Überseering (2002) With its Überseering Decision, the ECJ clarified that a member state is not entitled to expect that a foreign company, which has been duly incorporated under the law of another member state, and which has an establishment in the member state, applies the entire company legislation of the said member state solely with the justification of the real seat theory. Thus, a capital company, which has been duly incorporated under the law of one member state, will remain Just as you used to be (and still are) free to settle down in Berlin or Stuttgart with your German company, for instance, due to EU Directives you are now free to do so in Germany, France or Cyprus. Within the EU, “freedom of choice” regarding to the legal form of the company is guaranteed. Every EU citizen is free to establish a company in the member state where corporate law rules grant the largest freedoms. Then you are free to operate in any EU Member State, even in your own country, through branches or representative offices. It is explicitly not required to exercise any economic activity at the “Headquarter” of the company. The law to be applied is that of its residence state, so e.g. France, Cyprus, etc… Restriction: The not yet fully EU-compliant tax laws in Germany, suggest a permanent establishment (place of business) in the state of the registered office, in order to benefit from EU tax privileges also in Germany. Following a few court decisions that Cyprus enjoys a sound and conclusive legal system based on the Anglo-Saxon law system. Jurisprudence is independent from legislature and performs well. The protection of property is a firmly established legally protected interest. In Cyprus, the following maxim applies to corporate and tax: “It is the mission of the State to protect the property of those who put their trust in Cyprus.” Discretion is essential in Cyprus ! In the context of Article 26 of the OECD Model Agreement about the Avoidance of Double Taxation, Cyprus has also submitted to the obligations of sharing information and of transparency. However, Cyprus meets those obligations only under certain conditions. On the one hand, the obligation of disclosure only applies, in principle, to information concerning non-tax-residents. However, since a company established in Cyprus , is resident and taxable in Cyprus , the obligation to provide information applies only in the event of a crime which is being prosecuted. The same applies to bank secrecy. Data of corporate clients established in Cyprus are only exposed in case of a court order. But also the duty to supply information regarding data from non-tax-residents is subject to various conditions. For example, the principle of reciprocity is one of those conditions. Furthermore, the existence of a constituted suspicion is required. Additionally, questions must be asked precisely. No office, no lawyer and no trustee etc. is obliged to respond to questions such as “Who shareholder of the company ABC Ltd.?” The acceptable form of the question would be: “Is Mr. Miller shareholder of ABC Ltd.?” Not allowed would be, for example: “Which company belongs to Mr. Miller?” On top of the above conditions, a written approval of the Attorney General is required for each case in order to be obliged to provide information. Without such an approval, nobody is obliged to provide information on natural or legal persons who are not residents of Cyprus . Information on natural and legal persons, who are residents of Cyprus are not provided anyway. The Register of Companies in Cyprus is public. Providing the name and the register number of a company, any person may obtain a register extract at request. While the deductibility of expenses is heavily restricted with all kinds of regulations and laws in Germany and other countries, and may even be prohibited, nearly all reasonable expenses, which are really associated with the management, are fully deductible in Cyprus . In addition, there are a number of generous tax allowances. We would gladly provide specific information on request. Cyprus enjoys an excellent infrastructure. Communication standards are among the highest in the world. Fast Internet and VoIP communications are used widely and are of low cost. The financial services sector of Cyprus is characterized by efficiency and professionalism. It is common that employees and managers receive their higher education in England, other EU countries or the United States. The long experience of Cyprus as an international financial and trade centre has led to a high degree of experience and expertise. The financial services sector and foreign companies in Cyprus employ about 60,000 foreigners. Nearly all banks operate separate “International Business Units” which are specialised in serving foreign clients. Axiomatically, all individuals and companies from Europe, including Germany , are entitled to maintain their business from a registered business address in a more tax-favourable EU-country, thus benefiting from lower tax burdens on revenues. As a prerequisite for those advantages, the beneficial owners must be able to proof the presence of certain criteria, with the so-called criteria of “permanent establishment” being the most important one. Regarding the criteria of permanent establishment, please read the related section below. Germany tops all EU countries, when it comes to imaginativeness related to tax levy. Doing so, Germany does not shy away not to apply EU law knowingly and intentionally, though it is applicable in Germany as well. Instead, the Federal Ministry of Finances retreats in a quiet corner and waits until it’s forced by appropriate court, to give in at least in the court decision concerned points.An important court decision of this kind for the application of the EU Parent-Subsidiary Directive was for example the ruling of the European Court of Justice regarding the Cadbury-Schweppes case (C-196/04, published on 12.09.2006). In that decision, the ECJ confirmed the EU-Freedom of establishment and recognized an CFC legislation, ruling the exisiting practice to tax dividends received from subsidiaries in another EU country as illegal. In its very detailed judgment the ECJ also noted that “the mere exploitation of existing tax gaps in tax levels within the EU, shall not be treated as such an abuse”. More about the Cadbury-Schweppes decision in the appropriate section below. The Federal Ministry of Finance has therefore modified in 2007 the Article 8, paragraph 2 of the Foreign Tax act (AStG). The Article 8 par. 2 AStG now excludes the “addition tax” (“Hinzurechnungssteuer” in German) for domestically controlled companies with a registered office or management in an EU Member State from where the company exercises a real economic activity, provided the taxpayer can prove it.In order to eliminate any lack of clarity arising from other articles, the Federal Ministry of Finance also sent an instruction to its subordinate authorities, dated 08.01.2007, which confirms the impact of the Cadbury-Schweppes-decision and instructs lower tax authorities not to apply any “addition tax”, if the relevant conditions are met (> Criteria of “permanent establishments”). Both the EU parent-subsidiary directive and the Foreign Tax Act, most double taxation treaties as well as relevant court rulings and by-laws require the existence of permanent establishments in the other EU State, in order to benefit from the lower taxes of the other EU State. The recognition of a permanent establishment of the foreign company is subject to the existence of specific characteristics, which are designed by the German legislature, of course, as far as possible in its own favour. However, if the following individual characteristics have been implemented, the characteristics of permanent establishemnts will be recognized as given, and the parties concerned will enjoy the tax incentives of the other country (source country) even in Germany. A permanent establishment in the terms of the provisions of the Federal Ministry of Finance (Germany as well as other countries) is assumed if the following conditions are met: 1. The Company keeps an office in Cyprus with its own phone number, registered on its name, at which someone can be reached (answering machine is not enough). The head office should also be detectable by the accounts of the company’s running costs. We can provide this service. 2. The management of the Company will be recognizably undertaken from Cyprus. This could mean that you go to Cyprus and take over the management in person. Would you not do so, trust directors could be appointed. However, experience shows that German clients arise concerns in giving the management out of their hands. As a solution, we recommend three directors, thus an outward impression would’nt arise, that you lead the affairs as a dominant manager from the place of your residence. One of the directors would be the German investor, so this is you, the two other directors should be residents of Cyprus. We could also meet this condition for you. Another alternative would be two directors, the beneficial owner and a local director, provided that the beneficial owner travels to Cyprus twice a year and is able to proof that. Of course, the directors who are residents of Cyprus can also be appointed at the client’s option. It is also expected from the Federal Ministry for Finance, that the directors in Cyprus are competent persons (which excludes the previous usual nomination of not qualified persons), which generally have to be also reachable. We would also meet this condition for you. The Directors must be authorised to sign, in order to be able to perform verifiable their management task. However, one can make the statute so, that the exclusive authorisation to sign of the directors based in Cyprus is reduced to minimal issues and that important matters must be signed also by the German director. In addition, the Company may issue a full power of attorney to the German director for exclusive authorisation to sign. The local directors have to be employed directors (part-time possible). If necessary, contribution payment receipts from the Social Insurance have to be provided. 3. Depending on the volume of business, the company must employ a secretary (part-time possible), for general business and office tasks of the company. We would be able to provide adequate personnel. If necessary, contribution payment receipts from the Social Insurance have to be provided. 4. The company should send important offers etc. per email or letter from Cyprus , and should sign important agreements fully or partly in Cyprus and send such agreements to the other party from Cyprus . As per request the Federal Ministry of Finance and the relevant authorities of many other countries, the dividend-distributing company must actively generate income. The fact of actively generated income is deemed as given if the company runs its own permanent establishment (as above), because permanent establishments realize active income. If a Cyprus Holding Company holds the shares of your “operative” Cyprus Company, perhaps for reasons of risk minimization, the holding company’s income from dividends paid by the “operative” company are always deemed to be active income (§8 section1 Nr.8 Foreign Transaction Tax Act, Germany), without the necessity of a permanent establishment of the holding company. Would the holding company be a “stand-alone” company in Cyprus that holds shares of subsidiaries in other countries, for example in Germany, it would still generate active income, but not be fulfilling the criteria of a permanent establishment in the country of incorporation (Cyprus). What are your alternatives, and what consequences would they cause? Please read under “Examples” on the left about the applications offered through an EU company and about the structure most suitable for you. 1. A not taxable Limited in Cyprus A Limited Company in Cyprus , whose control and management is located abroad, is treated as a non-resident taxpayer and pays in Cyprus 0% taxes on its profits from transactions outside Cyprus . However, if this company makes transactions in Cyprus, it will pay on the profits of that company 10 % Corporate tax. In Cyprus, companies without tax liability are often called IBC (International Business Unit) or are mistakenly named as offshore companies, a hangover of past times of offshore legislation. The dividends of a non-taxable company must be fully taxed as income in Germany . This kind of company is often used when the beneficial owner makes transactions outside Germany and the operating profits of the Company are not taken to Germany. Even operators of Internet business like to select this form of company. Dividend payments of the company are included in the worldwide income of the taxpayer. Someone who takes the profits of this type of company to Germany without reporting it as taxable income, can be faced with consequences for tax evasion. A recapture or corporate income tax according to German rates (profit of company) and on income tax according to German rates (dividend income of the beneficiaries)will be effected. The double taxation agreement between Cyprus and Germany is not applicable to non-taxable Companies. Fiduciary occurring shareholders and directors are possible. Company Formation Cyprus: The taxable limited in Cyprus From the perspective of the German tax authorities, a Cyprus Company has to provide an establishment, in order to enjoy the Cypriot tax privileges. One of the premises features is a recognizable management in Cyprus. The result is thus a taxable limited in Cyprus. This limited pays 10% corporate tax on its profits. EU Directives and tax treaties are fully applicable. Dividends of that company paid to foreign countries are not taxable in Cyprus. If the recipient of the dividends in Germany is a legal person (company), the dividends can be collected without being taxable because of the EU parent-subsidiary directive tax. Taxation takes place in the form of Income tax upon distribution of dividends by the German company. Because of the EU Freedom of establishment and the correspondingly modified § 8, Paragraph 2 a AstG, a taxation of foreign sourced income does not apply here. The taxpayer has to pay taxes on the dividends paid to him by the German Company of the Cyprus company with a flat tax of 25%. If the recipient of the Cypriot dividends is a natural person, the dividends received from Cyprus are directly taxable with 25% flat final withholding tax. All in all are the following advantages arising: Corporate Tax only 10% instead of 25% in Germany No business tax Better depreciation ways of operating costs 25% final withholding tax versus 43 or 48% income tax in Germany Special bonuses to executive directors of the Cypriot company don’t have to be taxed in Germany The double taxation agreement between Cyprus and Germany is fully applicable Of course you can operate a branch or representation in Germany. Fiduciary occurring shareholders and directors are also possible. Company Formation Cyprus: The taxable Limited in Cyprus with BVI Partner Someone who wishes to transact on behalf of its own EU company, without appearing as a shareholder, but doesn’t wish to appoint fiduciary acting shareholders, can appoint a company as an associate founded on the British Virgin Islands. Anonymous registration of the BVI company is possible (bearer shares) Nominal Directors are possible, if desired No accounting requirement for the BVI company No taxes at all for the BVI company The BVI company is recognized as a partner in Cyprus The opening of an account at a Cypriot bank on behalf of the BVI company is possible (thus easily accessible account in the EU) Further no withholding tax on dividends paid by the Cypriot company to a BVI company You would control the Cypriot company and officially make transactions on its behalf Corporate income of the Cypriot company, only 10% instead of 25% in Germany No business tax. 2. The taxable Limited in Cyprus, with tax consolidation in Germany as a partner An excellent opportunity to earn gained profits in Germany almost tax-free (under progressivity proviso), is a Cypriot company, which is dominated by a tax consolidation in Germany. An affiliation consists of a subsidiary company and a controlling company. Between the subsidiary company and the controlling company must exist a profit transfer-and-control agreement. A subsidiary company, which usually is a GmbH & Co. KG, holds 100% or less of the shares of a Cypriot Limited Company. Because of the EU parent-subsidiary directive, the dividends of the Cypriot company are being received tax-free by the subsidiary company. The subsidiary company must be a non-incorporated firm, as a non-incorporated firm usually occurs after the Civil Code. The non-incorporated firm under Civil Code is not taxed as a company. The taxation of the profits paid to the members of the non-incorporated firm happens under progressivity proviso. Besides the advantages of a limited company in Cyprus mentioned in the preceding sections, there is the advantage of an affiliation, which provides that incoming dividends from the Cypriot company are taxed in Germany only under progressivity proviso. Thus, dividends are not included in taxable income of the beneficial owner’s holding, but only increase its tax rate. Company Formation Cyprus: The Cypriot Holding Cyprus has excellent arrangements for holding companies and stands today as a holding domicile in an advantageous competitive position to Ireland and the Netherlands This company structure, including a Holding, considers the ownership position of a foreign (eg German) subsidiary by a holding company based in Cyprus, which in turn is owned by the parent company. Many multinational corporations already enjoy the benefits of Cypriot holding companies. The Cypriot Holding provides many options, which can not be considered in detail here. Some important features are listed below: In Cyprus there is a real privilege for Holdings: Holding companies are not taxed. If a Cypriot holding company holds at least 15% on an another European company, for example a German limited liability company, then the arising dividend due on such participation is given by the limited liability company to the holding company tax-free. The collection of dividends remains also at the level of the Cypriot holding company tax-free, if it holds at least 1% of the shares in the subsidiary The payment of dividends by the holding company abroad is tax exempt in Cyprus. Cyprus does not levy a withholding tax, regardless of the existence of a double taxation agreement and independent of the EU parent-subsidiary directive. The collection of dividends paid by the Cypriot holding company is also at the level of the parent company in another EU country tax exempt. From the German point of view are dividends received by corporations (Holding) always active gainings. Incoming dividends at the Cypriot holding company may be collected there and then reinvested. If the holding company solds shares to the subsidiary, the income generated therefrom is exempt from corporation tax. Profits of the holding company that is not attributable to the dividends received will be subject to a 10% tax. A holding company serves also the Risk diversification. Holding companies are often being placed over “operational” companies in Cyprus, to reduce liability. If you operate, for example, different business sectors or projects, it stands to reason to found a company for each business or each project its own, in order if applicable not to compromise the other Businesses and projects. The various companies are then concentrated under the cloak of the Holding. Cyprus offers a very favorable environment for Fund companies (ICIS, the International Collective Investment Schemes “). The Cypriot law for International fund management companies (International Collective Investment Schemes Law, 47 (I) / 1999) differentiates from the structure, four different legal forms of investment companies: International closed-end funds (International Fixed Capital Companies) Open International Fund (International Variable Capital Companies) International Fund Foundations (International Unit Trust Schemes) International investment partnerships with limited liability (International Investment Limited Partnerships) In addition funds are different in their objectives: Public investment funds Investment companies for “sophisticated investors” Private investment companies We encourage you to contact us if necessary to advise you on your own needs. International Closed-End Funds Only non-resident natural and legal persons can be an investor in International Closed-end funds.The fund assets must accordingly come from abroad. The capital must be at least U.S. $ 100,000 and can not be changed after the formation. Fund units can be marketed to the public or to “experienced investors”. Closed-end funds founded as a private investment company (Limitation of shareholders to a maximum of 100 persons) are exempt from the above provision. Closed fund companies can, like all other forms of investment companies listed below, be established for a limited time. International Open Funds Both, resident and non-resident individuals and legal entities can be shareholders of International Open Funds, the capital of open-ended funds is variable. International Fund Foundations International Fund foundations combine the fund- and the foundation-law and are fund companies, accordingly established as a foundation. (Trust) International investment partnerships with limited liability International Investment partnerships with limited liability are non-incorporated firms with limited liability, similar to the German KG and the English LLP, working with appropriate permits under the Law of International fund companies as a fund company. Public fund companies Public fund companies are fund companies, which promote and sell the fund shares in public. Public trust companies are subject to all provisions of the Act for International fund companies. Fund companies for “experienced investors” The following natural and legal entities are considered as “experienced investors”: people who provide themselves financial services to the public, and people with knowledge of all relevant facts of the Investment market, which often make investments of significant extent and from which can be expected that they know and accept the risks of investment. Fund companies for experienced investors can be exempted from certain requirements of the law regarding international fund companies upon application. Unit certificates of investment companies for experienced investors have to amount to at least $ 50,000 or an equivalent amount of another currency. Fund companies for experienced investors may not issue bearer shares and must not merchandise their shares to the public under any circumstances. Similar to the aforementioned fund companies for experienced investors, are private investment companies subject to certain limitations: A maximum of 100 investors, No solicitation in public (“experienced investors” may be solicited directly), Limited right to distribute shares No bearer shares Private investment companies are established as open-end funds. Under the previous legislation all kinds of fund companies had to be approved by the Central Bank. It is currently (April 2009), however, a change in legislation expected, in such a way that the central bank will approve in future only fund companies, which are limited to a maximum of 100 investors. Fund companies, which plan to have more than 100 investors, will need to be authorized by the Cyprus Securities and Exchange Commission (CySEC). The assets of a fund company may not be managed by the management of the fund company, but by an external administrator. Administrators may be banks and other companies that may be required to prove their competence. Permanent establishment requirement For international fund companies there is no permanent establishment requirement in Cyprus. If an international fund company does not have fully equipped headquarters in Cyprus, a local representative must be appointed to act as an authorized representative to the supervisory authorities. International fund companies are operating in the following fiscal framework: International fund companies are subject to an income tax of 10%, regardless of whether they are tax-residents or not, the recruited income from the possession and the sale of securities is exempt from corporation tax, income from dividends is tax exempt in most cases, payments of dividends, taxes and royalties to non-tax residents, natural and legal persons, are not subject to withholding tax Investment income from immovable property outside Cyprus is exempt from taxes in most cases. In summary, and generated in a practical sense, international investment companies pay only corporate tax on in its own name earned interest income. Most double tax treaties of Cyprus provide a taxation on stock and bond profits exclusively in Cyprus. In Cyprus are gains of this nature exempt from any taxation. Please contact us for more details, if you are interested in a circulation of funds in Cyprus. Cypriot trusts (Foundation Trust) offer unique opportunities to investors of various interests and positively stand out from trust of many other legal systems. Today’s Trusts are based on the Trust Act 1992, which has modernized the since British colonial times existing trust law. Cyprus International Trusts are exempt from taxes and can be used for a variety of investments. A Cyprus International Trust consists of the following parties: The settlor, The trustee, The protector and the beneficiary. Cypriot companies, which are exempted from taxes may be used as trustees of the trust. Cypriot companies, which are exempted from taxes offer the significant advantage, that they are not subject to the corporate tax of 10 percent, which would otherwise be paid on the profits from services. A Cyprus International Trust must have the following characteristics in order to benefit from the exemption: The settlor does not live permanently in Cyprus, None of the beneficiary is permanently living in Cyprus, There are no properties in Cyprus included in the assets of a foundation The trustees or at least one of the trustees, if there should be several, is a permanent resident of Cyprus for the duration of the existence of trusts. Important: Both the settlors and the executors or the beneficiaries may occur as non-taxable Cypriot companies. The Trust will continue to apply as an International Trust. This is compared to the conditions in other states a significant difference, which offers to the founder many creative options. International Trusts are designed for a period of 100 years and are usually irrevocable. A revocability can be included in the foundation charter, but such trusts are considered by the tax authorities in Cyprus as suspect. Another possibility for an early termination of the trust relationship would be, if creditors apply the termination of the trust and if they can prove that the Trust was founded with the sole purpose of deception. The burden of proof lies with the creditors. Such an entry must be made within two years after the Foundation of the considered eligible assets. The Cypriot legislation provides the possibility to transform an International Trust later in a National Trust, and vice versa. Discretion is an essential feature of the Trust. Unless ordered by a court, settlors, trustees, protectors and beneficiaries may not reveal any information. Offenses are under heavy penalty. A special feature of the Cypriot trusts is that a so-called protector can be appointed. The protector does not appear in the foundation charter. The role of the protector is to control the trust administrator. The protector has no right to intervene in the administrative operations of the administrator. But he has the right to dismiss the administrator. According to Cypriot trust law the founder and protector may be the same person or company. The legislation provides in clear form for the complete tax exemption of the trust, if its profits and gains derive from sources outside Cyprus, or may be deemed to arise from sources outside Cyprus. The exemption also applies to any form of inheritance tax. Cyprus International Trusts are expressly exempted from any kind of a registration. Fees for our service “Company Formation Cyprus” The following services are offered by us: Forming of the company, entry in the commercial register of the country, apostil, notarized and certified translations of certificates into English, unless official language Nominee Director: An attorney in the formation country will act as nominee director of the company (to the outside) and transfers all rights and obligations internally to the actual beneficiary (notarized deed of trust). The director does not have any account authority. Trustee Director: We offer a Trustee-Director who is engaged in your business on Cyprus, thus he can sign contracts for the company. Most of our competitors on the contrary only offer a Director who is acting in a statutory way. This implicates that any contract, any commercial transaction has to be signed by the client or his delegate. Permanent Director: ETC can provide you with a permanent director who has an employment contract with your Cyprus company, payment of Nominee shareholder: a tax office in the formation country will act as nominee shareholder (to the outside) of the company and transfers all rights and obligations internally to the actual beneficiary (notarial deed of trust). social security benefits and income tax. Domicile of the company in the formation country: deliverable postal address, availability by telephone, telephone and fax, mail forwarding service Account opening: bank account for the company at a renowned major bank in the formation country, internet banking, VisaCard and cheques. Only the founder of the company is authorized to have access to the account. General power of attorney to the founder: Only the founder receives a notarially certified general power of attorney for the company. Recommendation of a renowned tax office in the formation country, for book-keeping and accounting Internet-homepage of the company hosted on a server in the formation country: 5 pages for presentation of services/products, feedback form, imprint, e-mail address. May be extended at any time. Our Services within the scope of the Formation Package “Cypriote Limited” value added tax ID number, accounting, annual financial statement, preparation of the annual return advance turnover tax returns. Account opening in Cyprus Delivery and Shipping Service for letters / invoices! Formation / Consulting by Tax Accountants and Attorneys at Law No “Formation Director” or “Formation Shareholder” Moreover a Cypriot is the Director; the Director is registered and is reachable during the entire agreement term. Provision of Nominees via a Cypriote Law Firm, no “Figurehead Directors” No “Help with the opening of a bank account” on Cyprus (which as a rule means that an account is not opened) rather guaranteed account opening, incl. VisaCard and online banking. You do not have to travel to Cyprus Serviceable postal address, also for registered mail, no post office box Upon request free within the scope of the total package: Swiss company and / or personal account at a major Swiss private bank. Our clients are not required to open a branch office in Switzerland, to open a company account in Switzerland, (otherwise a prerequisite). A Swiss account could, for example, be used to “securely park and multiply” Cypriote dividends. Stock Capital: The recommended authorized capital amount is CYP£ 1,000, unless you wish to commit a larger amount. The business of the company is not restricted to the amount of the authorized capital. The minimum amount of authorized stock capital for the registration of a Ltd. is CYP£ 1,000. In the event, however, the company opens an office in Cyprus (commercially structured organization), the minimum amount is CYP£ 10,000. We would like to point out the fact that this amount does NOT have to be blocked on Cyprus. Configuration at the Formation of a Cypriote Limited 1. Director on Cyprus A production site, a site for the exploitation of mineral resources or construction works whose duration is greater than 9-12 months always constitutes the establishment of a place of business in Cyprus, irregardless of “the place of managerial supervision”. Otherwise a taxable permanent establishment is defined analogous to Article 5 DBA (Double Taxation Agreement) according to the „place of managerial supervision“. Either you – or an agent – relocate your ordinary residence to Cyprus and act as the Director of the Cypriote Limited OR you hire a Cypriote as a Director OR our Law Firm in Cyprus provides for a Nominee Director. By the way, we also provide the possibility to our clients, that a Cypriot acts as an „employed Director“ of the Cypriote Limited, with an employment agreement between the Cypriote Limited and the Director, as well as the payment of payroll tax and social security contributions. Alternative: The non-Cypriote client / founder himself acts as the Director of the company and provides proof that he routinely travels to Cyprus to perform the required ordinary managerial duties (however, this is not feasible in the case of the necessary day-to-day decisions). 2. Shareholder of the Cypriote Limited The shareholder is due the profits after taxes (dividends). In addition, the shareholder is the owner of the company. Shareholders of a Cypriote Limited can be natural persons, or domestic or foreign companies. In the event a Cypriote is a shareholder a 15% defense tax is due, when the dividends are distributed or if no dividends are distributed for a period of two years. For this reason we offer a “Nominee Shareholder“ within the scope of our services, more specifically our English Tax Accounting Firm acts as the Nominee Shareholder. Cyprus provides the advantage, that dividend distributions to a non-Cypriote is not taxed. There are exceptions to this arrangement, which we would like to explain in more detail in a personal setting. To the extent the client / founder or his company would like to act as the shareholder himself, the following factors are to be observed: Does your country have laws analogous to the “taxation of fictitious distributions“, comparable to those in Germany and the USA? Such laws result in the Cypriote dividends being taxed at the shareholder, even if they are not distributed. This is subject to the prerequisites, that the client / founder owns more than 50% of the shares (majority shareholder) and the Cypriote Limited located on Cyprus only generates passive income. In the event such laws exist within the European Union, this is illegal, based on the findings of the European Court of Justice. If this is the case, the client / founder should „officially“ only hold a maximum of 50% of the shares, the other shares should be held on a trust basis. Does the EU-Parent-Subsidiary- Directive apply? In the event the shareholder is a company located in the EU and should the company hold at least 15% of the shares of the Cypriote Limited and both companies (Cypriote Limited and Shareholder) are active companies and the interest is evidently set up for at least one year, then the dividends are distributed tax free to the foreign shareholder due to the EU Parent Subsidiary Directive. A Danish corporation is the 100% shareholder of a Cypriote Limited. The Cypriote Limited is first taxed at a 10% rate. The dividends (earnings after taxes) distributed to the Danish corporation are tax free. Such dividends are first taxed in the event they are distributed to the shareholder of the Danish corporation, provided such shareholder is an individual. Please consider, that it is not mandate of a Cypriote Limited to distribute dividends. Moreover, the Cypriote Limited can make investments across the globe, for example: purchase a house in Spain. Cyprus Limited as Holding: no taxation! Cyprus Holding (legal form of a Limited company) is not subject to taxation. In addition to the characteristics of a permanent establishment according to tax laws, it requires pure holding tasks and that the shareholders/co-partners perform active operations in their respective countries and are taxed or that the right of taxation is utilised, respectively. Example: an entrepreneur has independent enterprises in the form of limited liability companies in several countries, i.e. for example, an English Limited, a German GmbH and a Spanish S.I. All companies carry out active business in their countries and are subject to tax or the right of taxation is used, respectively. Now a Cyprus Limited is established, which becomes shareholder in the foreign companies. The foreign companies’ profits flow tax-free into the Cyprus Limited. Provided that they are European companies (directive on parent companies and their subsidiaries in the European Union), no withholding tax is imposed in the countries of the co-companies. That means that any profits may be received completely tax-free! It is again important that the Cyprus Limited (Holding) company meets all requirements of a permanent establishment according to tax laws: Place of business management: A Cypriot must hold the business management, at least to the outside (nominee solution) No bogus company in its sense, but a regular registered office (deliverable postal address, availability by telephone and fax during normal business hours, company sign). Any office or employees (commercially equipped business operation) are not required, since the freedom of establishment in the European Union is applicable Bank account in Cyprus If the member companies are non-EU companies, withholding tax is usually imposed in case of a flow of profits into the Cyprus Limited. This withholding tax varies greatly within the individual countries. Free First Time Consultation Salutation * Please choose...Ms.Mr. Name * Issues * Annual profit (approx.) * Please choose...up to 50,000 EUR50,001-100,000100,001-250,000250,001-500,000over 500,001 Your data will be treated confidentially and stored in accordance with the GDPR. I hereby agree.

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CRA to distribute paper T1 return forms to selected taxpayers While the majority of Canadian taxpayers file their individual income tax returns electronically, a significant number of taxpayers file a paper return. The Canada Revenue Agency has issued a Tax Tip ... Bank of Canada announces eighth straight increase in interest rates In its regularly scheduled interest rate announcement made on January 25,the Bank of Canada announced that interest rates would be increased by one-quarter percentage point. That change marks the eigh... NETFILE service for prior year returns open until January 27 The Canada Revenue Agency has announced that its NETFILE service for the filing of prior year returns will be available until January 27, 2023. Specifically, NETFILE and ReFILE services for tax years ... Inflation rate down slightly in December 2022 The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation declined slightly during the month of December 2022. For that month, inflation stood at 6... Finance holds public consultation process for 2023-24 federal Budget Finance Canada is currently conducting the consultation process leading to the release of the 2023-24 federal Budget this spring. There are two parts to the budget consultation process – an online s... Unemployment rate for December 2022 The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of December 2022 stood at 5.0%. During the month of December, the country ad... Canada Pension Plan retirement benefit amounts for 2023 The federal government has announced the amounts which may be paid as benefits under the Canada Pension Plan (CPP) during 2023. The amount of retirement benefit receivable by an individual is based on... Old Age Security benefit amounts for first quarter of 2023 The federal government has announced the amounts which will be paid to recipients of Old Age Security benefits for the first quarter of 2023. Such benefit amounts are indexed quarterly, based on the c... Bank of Canada releases interest rate announcement dates for 2023 The Bank of Canada announces its decision with respect to interest rates on eight scheduled dates each year, and the Bank has provided the dates on which such interest rate announcements will be made ... Prescribed interest rate for leasing for January 2023 The prescribed leasing interest rate mandated by the Canada Revenue Agency must be calculated using bond yield information found on the Bank of Canada website. That calculation shows that the prescrib... Prescribed interest rates for first quarter of 2023 The Canada Revenue Agency has announced the interest rates which will apply to amounts owed to and by the Agency for the first quarter of 2023, as well as the rates that will apply for the purpose of ... Application process for rental support payment now open The federal government is providing a one-time non-taxable $500 payment to assist eligible Canadians who pay more than 30% of their income for rental housing, and the application process for that bene... Final individual instalment payment for 2022 due on December 15 Individual taxpayers who pay income tax for the year through instalment payments do so by four prescribed deadlines each year. The fourth and final instalment payment for the 2022 tax year must be mad... Bank of Canada announces seventh straight increase in interest rates In its regularly scheduled interest rate announcement made on December 7, the Bank of Canada announced that interest rates would be increased by one-half percentage point. That change marks the sevent... Old Age Security benefit clawback threshold for 2023 Most Canadians are eligible to receive Old Age Security (OAS) benefits after they turn 65 (although receipt of such benefits can be deferred to as late as age 70). Regardless of the age at which recei... CRA issues 2022 guide to employee taxable benefits The Canada Revenue Agency (CRA) has updated and re-issued its publication T4130 Employers’ Guide – Taxable Benefits and Allowances. The Guide, which can be found on the CRA website at T4130 Employ... Tax-free savings account contribution limit increased for 2023 Canadians over the age of 17 can make annual contributions (up to a specified maximum) to a tax-free savings account (TFSA). While contributions made are not deductible from income, all investment inc... CRA announces personal income tax indexing factor for 2023 Each year, personal income tax brackets and tax credit amounts are increased to reflect year-over-year changes in the Consumer Price Index. The Canada Revenue Agency has announced that the indexing fa... Overall unemployment rate for October at 5.2% The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of October 2022 stood at 5.2%.During that month, employment increased among ... Inflation rate for October comes in at 6.9% The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of October stood at 6.9%, the same rate recorded for the month of September... Employment Insurance premium rates for 2023 announced The federal government has announced the amount of Employment Insurance (EI) premiums which will be payable by employees and employers during the 2023 calendar year. The 2023 EI premium rate is $1.63 ... Canada Workers Benefit to be paid in advance The Canada Workers Benefit is a refundable tax credit provided by the federal government to lower income Canadians who have “earned working income” during the year. The credit of up to $1,428 for ... Prescribed interest rate for leasing for December 2022 Canada Revenue Agency announces CPP contribution amounts for 2023 The Canada Revenue Agency (CRA) has announced that the maximum pensionable earnings under the Canada Pension Plan (CPP) for 2023 will be $66,600. The basic exemption amount for 2023 remains $3,500. Th... Bank of Canada raises interest rates again In its regularly scheduled interest rate announcement made on October 26, the Bank of Canada once again announced an increase in interest rates, bringing the Bank Rate to 4.00%. The most recent change... Canada Revenue Agency issues updated guide to determining who is an employee The characterization of an individual as an employee or as a self-employed taxpayer affects both the tax treatment of that individual’s income and the remittance and filing obligations which are imp... Prescribed interest rate for leasing for November 2022 Food inflation rate reaches 41-year high in September The most recent release of Statistics Canada’s Consumer Price Index shows that inflationary increases in the price of food continue to outpace the overall inflation rate.During September, that overa... Filing and payment deadline extension provided to taxpayers in Atlantic Canada The Canada Revenue Agency has announced that administrative tax relief will be provided to taxpayers living in Atlantic Canada who were affected by Hurricane Fiona. Specifically, the CRA has announced... Unemployment rate down slightly in September The most recent release of Statistics Canada’s Labour Force Survey shows that there was little change in the overall employment picture for the month of September. The unemployment rate for that mon... Old Age Security benefit amounts to increase for fourth quarter of 2022 The federal government has announced that maximum payments under the Old Age Security (OAS) program will increase for the October to December 2022 benefit period. For that period, and owing to changes... November 3 final application deadline for business pandemic benefits While the last of the pandemic benefit programs for Canadian businesses ended as of May 7, 2022, eligible businesses have up to 180 days after the end of a benefit claim period to apply for such benef... Federal government to provide one-time Canada Housing Benefit top-up payment Finance Canada has announced that it plans to provide a one-time payment of $500 under the Canada Housing Benefit program, to assist individuals and families who must allocate a significant portion of... Federal government matching program for Atlantic Canada storm relief donations The federal government has announced that, for a period of 30 days (until October 24, with the possibility of extension), it will match donations made to the Canadian Red Cross for storm relief effort... Overall inflation rate down slightly in August The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of August was down slightly. That rate stood at 7.0% (as measured on a year... GST/HST tax credit doubled for July to December 2022 period The federal government provides eligible Canadians with a GST/HST tax credit, with the amount of credit receivable based on family composition, size, and income. For the July 2022 through June 2023 b... Prescribed interest rate for leasing for October 2022 Unemployment rate increases by 0.5% in August 2022 The most recent release of Statistics Canada’s Labour Force Survey shows that the unemployment rate for the month of August rose slightly, to 5.4%. Among demographic groups, employment fell among yo... Prescribed interest rates for 2022 The Canada Revenue Agency has announced the interest rates which will apply to amounts owed to and by the Agency for 2022, as well as the rates that will apply for the purpose of calculating employee ... In its regularly scheduled interest rate announcement made on September 7, the Bank of Canada once again announced an increase in interest rates, bringing the Bank Rate to 3.50%. The most recent chang... CRA issues updated form for requests to reduce employee source deductions Canadian employees have tax deducted from their income at source – that is, the employer deducts income tax from the employee’s wages and then remits such tax to the federal government on the empl... Third instalment payment for 2022 due September 15 Individual taxpayers who pay income tax by instalment are required to make such payments quarterly. The third instalment payment deadline for the 2022 tax year falls on Thursday September 15, 2022. Mo... Prescribed rate for leasing for September 2022 CRA issues Tax Tip on electronic filing of T2 returns All Canadian resident corporations, regardless of size, are required to file a T2 corporation income tax return annually. The Canada Revenue Agency (CRA) has issued a Tax Tip for such corporate filers... Finance Canada issues details of Tax-Free First Home Savings Account In this year’s budget, the federal government announced that, beginning in 2023, first-time home buyers would be able to save for a home purchase on a tax-free basis, through the new Tax-Free First ... Inflation rate for July down by one-half percentage point The most release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of July, as measured on a year-over-year basis, stood at 7.6%. The comparable rate for Jun... CRA issues guides to GST/HST tax credit and Canada Child Benefit for 2022-23 The benefit year for most individual tax credit and benefit programs administered by the Canada Revenue Agency runs from July 1 to the following June 30, and benefit amounts change with each year. The... Unemployment rate for July unchanged The most recent release of Statistics Canada’s Labour Force Survey shows that the rate of unemployment for the month of July was unchanged, at 4.9%. Employment was down in Ontario and Prince Edward ... Canada Revenue Agency issues updated guide to Tax Free Savings Accounts Since 2009 Canadians have been able to save on a tax-sheltered basis through Tax Free Savings Accounts, or TFSAs. While TFSA contributions made are not tax-deductible, investment income earned by cont... Bank of Canada provides interest rate announcement dates for 2023 The Bank of Canada has released the schedule on which it will make interest rate announcements during the 2023 calendar year. Those announcements will be made on the following dates: January 25, Mar... Prescribed interest leasing rate for August Upcoming deadline for payment of third individual instalment for 2022 Canadian individual taxpayers who pay income tax by instalments make such payments four times a year, on prescribed dates. The third such instalment payment for 2022 is due and payable on or before Th... Canada Child Benefit amounts increase as of July 2022 The Canada Child Benefit is a non-taxable payment made monthly by the federal government to eligible families having children under the age of 18. There are two benefit levels – one for children und... Inflation rate for June reaches 8.1% The July release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation reached 8.1% for the month of June, as measured on a year-over-year basis. That 8.1% figure was ... Unemployment rate for June down to 4.9% The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of June fell by 0.2%, to a new record low of 4.9%. Statistics Canada, howeve... Bank of Canada increases interest rates by 1 percentage point In its regularly scheduled interest rate announcement made on July 13, the Bank of Canada increased interest rates by a full percentage point. Consequently, the Bank Rate now stands at 2.75%, the high... Application period for business pandemic benefits for 2022 still open While the remaining pandemic benefit relief programs for businesses ended on May 7, 2022, the application process for such benefits for 2022 is still open. Applications are made and benefits paid sepa... Increases to Old Age Security benefits effective July 2022 The federal government has announced that maximum payments under the Old Age Security (OAS) program will increase for the July to September 2022 benefit period. Two changes will take effect as of July... Maximum permitted borrowings under some mortgage lending products to be reduced The Office the Superintendent of Financial Institutions (OSFI) has announced that changes will be made with respect to maximum borrowings permitted under some “combined loan plans”. Those products... New federal child and family benefit payment year starts July 1 For many federal tax benefits, including the GST/HST credit, the Canada Child Benefit, the Canada Workers Benefit, and the Climate Action Incentive Payment, the new benefit payment year starts on July... First Climate Action Incentive payments to be made in July The federal government provides residents of Ontario, Alberta, Manitoba, and Saskatchewan with a Climate Action Incentive (CAI) intended to help offset the cost of the federal carbon tax. In previous ... Inflation rate for May reaches 7.7% The overall inflation rate for the month of May, as measured on a year-over-year basis, stood at 7.7% – nearly a full percentage point higher than the 6.8% increase recorded for the month of April 2... Old Age Security rates increase for Canadians over age 75 Effective as of July 1, 2022, the monthly Old Age Security benefit will be increased by 10% for recipients aged 75 and older. Recipients who turn 75 after July 1, 2022 will see the increase in their b... Unemployment rate reaches historic low of 5.1% The most recent release of Statistics Canada’s Labour Force Survey shows that the overall rate of unemployment for the month of May stood at 5.1% – marking a new record low for the third consecuti... The Canada Revenue Agency has announced the interest rates which will apply to amounts owed to and by the Agency for the first three quarters of 2022, as well as the rates that will apply for the purp... Upcoming deadline for payment of 2022 individual income tax instalment Individual taxpayers who pay income tax by instalment are required to make such payments quarterly. The second instalment payment deadline for the 2022 tax year falls on Wednesday June 15, 2022. Most ... Upcoming deadline for filing of 2021 returns by self-employed taxpayers While all individual taxpayers were required to pay any balance of taxes owed for the 2021 tax year on or before April 30, 2022, self-employed taxpayers (and their spouses) benefit from a later tax re... Bank of Canada raises interest rates by one-half percent As anticipated, in its scheduled interest rate announcement made on June 1, the Bank of Canada raised interest rates by another one-half percentage point. This latest change brings the Bank Rate to 1.... Updated guide issued on Tax-Free Savings Accounts The Canada Revenue Agency recently updated and re-issued its Guide RC4466 to the Tax-Free Savings Account (TFSA). The updated Guide includes information on determining TFSA contribution room, permitte... CRA provides Tax Tip on correcting errors in a tax return The CRA has issued a new Tax Tip for tax filers who become aware, after the return has been filed, that their income tax return for 2021 contains an error. In all cases taxpayers should wait until the... CRA issues Notices of Redetermination on CERB overpayments At the beginning of the pandemic in 2020, more than 8 million Canadians applied for and received the Canada Emergency Response Benefit (CERB). In applying for the CERB, recipients self-assessed their ... Inflation rate for April reaches 6.8% The most recent release of Statistics Canada’s Consumer Price Survey shows that the overall rate of inflation reached 6.8% for the month of April 2022, as measured on a year-over-year basis. The lar... Application process for pandemic benefit programs continues Most of the pandemic benefit programs which the federal government has provided over the past two years came to an end on May 7, 2022. Notwithstanding the ending of the programs, applications for bene... Unemployment rate for April at new record low The most recent release of Statistics Canada’s Labour Force Survey shows that the unemployment rate for the month of April stood at 5.2%, down 0.1% from the rate recorded for March 2022. Among demog... First-time Home Buyers’ tax credit amount doubled The federal government provides a non-refundable tax credit to first time home buyers (defined as individuals who have not owned and lived in a home in the current year or any of the previous four yea... Inflation rate reaches 30-year high The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of March 2022 (as measured on a year-over-year basis) was the highest such rate sin... Pandemic benefit programs for individuals to end on May 7, 2022 Under current legislation, three major pandemic benefit programs for individuals are scheduled to expire on May 7, 2022. The Canada Recovery Sickness Benefit, the Canada Recovery Caregiving Benefit, a... Home accessibility tax credit amount increased Since 2016, the federal government has provided a non-refundable tax credit for home renovation expenses undertaken to increase accessibility. Individuals eligible for this credit include those who ar... CRA issues one-time grant payment to seniors In some instances, seniors who were eligible for the federal Guaranteed Income Supplement (GIS) and who received pandemic benefits during 2020 saw their GIS benefit amounts reduced or eliminated begin... May 2, 2022 payment deadline for income taxes owed for 2021 All Canadian individual taxpayers are required to pay income tax balances owed for 2021 on or before Monday May 2, 2022. Where payment is not made on or before that date, interest will be levied on al... Unemployment rate for March at record low The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of March stood at 5.3%. That rate is the lowest rate on record since compara... Bank of Canada increases interest rates In its regularly scheduled interest rate announcement made on April 13, the Bank of Canada determined that an increase in interest rates was warranted. Following that increase, the Bank Rate stands at... Budget 2022: Taxation of Vaping Products The proposed federal excise duty framework for vaping products would come into force on October 1, 2022. Retailers may continue to sell until January 1, 2023, unstamped products that are in inventory ... Budget 2022: GST/HST on Assignment Sales by Individuals Budget 2022 proposes to amend the Excise Tax Act to make all assignment sales in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes.... Budget 2022: Substantive CCPCs Budget 2022 proposes targeted amendments to the Income Tax Act to align the taxation of investment income earned and distributed by “substantive CCPCs” with the rules that currently apply to CC... Budget 2022: Genuine Intergenerational Share Transfers Budget 2022 announces a consultation process for Canadians to share views as to how the existing rules could be modified to protect the integrity of the tax system while continuing to facilitate genu... Budget 2022: Small Business Deduction In order to facilitate small business growth, Budget 2022 proposes to extend the range over which the business limit is reduced based on the combined taxable capital employed in Canada of the Canadia... Budget 2022: Medical Expense Tax Credit for Surrogacy and Other Expenses Budget 2022 proposes to broaden the Medical Expense Tax Credit to recognize circumstances that involve medical expenses for individuals other than the intended parents.... Budget 2022: Labour Mobility Deduction for Tradespeople Budget 2022 proposes to introduce a Labour Mobility Deduction for Tradespeople to recognize certain travel and relocation expenses of workers in the construction industry.... Budget 2022: Residential Property Flipping Rule Profits arising from dispositions of residential property (including a rental property) that was owned for less than 12 months would be deemed to be business income.... Budget 2022: Home Accessibility Tax Credit Budget 2022 proposes to increase the annual expense limit of the Home Accessibility Tax Credit from $10,000 to $20,000.... Budget 2022: Multigenerational Home Renovation Tax Credit This new refundable credit would provide recognition of eligible expenses for a qualifying renovation.... Budget 2022: Home Buyers’ Tax Credit Budget 2022 proposes to double the Home Buyers’ Tax Credit amount from $5,000 to $10,000, which would provide up to $1,500 in tax relief to eligible home buyers.... Budget 2022: Tax-Free First Home Savings Account Budget 2022 proposes to create the Tax-Free First Home Savings Account, a new registered account to help individuals save for their first home.... Increase to Old Age Security benefit for second quarter of 2022 The Old Age Security (OAS) benefit payable to most Canadians over the age of 65 is indexed to inflation, with the benefit being adjusted at the beginning of each calendar quarter. For the second quart... Tax tip issued for gig economy workers Many Canadian taxpayers work in the “gig” economy – holding down part-time, contract, or on-call positions or providing services to clients through online platforms, or some combination of those... Unemployment rate for February drops to 5.5% The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of February dropped by a full percentage point, from 6.5% to 5.5%. While emp... Date announced for 2022-23 federal budget The Minister of Finance has announced that the federal budget for the upcoming 2022-23 fiscal year will be brought down on Thursday April 7, 2022, at around 4 p.m. The announcement of the budget date ... Extended hours for individual tax enquiries line The Canada Revenue Agency provides an individual tax enquiries line where taxpayers can obtain general tax information, or information specific to their personal taxes. While the individual tax enquir... Reporting of income from digital transactions Millions of Canadians earn money each year from online or digital sales transactions, often through platforms like Etsy or eBay. The Canada Revenue Agency recently issued a Tax Tip, reminding taxpayer... The Canada Revenue Agency has announced the interest rates which will apply to amounts owed to and by the Agency for the first half of 2022, as well as the rates that will apply for the purpose of cal... Inflation rate for February reaches 5.7% The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation during the month of February 2022 reached 5.7% (as measured on a year-over-year basis), t... CRA issues guide to claiming employment expenses for 2021 Canadian individual taxpayers can claim a deduction for a number of expenses which they incur in the course of their employment. For 2021, those deductible expenses can include a flat rate deduction f... NETFILE hours of service The Canada Revenue Agency’s (CRA) NETFILE service for the filing of individual income tax returns for the 2017, 2018, 2019, 2020 and 2021 tax years is available 21 hours each day. The hours of servi... NETFILE service for filing of 2021 tax returns now open Canadian individual taxpayers can now file their income tax returns for the 2021 tax year using the Canada Revenue Agency’s (CRA) NETFILE tax service. That service, which will be available until Fri... In its regularly scheduled interest rate announcement made on March 2 the Bank of Canada, as expected, announced an increase to interest rates. Specifically, the Bank Rate has been increased from 0.50... Federal individual tax credits for 2022 Dollar amounts on which individual non-refundable federal tax credits for 2022 are based, and the actual tax credit claimable, will be as follows: ... Federal individual tax rates and brackets for 2022 The indexing factor for federal tax credits and brackets for 2022 is 2.4%. The following federal tax rates and brackets will be in effect for individuals for the 2022 tax year. Income level �... CRA issues Tax Tip for employees working from home During the 2021 tax year, many employees continued to work from home for pandemic-related reasons. Such employees may be eligible to claim a deduction for specified home office related expenses incurr... Inflation rate for January 2022 reaches 5.1% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of January 2022 stood at 5.1%, as measured on a year-over-year basis. The last prev... CRA issues guide to claiming medical expenses for 2021 Canadian individual taxpayers are entitled to claim a non-refundable tax credit for qualifying medical expenses incurred. Detailed information on the rules governing the types of expenses which qualif... Unemployment rate up slightly in January The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate rose slightly during the month of January, from 6% to 6.5%. The change marked the first su... CRA issues Tax Tip for students for 2021 return filings Post-secondary students filing a return for the 2021 tax year are entitled to claim a number of tax credits and deductions for education-related expenses which they incur, in addition to the credits a... NETFILE service for 2021 individual tax returns available February 21 The Canada Revenue Agency (CRA) has announced that its NETFILE service for online filing of individual income tax returns for the 2021 tax year will be available on Monday February 21, 2022. In order ... Inflation rate reaches 4.8% for December 2021 The January release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of December 2021 (as measured on a year-over-year basis) reached 4.8%. While pr... Bank of Canada maintains interest rates … for now In its regularly scheduled interest rate announcement made on January 26, the Bank of Canada indicated that, in its view, no change to current rates was needed. Consequently, the Bank Rate remains at ... CRA issues Tax Tip for paper filers of 2021 tax return Taxpayers who filed their income tax return on paper last year will automatically receive the 2021 income tax package from the Canada Revenue Agency (CRA) by February 21, 2022. The package taxpayers w... CRA issues automobile expense deduction limits for 2022 The Canada Revenue Agency (CRA) has announced the automobile expense deduction limits which will apply during the 2022 taxation year. Owing to increases in the Consumer Price Index, most such limits h... Income tax return forms for 2021 available on January 18, 2022 The Canada Revenue Agency (CRA) has announced that individual (T1) income tax return forms for the 2021 tax year will be available on the Agency’s website on January 18, 2022. Such returns must be f... Access to Canada Worker Lockdown Benefit expanded In October 2021, the federal government announced the creation of a new pandemic benefit, the Canada Worker Lockdown Benefit (CWLB), which was intended to be provided to workers affected by regional p... Old Age Security rates for first quarter of 2022 The amount of Old Age Security (OAS) benefit paid to eligible Canadians is adjusted each quarter to take account of increases in the Consumer Price Index. Based on recent increases to the Consumer Pri... The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the CRA for the first quarter of 2022, as well as the rates that will apply for the purpose ... Canada Revenue Agency issues TD1 Form for 2022 The Canada Revenue Agency (CRA) has issued the TD1 form to be used by all Canadian resident employees for the 2022 tax year. On the TD1 form, the employee indicates the federal personal tax credit amo... December 31 deadline for final RRSP contributions Canadian taxpayers who have a registered retirement savings plan (RRSP) must collapse that RRSP by the end of the year in which the taxpayer turns 71. Such taxpayers are entitled to make a final RRSP ... Small Business Air Quality Improvement Tax Credit introduced As part of the Economic and Fiscal Update, the federal government announced that small businesses would be provided with a refundable Small Businesses Air Quality Improvement Tax Credit. That credit, ... Changes to home office expense deduction extended through 2022 As part of pandemic relief measures, changes were made to the existing home office expense deduction for employees. Those changes, which were for the 2020 tax year only, allowed employees to use a fla... Final individual tax instalment for 2021 payable by December 15 Economic and Fiscal Update to be delivered on December 14, 2021 The 2021 Economic and Fiscal Update will be delivered by the Minister of Finance on Tuesday, December 14 at around 4 p.m. The update is expected to include information on the current state of the Cana... Prescribed interest leasing rate for January 2022 The prescribed leasing interest rate mandated by the Canada Revenue Agency (CRA) must be calculated using bond yield information found on the Bank of Canada website. That calculation shows that the pr... Taxpayer relief for Canadians affected by extreme weather events The Canada Revenue Agency (CRA) has posted a Tax Tip on its website reminding individuals who have been affected by the recent extreme weather events of the availability of the Taxpayer Relief Program... Upcoming deadline for final individual income tax instalment for 2021 The fourth and final income tax instalment payment deadline for individuals for 2021 falls on Wednesday December 15. Taxpayers who pay income tax by instalment will have received an Instalment Reminde... Canada Revenue Agency issues income tax guide for students for 2021 The Canada Revenue Agency (CRA) publishes a guide for post-secondary students which outlines the tax treatment of the types of income and expenses (like scholarship income and tuition expenses) which ... Canada Revenue Agency announces individual tax brackets and credit amounts for 2022 The Canada Revenue Agency (CRA) has released the indexing factor which will apply for purposes of determining individual income tax brackets and non-refundable tax credits for 2022. That indexing fact... Inflation rate for October reaches 4.7% The most recent release of Statistics Canada’s Consumer Price Index (CPI) shows that during the month of October inflation rose by 4.7%, as measured on a year-over-year basis. That increase marked t... Unemployment rate down slightly in October The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate declined slightly during the month of October, from 6.9% to 6.7%. Employment held steady f... Employment insurance premium rates for 2022 The federal government has announced the premium rates and amounts which will apply for purposes of the Employment Insurance program during the 2022 calendar year. For 2022, maximum insurable earnings... Prescribed leasing interest rate for December 2021 Canada Pension Plan contribution amounts for 2022 The Canada Revenue Agency (CRA) has released the contribution rates and amounts which will apply with respect to the Canada Pension Plan (CPP) during the 2022 calendar year. For 2022, the employer and... Bank of Canada maintains interest rate at current levels In its regularly scheduled interest rate announcement made on October 27, the Bank of Canada indicated that, in its view, no change was required to current interest rates. Accordingly, the Bank Rate r... Inflation rate for September up by 4.4% The most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation, as measured on a year-over-year basis, rose by 4.4% during the month of September. The compa... Prescribed leasing rate for November 2021 Enhanced security measures introduced for online representatives The Canada Revenue Agency (CRA) has announced that new security measures have been made available with respect to the authorization of online representatives by taxpayers. Generally, representatives a... Pandemic benefit programs ending October 23, 2021 The federal government currently provides a range of pandemic benefit programs, for both individuals and businesses, and a number of those programs are scheduled to end on Saturday October 23, 2021. H... Employment returns to pre-pandemic levels in September The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate declined during the month of September, by 0.2 percentage points. The September unemployme... Employment Insurance premium rates for 2022 released The federal government has announced the premium rates and amounts which will apply for purposes of Employment Insurance during the 2022 calendar year. The contribution rates for both employers and em... Old Age Security rates for fourth quarter of 2021 The amount of Old Age Security (OAS) benefit paid to eligible Canadians is adjusted each quarter to take account of increases in the Consumer Price Index. Based on recent increases to the CPI, the fed... Final payment of CCB young child supplement to be issued in October In the 2020 Fall Economic Statement, the federal government announced that, as part of its pandemic relief measures, an additional amount would be paid during 2021 to qualifying families who were elig... The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the CRA for 2021, as well as the rates that will apply for the purpose of calculating employ... Pandemic relief programs ending in October 2021 A number of pandemic relief benefit programs provided to individual Canadians are currently scheduled to end as of October 23, 2021. Those programs are as follows: Canada Recovery Benefit Canada Recov... Inflation rate up sharply in August The latest release of Statistics Canada’s Consumer Price Index shows that the rate of inflation, as measured on a year-over-year basis, rose by 4.1% during the month of August, as compared to the 3.... Unemployment rate down slightly in August The most recent release of Statistics Canada’s Labour Force Survey shows a decline in the overall unemployment rate during the month of August. During that month, the rate declined by 0.4%, to 7.1%.... Prescribed leasing rate for October 2021 Upcoming deadline for third instalment payment of 2021 Individual taxpayers who pay income tax for the year through instalment payments do so by four prescribed deadlines each year. The third of those deadlines falls on Wednesday September 15, 2021. Taxpa... Bank of Canada leaves interest rates unchanged In its regularly scheduled interest rate announcement made on September 8, the Bank of Canada (the “Bank”) indicated that, in its view, no change to current rates was needed. Accordingly, the Bank... Bank of Canada releases schedule of interest rate announcement dates for 2022 Each year, on pre-announced dates, the Bank of Canada releases its decision on any changes to current interest rates. The Bank recently issued a listing of the dates on which such interest rate announ... CRA issues guide to GST/HST credit for 2021/22 The benefit year for many federal tax credits, including the GST/HST tax credit, runs from July 1 to June 30 of the following year. Each year, credit amounts change, as do the income thresholds which ... CRA issues warning on Canada Emergency Wage Subsidy tax scams In July of this year, the federal government announced that the Canada Emergency Wage Subsidy (CEWS) program would be extended to be available to employers until October 2021. The Canada Revenue Agenc... Federal government launches consultation process on luxury tax This year’s federal Budget included a proposal for a “luxury tax” which would apply, at varying rates, to sales of specified goods over a prescribed price threshold. The proposal indicated that ... CRA issues guidelines on qualifying SR&ED activities The Canadian tax system provides credits and incentives for taxpayers who carry out qualifying scientific research and experimental development (SR&ED) work. When claims are made for such credit a... Inflation rate increases in July 2021 The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of July, as measured on a year-over-year basis, stood at 3.7%. The comparable rate ... Prescribed leasing rate for September 2021 Upcoming deadline for payment of individual income tax instalment Individual taxpayers who pay income tax by instalments must make the third instalment payment of the year on or before Wednesday September 15, 2021. Such taxpayers should receive an Instalment Reminde... Inflation rate for June at 3.1% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of June, as measured on a year-over-year basis, reached 3.1%. That rate was slightl... Federal government extends availability period for pandemic benefits The federal government has announced that a number of pandemic relief benefit programs, for both businesses and individuals, have been extended. The changes announced are as follows. The eligibility p... Eligibility criteria for Canada Workers Benefit expanded The federal government administers the Canada Workers Benefit (CWB), a refundable tax credit which supplements income amounts for lower-income working Canadians. The annual benefit amount is $1,400 fo... Prescribed leasing interest rate for August 2021 One-time Old Age Security supplement to be paid in mid-August As announced in this year’s federal Budget, some recipients of Old Age Security will receive a one-time supplement, to be paid in August 2021. During that month, OAS recipients who were born on or b... Canada Child Benefit increase effective July 2021 The current benefit year for the Canada Child Benefit runs from July 1, 2021 to June 30, 2022. The federal government recently announced that Child Tax Benefit amounts for this benefit year have been ... Unemployment rate for June 2021 down to 7.8% The most recent release of Statistics Canada’s Labour Force Survey shows a rebound in employment, as pandemic-related public health restrictions were eased in several provinces. For the month of Jun... Bank of Canada leaves interest rates at current levels In its regularly scheduled interest rate announcement made on July 14, the Bank of Canada indicated that, in its view, no change to current rates was required. Accordingly, the Bank Rate remains at 0.... Old Age Security benefit to increase for third quarter of 2021 The Old Age Security benefit administered by the federal government is adjusted quarterly to reflect the rate of inflation. The federal government has announced that the maximum basic OAS benefit paya... The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the CRA for the first three quarters of 2021, as well as the rates that will apply for the p... In its regularly scheduled interest rate announcement made on June 9, 2021, the Bank of Canada determined that, in its view, no change to current rates was needed. Accordingly, the Bank rate remains a... Prescribed leasing interest rate for July 2021 June 30, 2021 filing deadline for calendar-year companies Canadian companies are required to file their federal income tax returns within 6 months after their fiscal year end. Consequently, companies which had a calendar year end on December 31, 2020 must fi... Unemployment rate for May up slightly While there was little change in the overall unemployment rate for the month of May, employment did fall by 68,000 positions, most of those in part-time work. The overall unemployment rate for the mon... Inflation rate for May up by 3.6% The most recent release of Statistics Canada’s Consumer Price Index shows an increase of 3.6% increase in the rate of inflation for the month of May, as measured on a year-over-year basis. The comp... Upcoming 2021 individual income tax instalment payment deadline For individuals who pay income tax through quarterly instalments, the second instalment payment deadline for the year is Tuesday June 15, 2021. Information on the instalment payment system, including ... June 15, 2021 income tax filing deadline for self-employed individuals The filing deadline for income tax returns for the 2020 tax year for self-employed individuals and their spouses is Tuesday June 15, 2021. Information on that filing deadline and on available filing m... Prescribed leasing interest rate for June 2021 CRA announces details of refund of CERB repayments to self-employed taxpayers In 2020, some self-employed Canadians received Canada Emergency Relief Benefits (CERB) to which they were not entitled, as the result of erroneous information provided by the federal government, and t... CRA issues Tax Tip on how to change a tax return The Canada Revenue Agency (CRA) has posted a Tax Tip on its website outlining the several methods taxpayers can use to make a change, or correct an error, on an already-filed return. Requests for chan... Payments of Canada Child Benefit young child supplement to begin May 28 Last year, the federal government announced that families who are eligible for the Canada Child Benefit in 2021 and have a child or children under the age of six could receive a supplement — the Can... Inflation rate for April up by 3.4% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of April 2021 was up by 3.4%, as measured on a year-over-year basis. Statistics Can... CRA issues warning on TFSA “maximizer” tax scheme The Canada Revenue Agency (CRA) has issued a warning to taxpayers with respect to a tax scheme currently being promoted, typically to homeowners who have significant equity in their homes and substant... CRA issues updated application form for Taxpayer Relief program Taxpayers who are unable to file their returns or make payment of taxes owed on a timely basis for reasons outside their control (including financial hardship) can apply, under the Taxpayer Relief Pro... April unemployment rate increases to 8.1% The most recent release of Statistics Canada’s Labour Force Survey shows an increase in the rate of unemployment during the month of April 2021. That rate, as measured on a year-over-year basis, ros... Inflation up by 2.2% for March 2021 The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of March 2021 was 2.2%, as measured on a year-over-year basis. While the monthly in... Prescribed interest rate for leasing May 2021 In its regularly scheduled interest rate announcement made on April 21, the Bank of Canada indicated that, in its view, no change to current rates was warranted. Accordingly, the Bank Rate remains at ... Payments of 2020 individual income tax due Friday April 30, 2021 The deadline for payment of all individual income tax amounts owed for the 2020 tax year is Friday, April 30, 2021. For most individuals (other than self-employed taxpayers and their spouses), April 3... Budget 2021: Anti-avoidance rules and taxpayer disclosure The Budget includes proposals to address perceived anti-avoidance activity and failures by taxpayers to comply with transaction reporting rules. To address the issue of failure to report, the governme... Budget 2021: Film and television production tax credits The federal government provides two tax credit programs for the film and television industry. The Canadian Film or Video Production Tax Credit (CPTC) provides a 25% refundable tax credit on qualified ... Budget 2021: Business pandemic support programs to be extended In the Budget, the federal government announced that the Canada Emergency Wage Subsidy, the Canada Emergency Rent Subsidy, and the Lockdown Support programs, which are currently scheduled to expire on... Budget 2021: Additional clean energy assets eligible for accelerated capital cost allowance Under Canada’s capital cost allowance (CCA) system, an asset is written off over a period of years, at a prescribed percentage rate per year, based on the useful life of that asset. Acquisitions of ... Budget 2021: Tax rate reductions provided for zero-emission technology manufacturers The Budget includes a proposal for a temporary measure to reduce corporate income tax rates for qualifying zero-emission technology manufacturers. Specifically, taxpayers would be able to apply reduce... Budget 2021: “Immediate expensing” of asset acquisition costs by CCPCs Under Canadian tax rules, companies which acquire capital assets are required to deduct, or write off, the cost of those assets over a period of years, under the rules provided in the Capital Cost All... Budget 2021: Canada Recovery Hiring Program to be introduced The federal Budget includes a proposal for a Canada Recovery Hiring Program. That program will provide eligible employers with a subsidy of up to 50% on the incremental remuneration paid to eligible e... Budget 2021: Repayment of Wage Subsidy to be required in some circumstances The Budget papers provide that public corporations which received the Canada Emergency Wage Subsidy will, in some instances, be required to repay part or all of that subsidy. Specifically, where the t... Budget 2021: Electronic Filing and Payment Requirements Current rules provide that tax preparers and filers of information returns who file more than a prescribed number of returns each year must file such returns electronically. Those rules will be amende... Budget 2021: Electronic communication with the CRA Changes are proposed to the rules to increase the ability of the Canada Revenue Agency (CRA) to communicate with taxpayers electronically, without the taxpayer having to authorize the CRA to do so. Ge... Budget 2021: Changes to rules affecting registered charities The Canada Revenue Agency has the authority to revoke the charitable registration status of an organization where that organization fails to fulfill its legal obligations. The rules governing such rev... Budget 2021: Tax treatment of pandemic benefit repayments Millions of Canadian taxpayers received pandemic benefits during the 2020 taxation year. While most such recipients were entitled to those benefits, there were instances in which the benefits were pai... Budget 2021: Tax treatment of postdoctoral fellowship income Postdoctoral fellows are generally not, for purposes of the income tax system, considered to be students. Consequently, postdoctoral fellowship income does not qualify for the exemption generally prov... Budget 2021: Northern residents deductions Canadians who live in prescribed northern areas of Canada for at least six consecutive months in a year are eligible for the Northern residents deduction. That deduction has both a residency component... Budget 2021: Canada Workers’ Benefit increased The Canada Workers’ Benefit (CWB) is a non-taxable refundable tax credit that supplements the earnings of low-income and medium-income workers. The CWB, which is generally available to workers who e... Budget 2021: Eligibility criteria for disability tax credit expanded The federal government provides qualifying individuals with a disability tax credit (DTC) which reduces federal tax otherwise payable. For 2021, the value of the DTC is $1,299. To qualify for the DTC,... CRA provides guidance on changes to the 2020 tax return The tax return completed by individual Canadians changes from one year to the next, as tax credits or deductions are introduced, eliminated, or changed, or reporting requirements are altered. The Cana... April 30, 2021 deadline for filing of most individual income tax returns for 2020 The filing deadline for most individual income tax returns for the 2020 taxation year is Friday, April 30, 2021. Self-employed individuals and their spouses are not required to file their returns unti... April 30, 2021 deadline for payment of 2020 individual income tax owed Last year, the federal government provided a deferral of the payment deadline for individual income taxes owed. No such deferral is allowed for this year, meaning that any balance of individual income... Federal government extends benefit period for Canada Recovery Sickness Benefit The federal government, through the Canada Recovery Sickness Benefit, provides a weekly benefit of $500 to qualifying individual Canadians who are unable to work because they are sick or need to self-... CRA issues guidance on 2020 tax consequences of home sales, purchases, and renovations While gains made on a sale of a principal residence in Canada are generally tax exempt, there are reporting requirements imposed on such sales. In addition, certain tax credits may be claimed by home ... The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the CRA for the first half of 2021, as well as the rates that will apply for the purpose of ... Inflation rate for February up slightly The most recent release of Statistics Canada’s Consumer Price Index shows a slight increase in the rate of inflation for the month of February 2021. That rate stood at 1.1%, as compared to the rate ... Federal Budget 2021-22 to be brought down in April The Minister of Finance has announced that the federal Budget for the upcoming 2021-22 fiscal year will be delivered on Monday April 19, 2021. This year’s Budget will be the first one delivered sinc... Canada Revenue Agency locks down individual online tax accounts Over the past month, the Canada Revenue Agency (CRA) identified a large number of individual taxpayer online accounts for which user IDs and passwords had been obtained by unauthorized third parties. ... Employment increases by 259,000 positions in February The most recent release of Statistics Canada’s Labour Force Survey shows a significant increase in employment during the month of February. During that month, employment rose by 259,000 jobs, and th... As expected, the Bank of Canada announced on March 10 that no changes would be made to current interest rates. Accordingly, the Bank Rate remains at 0.5%. In the press release announcing its decision,... Federal government to provide interest relief on pandemic benefit tax debt The Canada Revenue Agency (CRA) has announced that targeted interest relief will be provided to Canadians who received pandemic income support benefits during 2020. Specifically, qualifying individual... Inflation rate for January at 1% The most recent release of Statistics Canada’s Consumer Price Survey shows a slight increase in the rate of inflation for January 2021. The inflation rate for that month, as measured on a year-over-... NETFILE service hours of availability The Canada Revenue Agency’s (CRA) NETFILE service for the filing of individual income tax returns for the 2017, 2018, 2019, and 2020 tax years is now available 21 hours a day, 7 days a week. The ser... CRA issues 2020 guide for self-employed taxpayers The Canada Revenue Agency (CRA) has issued the guide to be used by taxpayers who are reporting business or professional income, commission income, and income from farming and fishing received during 2... CRA help line to be available Saturdays during tax filing season The Canada Revenue Agency (CRA) has announced that, beginning February 27, 2021, its Individual Tax Enquiries line will be available on Saturdays, from 9 a.m. to 5 p.m. That service is also available ... Prescribed interest leasing rate for March Extended hours and callback service now available on individual tax help line The Canada Revenue Agency (CRA) has announced that its individual income tax enquiries line will be open for extended hours during the upcoming tax filing season. That line — reachable at 1-800-959-... The Canada Revenue Agency’s (CRA) NETFILE service for the online filing of individual income tax returns for the 2020 taxation year will be available starting Monday, February 22, 2021. In order to ... Unemployment rate increases to 9.4% in January The most recent release of Statistics Canada’s Labour Force Survey shows a significant decline in employment during the month of January, and a corresponding increase in the overall unemployment rat... Canada Revenue Agency releases 2020 individual income tax return package The Canada Revenue Agency (CRA) has issued the individual income tax forms and guides to be used by Canadian residents in filing an income tax return for the 2020 taxation year. The particular form to... Consultation process launched for 2021-22 federal Budget The federal government has launched the consultation process leading to the release of the 2021-22 federal Budget. This year, there are three components to the consultation process. The government wil... Prescribed leasing interest rate for February In its regularly scheduled interest rate announcement made on January 20 the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate remains at 0.... CRA issues guide to employment expense deductions for 2020 The Canada Revenue Agency (CRA) has issued an updated version of Guide T4044, Employment Expenses 2020, which outlines the tax treatment of various employment expenses, and will be used by taxpayers i... Inflation rate up in December 2020 The most recent release of Statistics Canada’s Consumer Price Survey shows that the rate inflation rose by 0.7% during the month of December 2020, as measured on a year-over-year basis. The rate for... CRA announces automobile benefit and deduction amounts for 2021 The Canada Revenue Agency (CRA) has released the automobile expense deduction limits and benefit rates which will apply during the 2021 taxation year. Most of the rates and limits which applied during... Unemployment rate up slightly in December The most recent release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of December 2020 increased to 8.6%. The comparable rate for the month of Nov... NETFILE service for 2019 returns open until January 22, 2021 The Canada Revenue Agency’s (CRA) NETFILE service for the filing of individual income tax returns for the 2016, 2017, 2018, and 2019 taxation years will be available until Friday, January 22, 2021. ... CRA issues 2020 income tax guide for students Post-secondary students in Canada are eligible for a range of tax credits and deductions, including a tuition tax credit, deductions for moving expenses, and a claim for qualifying student loan intere... CRA announces new flat rate method for home office expense claims The Canada Revenue Agency (CRA) has announced that a new temporary home office tax credit may be claimable by qualifying individuals who worked from home during 2020. Taxpayers are eligible to use thi... Upcoming changes to CRA administrative policy on representatives The Canada Revenue Agency (CRA) permits taxpayers to designate another person, firm, or business to communicate with the CRA on the taxpayer’s behalf, where a written authorization has been provided... December 31 deadline for tax relief applications Taxpayers may apply to the Minister of National Revenue for administrative relief from interest and penalty charges imposed or, in some cases, for permission to late-file tax elections. In order to be... In its regularly scheduled interest rate announcement made on December 9, the Bank of Canada announced that no change would be made to current interest rates. Accordingly, the Bank Rate remains at 0.5... Unemployment rate down slightly in November The most recent release of Statistics Canada’s Labour Force Survey shows that the rate of unemployment declined by 0.4% during the month of November. The unemployment rate for the month was 8.5%. Fu... Prescribed interest leasing rate for December Federal government updates deficit projection for 2020-21 On November 30, the Minister of Finance released the Fall Economic Statement, which included updated deficit projections for the current and future fiscal years. The deficit is now projected to reach ... Wage subsidy program extended to June 2021 The federal government has announced that the program providing a wage subsidy to eligible businesses experiencing a pandemic-related revenue loss has been extended to be available until June 2021. Th... Date announced for 2020 Fall Economic Statement The federal government has announced that its Fall Economic Statement for the 2020-21 fiscal year will be released on Monday November 30, 2020. The press release announcing the date and time of the St... Inflation rate for October up slightly The most recent release of Statistics Canada’s Consumer Price Survey shows that the rate of inflation for the month of October rose by 0.7%, as measured on a year-over-year basis. The comparable inc... The federal government has released the premium rates and amounts which will apply in 2021 for purposes of the Employment Insurance (EI) program. For 2021, the EI premium rate will be 1.58% and maximu... CRA announces increases in retirement savings contribution limits The Canada Revenue Agency (CRA) has announced upcoming changes in the allowable contribution limits for a range of retirement savings programs. For registered pension plans, the 2021 money purchase l... Unemployment rate for October at 8.9% The most recent release of Statistics Canada’s Labour Force Survey shows that the overall rate of unemployment stood at 8.9% for the month of October. While the unemployment rate for the month was l... CRA issues updated Employer’s Guide to Taxable Benefits The tax treatment of non-monetary benefits provided by employers to their employees can vary widely. Some such benefits must be included in the employee’s taxable income for the year, while others a... CRA announces Canada Pension Plan contribution rates and amounts for 2021 The Canada Revenue Agency (CRA) has announced the contribution rates and amounts which will apply for purposes of the Canada Pension Plan during 2021. For 2021, the employer and employee contribution ... Prescribed interest leasing rate for November In its October 28 announcement, the Bank of Canada indicated that, in its view, no change to current interest rates was needed. Accordingly, the Bank Rate remains at 0.5%. The press release announcing... Bank of Canada releases interest rate announcement schedule for 2021 The Bank of Canada has released its schedule for policy interest rate announcements to be made during the 2021 calendar year, and that schedule is as follows: Wednesday, January 20 Wednesday, March 10... Inflation rate up slightly in September The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation rose 0.5% on a year-over-year basis in September, up from a 0.1% increase in August. While pric... Application process for Canada Recovery Benefit now open In September, the Canada Emergency Response Benefit program came to an end, and three new programs to provide financial assistance to individuals impacted by the pandemic were launched. One of those p... Unemployment rate down to 9% in September The most recent release of Statistics Canada’s Labour Force Survey shows that Canada’s overall unemployment rate declined by 1.2% during the month of September. For the month, that rate stood at 9... Application process now open for two new individual COVID-19 benefits The federal government has created three separate benefits which can be claimed by qualifying Canadians, following the end of the Canada Emergency Response Benefit (CERB) program. Applications for two... CRA issues warning of tax scam involving debt write-offs The Canada Revenue Agency (CRA) has issued a warning to taxpayers with respect to a tax scam currently operating, which involves claims for bad debt write-offs. While bad debts can be written off for ... Old Age Security benefit increase for fourth quarter of 2020 The Old Age Security benefit received by Canadians over the age of 65 is indexed quarterly to changes in the Consumer Price Index. The federal government has announced that the basic OAS benefit of $6... Prescribed leasing interest rate for October September 30, 2020 final application deadline for Canada Emergency Student Benefit As part of its pandemic relief plan, the federal government provided eligible post-secondary students and recent post-secondary and high school graduates who were unable to find work for pandemic-rela... June and September individual income tax instalment payments due by September 30, 2020 Canadian taxpayers who pay income tax by instalment usually make four instalment payments each year, by the 15th day of March, June, September, and December. Earlier this year, the federal government ... Individual tax balances for 2019 tax year due by September 30 Earlier this year, the Canada Revenue Agency (CRA) announced that the deadline for payment of individual income tax balances for the 2019 tax year, which is usually April 30, was being extended to Wed... Unemployment rate decreases to 10.2% for August The September release of Statistics Canada’s Labour Force Survey shows that the overall unemployment rate for the month of August stood at 10.2%. That rate represented a decrease of 0.7% from the ra... Increase announced to non-taxable meal allowance rate The federal government has announced an increase in the amount of any overtime meal allowance, or meal portion of a travel allowance, that employers can provide to employees on a non-taxable basis. Th... Filing of 2019 tax return necessary to ensure continued payment of tax credits Eligibility for a number of refundable tax credits and benefits, including the harmonized sales tax/goods and services tax credit and the child tax benefit is based in part on a taxpayer’s income fo... September 29 deadline for all applications for Canada Student Benefit Program The pandemic emergency benefit program provided by the federal government for post-secondary students and recent secondary and post-secondary graduates ended on August 29, 2020. Those eligible for suc... Federal government announces transition measures for end of CERB program Since March 15 of this year, Canadians who have lost income as a result of the pandemic have been able to receive $500 per week from the Canada Emergency Response Benefit (CERB). The CERB program will... CRA to contact taxpayers affected by cyberattack Earlier this month, a cyberattack on the Canada Revenue Agency (CRA) and other agencies of the federal government compromised the personal tax and financial information of approximately 5500 taxpayers... Application forms available for expanded Canada Employer Wage Subsidy program On July 17, the federal government announced that the existing Canada Employer Wage Subsidy (CEWS) program would be extended to be available until November 21, 2020, and that eligibility criteria for ... Inflation rate for July drops to 0.1% Prescribed leasing interest rate for September 2020 The prescribed leasing rate mandated by the Canada Revenue Agency (CRA) must be calculated using bond yield information found on the Bank of Canada website. That calculation shows that the prescribed ... Unemployment rate for July down to 10.9% The most recent release of Statistics Canada’s Labour Force Survey shows that the unemployment rate for July was 10.9%. The change means that the unemployment rate has fallen by 1.4 percentage poi... Extension announced for September individual instalment payments Individual taxpayers who pay income tax by instalment are required to make four such instalment payments each year. The usual deadlines for such payments are the 15th day of March, June, September, an... Online filing option where paper return not yet assessed by CRA The Canada Revenue Agency (CRA) has posted a notice on its website indicating that it is experiencing delays in the processing of paper-filed individual income tax returns for the 2019 taxation year. ... CRA provides interest waiver period on tax amounts owed The Canada Revenue Agency (CRA) has announced that an interest waiver period will be provided to individual taxpayers with respect to income taxes owed. That waiver period will run from April 1 to Sep... Individual income tax payment deadline extended to September 30, 2020 Earlier this year, the deadline for payment of individual income tax amounts owed for the 2019 taxation year was extended from April 30 to September 1, 2020. The federal government has now indicated t... Bank of Canada maintains interest rates at current level In its regularly scheduled interest rate announcement made on July 15, the Bank of Canada indicated that, in its view, no change to current interest rates was required. Accordingly, the Bank Rate rema... Federal emergency wage subsidy to be available until December Canadian employers whose businesses have been affected by the pandemic may be eligible for a federal government wage subsidy – the Canada Emergency Wage Subsidy (CEWS). The CEWS, which pays the empl... Unemployment rate down slightly in June The most recent release of Statistics Canada’s Labour Force Survey shows a slight decline in the rate of unemployment during the month of June. The unemployment rate for June stood at 12.3%, a decli... Federal government projects $343 billion current-year deficit On July 8, the federal government provided an update of its fiscal position for the current (2020-21) fiscal year, taking in account expenditures made in connection with the pandemic. That “Economic... Supplemental OAS payment issued during first week of July Earlier this year, the federal government announced that, as part of its pandemic relief measures, recipients of Old Age Security would receive an additional one-time payment. Such payment is intended... NETFILE service for 2019 returns still available The Canada Revenue Agency (CRA) has issued a Tax Tip reminding Canadians that its online filing services for the filing of individual income tax returns for the 2019 tax year are still open. Such indi... No change to basic Old Age Security benefit for third quarter 2020 The Old Age Security benefit received by Canadians over the age of 65 is indexed quarterly to changes in the Consumer Price Index. The federal government has announced that, as the rate of inflation d... Canada Emergency Response Benefit program extended The federal government has announced that the Canada Emergency Response Benefit (CERB) program has been extended to be available for a further eight weeks in some circumstances. As originally designed... Inflation rate down by 0.4% for May The most recent release of Statistics Canada’s Consumer Price Survey shows that the rate of inflation fell by 0.4% during the month of May, as measured on a year-over-year basis. Prices were up in f... Prescribed interest rate for leasing for June 2020 Unemployment rate up slightly in May The most recent release of Statistics Canada’s Labour Force Survey shows that the unemployment rate rose slightly during the month of May, from 13% to 13.7%. The StatsCan analysis indicates that une... In its regularly scheduled interest rate announcement made on June 3 the Bank of Canada, as anticipated. made no change to current rates. Accordingly, the Bank Rate remains at 0.5%. In its announcemen... June 15 return filing deadline for self-employed taxpayers Self-employed Canadians and their spouses must file an individual income tax return for the 2019 tax year on or before June 15, 2020. As part of the federal government’s pandemic response plan, howe... June 15 individual income tax instalment due date deferred Individual Canadians who pay income tax by instalments would normally be required to make the second instalment payment for this year on June 15, 2020. The Canada Revenue Agency (CRA) has indicated, h... CRA extends filing and payment deadlines for corporations and trusts The Canada Revenue Agency (CRA) has announced that the deadline for filing of T2 returns by corporations and T3 returns by trusts has been extended. That announcement provides that all businesses and ... Free tax return preparation clinics go online Each year community organizations across Canada operate a number of tax clinics at which individual income tax returns are prepared and filed free of charge to the taxpayer. Due to concerns surroundin... CRA extends federal benefit eligibility period The benefit year for many federal benefits, like the Canada Child Benefit and the Goods and Services Tax Credit runs from July 1 to June 30. Eligibility for and the amount of such benefits are based, ... Repaying the Canada Emergency Response Benefit The Canada Revenue Agency has issued a reminder to Canadians that there are circumstances in which the Canada Emergency Response Benefit (CERB) must be repaid. In particular, individuals who return to... Federal government to provide one time increase in Old Age Security payments The federal government has announced that, in order to help seniors with additional costs resulting from the pandemic, a one-time supplement will be provided to Canadians who already receive Old Age S... CRA issues warning of Canada Emergency Response Benefit scam The Canada Revenue Agency (CRA) has issued an alert on its website warning Canadians of a scam operating with respect to the Canada Emergency Response Benefit (CERB). That Benefit, for which more than... Online applications available for Canada Emergency Wage Subsidy As part of its pandemic response, the federal government is providing eligible employers with a partial wage subsidy through the Canada Emergency Wage Subsidy (CEWS) program. The CEWS program provides... Prescribed leasing interest rate for May 2020 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the first half of 2020, as well as the rates that will apply for the purpose ... Inflation rate down sharply for March The April release of Statistics Canada’s Consumer Price Index shows a sharp decline in the rate of inflation for the month of March. That rate stood at 0.9%, as measured on a year-over-year basis. T... Significant increase in unemployment rate during March The most recent release of Statistics Canada’s Labour Force Survey shows a significant increase in the rate of unemployment during the month of March. The April release of the Labour Force Survey, w... Canada Student Loan repayments suspended until September 30, 2020 The federal government has announced that required repayments of Canada Student Loans will be suspended until September 30th, 2020. Where payments are usually made by pre-authorized debit, such paymen... In its regularly scheduled interest rate announcement made on April 15, the Bank of Canada indicated that, in its view, no change to current interest rates was required. Accordingly, the Bank Rate rem... Wage subsidy program to be provided to Canadian employers The federal government will be providing a wage subsidy program to eligible employers who have experienced a recent reduction in revenues of 30% or more. That program—the Canada Emergency Wage Subsi... Application process for Canada Emergency Response Benefit now open As of April 6, 2020, Canadians can apply for the federal Canada Emergency Response Benefit (CERB), which provides eligible individuals with $500 per week for a maximum of 16 weeks. The benefit is gene... Federal government defers remittance of HST/GST payments The federal government will be providing businesses with an extension with respect to remittance deadlines related to goods and services tax (GST) and harmonized sales tax (HST). The deferral will app... Bank of Canada announces further reduction in interest rates In an unscheduled announcement made on March 27, the Bank of Canada lowered interest rates for the third time this month. In that announcement, the Bank reduced current rates by one-half percentage po... One-time increase in Canada Child Benefit to be provided The federal government has announced that, for the current benefit year only, the amount of Canada Child Benefit will be increased by a one-time payment of $300 per child. The $300 additional benefit ... Individual tax filing and payment deadlines extended The deadline for filing of most 2019 individual income tax returns, as well as payment of any balance of tax owed for the 2019 taxation year by individual taxpayers would usually be April 30, 2020. Th... Bank of Canada reduces interest rates Citing the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent drop in oil prices, the Bank of Canada has announced a further reduction in interest rates. The unsch... Federal government postpones individual tax filing deadline for 2019 returns The federal government has announced that the filing deadline for individual Canadian tax filers who would usually be required to file by April 30 has been extended to June 1, 2020. (Returns for 2019 ... CRA issues Tax Tip for property buyers and sellers Canadian taxpayers who buy or sell a property during the year may be subject to requirements to report that transaction on their annual return and, in some cases, to pay tax on sale proceeds. The CRA ... Little change in unemployment rate for February The most recent release of Statistics Canada’s Labour Force Survey shows little change in the overall unemployment rate during the month of February. That rate rose by 0.1%, to 5.6%. During the mont... Extended hours for CRA individual tax enquiries line The Canada Revenue Agency’s individual income tax enquiries telephone service will be available for extended hours during tax filing season. That enquiries service, which can be reached at 1-800-959... Bank of Canada cuts interest rates In its regularly scheduled interest rate announcement made on March 4 the Bank of Canada indicated that, in its view, a reduction to current interest rates was required. Accordingly, the bank rate was... CRA releases 2019 Guide to Self-Employed Business, Professional, Commission, Farming and Fishing Income The Canada Revenue Agency (CRA) has released its 2019 Guide to Self-Employed Business, Professional, Commission, Farming and Fishing Income for 2019. That Guide is used by taxpayers who are reporting ... NETFILE service for filing of individual returns for 2019 now available The Canada Revenue Agency’s NETFILE service for the filing of individual income tax returns for the 2019 taxation year is now available. The current NETFILE service, which can be found on the CRA we... Upcoming deadline for 2019 RRSP contributions The Canada Revenue Agency (CRA) has announced that contributions to a registered retirement savings plan (RRSP), in order to be deducted on the return for 2019, must be made on or before Monday March ... Increase in inflation rate for January 2020 The most recent release of Statistics Canada’s Consumer Price Index shows an increase in the rate of inflation for the month of January. That rate stood at 2.4%, as measured on a year-over-year basi... Unemployment rate down slightly for January 2020 The most recent release of Statistics Canada’s Labour Force Survey shows that that unemployment rate dropped slightly during the month of January, from 5.6% to 5.5%. During that month, employment in... Canada Revenue Agency issues meal and travel expense deduction rates and limits for 2019 The rates and limits for deduction and credit claims for meal and travel expenses are now posted on the Canada Revenue Agency (CRA) website. Such rates and limits apply to meal and travel expense clai... Digital news subscription tax credit now available In the 2019 Budget, the federal government introduced a new tax credit for digital news subscription costs incurred by individuals. That tax credit is available starting in the 2020 tax year. Individu... CRA issues updated guide to students and income tax The Canada Revenue Agency (CRA) publishes a guide for post-secondary students which outlines the rules governing typical tax situations for such students. Those rules include the tax treatment of tuit... NETFILE service for 2019 returns available February 24, 2020 The Canada Revenue Agency (CRA) has announced that the NETFILE service for online filing of individual income tax returns for the 2019 tax year will be available beginning Monday, February 24, 2020. M... CRA issues 2019 Individual Income Tax Return and Guide The Canada Revenue Agency (CRA) has released the Individual Income Tax Return and Guide for all provinces and territories for the 2019 tax year, and those forms and guides are posted on its website at... Bank of Canada leaves interest rate unchanged In its regularly scheduled interest rate announcement made on January 22, 2020, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate remain... CRA announces automobile expense deduction limits for 2020 The Canada Revenue Agency has announced the rates and limits which will apply for purposes of automobile-related benefits and deductions in 2020. Most such rates and limits are unchanged, as follows: ... OAS payment rates for first quarter of 2020 The federal government has announced the Old Age Security (OAS) and related amounts which will be paid during the first quarter (January 1 to March 31) of 2020. OAS payments are indexed quarterly to c... Unemployment rate down for December 2019 The most recent release of Statistics Canada’s Labour Force Survey shows that employment increased by 35,000 jobs during the month of December and that the overall unemployment rate fell by 0.3%, to... Personal tax credit amounts increased The federal government has announced that the basic personal tax credit, the spousal credit, and the eligible dependant credit amounts will increase, in four stages, from $12,298 to $15,000. The first... Prescribed leasing interest rate for January 2020 The Canada Revenue Agency (CRA) formerly provided taxpayers with a listing of prescribed interest rates for leasing, with such listing including the applicable rate for the upcoming month, as well as ... Climate action incentive payment amounts for 2020 The federal government has announced the amounts which will be paid under the climate action incentive program during 2020. Such amounts are claimed when filing the individual income tax return for 20... NETFILE service for prior years available until January 24, 2020 Taxpayers who have not yet filed their individual income tax returns for 2018 (or the three prior years) can file those returns on NETFILE until Friday, January 24, 2020. Until that date, the Canada R... Economic and Fiscal Update projects increased current year deficit The 2019 Economic and Fiscal Update released on December 16 by the Minister of Finance shows a significant increase in the projected deficit for the current fiscal year. In the 2019-20 Budget announce... December 16 deadline for final instalment payment for 2019 Canadians who pay income tax by instalments are required to pay the fourth and final instalment payment of 2019 on or before Monday December 16, 2019. Taxpayers subject to the instalment payment requi... December 31 deadline for taxpayer relief applications for 2009 Under the federal government’s Taxpayer Relief Program, the Minister of National Revenue can provide relief to taxpayers from interest or penalty charges which have been assessed. Such taxpayer reli... In its regularly scheduled interest rate announcement made on December 4, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate remains at 2... Indexing adjustment for 2020 released by CRA The Canada Revenue Agency has announced that personal income tax brackets and credit amounts for the 2020 taxation year will increase by 1.9%. Each year, such individual income tax brackets and cred... Inflation rate for October 2019 unchanged The most recent release of Statistics Canada’s Consumer Price Index indicates that there was no change in the rate of inflation recorded for the month of October. That rate stood at 1.9%, as measure... CRA issues Payroll Deduction Formula guide for 2020 The Canada Revenue Agency has issued the 2020 version of Guide T4127, Payroll Deduction Formulas, which is intended for use by payroll software providers or companies which develop their own in-house ... Upcoming CRA webinar on payroll On Wednesday November 27, the Canada Revenue Agency (CRA) will be hosting a webinar on payroll requirements for Canadian employers. The webinar, which will start at 1:00 p.m. EST, is free of charge fo... CRA issues 2019 guide to students and income tax The Canada Revenue Agency (CRA) has updated and re-issued its tax guide for post-secondary students. That guide (P105, Students and Income Tax) reviews the tax treatment of common deductions and credi... Employment Insurance contribution rates for 2020 The federal government has announced the Employment Insurance (EI) premium rates which will be levied during 2020. For 2020, maximum insurable earnings for the year will be $54,200. The premium rate f... No change in unemployment rate for October The most recent release of Statistics Canada’s Labour Force Survey shows that there was no change in the overall unemployment rate for the month of October 2019, with that rate remaining at 5.5%. Am... CRA issues employer guide to payroll deductions for 2020 The Canada Revenue Agency has issued its Employer’s Guide: Payroll Deductions and Remittances for 2020 (T4001(E)). That guide provides employers with information on the deductions which must be made... Canada Pension Plan contribution rates for 2020 released The federal government has announced the contribution rates and amounts and maximum pensionable earnings which will apply for purposes of the Canada Pension Plan in 2020. Employee and employer contrib... CRA issues 2019 employer guide to taxable benefits Employers are required, by the end of February 2020, to issue T4 slips for their employees for the 2019 taxation year. Those T4s will summarize the amount of remuneration received by the employee duri... In its regularly scheduled interest rate announcement made on October 30, 2019, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate will r... CPP contribution rate to increase January 1, 2020 As previously announced, changes are to be made to the Canada Pension Plan over the next 5 years, with the goal of increasing the amount of CPP retirement benefits available to contributors. The next ... Online retirement income calculator available The federal government provides a detailed online retirement income calculator which can be used by taxpayers planning retirement. The online calculator allows users to input income amounts from vario... No change in inflation rate for September The overall inflation rate was unchanged for the month of September, with that rate matching the 1.9% year-over-year increase posted for the month of August 2019. The greatest contributor to the infla... Unemployment rate down in September The most recent release of Statistics Canada’s Labour Force Survey shows a sharp increase in job creation for the month of September. During that month employment rose by 54,000, mainly in full-time... Prescribed interest rate for leasing for November 2020 Employment Insurance premium rates announced The federal government has announced the Employment Insurance premium rates and amounts which will be levied during the 2020 calendar year. For 2020, the Employment Insurance premium rate is decreased... OAS payment rates for fourth quarter of 2019 The federal government has announced the Old Age Security (OAS) and related amounts which will be paid during the fourth quarter (October 1 to December 31) of 2019. OAS payments are indexed quarterly ... The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for 2019, as well as the rates that will apply for the purpose of calculating emp... CRA updates and re-issues publication on tax audits The Canada Revenue Agency (CRA) has updated and re-issued its publication on the conduct of tax audits. The updated publication (RC4188E)) outlines the process by which the CRA chooses a file for audi... Prescribed interest rate for leasing for October Rate of inflation at 1.9% for August The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of August stood at 1.9%, as measured on a year-over-year basis. The inflation rate ... Federal government releases financial results for 2018-19 Finance Canada has released the Annual Financial Report of the Government of Canada for 2018-19, which provides an overview of the federal government’s financial results for the 2018-19 fiscal year ... CRA issues tax guidance for international students Each September thousands of international students move to (or return to) Canada to attend Canadian secondary or post-secondary educational institutions. Depending on their residency status, those stu... Unemployment rate unchanged in August The most recent release of Statistics Canada’s Labour Force Survey shows that employment increased by 81,000 positions during the month of August 2019. Notwithstanding that increase, the unemploymen... In its regularly scheduled interest rate announcement made on September 4, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate remains at ... Individual income tax instalment payment due September 16 Individual taxpayers who make quarterly instalment payments of tax must make the third such instalment payment for the year on or before September 15. As that date falls on a Sunday this year, payment... Bank of Canada announces 2020 interest rate announcement schedule The Bank of Canada has released a listing of the eight dates on which it will make regularly scheduled interest rate announcements during 2020. That listing is as follows: Wednesday, January 22 Wednes... CRA issues warning on self-directed RRSP withdrawal schemes The Canada Revenue Agency has issued a Tax Tip warning owners of self-directed RRSPs about a current tax scheme which they may encounter. Promoters of such schemes falsely promise owners of self-direc... CRA issues updated guide to electronic record keeping by taxpayers The Canada Revenue Agency has updated and re-issued its Information Circular outlining the rules and requirements which apply to taxpayers who keep business and tax books and records in electronic for... Inflation rate unchanged in July The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation recorded for the month of July was unchanged from the previous month. For both June and July, tha... Prescribed interest rate for leasing for September The Canada Revenue Agency (CRA) formerly provided taxpayers with a listing of prescribed interest rates for leasing, which includes the applicable rate for the upcoming month, as well as the rates in ... Unemployment rate up slightly for July The most recent release of Statistics Canada’s Labour Force Survey shows a slight increase in the unemployment rate for the month of July, as measured on a year-over-year basis. For that month, the ... CRA enhances telephone security procedures The Canada Revenue Agency (CRA) has issued a Tax Tip reminding taxpayers of the procedures which it utilizes to protect their personal information, particularly with respect to contacts between taxpay... Third quarterly income tax instalment due September 15 Individuals who are required to pay income tax by instalments must make their third quarterly instalment for 2019 on or before September 15, 2019. As that date is a Sunday, such payments are considere... Federal government issues initial listing of prescribed livestock tax deferral areas for 2019 The federal government provides tax relief to livestock producers who are experiencing severe weather or climate conditions during the year. Such relief is provided through the livestock tax deferral ... Bank of Canada releases 2020 interest rate announcement dates The Bank of Canada has released the listing of dates on which it will make scheduled interest rate announcements during calendar year 2020. There will be 8 such scheduled interest rate announcements d... Mortgage stress test interest rate lowered to 5.19% Prospective mortgage borrowers in Canada are subject to a “stress test” as part of the assessment of their credit-worthiness. Under that test, such borrowers are required to qualify for a mortgage... Inflation rate up by 2% in June The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation during the month of June 2019 stood at 2%. The comparable rate for May was 2.4%. The decr... Prescribed interest rate for leasing for August Slight increase in unemployment rate for June The most recent release of Statistics Canada’s Labour Force Survey shows that, although the unemployment rate for the month of June rose by 0.1%, employment increased by 132,000 positions during the... In its regularly scheduled interest rate announcement made on July 10, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the bank rate remains at 2%. ... Prescribed interest rates for the first three quarters of 2019 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the first three quarters of 2019, as well as the rates that will apply for th... Increases to GST/HST credit and Canada Child Benefit payment rates July 1, 2019 is the start of the 2019-20 benefit year for many provincial and federal child and tax benefits, including the federal GST/HST credit and the Canada Child Benefit. As of that date, the pa... OAS payment rates for third quarter of 2019 The federal government has announced the Old Age Security (OAS) and related amounts which will be paid during the third quarter (July 1 to September 30) of 2019. OAS payments are indexed quarterly to ... Prescribed interest rate for leasing for July The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of July 2019. The prescribed rate for July is 2.75%. A chart showi... Inflation rate for May at 2.4% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of May 2019, as measured on a year-over-year basis, stood at 2.4%. Inflation during... Finance holding consultations on upcoming changes to stock option rules Under the Canadian tax system, employee stock options receive preferential tax treatment. In this year’s Budget the federal government indicated that, in its view, the existing rules on stock option... First-time home buyer’s incentive to launch September 2, 2019 In this year’s federal Budget, a new program was announced to benefit first-time home buyers. Under that program, the First-Time Home Buyer’s Incentive, the Canada Mortgage and Housing Corporation... Increases to Canada child benefit effective July 1, 2019 Effective as of July 2019, the amount of Canada Child Benefit (CCB) payable to eligible Canadian families will be increased to account for inflation. Starting with the July payment (which will be made... Unemployment rate down slightly in May The most recent release of Statistics Canada’s Labour Force Survey shows a small decline in the overall unemployment rate recorded for the month of May. The unemployment rate for that month stood at... Prescribed interest rates for leasing for June 2019 The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will be in effect during the month of June 2019. The prescribed rate for that month will be increase... Individual income tax instalment payment due June 17 Individual taxpayers who pay income tax by instalments must make their second instalment payment for 2019 on or before June 17, 2019. Such taxpayers will have received an instalment notice setting out... 2018 returns for self-employed taxpayers due June 17, 2019 Self-employed taxpayers (and their spouses) have until Monday June 17, 2019 to file their income tax returns for the 2018 tax year. Returns filed after that date will be subject to late-filing penalti... Bank of Canada maintains interest rates at current levels In its regularly scheduled interest rate announcement made on May 29, the Bank of Canada indicated that, in its view, no change was needed to current interest rates. Consequently, the Bank Rate remain... Filing of 2018 tax return required to receive federal tax benefits The federal government and many of the provinces provide benefit programs for which both entitlement and benefit amount are based, at least in part, on the income of the recipient taxpayer. Those bene... Overall inflation rate for April 2019 at 2% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of April stood at 2%, as measured on a year-over-year basis. Seven of the eight maj... CRA confirms June 17 filing deadline for self-employed taxpayers The Canada Revenue Agency (CRA) has issued a Tax Tip confirming that the filing deadline for individual income tax returns filed for the 2018 tax year by self-employed individuals and their spouses is... Good employment news for the month of April The most recent release of Statistics Canada’s Labour Force Survey shows growth in employment during the month of April for nearly all demographic groups. The overall unemployment rate for the month... CRA issues warning on Health Spending Account tax schemes The Canada Revenue Agency (CRA) has issued a warning about a current tax scheme involving Health Spending Accounts (HSAs) which are being marketed to small businesses. HSAs are self-insured health pla... Canada Child Benefit rates to increase in July The federal government has announced that, effective with the July 2019 payment, Canada Child Benefit rates will increase.As of July, the maximum benefit for a child under the age of 6 will increase t... Prescribed interest rate for leasing for May 2019 The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will be in effect during the month of May 2019. The prescribed rate for that month will be reduced t... CRA reminds flood-affected taxpayers of available relief The Canada Revenue Agency (CRA) has issued a press release reminding taxpayers who have been affected by this spring’s floods of the availability of relief with respect to their obligation to file a... Increase in rate of inflation for March 2019 The most recent release of Statistics Canada’s Consumer Price Index shows a significant increase in the rate of inflation recorded for the month of March 2019. During that month, the CPI rose 1.9%, ... The Bank of Canada, in its regularly scheduled interest rate announcement made on April 24, determined that no change was needed to current rates. The Bank Rate therefore remains at 2%. The press rele... OAS rates unchanged for the second quarter of 2019 The federal government has announced the Old Age Security payment rates which will be in effect for the second quarter (April 1 to June 30) of 2019. OAS payment rates are indexed quarterly to inflatio... April 30 deadline for payment of 2018 individual income taxes All payments of individual income tax owed for the 2018 taxation year must be received by the Canada Revenue Agency (CRA) on or before Tuesday April 30, 2019. There are a number of means by which paym... CRA issues guide to medical expense claims for 2018 The Canada Revenue Agency (CRA) has issued an updated guide to be used by taxpayers who are claiming medical expenses on their income tax returns for 2018. Individual taxpayers are entitled to claim a... Unemployment rate unchanged in March The most recent release of Statistics Canada’s Labour Force Survey indicates that there was no change in the overall unemployment rate for the month of March. That rate remained at 5.8%. Employment ... Prescribed interest rates for leasing for April The Canada Revenue Agency has announced the prescribed interest rates for leasing rules which will be in effect during the month April 2019. The prescribed rate for the upcoming month is 3.1%. A chart... Prescribed interest rates for the first half of 2019 CRA posts Tax Tips for students and seniors The Canada Revenue Agency (CRA) has posted a number of Tax Tips for seniors and students on its website. Those Tax Tips list and explain particular credits, deductions, or benefits which are most like... Inflation increases by 1.5% in February The most recent release of Statistics Canada’s Consumer Price Survey indicates that the rate of inflation for the month of February, as measured on a year-over-year basis, stood at 1.5%. The compara... Budget 2019: Adjusting the Rules for Cannabis Taxation Budget 2019 is proposing that the excise duty framework for cannabis products be amended to more effectively apply the excise duty on new classes of cannabis products, as well as to cannabis oils, whi... Budget 2019: Expanding Health-Related Tax Relief Budget 2019 proposes to expand health-related tax relief under the Goods and Services Tax/Harmonized Sales Tax (GST/HST) system to better meet the health care needs of Canadians by: providing GST/HST ... Budget 2019: Employee Stock Options Budget 2019 announces the Government’s intent to limit the use of the current employee stock option tax regime and move toward aligning the tax treatment with the United States for employees of larg... Budget 2019: Electronic Delivery of Requirements for Information Budget 2019 proposes that the Canada Revenue Agency (CRA) will be allowed to send requirements for information electronically to a bank or credit union only if the bank or credit union notifies the CR... Budget 2019: Carrying on Business in a Tax-Free Savings Account Budget 2019 proposes that the joint and several liability for tax owing on income from carrying on a business in a TFSA be extended to the TFSA holder. The joint and several liability of a trustee of ... Budget 2019: Mutual Funds: Allocation to Redeemers Methodology Budget 2019 proposes to introduce a new rule that would deny a mutual fund trust a deduction in respect of the portion of an allocation made to a unitholder on a redemption of a unit of the mutual fun... Budget 2019: Pensionable Service Under an Individual Pension Plan (IPP) Budget 2019 proposes to prohibit Individual Pension Plans (IPPs) from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of... Budget 2019: Contributions to a Specified Multi-Employer Plan (SMEP) for Older Members To bring the Specified Multi-Employer Plan (SMEP) rules in line with the pension tax provisions that apply to other defined benefit RPPs, Budget 2019 proposes to amend the tax rules to prohibit contri... Budget 2019: Medical Expense Tax Credit Amounts paid for cannabis products may be eligible for the medical expense tax credit where such products are purchased for a patient for medical purposes in accordance with the Access to Cannabis for... Budget 2019: Supporting Donations of Cultural Property A recent court decision related to the interpretation of “national importance” has created uncertainty about the availability of these tax incentives. Budget 2019 proposes to introduce legislative... Budget 2019: Tax Measures for Kinship Care Providers, Tax Treatment of Financial Assistance Payments Budget 2019 proposes to amend the Income Tax Act to clarify that financial assistance payments received by care providers under a kinship care program are neither taxable nor included in income for th... Budget 2019: Tax Measures for Kinship Care Providers, Canada Workers Benefit Budget 2019 proposes to amend the Income Tax Act to clarify that an individual may be considered to be the parent of a child in their care for the purpose of the Canada Workers Benefit, regardless of ... Budget 2019: Improvements to the Registered Disability Savings Plan (RDSP) To ensure that the Registered Disability Savings Plan (RDSP) continues to respond to the needs of Canadians with disabilities, Budget 2019 proposes two changes that will better protect the long-term s... Budget 2019: Variable Payment Life Annuities Budget 2019 proposes to amend the tax rules to permit PRPPs and defined contribution RPPs to provide a variable payment life annuity (VPLA) to members directly from the plan. A VPLA will provide payme... Budget 2019: Advanced Life Deferred Annuities Budget 2019 proposes to amend the tax rules to permit an advanced life deferred annuity (ALDA) to be a qualifying annuity purchase, or a qualified investment, under certain registered plans. An ALDA w... Budget 2019: Change in Use Rules for Multi-Unit Residential Properties To improve the consistency of the tax treatment of owners of multi-unit residential properties in comparison to owners of single-unit residential properties, Budget 2019 proposes to allow a taxpayer t... Budget 2019: Modernizing the Home Buyers’ Plan (HBP) Budget 2019 proposes to increase the Home Buyers’ Plan (HBP) withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019. Budget 2019 also proposes to extend acces... Budget 2019: Canada Training Credit Budget 2019 proposes this new, non-taxable credit that would help Canadians pay for training fees. Every year, eligible workers between the ages of 25 and 64 would accumulate a credit balance of $250 ... Budget 2019: Strengthening Canada’s International Tax Rules Budget 2019 proposes to: extend the foreign affiliate dumping rules in the Income Tax Act to prevent a corporation resident in Canada that is controlled by a non-resident individual or trust from redu... Budget 2019: Strengthening Beneficial Ownership Transparency In Budget 2019, the Government proposes further amendments to the Income Tax Act to make the beneficial ownership information maintained by federally incorporated corporations more readily available t... Budget 2019: Character Conversion Transactions Budget 2019 proposes an amendment that introduces an additional qualification for the commercial transaction exception in the definition “derivative forward agreement” as the exception applies to ... Budget 2019: Canadian-Belgian Co-productions - Canadian Film or Video Production Tax Credit Budget 2019 proposes to add The Memorandum of Understanding between the Government of Canada and the Respective Governments of the Flemish, French and German-speaking Communities of the Kingdom of Bel... Budget 2019: Improving Support for Small, Growing Companies Budget 2019 proposes to repeal the use of taxable income as a factor in determining a CCPC’s annual expenditure limit for the purpose of the enhanced SR&ED tax credit. As a result, small CCPCs w... Budget 2019: Small Business Deduction - Farmers and Fishers Budget 2019 proposes to eliminate the requirement that sales be to a farming or fishing cooperative corporation in order to be excluded from specified corporate income. As such, this exclusion will ap... Budget 2019: Supporting Business Investment in Zero-Emission Vehicles Budget 2019 proposes that these vehicles be eligible for a full tax write-off in the year they are put in use. Qualifying vehicles will include electric battery, plug-in hybrid (with a battery capacit... Budget 2019: Support for Canadian Journalism Budget 2019 proposes to introduce three new tax measures to support Canadian journalism: allowing journalism organizations to register as qualified donees; a refundable labour tax credit for qualifyin... Unemployment rate unchanged in February The most recent release of Statistics Canada’s Labour Force survey shows that, while the rate of unemployment for the month of February was unchanged, employment grew by 56,000 positions. The unempl... In its regularly scheduled interest rate announcement made on March 6, the Bank of Canada indicated that, in its view, no change was needed to current rates. Accordingly, the Bank Rate remains at 2% I... Inflation down to 1.4% for January 2019 The most recent release of Statistics Canada’s Consumer Price Index (CPI) shows a drop in the rate of inflation for the month of January. That rate, as measured on a year-over-year basis, was 1.4%. ... First instalment payment of 2019 due March 15 The first instalment payment of individual income taxes for the 2019 tax year is due on or before Friday March 15, 2019. Individuals who have previously paid tax by instalments will have received an i... CRA providing extended hours for individual tax help line The Canada Revenue Agency (CRA) has announced that its Individual Income Tax Enquiries line (1-800-959-8281) is now available for extended hours. Until April 30, 2019, telephone agents will be availab... The Minister of Finance has announced that the 2019-20 federal Budget will be brought down on Tuesday, March 19, 2019. Once the Budget is released, at around 4 p.m., the Budget Papers will be posted o... Obtaining a 2018 tax return form and guide The 2018 T1 Individual Income Tax Return and Guide package is now available on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packag... NETFILE available for filing of 2018 individual income tax returns The Canada Revenue Agency (CRA) has announced that its NETFILE service for the filing of individual income tax returns is available as of Monday, February 18, 2019. The current NETFILE service (which ... CRA issues tax filing tips for students The Canada Revenue Agency (CRA) has issued a Tax Tip for post-secondary students and graduates who will be filing an income tax return for the 2018 tax year. That Tax Tip, which can be found on the CR... Small increase in unemployment rate for January During the month of January, the number of people employed in Canada rose by 67,000, with that figure attributable for most part to increased employment of those aged 15 to 24 and those working in the... Prescribed interest rate for leasing The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of March 2019. That prescribed rate for the month of March will be... CRA issues tax filing tips for seniors The Canada Revenue Agency (CRA) has posted a Tax Tip which lists the tax deductions and credits which are most relevant to seniors, and which can be claimed by eligible seniors when preparing and fili... NETFILE service for 2018 returns available February 18 The Canada Revenue Agency (CRA) has announced that its NETFILE service for the filing of individual income tax returns for the 2018 tax year will be available online on Monday February 18, 2019. The N... Upcoming changes to the CRA’s e-mail service Effective as of February 11, 2019, the Canada Revenue Agency (CRA) will be merging its online mail and account alerts services. Notification of the change is being sent to users of those services, and... Pre-Budget consultations ending on January 29 Finance Canada has issued a reminder that the current consultation process with respect to the upcoming 2019-20 federal Budget will end on Tuesday, January 29, 2019. Interested stakeholders can make t... Inflation rate increases to 2% in December The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation, as measured on a year-over-year basis, stood at 2% during the month of December 2018. The equiva... Finance announces automobile allowance limits and rates for 2019 Finance Canada has announced the automobile deduction limits and expense benefit rates which will apply to businesses and their employees during the 2019 taxation year. Most of the limits which applie... In its regularly scheduled interest rate announcement made on January 9, 2019, the Bank of Canada indicated that no change would be made to current interest rates. The Bank Rate therefore remains at 2... Prescribed interest rates for leasing for January and February The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will be in effect during the months of January and February 2019.The prescribed rate for January is ... Prescribed interest rates for the first quarter of 2019 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the first quarter of 2019, as well as the rates that will apply for the purpo... Canada Pension Plan changes to take effect January 1, 2019 Over the next seven years, significant changes will be made to the Canada Pension Plan. Those changes will result, overall, in an increase of about 50% in the maximum retirement benefit. The first suc... Inflation for November down to 1.7% The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of November, as measured on a year-over-year basis, stood at 1.7%. The comparable r... The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of January 2019. The prescribed rate for that month will be 3.39%.... December 31, 2018 deadline for 2008 tax fairness applications Where taxpayers fail to meet their tax filing or payment obligations, penalties and interest are usually levied for that failure. However, the Minister of National Revenue has the authority to forgive... Unemployment rate for November at 42-year low The most recent release of Statistics Canada’s Labour Force Survey shows that the unemployment rate for the month of November was the lowest recorded since 1976. The unemployment rate for the month,... In its regularly scheduled interest rate announcement made on December 5, the Bank of Canada indicated that, in its view, no change to current interest rates was needed. Accordingly, the Bank Rate rem... Personal tax credit amounts for 2019 The federal government will provide the following personal tax credit amounts for 2019: Basic personal amount ……………………………… $12,069 Spouse or common law partner amount …... Inflation rate up slightly in October The most recent release of Statistics Canada’s Consumer Price Index shows a slight increase in the rate of inflation rate for the month of October. That rate rose 2.4%, following a 2.2% increase for... Finance announces start of 2019-20 federal Budget consultation process Finance Canada has announced details of the consultation process leading up the release of the 2019-20 Federal Budget next spring. The budget consultation process will include both in-person and digit... New tax credits to support news organizations In the 2018-19 Fall Economic Statement, the Minister of Finance announced that three new tax initiatives would be introduced to support both traditional and digital news organizations. Those changes w... Federal government announces new business tax incentives In the Fall Economic Statement issued on November 21, the Minister of Finance announced new tax measures that would: allow businesses to immediately write off the cost of machinery and equipment used ... CRA issues 2018 employer’s guide to taxable benefits Some of the non-monetary benefits which employers provide to their employees must be included in the employee’s income and taxed as such. Each year, employers must include the amount of any such tax... CRA announces enhancements to BizApp The Canada Revenue Agency (CRA) provides a mobile web app for small business owners and sole proprietors which enables them to manage their business tax accounts on any browser-enabled mobile device. ... Unemployment rate down slightly for September The most recent release of Statistics Canada’s Labour Force Survey shows a small decline in unemployment during the month of September. That rate stood at 5.8%, down 0.1% from the rate posted for Au... Canada Pension Plan contribution rates for 2019 The Canada Revenue Agency has announced the contribution rates and amounts for the Canada Pension Plan which will apply during the 2019 calendar year, and that announcement can be found at https://www... The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of November. The prescribed rate for that month will be 3.43%. A c... CRA announces contingency plans for postal disruption The Canada Revenue Agency (CRA) (as well as other federal government departments and agencies) has issued information indicating how government payments will be handled during the current postal disru... Inflation rate at 2.2% for September The most recent release of Statistics Canada’s Consumer Price Index shows that the inflation rate for the month of September stood at 2.2%, as measured on a year-over-year basis. The comparable rate... In its regularly scheduled interest rate announcement made on October 24, the Bank of Canada once again increased the bank rate, which now stands at 2%.In the press release announcing the increase, wh... OAS payment rates for the fourth quarter of 2018 The federal government has announced the maximum Old Age Security (OAS) benefit amount which will be paid to eligible recipients in the last quarter — October, November, and December — of 2018. Th... CRA issues updated forms for reduced source deductions In some circumstances, taxpayers are entitled to request a reduction in the amount of tax being deducted at source from their income. An employee can request that the amount of income tax being deduct... CRA to hold webinar on CPP changes for the self-employed A number of changes have been made over the past few years to the Canada Pension Plan (CPP), with those changes generally providing greater flexibility to CPP contributors. Some of those changes parti... Slight decline in unemployment rate for September The most recent release of Statistics Canada’s Labour Force Survey shows a small decrease in the overall unemployment rate for the month of September. That rate decreased from the 6% rate recorded f... The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of October. The prescribed rate for that month will be 3.33%. A ch... Prescribed interest rates for the fourth quarter of 2018 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the fourth quarter of 2018, as well as the rates that will apply for the purp... NETFILE still available for filing of 2017 returns While the deadline for filing of individual income tax returns for the 2017 tax year (for both employees and the self-employed) has passed, the Canada Revenue Agency’s (CRA’s) NETFILE service thro... Inflation rate down slightly in August The most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of August 2018 stood at 2.8%, as measured on a year-over-year basis. The comparable... CRA updates fact sheet for temporary Canadian workers Canada’s tax system is one based on residency, and individuals who are considered to be residents of Canada are subject to federal and provincial tax. The federal government has issued a fact sheet ... Employment insurance premium rate for 2019 The Minister of Finance has announced that the employment insurance premium rate payable by employees and the self-employed for the 2019 tax year will be reduced. The premium rate for that year will b... CRA issues updated guide to federal and provincial child benefits The federal government has updated and re-issued its guide to child benefits paid by the federal and several provincial governments. The updated guide (T4114), which is available on the Canada Revenue... Slight increase in unemployment rate for August The most recent release of Statistics Canada’s Labour Force Survey shows a small increase in the unemployment rate posted for the month of August. That rate rose by 0.2%, from 5.8% to 6%. Most of th... Relief available to taxpayers affected by wildfires The Canada Revenue Agency (CRA) can provide interest and penalty relief to taxpayers who are unable to meet their tax filing or payment obligations due to circumstances beyond their control, including... In its scheduled interest rate announcement made on September 5, the Bank indicated that no change would be made to current interest rates. Accordingly, the Bank Rate remains at 1.75%. The Bank acknow... CRA issues Tax Tip on benefit review process Each year the Canada Revenue Agency (CRA) sends a letter and questionnaire to approximately 350,000 taxpayers, seeking to determine whether such taxpayers are receiving the correct tax credits and ben... Upcoming tax instalment due date for individuals The due date for the third instalment payment of 2018 income taxes by individuals falls on September 15, 2018. As that date is a Saturday, instalment payments will be considered to be made on time if ... Amendments to be made to rules on political activities of charities The federal government has announced that changes will be made to the administrative rules governing the extent to which charities can engage in non-partisan political activities. The intended amendme... Rate of inflation at 3% for July The most recent release of Statistics Canada’s Consumer Price Survey shows a significant increase in inflation for the month of July. That rate, as measured on a year-over-year basis, stood at 3%. T... Unemployment rate down slightly for July The most recent release of Statistics Canada’s Labour Force Survey indicates that the overall rate of unemployment was down slightly for the month of July. That rate stood at 5.8%, down by 0.2% from... Finance announces lower payment card fees for small businesses The Minister of Finance has announced that two major payment card networks have agreed to lower costs charged to small and medium-sized businesses. Both VISA and Mastercard have agreed to reduce domes... CRA podcasts and webinars for small businesses The Canada Revenue Agency (CRA) prepares and posts on its website a number of podcasts and webinars covering tax and tax-related issues of particular interest to small businesses. There are currently ... Bank of Canada 2019 interest rate announcement dates The Bank of Canada has issued a listing of the dates on which it will make announcements during the 2019 calendar year with respect to current interest rates. There are eight such interest rate announ... Upcoming changes to mortgage lending assessments for self-employed taxpayers The Canada Mortgage and Housing Corporation (CMHC) has announced that, effective as of October 1, 2018, changes will be made to the process by which self-employed taxpayers are assessed for mortgage f... CRA issues new direct deposit form for businesses The Canada Revenue Agency (CRA) has updated and re-issued its Form RC366, which allows businesses to have amounts owed to them deposited directly to a bank account. The updated form can be used to eit... CRA issues updated guide to RESPs The Canada Revenue Agency (CRA) has updated and re-issued its publication RC4092(E) on Registered Education Savings Plans. The updated publication incorporates changes, originally announced as part of... Inflation rate up by 2.5% in June The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of June, as measured on a year-over-year basis, stood at 2.5%. That change ... Prescribed interest rates for leasing rules The Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will apply during the months of July and August 2018. Those prescribed rates will be 3.28% for July ... CRA issues updated guide to taxation of RRIF on death The Canada Revenue Agency has updated and re-issued its publication outlining the tax treatment of funds held in a RRIF on the death of the RRIF annuitant. The updated publication (RC4178(E)) also rev... While employment rose by 32,000 during the month of June, the unemployment rate was also up, by 0.2%, a result attributed by Statistics Canada an increase in the number of individuals seeking to enter... Bank of Canada increases benchmark interest rate In its regularly scheduled interest rate announcement made on July 11, the Bank of Canada indicated that it was increasing its benchmark interest rate by one-quarter of a percentage point. Accordingly... CRA issues Tax Tip on return review process Each year, the Canada Revenue Agency reviews approximately 3 million returns which have already been filed and assessed. Generally, such reviews are carried out to confirm income amounts reported, and... Old Age Security benefits to increase by 1.2% in third quarter Old Age Security (“OAS”) benefits received by Canadians are indexed to changes in the overall Consumer Price Index, and are adjusted each quarter to reflect increases in that Index.The federal gov... No change to inflation rate for May The most recent release of Statistics Canada’s Consumer Price Index indicates the rate of inflation for the month of May stood at 2.2%. The same rate was recorded for the month of April, and both ra... CRA issues updated source deductions online calculator The Canada Revenue Agency (CRA) has re-issued the payroll deductions online calculator to be used by employers in calculating employee source deductions as of July 1, 2018. The updated version of that... The Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of July. The prescribed rate for that month will be 3.28%. A chart... Prescribed interest rates for the third quarter of 2018 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the Agency for the third quarter of 2018, as well as the rates that will apply for the purpo... CRA updates and re-issues Notice of Objection form The Canada Revenue Agency has updated and re-issued its standard form for filing an objection to a Notice of Assessment or Reassessment. The 2018 T-400A E, Notice of Objection, can be found on the CRA... No change in unemployment rate for May The most recent release of Statistics Canada’s Labour Force Survey shows little change in unemployment during the month of May. For the fourth consecutive month, that rate stood at 5.8%. There was s... June 15 filing deadline for self-employed taxpayers The filing deadline for individual income tax returns for the 2017 year for self-employed individuals and their spouses is midnight Friday June 15, 2018. Returns can be filed using the Canada Revenue ... For Canadians who make quarterly instalment payments of personal income tax, the next due date for such payment is Friday June 15, 2018. The Canada Revenue Agency has posted a notice on its website in... Taxpayer relief available for Canadians affected by spring floods The Canada Revenue Agency (CRA) has issued a reminder to taxpayers who have been affected by this spring’s floods of the availability of administrative tax relief. Under the federal government’s T... In its regularly scheduled interest rate announcement made on May 30, the Bank of Canada indicated that, in its view, no change was needed to current interest rates. Accordingly, the Bank Rate remains... CRA issues updated payroll deduction formulas for July 1, 2018 The Canada Revenue Agency (CRA) has issued updated payroll deduction formulas for use by employers for payroll periods beginning after July 1, 2018. The updated formulas reflect changes in provincial ... Inflation rate for April at 2.2% The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of April stood at 2.2%, as measured on a year-over-year basis. The rate for... Changes to distribution of GST/HST reporting/remittance forms for small businesses The Canada Revenue Agency (CRA) will be making changes to its distribution method for GST/HST reporting and remittance forms for small businesses, with those changes generally directed toward reducing... Unemployment rate unchanged in April The most recent release of Statistics Canada’s Labour Force Survey indicates that there was no change during the month of April to either employment figures or the overall unemployment rate. That un... CRA tax topic podcasts available for download The Canada Revenue Agency prepares and posts podcasts on a number of different tax topics, both individual and corporate. Those podcasts are available for download from the CRA website. The current se... Prescribed interest rates for May and June The Canada Revenue Agency has announced the prescribed interest rates for leasing rules which will be in effect during the months of May and June 2018. Those prescribed rates will be 3.22% during the ... Getting information about your tax refund Taxpayers who have filed their return for the 2017 tax year and are expecting to receive a refund can track the status of that refund payment through a toll-free telephone line. That line, the CRA’s... CRA issues warning on filing season tax scams The Canada Revenue Agency (CRA) has issued a warning to taxpayers of the need to be particularly vigilant with respect to fraudulent text, telephone, and e-mail communications, which increase during t... Inflation rate for March reaches 2.3% The most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation stood at 2.3% during the month of March 2018, as measured on a year-over-year basis. The year... April 30 due date for all 2017 individual taxes owed The Canada Revenue Agency (CRA) has issued a reminder that all individual income tax balances owed for the 2017 tax year must be paid on or before Monday April 30, 2018. April 30 is also the deadline ... The most recent release of Statistics Canada’s Labour Force Survey shows that the rate of unemployment for the month of March 2018 stood at 5.8%. The same rate was recorded for February 2018. Employ... In its regularly scheduled interest rate announcement made on April 18, the Bank of Canada indicated that no change was required to current interest rates. Accordingly, the Bank Rate will remain at 1.... ReFILE service for changing individual income tax returns It is not uncommon for taxpayers to discover an error or omission in an already-filed return, and the usual means by which such error can be corrected is the filing of a T1-Adjustment form. While a co... CRA issues reminder of taxability of income from “sharing economy” The Canada Revenue Agency (CRA) has issued a reminder to taxpayers who receive income from the “sharing economy” that such income is taxable and must be reported on the annual tax return. Although... Bank of Canada interest rate announcement dates for 2018 The Bank of Canada’s regularly scheduled interest rate announcement dates for the remainder of calendar year 2018 are as follows: April 18, 2018; May 30, 2018; July 11, 2018; September 5, 2018; Octo... CRA issues update on home sale reporting requirements Proceeds received from the sale of one’s principal residence are, in most circumstances, not taxable, as such sales are eligible for the principal residence exemption. However, as of the 2016 tax ye... Significant increase in inflation rate for February The most recent release of Statistics Canada’s Consumer Price Index shows a sharp increase in inflation for the month of February. That rate stood at 2.2%, while the rate for January 2018 was 1.7%. ... Prescribed interest rates for second quarter of 2018 The Canada Revenue Agency (CRA) has announced the interest rates which will apply to amounts owed to and by the CRA for the second quarter of 2018, as well as the rates that will apply for the purpose... CRA issues warning on tax scams While taxpayers fall victim to tax scams year-round, such scams are more prevalent during and just following tax filing season. During that time, taxpayers expect to hear from the tax authorities, a... CRA publication on changes to Voluntary Disclosure Program available online In December 2017, the Canada Revenue Agency (CRA) announced that substantive changes would be made to the Agency’s Voluntary Disclosure Program (VDP). That program enables taxpayers who are in defau... CRA issues e-filers manual for 2017 returns The Canada Revenue Agency has issued its Guide RC4018, Electronic Filers Manual for 2017 Income Tax and Benefit Returns. That guide is for use by certified e-filers in filing individual income tax ret... Unemployment rate down slightly in February The most recent release of Statistics Canada’s Labour Force Survey shows a small decline in the overall unemployment rate for the month of February 2018. That rate declined from 5.9% in the month of... Increase in Consumer Price Index for January The most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation for the month of January 2018 stood at 1.7%. The rate for the previous month was 1.9%. Inflat... In its regularly scheduled interest rate announcement made on March 7, the Bank of Canada indicated that no change would be made to current interest rates. Accordingly, the bank rate remains at 1.5%. ... Budget 2018 - Personal tax credits Budget 2018: No personal tax credits have been repealed, and there are no new personal tax rate changes.... Budget 2018 - Foreign-born Status Indians Budget 2018: Foreign-born Status Indians may now be eligible for child benefits, retroactive to 2005.... Budget 2018 - Service animals Budget 2018: Eligibility of specially trained service animals will be expanded for the purposes of the medical expense tax credit.... Budget 2018 - Canada Workers Benefit Budget 2018: Taxpayers will no longer need to apply when filing their return in order to receive the Canada Workers Benefit.... Budget 2018 - Working Income Tax Benefit amounts Budget 2018: The Working Income Tax Benefit amounts are enhanced as of 2019, and the credit is renamed the Canada Workers Benefit... Budget 2018 - Non-resident surplus stripping rules Budget 2018: The non-resident surplus stripping rules are tightened to address the use of partnerships and trusts.... Budget 2018 - CRA compliance orders Budget 2018: Where a CRA compliance order or information requirement is contested, a new rule will “stop the clock” to prevent the tax year from being statute barred.... Budget 2018 - RDTOH Budget 2018: A corporation will have two RDTOH accounts going forward: eligible and non-eligible RDTOH.... Budget 2018 - Investment income Budget 2018: A corporation with $100,000 of investment income will have its small business limit reduced to $250,000.... Budget 2018 - Corporations' small business limit Budget 2018: A corporation’s small business limit will be reduced where the corporation earns investment income exceeding $50,000.... Extended hours for CRA telephone help line The Canada Revenue Agency (CRA) provides a 1-800 telephone service to provide tax information to Canadian taxpayers. Such information can be general in nature, or can involve the specific tax affairs ... CRA issues list of approved software for NETFILING of 2017 returns The Canada Revenue Agency’s NETFILE service for filing of individual income tax returns will be available starting Monday February 26, 2018. Taxpayers do not need to obtain an access code to file th... The most recent release of Statistics Canada’s Labor Force Survey shows a slight increase in the overall unemployment rate for the month of January. That rate rose by 0.1%, from 5.8% to 5.9%. That c... 2018-19 Federal Budget date announced The Federal Minister of Finance has announced that the 2018-19 federal Budget will be brought down on Tuesday, February 27, 2018. The Budget will be released at around 4 p.m. and the full Budget Paper... Obtaining hard copy of a 2017 income tax return package This year, the Canada Revenue Agency (CRA) will be providing taxpayers with hard copies of the 2017 Income Tax and Benefit package through a variety of means, and at various dates. Individuals who pap... CRA announces NETFILE service availability dates for 2017 returns The Canada Revenue Agency (CRA) has announced the date on which NETFILE service for the filing of individual income tax returns for the 2017 tax year will be available. NETFILE service will be availab... CRA to mail tax return packages to selected taxpayers While the majority of Canadians now file their individual income tax returns electronically, there is still a significant minority of tax filers who file using a printed return. The Canada Revenue Age... CRA announces change to 2017 individual tax return forms The Canada Revenue Agency (CRA) has posted a notice on its website that an “update” has been made to individual 2017 tax forms. Those forms are to be used by individual Canadians to file their ret... CRA reinstates telephone tax return filing service For a number of years, taxpayers whose tax situation was relatively straightforward were able to file their return by telephone. That service, which was called TELEFILE, was withdrawn a few years ago.... Bank of Canada raises interest rates As widely expected, the Bank of Canada indicated, in its regularly scheduled interest rate announcement made on January 17, that an increase in the bank rate was required. The Bank’s announcement, w... Federal Budget 2018-19 consultations to end January 26 Finance Canada has announced that the consultation process leading to the release of the 2018-19 federal Budget will conclude on Friday January 26, 2018. Canadians can provide input by submitting thei... CRA issues individual T1 Tax Return Form and Guide for 2017 The Canada Revenue Agency has released the T1 Individual Income Tax Return and Benefit form to be used by individual Canadian taxpayers in filing their return for the 2017 tax year. The T1 form is ava... Unemployment rate for December 2017 down to 5.7% The most recent release of Statistics Canada’s Labour Force Survey indicates that the unemployment rate for the month of December 2017 stood at 5.7%. The last period for which that rate was recorded... Small business tax rate reduced effective January 1 As previously announced, the federal small business tax rate is reduced to 10.0%, effective as of January 1, 2018. There is no change in the federal small business limit, which remains at $500,000. Th... Automobile deduction and benefit limits for 2018 Finance Canada has announced the limits and thresholds which will apply for purposes of determining automobile benefits and deductions during 2018. Most such deduction limits and thresholds are unchan... CRA issues guidance on upcoming changes to small business tax rules Planned changes to the federal income tax rules governing the taxation of small incorporated Canadian businesses are to take effect for 2018. One of those changes will include greater restrictions on ... Changes to be made to Voluntary Disclosure Program The Canada Revenue Agency (CRA) provides an administrative program under which taxpayers who have failed to file returns or pay taxes on a timely basis can bring their tax affairs into compliance, usu... Age 71 final RRSP contribution to be made by December 31 Taxpayers who are turning age 71 during the year and who have available contribution room are entitled to make a final RRSP contribution for that year. Such contributions must be made by the end of th... NETFILE service for 2016 returns available until January 19 Taxpayers who have not yet filed their return for the 2016 tax year will have until January 19, 2018 to file that return using NETFILE. Until that date, returns for the 2013, 2014, 2015, and 2016 tax ... In its regularly scheduled interest rate announcement made on December 6, the Bank of Canada indicated that, in its view, no change is required to current rates. Accordingly, the bank rate remains at ... Unemployment rate down in November The most recent release of Statistic’s Canada’s Labour Force Survey shows a slight decline in the overall unemployment for the month of November. That rate declined by 0.4%, to 5.9%. The November ... T4127 for 2018 payroll deduction amounts released The Canada Revenue Agency has issued the 2018 version of its publication T4127(E), Payroll Deductions Formulas. The guide is intended for use by payroll software providers and by employers which manag... CRA issues federal TD1 Form and TD1 Worksheet for 2018 The Canada Revenue Agency has issued the federal TD1 Form and Worksheet which will be used by taxpayers and their employers to determine required federal income tax source deductions for the upcoming ... Inflation rate up by 1.4% in October The most recent release of Statistics Canada’s Consumer Price Index (CPI) shows an inflation rate of 1.4% for the month of October, as measured on a year-over-year basis. The equivalent rate for the... Finance launches pre-budget consultations Finance Canada has begun the consultation process leading to the release of the 2018-19 federal Budget. As part of that budget consultation process, the Minister of Finance is holding in-person public... CRA to provide online filing for trust tax and information returns Effective as of January 8, 2018, administrators and representatives of qualifying Canadian trusts will be able to file trust income tax and information returns online, through the Canada Revenue Agenc... The federal government has announced the premium rates and maximum insurable earnings amount which will be in place for the 2018 calendar year. The premium rate for the year for employees has been set... CRA announces CPP contribution rates and amounts for 2018 The Canada Revenue Agency (CRA) has announced the contribution rates and amounts for both employers and employees which will apply for 2018. Maximum pensionable earnings for the year will be $55,900 (... AB - Province issues warning about scams involving new affordability payments Earlier this month, the provincial government announced that the online portal for claiming benefits under its new affordability payments program would open in the third week of January. The Alberta g... AB - Individual income tax rates and brackets for 2023 During the 2023 taxation year, the province of Alberta will impose personal income tax using the following taxable income brackets and tax rates. Tax Rate Taxable Incom... AB - Application process for inflation support payments opens January 18 Recently the provincial government announced that new or additional “affordability payments” will be provided to eligible residents of the province to help them cope with increases in the cost of ... AB - Personal tax credit amounts for 2023 The province of Alberta will provide the following personal tax credit amounts for 2023: Basic personal amount ……………………………… $21,003 Spouse or equivalent to spouse amount �... AB - Province to provide fuel tax relief for first half of 2023 The Alberta government has issued a Special Notice (Vol. 1, No.46) announcing that for the first half of 2023 (January 1 to June 30), the provincial fuel tax rate will be reduced to zero. The fuel tax... AB - Indexing factor for 2023 personal tax credits set at 6% In August of this year, the Alberta government announced that the provincial personal income tax system would be indexed to inflation, with retroactive effect from January 1, 2022. Consequently, the b... AB - Interest Rates - 2023 The province of Alberta levies and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates which will be levi... AB - Mid-Year Fiscal Update for 2022-23 released On November 24, the Alberta Minister of Finance released the province’s 2022-23 Mid-Year Fiscal Update and Economic Statement. The Update showed that the projected surplus for 2022-23 has decreased ... AB - Payroll deduction formulas for 2023 released The Canada Revenue Agency has released the payroll deduction formulas to be used by Alberta employers during the 2023 tax year. The Guide to Payroll Deductions outlines the amounts which Alberta emplo... AB - Updated publications issued on provincial fuel tax regime The province of Alberta imposes a fuel tax regime in which each recipient in the distribution chain recovers the fuel tax from the party they sell fuel to, continuing until the end consumer pays the t... AB - Province launches consultation process for 2023-24 budget The province of Alberta has announced the start of its consultation process with respect to the 2023-24 provincial budget which will be announced in February 2023. There are several elements to the co... AB - TRA no longer accepting corporate income tax account phone and email information requests The Alberta Tax and Revenue Administration (TRA) has announced that, effective as of October 3, 2022, it is no longer processing phone or email requests for basic corporate income tax account informat... AB - Basic personal tax exemption to increase for 2022 Earlier this year, the provincial government announced that, owing to higher than expected revenues, the surplus forecast for the 2022-3 fiscal year had increased to $13.2 billion. At that time, the g... AB - Natural gas rebate program begins October 1, 2022 The provincial government has announced that its natural gas rebate program will run from October 1, 2022 to March 31, 2023. Under that program, the amount of monthly rebate provided to consumers is t... AB - Province to resume collection of fuel tax as of October 1, 2022 Earlier this year, the Alberta government announced that, in order to assist Alberta residents dealing with higher living costs, a provincial fuel tax holiday would be provided for a six-month period.... AB - First-quarter financial report for 2022-23 shows increased surplus The fiscal update for the first quarter of the 2022-23 fiscal year (April 1 to June 30, 2022) indicates that the province is in a much better financial position than was projected in the 2022-23 budge... The province of Alberta levies and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates levied and paid fo... AB - Upcoming changes to accessing corporate income tax account information The Alberta Tax and Revenue Administration has announced that, effective as of October 3, 2022, it will no longer be processing phone or email requests for basic account information on corporate incom... AB - Updated guide issued for Alberta Innovation Employment Grant The Alberta Innovation Employment Grant (IEG) is a refundable tax credit that a qualified corporation may deduct from provincial corporate income tax otherwise payable for the year. Generally, the IEG... AB - Province expands Temporary Rent Assistance Benefit Alberta’s Temporary Rent Assistance Benefit, which provides rent supports for a two-year period to working households with low income, or those between jobs, is being expanded. In order to be eligib... AB - Electricity rebate program extended Earlier this year, the Alberta government announced that eligible residents of the province would be receiving a rebate on their electricity costs. That rebate would be provided by means of a $50 cred... AB - Provincial residents to receive rebate on electricity costs Earlier this year, the government of Alberta announced that a number of energy cost rebate programs would be provided to residents of the province during 2022. Payments under one of those programs –... AB - 2021-22 fiscal results show province in strong surplus position The province has released its financial results for the 2021–22 fiscal year which ended on March 31, 2022, and those results show the province to be in a strong surplus position.Projections issued i... AB - New corporate tax forms issued to reflect change in administrative policy The Alberta Tax and Revenue Administration has changed its policy with respect to the way a corporation’s address is updated, and, as of June 20, 2022, such updates can no longer be made on the corp... AB - Application process for provincial wage subsidy program now open The provincial government has announced that the third and final application intake for the Alberta Jobs Now program opened on June 3, 2022. Under that program, eligible employers can hire and train u... AB - Film and Television Tax Credit program expanded In 2020, Alberta introduced a Film and Television Tax Credit program, which provides a refundable tax credit based on eligible Alberta production and labour costs incurred for films and television ser... AB - Province to provide electricity and natural gas rebates The Alberta government has announced that it will be providing rebates to residents of the province to help offset the costs of electricity and natural gas. The Electricity Rebate Program will help co... AB - Alberta TRA issues guidance on applying for the Innovation Employment Grant AB - Alberta TRA posts updated corporate income tax return form Alberta corporations are required to file a provincial corporate income tax return within six months of the corporation’s tax year end. Calendar year corporations will consequently have to file thei... AB - TRA issues updated publications on tobacco tax changes In its 2022-23 budget brought down earlier this year, the province announced changes to its tobacco tax regime, including changes to the taxation of smokeless (loose) tobacco. The Alberta Tax and Reve... AB - Climate Action Incentive payment amounts for 2022-23 The federal government has released information on the Climate Action Incentive (CAI) payment amounts for 2022-23. For residents of Alberta, those amounts will be $539 for the first adult in a family,... AB - New publications issued on suspension of fuel tax collection The Alberta government recently announced that, in order to provide relief from current high fuel prices, it would be suspending the collection of provincial fuel tax. That measure will take effect as... AB - Collection of provincial fuel tax suspended The provincial government has announced that, to address the impact of record high gasoline prices, it will be suspending collection of the provincial fuel tax, effective as of April 1, 2022. That fue... AB - Budget projects surplus for 2022-23 fiscal year The 2022-23 provincial Budget released on February 24 contained no changes to personal or corporate tax rates, and no new taxes. Total revenue for the upcoming 2022-23 fiscal year is estimated at $62.... The province of Alberta will provide the following personal tax credit amounts for 2022: Basic personal amount ……………………………… $19,369 Spouse or equivalent to spouse amount … ... AB - Province announces date for 2022-23 Budget The Alberta government has announced that the province’s Budget for the upcoming 2022-23 fiscal year will be brought down on Thursday February 24, at 3:15 p.m. The Budget speech can be viewed online... AB - TRA issues revised updated Special Notice on tourism levy abatement extension The province had previously announced that the existing tourism levy abatement, which permits eligible tourist sector operators to retain rather than remit tourism levy amounts collected, would be ext... AB - Electronic filing required for Insurance Premiums Tax returns The Alberta Tax and Revenue Administration (TRA) has announced that, effective for taxation years ending after December 31, 2021, all Insurance Premiums Tax returns must be filed electronically, using... AB - Alberta Tax and Revenue resumes normal compliance activities The Alberta Tax and Revenue Administration (TRA) has announced that, effective as of January 2022, it has resumed all normal compliance activities with respect to filings and collections. Such collect... AB - Province to provide abatement of tourism levy until March 31, 2022 Alberta Finance has announced that, in view of the continuing impact of the pandemic on the tourism sector, eligible businesses in that sector will be provided with an abatement of the provincial Tour... AB - CRA issues TD1 form for Alberta residents for 2022 The Canada Revenue Agency (CRA) has issued the TD1 form to be used by residents of Alberta for the 2022 tax year. On the TD1 form, an employee indicates the provincial personal tax credit amounts for ... The province has launched the public consultation process leading to the delivery of Alberta’s Budget for the 2022-23 fiscal year. That Budget will be brought down in February 2022. The consultation... AB - Alberta TRA updates and consolidates IFTA publications The Alberta Tax and Revenue Administration has announced that existing information circulars relating to the International Fuel Trade Agreement (IFTA) have been revised and consolidated into a single ... AB - Mid-Year Fiscal Update shows improved deficit picture for 2021-22 On November 30, the province issued its Mid-Year Fiscal Update and Economic Forecast. Overall, the fiscal news was good, as the current deficit forecast for 2021-22 stands at $5.8 billion. That figure... AB - Province issues new guidance on IFTA registration, filing and payment The International Fuel Tax Agreement (IFTA) enables uniform collection and distribution of fuel taxes paid by motor carriers traveling in several jurisdictions in Canada and the United States. The Alb... AB - Second intake period now open for Alberta Jobs Now program Eligible employers can again apply for assistance under the Alberta Jobs Now program, as the second intake period for the program opened on November 10, 2021. That intake period applies to eligible ne... AB - Listing of authorized software for Net File of corporate tax returns released All Alberta corporations are required to file an Alberta Corporate Income Tax Return (AT1 Return) (with all applicable schedules) with the Alberta Tax and Revenue Administration (TRA) within six month... AB - Upcoming changes to the International Fuel Tax Agreement program Between October 2021 and April 2022, the province will implement a number of significant changes to the administration of the IFTA program in Alberta. Those changes will affect the way in which carrie... AB - One-time benefit available to SMEs for pandemic enforcement measures The provincial government has announced that a one-time benefit of $2,000 will be made available to small and medium-sized Alberta businesses. That benefit is intended to help offset costs incurred by... AB - Province issues guidance on TRACS filing of corporate income tax documents The province of Alberta provides an online system known as TRACS (Tax and Revenue Administration Client Self-Service) through which Alberta businesses can submit tax payments, registrations, applicati... AB - Changes to third party access to client accounts effective October 1 The Alberta Tax and Revenue Administration (TRA) has announced that changes are being made with respect to access to client tax records by representatives. Effective as of October 1, third party repre... AB - Province issues updated guide to Alberta Innovation Employment Grant In 2020, the provincial government announced the creation of a new program — the Alberta Innovation Employment Grant (IEG) — to be made available to corporations working in the research and develo... AB - Province issues first quarter fiscal update for 2021-22 Alberta Finance has released its report on the state of the province’s finances as of the end of the first quarter of the 2021-22 fiscal year. That quarter ended on June 30, 2021, and the province w... AB - TRA issues list of approved software for corporate tax return preparation The Alberta Tax and Revenue Administration (TRA) has issued a list of the software packages which are currently certified for use in the preparation and filing of Alberta corporate income tax (AT1) re... AB - Application deadline for Critical Worker Benefit extended As part of its pandemic relief measures, the province of Alberta introduced a Critical Worker Benefit program. Under the program, individuals in a broad range of sectors and occupations can receive a ... AB - Special notice issued on province’s adoption of federal Budget measures The 2021-22 federal Budget included measures providing for a current-year deduction of the cost of specified property acquired by a Canadian controlled private corporation after April 19, 2021, to a m... AB - Updated guide issued for Tourism Levy Return Businesses in the province which offer temporary accommodation for sale are required to collect the provincial tourism levy and to file a return with respect to such amounts collected, on a monthly or... AB - Province ends fiscal year with lower deficit Final results for the 2020-21 fiscal year that ended March 31, 2021 show that Alberta ended that year with a deficit of $16.9 billion, $3.2 billion lower than the third-quarter deficit forecast. For t... AB - Tax and Revenue Administration updates and re-issues tobacco tax publications The Alberta Tax and Revenue Administration (TRA) has updated and re-issued two publications relating to the province’s tobacco tax regime. The updated publications can be found on the TRA website at... AB - Province issues updated corporate income tax filing forms and publications Provincial corporate income tax returns are due six months from a corporation’s tax year end. The Alberta Tax and Revenue Administration (TRA) recently updated and re-issued both the AT1 Corporate I... AB - Tourism levy abatement extended to June 30, 2021 As part of its pandemic relief measures, the provincial government allowed tourism operators in Alberta to retain all tourism levy amounts which they collected between March 1, 2020 and March 31, 2021... AB - Updated circular issued on corporate income tax filing requirements The Alberta Tax and Revenue Administration has updated and re-released corporate income tax Information Circular CT-2, Filing Requirements. That circular, which provides information on whether a corpo... AB - Alberta Indian Tax Exemption cards discontinued in June 2021 Eligible holders of Alberta Indian Tax Exemption (AITE) cards are entitled to purchase fuel, tobacco, and accommodation exempt from tax on Alberta reserves. The Alberta Tax and Revenue Administration ... AB - Temporary Rent Assistance Benefit program now open Earlier this year, the province announced the creation of a Temporary Rent Assistance Benefit, and the application process for that program opened on May 1, 2021. The Temporary Rent Assistance Benefit... AB - Application process for small business grant now open The provincial government recently announced that the Small and Medium Enterprise Relaunch Grant (SMERG) program would be reopened for a new payment to businesses affected by the April 2021 public hea... AB - Expenditure cap for Film and Television Tax Credit eliminated Through the Film and Television Tax Credit (FTTC) program, the province of Alberta provides eligible corporations that produce films, televisions series, and other eligible screen-based productions wi... AB - New information notices issued on application of tourism levy to online accommodation bookings In its 2021-22 Budget, the province announced that it would, effective as of April 1, 2021, extend the application of the provincial tourism levy to short-term rentals purchased through online marketp... AB - Province launches new rental benefits and subsidies The government of Alberta has announced that, effective as of April 1, 2021, its existing Direct to Tenant Rent Supplement program will be replaced. Under the new program — the Rent Assistance Benef... AB - March 31 deadline for applications for Working Parents Benefit The provincial government has issued a reminder to eligible Alberta residents that the deadline for applying for the Working Parents Benefit is March 31, 2021. Parents who used childcare from April to... AB - Province issues guide to claiming the Innovation Employment Tax Grant Alberta Tax and Revenue Administration has issued a detailed guide to claiming the provincial Innovation Employment Tax Grant. That Grant generally provides eligible corporations with a tax credit equ... AB - 2021-22 Budget projects multi-year deficits The 2021-22 provincial Budget brought down on February 25 projects that Alberta will be in a deficit position at least until the end of the 2023-24 fiscal year. The Budget projects a deficit of $18.2 ... AB - Province to provide small and medium-sized business relaunch grants The Alberta government has announced that it will be making grants of up to $20,000 available to small and medium-sized businesses in the province which experienced significant revenue loss due to the... AB - Province issues information circular and guide for Alberta Innovation Employment Grant program The Alberta Innovation Employment Grant (IEG) program, which provides a refundable tax credit to qualified corporations that incur eligible expenditures in respect of IEG activities carried out in Alb... During the 2021 taxation year, the province of Alberta will impose personal income tax using the following taxable income brackets and tax rates. Tax Rate �... The province of Alberta will provide the following personal tax amounts for 2021. Basic personal amount ……………………………… $19,369 Spouse or common law partner amount …… $19,36... AB - Alberta TRA issues Special Notice on new research and development tax credit Effective as of January 1, 2020, the existing Alberta Scientific Research and Experimental Development (SR&ED) Tax Credit was eliminated. However, as of January 1, 2021, businesses in the province... AB - Fuel tax information updates issued by Alberta TRA The province of Alberta levies a tax on purchases of a number of types of fuel, including gasoline, diesel, and aviation fuel. The Alberta Tax and Revenue Administration (TRA) recently updated and re-... AB - Province expands small business pandemic relief program The Alberta government has announced that the Small and Medium Enterprise Relaunch Grant program which was announced earlier this year has been expanded. The existing Program provides financial assist... AB - Province issues updated fiscal forecast for 2020-21 On November 24, the provincial Minister of Finance released Alberta’s Mid-Year Fiscal Update, which included some good financial news. Figures contained in the update indicated that the provincial g... AB - Updated information issued on interest and penalty relief Taxpayers in Alberta can request relief from interest and penalties imposed under a variety of tax statutes and programs, including provincial corporate income tax, fuel tax, tobacco tax, and the tour... AB - Province updates publications on Alberta Indian Tax Exemption Program Alberta Tax and Revenue has updated and re-issued three Information Circulars dealing with the Alberta Indian Tax Exemption Program (AITE). Those updated Information Circulars are as follows: AITE-1R5... AB - Alberta Tax and Revenue Administration issues updated consent forms for multiple tax programs The Alberta Tax and Revenue Administration (TRA) has issued updated consent forms to be used for purposes of the province’s corporate income tax, fuel tax, tobacco tax, tourism levy, and Internation... AB - Consultation process for 2021-22 provincial Budget underway The provincial government has launched the consultation process for Alberta’s 2021-2022 Budget, to be brought down next spring. The consultation process begins with an online survey, which can be fo... AB - Province extends filing deadlines for SR&ED claims The Alberta Tax and Revenue Administration (TRA) has announced that the filing deadlines with respect to claims for the provincial Scientific Research and Experimental Development (SR&ED) tax cred... AB - Alberta Finance issues updated Corporate Income Tax Information Circulars Alberta Finance has updated and re-issued a number of publications relating to provincial corporate income tax filing and payment obligations, as well as the conduct of audits carried out in relation ... AB - Provincial corporate income tax balances due September 30, 2020 Earlier this year, the province announced that the payment deadline for certain provincial corporate income tax balances payable would be deferred. Consequently, Alberta businesses with such income ta... AB - Province announces first quarter results for 2020-21 The province has issued a report on its first quarter (April 1 to June 30) results for the 2020-21 fiscal year and the fiscal news is not good. First-quarter projections show a significant increase to... AB - Alberta Finance issues updated corporate income tax return forms Alberta Finance has updated and re-issued the tax forms required for filing of provincial corporate income tax returns, as well as the guide to preparing those returns. Those forms and the guide are a... AB - Province updates Notice on tourism levy remittance exemption Alberta Finance has issued an updated notice (Special Notice Vol. 7, No. 10) confirming that temporary accommodation operators in the province are not required to remit tourism levy amounts collected ... AB - Deadline for payment of corporate income tax extended to September 30, 2020 Alberta Finance has issued an updated Corporate Income Tax Special Notice (Vol. 5, No. 59) indicating that Alberta corporations with income tax balances owing on or after March 18, 2020, or installmen... AB - Deferred corporate income tax payments due August 31 Earlier this year, the provincial government announced that Alberta businesses with corporate income tax balances that become owing on or after March 18, 2020, or installment payments coming due betwe... AB - Province to provide relaunch grants to qualifying businesses The government of Alberta has announced that eligible small and medium-sized businesses in the province may receive a grant to help offset re-launch costs. The Small and Medium Enterprise Relaunch Gra... AB - Province adds to online payment options for taxpayers During the current pandemic, the Alberta Tax and Revenue Administration (TRA) has requested that taxpayers pay any amounts due through electronic means. The TRA recently announced that, to further fac... AB - Province reinstates IFTA registration requirements Earlier this year, in conjunction with the provincial state of emergency, the provincial government temporarily suspended all registration and credential requirements with respect to the International... AB - Province reduces corporate income tax rate effective July 1 The Alberta government released its Recovery Plan on June 29, 2020, which included the announcement of an immediate cut to the provincial general corporate income tax rate. Effective July 1, 2020, tha... AB - Alberta Child and Family Benefit to begin July 1, 2020 Effective July 1, 2020, the current Alberta Child Benefit and the Alberta Family Employment Tax Credit will be replaced by a single benefit, the Alberta Child and Family Benefit. The first quarterly p... AB - June 5 deadline for spring flood relief applications The Alberta government is providing one-time emergency financial assistance for spring flood evacuees to help them with costs while they were evacuated. Adults can receive $1,250, plus $500 for each c... AB - Further deferral of corporate income tax return filing deadlines The province had previously announced that the deadline for income tax returns to be filed by corporations between March 18 and June 1, 2020 would be deferred until June 1, 2020. That deferral announc... AB - Additional relief provided for tourism industry Alberta imposes a tourism levy which must be collected and remitted by operators of tourist accommodations in the province. The provincial government had previously announced that the remittance deadl... AB - Upcoming changes to provincial child and family benefits As originally announced in the 2019 provincial Budget, the current Alberta Family Employment Tax Credit and the Alberta Child Benefit will be combined into the new Alberta Child and Family Benefit, ef... AB - Deferral of corporate income tax filing and payment deadlines Earlier this year, the province announced that corporate income tax filing and payment deadlines occurring after March 18, 2020 and before June 1, 2020 would be extended. The Alberta Tax and Revenue A... AB - Rent relief provided to Alberta small business tenants The provincial government has announced that rent relief will be provided to small businesses in the province through the Canada Emergency Commercial Rent Assistance (CECRA) program. That program will... AB - Deadline extended for first quarter International Fuel Tax Agreement returns The Alberta Tax and Revenue Administration (TRA) has issued a Special Notice (Vol.10, No. 4) indicating that the filing deadline for returns under the International Fuel Tax Agreement (IFTA) has been ... AB - Provincial corporate income tax filing deadline extended The Alberta Tax and Revenue Administration has issued a corporate income tax Special Notice (Vol. 5, No. 57) providing that filing deadlines for provincial corporate income tax returns have been exten... AB - Province announces deferral of tourism levy remittance amounts The provincial government has announced that temporary accommodation providers in Alberta with tourism levy remittances coming due between March 27, 2020 and August 31, 2020 may defer making these pay... AB - Corporate income tax payment deadlines deferred The provincial government has announced that Alberta businesses with corporate income tax balances that become owing on or after March 18, 2020, or instalment payments coming due between March 18, 202... AB - Tourism levy to apply to short-term rentals through online rental platforms The province of Alberta imposes a levy of 4% on most types of temporary accommodation rentals in the province. Under current legislation an exemption from that levy is provided for rentals in establis... AB - Additional corporate tax rate reductions to be provided The 2020-21 provincial Budget brought down on February 27 included the announcement of further cuts to Alberta’s general corporate income tax rate. That rate was reduced from 11% to 10% effective Ja... AB - Province introduces corporate Film and Television Tax Credit In the 2019-20 Budget, the Alberta government announced that its grant-based program for the province’s film industry would be eliminated and replaced with a tax credit program. That new corporate t... AB - 2020-21 Budget date announced The Alberta Treasurer has announced that the province’s Budget for the upcoming (2020-21) fiscal year will be released on Thursday February 27, 2020, at approximately 3:15 p.m. The announcement of t... AB - Province posts current corporate income tax return forms Alberta Finance has posted on its website the corporate income tax forms to be used by Alberta corporations for fiscal years ending after July 1, 2019. The new forms posted are as follows: AT1 – Alb... AB - 2019 tax return package for Alberta residents now available online The Canada Revenue Agency (CRA) has released the Individual Income Tax Return and Guide to be used by individuals who were residents of Alberta as of December 31, 2019. That return and guide can be fo... AB - Province launches 2020 Budget consultation process The province has launched the budget consultation process leading to the release of the 2020-21 provincial Budget this spring. That consultation process will include an online survey and two telephone... Alberta will provide the following personal tax credit amounts for 2020:Basic personal amount ……………………………… $19,369Spouse or common law partner amount …… $19,369 l... During the 2020 taxation year the province of Alberta will levy individual income tax using the following income brackets and tax rates. Tax Rate ... AB - Province eliminates Community Economic Development Corporation tax credit The province of Alberta has provided a Community Economic Development Corporation (CEDC) tax credit to encourage rural economic development and, under that program, individual or corporate investors i... AB - Province eliminates Alberta Investor Tax Credit The Alberta Investor Tax Credit (AITC) offered a 30% tax credit to investors in the province who provided equity capital to Alberta small businesses doing research, development, or commercialization... AB - Online consultation on provincial employment standards review The province has announced that it is carrying out an online consultation process as part of a review of the province’s employment standards laws. That online survey will be available until Thursday... AB - Provincial eliminates Interactive Digital Media Tax Credit In the recent provincial Budget, it was announced that the Interactive Digital Media Tax Credit (IDMC) was being eliminated. That program offered a 25% refundable tax credit for labour costs associate... AB - Provincial Budget eliminates scientific research tax credit program Alberta's Scientific Research and Experimental Development Tax Credit (SR&ED) program provides a refundable tax credit to corporations for SR&ED expenditures carried out in Alberta by the corp... AB - Province to eliminate tuition and education tax credits In the 2019 Budget released on October 24, the government of Alberta announced that it will be eliminating the existing provincial tuition and education tax credits claimable by post-secondary student... AB - Information issued on 2020 IFTA licence renewals The Alberta Tax and Revenue Administration (TRA) has posted information on its website on how to renew an International Fuel Tax Agreement (IFTA) licence for 2020. Such renewals can be done online, th... AB - IFTA rates for third quarter of 2019 The Alberta government has announced the rates which will apply for purposes of the International Fuel Tax Agreement during the third quarter (July 1 to September 30) of 2019. IFTA is an agreement am... AB - Province issues updated bulletin on corporate income tax filing requirements Most corporations having a permanent establishment in the province of Alberta are required to file a provincial corporate income tax return by a specified deadline each year. The Alberta Tax and Reven... AB - Province issues updated bulletin on SR&ED tax credits The province provides eligible corporations which carry on scientific research and experimental development (SR&ED) work within Alberta with a refundable tax credit generally equal to 10% of the c... AB - Changes made to wage payment requirements effective September 1 As part of its general review of the province’s employment standards rules, the Alberta government has made changes to the rules governing the payment of wages for work done on holidays. A summary o... AB - Province establishes panel to study minimum wage changes The Alberta government has announced that it has appointed an expert panel to study and make recommendations with respect to the province’s minimum wage structure. The panel will, in particular, be ... AB - Provincial general corporate income tax rate reduced The general corporate provincial income tax rate imposed by the province was reduced, effective as of July 1, 2019, from 12% to 11%. That change was the first in a multi-step reduction of the provinci... AB - Province to adopt accelerated write-offs for qualifying energy expenditures The Alberta Tax and Revenue Administration has issued a Corporate Income Tax Special Notice (Vol. 5, No. 53) confirming that the province has adopted the measures announced in the 2018 Federal Economi... The province of Alberta levies and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates to be levied and p... AB - Instructions issued for June 30 IFTA split-rate filings Alberta motor carriers which operate in multiple jurisdictions and are members of the International Fuel Tax Agreement (IFTA) must file returns quarterly. The next such return is due on June 30, 2019.... AB - Additional information issued on elimination of carbon tax The provincial carbon tax was eliminated by the Alberta government, effective as of May 30, 2019. As a consequence of the elimination of the tax, a number of transitional rules are required, and the p... AB - Province eliminates carbon tax The government of Alberta has repealed the province’s carbon tax, effective as of May 30, 2019. In order to obtain a refund of carbon tax paid on fuel held in inventory on May 30, fuel sellers must ... AB - NETFILE required for certain provincial corporate income tax returns Corporations in the province of Alberta are required to file provincial corporate income tax returns, with such returns due within 6 months after the corporation’s taxation year end. That deadline m... AB - Province confirms upcoming reductions to general business income tax rate The government of Alberta has confirmed that it will be introducing legislation to reduce the general business provincial income tax rate. The current rate is 12%. The legislation, once enacted, will ... AB - Updates issued on Alberta fuel tax rates and filings The Alberta Tax and Revenue Administration has announced that, effective as of March 18, 2019, most fuel tax returns and claims can be filed through the province’s TRACS (Tax and Revenue Administrat... AB - New publications issued on Alberta Indian Tax Exemption Through the Alberta Indian Tax Exemption (AITE), the province of Alberta provides eligible consumers with an exemption from fuel tax and carbon levy, tobacco tax, and the provincial tourism levy. The ... AB - Third quarter fiscal update shows decreased deficit The third quarter fiscal update issued by the Provincial Treasurer on February 27 shows a decreased deficit for the current (2018-19) fiscal year. The deficit for the current year was forecast to reac... AB - Information issued on claiming a carbon tax levy exemption or rebate Residents of Alberta who use fuel for eligible activities may apply for an exemption certificate in order to obtain such fuel exempt from the carbon levy at the time of purchase. Those who were charge... AB - Prescribed areas for livestock tax deferral for 2018 Taxpayers whose livestock farming operations are affected by adverse weather conditions during a particular taxation year can benefit from a tax deferral program. That Livestock Tax Deferral provision... The province of Alberta has started the consultation process for the upcoming 2019-20 provincial Budget. A budget consultation webpage on which submissions can be made is available on the Alberta gove... AB - CRA issues supplementary 2019 payroll deduction tables for Alberta residents The Canada Revenue Agency has issued a supplement to the payroll deduction tables to be used for residents of Alberta during the 2019 tax year.The supplement, which can be found on the CRA website at ... AB - 2018-19 deficit lower than Budget forecast The second quarter update of provincial finances which was recently announced by the Alberta government shows that the province’s deficit for the current (2018-19) fiscal year is now forecast to be ... The province of Alberta will provide the following personal tax credit amounts for 2019: Basic personal amount ………………………………… $19,369 Spouse or equivalent to spouse amount …... AB - Special Notice issued on Community Economic Development Corporation tax credit The Alberta Tax and Revenue Administration has issued a Special Notice (Vol. 5, No. 50) on the province’s Community Economic Development Corporation (CEDC)Tax Credit. The tax credit program is avail... AB - Changes to province’s online tax system take effect November 19 As previously announced, the province will be making changes to its online tax service (TRACS), and those changes will take effect as of Monday November 19, 2018. On that date, current user IDs and pa... AB - Changes to IFTA licences and cards format in 2019 The provincial government has announced that, as of January 1, 2019, motor carriers will be allowed to carry their IRP cab cards and IFTA licences in electronic format, and that they will have the cho... AB - Applications available for 2018-19 Community Economic Development Corporation Tax Credit The provincial government has announced that applications are now being accepted for the 2018-19 intake period of the Community Economic Development Corporation (CEDC) tax credit program. In order to ... AB - Province issues information on tax payments and receipts during a postal disruption The Alberta Tax and Revenue Administration has posted information on its website with respect to a possible postal service disruption. The TRA information indicates that all taxpayers will continue to... AB - Minimum wage increase effective October 1, 2018 As previously announced, the Alberta general minimum wage increased, effective as of October 1, 2018, from $13.60 per hour to $15 per hour. The general minimum wage applies to most employees in the pr... AB - Changes planned to provincial online tax services The province of Alberta provides individual and corporate residents with the option of carrying out their tax filing and payment obligations online, through the province’s Tax and Revenue Administra... AB - Province issues updated IFTA registration form The Alberta Tax and Revenue Administration (TRA) has updated and re-issued a required form under the International Fuel Tax Agreement (IFTA). The new form, which is required in order to register for I... AB - First quarter financial results show reduced deficit The provincial government recently announced the province’s fiscal results for the first quarter (April 1 to June 30) of the 2018-19 fiscal year. Those results show that the 2019 economic forecast h... AB - Minimum wage to increase effective October 1, 2018 As previously announced, the general minimum wage payable in Alberta will increase, effective October 1, 2018, to $15 per hour. The general hourly minimum wage applies to most employees in the provinc... AB - Capital Investment Tax Credit 4th intake period announced The province provides a Capital Investment Tax Credit (CITC) to qualifying Alberta companies which make capital investments in qualifying assets, including machinery, equipment, and buildings. The non... AB - Consultation process on new condominium regulations ends July 31 Following an earlier consultation process, the provincial government has drafted new regulations that govern certain rights of condominium owners. Those draft regulations cover such matters as improve... AB - Province issues updated Circular on Voluntary Disclosure Program The Alberta Tax and Revenue Administration (TRA) administers a Voluntary Disclosure Program (VDP) under which the Minister can provide corporate taxpayers with relief from provincial interest and pena... AB - Province extends investor tax credits to 2021-22 The province of Alberta provides two tax credits intended to encourage investment by individuals and corporations in the manufacturing and processing, tourism, and new technology sectors. The Alberta ... AB - TRA issues new notices on tax-free fuel exports Under Alberta’s fuel and carbon tax regimes, no fuel tax or carbon tax is generally payable where fuel sales are for export from the province in bulk. The Alberta Tax and Revenue Administration has ... AB - Energy Efficiency Alberta warns of phishing scam Energy Efficiency Alberta administers a number of programs which enable consumers who purchase energy efficient equipment and appliances to qualify for rebates. The Agency has recently posted a warnin... AB - Province announces creation of Interactive Digital Media Tax Credit Earlier this year the provincial government announced the creation of a new Interactive Digital Media (IDM) Tax Credit. The credit is available in respect of eligible labour costs paid after April 1, ... AB - Full licensing requirement for residential builders effective May 1 Last year, the Alberta government announced that residential builders in the province would be required to be licenced, effective as of December 1, 2017. Temporary licences which were obtained on that... AB - Updated Tobacco Tax Information Circular issued by TRA The Alberta Tax and Revenue Administration has updated and re-issued its Tobacco Tax Information Circular (TTA-4R6) which summarizes the licensing, reporting, and remitting requirements imposed by the... AB - TRA expands FAQ document on Carbon Levy The Alberta Tax and Revenue Administration (TRA) has added additional topics to its FAQ document providing information with respect to a variety of issues which can arise under the province’s carbon... AB - Province issues updated corporate income tax forms The Alberta Tax and Revenue Administration has issued updated forms for use by companies in filing their provincial corporate income tax returns. The following new forms have been posted on the TRA we... AB - No tax increases in 2018-19 provincial Budget The Alberta Minister of Finance brought down the province’s 2018-19 Budget on March 22, 2018. There were no changes to personal or corporate tax rates announced in the Budget, and no changes to the ... AB - Province announces upgrades to online tax services The Alberta Tax and Revenue Administration (TRA) provides online tax services to individuals and businesses through its TRACS program. TRA has announced that new online services for a number of differ... AB - TEFU registration numbers extended to 2020 The Alberta Tax and Revenue Administration (TRA) has issued a Special Notice (Vol. 1, No. 40) with respect to the expiry date of current Tax Exempt Fuel User Numbers. Current numbers are scheduled to ... AB - Third Quarter Fiscal Update includes reduced deficit projection The 2017-18 Third Quarter Fiscal Update announced by the provincial government at the end of February indicates that the province’s projected deficit for the 2017-18 fiscal year is down significantl... AB - Province expands energy efficiency rebate program The province of Alberta currently provides a rebate program for businesses which make investments in energy efficiency. The provincial government recently announced that that energy efficiency rebate ... For the 2018 tax year, individuals resident in the province of Alberta will be able to claim the following non-refundable personal tax credit amounts: Basic personal amount ………………….…�... AB - Personal income tax rates and brackets for 2018 For the 2018 tax year, the province of Alberta will levy personal income tax at the following individual income tax rates and brackets: 10% on taxable income between $18,915 and $128,145; 12% on taxab... AB - Province launches 2018-19 Budget consultation process The provincial government has announced the start of the consultation process leading to the release of the 2018-19 Budget. That process has several components, including an online survey, which will ... AB - Warning issued on fraudulent tax refund texts The Alberta Tax and Revenue Administration (TRA) has issued a warning to Alberta taxpayers of a tax scam which is currently operating in the province. That tax scam involves fraudulent text messages s... AB - CRA releases 2017 T1 tax return form for Alberta residents The Canada Revenue Agency has released the 2017 T1 Individual Income Tax Return and Benefit form to be used by individuals who were residents of Alberta at the end of that year. The T1 form package (w... AB - Changes to carbon levy take effect January 1 Effective as of January 1 2018, changes have been made to Alberta’s carbon levy program. Those changes include an increase in the carbon levy, from $20 per tonne to $30 per tonne. That change will b... AB - 2018 payroll deduction tables for provincial income tax released The Canada Revenue Agency (CRA) has issued the payroll deduction tables which Alberta employers will use to determine employee source deductions for federal and provincial income tax, Canada Pension P... AB - Licensing of residential home builders now required As of December 1, 2017, residential builders in Alberta require a license to build homes and secure warranty coverage. In order to be licensed, builders must provide information about their finances, ... AB - Mandatory electronic filing of provincial corporate tax returns The Alberta Tax and Revenue Administration has issued a Special Notice advising corporations of upcoming changes to filing requirements for income tax returns. The new requirements are effective for r... AB - 2018 Alberta TD1 and TD1 Worksheet released The Canada Revenue Agency has issued the Alberta TD1 Form and Worksheet which will be used by taxpayers resident in the province, and their employers, to determine required provincial income tax sourc... AB - Changes to Carbon Levy Rates for 2018 The Alberta Tax and Revenue Administration (TRA) has announced the Carbon Levy Rates which will apply as of January 1, 2018. A listing of those rates can be found at www.finance.alberta.ca/publication... AB - Updated bulletin issued on corporate income tax interest and penalties Alberta corporations which fail to file corporate income tax returns by the required deadline, or which fail to remit corporate income tax amounts owed on time or in full may be subject to penalties a... Earning your trust ALW Partners LLP was originally established as Amonson Lalonde Ware in 1979 in Calgary, Alberta by combining the start-up practices of Marcel Lalonde and Dave Amonson with the long established practice of Ed Ware. Since then, we have cultivated strong relationships with businesses located locally and abroad. Our clientele operates in a broad range of industries primarily based in Alberta that range in size from start-up businesses to large private enterprises. At ALW we aim to provide high quality professional services consisting of accounting, taxation and business planning to individuals and privately owned businesses. Our objective is to attain, and maintain, trusted advisor status with have an unwavering commitment to earning your trust.

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professional_accounting

Welbilt, Inc. WBT US9490901041 (WBT) Real-time Estimate Cboe BZX - 01/20 02:18:59 pm 23.705 USD -0.15% 2021 WELBILT, INC. : Change in Directors or Principal Officers (form 8-K) 2021 INSIDER SELL : Welbilt 2021 Welbilt KitchenConnect and HCL Technologies Join Forces to Offer a Secured Cloud Solution for The Food Industry Built Using Microsoft Azure IoT WELBILT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Cautionary Statements Regarding Forward-Looking Information" below for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additionally, we use certain non-GAAP financial measures to evaluate our results of operations, financial condition and liquidity. For important information regarding the use of such non-GAAP measures, including reconciliations to the most comparable GAAP measure, see the section titled "Non-GAAP Financial Measures" below. The financial condition, results of operations and cash flows discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Welbilt, Inc. and its consolidated subsidiaries, collectively, the "Company," "Welbilt," "we," "our" or "us." We design, manufacture and supply best-in-class equipment for the global commercial foodservice market with our suite of products capable of storing, cooking, holding, displaying, dispensing and serving in both hot and cold foodservice categories. Our portfolio of products is used by commercial and institutional foodservice operators including full-service restaurants, quick-service restaurant chains, hotels, resorts, cruise ships, caterers, supermarkets, convenience stores, hospitals, schools and other institutions. Our products, product-based services and aftermarket parts and service support are recognized by our customers and channel partners for their quality, reliability and durability which support our end customers by improving menus, enhancing operations and reducing costs. We manage our business in three geographic business segments: Americas, EMEA and APAC. The Americas segment includes the United States ("U.S."), Canada and Latin America. The EMEA segment consists of markets in Europe, including Middle East, Russia, Africa and the Commonwealth of Independent States. The APAC segment consists primarily of markets in China, India, Australia, South Korea, Singapore, Philippines, Japan, Indonesia, Malaysia, Thailand, Hong Kong, Taiwan, New Zealand and Vietnam. We are required to prepare and present our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP" or "GAAP"). These geographic business segments represent the level at which separate financial information is available and which is used by management to assess operating performance and allocate resources. In addition to GAAP financial measures, we also evaluate our segment performance based upon Adjusted Operating EBITDA (a non-GAAP measure). See the definition of Adjusted Operating EBITDA and other non-GAAP measures used by management within the section titled "Non-GAAP Financial Measures" of this Operations. In addition, see Note 17, "Business Segments," of the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of our geographic business segments. Merger with Ali Holding S.r.l. On July 14, 2021, our company and Ali Holding S.r.l. ("Ali Group"), a significant and diversified global foodservice equipment manufacturer and distributor, entered into a merger agreement under which Ali Group will acquire our company in an all-cash transaction for $24.00 per share, or approximately $3.5 billion in aggregate equity value and $4.8 billion in enterprise value. The merger agreement has been unanimously approved by our company's board of directors and on September 30, 2021, was unanimously approved by our stockholders. In accordance with the terms of the merger agreement and immediately prior to the merger: (i) all of our company's outstanding and unvested common stock options and restricted stock units will become vested and exchanged for the right to receive cash equal to the $24.00 per share consideration (less the exercise per share of common stock for the common stock options), and (ii) all of our company's outstanding performance share units will also be exchanged, as determined assuming the maximum level of performance is achieved, for the right to receive cash equal to the $24.00 per share consideration, Upon completion of the transaction, our company's shares will no longer trade on The New York Stock Exchange. The Ali Group merger agreement provides that our company may be required to pay Ali Group a termination fee equal to $110.0 million if the merger agreement is terminated: (a) by Ali Group due to a breach of a covenant or agreement by our company that causes the failure of a condition to closing, or (b) by either party if the Merger has not been consummated prior to July 14, 2022 (subject to extension if certain approvals have not been obtained by such date) or if, in the case of clauses (a) or (b), an alternative proposal has been publicly disclosed, announced or otherwise made public and has not been withdrawn and within twelve months of such termination our company enters into a definitive agreement with respect to, or consummates, an alternative proposal. Welbilt and Ali Group have submitted regulatory filings in all required jurisdictions, including the U.S., United Kingdom, and European Union. The companies have decided that they will proceed with divesting the Company's Manitowoc ice brand ("Ice business") and the companies are confident that this step will ensure regulatory approval. The companies expect to complete the sale of the Ice business in early 2022 and then close the acquisition of Welbilt by Ali Group shortly thereafter. As of September 30, 2021, our company had not identified a buyer or begun marketing the Ice business for sale and concluded that the Ice business does not meet the criteria to be classified as an asset held for sale or its operations to be classified as discontinued operations. Financial Results Highlights Highlights of our financial results as of and for the three months ended September 30, 2021, as compared to the same period of the prior year, are as follows: •Net sales were $411.5 million, an increase of 37.9%. •Organic net sales (a non-GAAP measure) were $406.4 million, an increase of 36.1%. •Gross profit (as a percentage of net sales) was 35.8% compared to 35.3% for the same quarter of 2020. •Earnings from operations were $52.6 million, an increase of $31.4 million. •Adjusted Operating EBITDA (a non-GAAP measure) was $75.1 million, an increase of 64.7%, while Adjusted Operating EBITDA margin (a non-GAAP measure) was 18.3% compared to 15.3% for the same quarter of 2020. •Net earnings were $24.9 million and Adjusted Net Earnings (a non-GAAP measure) were $29.9 million. •Diluted net earnings per share was $0.17 and Adjusted Diluted Net Earnings Per Share (a non-GAAP measure) was $0.21. •As of September 30, 2021, our total liquidity was $397.3 million, consisting of $111.9 million of cash and cash equivalents and $285.4 million available for additional borrowing under our senior secured revolving credit facility, to the extent we are compliant with financial covenants which permit such borrowings. This compares to liquidity of $392.2 million as of June 30, 2021, $353.7 million as of March 31, 2021 and $375.0 million as of December 31, 2020. •Our total outstanding long-term debt, excluding finance leases, as of September 30, 2021 was $1,388.0 million. The following is a summary of factors that impacted our operating results and liquidity during the three months ended September 30, 2021. Impact of Global COVID-19 Pandemic on our Business The global economic conditions will continue to be volatile as long as the global COVID-19 pandemic remains a public health threat. The ongoing COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus and new strains of the virus, including quarantines, "shelter in place" and "stay at home" orders, curfews, travel restrictions, border closures, limitations on public gatherings, vaccination mandates, social distancing measures and mandated business limitations and closures. These measures have resulted in a disruption in the foodservice industry, including substantial restaurant closures and, as a result, in commercial foodservice equipment markets across the geographies in which we operate. We expect global economic performance and the performance of our businesses to vary by geography and discipline until the impact of the COVID-19 pandemic on the global economy subsides. Our Company's third quarter 2021 net sales, earnings from operations and cash flows all improved significantly in comparison to the third quarter of 2020. While the commercial foodservice industry has continued to gradually recover from the negative impacts of the COVID-19 pandemic, the extent of the ultimate impact of the COVID-19 pandemic, including supply chain disturbances and shipping and logistics delays, on our operational and financial performance will depend significantly on future developments, including the duration, scope and severity of the pandemic, the actions taken to contain, mitigate or recover from its impact in each of the countries where we operate globally (including actions taken to ease supply chain backlogs), the vaccination rates and the effectiveness of vaccinations, emergence of new strains of the virus, and the timing of the resumption of economic activity to pre-pandemic levels. Throughout each of the three quarters in the periods ended March 31, June 30, and September 30, 2021, we continued to see increases in the cost of specific commodities, components and parts purchased as compared to both the previous quarters of the current year and the same periods of the prior year, including the impact of rising inflation rates and tariffs, as challenges in the supply chain and shipping and logistics delays continue to persist. We expect that the average cost of commodities, components and parts purchased, including the impact of rising inflation and tariffs, for fiscal 2021 will be higher than the costs experienced during the year ended December 31, 2020. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in March 2020 and includes measures intended to assist companies during the global COVID-19 pandemic, including temporary changes to income and non-income-based tax laws, some of which had been enacted under the Tax Cuts and Jobs Act ("Tax Act") in 2017. As a result of the Tax Act and the CARES Act, additional legislative and regulatory guidance has been and may continue to be issued, including final regulations that could impact our effective tax rate in future periods. The American Rescue Plan Act of 2021 was enacted on March 11, 2021 and, among other things, included a second extension, through June 30, 2021, of the payroll support program provided under the CARES Act. We were not eligible for this incentive during the six months ended June 30, 2021. On September 9th, 2021 President Biden announced a proposed new rule which would mandate the COVID-19 vaccine or weekly testing for most U.S. employees, which would include our employees.This rule is expected be implemented through an Emergency Temporary Standard ("ETS") that will be promulgated by the Occupational Safety and Health Administration. If the ETS is ultimately issued and implemented, we expect there would be further disruptions to our operations, such as inability to maintain adequate staffing at our facilities, difficulties in replacing disqualified employees with temporary employees or new hires, increased costs and diminished availability of raw materials and component parts, and increased compliance burdens, including financial costs, diversion of administrative resources, and increased downtimes to accommodate for weekly COVID-19 testing, resulting in delays in the manufacturing process, which would negatively impact our future sales and ongoing customer relationships. We continue to proactively monitor the developments surrounding COVID-19 and may take additional actions based on the requirements and recommendations of governmental and health authorities around the world in an attempt to protect our stakeholders. Although we are currently unable to quantify with certainty the ultimate severity or duration of the impact of the global COVID-19 pandemic on our business, we expect that the challenges in the supply chain and shipping and logistics delays will likely have a continued impact on our operating results and financial condition in fiscal 2022. While our strategic objectives are long-term and remain intact, the execution of the merger with Ali Group and the uncertainty surrounding the global COVID-19 pandemic will impact the extent and timing of our execution of these objectives. As such, our strategic objectives continue to include achieving sustainable growth globally and increased profitability by leveraging our position as a leading commercial foodservice equipment provider, while selectively pursuing longer-term strategic partnerships, growing our customer base and expanding the frontiers of foodservice innovation, as well as attracting and developing industry-leading talent. Our specific strategic objectives include: •Achieve profitable growth: We intend to grow sales organically with our best-in-class foodservice equipment portfolio of products and an integrated kitchen solution approach. While organic growth across all three of our regions is our first priority, we may selectively pursue strategic partnerships as our capital structure allows in the future. Our industry is fragmented, and we believe there is significant opportunity for consolidation through partnerships and other strategic relationships to drive growth. •Business Transformation Program Update: Our Business Transformation Program ("Transformation Program") focuses on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing our global brand platforms. We are executing the final phases of the Transformation Program and expect to complete these activities by the end of 2021, as originally planned. Total consulting costs, restructuring charges, and other related transformation expenses incurred from the inception of the program through 2021 are expected to be approximately $73.0 million and we remain confident in our ability to achieve the $75.0 million of annualized savings previously quantified when our sales and volume levels return to pre-pandemic levels. In connection with the ongoing execution of the Transformation Program, we incurred $0.9 million and $4.4 million of consulting and other related Transformation Program costs for the three and nine months ended September 30, 2021, respectively. We also incurred $0.4 million and $0.7 million of restructuring charges for the three and nine months ended September 30, 2021, respectively, intended to reduce future operating expenses as a result of the improved efficiencies gained from the execution of the Transformation Program. We have incurred total costs of $72.5 million from the inception of the Transformation Program through September 30, 2021 and have settled these costs primarily in cash. We continue to evaluate the total investment in, and financial benefits of, the various initiatives associated with the Transformation Program. •Create innovative products and solutions: To remain an industry leader and grow our reputation as an innovative company, we continuously develop dynamic product and system solutions for the entire kitchen. We invest in our research and development resources and work with our suppliers and customers to actively address product competitiveness and life cycle extensions. We co-create innovation and refresh existing products with new, locally relevant food-inspiring technologies, while simultaneously finding new ways to integrate those technologies into global platforms in a cost-effective manner and create cohesive kitchen systems for our customers. •Enhance customer satisfaction: We believe our broad product portfolio and the positioning of our industry-leading brands enables us to further grow the number of customers we serve and improve overall customer satisfaction as a trusted provider to the largest companies in the foodservice industry. •Drive operational excellence: We are focused on productivity gains and cost reductions across our business and plan to continue to leverage our global footprint to drive greater efficiencies across our operations. We are executing these cost reduction initiatives through our Transformation Program, focused on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing our global brand platforms. •Develop great people: We strive to make our company, and our successor company, an employer of choice in our industry. We believe that we demonstrate a strong commitment to our people by providing a diverse and inclusive culture and environment where employee input, efforts and achievements are recognized and valued. Results of Operations for the Three Months Ended September 30, 2021 and 2020 The following table sets forth our consolidated financial results for the periods presented: Three Months Ended September 30, Change (in millions, except percentage data) 2021 2020 $ % Net sales $ 411.5$ 298.5$ 113.0 37.9 % Cost of sales 264.0 193.2 70.8 36.6 % Gross profit 147.5 105.3 42.2 40.1 % Gross margin (% of Net sales) 35.8 % 35.3 % 0.5 % expenses 84.6 72.3 12.3 17.0 % Amortization expense 9.9 9.9 - - % Restructuring and other expense 0.3 1.5 (1.2) (80.0) % Loss from impairment and disposal of assets - net 0.1 0.4 (0.3) (75.0) % Earnings from operations 52.6 21.2 31.4 148.1 % Interest expense 18.8 19.6 (0.8) (4.1) % Other expense (income) - net 0.4 (2.1) 2.5 119.0 % Earnings before income taxes 33.4 3.7 29.7 802.7 % Income tax expense (benefit) 8.5 (1.2) 9.7 808.3 % Net earnings $ 24.9 $ 4.9$ 20.0 408.2 % Analysis of Net Sales "Net sales" for our geographic business segments consist of the following for the periods presented: Three Months Ended September 30, Change (in millions) 2021 2020 $ % Americas $ 318.9 $ 221.8$ 97.1 43.8 % EMEA 121.2 73.9 47.3 64.0 % APAC 68.2 48.0 20.2 42.1 % Elimination of intersegment sales (96.8) (45.2) (51.6) (114.2) % Total net sales $ 411.5 $ 298.5$ 113.0 37.9 % Net sales totaled $411.5 million for the three months ended September 30, 2021 representing an increase of $113.0 million, or 37.9%, compared to the same period of the prior year. The increase in net sales was primarily the result of: (i) increased volumes largely due to an increase in general market demand, (ii) increased volumes due to rollouts with large chain customers and (iii) increased KitchenCare aftermarket sales, all of which were the result of our continued recovery from the global COVID-19 pandemic, and to a much lesser extent, increased net pricing. Foreign currency translation positively impacted third-party net sales for the three months ended September 30, 2021 by $5.1 million as compared to the three months ended September 30, 2020. Net sales in the Americas segment for the three months ended September 30, 2021 increased $97.1 million, or 43.8%, compared to the same period of the prior year. The increase was primarily driven by increased third-party net sales of $80.3 million and a $16.8 million increase in intersegment sales. The increase in third-party net sales was primarily the result of: (i) increased volumes primarily due to an increase in general market demand, (ii) increased volumes due to rollouts with large chain customers and (iii) increased KitchenCare aftermarket sales, all of which were the result of our continued recovery from the global COVID-19 pandemic in the region, and to a much lesser extent, million as compared to the same period of the prior year. Net sales in the EMEA segment for the three months ended September 30, 2021 in third-party net sales was primarily the result of increased volumes primarily due to the increase in general market demand and the increase in intersegment sales is primarily due to increases in sales to the America's region related to rollouts with large chain customers discussed above and an increase in general market demand, both of which were the result of our continued recovery from the ongoing global COVID-19 pandemic, and to a much lesser extent, increased net pricing. Foreign currency translation positively impacted third-party net sales for the three months ended September 30, 2021 by $2.2 million. Net sales in the APAC segment for the three months ended September 30, 2021 $10.8 million and a $9.4 million increase in intersegment sales. The increase in third-party net sales was primarily driven by increased volumes largely due to an increase in general market demand and increased KitchenCare aftermarket sales, both of which were the result of our continued recovery from the ongoing global COVID-19 pandemic. Foreign currency translation positively impacted Analysis of Earnings from Operations "Gross profit" for the three months ended September 30, 2021 totaled $147.5 million, an increase of $42.2 million, or 40.1%, compared to the same period of the prior year. This increase in gross profit was primarily driven by: (i) a $43.1 million favorable impact resulting from increased product volumes and mix, (ii) a $8.8 million favorable impact from increased net pricing and (iii) $3.6 million of positive foreign currency translation impact. These favorable impacts were partially offset by: (i) $5.5 million of unfavorable material costs, primarily driven by continued broad-based inflationary pressures experienced during the third quarter of 2021, partially offset by the procurement sourcing savings associated with the Transformation Program, (ii) a $4.9 million unfavorable impact from increased inbound freight costs resulting from both higher volumes and the continued macroeconomic impacts of the COVID-19 pandemic on the supply chain, (iii) $1.2 million of increased tariff costs, (iv) $1.1 million of unfavorable labor and other manufacturing costs, primarily driven by production inefficiencies resulting from supply chain disruptions related to the global pandemic and (v) $0.3 million of higher depreciation costs. "Selling, general and administrative expenses" for the three months ended September 30, 2021 totaled $84.6 million, an increase of $12.3 million, or 17.0%, compared to the same period of the prior year. This increase is primarily due to: (i) $5.9 million of increased employee-related costs, reflecting the non-recurrence of government subsidies and other measures taken in 2020 to manage the impact of the COVID-19 pandemic, along with higher incentives related to stronger operational performance in 2021, (ii) $5.2 of transaction expenses related to the pending sale of our company, (iii) $3.8 million of higher travel and other controllable costs, (iv) $3.6 million of higher marketing and commission costs primarily resulting from increased sales volumes and (v) a $0.9 million unfavorable foreign currency translation impact as compared to the same period of the prior year. The impact of these increases was partially offset by: $6.1 million of lower third-party consulting costs incurred in connection with our Transformation Program and $0.9 million of lower professional fees. Restructuring and other expense "Restructuring and other expenses" for the three months ended September 30, 2021 were $0.3 million, primarily as a result of a restructuring plan initiated during the first quarter of 2021 for the consolidation of a manufacturing facility in EMEA. "Restructuring and other expenses" for the three months ended September 30, 2020 were $1.5 million, consisting of $1.3 million of severance and related costs and a $0.2 million loss contingency charge. The severance and related costs were associated with workforce reductions as a result of the improved efficiencies gained from the execution of the Transformation Program as well as actions initiated during the fourth quarter of 2019 in the EMEA and APAC regions. The loss contingency charge was associated with our voluntary review of certain errors in declarations to the U.S. Customs and Border Protection for customs duties, fees and interest owed for previously imported products. See Note 11, "Contingencies and Significant Estimates," for further information. Analysis of Segment Adjusted Operating EBITDA "Adjusted Operating EBITDA" (a non-GAAP measure) for our geographic segments consisted of the following for the periods presented: (in millions, except percentage data) 2021 2020 $ % Americas $ 56.7 $ 34.8$ 21.9 62.9 % EMEA 27.6 10.5 17.1 162.9 % APAC 11.1 8.4 2.7 32.1 % Total Segment Adjusted Operating EBITDA 95.4 53.7 41.7 77.7 % Less: Corporate and unallocated expenses (20.3) (8.1) (12.2) (150.6) % Total Adjusted Operating EBITDA $ 75.1 $ 45.6$ 29.5 64.7 % Adjusted Operating EBITDA margin (1) 18.3 % 15.3 % 3.0 % (1) Adjusted Operating EBITDA margin is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales. Adjusted Operating EBITDA in the Americas segment for the three months ended September 30, 2021 increased by $21.9 million, or 62.9%. This increase was primarily driven by: (i) a $27.9 million favorable impact from increased product volumes and mix, (ii) $10.5 million of favorable impact from net pricing, (iii) a $0.8 million favorable foreign currency translation impact, (iv) $0.6 million of lower research and development fees and (v) $0.2 million of lower professional fees. The impact of these increases was partially offset by: (i) $5.8 million of unfavorable material costs, primarily driven by continued broad-based inflationary pressures experienced during the third quarter of 2021, partially offset by the procurement sourcing savings associated with the Transformation Program, (ii) $4.2 million of higher employee-related expenses, including higher incentives resulting from improved operating results, (iii) $3.2 million of higher marketing and commissions costs, primarily attributable to increased sales, (iv) $3.1 million unfavorable impact from increased inbound freight costs resulting from both higher volumes and the continued macroeconomic impacts of COVID-19 pandemic on the supply chain, (v) a $1.1 million unfavorable impact from increased tariffs and (vi) $0.7 million of unfavorable labor and other manufacturing costs, primarily driven by continued production inefficiencies resulting from supply chain disruptions related to the global Adjusted Operating EBITDA in the EMEA segment for the three months ended September 30, 2021 increased by $17.1 million, or 162.9%. This increase was volumes and mix, (ii) $2.7 million of favorable labor and other manufacturing costs, (iii) $2.4 million of favorable impact from net pricing, (iv) a $1.2 million favorable foreign currency translation impact and (v) $0.3 million of lower professional fees. The impact of these increases was partially offset by: (i) a $1.7 million unfavorable impact from increased inbound freight costs resulting from both higher volumes and the continued supply chain challenges, (ii) $1.3 million of higher research and development costs, (iii) $0.4 million of higher material costs, primarily driven by continued inflationary pressures experienced during the third quarter of 2021 and (iv) $0.3 million of higher marketing and commissions costs attributable primarily to increased sales. Adjusted Operating EBITDA in the APAC segment for the three months ended September 30, 2021 increased by $2.7 million, or 32.1%. This increase was primarily driven by: (i) $2.3 million of favorable product volumes and mix, (ii) $0.8 million of lower research and development costs, (iii) $0.7 million of lower material costs, (iv) a $0.6 million favorable foreign currency translation impact and (v) $0.6 million of favorable impact from net pricing. These increases were partially offset by: (i) $1.4 million of higher employee-related, costs, (ii) $0.5 million of unfavorable labor and other manufacturing costs, during the third quarter of 2021 and (iii) a $0.2 million unfavorable impact from increased tariffs. Corporate and unallocated expenses reflect certain corporate-level expenses and eliminations that are not allocated to the geographic business segments. For the three months ended September 30, 2021, corporate and unallocated expenses increased by $12.2 million, or 150.6%. This increase was primarily driven by a $9.1 million increase in the elimination of profit in inventory resulting from higher intercompany inventory on hand and $3.7 million of increased employee-related expenses, including higher incentives resulting from improved operating results and increased stock compensation expense resulting from an increase in the expected achievement percentage for certain tranches of our performance share units. These increases were partially offset by $0.5 million of lower professional fees. Analysis of Non-Operating Income Statement Items For the three months ended September 30, 2021, "Interest expense" was $18.8 million, a $0.8 million decrease as compared to the same period of the prior year, primarily driven by a decrease in the average borrowings outstanding and an overall decrease in the weighted average interest rates of outstanding debt resulting from a decrease in LIBOR during the current period. For the three months ended September 30, 2021, "Other expense (income) - net" was an expense of $0.4 million, compared to an income of $2.1 million for the same period of the prior year. The decrease in income of $2.5 million is primarily the result of higher net foreign currency losses compared to the same period of prior year. Analysis of Income Taxes For the three months ended September 30, 2021, we recorded an $8.5 million income tax expense, reflecting a 25.4% effective tax rate, compared to a $1.2 million income tax benefit for the three months ended September 30, 2020, reflecting a (32.4)% effective tax rate. The change in the effective tax rate for the three months ended September 30, 2021 compared to the same period of the prior year is primarily due to our increase in earnings before income taxes and the relative weighting of jurisdictional income and loss, which was partially offset by the CARES Act net operating loss carryback provisions, changes for income tax returns filed, and deferred taxes related to stock compensation and repatriation of foreign earnings. For the three months ended September 30, 2021, the income tax provision includes a net discrete tax benefit of $0.3 million primarily related to the changes for income tax returns filed, and the changes in deferred taxes related to stock compensation and repatriation of foreign earnings, as compared to the income tax provision for the three months ended September 30, 2020, which includes a net discrete benefit of $1.2 million primarily related to the uncertain tax position for net interest deduction limitations and the CARES Act net operating loss carryback provisions. Results of Operations for the Nine Months Ended September 30, 2021 and 2020 Nine Months Ended September 30, Change (in millions, except percentage data) 2021 2020 $ % Net sales $ 1,123.9$ 833.4$ 290.5 34.9 % Cost of sales 713.7 544.9 168.8 31.0 % Gross profit 410.2 288.5 121.7 42.2 % Gross margin (% of Net sales) 36.5 % 34.6 % 1.9 % expenses 245.6 215.6 30.0 13.9 % Amortization expense 29.7 29.2 0.5 1.7 % Restructuring and other expense 0.5 9.5 (9.0) (94.7) % assets - net 0.1 11.7 (11.6) (99.1) % Earnings from operations 134.3 22.5 111.8 496.9 % Interest expense 56.5 62.4 (5.9) (9.5) % Other expense (income) - net 6.3 (3.1) 9.4 303.2 % Earnings (loss) before income taxes 71.5 (36.8) 108.3 294.3 % Income tax expense (benefit) 15.0 (9.2) 24.2 263.0 % Net earnings (loss) $ 56.5 $ (27.6)$ 84.1 304.7 % Nine Months Ended September 30, Change (in millions) 2021 2020 $ % Americas $ 870.0$ 630.9$ 239.1 37.9 % EMEA 326.9 209.5 117.4 56.0 % APAC 180.7 141.5 39.2 27.7 % Elimination of intersegment sales (253.7) (148.5) (105.2) (70.8) % Total net sales $ 1,123.9$ 833.4$ 290.5 34.9 % Net sales totaled $1,123.9 million for the nine months ended September 30, 2021 increased volumes related to rollouts with large chain customers, and (iii) increased KitchenCare aftermarket sales, all of which were the result of our continued recovery from the global COVID-19 pandemic, and to a much lesser extent, increased net pricing. Foreign currency translation positively impacted third-party net sales for the nine months ended September 30, 2021 by $25.7 million as compared to the nine months ended September 30, 2020. Net sales in the Americas segment for the nine months ended September 30, 2021 increased $239.1 million, or 37.9%, compared to the same period of the prior year. The increase was primarily the result of increased third-party net sales of $209.1 million and a $30.0 million increase in intersegment sales. The increase in third-party net sales was primarily the result of: (i) increased volumes largely due to an increase in general market demand, (ii) increased volumes related to rollouts with large chain customers and (iii) increased third-party net sales for the nine months ended September 30, 2021 by $6.2 Net sales in the EMEA segment for the nine months ended September 30, 2021 of $56.9 million and a $60.5 million increase in intersegment sales. The increase in third-party net sales was primarily the result of increased volumes in the general market and the increase in intersegment sales was primarily due to increases in sales to the America's region related to rollouts with large chain customers discussed above, both of which were the result of our continued recovery from the ongoing global COVID-19 pandemic. Foreign currency translation positively impacted third-party net sales for the nine months ended September 30, 2021 by $15.3 million. Net sales in the APAC segment for the nine months ended September 30, 2021 increase in third-party net sales was primarily driven by increased volumes in the general market and increased KitchenCare aftermarket sales, both of which were the result of our continued recovery from the global COVID-19 pandemic. Foreign currency translation positively impacted third-party net sales for the nine months ended September 30, 2021 by $4.2 million as compared to the same period of the prior year. "Gross profit" for the nine months ended September 30, 2021 totaled $410.2 million, an increase of $121.7 million, or 42.2%, compared to the same period of the prior year. This increase was primarily driven by: (i) a $100.2 million favorable impact from increased product volumes and mix, (ii) a $16.2 million favorable impact from increased net pricing, (iii) $14.9 million of positive foreign currency translation impact and (iv) $8.8 million of favorable labor and other manufacturing costs, primarily due improved operating efficiencies related to higher volumes and equipment investments in our plants associated with the Transformation Program. These favorable impacts were partially offset by: (i) $11.9 million of increased inbound freight costs resulting from both higher volumes and the continued macroeconomic impacts of the COVID-19 pandemic on the supply chain, (ii) a $3.3 million unfavorable impact from increased tariffs, (iii) $1.8 million of unfavorable material costs, resulting from broad-based inflation along with the continued macroeconomic impacts of the COVID-19 pandemic on the supply chain, partially offset by the procurement sourcing savings associated with the Transformation Program and (iv) $1.3 million of higher depreciation costs. "Selling, general and administrative expenses" for the nine months ended September 30, 2021 totaled $245.6 million, an increase of $30.0 million, or driven by: (i) $24.3 million of increased employee-related costs, reflecting the to stronger operational performance in 2021, (ii) $13.5 million of increased transaction expenses related to the pending sale of our Company, (iii) $6.0 million of higher marketing and commission costs, primarily attributable to increased sales volumes, (iv) a $5.3 million unfavorable foreign currency translation impact as compared to the same period of the prior year and (v) $2.5 million of higher travel and other controllable costs. The impact of these increases was partially offset by: (i) $16.8 million of lower third-party consulting costs incurred in connection with our Transformation Program, (ii) $3.1 million of lower professional fees and (iii) a $2.0 million recovery of funds from an incident in 2018, involving one of our EMEA locations . "Restructuring and other expenses" for the nine months ended September 30, 2021 were $0.5 million, primarily as a result of a restructuring plan initiated during the first quarter of 2021 for the consolidation of a manufacturing facility in EMEA. "Restructuring and other expenses" for the nine months ended September 30, 2020 associated with workforce reductions executed throughout 2020 in the Americas region and Corporate and a limited management restructuring to reduce operating expenses as a result of the improved efficiencies gained from the execution of the Transformation Program as well as actions initiated during the fourth quarter of 2019 in the EMEA and APAC regions. The loss contingency charge was associated with our voluntary review of certain errors in declarations to the U.S. Customs and Border Protection for customs duties, fees and interest owed for previously imported products. See Note 11, "Contingencies and Significant Estimates," for further information. Loss from impairment and disposal of assets - net Loss from impairment and disposal of assets - net for the nine months ended September 30, 2020 was $11.7 million and consisted primarily of an impairment charge of $11.1 million on trademark and trade names in our EMEA segment. See Note 5, "Goodwill and Other Intangible Assets - Net." of the Notes to the Consolidated Financial Statements for additional details. Nine Months Ended September 30, Change (in millions, except percentage data) 2021 2020 $ % Americas $ 166.7$ 105.8$ 60.9 57.6 % EMEA 63.2 29.6 33.6 113.5 % APAC 26.9 22.3 4.6 20.6 % EBITDA 256.8 157.7 99.1 62.8 % expenses (58.4) (46.8) (11.6) (24.8) % Total Adjusted Operating EBITDA $ 198.4$ 110.9$ 87.5 78.9 % Adjusted Operating EBITDA margin (1) 17.7 % 13.3 % 4.4 % Adjusted Operating EBITDA in the Americas segment for the nine months ended primarily driven by: (i) $60.5 million of favorable product volumes and mix, (ii) $18.7 million of favorable impact from net pricing, (iii) $6.9 million of favorable labor and other manufacturing costs, primarily due to improved operating efficiencies related to higher volumes and equipment investments in our plants associated with the Transformation Program, slightly offset by continued inflationary pressures experienced during the first nine months of 2021, (iv) $3.5 million of favorable foreign currency translation impact and (v) $0.4 million of lower research and development costs. The impact of these increases was partially offset by: (i) $10.4 million of higher employee-related expenses, including higher incentives resulting from improved operating results in 2021, (ii) $8.4 million of unfavorable inbound freight costs resulting from both higher volumes and the continued on the supply chain challenges, (iii) $5.9 of higher marketing and commissions costs attributable primarily to increased sales, (iv) $3.2 million of increased tariffs and (v) $1.5 million of higher materials costs, primarily driven by continued inflationary pressures experienced during the first nine months of 2021, slightly offset by the procurement sourcing savings associated with the Transformation Program. Adjusted Operating EBITDA in the EMEA segment for the nine months ended (ii) $4.5 million of favorable foreign currency translation impact, (iii) $3.4 million of favorable labor and other manufacturing costs primarily due to improved operating efficiencies related to higher volumes and equipment investments in our plants, and (iv) a $0.7 million decrease in professional fees. The impact of these increases was partially offset by: (i) $3.5 million of unfavorable inbound freight costs resulting from both higher volumes and the continued supply chain challenges, (ii) $1.6 million of unfavorable impact from net pricing due to transfer pricing, (iii) $1.5 million of higher employee-related, travel and other controllable costs, (iv) $1.4 million of higher materials costs primarily driven by continued inflationary pressures experienced during the first nine months of 2021 and (v) $0.8 million of higher research and development costs. Adjusted Operating EBITDA in the APAC segment for the nine months ended $1.6 million of favorable foreign currency translation impact, (iii) $1.1 million of lower material costs, (iv) $0.5 million of favorable impact from net pricing and (v) $0.4 million lower research and development costs. These increases were partially offset by $2.9 million of higher employee-related, travel and other controllable costs. nine months ended September 30, 2021, corporate and unallocated expenses increased by $11.6 million, or 24.8%. This increase was primarily driven by $12.6 million of increased employee-related expenses, including higher incentives resulting from improved operating results, and increased stock compensation expense resulting from an increase in the expected achievement percentage for certain tranches of our performance share units, and a $1.3 million increase in the elimination of profit in inventory resulting from higher intercompany inventory on hand. These decreases were partially offset by a $2.4 million decrease in professional fees. For the nine months ended September 30, 2021, "Interest expense" was $56.5 an overall decrease in the weighted average interest rate of outstanding debt For the nine months ended September 30, 2021, "Other expense (income) - net" was an expense of $6.3 million, compared to income of $3.1 million for the same period of the prior year. The decrease in income of $9.4 million is primarily the result of higher net foreign currency losses compared to the same period of prior year. For the nine months ended September 30, 2021, we recorded a $15.0 million income tax expense, reflecting a 21.0% effective tax rate, compared to a $9.2 million income tax benefit for the nine months ended September 30, 2020, reflecting a (25.0)% effective tax rate. The change in the effective tax rate for the nine months ended September 30, 2021 compared to the same period of the prior year is primarily due to the result of our increase in earnings before income taxes and the relative weighting of jurisdictional income and loss, partially offset by the changes in net discrete tax items resulting from recently enacted foreign income tax rates, CARES Act net operating loss carryback provisions and the changes in uncertain tax positions. For the nine months ended September 30, 2021, the income tax provision includes net discrete benefit of $2.6 million primarily related to the recently enacted tax rate increase in the UK Finance Act 2021 and corresponding increase in jurisdictional net deferred tax assets, as compared to the income tax benefit for the nine months ended September 30, 2020, which includes a net discrete expenses of $5.0 million primarily related to the provisions of the CARES Act and changes in uncertain tax positions. Overview of Factors Affecting our Liquidity We manage cash centrally, generally reinvest net earnings locally and meet our working capital requirements from cash and cash equivalents, cash flows from operations and capacity under our existing credit facilities. As of September 30, 2021, our total liquidity was $397.3 million, consisting of $111.9 million of cash and cash equivalents and $285.4 million available for additional borrowings under our senior secured revolving credit facility ("Revolving Credit Facility"), to the extent our compliance with financial covenants permits such borrowings, compared to total liquidity of $392.2 million as of June 30, 2021, $353.7 million as of March 31, 2021 and $375.0 million as of December 31, 2020. Our liquidity generally decreases in the first quarter and increases in the remaining quarters of the year driven by our earnings cycle as well as the timing of large cash payments in the first quarter such as annual rebates, incentive compensation and the build-up of inventory in advance of the historically higher sales period in the spring and early summer months. The improvement in our Company's total liquidity in the quarter ended September 30, 2021 was limited by higher inventory levels of raw materials primarily due to increased purchases of critical components needed to manufacture our commercial foodservice equipment that have been impacted by supply chain disruptions. Inventory of finished goods also increased primarily due to delays from third-party shipping companies picking up equipment from our facilities. As of September 30, 2021, approximately 94% of our cash and cash equivalents and restricted cash were held outside of the U.S. The majority of the cash generated in the U.S. is used to fund current and expected future working capital requirements and to fund debt service obligations. We maintain significant operations outside of the U.S., and as a result, a significant portion of our cash is denominated in foreign currencies. We manage our worldwide cash requirements by reviewing available funds among our subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to maintain cash balances outside of the U.S. and to meet our liquidity needs through ongoing cash flows, external borrowings, or both. We plan to continue reinvesting foreign earnings indefinitely outside of the U.S. with certain limited exceptions. Our future cash needs are currently expected to be primarily related to operating activities, inclusive of capital investments, working capital and debt service. We estimate that our capital expenditures will be between $25.0 million and $30.0 million for the year ending December 31, 2021. The amount of actual capital expenditures may be impacted by general economic, financial or operational changes, including the future impact of the global COVID-19 pandemic on our operating results, the success and timing of the closing of the merger with Ali Group, the anticipated sale of our Company's Ice business, and competitive, legislative and regulatory factors, among other considerations. In response to the global COVID-19 pandemic throughout 2020 and the first half of 2021, we implemented contingency plans for our operations and took what we believe were appropriate steps to reduce operating expenses and capital spending, including reductions in the size of our workforce and the temporary furlough of employees during 2020. We expect that our future cash generated from operations, together with our capacity under our existing senior secured revolving credit facility and our access to capital markets, will provide adequate resources to meet our working capital needs and cash requirements for at least the next 12 months. Our access to, and the availability of, financing on acceptable terms in the future may be affected by many factors including the overall liquidity in the financial and capital markets, the state of the economy, success in closing the merger with Ali Group and the timing of such closing, and our credit rating. The ongoing global COVID-19 pandemic, which has continued to cause volatility in the capital markets, could also impact our ability to pursue additional financing opportunities in the future. Moreover, we are unable to quantify the ultimate severity or duration of the impact of the global COVID-19 pandemic on our operational and financial performance, which could have an adverse impact on our results of operations, cash flows and financial position, potentially resulting in a default or an acceleration of indebtedness, and could otherwise negatively impact our liquidity and ability to make additional borrowings under our Revolving Credit Facility. © Edgar Online, source Glimpses All news about WELBILT, INC. 2021 Welbilt KitchenConnect and HCL Technologies Join Forces to Offer a Secured Cloud Soluti.. 2021 WELBILT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS .. 2021 Welbilt Q3 Adjusted Profit, Sales Rise 2021 WELBILT REPORTS 2021 THIRD QUARTER OPERATING RESULTS - Form 8-K 2021 Welbilt, Inc. Reiterates Earnings Guidance for the Year 2021 2021 WELBILT : Q3 Earnings Snapshot 2021 Welbilt Reports 2021 Third Quarter Operating Results 2021 Earnings Flash (WBT) WELBILT Reports Q3 EPS $0.21 Analyst Recommendations on WELBILT, INC. 2021 WELBILT : Barclays Downgrades Welbilt to Equal-Weight From Overweight, Adjusts Price Targe.. 2021 ANALYST RECOMMENDATIONS : Alibaba, Gap, Pepsico, Ralph Lauren, Tencent Music Entertainment.. 2021 WELBILT : Baird Adjusts Welbilt PT to $24 From $26, Maintains Neutral Rating

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professional_accounting

Glossary of Procurement Terms Shortened forms of a set of words, consisting of initial letters pronounced separately, for example, invitation to tender (ITT) Select a letter from the index above to see the glossary items beginning with that letter. The terms and definitions found in this glossary relate to procurement. Procurement terminology for suppliers and procurement professionals. Select a letter from the index below to see the glossary items beginning with that letter. A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | XYZ ABC classification A system of prioritising different types of inventory based on their value or importance to the business Acceptance criteria Indicators or measures used to assess whether a product or service meets the standard required A measure, using the number of defects detected, that determines whether a batch of manufactured products meets the standard required A process of external verification to provide evidence that a standard of quality has been achieved, for example, competency, authority or credibility An adjustment made to the accounts of a company that has the effect of putting aside money for future use. It can be an adjustment to sales or an adjustment to costs Activity-based costing (ABC) An accounting method in which indirect costs are assigned to activities used in the production of a product or delivery of a service. These activities are then used to apportion those costs to products and services in a way that gives a clearer understanding of the total cost of a product or service Ad-hoc purchase An item bought for a single and non-recurring use or purpose Having the ability or tendency to adapt to different situations Solid particles that remain suspended in air as fog or smoke The process or rule used by an IT system to perform calculations, data processing or automated tasks Allocated overhead Overheads are the cost of things that are needed to manufacture an item or deliver a service but are not associated with just one product. The total overhead cost is spread among all products or services and this is the allocated overhead An individual with capacity A person who is legally able to enter into a contract because of their appropriate age and state of mind Approved supplier list A list of suppliers whose basic credentials have been checked. This would normally cover financial stability, compliance with any laws or licences needed to operate, adequate insurance, health and safety policies and the like. There is no contract with the suppliers, but there is some assurance as to their appropriateness for specified categories. This list may restrict what types of order (by category, value or geographical location) can be placed with each of them Arm’s-length trading relationship A relationship between two parties who trade with each other in which there is no involvement other than the trade itself Australian Standards contracts The value of everything an organisation owns A systematic inspection of a process or procedure to assess compliance with requirements or regulations A record, history or series of documents that provide evidence of a sequence of processes that led to an outcome Customer orders which cannot be immediately fulfilled and are awaiting future stock delivery/manufacture before fulfillment An approach to measuring performance that looks at multiple variables. The variables might be equally important, or given different weightings to reflect degrees of importance An optical, machine-readable representation of data Barrier to entry Often high costs or high levels of competition, linked to supplying a new product or service into a market. The initial price of something without the added costs such as handling, transport and profit Batch quantity Amount of products produced at a time Comparing an element of one business, such as price, quality or service, against another Made or provided especially for a specific end user The best possible outcome from a procurement process that gets the right balance between price and quality Offer of a price Bidder (or tenderer) A potential supplier who makes an offer (a bid is an offer or tender) Bilateral trade agreements An exchange agreement between two nations or trading groups that gives each party favoured trade status connected to certain goods obtained from the signatories. The agreement sets purchase guarantees and removes tariffs and other trade A carrier’s contract and receipt for goods it agrees to transport from one place to another and to deliver to a designated recipient (consignee) A comprehensive list of components, items, materials and parts to create a product, essentially a recipe for the production of an item Biodiversity is short for biological diversity. It refers to a high level of the variety of plant and animal life in the world or in a particular habitat – it is considered to be both important and desirable. Biomass is organic matter or plant material converted for use as a fuel (biofuel) A branch of science concerned with the application of physical principles and methods to biological problems Blanket order An order that is placed with the supplier which allows the buyer to call off quantities as they need them over an agreed time period. This works in accordance with a manufacturing organisation’s production schedule An encrypted network that stores records of a transaction and communicates this to all other nodes points within the network Regularly held meetings between all the directors of an organisation A specific stage in a process which slows down the flow of production and limits the overall output rate An accounting term meaning a company’s income after all expenses have been deducted from revenues An automated e-mail sent in response to an e-mail or contact form The image of an organisation. The name, logo, slogan, colours, etc., that differentiate it from the competition The point at which a business recovers what it has spent and starts to make a profit Financial plan for a set period of time on how much can be spent Amount of stock held in stores at any time in addition to actual requirements Business-critical A supply or service without which the business could not operate A transaction between businesses (e.g., in the supply chain) Business-to-customer (B2C) A transaction between a business and the end user of its product or service (e.g., an individual shopper) A justification for a proposed project or undertaking on the basis of its expected benefits The rise and fall over time of output in an economy as measured by gross domestic product (GDP) Buyer’s view The buyer’s perspective on a supply market and the suppliers and products in it The physical act of placing orders to make a purchase When people believe and support an idea The Chartered Accountant qualification Computer aided design – drawings created using software Call-off schedule A schedule produced to state what amounts of products are to be delivered when The amount of money or assets available to be leveraged by a person or organisation, e.g., when starting a company, or buying an asset such as machinery Capital costs Large, fixed, one-off expenses incurred in getting a business or process operational Capital purchase The purchase of an item that is a long-term asset such as a building or equipment Carbon Disclosure Project (CDP) An organisation working with companies and cities to disclose the environmental impact of major corporations in the interest of fighting climate change A group of companies claiming to act independently, but actually acting together to control prices by price-fixing, limiting supply or other restrictive practices Cashable savings Savings that has no impact on the product or service quality but which result in a sustainable reduction in the budget for purchases of that item An accounting document that summarises the incomings and outgoings of cash in an organisation The amount of money moving in and out of a business in a particular period A list of items for sale that often contains descriptions, pictures, prices and availability A group of goods or services that have shared characteristics Category aware Understanding the market and risks associated with a particular commodity or service Certificate of origin (COO) A document required by customs officials, identifying the country of origin of imported goods, and certified by the supplier’s country’s designated authority, to authenticate the source of the goods The way products and services get to the customer A process in which chemicals or chemical compounds are changed with the help of chemical reactions The most senior person in an organisation, with overall responsibility for its success Chief procurement officer (CPO) Chief procurement officer or procurement and supply director – the person with overall responsibility for procurement and supply within an organisation Climate proofing Identifying risks to an asset, as a consequence of climate variability and change, and ensuring that those risks are reduced to acceptable levels by making changes A system or process that, once started, does not allow new entrants. A framework agreement might have multiple buyers and multiple suppliers, but once set up no additional buyers or suppliers can be added to it The chemical formula for carbon dioxide which is a colourless, odourless gas found in our atmosphere A people-centred enterprise owned and run by and for their members, which either reinvests any profits or returns it to their members Cohesiveness Working together effectively Working together for mutual benefit Where two or more potential suppliers (or the purchaser and one or more suppliers) secretly co-operate to undermine the competitiveness of a tender process The process of burning a fuel so it reacts with oxygen to release energy To do with business, intended to make a profit Putting an organisation in a strong position against their competition A disagreement, or difference of opinions or principles Conflict of interest (COI) Where an individual is unable to remain impartial due to a personal, professional or public interest The meeting of a required specification or standard Two or more corporations engaged in entirely different businesses that fall under one corporate group A specific quantity of goods being carried A document describing the contents of a shipment, prepared by a consignor (supplier) and countersigned by the carrier as a proof that the carrier has received the goods for delivery Consignment stock Inventory owned by the supplier but held at the buyer’s premises Consolidated deliveries The practice of grouping deliveries with similar products or products which have similar transportation requirements in one journey to reduce the unit cost instead of making many single deliveries of the same item An individual or organisation who pays an amount to consume goods or services A theory that encourages the increasing purchase of goods and services Undertaking training or attending courses to develop knowledge An ongoing effort to improve products, processes and services A legally enforceable written or oral agreement between two or more competent parties that defines a job or service to be performed Contract clause A single, usually numbered, paragraph in a contract setting out the detail of a single condition (or ‘term’) of the contract Where items purchased conform to the agreed contract Dealing with contracts with suppliers to make sure the terms of the contract are met Contract period/contract term In this context the contract term is the same as the contract period (i.e. the length of time during which the contract operates). It begins with the START DATE and ends with the EXPIRY DATE. The start date is not necessarily the date on which the contract is signed, but the date on which it comes into effect. The expiry date may be expressed as an actual calendar date (preferred) or as a given number of months (e.g., 36 months) from the start date Control chart A chart that can be used to analyse how a process changes over time Control measure An action to reduce the potential likelihood that a risk will occur or the impact that it will have A legal right created by the law that gives exclusive rights to the generator of the work Processes which are critical to an organization achieving success and competitive advantage The mechanisms, procedures and processes that are used to control and direct an organisation A business approach that contributes to sustainable development by delivering social, environmental and economic benefits for all stakeholders. The CSR policy may cover fundraising for charity, ethical behaviour, social and environmental policies, etc. Cost centre Area of the business or budget to which the purchase needs charging Cost driver Anything that means the cost of a good or service will change Cost of goods sold (COGS) The direct costs for producing goods, i.e. the cost of the materials used, as well as the cost of the labour to produce them and any other allocated overheads. It excludes and distribution or sales costs The amount of money that has gone out of the business Counter-offer A response to an offer that is different from the original The amount of money an organisation can borrow from a creditor Credit note A document issued to correct mistakes on an invoice – a credit note reduces the amount owed on the invoice document A score given to an organisation which is based on the amount of risk they propose to the debtor A logistics procedure where incoming products are loaded directly onto an outgoing carrier with minimal handling and storage time Cross-functional teams Teams that involve individuals from different departments that work together towards a common goal The shared values, practices and beliefs within an organisation that determine how its procedures are carried out and how it is run overall The person who purchases and pays for (but doesn’t necessarily use) a product or service Customer relationship management (CRM) system A database to keep track of customers, contacts and a record of transactions The area of government that controls and administers policies and procedures for the import and export of goods Decarbonisation The reduction or removal of carbon dioxide from energy sources Decommission The activities performed to take a product or service out of use and make it unavailable to customers Degrowth A downscaling of production and consumption How much or many of a product or service customers are prepared to buy at different prices Demand curve A graphical representation of how price changes with changes in the demand for an item The type, age, culture, interests and financial position of people Dependent demand stock Raw materials or component parts whose demand (ordering levels) is influenced by demand for the finished product The reduction over time in the value of an asset held by a company, often due to wear and tear. An amount for this is treated as a cost in a company’s annual accounts Depreciation charge The amount of money by which annual accounts are adjusted to reflect the cost of a reduction in the value of assets. This money is put aside to purchase a replacement for the asset at a future date Depreciation of assets An accounting method of spreading the cost of an asset over a defined period, usually several financial years A detailed document that sets out the precise way that a product must be built or a service delivered; includes technical drawings, standards that must be met and dimensions Delegate or transfer power Direct call off The act of placing an order under a framework agreement without having further competition Direct cost Cost that is directly associated with the production of a good or service Direct labour cost The salary cost for employees who work in the manufacturing process of an item or delivery of a service Direct material cost The cost of materials and components used in the production of an item or delivery of a service Direct supplies Raw materials and goods for use in production Disclosure of gifts Declaring gifts or hospitality received from a supplier to ensure transparency of dealings Discretionary spending Spending by consumers on things they want to buy rather than on things they have to buy such as food and housing Diseconomy of scale Where unit costs rise with rising output Ceased trading The process of moving materials or products from one supply chain participant to another The network used to get a product or service from the manufacturer or creator to the end user or consumer. It can include wholesalers, agents and retailers Money paid from the company’s earnings to the shareholder Private, not business Downstream environmental factors Impacts on the environment caused as a result of the use of the goods you are producing Time when production or services cannot be carried out Dual-sourcing Using two or more suppliers for a product, splitting demand between them, to keep pricing competitive and ensure continuity of supply Undertaking a thorough appraisal or conducting an evaluation to establish all the facts prior to entering into an agreement The electronic procurement of products or services using Internet-enabled applications and decision support tools. These tools facilitate interactions between buyers and suppliers through the use of online negotiations, online auctions, reverse auctions, etc. A group of consumers who are the first after the innovators to buy or use a new product or technology Eco-Management and Audit Scheme (EMAS) Designed by the European Commission to be used to monitor and improve the environmental performance of organisations E-commerce (or electronic commerce) Buying and selling goods and services, or transmitting funds or data, over an electronic network, primarily the Internet The increase over time in the value of goods and services produced by a country, often defined as a value per head of population Economic operator A contractor, supplier or service provider that operates in a particular market Economic order quantity (EOQ) The most economically viable quantity in which to buy stock which considers not only the material costs, but also associated costs such as storage, transport and administration costs The state of money flow, manufacturing, distribution, availability and consumption, or scarcity, of goods and services, energy, labour, or other resources at country level Economy of scale The trend of cost per unit being reduced as output increases due to factors such as increased bargaining power and the cost of tooling being shared amongst larger numbers of units The exchange of data between companies in computerised format Embedded carbon The range of greenhouse gas (GHG) carbon emissions associated with the production process The act of someone stealing assets for which they are responsible Emerging market A country that is progressing toward becoming more advanced, usually by means of rapid growth, investment and industrialisation Enforceable by law A court can compel those involved in the contract to fulfil their contractual obligations A computer system that analyses the current inventory, forecast demand and expected delivery of new supplies to calculate demand and identify requirements from suppliers A USA governmental regulatory agency Equilibrium point The optimum price at which there is equal supply and demand of an item The value of the assets minus the value of the liabilities Epoxy floor paint A hard-wearing, matt floor coating designed to resist chemicals and disguise minor floor imperfections Adapting the workplace environment to the user, e.g., ensuring chairs and desks are at a comfortable working height, lighting is adequate for tasks, etc. Escalation process A set of procedures put in place to deal with potential problems Escrow agreement In the context of computer software, an escrow agreement involves the supplier placing a copy of the software source (original and updated) code (i.e. the raw form of the software design) with a third party. If the software supplier ceases trading, the purchaser will then be provided with the source code, which will enable them to continue to use and, where necessary, adapt and update the software (provided that they can appoint appropriately skilled personnel to do so) Principles that govern a person’s or an organisation’s behaviour The standards that a potential supplier needs to meet The value of one currency compared with another, which can vary from day to day Executing contracts This expression has two meanings: a. to draw up formal contracts and sign/seal them, and b. to carry out your obligations under the contract Expedite To make special requests and make additional effort to ensure goods are delivered in less than the normal lead time Monitoring the progress of an order to ensure stock is received as quickly as possible The person in the buying organisation who carries out the expediting function in procurement, which means following the issue of a purchase order or contract from receipt of order by supplier, through to delivery, dealing with delivery problems as they arise Money spent on goods or services Costs incurred from travelling, staying in hotels, eating out, etc., whilst carrying out your job The number/value of contracts a purchaser has with a single supplier; it is a rough guide to how much any difficulties faced by the supplier will affect the purchaser Express terms Contractual terms that are agreed between two parties and written into a contract External stakeholders People, groups or organisations who don’t belong to an organisation but are nevertheless impacted by it, or have an impact upon it Fast-moving consumer goods (FMCG) An organisation that makes products that sell quickly and at a low cost Information about the customer’s views on a product or service Fill rate The percentage of orders fulfilled from available stock within a set time Internal documents setting out how money is managed within the organisation, including how budgets are set, who can authorise expenditure and, often, rules around what procurement processes must be used Financial return The amount of money that is either made or lost from an investment A twelve-month period of trading. Businesses’ financial years can start at any time as long as they run for a complete year Items that have been through the manufacturing process, are complete and are suitable for sale The process of checking a product manufactured for the first time to determine that it meets design and specification requirements First in-first out (FIFO) Items purchased first are sold first, e.g., an electrical component sold out of inventory would be issued at the oldest or first price First-party audit An inspection of an organisation by an auditor employed by the organisation (also known as an internal audit) The product or service is capable of doing what it was designed to do Something owned by an organisation that is used to generate income – fixed assets can be property, machinery or land Fixed cost A cost that remains constant in the short term irrespective of production volumes Flat structure A structure with few or no levels of management Circumstances that cannot be foreseen which prevent a contract from being fulfilled The process of using existing data to predict future demand for products or services A joint venture between a person who wants to start a business and a person who already had a business idea registered. The franchisee buys the right to use the business idea from the franchisor. McDonald’s is a well-known franchise Deception intended to result in personal gain Free-trade area A group of countries who have abolished tariffs, quotas and other barriers to trade within the group The resistance that one surface or object encounters when moving over another Fugitive dust Visible emissions released from sources other than stacks, e.g., dust blown from storage piles, road dust, emissions leaking from the sides of buildings or open areas in buildings Full container load (FCL) A single delivery of goods that completely fills a container Full truckload (FTL) The amount of freight required to fill a truck by cubic metres / feet or mass Complete and working to full capacity, i.e. a factory would be built and producing goods The study of mathematical models that explain how people co-operate or compete. It is used in economics and market analysis to understand collaboration and conflict in negotiating situations A type of chart that shows the schedule of a project. It can be tailored to work for procurement milestones Gated process A project management technique in which a project or process is divided into meaningful phases with checks and evaluations at the end of each phase. The project cannot continue unless a gate is passed GHG emissions inventory A report estimating the volume of greenhouse gases produced The date on which the contract starts Goods-in An area in an organisation that receives and books in deliveries Gross amount Total amount payable including taxes The total value of the output of businesses and people in a country in a year Gross national product (GNP) The total value of the output of businesses and people of a country in a year no matter where in the world they are located An ecological or environmental area that is inhabited by a particular species of animal, plant or other type of organism Specific skills that have to be taught, such as learning to use a new computer system, or gaining a professional qualification The physical parts of a computer A means of limiting the negative impact of an event A system where members of an organisation are ranked according to their status or power High-bay racking Pallet racking that extends to ceiling level. This will require specially extended masts on forklift trucks High-bay warehousing A system of warehousing which looks to maximize utilisation of space using a system of pallets and shelves stacked vertically and the use of machinery such as forklift trucks to retrieve items The first page you see when you open a website Horizon scanning A formal gathering of data and information from various sources (and often of unrelated subject matter) and combining it to predict approaching risks or opportunities in order to support decision making Hurricane intensity The measurement of the strength and destructive capacity of a hurricane Implied terms Contractual terms that exist even if they are not stated in the contract, i.e. the law of the land Impartial Open-minded, without pre-determined ideas, and taking all views into account Imperfect competition A market structure where many companies are competing but each is selling a slightly different product Something conducted within an organisation by its own workforce Inclusive price Price for the whole amount, including taxes Incorporated company A company that is treated in law as being distinct from its owner International commercial terms of sale that assign costs and responsibilities between the buyer and seller when delivering products Independent demand stock Finished products whose demand (ordering levels) is not dependent on other items of stock A collection of data that can be used for comparison, e.g., The Dow Jones Index Indirect cost/indirect spend Costs that are not directly incurred in the manufacture of a product or delivery of a service, e.g., insurance Indirect supplies Services, tools and equipment that do not form part of the finished product but are required to maintain the business and production process, e.g., repairs, stationery, consultancy Inducement Something offered to persuade or influence an individual to conduct themselves or business in a certain way A person’s formal introduction to an organization and its procedures Inflated Higher than necessary Resources used in the production of a product or creation of a service that lead to the desired ‘output’ (e.g., people, raw materials, information) Insolvent Unable to pay the money owed Institute of Chartered Accounts of Scotland (ICAS) The world’s first professional body of chartered accountants Something you cannot physically see or touch Intangible cost A cost to an organisation that is known but cannot be quantified A short document about an organisation’s features and how this creates value in the short, medium and long term Heavy rain or snow The percentage of money that is required to be paid back in addition to money borrowed, or the percentage of money that is gained in addition to money saved Shipments that utilise different modes of transport, e.g., a shipping container carried by lorry to a dock where it is loaded aboard a ship Internal rate of return The means by which an investment or project is evaluated financially. It is the interest rate at which the net present value of cash flows is equal to zero Internal stakeholders People, groups or organisations with an inside interest in an organisation, including shareholders and employees who own or work for the business International Integrated Reporting Council (IIRC) A global coalition that promotes reporting about value creation Skills used when communicating and dealing with people In the public domain Generally known either by the public at large, or a certain section of it; readily obtainable outside of the organisation The stock of goods, materials or products The process of ensuring the safe and efficient storage and control of stock, including managing demand and movement Invitation to tender (or Invitation to treat) (ITT) Document inviting potential suppliers to quote for business Statements of what has been supplied and a request for payment International Organization for Standardization (www.iso.org) A set of international quality management and quality assurance standards that help companies effectively document and maintain an efficient quality system. They are not specific to any one industry and can be applied to organisations of any size ISO 9001 is a document describing the requirements an organisation must fulfill to meet the ISO 9000 standards This sets out the international standards for an environmental management system This is the international standard developed to help organisations in selecting and addressing their social responsibilities IT network A computer network that allows computers or systems to share data A technique that can be used to help an organisation (or person) improve their understanding of their relationship with themselves and others Joint contracts tribunal (JCT) A family of standard contracts used in construction in the UK Just in time (JIT) A system that works alongside Lean manufacturing. In order to reduce waste in the supply chain, JIT makes sure that stock is not held unnecessarily in inventory An approach involving continuous improvement. A long-term approach, that seeks to make small changes in processes to improve quality and efficiency A production method where instructions are sent from one operation to the next on a card, including specific items and quantities. (Translated from the Japanese, it literally means ‘signboard’ or ‘billboard’). The aim is to reduce waste through over-production Key customer segments A method of splitting a company’s clients into groups so that marketing efforts can be more focused. It is often based on demographics such as age or geographic location or on buying behaviour Key performance indicator (KPI) Values that can be measured or monitored to assess levels of achievement International treaty which commits state parties to reduce greenhouse gas emissions Laggards The last group of consumers who buy or use a new product or technology Landed cost Cost of a product plus the relevant logistics costs, such as transportation, warehousing, handling, etc. Landfill is a system of garbage disposal in which the waste is buried between layers of earth which has the effect of building up low-lying land Last in-first out (LIFO) Items purchased last are sold first. As these items are likely to be higher in value, the remaining inventory has a lower value Law of demand The quantity of an item purchased varies inversely with its price, other factors remaining constant Law of supply As the price of an item increases the supply of the item will also increase, other factors remaining constant The lapse of time between placing an order with a supplier and receipt of the goods A business methodology that aims to create more value with fewer resources Processes that improve efficiency by reducing wasted time, materials and money A graphical representation of how when greater numbers of an item are produced, unit costs reduce A book or computer file used to balance accounting figures such as deposits and receipts Less than container load (LCL) A single delivery of goods that does not completely fill a container. This may incur additional charges Less than truckload (LTL) A shipment containing fewer items than are required for the shipment to be eligible for full truckload rates Letter of credit (LC) A document used between a buyer’s and seller’s bank to facilitate a transfer of funds upon performance of the contract and presentation of specified documents, e.g., signed delivery note The amount a business owes, e.g., loans, debts, accounts payable Legally responsible for any actions taken that may have a negative consequence Life-cycle assessment (LCA) A technique to assess the environmental impact of each step in a product’s life from raw material extraction through to the use, repair and maintenance of the product (also called a life-cycle analysis or a cradle-to-grave analysis) Life-cycle cost The total cost involved in items of inventory, including purchasing price, inward delivery, receipt and handling, storage, packing and preparation, dispatch costs, insurance and overheads Life-cycle plan A plan addressing the impacts on the various stages of staff, products and environment life cycles Lifetime cost The total cost of ownership over the life of an asset Linear pricing The unit price doesn’t change according to the quantity purchased Liquidated damages A set sum agreed by the organisation and the supplier (the parties) and is included in the contract, which will be paid if one of the parties breaches a term of the contract A form of insolvency when an organisation is brought to an end The control of the flow of goods or services between two points Long tail spend The part of an organisation’s spend profile that isn’t managed directly by the procurement department Loss leader A product or service delivered at a price that makes a loss for the supplier in the hope of future gains; usually used to break into a new market or to increase market share Low-cost country (LCC), Low-cost-country sourcing (LCCS). A procurement strategy to source from low-cost countries (LCC) either because of reduced production price, or improved capacity, quality, or logistics Macro environment External factors beyond an organisation’s control that will influence its success, such as government policy, technology, and social and cultural factors Make-to-stock Where an item is produced specifically to go into stock, for later sale A decision about what products or services an organisation will manufacture or provide themselves in-house, and which will be purchased from outside sources The transport or support of any load by one or more employees, including lifting, putting down, pushing, pulling, carrying or moving a load Manufacturing resource planning (MRPII) A computer-based inventory management system that combines all available strategic and planning data to support inventory forecasting Where buyers meet sellers to trade products and services. This can relate to a specific location or to the general economic environment This helps procurement professionals to understand how the supply market works, the direction that the market is going in, the level of competition and the key suppliers in the market Elements that influence the demand for, or the price of, a good or service Market knowledge A detailed understanding of the influences, activities and trends in the market for a particular product or service (also known as category knowledge) The amount that customers are charged, depending on supply and demand for the products or services Market saturation This usually means that there is more than enough supplier capacity to meet customer demand A group of consumers with common characteristics that are grouped together for the purpose of marketing a product or service Master production schedule (MPS) A plan that a company has produced for the purposes of scheduling machinery, staffing, resourcing, etc., that is used to ensure smooth, continuous productions Material assets Tangible items that are required to carry out an organisation’s activities, such as tools, machinery, staff and buildings Material requirements planning (MRP) An electronic system used to plan production which includes scheduling orders, monitoring inventory and managing the production process The part of the procurement process that makes sure organisations have the materials they need to operate Maverick spend/off-contract spend Where local staff ignore existing contractual arrangements and purchase from other suppliers. This may be for fraudulent reasons, but most often it is simply because they believe they can get a better deal and do not understand the overall impact on the business Another name for the average. The mean is calculated by adding all of the values together, then dividing by the number of values Method statement A plan or procedure that details how a process or task will be carried out Micro environment Factors that directly influence an organisation’s success, such as competitors, suppliers, employees and customers Micro-, Small and Medium Enterprises (MSME) The expansion of SME to include microbusinesses, which are usually defined as having fewer than ten employees Middle majority A group of consumers who buy or use a new product or technology after seeing it used successfully by innovators and early adopters Important stages or events within a process Mini-competition A limited tender exercise, usually only on price, under the rules set out in a framework agreement; only suppliers appointed to the framework are able to take part Minimum order quantity (MOQ) The smallest amount of a product a buyer can order from the supplier A written record of a meeting, stating when it took place, who was present, what was discussed and what actions have been agreed Short statement setting out an organisation’s purpose Mitigation/mitigating action An action that reduces the severity of an outcome Mixed loads This is where a vehicle contains more than one type of product When a contract shifts from one supplier to another Modern-day slavery The act of forcing people to work in poor conditions for little or no money A situation in a market where one organization controls the supply of goods or services and new entrants find it difficult to enter the market A market with only one buyer Paid work from a second job that is done without a main employer’s consent A shift in demand or supply, or price Multilateral trade agreements An exchange agreement between more than two nations or trading groups that gives each group favoured trade status connected to certain goods obtained from the signatories In or using several different languages Organisations that have facilities and assets in more than one country Total amount payable excluding taxes New Engineering Contract (NEC) Non-cashable savings One-time savings that do not reduce the ongoing future budget Non-governmental organisation (NGO) A non profit organisation that operates independently of any government Non-linear pricing The unit price does change as the quantity ordered changes Non-verbal communications Using pictures, facial expressions or body language to convey information In the context of data, something is objective if it is pure fact, with no opinion or interpretation attached to it In terms of a contract, the actions that each party must carry out The state of becoming discontinued, outdated or no longer useful Obsolescent stock Stock that is outdated and no longer useful Occupational Health & Safety Agency (OHSA) Off-the-shelf Goods or services that are readily available and not made to order An invitation communicated by one party to another to enter into a legal contract Positions appointed by the Board of Directors. Examples of officers are CEO (chief operating officer) and FO (financial officer) OJEU Official Journal of the European Union A market structure where a small number of competitors dominate the market Open-book contract A contract in which both the purchaser and supplier share all financial information relating to the contract, including figures that would normally be considered commercially confidential This is an arrangement where the items are delivered before payment is due, for example, on credit terms such as 30 days Opening stock The amount, type and value of goods available for sale at the beginning of a set period Operating costs Day-to-day expenses of running an organisation, e.g., rent, salaries, transport costs, power and insurance Everything external to the business that has an impact on how it operates. This will include regulations, social expectations, the economy, its relative position in the market, the competitiveness of the market, etc. A benefit that could have accrued if a person had taken a different action Ordering system A method used to determine the size and timing of an organisation’s orders A body that buys goods or services from a supplier Organisational culture The shared values and beliefs that influence how people in an organisation behave A manufacturer that produces goods for another company to sell under their own branding, particularly computer and IT equipment An object that oscillates moves repeatedly from one position to another Outcome-focused specification Type of performance specification that describes the functions or performance that a product must fulfil The amount of goods or services an organisation is producing or supplying Contract another company to undertake a task or job Over-spec’d (over-specified) Having a specification that is better than is required to be fit for purpose Over-supply Where more goods or services are available than there are buyers for them. This most often occurs in agriculture where the harvest may vary from year to year, depending on the weather, and the produce cannot be kept for a long time A short-term agreement with a bank to lend money The process of covering an item in a specified material to protect the item and in some cases make it more appealing to the customer An itemised list of a package’s contents which is prepared by the shipper The process of preparing goods for storage or distribution by protecting the contents from outside elements A platform used for storing and moving stock Palletisation Performing material handling tasks, such as storing and shipping products, using pallets Participative To be involved and contribute to the task or project A legal form of a business that is owned by two or more individuals The inventor has been legally granted exclusive rights to make or sell their idea or invention Legally grants the inventor sole rights to make or sell their idea or invention The time in which a buyer has to pay the supplier for goods or services received Perfect competition A market structure where many companies are competing, each selling the same product. A term used in contract law to describe what should be done Any activity that is carried out to make sure goals are achieved Performance management framework A series of standards and targets that are to be achieved by the supplier, definitions of how performance against those standards will be measured and actions expected to be taken on the basis of the measurement results Performance specification Outlines what the product or service is to do or achieve – this covers its output requirements, tolerances and functions it may have to perform Peri-urban An area that surrounds a metropolitan area or city Personal improvement plan (PIP) A type of action plan geared towards personal improvement Money readily available for use by employees on small items Energy generated using solar cells The process of selecting items from stock or assembling the items required to fill an order Piece part price Price per individual item A business case delivered to an organisation to try to sell a product or service Passing off another person’s work as your own Positive-sum game Gains by one person or party do not equal the loss to the other Poverty line The minimum level of income required by a family to cover the basic needs of food, clothing and shelter Equipment such as a hard hat, work boots or a high-visibility jacket Pre-qualification questionnaire (PQQ) A document sent to potential suppliers asking for information necessary to support their qualification as an approved supplier Match a certain set of criteria to qualify immediately for invitation to tender or request for information (RFQ) Preferred supplier list A pre-approved list of suppliers whose financial stability and technical capability have already been checked Price-penetration strategy A pricing strategy that aims to attract customers away from competitors by offering a lower price Price-skimming strategy A pricing strategy that markets products in the early stages of their life cycle at a higher price than at a later stage Price elasticity A measure of the change in demand for a product or service in relation to changes in its price Price on application (POA) Meaning you can find out the price when you contact the organisation Prices that rise and fall repeatedly and unpredictably over short periods of time How the price for goods or services will be presented in a request for information (RFI) Pricing schedule appendix Additional pages, containing more details about the pricing schedule, at the end of the contract The packaging that is in immediate contact with the product (e.g., small box, bottle, bag, etc.) Primary sector The first stage of the production and manufacturing process (e.g., farming and the extraction of raw materials) Private limited company (Plc) A legal form of company in which ownership is apportioned through the number of shares held. Liability of the holders of these shares is limited to the share value and the shares cannot be traded Organisations run with the aim of making a profit Anticipating needs and acting accordingly Probity Honesty or integrity Process mapping A way to provide a visual representation of a process Procure to pay (P2P) The process of requisitioning, purchasing, receiving, paying for, and accounting for goods and services The act of obtaining something, whether tangible or intangible, such as a product or service Procurement platform The activities that determine the specification and quantities of a product or service prior to contracting for its supply. It is based on a balance of financial and non-financial requirements Procurement specification A document that presents prospective suppliers with a clear, accurate and full description of the organisation’s needs and enables them to propose a solution to meet those needs Part of the packaging of a product. The product label is the written information on the outer packaging that gives important information that needs to be communicated to the customer The stages a product goes through, from initial concept through to decline and removal from the market The ability of the organisation to make a profit The amount by which the revenues of a company exceed its costs A document which confirms the sale which is sent to the buyer in advance of items being shipped and provides details such as description of items, shipment weight, transport charges, etc. The aspects of product, place, price and promotion that are used in the marketing of a product or service A machine that produces thrust to push an object forward Suppliers that may wish to work with a buyer or who a buyer may wish to work with A sample or model of an idea or concept A legal form of company in which ownership is apportioned through the number of shares held. Liability of the holders of these shares is limited to the share value and the shares can be traded through an exchange Purchasing carried out by government departments, local authorities and some other designated types of organisation, particularly those funded or supported through taxation Public sector organisations Service organisations run by the government and usually funded by taxes Purchase order (PO) Legally binding documents that set out the details of the transaction that the supplier and buyer have agreed The processes concerned with acquiring goods and services, including payment of invoices – it is part of the wider procurement process Qualified bid A bid where the potential supplier has ‘exempted themselves’ from one or more of the requirements of the tender (i.e. the bid specifically states that it does not comply with one or more aspects of the specification or contract terms) Measured in terms of quality Research designed to gain insights into reasons why something happens Processes put in place the ensure that quality requirements will be met Checking a product against a set of criteria to ensure it meets quality standards Quality management system (QMS) A formal system that includes documented processes and procedures that outline the responsibilities for achieving quality within an organisation Measured in terms of numbers or quantity Quantitative research Research that uses statistics and mathematics as a means of analysing data A limit on the quantity or value of a particular type of import or export Radio frequency identification (RFID) tag Data chips that are attached to products and contain a signal for tracking and identification Rationalisation The process of reviewing products and consolidating variety to reduce inventory costs Redesigning existing products and services Responding to needs when they present themselves Read receipt A response from an e-mail recipient that indicates the message was opened An amount paid back on top of any discounts that have previously been agreed Something that is the same on both sides The act of finding a person or persons to do a role within an organisation Redundant stock Excess stock that is not required Statistical methods used for predicting what will happen in one variable as a result of a change in another – e.g., will quality improve by X amount if the price is increased by Y amount? Quality is not a direct function of price, so it may do so, or it may not. Regression analysis looks at probabilities A model that policy makers and others can use to reform and apply regulations in an effective and logical way Contractual remedies are the provisions in a contract that enable the injured party to take action when the other party does not comply with the contract terms A document confirming that payment has been made Reprocurement To procure again – put in place a new contract when a previous one expires or is terminated Request for information (RFI) A document used to gather information about suppliers and their capabilities prior to a formal procurement process A document used to canvass potential solutions from suppliers when the specification is still unclear Request for quotation (RFQ) An invitation to suppliers to bid on specific products or services Request for tender (RFT) Paper or electronic document stating a need for procurement to supply a product or service Waste that is not able to be recycled or re-used and which ends up in garbage dumps called landfills A measure of profitability that indicates whether a gain or loss has been generated compared with the initial cost The amount of income that has come into a business An assessment that considers the severity of a hazard and its potential outcome in conjunction with other factors including the level of exposure, the number of individuals exposed and the risk of the hazard being realised A document that sets out identified risks, the likelihood and impact of them materialising and who is responsible for dealing with them Road safety impact assessment (RSIA) A formal, independent assessment of the impact of new or altered layouts and entry points on the safety of a road Roll-over contract Contract that automatically renews on expiry unless notice is given that it is not to do so Roller-stacker shelf mechanism A set of rotating decks or shelves within a secure container that eliminates wasted space between racks and improves security Extra stock that is held in case it is needed in unexpected situations, such as demand rising or suppliers being unable to deliver Sales and operations planning (S&OP) A multi-department planning process based on factors including expected levels of demand and supply A tax collected by the retailer at the final stage of the supply chain Examples of the product that is required An organisation’s ability to increase its production profitability A device that optically scans images Schedule of rates An itemised list of component parts within a lump-sum contract, or a list of individual products, giving a price for each unit A diagram showing the main form and features of something to help people to understand it Reports used to track the achievement of, or progress towards, targets or goals that can include quantitative and qualitative data A software system or program that is designed to search for information on the Internet Secondary sector The second stage of the production and manufacturing process, e.g., manufacturing industries Second-party audit An inspection of a supplier by an organisation/ company contracted by the organisation (otherwise known as an external or supplier audit) An evaluation method that an organisation will use to assess performance Sensitive receptors People or living things that are more readily affected by exposure to contaminants or toxic materials, e.g., people in schools, day-care centres, hospitals and nursing homes Service credits A deduction against fees payable as compensation for poor service, usually a pre-determined percentage derived from a contractual performance management framework Service level agreement (SLA) An agreement between a supplier and a buyer based on quality, delivery, availability and other measurable criteria The third of three sectors recognised by economists. The first sector covers farming and raw materials, the second is manufacturing and the third covers the production and delivery of services The means by which a business is apportioned among its owners A change in either the quantity supplied, or the quantity demanded while the price remains the same The address to which deliveries are to be sent Within manufacturing, the area where the goods are made Signed off A process of approving a sample so that orders can be placed or produced Silo thinking When people within a department do not share their knowledge or ideas with others outside the department Single administrative document (SAD) A standardised customs form used to control goods being moved in and out of the EU, Switzerland, Norway, Iceland, Turkey, Macedonia and Serbia Slotting (or profiling) The process of identifying the most efficient placement for each item in a warehouse Small- and medium-sized enterprise (SME) A small- or medium-sized enterprise that is independent of other companies and is defined in terms of the number of employees it has SMART objectives are: Specific, Measurable, Achievable, Realistic, and Time bound The impact a business can have on people and communities and actions to make this a positive impact Skills that may be taught but are more likely to develop with time and practice, for example, team working and good communication Programmed code that makes computers (hardware) operate Someone who has exclusive ownership of a business and can keep any surplus profits but is responsible for any losses A detailed description of what is required Gathering, cleansing, classifying and assessing spend data, with the aim of making efficiencies and reducing costs Spot buying One-off purchases or immediate requirements, common in domestic buying Staged pricing Payment split into instalments across the period of the contract Staggered delivery This is where a full order is broken down into smaller loads and delivered against a schedule, e.g., 40% delivered in Month 1, 60% delivered in Month 2 Anyone with an interest, or stake, in the organisation or project A statistical measure that captures the difference between the average and the outliers in a set of data Document setting out the internal rules of an organisation An action that is required by and controlled by law Care and responsibility for minimizing a product’s environmental impact throughout all stages of the product life cycle, including end of life management Goods, products or materials held for future use or supply, often called inventory American term for shareholder Stock keeping unit (SKU) An identification code for an item of inventory, usually displayed as a bar code linked to a database Stockout When an inventory item is unavailable Stocktake The process of physically counting products in a warehouse to match them to the computerized inventory Strategic business decisions Long-term decisions often made by senior management which affect the future and direction of an organisation Strategic core A category of a buyer’s portfolio in which items have major consequences for the company if they are not available when needed A document that includes details of the organisation’s goals and the actions to be taken to achieve them Strategic procurement The practice of focusing on building long-term relationships with suppliers that could lead to a source of competitive advantage High-level planning, usually related to long-term goals In the context of data, something is subjective if it is a matter of opinion, which may differ from one person to another Goods which, as a result of changed conditions, may replace each other in the market Subtract or outsource To employ another organisation to fulfil a contract or part of a contract Supplier inspection A way of testing a supplier’s product or service to confirm compliance with the standard set by the organisation Supplier ranking A priority order of suppliers that can be used for sourcing Process for identifying all interactions with key suppliers and then managing them in a way that increases the value from the relationship for both parties Supplier relationship manager (SRM) The role responsible for developing and maintaining supplier relationships How much or how many of a product or service an organisation has to sell, or, the act of physically getting something from the supplier to the buyer A network of individuals, organisations, technology, activities and resources working together to make sure goods or services reach the end user Supply organisation A supplier Supporting future ecological balance by not harming the environment or depleting natural resources Sustainability development goals (SDG) 17 goals introduced by the United Nations General Assembly to achieve a better and more sustainable future for all Sustainably In a way that avoids the destruction of nature and helps to keep a good ecological balance The process of precisely co-ordinating or matching two or more activities, devices or processes in time System-generated reference number A reference number automatically assigned to a record in a computer system An attribute that applies to a whole system rather than one particular part of it Tall structure Also known as a hierarchical structure and based on a pyramid – every staff member has somebody to report to Something you can physically see or touch People or organisations at which products such as a film, advertisement or website is aimed A tax paid on a particular type of import or export Technical (or conformance) specification The set of standards that a requirement must meet or exceed Technology chasm The gap between the early adopters and larger market segments such as early majority in a product life cycle Information technology dealing with the long-distance transmission of computerised information A request from a buying organisation to invite suppliers to formally quote on a large value project Term contracts Contracts written to last a period of time and include agreed terms Tertiary sector The third stage of the production and manufacturing process, where a service is delivered in industries, e.g., banking, communications and marketing A formal statement from a customer giving feedback about the product, service or company and often used for promotional purposes The Carbon Trust An independent, expert partner of leading organisations around the world, helping them contribute to and benefit from a more sustainable future through carbon reduction, resource efficiency strategies and commercialising low carbon technologies The Greenhouse Gas Protocol (GHG Protocol) Corporate Standard The most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions Third-party audit An inspection of an organisation by an independent company or body Third-party logistics (3PL) The use of third-party businesses to outsource part or all of an organisation’s fulfilment, logistics, transport, warehousing or distribution Third-sector organisations (TSOs) Not-for-profit, non-governmental organisations run with the aim of achieving social goals, such as charities or community groups In the procurement context, an upper limit to the amount a contract may cost without certain legal requirements coming into force Cutting tools, moulds, fixtures of accessories needed on a machine to manufacture a product Total cost approach An approach that considers all the costs associated with procuring an item Total cost of ownership (TCO) A structured approach to calculating the full costs associated with buying and using an asset or acquisition over its entire life cycle Total costs The total amount of costs spent, including fixed, variable, direct and indirect costs Total quality management (TQM) Efforts of all departments within an organisation to improve processes, products and services Trade body An organisation that represents and works for a particular group of individuals or companies, with a specific industry focus, is usually funded by them Visits or clicks on a website Pre-supposed and beyond practically gained experience Transformational step change An organisational change that is significant and carried out over a period of time Operating in such a way that everyone can see the actions performed The amount of money taken by a business in a particular period Unambiguous Clear and not open to interpretation Unincorporated company A company in which there is no legal distinction between the company and its owner A group of workers joined together in a specific type of organisation for the purpose of improving working conditions Unit load A standard unit that combines individual items to ensure easy and efficient handling Up-skill Increase the ability of an individual through training and personal development Upstream environmental factors Impacts on the environment caused by the extraction of raw materials or the manufacture of goods being purchased An indirect tax collected by sellers at every stage in the supply chain, based on the value added at each stage of a product’s or service’s production or distribution The attributes of a product or service that makes it attractive to customers Costs that change with the output of the organisation Variant bid A tender offer that does not quite match the specification of contract terms, but has been authorised as a secondary offer from a supplier. It is used to see if the proposed specification and contract terms can be improved upon via competitive offers and must be authorised by the purchaser as part of the invitation to tender Vendor-managed inventory An agreement between an organisation and a supplier where the supplier is given control of ordering (replenishment) decisions Venture capitalists Specialist companies that invest in businesses (particularly start-ups) Verbal communications Using the spoken or written word to convey information, for example face-to-face or on the phone, reports, e-mails or posters When one organisation in a supply chain moves into a different stage of that supply chain, either by starting its own business or by acquiring an existing one Breaching an agreement, policy or code of conduct A statement describing the future desired state of the organisation Waiting time charge Charge applied by a supplier if their specified waiting time to be offloaded is exceeded Warehouse slotting The process of assigning identity codes to picking locations based on various criteria such as unit sales, size or weight A promise made by the supplier to the buyer, in return for a monetary sum, to repair or replace a product or service without further charge in an agreed period of time The process of removing chemicals, biological contaminants, suspended solids and gases from contaminated water Waybill (or airway bill) A bill of lading issued by an airline certifying that items carried comply with standards set by the International Air Transport Authority (IATA) Parts with a limited lifespan that need replacing periodically Whistle-blower A person who discloses activity or information which they believe to be illegal, unethical or not in accordance with the organisation’s policies and procedures A method of transferring funds electronically from one person or entity to another using bank accounts The informal sharing of information between people Capital of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities Work in progress inventory Assets that are being used in the production process, which may include raw materials, labour and overheads A ‘zero-sum game’ is an interaction where every gain by one person is an equal loss to the other, so the net gain (the total of the benefits to both parties) is zero

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professional_accounting

At last week’s American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan (EBP) Conference, the Department of Labor (DOL) compared auditing retirement plans to brain surgery. The analogy was meant to indicate that a patient would not seek out a general practitioner to perform brain surgery, due to the highly complex nature of the service and the lack of experience the general medical practitioner would have at performing the service. As shown by this analogy, retirement plan audits are a specialized area with extensive compliance issues. Two governmental agencies (the IRS and DOL) are charged with overseeing compliance, indicating that the breadth of regulations and compliance can be massive. Accounting principles specific to plan accounting are not always in line with those principles for regular financial statement audits. Like the general medical practitioner, a general CPA who performs regular plan sponsor audits or tax work may not have devoted enough time and focus to such a highly technical and complex area. So what led the DOL to make this analogy? The DOL just released a report from a study that the agency conducted on the quality of retirement plan audits. The results are not favorable. As one would expect, the number of deficiencies the DOL noted show a direct correlation to the size of a firm’s employee benefit practice. It appears that many general accounting practitioners are performing these audits and do not have adequate experience or knowledge to perform sufficient audits under the professional standards. Let’s take deeper look into the study and see what deficient audits mean for plan sponsors. The results of the DOL’s Audit Quality Study reported a direct correlation between the size of an audit firm’s EBP practice and deficient work. The DOL reported that 75% of plan audits were deficient in the 1-2 plan strata. The DOL specifically noted that firms that were members of the AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC) had lower deficiency rates, but there are still member firms performing deficient work. This may be due to the low requirements to be a member firm, such as only requiring 8 hours every 3 years of continuing professional education. Clearly this requirement is out of date and much more time needs to be invested for an auditor to be knowledgeable in all relevant matters concerning an employee benefit plan audit. The DOL also noted that audit work is of a lesser quality in engagements where firms have less expertise. The DOL made 131 referrals to the AICPA’s Professional Ethics Division and 13 referrals were made to the state boards of accountancy (which license individuals). However, the DOL indicated that state boards are not always taking enough action, in the agency’s view. Plan sponsors are fiduciaries of the plan charged with selecting quality service providers. The DOL may reject a 5500 filing if the agency finds that a deficient audit was performed, subjecting plan sponsors to filing penalties of $1,100 per day and up for each filing. Ultimately, a quality audit protects participants and their beneficiaries from enjoying the benefits accumulated throughout their career. The AICPA EBPAQC also details the importance of hiring a qualified auditor as a technical advisor. As one may infer from the brain surgery analogy, indications of a specialized and qualified auditor include the time devoted to the EBP practice, the variety and diversity of plan types audited, and the level of training and time spent on keeping up to date with relevant issues. In our experience auditing plans from other accountants, even large firms that perform hundreds of EBP audits nationwide can have deficiencies in their retirement plan audits if the team used at a specific branch of the national firm is inexperienced with respect to the industry. In conclusion, the DOL Audit Quality Study showed that general practitioner auditors do not have enough experience or knowledge to perform audits that comply with professional standards. The DOL Audit Quality Study reported that 75% of plan audits in the 1-2 plan strata were deficient. Deficient audits expose plan Form 5500 filings to rejection by the DOL, possibly subjecting plan sponsors to large penalties. A quality auditor will not only provide insurance against steep penalties, but will be a valuable resource to plan sponsors, assisting with the implementation of processes that ensure controls are properly designed to minimize errors in plan operations, and ultimately ensure that the financial statements are complete and accurate.

{'timestamp': '2019-04-20T03:19:27Z', 'url': 'https://employeebenefitplanaudit.belfint.com/dol-audit-quality-study-employee-benefit-plan-auditors-are-not-making-the-grade-2/', 'language': 'en', 'source': 'c4'}

professional_accounting

Consolidated Acts: C.C.S.M. | Municipal | Private The Tax Administration and Miscellaneous Taxes Act This is an unofficial version. If you need an official copy, use the bilingual (PDF) version. This version is current as of July 16, 2019. It has been in effect since November 8, 2018. Show previous versions Hide previous versions Previous versions: 17 Oct 2018 to 7 Nov 2018 — Bilingual version (PDF) 1 Jan 2018 to 16 Oct 2018 — Bilingual version (PDF) 20 Nov 2017 to 31 Dec 2017 — Bilingual version (PDF) 10 Nov 2017 to 19 Nov 2017 — Bilingual version (PDF) 1 Oct 2017 to 9 Nov 2017 — Bilingual version (PDF) 30 Jun 2016 to 30 Sep 2017 — Bilingual version (PDF) 5 Nov 2015 to 29 Jun 2016 — Bilingual version (PDF) 12 Jun 2014 to 4 Nov 2015 — Bilingual version (PDF) 1 Apr 2014 to 11 Jun 2014 — Bilingual version (PDF) 29 Mar 2014 to 31 Mar 2014 5 Dec 2013 to 28 Mar 2014 31 May 2013 to 4 Dec 2013 1 Oct 2012 to 30 May 2013 15 Jul 2012 to 30 Sep 2012 1 Jan 2012 to 13 Jun 2012 16 Jun 2011 to 31 Dec 2011 1 Apr 2011 to 15 Jun 2011 17 Jun 2010 to 31 Mar 2011 11 Jun 2009 to 16 Jun 2010 5 Jun 2008 to 10 Jun 2009 Note: Earlier consolidated versions are not available online. Search this Act Information table C.C.S.M. c. T2 Table of Contents Bilingual (PDF) Regulations HER MAJESTY, by and with the advice and consent of the Legislative Assembly of Manitoba, enacts as follows: Former Part I (sections 1 to 24) "Tax on Electricity and Certain Other Products" was amended and renumbered as Part I.1 (sections 96 to 110) by S.M. 2005, c. 40, Part 12. See the Table of Concordance at the end of this Act. 1(1) The following definitions apply in this Part. "assessment" means an assessment made by the director under section 46. (« cotisation ») "bulk fuel" means bulk fuel as defined in The Fuel Tax Act. (« carburant en vrac ») "carrier licence" means a carrier licence as defined in section 23 of The Fuel Tax Act. (« licence de transporteur ») "cigarette" has the same meaning as in The Tobacco Tax Act. (« cigarette ») "collector" means (a) a person who is required by or under a tax Act to collect and remit tax; and (b) any other person who collects an amount as tax, otherwise than as a person employed under the minister. (« collecteur ») "deputy collector" means a person required by a tax Act to collect and remit tax to a collector. (« collecteur adjoint ») "director" means (a) the Deputy Minister of Finance; or (b) an Assistant Deputy Minister of Finance; except where it refers to a director of a corporation. (« directeur ») "driver's licence" means a driver's licence as defined in The Drivers and Vehicles Act. (« permis de conduire ») "financial institution" means a bank, credit union, trust company or other similar institution. (« établissement financier ») "fuel" means fuel as defined in The Fuel Tax Act. (« carburant ») "information return" includes a tax return under a tax Act. (« déclaration de renseignements ») "marked fuel" means marked fuel as defined in The Fuel Tax Act. (« carburant marqué ») "marked tobacco" means cigarettes or fine cut tobacco the packaging of which is marked or stamped for the tax purposes of Manitoba as required by The Tobacco Tax Act. (« tabac marqué ») "minister" means the Minister of Finance. (« ministre ») "person" includes a partnership, a trust and the Crown in right of Manitoba. (« personne ») "Personal Property Registry" means the Personal Property Registry under The Personal Property Security Act. (« Bureau d'enregistrement ») "reassessment" means a reassessment made by the director under section 46. (« nouvelle cotisation ») "receiver, trustee or other like person" means a person who as assignee, liquidator, administrator, trustee, receiver, receiver-manager, secured or unsecured creditor, or as agent of any such person, takes control or possession of money or other property of another person. But it does not include a trustee in bankruptcy except in section 16. (« séquestre, fiduciaire ou autre personne exerçant des fonctions semblables ») "record" means information that (a) is recorded or stored by mechanical, electronic, magnetic, optical or any other means; and (b) is recorded or stored in understandable form or is capable of being produced or reproduced in understandable form. (« document ») "secured creditor" (a) means a person who has a security interest in property of another person or who, in connection with a security interest, acts for or on behalf of the person who has the security interest; and (b) includes a trustee appointed under a trust deed relating to a security interest, a receiver or receiver-manager appointed by a secured creditor or by a court on the application of a secured creditor, a sequestrator, and any other person performing a similar function. (« créancier garanti ») "security interest" (a) means an interest in property that secures payment or performance of an obligation; and (b) includes an interest created by or arising out of a debenture, mortgage, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind. (« sûreté ») "tangible personal property" means tangible personal property as defined in The Retail Sales Tax Act. (« biens personnels corporels ») "tax" means a tax imposed under a tax Act. (« taxe ») "taxable service" means a taxable service as defined in The Retail Sales Tax Act. (« service taxable ») "tax Act" means any of the following enactments: (a) The Corporation Capital Tax Act; (a.1) The Credit Unions and Caisses Populaires Profits Tax Act; (a.2) The Emissions Tax on Coal and Petroleum Coke Act; (b) The Fuel Tax Act; (c) The Health and Post Secondary Education Tax Levy Act; (c.1) The Insurance Corporations Tax Act; (d) The Mining Tax Act; (e) [repealed] S.M. 2010, c. 29, Sch. B, s. 39; (f) The Retail Sales Tax Act; (g) The Tobacco Tax Act; (h) this Part; (i) a regulation made under any enactment referred to in clauses (a) to (h). (« loi fiscale ») "Tax Appeals Commission" means the Tax Appeals Commission established under section 2 of The Tax Appeals Commission Act. (« Commission d'appel des impôts et des taxes ») "tax authorization" means (a) an RST number under The Retail Sales Tax Act; and (b) a licence or permit under a tax Act. (« autorisation fiscale ») "TAXcess" means the web application established by or for the Department of Finance to provide subscribers with (a) online access to one or more of their tax accounts; (b) an electronic method of filing information or an information return with the director and accessing information provided by the director to them in respect of their tax accounts; and (c) a method of authorizing electronic fund transfers to pay their tax debts. (« TAXcess ») "tax debt" of a person means the total of all amounts that the person is required to pay or remit under a tax Act, whether as tax, or as a penalty, interest, fee or other charge, other than a fine or surcharge payable upon conviction of an offence. (« dette fiscale ») "tax debtor" means a person who is liable to pay or remit a tax debt. (« débiteur fiscal ») "tax officer" means (a) the director; and (b) a person designated as a tax officer under section 4 or belonging to a class of persons designated as tax officers under that section; and, except for the purposes of section 4, clauses 22(1)(b) to (d) and subsection 22(3), includes a peace officer. (« agent du fisc ») "taxpayer" means (a) a person on whom a tax is imposed; (b) a collector; and (c) a person who is liable under a tax Act for all or any part of another taxpayer's tax debt. (« contribuable ») "tobacco" means tobacco or a tobacco product as defined in The Tobacco Tax Act. (« tabac ») "unit", in relation to tobacco, means a unit as defined in The Tobacco Tax Act. (« unité ») "unmarked tobacco" means cigarettes or fine cut tobacco the packaging of which is not marked or stamped for the tax purposes of Manitoba as required by The Tobacco Tax Act. (« tabac non marqué ») Solicitor-client privilege 1(2) Subject to subsections (3) and (4), nothing in this Part shall be construed to affect a solicitor-client privilege. Process for dealing with solicitor-client privilege 1(3) Section 232 of the Income Tax Act (Canada) applies, with necessary changes, to (a) any requirement to produce or make available for inspection, audit or examination; or (b) any attempt to inspect, examine or seize; any record in respect of which a solicitor-client privilege is claimed and has not been waived by the person entitled to waive it. No privilege in respect of accounting record 1(4) For the purposes of this Part, no solicitor-client privilege exists or may be claimed in respect of an accounting record of a lawyer or any supporting voucher or cheque for such an accounting record. Interpretation of tax Acts 1(5) For greater certainty, the tax Acts must be interpreted so as not to derogate from the exemption from taxation of property under subsection 87(1) or (2) of the Indian Act (Canada). S.M. 2005, c. 40, s. 85; S.M. 2006, c. 24, s. 77; S.M. 2007, c. 6, s. 76; S.M. 2010, c. 29, s. 54 and Sch. B, s. 39; S.M. 2011, c. 41, Sch. A, s. 5; S.M. 2014, c. 35, s. 64; S.M. 2017, c. 40, s. 68; S.M. 2017, c. 40, Sch. A, s. 13; S.M. 2018, c. 34, s. 28. Crown bound 2 This Act binds the Crown. S.M. 2005, c. 40, s. 85. Director may delegate 3(1) The director may delegate to a person, with or without conditions, any power or duty conferred or imposed on the director by a tax Act. Director may continue to act 3(2) The director may continue to exercise a power or perform a duty that he or she has delegated. Designation of tax officer 4(1) The director may designate a person or class of persons, with or without conditions, as tax officers for the purpose of the administration and enforcement of any or all of the tax Acts. Designation of tax officer as peace officer 4(2) The director may designate a tax officer or class of tax officers as peace officers for the purpose of the administration and enforcement of any or all of the tax Acts. 4(3) Only a tax officer designated as a peace officer, or belonging to a class of tax officers so designated, has the powers of an enforcement officer under The Provincial Offences Act. Enforcement of Criminal Code provisions 4(4) A tax officer designated under subsection (2), or belonging to a class of officers so designated, (a) may enforce the following provisions of the Criminal Code (Canada): (i) subsection 121.1(1) (unauthorized sale of tobacco products), (ii) subsections 145(2), (4) and (5) (fail to attend court), and (iii) subsection 380(1) (fraud); and (b) has the powers and protections of a peace officer for the purpose of enforcing those provisions. S.M. 2005, c. 40, s. 85; S.M. 2011, c. 41, s. 48; S.M. 2013, c. 47, Sch. A, s. 138; S.M. 2017, c. 40, s. 69. Provisions not applicable to tax officers, etc. 4.1 No provision of a tax Act (a) that restricts or prohibits the possession, use or operation of any thing; or (b) under which the possession, use or operation of any thing by a person is an offence; (c) a tax officer who purchases, obtains or is in possession of the thing in connection with the administration or enforcement of a tax Act; (d) a peace officer who purchases, obtains or is in possession of the thing in connection with the performance of his or her duties; (e) a member of the technical or scientific staff of a department of the Government of Canada or Manitoba who is in possession of the thing for the purposes of, and in connection with, his or her employment; or (f) a person acting as an agent for a person described in clause (c), (d) or (e). S.M. 2011, c. 41, s. 49; S.M. 2013, c. 55, s. 51. Minister or director may approve forms 5 The minister or the director may approve forms, including electronic forms, for use under a tax Act, and may require them to be used. Information confidential 6(1) No person employed in the administration of a tax Act may disclose any personal or confidential record or information obtained under a tax Act, except (a) with the consent of the person to whom the record or information relates; (b) in the case of personal information, as permitted by The Freedom of Information and Protection of Privacy Act; (c) to the extent required for the administration or enforcement of a tax Act or any other Act that imposes a tax or levy or, with the approval of the minister, to the extent required for the administration or enforcement of any other enactment; (d) as required or permitted under Part 5 of The Electronic Commerce and Information Act or under a regulation or an agreement made under that Part; or (e) as permitted under subsection (2) or the regulations. Reciprocal exchange of information 6(2) The minister may permit records or information, including personal information, obtained under a tax Act to be given or shown to any person employed by the government of Canada or of another country or by another provincial, territorial, municipal or state government if (a) there is an agreement or arrangement with that government for the reciprocal exchange of records or information relating to the administration or enforcement of laws that impose a tax or levy; and (b) the minister is satisfied that the records or information provided are required for the administration or enforcement of laws that impose a tax or a levy and will be used by that government only for that purpose. 6(3) [Repealed] S.M. 2017, c. 40, s. 70 6(4) In the event of a conflict between this section and a provision of The Freedom of Information and Protection of Privacy Act, this section prevails. But nothing in this section shall be construed to limit or deny a person's right to access his or her own personal information. S.M. 2005, c. 40, s. 85; S.M. 2013, c. 55, s. 52; S.M. 2017, c. 40, s. 70. 7(1) A document to be served under a tax Act may be served (a) in the case of a document to be served on the minister, by delivering it to the office of the minister or the deputy minister, or sending it by prepaid mail addressed to either office; (b) in the case of a document to be served on the director, by delivering it to the office of the director, or sending it by prepaid mail addressed to that office; (c) in the case of a document to be served on the Tax Appeals Commission, by delivering it to the office of the Tax Appeals Commission, or sending it by prepaid mail addressed to that office; (d) in the case of a document to be served on a partnership, (i) by giving it to a general partner of the partnership, or to an adult employed at a place of business of the partnership, or (ii) by sending it by prepaid mail addressed to a general partner of the partnership, to the partnership or to a name under which the partnership carries on business, at the address of the partner or partnership last known to the director; (e) in the case of a document to be served on any other person, (i) by giving it to the person or to an adult employed at a place of business of the person, or (ii) by sending it by prepaid mail addressed to the person or to a name under which the person carries on business, at the address of the person or the person's business last known to the director; or (f) in any other manner prescribed by regulation. Service by mail 7(2) If a document is sent to a person by mail in accordance with subsection (1), it is deemed to have been served on the person (a) in the case of registered mail, when it is received by the person or by another person on the person's behalf; and (b) in the case of certified or ordinary mail, when it is delivered by the post office to the address to which it was mailed. Time of mailing and delivery 7(3) Unless the contrary is shown, a document mailed by the director or the Tax Appeals Commission is deemed to have been (a) mailed on the date of the document; and (b) delivered to the address to which it was mailed on the third day after the day it was mailed, not including weekends and holidays. Service by delivery 7(4) A document delivered to the office of a person in accordance with subsection (1) is deemed to have been served on the person on the day it was delivered. Electronic service through TAXcess 7.1(1) A document posted by the director to a person's TAXcess account is deemed to have been served on the person on the day that a message advising of the availability of the document is sent to (a) the e-mail address specified in the person's settings for the account at the time the message is sent; or (b) any other e-mail address provided by the person to the director for the delivery of a notice about the document. 7.1(2) Subsection (1) does not apply (a) if sending the message triggers an automated response indicating that the message is not deliverable; or (b) if, before the message is sent, the person has notified the director in writing that the e-mail address may no longer be used for such messages. 7.1(3) [Repealed] S.M. 2018, c. 34, s. 29. Evidence of service 8 A statutory declaration as to how and when a document was served is proof of those facts unless the contrary is shown. Earlier due date 9(1) Despite any other provision of a tax Act, when the deadline for doing anything that is required or permitted to be done by or under a tax Act occurs on a weekend or a statutory or government holiday, that deadline is deemed to occur on the last preceding day that does not fall on a weekend or a statutory or government holiday. 9(2) Despite subsection (1), if the due date for filing a periodic return of information or remitting the tax to be remitted with such a return falls on a weekend or a statutory or government holiday, the due date is extended to the next day that does not fall on a weekend or a statutory or government holiday. S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 77; S.M. 2011, c. 41, s. 50. TAX AUTHORIZATIONS Director may issue tax authorization 10(1) A tax authorization may be issued by the director subject to any terms or conditions that are not inconsistent with the tax Act under which the tax authorization is required and the regulations under that Act. Application for tax authorization 10(1.1) A person requiring a tax authorization must apply to the director for it in a form approved by the director, and must pay any applicable fee. Order to apply for tax authorization 10(1.1.1) The director may issue an order requiring a person who requires a tax authorization to apply for that authorization within 30 days after receiving the order. Director may assign RST number without application 10(1.1.2) If a person who has been ordered to apply for an RST number under The Retail Sales Tax Act fails to apply for it as ordered, the director may assign an RST number to the person without an application. Reasons not to issue tax authorization 10(1.2) The director may refuse to issue a tax authorization to a person who (a) has been convicted of an offence under a tax Act or under an Act of Canada or of another province or territory of Canada that imposes a tax or levies a duty; (b) is not willing to undertake any duty or obligation he or she would have as the holder of a tax authorization; (c) is in breach of, or has failed to comply with, (i) a provision of a tax Act, (ii) an order or demand made under a tax Act, or (iii) the terms or conditions of a tax authorization or collector's agreement under a tax Act; (d) provides incomplete, false, misleading or inaccurate information or records in support of his or her application for the tax authorization; or (e) in the opinion of the director, does not require a tax authorization. Additional reason not to issue tax authorization to corporation, partnership or trust 10(1.3) The director may refuse to issue a tax authorization to a corporation, partnership or trust if (a) in the case of a corporation, a director or officer of the corporation, or a person who controls the corporation or belongs to a related group that controls the corporation; (b) in the case of a partnership, a member or officer of the partnership, or a person who controls the partnership or belongs to a related group that controls the partnership; or (c) in the case of a trust, a trustee or officer of the trust, or a person who controls the trust or belongs to a related group that controls the trust; has been convicted of an offence under a tax Act or under an Act of Canada or of another province or territory of Canada that imposes a tax or levies a duty or was, at the time of the commission of such an offence by a corporation that was later convicted of the offence, a director or officer of that corporation. Additional reasons not to issue tax authorization 10(2) The director may also refuse to issue (a) a licence or permit under The Tobacco Tax Act to a person who has been convicted of an offence under The Smoking and Vapour Products Control Act; (b) a permit under The Tobacco Tax Act for possessing unmarked tobacco, if the director is not satisfied that the tobacco will be dealt with in accordance with that Act or the regulations under that Act; (c) a permit under The Tobacco Tax Act for producing any mark or stamp capable of being applied to the packaging of a tobacco product to represent it as being marked or stamped for the tax purposes of Manitoba, if the director is not satisfied that the applicant for the permit will (i) take reasonable steps to ensure the security of the marks or stamps in the applicant's possession and the applicant's equipment for producing marks or stamps, (ii) ensure that the marks or stamps produced by the applicant will identify them as having been produced by the applicant, (iii) keep adequate records of the quantity of marks or stamps produced by the applicant, and (iv) cooperate with an inspection, examination or audit; (d) a tax authorization under The Fuel Tax Act or The Retail Sales Tax Act to a person who was in possession or control of an intoxicating substance or paraphernalia, as defined in section 71 of The Public Health Act, at the time it was seized under that Act, if a justice has made an order under subsection 74(6) of that Act forfeiting the intoxicating substance or paraphernalia; and (e) a tax authorization to a person if the director has reason to believe that it would be in the public interest to do so. 10(3) Subject to subsection (4), the director may, by written order, cancel a person's tax authorization for any reason for which he or she may refuse to issue such a tax authorization under this section. But a carrier licence may be cancelled only if it was issued by the director. Stop order 10(3.1) The director may, by written order, require a person to stop or refrain from doing any activity for which a tax authorization is required if the person is doing the activity without the required tax authorization. Opportunity to make submission 10(4) Before refusing to issue a tax authorization or issuing an order under subsection (3) or (3.1), the director must notify the affected person in writing (a) that he or she intends to refuse to issue the tax authorization or intends to issue the order, and why he or she intends to do so; and (b) that the person may, within 14 days after the notice is served on the person, make a written submission setting out the reasons that decision or order should not be made or issued. Temporary suspension 10(5) If the director believes that a reason to cancel a person's tax authorization exists, the director may, by written order, suspend the tax authorization for up to 30 days. The tax authorization is not valid during the period of the suspension. When order becomes effective 10(6) Subject to subsection (7), an order under subsection (3), (3.1) or (5) becomes effective when it is served on the person or at the date and time specified in the order, whichever is later. Automatic cancellation or refusal to issue 10(7) If a notice under subsection (4) states that the proposed decision or order will become effective at the end of the 14-day period for making a submission unless a submission is made to the director within that period, the decision or order becomes effective at the end of that period, without further notice, if no submission is received within that period. Appeal of director's decision or order 10(8) The director's decision or order may be appealed to the Court of Queen's Bench under Division 4 (Appeals). S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 78 and 103; S.M. 2009, c. 26, s. 63; S.M. 2010, c. 29, Sch. B, s. 39; S.M. 2011, c. 41, s. 51; S.M. 2012, c. 1, s. 74; S.M. 2015, c. 36, s. 18; S.M. 2015, c. 40, s. 43; S.M. 2018, c. 18, s. 12. Tax authorization not transferable 10.1 A tax authorization is not transferable. Tax authorization does not satisfy other requirement 10.2 The requirement for a tax authorization is in addition to any other requirement in an Act or regulation for a licence, permit or other authorization. Return of tax authorization 11(1) If an order under section 10 cancelling or suspending a tax authorization requires the tax authorization to be returned to the director, the holder of it must immediately return it to the director, along with any additional copies of it in the holder's possession. Return of carrier decals 11(2) When a carrier licence is cancelled by the director, the holder of it must immediately return to the director all unexpired carrier decals that were issued in connection with the licence. REPORTING AND PAYMENT OF TAX Director may require bond 12(1) The director may require a taxpayer or prospective taxpayer to provide the government with a bond to secure the performance of his or her obligation to pay or remit tax when it is due. Amount of bond 12(2) The terms, conditions and amount of the bond must be satisfactory to the director. Other form of security 12(3) The director may accept a letter of credit or a deposit of money or securities in lieu of a bond. No interest on deposit 12(4) No interest is payable by the government on money accepted by the director as security under this section. 12(5) To the extent of the amount in default under any obligation to pay or remit tax when it is due plus any interest or penalty payable on the amount in default, any money deposited with the government as security for that obligation becomes the property of the government when the default occurs. Collector is agent of government 12.1 For the purposes of collecting and remitting tax, a collector is an agent of the government. Payment by purchaser applied first to tax 13(1) A payment by a purchaser to a collector or deputy collector in respect of a purchase of property or services is deemed to be applied to the tax payable in respect of that purchase until the tax is paid in full and before any part of the payment is applied to the purchase price. Payment by deputy collector applied first to tax 13(2) A payment by a deputy collector to a collector is deemed to be applied to the payment of any tax collected by the deputy collector and to be remitted to the collector before any part of the payment is applied to any amount otherwise payable by the deputy collector to the collector. 14(1) The following definitions apply in this section. "extra-provincial contractor" means a person who has entered into a contract to be performed in Manitoba, but does not include a person who at the time of entering into the contract and during the immediately preceding 12 months, (a) was an individual resident in Manitoba; or (b) had a permanent place of business in Manitoba. (« entrepreneur extraprovincial ») "principal" means a person with whom an extra-provincial contractor has entered into a contract to be performed in Manitoba. (« commettant ») Contractor to provide information 14(2) An extra-provincial contractor who, in connection with a contract to be performed in Manitoba, sells property or services in Manitoba or brings into Manitoba, or receives in Manitoba, tangible personal property or taxable services acquired for the contractor's own use or consumption or for the use or consumption of others at the contractor's expense, must (a) report the matter to the director; and (b) provide the director with a copy of all relevant invoices and other information that the director requires in respect of the contract, the property or the services. Extra-provincial contractor to provide security 14(3) For the purpose of securing an extra-provincial contractor's obligation to pay or remit tax under The Retail Sales Tax Act or The Health and Post Secondary Education Tax Levy Act in respect of a contract to be performed in Manitoba, including any tax to be paid or remitted in respect of the property or services referred to in subsection (2), the director may require the contractor to provide a bond that (a) contains terms and conditions satisfactory to the director; and (b) secures the payment of an amount determined by the director, which must not exceed 9.15% of the total value of the consideration payable under the contract. Maximum amount of security during infrastructure funding period 14(3.1) The reference to "9.15%" in subsection (3) shall be read as "10.15%" during the infrastructure funding period as defined in The Retail Sales Tax Act. Money on deposit as security 14(4.1) Subsections 12(4) and (5) apply with necessary changes to money accepted by the director as security under this section. Liability of principal 14(5) If the extra-provincial contractor has not provided security under this section, (a) the principal is liable, upon assessment under section 46, for the tax and any penalties and interest to be paid or remitted by the contractor in respect of the contract or the property and services referred to in subsection (2); and (b) payment of that tax, and any related penalties and interest, may be enforced against the principal or the contractor, or both. Principal entitled to recover amount paid 14(6) A principal who pays an amount under subsection (5) in respect of tax, penalties or interest owing by an extra-provincial contractor is entitled to recover that amount from the contractor, and may (a) withhold that amount from money owing by the principal to the contractor; or (b) recover it in a court of competent jurisdiction as a debt owing by the contractor to the principal. S.M. 2005, c. 40, s. 85; S.M. 2012, c. 1, s. 75; S.M. 2014, c. 35, s. 65; S.M. 2015, c. 40, s. 45. Director may impose reporting or remittance requirements 15(1) Despite the reporting and remittance requirements of a tax Act, the director may, by written order, require a taxpayer to do one or more of the following: (a) file an information return, whether or not the taxpayer has previously filed one; (b) provide reports or file information returns in addition to, or earlier or more frequently than, those required by the tax Act; (c) pay or remit tax, and any applicable interest and penalties, earlier or more frequently than required by the tax Act; (d) pay or remit tax, and any applicable interest and penalties, by direct deposit to a government account at a financial institution; (e) in the case of a collector, require the collector (i) to establish a trust account for the amounts to be collected as tax under a tax Act, and (ii) to deposit those amounts in the trust account until they are remitted to the minister. Director may extend filing or payment deadline 15(2) The director may, with or without conditions, extend the deadline for a taxpayer to file a report or information return or to pay or remit tax that would otherwise apply under a tax Act or under an order under subsection (1). Reporting by receiver, trustee, etc. 16(1) Every person who, as receiver, trustee or other like person, takes control or possession of any business or property of a taxpayer who is or was carrying on a business in Manitoba in relation to which any tax is payable must notify the director in writing, within 10 days after taking control or possession of the business or property, that the person has taken control or possession of it. Receiver, trustee or other like person to file returns 16(2) The receiver, trustee or other like person, in addition to any other duty that he or she has in that capacity, must file reports and information returns that become due, and pay tax or remit tax that becomes due or payable, (a) during or in respect of any period during which he or she is acting as a receiver, trustee or other like person in relation to the business or property of the taxpayer; or (b) in respect of any taxable transaction in which he or she participates as a receiver, trustee or other like person in relation to the business or property of the taxpayer. Director may issue certificate 16(3) The director, upon being satisfied that (a) all reports and information returns to be filed under subsection (2) have been filed; and (b) any tax to be paid or remitted under subsection (2) has been paid or remitted, may issue a certificate to the receiver, trustee or like person stating he or she has no further liability under this section. Taxpayer to maintain records 17(1) A taxpayer must maintain records in accordance with (a) this section and any applicable regulations; and (b) any order or agreement made under a tax Act; (c) [repealed] S.M. 2007, c. 6, s. 79. Carrier to maintain records 17(2) The holder of a carrier licence issued by the director must maintain records in accordance with any applicable regulations and the terms and conditions of the licence, and must provide access to those records (a) to a tax officer at his or her request; or (b) to an official from a jurisdiction whose government is a party to the International Fuel Tax Agreement referred to in The Fuel Tax Act, at the request of the official or the director. Holder of tax authorization to keep records 17(2.1) The holder of a tax authorization must maintain records in accordance with (a) this section and any applicable regulation; (b) any order or agreement made under a tax Act; and (c) the terms and conditions of the tax authorization. Records must be adequate 17(3) The records that a person is required to maintain must be adequate to enable the following to be determined or verified: (a) the amount of any tax, interest and penalties to be paid or remitted by the person; (b) the person's entitlement to any credit, commission, allowance or refund; (c) the entitlement to a tax exemption claimed by the person or applied by the person in a transaction with another person; (d) the person's compliance with the tax Acts and any applicable tax authorization, order or agreement. Director may order records to be kept 17(4) If the director considers that records that are required to be maintained are inadequate for the proper administration and enforcement of a tax Act, the director may, by written order, require the person who is required to maintain them to do one or more of the following: (a) to begin maintaining the types of records specified in the order, and to maintain them in the manner specified; (b) to create or complete records for a specified period. The order may specify a deadline for the person to comply with the order. S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 79; S.M. 2010, c. 29, Sch. B, s. 39. How long records must be kept 18(1) The records that a person is required to maintain under a tax Act must be preserved by the person until (a) he or she obtains a written authorization from the director allowing them to be destroyed; or (b) they may be destroyed under subsection (2); whichever occurs first. When records may be destroyed 18(2) Subject to subsections (3) and (4), records may be destroyed when all of the following conditions are met with respect to those records: (a) they relate to a period for which all returns have been filed and for which the tax, including any related interest or penalty, has been paid or remitted as required by a tax Act; (b) they relate to a fiscal year that ended more than six years before the beginning of the current fiscal year; (c) there is no dispute as to the amount to be paid or remitted for the period to which the records relate; (d) they do not relate to a period or matter that is currently the subject of an inspection, audit or examination. Records requiring authorization to be destroyed 18(3) The following records may be destroyed only with the written authorization of the director: (a) general ledgers; (b) records required to determine tax payable under The Mining Tax Act and any interest or penalty payable in respect of that tax. Extended preservation 18(4) If the director has, by written notice, required a person to keep records for a specified period to enable an inspection, examination or audit to be carried out or completed, the person must not destroy the records until the end of that period or until authorized by the director in writing to do so, whichever occurs first. Preserving electronic records 18(5) If a person who is required to maintain records under a tax Act keeps them in electronic form, the person must ensure that, for as long as they are required to be preserved, they (a) remain complete and unaltered, apart from any changes or additions made in the normal course of communication, storage or display, from the time they were first made in final form, whether as a paper document or otherwise; (b) are accessible by the person who is required to retain them; and (c) are capable of being printed and of being produced in electronically readable format for inspection, examination or audit by a tax officer. S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 80. Suppression software 18.1 No person shall possess, use, sell or offer to sell, update, upgrade or maintain software that is designed for, or is capable of, (a) suppressing the creation of electronic records of sale transactions that a taxpayer is required to keep under this Act; or (b) modifying, hiding, or deleting such records without keeping the original data and providing a ready means of access to them. Tax authorization to be produced for inspection 19 The holder of a tax authorization must produce it for inspection by a tax officer upon request by the tax officer. Records to be made available for inspection, etc. 20 A person must (a) make the records that he or she is required to maintain under a tax Act available for inspection, examination or audit by a tax officer at the place where they are maintained; and (b) if the records are not maintained in Manitoba, pay to the minister, upon receipt of a statement from the director, the amount charged by the director for expenses incurred by the government in inspecting, examining or auditing the records at the place where they are maintained. Order to produce records, etc 21(1) The director may, for any purpose relating to the administration or enforcement of a tax Act, by written order, require a person to (a) provide any information; or (b) make available or produce for inspection, examination, audit or testing any records or things in the person's possession or control that relate to the administration of the tax Act. Who may be required to produce records, etc. 21(2) The order may be addressed and given to (a) a taxpayer or other person required to maintain records under a tax Act; (b) a person who deals with or has dealt with a person referred to in clause (a); or (c) a director, officer, agent or employee of a person referred to in clause (a) or (b). Contents of order 21(3) The order (a) must state the name of (i) the person to whom it is directed, and (ii) if different, the name of the person to whom the records or other things to be produced or made available for inspection, audit, examination or testing relate; (b) must specify or describe the information to be provided or the records or other things to be produced or made available and where to produce them or make them available; (c) may direct the manner in which records or other things are to be produced or made available, including the format in which electronically maintained records are to be produced or made available; and (d) may specify a deadline for the person to comply with the order. 21(4) [Repealed] S.M. 2008, c. 3, s. 74. S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 82; S.M. 2008, c. 3, s. 74. General authority to inspect 22(1) Subject to any conditions imposed by the director, a tax officer may carry out any inspection, examination, audit or test reasonably required to (a) determine compliance with a tax Act or the terms and conditions of (i) an order or agreement made under a tax Act, or (ii) a tax authorization issued under a tax Act; (b) determine the existence or amount of a tax debt; (c) verify the accuracy or completeness of an information return or other report, record or information filed with or otherwise provided to the minister or the director; (d) determine the value of a property, service or transaction in respect of which tax is payable; or (e) perform any other duty or function the director or tax officer considers necessary or advisable in the administration of a tax Act. 22(2) In order to perform a duty or function under subsection (1) (in this section referred to as an "inspection"), a tax officer may at any reasonable time, without a warrant, enter (a) any business premises; or (b) any other premises or place where the tax officer has reasonable grounds to believe records relevant to the administration or enforcement of a tax Act are kept. Officer to show identification 22(3) A tax officer must show his or her tax officer identification card if requested to do so in the context of an inspection. Assistance to tax officer 22(4) The owner or person in charge of the place of inspection or having custody or control of the relevant records must (a) produce or make available to the tax officer all records and property that the tax officer requires for the inspection; (b) provide any assistance or additional information, including personal information, that the tax officer reasonably requires to perform the inspection; and (c) upon request, provide written answers to the tax officer's questions. 22(5) A tax officer may specify the manner in which electronically maintained records are to be made available for inspection. The tax officer may require the owner or person in charge of the records or of the premises or information system in which they are kept to (a) produce the relevant records in the form of a printout or in an electronically readable format that can be used by the tax officer, or both; and (b) make them available for inspection at the premises where they are kept or send them to an address specified by the tax officer, or both. Tax officer may make copies 22(6) The tax officer may use equipment at the place of inspection to make copies of relevant records, and may remove the copies from the place of inspection for further examination. Tax officer may remove records to make copies 22(7) A tax officer who is not able to make copies of records at the place of inspection may remove them from the place of inspection to make copies. The tax officer must make the copies as soon as practicable and return the original records to the person or place from which they were removed. Copies as evidence 23 A document certified by the minister or a tax officer to be a printout or copy of a record obtained under a tax Act (a) is admissible in evidence without proof of the office or signature of the person purporting to have made the certificate; and (b) has the same probative force as the original record. Warrant to enter and inspect 24(1) A justice, upon being satisfied by information on oath that (a) a tax officer has been refused entry to any premises or place to carry out an inspection under section 22; or (b) there are reasonable grounds to believe that (i) a tax officer will be refused entry to any premises or place to carry out an inspection under section 22, or (ii) if a tax officer were to be refused entry to any premises or place to carry out an inspection under section 22, delaying the inspection in order to obtain a warrant on the basis of the refusal could be detrimental to the inspection; may at any time issue a warrant authorizing a tax officer and any other person named in the warrant to enter the premises or place and carry out an inspection under section 22. Application without notice 24(2) A warrant under this section may be issued upon application without notice. Right to take fuel samples 25(1) When making an inspection under section 22 in relation to The Fuel Tax Act, a tax officer may, without a warrant, examine the fuel in any tank, container or other receptacle, or in the fuel system of a motor vehicle or other machine. Stopping vehicle to examine fuel 25(2) For any purpose relating to The Fuel Tax Act, a tax officer may, without a warrant, signal or request the operator of a vehicle to stop the vehicle to enable the officer to examine and take a sample of the fuel in the vehicle's fuel tank or in any container or receptacle on or attached to the vehicle or a trailer attached to the vehicle (a) when the operator is a regular purchaser of marked fuel; (b) when the officer has reasonable grounds to believe that the operator is using marked fuel for an unlawful purpose; or (c) when the vehicle is being operated in an area of Manitoba where marked fuel is ordinarily used or made available for use. Operator to cooperate 25(2.1) When a tax officer signals or requests the operator to stop the vehicle under subsection (2), the operator must (a) immediately bring the vehicle to a safe stop; (b) immediately provide access to the fuel tank of the vehicle and, at the officer's request, to any container or receptacle on or attached to the vehicle or a trailer attached to the vehicle where the officer reasonably believes that marked fuel might be located; and (c) permit the officer to examine the fuel in any such tank, container or receptacle and take samples of that fuel. Stopping vehicle operated under carrier licence 25(3) A tax officer may, without a warrant, signal or request the operator of a vehicle that appears to be operated under a carrier licence to stop the vehicle to enable the officer to inspect the licence and any related carrier decals affixed to the vehicle. The operator must immediately bring the vehicle to a safe stop and allow the officer to carry out the inspection. Operator to provide proof of identity 25(4) The operator of a vehicle stopped under subsection (2) or (3) must produce for inspection by the tax officer, upon request, his or her driver's licence or any other proof of identity acceptable to the officer. S.M. 2005, c. 40, s. 85; S.M. 2006, c. 24, s. 78; S.M. 2010, c. 29, s. 57 and Sch. B, s. 39. Faulty dye injector pump 25.1 If the director, based on an inspection by the director or a tax officer, reasonably believes that the use of a faulty dye injector pump on a truck or at a cardlock or bulk storage facility has resulted in the sale of unmarked fuel as marked fuel, the director may, by written order, prohibit the owner or operator of the truck or facility from using the pump for the sale or delivery of marked fuel until the person satisfies the director that it is not faulty. INVESTIGATION, SEARCH AND SEIZURE General authority of tax officer 26 Subject to any conditions imposed by the director, a tax officer may carry out any investigation reasonably required for the enforcement of a tax Act. Warrant for search and seizure 27(1) A justice, upon being satisfied by information on oath that there are reasonable grounds to believe that (a) an offence under a tax Act is being or has been committed; and (b) there is in a building, vehicle, receptacle or place any thing that there are reasonable grounds to believe will afford evidence of an offence under a tax Act; may at any time issue a warrant authorizing a tax officer, and any other persons named in the warrant, to enter and search the building, vehicle, receptacle or place for any such thing, and to seize it and as soon as practicable bring it before a justice, or report on it to a justice, to be dealt with according to law. Warrant re unmarked tobacco held by common carrier 27(2) A justice, upon being satisfied by information on oath that there are reasonable grounds to believe that unmarked tobacco (a) is to be found in a building, vehicle, receptacle or place in Manitoba that is occupied or controlled by a common carrier; (b) is not in the possession or apparent possession of a person, other than the common carrier or an agent or employee of the common carrier acting on the common carrier's behalf; and (c) is not addressed or directed for delivery to a person who is lawfully entitled to possess it; may at any time issue a warrant authorizing a tax officer, and any other persons named in the warrant, to enter and search the building, vehicle, receptacle or place for the unmarked tobacco, and to seize it and as soon as practicable bring it before a justice, or report on it to a justice, to be dealt with according to law. Tax officer may secure evidence 27(4) A tax officer who believes on reasonable grounds that conditions exist for obtaining a warrant under this section to enter and search a building, vehicle, receptacle or place may do anything reasonably necessary to secure the building or place — or to secure or remove the vehicle, receptacle or other thing — pending the application for such a warrant. Investigative warrant 27.1(1) Subject to subsection (2), a judge may issue a warrant authorizing a tax officer, and any other persons named in the warrant, to use a device or investigative technique or procedure specified in the warrant that, if not authorized, would constitute an unreasonable search. Conditions for issuing warrant 27.1(2) Before issuing the warrant, the judge must be satisfied (a) by information on oath that there are reasonable grounds to believe (i) that an offence under a tax Act is being, has been or will be committed, and (ii) that information concerning the offence may be obtained through the use of the device or investigative technique or procedure described by the applicant for the warrant; (b) that the use of the device or investigative technique or procedure is not otherwise authorized; and (c) that it is in the best interests of the administration of justice to issue the warrant. 27.1(3) Without limiting the generality of the expression "device or investigative technique or procedure" in subsections (1) and (2), it includes a tracking device, a number recorder, video surveillance, audio surveillance and covert entry. 27.1(4) When issuing the warrant, the judge may impose any terms and conditions that he or she considers advisable to ensure that the search authorized by the warrant is reasonable. Assistance orders 27.1(4.1) When issuing the warrant, the judge may order a person to provide assistance if the person's assistance may reasonably be considered to be required to give effect to the warrant. Notice after covert entry 27.1(5) If the warrant authorizes a person to enter and search a place covertly, it must specify a period after the execution of the warrant within which notice of the entry and search must be given. Extension of deadline for notice 27.1(6) Upon application for an extension of the deadline for providing notice of a covert entry and search, a judge may grant the extension if he or she is satisfied, on the basis of an affidavit in support of the application, that it would be in the interests of justice to grant it. But the deadline cannot be extended to more than three years after the date of the entry. Telewarrant 27.2 If a tax officer believes that it would be impracticable to appear personally before a justice to apply for a warrant under section 24 or 27 or before a judge to apply for a warrant under section 27.1, a warrant may be issued under that section on an information submitted by telephone or other means of telecommunication. The procedure in section 487.1 of the Criminal Code (Canada) applies to the issuance of the warrant, with such changes to that section and to the form of warrant as are necessary. Search and seizure without warrant 28(1) If a tax officer believes on reasonable grounds that the conditions for obtaining a warrant under section 27 exist, but by reason of exigent circumstances it would be impracticable to obtain one, the tax officer may exercise any of the powers he or she would be able to exercise under such a warrant. Seizure without warrant 28(2) A tax officer who is lawfully present in a place under the authority of a warrant or otherwise in the execution of his or her duties may, without a warrant, seize any thing that the officer believes on reasonable grounds will afford evidence in respect of an offence under a tax Act. Seizure of vehicle or container 28(3) If a thing to be seized by a tax officer, either with or without a warrant, is found in a vehicle or container and it is impracticable in the circumstances to remove the thing from the vehicle or container in order to seize it, the tax officer may also seize the vehicle or container. Seizure of abandoned tobacco 29 A tax officer may, without a warrant, seize tobacco found in a building, vehicle, receptacle or place in Manitoba where no person has a reasonable expectation of privacy, if the officer believes on reasonable grounds that the tobacco is (a) abandoned; or (b) not in the possession or apparent possession of any person in Manitoba. Stopping vehicle on suspicion of tobacco offence 30 A tax officer who believes on reasonable grounds that a vehicle contains any thing that affords evidence that an offence relating to The Tobacco Tax Act is being or has been committed, may, without a warrant, signal or request the operator of the vehicle to stop. The operator must immediately bring the vehicle safely to a stop, and must not proceed until permitted to do so by the officer. Tax officer may seize bulk fuel, vehicle, etc. 31(1) A tax officer who believes on reasonable grounds that a person who has not been appointed a collector under The Fuel Tax Act (a) has imported bulk fuel into Manitoba or acquired bulk fuel otherwise than from a licensed dealer or collector under The Fuel Tax Act, and has not reported it and paid tax as required; or (b) is in possession of bulk fuel that has been imported into Manitoba or acquired otherwise than from a licensed dealer or collector under The Fuel Tax Act, and for which the tax has not been paid as required; may, without a warrant, seize the bulk fuel and any vehicle, trailer or container being used to transport or store the fuel. Stopping vehicle to seize bulk fuel 31(2) If the bulk fuel that a tax officer may seize under this section is being transported, the tax officer may, without a warrant, signal or request the operator of the vehicle to stop. The operator must immediately bring the vehicle safely to a stop, and must not proceed until permitted to do so by the tax officer. S.M. 2005, c. 40, s. 85; S.M. 2010, c. 29, Sch. B, s. 39. 31.1 The operator of a vehicle stopped under section 30 or subsection 31(2) must produce for inspection by the tax officer, upon request, his or her driver's licence or any other proof of identity acceptable to the officer. 31.2(1) The following definitions apply in this section. "owner", in relation to a vehicle, means the person in whose name the vehicle is registered, as shown on the vehicle's registration card or insurance certificate, and includes the legal owner of the vehicle if (a) the vehicle is registered in the name of a person who has the use of the vehicle under a lease or other agreement for a term of at least 30 days; and (b) the name of the legal owner is shown on the vehicle's registration card or insurance certificate. (« propriétaire ») "registration card" means a registration card as defined in The Drivers and Vehicles Act. (« carte d'immatriculation ») "vehicle" includes a trailer seized under subsection (3). (« véhicule ») "workday" means any day that does not fall on a weekend and is not a holiday. (« jour ouvrable ») Operator to provide information 31.2(2) If a tax officer finds unmarked tobacco in or on a vehicle or a trailer connected to a vehicle, the operator of the vehicle must produce for inspection by the officer, upon request, (a) his or her driver's licence or any other proof of identity acceptable to the officer; and (b) the vehicle's registration card or insurance certificate, or both. Vehicle carrying unmarked tobacco may be seized and impounded 31.2(3) A tax officer may seize and impound a vehicle if the officer finds more than five units of unmarked tobacco in or on the vehicle or a trailer connected to the vehicle. If any of the tobacco is found in or on the trailer, the officer may seize both the trailer and the vehicle. Delayed seizure and impoundment 31.2(4) If the tax officer thinks that the immediate seizure of the vehicle would jeopardize the safety of, or cause undue hardship to, any person, the officer may order the operator of the vehicle to drive it to a specified location, where any tax officer may take custody of it. Procedure on seizure 31.2(5) When seizing the vehicle, the tax officer must (a) complete a notice of seizure setting out (i) the name and address of the operator of the vehicle, (ii) the name and address of any owner who was not the operator, as shown on the vehicle's registration card or insurance certificate, (iii) the year, make and vehicle identification number of the vehicle, (iv) the date and time of the seizure, and (v) a statement that the vehicle is being seized and impounded under this section, and is subject to impoundment for at least 30 days; (b) immediately give a copy of the notice to the operator; (c) unless the director has made other arrangements for the immediate custody of the vehicle, arrange for a garage keeper approved by the director to take custody of it; and (d) within two workdays after the day the vehicle was seized, give a copy of the notice to the director. Place of impoundment 31.2(6) The seized vehicle must be stored at a place of impoundment in Manitoba that is (a) specified by the director; or (b) operated by the garage keeper who is given custody of the vehicle. Period of impoundment 31.2(7) The seized vehicle must be impounded for a period of (a) 90 days, if (i) the operator of the vehicle was the operator or an owner of a vehicle when it was previously seized under this section, or (ii) an owner of the vehicle was (A) the operator of a vehicle when it was previously seized under this section, or (B) an owner of a vehicle while it was previously impounded under this section for at least 30 days; and (b) 30 days, in any other case. Personal property in vehicle 31.2(8) Personal property present in the vehicle when the vehicle is seized may be retrieved by the person entitled to possess the property, unless it is (a) attached to the vehicle or used in connection with its operation; or (b) unmarked tobacco. The request may be made to the tax officer at the time the vehicle is seized, or after that to the garage keeper who has custody of the vehicle during the period of impoundment. The garage keeper may charge a fee for retrieving the property or allowing it to be retrieved. Notice of seizure and impoundment 31.2(9) Within two workdays after receiving the notice of seizure from the tax officer, the director must (a) prepare a notice of seizure and impoundment that sets out (i) a description of the seized vehicle including, where applicable, the year and make of the vehicle and its vehicle identification number, (ii) the name and address of the operator from whom the vehicle was seized, (iii) the name and address of any owner who was not the operator, as shown on the vehicle's registration card or insurance certificate, (iv) the name and address of the garage keeper who has custody of the vehicle, and the place of impoundment, (v) the period of impoundment determined under subsection (7), (vi) a description of the right to apply for the release of the vehicle and the application process, and (vii) a description of the right to retrieve personal property from the vehicle; and (b) serve a copy of the notice on (i) the operator from whom the vehicle was seized, (ii) any owner of the vehicle who was not the operator of it, and (iii) the garage keeper who has custody of the vehicle. Application for release to owner 31.2(10) During the period of impoundment, an owner of the vehicle may apply to a justice for an order to release it. The application must be (a) made in a form and manner acceptable to the Minister of Justice; and (b) accompanied by a payment of $100 as an application fee. Director to be served 31.2(11) The applicant under subsection (10) must serve a copy of the application on the director. Hearing by justice 31.2(12) At the hearing of an application made under subsection (10), the justice must consider (a) documentary evidence of ownership of the vehicle; (b) a report of a tax officer respecting the seizure of the vehicle; and (c) if the director determined that the period of impoundment is 90 days, a report of the director setting out the information on the basis of which that determination was made. Order for release to owner 31.2(13) The justice must order the release of the vehicle, subject to the payment of any lien under this section, if he or she is satisfied (a) that the applicant is an owner of the vehicle who, immediately before the vehicle was seized, (i) was not the operator of the vehicle and did not otherwise have care or control of the vehicle, and (ii) did not know, and could not reasonably be expected to have known, that the vehicle was carrying unmarked tobacco; or (b) in the case of an application during a 90-day period of impoundment, that the period of impoundment should be 30 days, in which case the order does not take effect until the end of the 30-day period. Garage keeper's lien 31.2(14) The garage keeper in whose custody the vehicle is impounded has a lien against the vehicle for the following amounts, and may enforce the lien in accordance with The Garage Keepers Act: (a) the garage keeper's costs and charges, as prescribed under The Highway Traffic Act in relation to a seizure and impoundment under section 242.1 of that Act; (b) expenditures for searches, registrations and other charges under The Personal Property Security Act that are reasonably incurred by the garage keeper to comply with The Garage Keepers Act. Effect of lien 31.2(15) Despite the expiry of the impoundment period and any order under subsection (13) for the release of the vehicle, the vehicle must remain impounded until the amount of the lien is paid or the vehicle is disposed of in accordance with The Garage Keepers Act or this section. Disposal of impounded vehicle by garage keeper 31.2(16) After the end of the period of impoundment, the garage keeper may, with the director's approval, dispose of the vehicle by sale or otherwise after delivering to the director (a) the number plates from the vehicle; (b) a statutory declaration of the garage keeper declaring that the amount of his or her lien on the vehicle exceeds his or her estimate of its value; and (c) a certificate issued under The Personal Property Security Act showing that the vehicle is not identified as an item of collateral in the Personal Property Registry. Transfer to garage keeper 31.2(17) To facilitate a disposal approved under subsection (16), the director must (a) complete a transfer of vehicle ownership, in a form approved by the minister, from the owner of the vehicle to the garage keeper; and (b) deliver the completed form and the vehicle's number plates, to the registrar under The Drivers and Vehicles Act. Cancellation of previous owner's registration 31.2(18) Upon receiving the form and the number plates from the director, the registrar must cancel the vehicle's registration and forward any refund to the director. The director must apply the refund to any costs and charges owing to the Minister of Finance in respect of the vehicle, and pay the balance, if any, to the vehicle's previous owner. Owner's right against operator 31.2(19) An owner of the vehicle may recover, from the person who was its operator when it was seized, the direct costs incurred by the owner in relation to the seizure and impoundment. Minister's response to wrongful seizure 31.2(20) If the minister is satisfied that the vehicle was wrongfully seized and impounded under this section, the minister may (a) if the vehicle remains impounded, pay the amount required to discharge the garage keeper's lien and direct the vehicle to be released from impoundment; or (b) if the vehicle is no longer impounded, despite The Financial Administration Act, indemnify an owner of the vehicle for any direct cost paid by the owner in relation to the seizure and impoundment. DISPOSITION OR RELEASE OF SEIZED ITEMS Property seized without a warrant 32 Except as otherwise provided in sections 33 to 36, a tax officer who seizes any thing under the authority of this Act without a warrant must, as soon as practicable, (a) return the seized thing, upon being issued a receipt for it, to the person lawfully entitled to possess it, if the officer is satisfied that (i) the person is entitled to possess it, and (ii) the continued detention of the thing is not required for the purpose of an investigation or a trial or other proceeding; or (b) if the officer is not satisfied as described in clause (a), bring the seized thing before a justice, or report on it to a justice, to be dealt with according to law as if it had been seized under the authority of a warrant. Return of records 33(1) Subject to subsection (2), any records seized by a tax officer must be returned as follows: (a) if information in the records is reasonably required for the conduct of a person's business, the records, or copies of them, must be provided to the person within a reasonable time after the person requests the director in writing for them; (b) the original records must be returned, within 180 days after they were seized or within any longer period of time allowed by subsection (2), to the person from whom they were seized. Justice may extend time to return records 33(2) The director may apply to a justice for an order extending the 180-day period for original records to be returned. The justice may (a) dismiss the application, in which case the records must be returned within 30 days after the date of the court order; or (b) extend the time for returning the records, subject to any conditions the court sees fit, if the extension is necessary for (i) existing or anticipated proceedings relating to an alleged contravention of a tax Act, or (ii) a continuing investigation into a suspected contravention of a tax Act. Decision final 33(3) The decision of the justice is final and cannot be appealed. Release of bulk fuel 34(1) Bulk fuel and any vehicle, trailer or container seized under section 31 are to be released to the person from whom they were seized upon payment to the minister, within seven days after the date of the seizure, of an amount equal to three times the tax that would be payable on a purchase of the bulk fuel by a purchaser. Sale of bulk fuel 34(2) If the bulk fuel is not released under subsection (1), the minister must (a) cause the fuel to be sold and the proceeds to be held in trust for payment or distribution in accordance with subsection (4); and (b) as soon as practicable, release any vehicle, trailer or container that was seized to the person from whom it was seized. Interest on proceeds 34(3) While the proceeds are held in trust, they are to be credited with interest at the rate established by the minister to be the government's average cost of borrowing during the relevant period. Disposition of proceeds and interest 34(4) The proceeds and accrued interest are to be paid or applied as follows: (a) if no person is found guilty of an offence under section 79 in connection with the bulk fuel, the proceeds and interest are to be paid to the person who was lawfully entitled to the fuel at the time it was seized; (b) if a person is found guilty of an offence under section 79 in connection with the bulk fuel, the proceeds and interest are to be paid or applied as follows: (i) first, to pay any fine imposed in respect of the offence, (i.1) second, to pay a penalty equal to three times the tax that would be payable on a purchase of the bulk fuel by a purchaser, (ii) third, to pay the costs of the seizure, storage and sale of the bulk fuel, and (iii) the balance, if any, to the person; (c) despite clause (b), if a person charged with an offence under section 79 in connection with the bulk fuel agrees, before entering a plea to the charge, to pay the amount referred to in subsection (1), the proceeds and interest may be paid or applied as follows: (i) first, to pay a penalty equal to three times the tax that would be payable on a purchase of the bulk fuel by a purchaser, (ii) second, to pay the costs of the seizure, storage and sale of the bulk fuel, and (iii) the balance, if any, to the person. Compensation where cost of fuel exceeds proceeds 34(5) If a person entitled to proceeds under clause (4)(a) establishes to the satisfaction of the director that his or her cost of the seized fuel exceeds those proceeds, the minister must pay to the person an additional amount equal to the excess plus an amount equal to interest on the excess at the rate that applies to the proceeds. Tax deemed to be paid 34(6) Upon payment of the amount referred to in subsection (1), any tax payable under The Fuel Tax Act in respect of the bulk fuel is deemed to have been paid. 34(7) A person who pays the amount referred to in subsection (1) is entitled to a refund of that amount, plus interest at the rate established by the minister to be the government's average cost of borrowing during the relevant period, if he or she (a) is not charged with an offence under section 79 in connection with the bulk fuel; or (b) having been charged, is not found guilty of the offence. S.M. 2005, c. 40, s. 85; S.M. 2010, c. 29, Sch. B, s. 39; S.M. 2011, c. 41, s. 52. Disposition of perishable or dangerous items 35 Subject to section 34, when a tax officer seizes any perishable or dangerous thing as evidence of the commission of an offence, it may be disposed of in accordance with the regulations or, in the absence of regulations, as instructed by the director. Release of seized tobacco 36(1) Up to five units of seized tobacco may be released to the person from whom they were seized upon payment, within seven days after they were seized, of an amount equal to three times the tax that would be imposed under section 2 of The Tobacco Tax Act on a purchase of those units by a purchaser. Upon payment of that amount, the tax payable under The Tobacco Tax Act in respect of the units released is deemed to have been paid. Exception — more than five units seized 36(1.1) If more than five units of unmarked tobacco are seized from a person, none of the tobacco shall be released to the person. Disposition of seized tobacco 36(2) Any tobacco that is seized under this Act and not released under subsection (1) may be disposed of in accordance with the regulations or, in the absence of regulations, as instructed by the director. Release or payment — no conviction 36(3) If no person is found guilty of an offence under this Part in connection with the seized tobacco, the director must, upon application by the person entitled to the tobacco, (a) release the tobacco to the person, unless (i) the tobacco has been disposed of under subsection (2), or (ii) any tax to be paid or remitted in respect of the tobacco has not been paid, remitted or accounted for; or (b) if the tobacco cannot be released under clause (a), pay compensation to the person in an amount equal to (i) the person's cost of the tobacco, if it is established by the person to the satisfaction of the director, or (ii) if the person's cost of the tobacco is not established to the satisfaction of the director, the price of the tobacco at the time of seizure as determined by the director, plus interest on that amount from the date of the seizure, calculated at the rate established by the minister to be the government's average cost of borrowing during the relevant period. Application for release or compensation 36(4) An application for the release of tobacco under clause (3)(a) or for compensation under clause (3)(b) must be made to the director in writing within 90 days after (a) the resolution of a prosecution for an offence in connection with the seized tobacco; or (b) the person is notified by the director that no person will be charged with an offence in connection with the seized tobacco. If the application is not made within the 90-day period, the tobacco and any proceeds of disposition of the tobacco are forfeited to the Crown. Tobacco to be marked before release 36(5) Before any cigarettes or fine cut tobacco is released under subsection (1) or clause (3)(a), the packaging of the cigarettes or fine cut tobacco must be marked or stamped for the tax purposes of Manitoba. Forfeiture on conviction 36(6) If a person is found guilty of an offence under this Part in connection with the seized tobacco, the tobacco and any proceeds of disposition of the tobacco are forfeited to the Crown. Forfeiture of abandoned or unmarked tobacco 36(7) When tobacco is seized in the following circumstances, it is forfeited to the Crown and subsections (1) and (3) to (6) do not apply: (a) a seizure of tobacco under section 29 (abandoned tobacco); (b) a seizure of unmarked tobacco under the authority of a warrant issued under subsection 27(2) or under the authority of subsection 28(1) where the tax officer had reasonable grounds to believe that the conditions for obtaining such a warrant existed. Damage to seized or impounded property 36.1 If a person's property is damaged, destroyed or stolen when it is seized or while it is impounded under this Act, the person has no claim or right of action against the government except for any loss to the person arising out of the negligence of the government or its agents or employees. LIABILITY FOR TAX DEBT 37(1) A tax debt is a debt due to the government by the tax debtor. Tax debt not affected by offence 37(2) A person's liability for a tax debt is not affected by the fact that a person is prosecuted or convicted for an offence in relation to the tax debt. 38(1) A tax debt bears interest in accordance with the regulations made under The Financial Administration Act until it is paid in full. When interest begins to accrue 38(2) Interest on a tax debt accrues (a) in the case of tax that was not paid or remitted when it was due, and any penalty imposed in respect of the failure to pay or remit the tax when it was due, from the day the tax was due; and (b) in the case of a fee or charge, or any other penalty imposed under this or any other tax Act, from the day it was imposed or, if it was not due immediately, from the day it was due. Interest on deficient instalments 38(3) In calculating the interest payable in relation to instalments payable by a corporation under subsection 17(2) of The Corporation Capital Tax Act or by an operator under section 14 of The Mining Tax Act, the interest must be calculated on the whole, or part, as the case may be, of any required instalment that is not paid by the due date. For that purpose, (a) the amount of a required instalment under The Corporation Capital Tax Act for a fiscal year is the lesser of (i) 25% of the corporation's actual tax payable for the fiscal year, and (ii) 25% of the total tax payable by the corporation for the corporation's immediately preceding fiscal year; and (b) the amount of a required instalment under The Mining Tax Act for a fiscal year is the lesser of (i) the tax payable for the fiscal year divided by the lesser of 10 and the number of complete months in the fiscal year, and (ii) the tax payable for the operator's immediately preceding fiscal year divided by the lesser of 10 and the number of complete months in that preceding fiscal year. No interest on refund of instalments 38(4) No interest is payable on a refund of an amount paid or payable as an instalment of tax under a tax Act. Penalty for late payment 39(1) A taxpayer who does not pay or remit tax on or before the day it is due is liable to pay a penalty equal to 10% of the tax that was not paid or remitted when it was due. Director may impose additional penalty 39(2) If the director is satisfied that (a) a taxpayer has refused to pay or remit tax when it was due; or (b) tax was not paid or remitted when it was due because of the taxpayer's neglect or carelessness; the director may impose a penalty not greater than 100% of the tax that was not paid or remitted when it was due. Fee for dishonoured cheque 39(3) The director may charge a fee of $25 for a cheque or other negotiable instrument that is dishonoured. Failure to comply with director's order 39(4) If a person fails to comply with an order under (a) subsection 10(3.1) (stop order); (b) clause 15(1)(a) or (b) (information returns and reports); (c) clause 15(1)(e) (trust accounts); (d) subsection 21(1) (order to produce records, etc.); or (e) section 25.1 (faulty dye injector pump); the director may, by assessment under section 46, impose a penalty of not more than $200. for each day that the failure continues. Penalty in addition to other fine or penalty 39(5) Each fee or penalty under this section is in addition to any other fee, fine or penalty that may be imposed under this Act. Failure to file through TAXcess 39(6) The director may impose a penalty of (a) $100 for the first time; or (b) $250 for each subsequent time; that a person fails to file in the required manner an information return or other report required to be filed through TAXcess. Failure to pay through TAXcess that a person fails to pay in the required manner an amount required to be paid through TAXcess. S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 83; S.M. 2008, c. 3, s. 75; S.M. 2010, c. 29, s. 59; S.M. 2012, c. 1, s. 77; S.M. 2017, c. 40, s. 72; S.M. 2018, c. 34, s. 31. Penalty — missing tobacco mark or stamp 39.1(1) Every person who is issued or acquires a mark or stamp to be applied to a tobacco product or its packaging and cannot account for the mark or stamp as being in his or her possession is liable, upon assessment by the director, to a penalty unless (a) the person satisfies the director that the mark or stamp was affixed to a tobacco product or its packaging as prescribed under The Tobacco Tax Act and that an amount has been remitted on account of tax under that Act on that product; or (b) in the case of a mark or stamp that was cancelled, the person satisfies the director that it was returned or destroyed as instructed by the director. Amount of penalty 39.1(2) The amount of the penalty for any mark or stamp not accounted for is equal to the tax that would be imposed on the type and quantity of tobacco product to which, or to the packaging of which, the mark or stamp was designed to have been applied. Director may waive interest or penalty or allow commission 40(1) If the director is satisfied that exceptional circumstances prevented a taxpayer from paying or remitting tax when it was due, the director may (a) waive all or any part of (i) the interest accruing on that tax, or (ii) a penalty or fee imposed under section 39; and (b) allow the payment of all or any part of the commission to which a vendor under The Retail Sales Tax Act has ceased to be entitled because of a late remittance of tax under that Act. Report of waiver 40(2) Within 60 days after giving the waiver or allowing the commission to be paid, the director must provide the minister with a written report setting out (a) the name of the person to whom the waiver was granted or the commission was allowed to be paid; (b) the reasons for the director's decision; (c) the amount waived or paid; and (d) the type of tax to which the waiver or payment relates. Sale or assignment of account receivable 41 When a collector or a deputy collector sells or assigns, otherwise than as security for an obligation of the collector or deputy collector, an account receivable arising from a transaction in respect of which the collector or deputy collector was required to collect and remit tax, (a) the collector or deputy collector is deemed to have collected the tax remaining unpaid in respect of the transaction; and (b) any amount collected by the purchaser or assignee on that account receivable is deemed not to be an amount collected as or on account of tax. Tax debt not dependent on assessment 42(1) A person's liability for a tax debt exists and may be enforced against the person, whether or not it has been assessed under this Act. Liabilities arising only by assessment 42(2) Despite subsection (1), the following liabilities arise only when they are assessed under section 46: (a) a penalty imposed by the director under subsection 39(2) (failure to pay or remit tax) or (4) (failure to comply with director's order) or subsection 39.1(1) (missing tobacco marks or stamps); (b) a person's liability for a tax debt, or that part of a tax debt, that arises from the application of section 51 (general anti-avoidance rule) to a transaction or series of transactions; (c) a person's liability under any of the following provisions for all or part of the tax debt of another person: (i) subsection 14(5) (extra-provincial contractor), (ii) section 43 (corporate director), (iii) section 44 (non-arm's length transferee), (iv) section 45 (purchaser on bulk sale), (v) section 68 or 69 (failure to comply with third party demand), (vi) section 73 (deemed trust), (vii) subsection 2.3(9) of The Retail Sales Tax Act (interjurisdictional fleet vehicle). Exception — liability not acknowledged by debtor 42(3) Despite subsection (1), a tax debt may not be enforced against a person until it has been assessed against the person under section 46, unless the person has acknowledged his or her liability for the tax debt or for the tax that resulted in the tax debt. For this purpose, a person acknowledges his or her liability for tax or a tax debt when the person, or the person's agent or legal representative, (a) reports the tax liability; (b) promises, in writing, to pay the tax or the tax debt; (c) acknowledges the tax liability or tax debt in writing, whether or not a promise to pay can be inferred from the acknowledgment and whether or not it contains a refusal to pay; or (d) pays or purports to pay an amount on account of the tax or the tax debt, even if it is by way of a negotiable instrument that is dishonoured. Corporate directors liable for corporation's tax debt 43(1) If a corporation fails to pay or remit when it is due (a) any tax that it is required to collect and remit; (b) any tax payable by it under The Retail Sales Tax Act; or (c) any amount payable by it under section 45 (tax debt at time of bulk sale); the persons who are directors of the corporation at that time are liable to pay the corporation's tax debt in respect of that failure. Subject to subsections (2) to (4), the tax debt may be enforced against any or all of those persons. Prudent director not liable 43(2) A person is not liable under subsection (1) if he or she exercised the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances to prevent the corporation's failure to pay or remit tax. Limitation period for assessment 43(3) A person is not liable under subsection (1) unless an assessment is made under section 46 against the person while he or she is still a director of the corporation or within two years after he or she last ceased to be a director of the corporation. 43(4) A person is not liable under subsection (1) unless one of the following has occurred: (a) the corporation, having been required to provide a bond under section 12, has failed to provide it or, having provided one, has failed to maintain it; (b) the corporation has failed to remit tax or make reports as required by an order made under section 15; (c) a tax debt warrant issued in respect of the tax debt has been executed by a sheriff, and the tax debt has not been fully paid; (d) the corporation has been dissolved or has started liquidation or dissolution proceedings in any jurisdiction, and still has a tax debt after the director makes a claim for the payment of it; (e) a receiver, trustee or other like person has taken control or possession of the corporation's property and the corporation's tax debt remains unpaid after the director makes a claim for the payment of it; (f) the corporation has made an assignment, or a receiving order has been made against it, under the Bankruptcy and Insolvency Act (Canada), and the corporation's tax debt remains unpaid after the director makes a claim for the payment of it; (g) a compromise or arrangement has been proposed under the Companies' Creditors Arrangement Act (Canada) or a proposal has been made under the Bankruptcy and Insolvency Act (Canada) in respect of the corporation; (h) the corporation has failed to comply with an agreement for the payment of the tax debt; (i) the corporation has been found guilty of an offence under subsection 76(2) (evasion) or (3) (refusal or neglect to pay or remit tax) that occurred while the person was a director of the corporation; (j) the person has been found guilty of an offence under subsection 76(2) or under subsection 82(2) (director liable for offence by corporation) in relation to an offence by the corporation under subsection 76(2) or (3). Director may allocate payments 43(5) For the purposes of this section, the director may apply (a) a payment by the corporation to any tax debt of the corporation; and (b) a payment by a director or former director of the corporation in respect of a tax debt of the corporation to that tax debt or to any part of it. Rights of corporate director on payment of corporation's tax debt 43(6) A director or former director of a corporation who pays an amount on account of the corporation's tax debt, or makes a contribution to another director or former director of the corporation who paid such an amount, is entitled to recover the amount or contribution in one or more of the following ways: (a) in a court of competent jurisdiction as a debt owing to the person by the corporation; (b) by withholding that amount from any amount owing by the person to the corporation; (c) by way of a contribution from the other directors or former directors of the corporation who are liable for the tax debt or would be liable for it if it were assessed against them under section 46. Corporation remains liable 43(7) Except to the extent that a corporation's tax debt is reduced by a payment by a director or former director of the corporation in respect of that debt, nothing in this section affects the corporation's liability for the tax debt. Non-director functioning as corporate director 43.1(1) If the director has reason to believe that a person performed some or all of the functions of a director of a corporation, the director may, by written notice, request the person and the corporation to provide the records and information required by the director to confirm or rebut that belief. Decision of director 43.1(2) Subject to subsection (3), the director may decide that a person performed some or all of the functions of a director of a corporation if (a) the person or the corporation that has been requested to provide records or information to the director under subsection (1) fails or refuses to comply with the request within 30 days after being served with the request; or (b) the records or information provided to the director under this section confirm that the person performed some or all of the functions of a director of the corporation. Restrictions on director's decision 43.1(3) A decision under clause (2)(b) that a person performed some or all of the functions of a director of the corporation must not be based solely on (a) the person's participating in the corporation's management under the direction or control of a shareholder, one or more directors or a senior officer of the corporation; (b) the person's being a lawyer, accountant or other professional whose primary participation in the management of the corporation was the provision of professional services to the corporation; (c) the corporation's being bankrupt and the person being a trustee in bankruptcy who participates in the management of the corporation or exercises control over its property, rights and interests primarily for the purposes of the administration of the bankrupt's estate; or (d) the person's being a receiver, receiver manager or secured creditor who participates in the management of the corporation or exercises control over any of its property, rights and interests primarily for the purposes of enforcing a debt obligation of the corporation. Deemed director 43.1(4) If the director decides under subsection (2) that a person performed some or all of the functions of a director of a corporation, the person is deemed to be a director of the corporation for the purposes of this Part for the period during which he or she performed those functions. Notice of decision 43.1(5) Immediately after making a decision under subsection (2), the director must serve a written notice of the decision on the corporation and the person to whom the decision relates. Liability of transferee after non-arm's length transfer 44(1) If a person transfers money or other property directly or indirectly, by means of a trust or by any other means, to or for the benefit of another person (a) with whom the transferor, at the time of the transfer, is not dealing at arm's length; or (b) who is under the age of 18 years; the transferee is liable, upon assessment under section 46, for the transferor's tax debt to the extent provided for in subsection (2), unless the transferor establishes that he or she was not a tax debtor at the time of the transfer and did not make the transfer in anticipation of becoming liable for another person's existing tax debt. Limit of transferee's liability 44(2) The limit of the transferee's liability under subsection (1) is the total of (a) the lesser of (i) the transferor's tax debt at the time of the transfer and any tax debt of the transferor assessed after the time of the transfer in respect of a tax liability that arose before the time of the transfer, and (ii) the amount, if any, by which the fair market value of the transferred property — including any transferred money — at the time of the transfer exceeds the fair market value at that time of the consideration given by the transferee for the transfer; and (b) interest payable on that amount, calculated at the same rate that applies to the transferor's tax debt, (i) from the date of the transfer to the date of payment, or (ii) if the transferor's debt arose only upon an assessment under section 46 that was made after the date of the transfer, from the date of the assessment to the date of payment. Meaning of "arm's length" 44(3) For the purpose of this section, (a) persons are deemed not to be dealing at arm's length with each other when they are deemed for the purposes of the Income Tax Act (Canada) not to be dealing at arm's length with each other; and (b) despite clause (a), a person and his or her spouse or common-law partner, as defined in the Income Tax Act (Canada), are deemed to be dealing with each other at arm's length while they are living separate and apart by reason of a breakdown in their relationship, if they have been living separate and apart for that reason for a continuous period of at least 90 days. Effect of payments 44(4) A payment by the transferee in respect of the transferor's tax debt reduces the transferor's and the transferee's liability for the transferor's tax debt. A payment by the transferor reduces the transferee's liability only to the extent that it reduces the transferor's tax debt below the amount for which the transferee is liable. Transferor remains liable 44(5) Except to the extent that the transferor's tax debt is reduced by a payment by the transferee, nothing in this section affects the transferor's liability for the tax debt. "buyer" means a person who acquires property from a seller on a sale in bulk. (« acheteur ») "sale in bulk" means a sale, barter or exchange by a person (referred to as the "seller") of (a) inventory outside the ordinary course of business of the seller; or (b) tangible personal property used by the seller to carry on business, if it is sold, bartered or exchanged in connection with the seller ceasing to carry on the business or part of the business in which the property was used. (« vente en bloc ») Seller to obtain tax certificate before sale in bulk 45(2) Before disposing of property through a sale in bulk, the seller must apply to the director for a certificate verifying that (a) the seller has no tax debt; or (b) arrangements satisfactory to the director for the payment of the seller's tax debt have been made. 45(3) When applying for the certificate, the seller must pay an application fee of $50.00. Director to issue certificate 45(4) The director must issue the certificate, in duplicate, upon (a) being satisfied that the seller has no tax debt; or (b) being satisfied with the arrangements made for the payment of the seller's tax debt. Seller to provide certificate to buyer 45(5) The seller must provide one of the duplicate certificates to the buyer. Liability of buyer 45(6) The buyer is liable, upon assessment under section 46, for the seller's tax debt as at the date of sale, including any amount assessed on or after that date in respect of transactions that occurred before that date, unless the buyer obtains the duplicate certificate from the seller. The debt may be enforced against the buyer, the seller or both. Buyer's right of recovery 45(7) If the buyer pays an amount in respect of the seller's tax debt, the buyer (a) is entitled to recover the amount from the seller; and (b) may withhold that amount from money owing to the seller, or recover it in a court of competent jurisdiction as debt owing by the seller to the buyer. Tax debt discovered after certificate is issued 45(8) If after issuing a certificate to a seller under subsection (4) the director discovers, based on new information, a tax debt that was owing by the seller when the certificate was issued, the debt may be enforced against the seller but not against the purchaser who obtained a copy of the certificate. S.M. 2005, c. 40, s. 85; S.M. 2006, c. 24, s. 82; S.M. 2007, c. 6, s. 85; S.M. 2011, c. 41, s. 56. ASSESSMENT OF TAX DEBT Assessment or reassessment of tax debt 46(1) The director may at any time make an assessment or reassessment of a person's tax debt or any part of a person's tax debt, which may consist of one or more of the following: (a) the tax that a taxpayer is liable to pay or remit under a tax Act; (b) interest; (c) the 10% penalty imposed by subsection 39(1) (failure to pay or remit tax); (d) any additional penalty imposed under subsection 39(2) (failure to pay or remit tax by reason of neglect or carelessness); (e) a penalty imposed under subsection 39(4) (failure to comply with director's order); (e.1) a penalty imposed under subsection 39(6) (failure to file through TAXcess) or 39(7) (failure to pay through TAXcess); (f) any fee or charge that has been or may be imposed under this Act or the regulations in respect of (i) a dishonoured cheque or other negotiable instrument, (ii) expenses incurred to collect a tax debt, (iii) expenses incurred to inspect, audit or examine books and records at a place outside Manitoba; (g) the tax debt or portion of the tax debt of a taxpayer for which another person is liable under one of the provisions referred to in clause 42(2)(c). 46(2) For greater certainty, an amount may be added to a taxpayer's tax debt without the amount being assessed under this section unless the provision under which it is charged or imposed only allows it to be charged or imposed by an assessment under this section. Determination of taxable amount 46(3) In making an assessment or reassessment under The Retail Sales Tax Act in respect of tangible personal property, a taxable service or insurance, the director may estimate the amount on which tax is payable if no purchase price, rental fee or premium was paid or if, in the director's opinion, (a) the amount taken as the basis for calculating the tax was (i) less than the fair market value of the property, service or insurance, or of the consideration given for it, or (ii) in the case of tangible personal property or a taxable service, less than the fair value determined in accordance with The Retail Sales Tax Act or the regulations under that Act; or (b) the actual purchase price, rental fee or premium cannot be determined. Estimate of tax payable 46(4) In making an assessment or reassessment of a tax debt in respect of a matter or a period, if (a) the taxpayer has failed to file an information return or to provide information on the basis of which the tax can be calculated; or (b) in the opinion of the director, the return or information provided by the taxpayer is not substantiated by his or her records; the director may estimate the amount of tax to be paid or remitted for that matter or period. Tax deemed to have been collected 46(5) Subject to an appeal under Division 4, an amount included in an assessment or reassessment as an estimate under subsection (4) of tax collected and not remitted in respect of taxable transactions is deemed for the purposes of this Part to have been collected and not remitted, except to the extent that the tax debtor satisfies the director that (a) the tax was remitted; (b) the transactions did not occur or were not taxable; or (c) the amount received by the tax debtor in respect of a taxable transaction is less than the tax required to be collected in respect of the transaction. S.M. 2005, c. 40, s. 85; S.M. 2007, c. 6, s. 86; S.M. 2008, c. 3, s. 77; S.M. 2012, c. 1, s. 79; S.M. 2014, c. 35, s. 66; S.M. 2018, c. 34, s. 32. Correction of minor deficiency 46.1(1) The director may at any time issue a revised notice of assessment or reassessment to correct an irregularity, omission or technical error that does not affect the amount assessed or reassessed. No effect on right of appeal 46.1(2) The revised notice of assessment or reassessment (a) does not constitute a new assessment or reassessment; and (b) does not entitle the taxpayer to any additional time to appeal the original assessment or reassessment unless the taxpayer establishes that, because of the deficiency, he or she did not receive the original notice of assessment or reassessment. Limits on assessment or reassessment 47(1) Subject to subsection (2), nothing prevents the director from (a) making an assessment in respect of a period that includes another period in respect of which an assessment or reassessment was previously made; or (b) making a reassessment in respect of a period or matter in respect of which an assessment or reassessment was previously made. Limit on reassessment after appeal 47(2) After a taxpayer has served a notice of appeal of an assessment or reassessment on the Tax Appeals Commission, the director may only make a reassessment in respect of any matter or period covered by the assessment or reassessment under appeal if it is made on the basis of information that was not (a) in any information return filed by the taxpayer; or (b) otherwise provided by the taxpayer to the director; before the date of the assessment or reassessment under appeal. Notice of assessment or reassessment 48(1) Upon making an assessment or reassessment under section 46, the director must issue a notice of assessment or reassessment that states (a) the name and address of the taxpayer in respect of whom the assessment or reassessment is made; (b) a reference number and the date of the assessment or reassessment; (c) the particulars of the tax debt, including (i) the period or matter in respect of which the assessment or reassessment is made, and (ii) the tax, interest and penalties comprising the tax debt; (d) that the tax debt is payable within 30 days after the notice of assessment or reassessment is served on the taxpayer; and (e) information about the taxpayer's right to appeal the assessment or reassessment under Division 4 (Appeals). Notice to taxpayer 48(2) The director must cause the notice of assessment or reassessment to be served on the affected taxpayer or (a) if the taxpayer is deceased or mentally incompetent, on his or her executor, committee or other legal representative; (b) if the taxpayer is bankrupt, on the trustee in bankruptcy; (c) if the taxpayer is a corporation that has been amalgamated with another corporation, on the amalgamated corporation; or (d) if the taxpayer is a corporation that has been dissolved, on a person who was an officer or director of the corporation immediately before it was dissolved. Assessment deemed correct 49 An assessment or reassessment is deemed to be correct unless (a) it is rescinded or revised on appeal under Division 4; or (b) it is replaced by a reassessment. Time for payment 50 Within 30 days after a notice of assessment or reassessment is served on a taxpayer, the taxpayer must (a) pay or remit the tax debt to the minister; or (b) if the assessment or reassessment was based on an estimate, (i) pay or remit the tax debt to the minister, or (ii) pay or remit to the minister any other amount that the director, based on additional information provided by the taxpayer, accepts as being the amount of the tax debt. ANTI-AVOIDANCE "avoidance transaction" means a transaction (a) that, but for this section, would result, directly or indirectly, in a tax benefit; or (b) that is part of a series of transactions that, but for this section, would result, directly or indirectly, in a tax benefit, but does not include a transaction that may reasonably be considered (c) to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit; or (d) not to result directly or indirectly in a misuse of the provisions of any tax Act or an abuse having regard to the provisions of a tax Act read as a whole. (« opération d'évitement ») "tax benefit" means a reduction, avoidance or deferral of tax or other amount payable under a tax Act or an increase in a refund of tax or other amount under a tax Act. (« avantage fiscal ») "transaction" includes an arrangement or event. (« opération ») General anti-avoidance rule 51(2) The director may, by assessment or reassessment under section 46, determine or redetermine the tax consequences of an avoidance transaction, or of a series of transactions that includes an avoidance transaction, as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction. Request for adjustments 51(3) Within 180 days after an assessment or reassessment in respect of a transaction or series of transactions is served on a person, any other person involved in the same transaction or series may, by written notice to the director, request the director to adjust, under subsection (2), tax consequences to the person of that transaction or series. Director's response 51(4) On receipt of the request, the director must consider the request and determine the tax consequences under subsection (2) to the person who made the request. Determining tax consequences 51(5) Without limiting the generality of subsection (2), in determining or redetermining the tax consequences to a person of a transaction or series of transactions under that subsection, the director may do one or more of the following: (a) determine or redetermine the value or fair value of any thing; (b) allow or disallow the deduction of an amount in computing a taxable amount, an exempt amount or the tax payable or refundable; (c) recharacterize the nature of a payment, amount or transaction; (d) ignore the tax effects that would otherwise result under a tax Act. 51(6) This section applies with respect to (a) a tax benefit under The Retail Sales Tax Act or The Corporation Capital Tax Act that was obtained or sought to be obtained after March 10, 1992; (b) a tax benefit under The Health and Post Secondary Education Tax Levy Act that was obtained or sought to be obtained after 1991; and (c) a tax benefit that is obtained or sought to be obtained under any other tax Act after March 8, 2005. 52(1) The director may, upon written application, make an advance ruling regarding the application of section 51 in respect of a proposed transaction or series of transactions. Fees re advance ruling 52(2) A person who applies for an advance ruling regarding the application of section 51 must pay the following fees: (a) at the time of applying for the ruling, a minimum non-refundable fee of $300.; (b) upon receiving the ruling or withdrawing the application for it, an additional fee of $60. per hour for time in excess of five hours spent in considering the application and, where applicable, preparing the ruling. REFUND OF OVERPAYMENT Refund of overpayment by taxpayer 53(1) A person is entitled to a refund, without interest, of an amount paid by the person as tax if (a) the amount was not payable as tax and is not otherwise refundable under a tax Act; and (b) the person files with the director, within two years after the day the amount was paid, a signed application that includes (i) the reasons for the refund request, (ii) evidence sufficient to satisfy the director that the person is entitled to the refund, and (iii) if another person acting on behalf of the person entitled to the refund makes the application, a written authorization signed by the person entitled to the refund. Refund of overpayment by collector 53(2) Subject to the provisions of a tax Act, a collector or deputy collector is entitled to a refund, without interest, of an amount remitted by him or her to the minister as or on account of tax if (a) the amount was not required to be remitted by or under a tax Act and is not otherwise refundable under a tax Act; and (b) the collector or deputy collector files with the director, within two years after the day the amount was remitted, a signed application that includes (ii) evidence sufficient to satisfy the director that the collector or deputy collector is entitled to the refund, and (iii) if another person acting on behalf of the collector or deputy collector makes the application, a written authorization signed by the collector or deputy collector. 53(3) Subsections (1) and (2) do not apply to amounts paid or remitted as tax under The Retail Sales Tax Act. When amount is paid, remitted or received 53(3.1) For the purpose of clauses (1)(b) and (2)(b) and any other provision of a tax Act that specifies the time within which an application for a refund of an amount paid or remitted as or on account of tax must be made, an amount paid or remitted by negotiable instrument — other than an instrument that is not honoured — is deemed to have been paid, remitted or received on the day the instrument is received. No other right of recovery 53(4) No person has a right of action or other remedy against the government for the recovery of an amount paid or remitted as tax, unless the person is entitled under a tax Act to a refund of the amount. Amounts under $10. not refundable 53(5) Despite subsections (1) and (2) and any other provision of a tax Act, no person is entitled to a refund of an amount that is less than $10. Director may apply refund to taxes, interest and penalties owing 53(6) If a person is entitled to a refund under this section or under any provision of a tax Act, the director may apply all or any part of the refundable amount to (a) the payment of a tax debt owing by the person; or (b) the payment of any tax, interest or penalties payable by the person under a tax law of Canada. Notice of application of refund 53(7) When applying an amount under subsection (6) to the payment of another amount owing by the person entitled to a refund, the director must give the person a written notice setting out (a) the amount so applied; (b) the debt to which it was applied; and (c) the date on which it was so applied. S.M. 2005, c. 40, s. 85; S.M. 2006, c. 24, s. 83; S.M. 2010, c. 29, s. 60; S.M. 2011, c. 41, s. 57; S.M. 2012, c. 1, s. 80; S.M. 2014, c. 35, s. 67. "applicable tax Act" means the tax Act under which an amount was remitted by a collector on account of tax in relation to a sale or lease by the collector. (« loi fiscale applicable ») "bad debt" means an amount that (a) is owing to a collector as proceeds of a sale or lease by the collector to a person with whom the collector would be considered, in relation to that sale or lease, to be dealing at arm's length for the purposes of the Income Tax Act (Canada); and (b) the collector has written off, in accordance with generally accepted accounting principles, as a bad debt in his or her books of account. It does not include an amount recoverable by a collector under subsection 9(2.1) of The Retail Sales Tax Act if the collector remitted the amount to the government after it was included in an assessment or reassessment issued under section 48 following an inspection, examination or audit by a tax officer. (« créance irrécouvrable ») "buyer" includes a person whose risk is covered by an insurance policy. (« acheteur ») "collector" includes a deputy collector. (« collecteur ») "proceeds", in relation to a sale or lease by a collector, means the total of (a) the consideration paid or payable by the buyer or lessee to the collector; (b) the amount paid or remitted by the collector on account of tax under the applicable tax Act in respect of the sale or lease; and (c) all levies, duties and taxes — other than taxes under the tax Acts — imposed by any level of government and paid or payable by the buyer to the collector in respect of the sale or lease. It does not include interest or costs incurred to collect the proceeds. (« produit ») "sale" includes the provision of insurance. (« vente ») Deduction for tax remitted in respect of bad debt 53.1(2) Subject to subsections (4) and (7), after an amount owing to a collector becomes a bad debt, the collector may deduct from the tax that he or she is otherwise required to remit under the applicable tax Act the amount determined by the following formula: D = (T × B/P) − A In this formula, is the amount deductible by the collector; is the amount remitted on account of tax under the applicable tax Act by the collector in respect of the sale or lease to which the bad debt relates; is the amount of the bad debt; is the total proceeds of the sale or lease to which the bad debt relates; is the total of all amounts previously deducted or refunded under this section or under the applicable tax Act in respect of the bad debt. Refund of tax remitted in respect of bad debt 53.1(3) The minister may, on application by a collector entitled to deduct an amount under subsection (2), refund all or any part of the amount to the collector. Time limit for deduction or application for refund 53.1(4) A deduction under subsection (2) or an application for a refund under subsection (3) in respect of a bad debt cannot be made more than two years after the day the amount became a bad debt. Recovery of bad debt 53.1(5) If at any time all or part of a bad debt owing to a collector is recovered, the collector must report and remit to the minister on account of tax under the applicable tax Act, on or before the 20th day of the month after the month in which the recovery is made, the amount determined by the following formula: R = A × B/C is the amount to be remitted; is the total of all amounts previously deducted or refunded under this section or the applicable tax Act in respect of the bad debt; is the amount of the bad debt that was recovered at that time; is the amount of the bad debt that was owing before the recovery. Order of payment 53.1(6) For the purpose of subsection (5), any amount recovered by a collector in relation to a bad debt — even if it is recovered as interest or as a late payment fee, a charge for debt collection or any other fee or charge — must be applied first as a payment on account of the bad debt. 53.1(7) If an amount owing to a collector became a bad debt before April 4, 2007, no amount is deductible under subsection (2) in respect of that debt unless it would have been deductible under the applicable tax Act before that date. S.M. 2007, c. 6, s. 87; S.M. 2012, c. 1, s. 81; S.M. 2016, c. 10, s. 29. Appeals do not affect tax debt obligations 54 Neither the making of an appeal under this Division nor any delay in the conduct of an appeal in any way affects or limits (a) the liability of a person to pay tax or to collect and remit tax; (b) the date by which tax becomes payable or is required to be paid or remitted; (c) the accrual of interest on a tax debt; (d) the imposition of a penalty; or (e) any action or right to take any action to collect a tax debt under Division 5 (Tax Debt Recovery). Appeal to Tax Appeals Commission 55 A taxpayer may appeal an assessment or reassessment made under section 46 to the Tax Appeals Commission. The right of appeal is limited to the amounts assessed or reassessed under clauses 46(1)(a), (d), (e) and (g). How to appeal 56(1) An appeal to the Tax Appeals Commission must (a) be in writing and signed by the taxpayer; (b) state the name of the taxpayer and include a copy of the assessment or reassessment being appealed; (c) state which amounts are in dispute and, in each case, how much of the amount is in dispute; (d) state the reasons for the appeal and provide documentary evidence substantiating the taxpayer's position; and (e) be served on the Tax Appeals Commission and the director within 90 days after the notice of assessment or reassessment was served on the appellant. Acting on behalf of taxpayer 56(2) If authorized to do so by the taxpayer in writing, another person may act on behalf of the taxpayer in the appeal. Limitation on appeal of reassessment 56(3) If a matter or period that is the subject of a reassessment is also the subject of an earlier assessment or reassessment for which the 90-day appeal period has expired, any appeal of the later reassessment must be limited to the difference between (a) the amount assessed or reassessed in respect of that matter or period in the earlier notice of assessment or reassessment; and (b) the amount subsequently reassessed in respect of that matter or period. Powers of Tax Appeals Commission 57(1) Upon receipt of an appeal, the Tax Appeals Commission must determine whether it meets the requirements of sections 55 and 56. If it does not, the commission must reject the appeal. If it does, the commission may (a) exercise any of its powers of investigation and inquiry under The Tax Appeals Commission Act; and (b) affirm, rescind or vary the assessment or reassessment being appealed. The commission must cause a copy of its decision to be served on the director and on the taxpayer or a person acting on the taxpayer's behalf. Power to vary 57(2) In varying an assessment or reassessment, the Tax Appeals Commission may increase or decrease the amount assessed or reassessed. But a penalty assessed under clause 46(1)(d) or (e) cannot be increased beyond the maximum penalty that the director is allowed to impose. Technical irregularity 57(3) An assessment or reassessment must not be varied or rescinded by reason only of an irregularity, informality, omission or technical error by the director in the exercise of his or her duties under a tax Act. Appeal to Court of Queen's Bench 58 The following matters may be appealed to the Court of Queen's Bench: (a) a decision or order of the director under section 10; (b) a decision of the Tax Appeals Commission under section 57. 59(1) An appeal to the court must be made by filing an application with the court for an order under this section within 90 days after the decision or order being appealed is served on the appellant. 59(2) The parties to an appeal of a decision or order of the director are the appellant and the director. Appeal of commission's decision 59(3) The parties to an appeal of a decision of the Tax Appeals Commission are the taxpayer and the director, either of whom may be the appellant. Appellant to serve application on other party 59(4) The appellant must serve a copy of the application on the other party to the appeal within 14 days after the application is filed with the court. 59(5) The court may (a) affirm, rescind or vary the order or decision being appealed; and (b) make any order as to costs that the court considers appropriate. Refund after appeal 60 If an assessment or reassessment is rescinded or the amount of it is reduced on appeal, the minister must refund or pay to the taxpayer (a) any excess amount paid or remitted to the minister by the taxpayer; and (b) interest on that excess amount, from the day it was paid or remitted to the minister, calculated at the same rate and in the same manner as interest payable on a tax debt. TAX DEBT RECOVERY Exercise of powers to collect tax debts 61 The following actions to recover a tax debt may be taken separately, concurrently or cumulatively: (a) commencing a civil action under section 62 for recovery of the debt; (b) issuing a tax debt certificate under section 63 and filing it in the Court of Queen's Bench; (c) registering a lien under section 65 in a land titles office or under section 66 in the Personal Property Registry and taking steps to enforce the lien; (d) issuing a tax debt warrant under section 67 and having it executed; (e) issuing a demand for payment under section 68 or 69; (f) issuing a notice of assessment under clause 46(1)(g) to a person, other than the tax debtor, who is liable under this Act for the tax debt or any part of it, and doing anything referred to in this section to recover the amount assessed against that person. Tax debt recoverable by civil action 62 A tax debt is recoverable by a civil action for debt in a court of competent jurisdiction. Tax debt certificate 63 The director may (a) issue a tax debt certificate showing (i) the amount of the tax debt and the name of the tax debtor liable for it, (ii) the name of the tax Act under which the tax debt arose, and (iii) the director's address for service of documents; and (b) file the certificate in the Court of Queen's Bench. Once filed, the certificate becomes a judgment of the court and may be enforced as a judgment. Lien for tax debt 64(1) The government has, in addition to every other remedy it has for the recovery of a tax debt, a lien on every estate or interest in real property and personal property of the tax debtor, including property acquired by the debtor after the debt arose. Extent of security 64(2) The lien secures the payment of (a) the amount of the tax debt at the time that the lien takes effect; (b) all additional amounts that become due under a tax Act by the tax debtor to the government after the lien takes effect and before it is discharged, including (i) any tax, interest or penalties that become due or payable after the lien takes effect, and (ii) any unpaid fees, expenses or other charges imposed by the director under this Part after the lien takes effect; (b.1) disbursements for searches reasonably required to (i) ascertain the legal status of the tax debtor, or (ii) identify property that is or may be subject to the lien or ascertain the registered interests in such property; (c) disbursements for the registration and discharge of the lien; and (d) costs reasonably incurred by the government in retaking, holding, repairing, processing, preparing for disposition or disposing of property in respect of which the lien is registered. When lien takes effect 64(3) The lien takes effect (a) in relation to the tax debtor's interest in real property, when a certificate in respect of the lien is registered under section 65; and (b) in relation to the tax debtor's personal property, when a financing statement in respect of the lien is registered under section 66. Effect of failure to proceed 64(4) The lien and its priority are not lost or impaired by taking or failing to take proceedings to recover the tax debt, or by the tender or acceptance of any payment on account of the tax debt. Additional amounts recoverable as tax debt 64(5) If the payment of an amount not otherwise included in a tax debt is or may be secured by a lien under this section, the director may charge that amount to the tax debtor and recover that amount as if it were included in the tax debt. Registration against real property 65(1) The director may cause a lien under section 64 to be registered in a land titles office against specific lands of the tax debtor by filing a certificate, signed by the director, stating (a) the address for service of the director; (b) the full name of the tax debtor and the amount of the tax debt giving rise to the lien; (b.1) the name of the tax Act under which the tax debt arose; (c) the legal description of the land to be charged; and (d) any other matter prescribed by regulation. Registration on production 65(2) The certificate is registerable upon being presented for registration. It does not require an affidavit of execution. Enforcement of lien on real property 65(3) Once the certificate has been registered in the land titles office, the director may take sale proceedings on the lien as if the lien were a judgment registered under The Judgments Act. Lien remains in effect 65(3.1) The lien remains in effect until the director discharges it. Director may postpone, amend or discharge lien 65(4) The director may, by filing the appropriate document in the land titles office in which the lien was registered, (a) postpone the government's interest under the lien; (b) amend the certificate to correct an error, but not to increase the amount secured by the lien or to extend the lien to other land; or (c) discharge the lien. Registration in Personal Property Registry 66(1) The director may register a lien under section 64 against personal property of the tax debtor by filing in the Personal Property Registry a financing statement that states (b) the name and address of the tax debtor; (c) the name of the tax Act under which the tax debt arose; and Effect of registration 66(2) Upon registration of the lien in the Personal Property Registry, (a) the government is deemed to be a secured party under The Personal Property Security Act and the tax debtor is deemed to be a debtor under that Act; (b) the tax debtor is deemed to have signed a security agreement stating that a security interest is taken in all the debtor's present and after-acquired personal property, and the lien is deemed to be a perfected security interest in that property; (c) the lien is enforceable under The Personal Property Security Act as if it were a lien under the agreement referred to in clause (b) and the tax debtor were in default under that agreement; and (d) The Personal Property Security Act and the regulations under that Act apply, with necessary modifications, to the lien except as otherwise provided by this section. Priority of lien for tax collected but not remitted 66(3) To the extent that the lien secures the payment of tax that a collector or deputy collector has collected but failed to remit, the lien (a) is not limited to the collector's estate or interest in the personal property; and (b) despite any other enactment but subject to subsection (4), is payable in priority to any other security interest in that property, including a security interest that arose or was perfected before the lien came into effect or before this section came into force. Exceptions to priority 66(4) A lien in respect of tax collected and not remitted does not have priority over the following: (a) a purchase money security interest in collateral, as defined in The Personal Property Security Act, that was perfected when the debtor obtained possession of the collateral or within 15 days after the debtor obtained possession of it; (b) a garage keeper's lien under The Garage Keepers Act and a lien that, under any other Act, may be enforced as a lien under The Garage Keepers Act; (c) a security interest that was perfected by registration in the Personal Property Registry before March 8, 2005. Director may postpone, amend, renew or discharge lien 66(5) The director may, by filing the appropriate document in the Personal Property Registry, (a) postpone the government's interest under a financing statement; or (b) amend, renew or discharge a financing statement. Tax debt warrant 67(1) The director may issue a tax debt warrant to a sheriff showing (a) the name and address of the tax debtor; (b) the amount of the tax debtor's tax debt; (d) the director's address for service of documents. Effect of warrant 67(2) Subject to subsection (4), the tax debt warrant (a) has the same force and effect; (b) creates the same rights, duties and obligations; (c) is subject to the same exemptions; and (d) must be acted upon by the sheriff in the same way and with the same procedures, in all respects; as if it were a writ of seizure and sale issued by the Court of Queen's Bench in favour of the government against the tax debtor. Authority of sheriff re cash and credit card receipts 67(3) In executing a tax debt warrant, the sheriff, in addition to the sheriff's other powers, has the power to seize cash, credit card receipts and similar instruments. Duration of warrant 67(4) Despite section 2.1 of The Executions Act, a tax debt warrant continues in full force and effect, with respect to property seized within two years after it is issued, until all actions to be taken under it have been taken or until it is withdrawn by the director, whichever is earlier. Director may demand payment from third party 68(1) The director may serve a demand for payment on a person (referred to in this section as the "third party") if the director knows or suspects that the person (a) is indebted or liable to make a payment at any time to a tax debtor; or (b) is liable to make a payment at any time to a secured creditor of a tax debtor where (i) that payment, but for the secured creditor's security interest, would be payable to the tax debtor, and (ii) the tax debt is in respect of tax that was collected and not remitted. 68(2) For the purpose of clause (1)(a), a financial institution is liable to make a payment to a tax debtor in respect of a joint account if the institution must honour (a) a request by the debtor alone to withdraw or transfer money from the account; or (b) a cheque drawn on the account by the debtor alone. Application of demand to periodic payments 68(3) If the demand is for money otherwise payable periodically, including payments as interest, rent, remuneration, a dividend, or an annuity, the demand (a) applies to all payments to be made by the person to the tax debtor or a secured creditor of the tax debtor until the tax debtor's tax debt is paid in full; and (b) requires the person to pay to the minister, out of each periodic payment, the amount specified in the demand. Amount payable by third party 68(4) Subject to subsection (3), the third party must pay to the minister on account of the tax debtor's tax debt, an amount equal to the lesser of (a) the amount of the tax debt as specified in the demand; and (b) the amount otherwise payable by the third party to the tax debtor or the secured creditor, as the case may be. When payment is due 68(5) The amount payable under subsection (4) to the minister is payable (a) immediately, if the money is payable by the third party to the tax debtor or secured creditor immediately or on demand; or (b) as and when the money is payable by the third party to the tax debtor or secured creditor. Priority of demand — tax collected and not remitted 68(6) Despite any other law, if the tax debt for which the demand was issued is in respect of tax that was collected and not remitted, the money payable under the demand (a) becomes property of the government upon receipt of the demand; and (b) is payable in priority to (i) any security interest in the amount owing by the third party to the tax debtor, whether the security interest arose before or after the demand was made or before or after this section came into force, and (ii) any garnishment order to which The Garnishment Act applies. Priority of demand — other tax debt 68(7) If the tax debt in relation to which the demand was issued is not in respect of tax that was collected and not remitted, the demand (a) has the same effect and priority as a garnishment order to which The Garnishment Act applies, other than an order that is given priority under section 13.5 or 14.5 of that Act (garnishment for maintenance orders, fines, etc.) over other garnishment orders; and (b) is subject to the exemptions set out in section 5 of The Garnishment Act. Personal liability under a third party demand 68(8) If the third party does not comply with the demand, the third party is personally liable to pay to the minister on account of the tax debtor's tax debt, upon assessment under section 46, the amount to be paid under subsection (4). Director may demand payment from institutional lender 69(1) The director may serve a demand for payment on a financial institution if the director knows or suspects that, within 90 days after serving the demand, the institution will (a) lend or advance money to; (b) make a payment on behalf of; or (c) make a payment in respect of a negotiable instrument issued by; a tax debtor who is indebted to the institution and has granted security for that indebtedness. Director may demand payment from other lender 69(2) The director may serve a demand for payment on a person, other than a financial institution, if the director knows or suspects that, within 90 days after serving the demand, the person will lend or advance money to, or make a payment on behalf of, (a) a tax debtor who is, was, or will be within the 90-day period, employed by the person or providing property or services to the person; or (b) a tax debtor, other than an individual, who is not dealing at arm's length with the person. Expiry of demand 69(3) A demand under this section ceases to apply 90 days after it is served on the financial institution or other person. Liability of lender 69(4) The institution or other person on whom a demand is served under this section is liable to pay to the minister on account of the tax debtor's tax debt, upon assessment under section 46, an amount equal to the lesser of (b) the total of the money lent, advanced or paid to or on behalf of the tax debtor after the demand is received by the institution or person. Content of demand for payment 70 A demand for payment under section 68 or 69 must state (a) the name of the person to whom it is addressed; (b) the name of the tax debtor concerned and that the demand is made because of the tax debtor's tax debt; (c) the amount of the tax debt; (d) the name of the tax Act under which the tax debt arose; and (e) that the amount is payable to the minister and when it is to be paid. Payment discharges liability 71(1) A payment to the minister pursuant to a demand made under section 68 or 69 discharges, to the extent of the payment, (a) the tax debt in relation to which the payment was demanded; and (b) the payer's liability to pay the money to the tax debtor or secured party to whom it was otherwise payable. Deemed loan or payment 71(2) An amount paid to the minister pursuant to a demand made under section 69 is deemed to have been lent or advanced to, or paid to or on behalf of, the tax debtor, as it would have been if it had not been paid to the minister. Right of recovery 72 A person who pays an amount pursuant to an assessment made under section 46 in respect of a demand made under section 68 or 69 is entitled to recover the amount from the tax debtor in relation to whom the demand was made, and may (a) withhold that amount from any money owing by the person to the tax debtor; or (b) recover it in a court of competent jurisdiction as a debt owing by the tax debtor to the person. DEEMED TRUST FOR TAXES NOT REMITTED "Collector" includes deputy collector 73(1) In this section, "collector" includes a deputy collector. Property of collector deemed to be held in trust 73(2) Money and other property of a collector, and property held by a secured creditor that, but for a security interest would be property of the collector, equal in value to the tax collected under a tax Act is deemed, from the time the tax is collected until it is remitted, (a) to be held in trust for, and beneficially owned by, the government; (b) to be held separate and apart from other property of the collector and other property that, but for a security interest, would be property of the collector; and (c) to form no part of the estate or property of the collector. These rules apply to property even if it is subject to a security interest and even if the security interest arose before this subsection came into force or before the tax was collected. Priority of taxes collected and held in trust 73(3) Money held in trust under subsection (2), and the proceeds of any other property held in trust under that subsection, must be paid to the minister in priority to all security interests, including one that arose before this subsection came into force or before the money or other property became subject to the trust. Receiver, trustee or like person to obtain certificate before distribution 73(4) A person who, as a receiver, trustee or other like person, wishes to pay or distribute any money or other property of the collector to any person must, before paying or distributing it, obtain from the director a certificate confirming that (a) the collector has no tax debt to which this section applies; or (b) security acceptable to the director for the payment of the collector's tax debt has been given. Liability for distribution without certificate 73(5) A person who pays or distributes money or other property contrary to subsection (4) is personally liable, upon assessment under section 46, to pay to the minister on account of the collector's tax debt an amount equal to the lesser (a) the collector's tax debt at the time of the distribution; and (b) the amount of money or value of property distributed; plus interest on that amount from the date of the payment or distribution, calculated at the same rate that applies to the collector's tax debt. Collector remains liable 73(6) Except to the extent that a collector's tax debt is reduced by a payment under this section, nothing in this section affects the collector's liability for the tax debt. 73(7) A person who pays an amount pursuant to an assessment made under section 46 in respect of a liability under this section is entitled to recover the amount from the collector on whose account the amount was paid, and may (a) withhold that amount from any money owing by the person to the collector; or RELIEF FROM ENFORCEMENT Application for court protection from enforcement 74(1) If the director takes any enforcement action referred to in section 61 to collect a tax debt (a) while the assessment or reassessment of the tax debt is under appeal; or (b) before the expiry of the period within which the assessment or reassessment may be appealed; the tax debtor may apply to the Court of Queen's Bench for an order terminating or limiting the enforcement action. Time to make application 74(2) The tax debtor may make the application only (a) after having served a notice of appeal of the assessment or reassessment on the Tax Appeals Commission; and (b) within 30 days after becoming aware of an enforcement action referred to in section 61 having been taken by the director. Court order may terminate or limit enforcement action (a) deny the application; or (b) subject to subsection (4), make any order the court considers appropriate, including an order terminating, prohibiting or limiting any enforcement action that the director has taken or may otherwise take. 74(4) An order under clause (3)(b) must not (a) prevent the director from taking any enforcement action to collect an amount that is not in dispute; or (b) prevent the registration or renewal of a lien against property of the tax debtor, or require such a lien to be discharged. Court may require tax debtor to provide security 74(5) When making an order under clause (3)(b), the court may require the tax debtor to provide security for the payment of his or her tax debt on any terms the court considers appropriate. Offences — records and reporting 75(1) A person is guilty of an offence who (a) fails to make or keep records as required by or under a tax Act; (b) destroys records contrary to section 18; (c) fails to provide information, or to make or file a report or information return, as and when required by or under a tax Act; (d) makes, or participates in, assents to or acquiesces in the making of, a false or misleading statement or entry in (i) the records of a taxpayer, or (ii) an application, report, information return or other document filed or to be filed under a tax Act; or (e) omits to state a material fact, or participates in, assents to or acquiesces in the omission of a material fact, in (ii) an application, report, information return or other document filed or to be filed under a tax Act. Offences — tax authorizations and collection agreements (a) without a valid tax authorization, does anything for which the person is required to have a tax authorization; (b) fails to comply with a term or condition of a tax authorization; (c) fails to comply with an agreement between the person and the government respecting a tax authorization or the collection and remittance of tax; (d) fails to return a tax authorization as required by subsection 11(1); (e) uses or attempts to use a tax authorization that has expired or been cancelled or suspended for any purpose for which it could be used if it were still valid; or (f) not being the holder of a valid tax authorization, does anything to lead or attempt to lead another person to believe that he or she holds a valid tax authorization. Offences — failure to comply with director's order 75(3) A person who fails to comply with an order made by the director under any of the following provisions is guilty of an offence: (a) subsection 10(1.1.1) (apply for tax authorization) or (3.1) (stop order); (b) section 15 (reporting and remittance requirements); (c) subsection 17(4) (recordkeeping requirements); (d) subsection 21(1) (requirement to produce records). 75(4) A person who is guilty of an offence under this section is liable, on summary conviction, to the following penalty: (a) in the case of an individual, (i) for a first offence, a fine of at least $300. and not more than $5,000., imprisonment for up to three months, or both, and (ii) for a second or subsequent offence, a fine of at least $500. and not more than $10,000., imprisonment for up to six months, or both; (b) in the case of a corporation, (i) for a first offence, a fine of at least $300. and not more than $10,000., and (ii) for a second or subsequent offence, a fine of at least $1,000. and not more than $20,000. Additional order to file returns 75(5) A justice who finds a person guilty of an offence under clause (1)(c) (failure to file report or return) must, in addition to imposing a penalty under subsection (4), order the person (a) to provide the information that he or she failed to provide; or (b) to file the reports or information returns that he or she failed to file; and, if the information to be provided or the reports or information returns to be filed disclose an amount of tax that has not been paid or remitted as required, to pay or remit that amount and any penalties and interest that the person failed to pay or remit. Additional order to comply with agreement 75(5.1) A justice who finds a person guilty of an offence under clause (2)(c) (failure to comply with agreement) must, in addition to imposing a penalty under subsection (4), order the person and, if the person failed to pay or remit any tax as required by the agreement, to pay or remit that amount and any penalties and interest that the person failed to pay or remit. Additional order to comply with director's order 75(6) A justice who finds a person guilty of an offence under subsection (3) (failure to comply with director's order) must, in addition to imposing a penalty under subsection (4), order the person to comply with the director's order. S.M. 2005, c. 40, s. 85; S.M. 2009, c. 26, s. 73; S.M. 2010, c. 29, s. 61; S.M. 2012, c. 1, s. 84; S.M. 2015, c. 40, s. 47. Offences — inspections and investigations (a) fails or refuses to produce, provide or make available for inspection, examination, audit or testing by a tax officer any thing required to be produced, provided or made available for that purpose; (b) interferes with, impedes or obstructs a tax officer in the performance of his or her functions or duties under this Act; or (c) in relation to an inspection under this Act, (i) fails or refuses to provide access to premises, property or records to a tax officer as required, (ii) fails or refuses to provide reasonable assistance, when requested to provide it, to the tax officer performing the inspection, (iii) provides false or misleading information to a tax officer, or omits to state a material fact so as to mislead a tax officer, (iv) refuses to answer a question asked by a tax officer, (v) fails or refuses to provide access to a vehicle, tank or receptacle to allow a tax officer to inspect fuel or take a fuel sample, or (vi) fails or refuses to stop a vehicle when requested to do so by a tax officer under section 25, 30 or 31. Offences — evasion (a) wilfully evades or attempts to evade the payment or remittance of tax; (b) destroys, alters or conceals records, property or information in order to (i) evade the payment or remittance of tax, or obtain the benefit of a credit or refund to which the person is not entitled, (ii) avoid detection of a contravention of a tax Act, or (iii) hinder an investigation of a suspected contravention of a tax Act; (c) conspires with any person to commit an offence under clause (a) or (b); or (d) possesses, uses, sells or offers to sell software described in section 18.1. Offence — refusal to pay or remit 76(3) A person who refuses or wilfully neglects to pay or remit tax when it is due is guilty of an offence. (ii) for a second or subsequent offence, a fine of at least $1,000. and not more than $10,000., imprisonment for up to 12 months, or both; Additional penalty for tax evasion 76(5) A justice who finds a person guilty of an offence under subsection (2) (evasion) must impose, in addition to any penalty imposed under subsection (4), a fine equal to (a) for a first offence, the tax sought to be evaded or the refund or credit sought to be obtained; and (b) for a second offence or subsequent offence, triple the tax sought to be evaded or the refund or credit sought to be obtained. Onus re payment or remittance of tax 76(6) In the prosecution of an offence under subsection (3) (failure to pay or remit tax), the onus of proving that the tax was paid or remitted is on the accused. Additional order to pay or remit tax 76(7) A justice who finds a person guilty of an offence under subsection (3) (refusal to pay or remit tax) must, in addition to imposing a penalty under subsection (4), order the person to pay or remit the tax, any penalties and interest that the person failed to pay or remit. Offences — fuel (a) sells fuel exempt from tax under The Fuel Tax Act knowing it is being purchased for a use for which it cannot be purchased exempt from tax under that Act; (b) sells fuel at a rate of tax under The Fuel Tax Act knowing that is being purchased for a use to which a higher rate of tax applies; (c) uses fuel, or allows it to be used, for a purpose that is not eligible for the exemption or rate of tax under The Fuel Tax Act that applied to the purchase; (d) to (e.1) [repealed] S.M. 2017, c. 40, s. 75; (e.2) fails to comply with an order of the director made under section 25.1 (faulty dye injector pump); or (f) [repealed] S.M. 2006, c. 24, s. 85; (g) blends fuel with any petroleum product that is not subject to tax under The Fuel Tax Act on resale, and sells the resulting produce as fuel contrary to that Act. (h) [repealed] S.M. 2010, c. 29, Sch. B, s. 39. Offences — carrier licences (a) contrary to The Fuel Tax Act, fails, as the operator of a vehicle being operated under a carrier licence, (i) to carry a copy of the licence in the cab of the vehicle, (ii) to produce a copy of the licence on the request of a tax officer, or (iii) to ensure that carrier decals are affixed to the vehicle in accordance with the regulations under that Act; (a.1) contrary to The Fuel Tax Act, fails, as the owner of a vehicle being operated under a carrier licence, (i) to ensure that a copy of the licence is carried by the operator in the cab of the vehicle, or (ii) to ensure that carrier decals are affixed to the cab of the vehicle in accordance with the regulations under that Act; or (b) fails to return carrier decals when required to do so by subsection 11(2). (a) in the case of an offence under clause (1)(c) (wrongful use of fuel) or subsection (2) (carrier licence), the penalty prescribed by subsection 75(4); (b) in the case of an offence under subsection (1) other than clause (c), the penalty prescribed by subsection 76(4). S.M. 2005, c. 40, s. 85; S.M. 2006, c. 24, s. 85; S.M. 2007, c. 6, s. 89; S.M. 2007, c. 17, s. 7; S.M. 2008, c. 3, s. 79; S.M. 2010, c. 29, s. 63 and Sch. B, s. 39; S.M. 2011, c. 41, s. 58; S.M. 2017, c. 40, s. 75. "Motor vehicle" defined 78(1) In this section, "motor vehicle", in relation to an offence under clause 77(1)(c) (wrongful use of fuel), includes any motorized machine or apparatus, whether or not it is a vehicle, used to commit the offence. Impoundment of vehicle 78(2) A justice who finds a person guilty of a second or subsequent offence under clause 77(1)(c) may, in addition to imposing a penalty under subsection 77(3), impound the relevant motor vehicle for a period of not more than six months. Release of vehicle 78(3) The motor vehicle must not be released until (a) the fine imposed under subsection 77(3) and the costs incurred to impound and store the vehicle have been paid; and (b) the period of impoundment has expired. Sale of vehicle 78(4) If the fine and costs referred to in clause (3)(a) are not paid within six months after the motor vehicle was impounded, the director may sell the vehicle in accordance with the regulations. The proceeds of the sale are to be paid or applied as follows: (a) first, to pay the unpaid fine and costs; (b) second, to pay the costs of sale. The balance, if any, is payable to the person who was the owner of the motor vehicle immediately before it was sold, or to a person with a prior claim to the motor vehicle at that time. 78(5) [Repealed] S.M. 2009, c. 26, s. 74. Offences — bulk fuel and marked fuel 79(1) A person is guilty of an offence who, (a) imports bulk fuel into Manitoba or acquires bulk fuel otherwise than from a licensed dealer or collector under The Fuel Tax Act, and does not report it and pay tax as required; (c) tampers with marked fuel; (d) marks fuel contrary to The Fuel Tax Act or the regulations under that Act; or (e) sells unmarked fuel as marked fuel. (ii) for a second or subsequent offence, a fine of at least $1,000. and not more than $50,000.; (ii) for a second or subsequent offence, a fine of at least $2,000. and not more than $100,000. S.M. 2005, c. 40, s. 85; S.M. 2010, c. 29, Sch. B, s. 39; S.M. 2011, c. 41, s. 59; S.M. 2017, c. 40, s. 76. Offences — marking or stamping tobacco packaging (a) applies to the packaging of cigarettes or fine cut tobacco, otherwise than in accordance with the regulations under The Tobacco Tax Act, a mark or stamp to represent the packaging as being marked or stamped for the tax purposes of Manitoba; (b) without lawful excuse, has in his or her possession a mark or stamp capable of being applied to the packaging of cigarettes or fine cut tobacco to represent the packaging as being marked or stamped for the tax purposes of Manitoba; (c) fails to comply with a requirement prescribed by regulation under The Tobacco Tax Act respecting the marking or stamping of cigarettes or fine cut tobacco for the tax purposes of Manitoba; or (d) acquires a mark or stamp described in clause (b) from a person who does not hold a tax authorization to produce or manufacture it. Offences — possession, purchase or sale of tobacco (a) is in possession, or authorizes or causes another person to be in possession, of 25 or more units of unmarked tobacco contrary to section 3.1 or 3.3 of The Tobacco Tax Act; (a.1) is in possession, or authorizes or causes another person to be in possession, of fewer than 25 units of unmarked tobacco contrary to section 3.1 or 3.3 of The Tobacco Tax Act; (b) [repealed] S.M. 2006, c. 24, s. 87; (c) is in possession of tobacco, other than cigarettes or fine cut tobacco, contrary to section 3.6 of The Tobacco Tax Act; (d) contrary to subsection 3.2(1) of The Tobacco Tax Act, (i) sells 25 or more units of unmarked tobacco, or (ii) sells fewer than 25 units of unmarked tobacco; (d.1) sells cigarettes individually or in packages of fewer than 20 cigarettes contrary to subsection 3.2(2) of The Tobacco Tax Act; (e) [repealed] S.M. 2006, c. 24, s. 87; (f) is in possession of tobacco contrary to section 3.7 or subsection 4(1) or (2) of The Tobacco Tax Act; (g) sells tobacco contrary to subsection 4(1), (2), (4) or (5) of The Tobacco Tax Act; or (h) purchases or offers to purchase tobacco contrary to subsection 4(4.1) of The Tobacco Tax Act. 80(2.1) In clauses (2)(d), (d.1) and (g), "sells" includes offers for sale, exposes for sale and distributes, whether or not the distribution is made for consideration. Offence — accounting for tax on tobacco 80(3) A dealer under The Tobacco Tax Act who fails to report, account for or remit tax in respect of tobacco contrary to subsection 9(2) of that Act is guilty of an offence. (a) in the case of an individual who is guilty of an offence under clause (2)(a.1) or (d.1) or subclause (2)(d)(ii), (i) for a first offence, a fine of at least $1,000 and not more than $10,000, (ii) for a second offence, a fine of at least $10,000 and not more than $50,000, and (iii) for a third or subsequent offence, a fine of at least $50,000 and not more than $100,000; (a.1) in the case of an individual who is guilty of any other offence under this section, (i) for a first offence, a fine of at least $1,000 and not more than $10,000, imprisonment for up to six months, or both, (ii) for a second offence, a fine of at least $10,000 and not more than $50,000, imprisonment for up to one year, or both, and (iii) for a third or subsequent offence, a fine of at least $50,000 and not more than $100,000, imprisonment for up to two years, or both; (ii) for a second offence, a fine of at least $20,000 and not more than $100,000, and (iii) for a third or subsequent offence, a fine of at least $100,000 and not more than $250,000. Additional fine 80(5) If a person is found guilty of an offence under this section, other than an offence under clause (2)(a.1) or (d.1) or subclause (2)(d)(ii), in respect of a quantity of tobacco, the justice must impose, in addition to the penalty imposed under subsection (4) and regardless of whether the person purchased the tobacco, a fine equal to (a) in the case of a first offence, three times the tax that would be payable under The Tobacco Tax Act on a purchase of that quantity of tobacco by a purchaser; (b) in the case of a second offence, four times the tax that would be payable under The Tobacco Tax Act on a purchase of that quantity of tobacco by a purchaser; or (c) in the case of a third or subsequent offence, five times the tax that would be payable under The Tobacco Tax Act on a purchase of that quantity of tobacco by a purchaser. Reduction of additional fine 80(6) The additional fine under subsection (5) must be reduced by any amount paid under section 36 following a seizure of the tobacco. Suspension of driver's licence 80(8) When a person who used a motor vehicle (as defined in The Highway Traffic Act) in the commission of an offence under clause (2)(a), (c), (d), (f) or (g) is convicted of that offence, the court (a) must order that the person's driver's licence be suspended if the person has a prior conviction for an offence under subsection (2) that was committed within 10 years before the date of the current offence; or (b) if clause (a) does not apply, may order that the person's driver's licence be suspended for no more than six months. A suspension under clause (a) must be for at least six months if the person's driver's licence has previously been suspended under this subsection. Suspension in addition to penalty or fine 80(9) A suspension under subsection (8) is in addition to any other penalty or fine imposed under this section. Court to inform Registrar of Motor Vehicles 80(10) If the court makes an order under subsection (8), the court must inform the registrar under The Drivers and Vehicles Act of the order. No issuance or renewal of licence during suspension 80(11) During the period of the suspension, a driver's licence must not be issued or renewed in the person's name. S.M. 2005, c. 40, s. 85; S.M. 2006, c. 24, s. 87; S.M. 2007, c. 6, s. 90; S.M. 2008, c. 3, s. 80; S.M. 2009, c. 26, s. 75; S.M. 2010, c. 29, s. 64; S.M. 2011, c. 41, s. 60; S.M. 2012, c. 1, s. 86; S.M. 2012, c. 19, s. 7; S.M. 2016, c. 10, s. 30; S.M. 2017, c. 40, s. 77; S.M. 2018, c. 34, s. 33. 80.1(1) In this section, "owner", "vehicle" and "workday" have the same meaning as in section 31.2. Vehicle liable to forfeiture 80.1(2) A vehicle that was seized under section 31.2 is liable to be forfeited to the government if (a) a person is charged with an offence under subsection 80(2) in relation to possession of the unmarked tobacco the presence of which resulted in the vehicle being seized; and (b) the person (referred to in this section as the "alleged offender") has at least two prior convictions under subsection 80(2) that arise from separate incidents and involve the possession, sale or offer for sale of unmarked tobacco. Director to register financing statement 80.1(3) If the director believes on reasonable grounds that a vehicle is liable to forfeiture under this section, the director must register a financing statement in the Personal Property Registry, in the form and manner prescribed under The Personal Property Security Act, stating that the vehicle is liable to forfeiture. Notice of liability to forfeiture 80.1(4) Within two workdays after registering the financing statement, the director must prepare a notice of the vehicle's liability to forfeiture and of the registration of the financing statement, and must serve a copy of the notice on (a) the alleged offender; (b) each owner of the vehicle who is not the alleged offender; and (c) each person who holds a security interest in the vehicle that was registered under The Personal Property Security Act before the director registered the financing statement. Lack of notice does not affect forfeiture 80.1(5) The vehicle's liability to forfeiture is not affected by a failure to serve the notice under subsection (4) on the alleged offender. Restrictions affecting owner 80.1(6) An owner of the vehicle must not dispose of it, or grant a security interest in it, (a) after the vehicle is seized under section 31.2, if the owner is the alleged offender; or (b) after being served with a copy of the notice of the liability to forfeiture, if the owner is not the alleged offender. 80.1(7) After the financing statement is registered in respect of the vehicle, no person shall do anything, alone or in concert with any other person, (a) to prevent the vehicle from being forfeited; or (b) to reduce the value of the vehicle more than it would be reduced in the normal course of being operated. Insurance proceeds 80.1(8) If insurance proceeds are payable to any person in respect of damage to the vehicle that occurred after the financing statement was registered, the insurer must pay the proceeds as follows: (a) to the repairer for repairing the damage to the vehicle; or (b) to the Minister of Finance, if the vehicle is written off or the proceeds will not be used to pay a repairer for repairing the damage to the vehicle. Insurance proceeds paid to Minister of Finance 80.1(9) The Minister of Finance must hold the insurance proceeds paid under clause (8)(b) in trust while the vehicle remains liable to forfeiture, and (a) if the vehicle is forfeited, must (i) pay the proceeds, in order of priority, to secured creditors whose security interests were registered before the financing statement was registered under subsection (3), and (ii) transfer the balance to the general account of the Consolidated Fund; and (b) if the vehicle is no longer liable to forfeiture, must pay the proceeds (i) to the vehicle's owner, or (ii) into the Court of Queen's Bench, if there is a dispute as to who is entitled to them. Owner may apply for release of vehicle 80.1(10) An owner of the vehicle may apply to a justice for an order releasing the vehicle from its liability to forfeiture. The application must be (b) accompanied by payment of $100 as an application fee. Justice may consider any relevant evidence 80.1(12) The justice hearing the application may consider any evidence or information that he or she considers relevant. Order for release from liability to forfeiture 80.1(13) The justice hearing the application may order the vehicle to be released from liability to forfeiture if he or she is satisfied that the applicant is an owner of the vehicle who, immediately before the vehicle was seized under section 31.2, (a) was not the operator of the vehicle and did not otherwise have care or control of the vehicle; and (b) did not know, and could not reasonably be expected to have known, that the vehicle was carrying unmarked tobacco. Owner's right against alleged offender 80.1(14) The owner making an application under subsection (10) may recover, from the alleged offender, the direct costs incurred by the owner in relation to the application. Vehicle no longer liable to forfeiture 80.1(15) The vehicle ceases to be liable to forfeiture, and the director must register a discharge of the financing statement registered under subsection (3) in respect of the vehicle, if (a) a justice has ordered the vehicle to be released from liability to forfeiture; (b) the charge referred to in clause (2)(a) is stayed; or (c) the alleged offender is acquitted of the charge referred to in clause (2)(a) and (i) the Crown does not appeal the acquittal within the applicable appeal period, (ii) the Crown abandons its appeal of the acquittal, or (iii) the final court of appeal upholds the acquittal or dismisses the Crown's application for leave to appeal. Timing of forfeiture 80.1(16) A vehicle that is liable to forfeiture is forfeited, subject to any security interest that was registered before the financing statement was registered under subsection (3), when the following conditions are satisfied: (a) the charge referred to in clause (2)(a) has resulted in a conviction, and the conviction is final; (b) at least two of the prior convictions referred to in clause (2)(b) are final. Notice of forfeiture 80.1(17) When the vehicle is forfeited, the director must serve a notice of the forfeiture on each of its owners. Content of notice 80.1(18) The notice of forfeiture must direct the owner to relinquish the vehicle at a place specified in the notice and to do so on or before the date specified in the notice, which must not be earlier than seven days after the notice is sent. Owner must relinquish vehicle 80.1(19) The owner must relinquish the vehicle as directed by the notice of forfeiture. 80.1(20) If the owner fails to relinquish the vehicle as directed, (a) a person authorized by the director may (i) without notice or legal process, take possession of the vehicle from any person on behalf of the Crown, and (ii) for this purpose, enter upon any land where the vehicle is located, and do any thing he or she considers necessary to take possession of it; and (b) the cost of the seizure is a debt due to the government by the owner, and may be recovered as a tax debt under this Act. Owner liable for value of vehicle 80.1(21) If the owner fails to relinquish the vehicle as directed and it has not been seized under subsection (20), an amount equal to the average wholesale price of such a vehicle as at the date that the vehicle became liable to forfeiture, as determined by the director in a manner authorized by the minister, is a debt due to the government by the owner, and may be recovered as a tax debt under this Act. Owner liable for reduction in value and appraisal cost 80.1(22) If the value of the vehicle has been reduced as a result of anything done in contravention of subsection (7), an amount equal to the total of (a) the reduction in value; and (b) the director's cost of any appraisal report obtained under subsection (24); is a debt due to the government by the owner, and may be recovered as a tax debt under this Act. 80.1(23) Subsection (22) does not apply to a reduction in value that is attributable to damage in respect of which insurance proceeds are paid in accordance with subsection (8). Determination of reduction in value 80.1(24) For the purpose of subsection (22), the reduction in value of the vehicle as a result of anything done in contravention of subsection (7) is the amount by which (a) the average wholesale price of such a vehicle at the time of the forfeiture, as determined by the director in a manner authorized by the minister; exceeds (b) the appraised value of the vehicle at the time of the forfeiture, as set out in a motor vehicle appraisal report in approved form and certified by (i) a motor vehicle dealer with an RST number and a valid dealer permit issued under section 96 of The Drivers and Vehicles Act, or (ii) an employee of an appraisal firm who is qualified to appraise motor vehicles. Penalties, fines, costs and surcharges may be collected as tax debt 80.2(1) The director may collect a penalty or fine imposed under this Part, as well as any cost or surcharge imposed under any other Act in respect of a conviction for an offence under this Part, as if it were a tax debt. Collection actions 80.2(2) For the purpose of applying Division 5 (tax debt recovery) to the collection of the penalty, fine, cost or surcharge, (a) the amount of the penalty, fine, cost or surcharge is deemed to be a tax debt, but not a tax debt in respect of tax that was collected and not remitted; (b) the person required to pay the penalty, fine, cost or surcharge is deemed to be a tax debtor; (c) clause 68(7)(a) is to be read as follows: (a) has the same effect and priority as a garnishing order has under section 14.5 of The Garnishment Act to enforce the payment of a fine; and (d) section 73 (deemed trust for taxes not remitted) does not apply; (e) section 74 (relief from enforcement) is to be applied as if the references to an appeal from an assessment or reassessment were references to an appeal from the conviction or sentence imposed for the offence in respect of which the penalty, fine, cost or surcharge was imposed. Separate offence for each transaction 81 When an action or transaction that constitutes an offence is repeated, each such action or transaction is a separate offence. Offence — corporation liable for offence by officer or employee 82(1) If an individual commits an offence under this Act while acting within the scope of his or her authority as an officer, employee or agent of a corporation, the corporation is also guilty of an offence, whether or not the individual has been prosecuted or convicted, and is liable, on summary conviction, to the penalty to which a corporation committing the offence committed by the individual would be liable. Offence — director or officer liable for offence by corporation 82(2) If a corporation commits an offence under this Act, a director or officer of the corporation who authorized, permitted or acquiesced in the commission of the offence is also guilty of an offence, whether or not the corporation has been prosecuted or convicted, and is liable, on summary conviction, to the penalty to which an individual committing the offence committed by the corporation would be liable. Six-year limitation period for prosecution 83(1) Subject to subsection (2), a prosecution for an offence under this Part may only be commenced within six years after the commission of the alleged offence. Extended limitation period for certain offences 83(2) A prosecution of an alleged offence under any of the following provisions may be instituted beyond the six-year period, but only if it is instituted within two years after evidence sufficient to justify the prosecution came to the attention of the director: (a) clause 75(1)(d) (false or misleading statement); (b) clause 75(1)(e) (material omission); (c) subclause 76(1)(c)(iii) (providing false or misleading information to tax officer); (d) subsection 76(2) (evasion). For this purpose, a certificate of the director as to when evidence came to his or her attention is proof of that fact unless the contrary is shown. Proof of the director's signature is not required. Affidavit as to compliance by director 84(1) An affidavit by the director as to the facts necessary to establish that he or she has complied with a provision of a tax Act is admissible in any proceeding as proof of those facts unless the contrary is shown. Certificate of analyst 84(2) A certificate appearing to be signed by a person appointed by the director as a fuel analyst — or a copy or extract of such a certificate certified by the analyst to be a true copy or extract — stating that he or she has analyzed a fuel sample, and giving the results, is admissible in evidence in any proceeding as proof of the facts stated unless the contrary is shown. Proof of the analyst's appointment or signature is not required. 85(1) The Lieutenant Governor in Council may make regulations (a) prescribing the changes necessary for section 232 of the Income Tax Act (Canada) to apply as provided for in subsection 1(3); (b) respecting the disclosure of non-financial information by persons employed in the administration of a tax Act; (c) respecting the service of documents under a tax Act; (c.1) respecting tax authorizations, including regulations (i) respecting applications for tax authorizations, (ii) establishing terms, conditions or restrictions applicable to tax authorizations or holders of tax authorizations, or (iii) prescribing information to be included in tax authorizations, any or all of which may be different for different types of tax authorizations; (d) prescribing records to be maintained by taxpayers and holders of tax authorizations, and prescribing how they are to be maintained; (e) respecting the disposition of any of the following: (i) perishable or dangerous things seized by a tax officer, (ii) tobacco seized by a tax officer, (iii) a motor vehicle impounded under section 78; (f) prescribing fees or charges that may be charged to taxpayers, and the circumstances in which they may be charged; (g) prescribing information to be included in (i) a certificate used to register a lien under section 65 against real property, or (ii) a financing statement used to register a lien under section 66 against personal property; (h) respecting any other matter that the Lieutenant Governor in Council considers necessary or advisable for the administration or enforcement of a tax Act. 85(2) A regulation under subsection (1) may be made retroactive to the extent the Lieutenant Governor in Council considers it necessary in order to implement or give effect to (a) a tax or administrative measure included in a budget presented to the Legislative Assembly; or (b) an amendment to this Act. 86 The following definitions apply in this Division. "effective date" means the day on which this Part, as enacted by The Budget Implementation and Tax Statutes Amendment Act, 2005, comes into force. (« date d'entrée en vigueur ») "former Act" means a tax Act as it read immediately before the effective date. (« ancienne loi ») General application to prior periods and events 87 Except as otherwise provided in this Division or the regulations, this Part applies to (a) an inspection, examination or audit of any taxpayer or of any period or matter, including an inspection, examination or audit that began under a former Act; (b) the assessment or reassessment of an amount in respect of any period or matter, including one that occurred before the effective date; and (c) the recovery of any tax debt, including a tax debt that arose before the effective date. Penalty for late payment or remittance 88 A penalty may be imposed under section 39 in respect of a failure to pay or remit tax when it was due even if the failure occurred before the effective date. 89 Interest may be charged under this Part in respect of a period before the effective date. Matters under appeal 90(1) If on the effective date a matter is under appeal under a former Act, the former Act continues to apply to the appeal and to any further appeal allowed by the former Act. Appeal period not expired 90(2) A notice of assessment, reassessment, estimate or revised estimate that was served on a taxpayer under a former Act and is not under appeal on the effective date may be appealed under Division 4 as if it were a notice of assessment or reassessment issued under this Part and served on the taxpayer at the time that the notice under the former Act was served on the taxpayer. Appeal of minister's decision or order under former Act 90(3) The provisions of a former Act respecting the appeal of a decision or order of the minister under that Act continue to apply to any decision or order of the minister made under that Act before the effective date. Priority of lien registered under former Act 91(1) If a lien arising under a former Act was registered (a) in a land titles office before the effective date; or (b) in the Personal Property Registry before March 9, 2005; the provisions of the former Act respecting the priority of that lien continue to apply. Priority of lien registered against personal property after March 8, 2005 91(2) Despite the provisions of the former Acts, section 66 applies in determining the priority of a lien that was registered under a former Act in the Personal Property Registry after March 8, 2005. Realization, postponement, amendment or discharge of prior lien 91(3) Sections 65 and 66 apply to the realization, postponement, amendment or discharge of a lien that arose under a former Act and was registered before the effective date. Lien may be registered under this Part 91(4) A lien may be registered under section 65 or 66 in respect of a tax debt all or any part of which arose or is attributable to a period or matter occurring before the effective date. Continuation of debt recovery action 92 Subject to section 91, if any debt recovery action of a kind referred to in section 61 was commenced or taken under a former Act before the effective date, the former Act continues to apply to that debt recovery action. 93 The provisions of a former Act respecting offences and penalties for offences continue to apply in respect of acts or omissions that occurred before the effective date. Division 6 (Offences and Penalties) of this Part applies only to acts or omissions occurring on or after the effective date. Tax officers 94 Every person who is duly authorized by the minister to carry out an inspection, examination or audit under a former Act is deemed to have been designated by the director as a tax officer on the effective date. 95(1) The Lieutenant Governor in Council may make regulations clarifying, extending or limiting the application, after the effective date, of a provision of this Part or of a former Act to any period or matter occurring before the effective date. Effective date of regulation 95(2) A regulation under subsection (1) may be made retroactive to a date not earlier than the effective date. ADMINISTRATION AND ENFORCEMENT OF BAND TAXES "band" and "reserve" have the same meaning as in the Indian Act (Canada). (« bande » et « réserve ») "band law" means a band council by-law that (a) was made under the authority of the First Nations Goods and Services Tax Act (Canada); and (b) imposes a tax on a purchase of goods or services on a reserve that, in the opinion of the minister, is the same as or substantially similar to a tax imposed under a tax Act. (« texte législatif de bande ») "tax administration agreement" means an agreement between a band council and the government respecting the administration and enforcement of a band law and the collection of tax under that law. (« accord d'administration fiscale ») Minister may enter into tax administration agreement 95.1(2) The minister may enter into a tax administration agreement with a band council if the minister is satisfied that (a) the agreement authorizes the director, as agent for the band, to collect the tax imposed by a band law; and (b) the band law applies the provisions of Divisions 1 to 7 to the administration and enforcement of the band law, with such changes as are necessary or acceptable to the minister. Agreement may provide for commission or fee 95.1(3) A tax administration agreement may provide for a commission, fee or charge to be paid to the government for the tax administration and enforcement services it provides under the agreement. Band tax to be paid into Consolidated Fund 95.1(4) Despite The Financial Administration Act, amounts collected by the director as or on account of a tax imposed by a band law must be paid into the Consolidated Fund. Payments to band 95.1(5) The amounts payable to a band under a tax administration agreement may be paid out of the Consolidated Fund without any legislative authority other than this section. Exemption to prevent double taxation 95.1(6) While a tax administration agreement is in effect in relation to a band law, an amount that would, but for this subsection, be payable or deemed to have been collected as or on account of tax under a tax Act is deemed not to be payable and not to have been collected under that Act to the extent that it is payable or is deemed to have been collected, as the case may be, as or on account of the tax imposed by the band law. 95.1(7) Subject to subsection (8), section 6 applies, with necessary changes, (a) to a person employed in the administration or enforcement of a band law under a tax administration agreement; and (b) to any information obtained under a tax administration agreement or under the band law. Disclosure of information with band council 95.1(8) Information referred to in clause (7)(b) may be disclosed to the band council in accordance with the tax administration agreement entered into with the band council. PART I.1 TAX ON ELECTRICITY AND CERTAIN OTHER PRODUCTS Former Part I (sections 1 to 24) was amended and renumbered as Part I.1 (sections 96 to 110) by S.M. 2005, c. 40, Part 12. See the Table of Concordance at the end of this Act. 96 to 110 [Repealed] S.M. 2005, c. 40, s. 86 to 90, 92 to 95, 97, 99 and 101; S.M. 2006, c. 24, s. 89 to 91; S.M. 2007, c. 6, s. 92 to 94. SCHOOL TAX REDUCTION [Repealed] S.M. 2005, c. 40, s. 102. 111(1) In this Part, (a) a service provider authorized to collect fees under The Real Property Act, or (b) if there is no service provider authorized to collect fees under The Real Property Act, the district registrar of a land titles district and the registrar of a registration district; (« percepteur ») "common-law partner" of a person means another person who, not being married to the person, is cohabiting with him or her in a conjugal relationship and (a) has so cohabited with the person for a continuous period of at least one year, (b) is the parent of a child of the person, or (c) with the other person, registered their common-law relationship under section 13.1 of The Vital Statistics Act, and, for the purpose of clause (a), persons who have been cohabiting with each other in a conjugal relationship are deemed to continue to cohabit in that relationship throughout any period of separation unless it is a period of at least 90 days throughout which they were not cohabiting because of a breakdown of their conjugal relationship; (« conjoint de fait ») "FMV" and "fair market value" mean fair market value, at the time a transfer is tendered for registration, of the land as a whole with respect to which the transfer is tendered for registration; (« JVM » et « juste valeur marchande ») "former common-law partner" of a person means another person who was a common-law partner of the person after this definition came into force and is no longer a common-law partner of the person; (« ex-conjoint de fait ») "fractional interest in land" means a legal interest, an equitable interest or a beneficial interest in land that is a part, share, portion or fraction of a whole legal, equitable or beneficial interest in the land; (« intérêt fractionné dans un bien-fonds ») "land as a whole" means, in relation to a transfer, the entire piece or parcel of land to which the transfer relates, including all buildings or improvements situated on the piece or parcel of land and does not include a fractional interest in land; (« bien-fonds global ») "minister" means the Minister of Finance; (« ministre ») "non-commercial property" means property that (a) is owned by a person, alone or together with his or her spouse or common-law partner and is used by them primarily as their family residence or for their recreational purposes, or (b) is owned by a person, alone or together with his or her former spouse or common-law partner, and was used by them, while they were spouses or common-law partners of each other, primarily as their family residence or for their recreational purposes; (« bien non commercial ») "regulations" means regulations made under this Part; (« règlements ») "tax" means the tax imposed under this Part; (« taxe ») "transaction" includes an arrangement or event; (« opération ») "transfer" includes a direction in a Real Property Application, deed, grant from the Crown or other instrument, whereby any land is granted, assigned, conveyed, or otherwise transferred but does not include a transmission, request, mortgage or caveat. (« transfert ») Farm Lands Ownership definitions 111(2) In this Part, "family farm corporation", "farm land", "farmer" and "farming", have the same meaning as in the Farm Lands Ownership Act. Real Property Act definitions 111(3) Subject to subsections (1) and (2), the definitions in The Real Property Act apply to the interpretation of this Part. S.M. 2005, c. 40, s. 103; S.M. 2011, c. 41, s. 61; S.M. 2013, c. 11, s. 79; S.M. 2013, c. 55, s. 54. Imposition of tax 112(1) Subject to subsections (2) and (3) and sections 112.1 to 114, every person who tenders for registration a transfer shall, at the time of tendering the transfer, pay to the collector a tax calculated to the nearest dollar in accordance with the following formula: Tax = 0.005 × (FMV − $30,000.) + 0.005 × (FMV − $150,000.) + 0.005 × (FMV − $200,000.) Calculation of nil value 112(2) For purposes of subsection (1), where a calculation results in a negative value, the calculation is deemed to result in a nil value. Transfer of fractional interests 112(3) Where a fractional interest in land is transferred, the transferee shall pay tax under this Part in an amount that bears the same proportion to the tax payable upon a transfer of the land as a whole, calculated in accordance with the formula in subsection (1), as the fractional interest in the land bears to a whole interest in the land. Transfer registered in more than one office 112(4) Where a single transfer is registered in more than one land titles office or more than one registry office or in a land titles office and a registry office, the tax is payable once only in respect of the transfer, and is payable upon the first registration thereof. Refund on rejection 112(5) Where documents tendered for registration are rejected or withdrawn, the collector shall refund the tax paid under subsection (1). S.M. 2005, c. 40, s. 104; S.M. 2013, c. 55, s. 55. Refund on rescission 112.1(1) If a court of competent jurisdiction issues an order rescinding an agreement under which a transfer has been registered and requiring the transfer of the land back to the transferor (a) the tax paid in respect of the initial transfer is refundable by the minister; and (b) no tax is payable in respect of the transfer of the land back to the transferor. Refund on Registrar-General's order 112.1(2) If the Registrar-General issues an order under section 169.2 of The Real Property Act that cancels a transfer, the tax paid in respect of the transfer is refundable by the minister. Conditions of agreement not met 112.1(3) If the parties to an agreement under which a transfer has been registered declare in writing that the land must be transferred back to the transferor because the conditions of the agreement cannot be met, the minister may (a) refund the tax paid in respect of the initial transfer; and (b) waive the tax payable in respect of the transfer of the land back to the transferor. Refund of land transfer tax if RST also paid 112.2 A purchaser of land who pays a tax under The Retail Sales Tax Act on a building or improvement situated on the land is entitled to a refund of the amount, if any, by which (a) the tax paid under this Part on the transfer of the land to the purchaser; (b) the tax that would have been payable under this Part on the transfer if, for the purpose of the formula in subsection 112(1), FMV were the amount by which the fair market value of the land as a whole exceeds the fair value of the building or improvement on which tax under The Retail Sales Tax Act was paid. Application for refund or waiver 112.3(1) To claim a refund or a waiver under this Part, a person must file an application with the minister in a form approved by the minister. 112.3(2) The minister must notify the applicant by mail of the minister's decision respecting the application and must include, if applicable, a notice of assessment. 112.3(3) An applicant who disagrees with the decision of the minister may, within 30 days of the date the decision is made or such further period as the court may allow, appeal the decision to the Court of Queen's Bench. Farm land exemption 113(1) No tax is payable under this Part on a transfer of farm land where (a) the farm land will continue to be used for farming; and (b) the transferee is (i) a farmer, (ii) a spouse or common-law partner of a farmer, (iii) a farmer and his or her spouse or common-law partner, (iv) a family farm corporation, or (v) a congregation within the meaning of section 143 of the Income Tax Act (Canada). Other exemptions 113(2) No tax is payable under this Part in respect of a transfer where (a) the transferor is the Director under the Veterans' Land Act (Canada), and the transferee is a veteran or the spouse or common-law partner of a veteran; (a.1) the transferor is a registered charity as defined in subsection 248(1) of the Income Tax Act (Canada) and the transferee is a non-profit corporation that, at the time that the transfer is submitted for registration, is controlled by the transferor; (b) the transferee is a registered charity as defined in subsection 248(1) of the Income Tax Act (Canada); or (c) in the distribution of the property of a corporation upon dissolution or winding up, the transferee is a corporation which immediately prior to the dissolution or winding up of another corporation held all of the issued shares of that other corporation. Transfer for benefit of Indian band 113(3) No tax is payable under this Part in respect of a transfer of land where (a) the transferee acquires the land, for the use and benefit of a band (as defined in the Indian Act (Canada)), pursuant to or as contemplated by an agreement made between the band and the Government of Canada in settlement of a treaty land entitlement of the band; and (b) an agreement made between the Government of Manitoba and the Government of Canada to enable the Government of Canada to fulfill its treaty obligations to the band provides that no tax shall be payable under this Part in respect of an acquisition described in clause (a). 113(4) A transferee who claims an exemption under this section shall verify the claim by filing with the collector an affidavit in a form satisfactory to the collector. S.M. 2005, c. 40, s. 105; S.M. 2010, c. 29, s. 65; S.M. 2012, c. 1, s. 87. 114(1) No tax is payable under this Part in respect of the registration of (a) a transfer where the transferor and the transferee are the same person and the sole purpose of the transfer is (i) to give effect to a change of name, or (ii) to change the form of tenure from tenancy in common to joint tenancy or to fractional interests or from joint tenancy to tenancy in common or to fractional interests; (b) a petroleum or gas lease under the old system or an assignment thereof; (b.1) an instrument that creates, but does not assign or transfer, a statutory easement under section 111.1 or 111.2 of The Real Property Act; (c) a transfer for the purpose of facilitating a scheme of subdivision where the transfer is from the registered owners to a trustee, or from a trustee back to the registered owners, and the owners' proportion of beneficial ownership in the land is unchanged after each transfer; (d) a transfer made to correct an error in a previous transfer where the collector is satisfied that the full tax payable under section 112 was paid on the previous transfer; or (e) a transfer of non-commercial property by a person or the executor or administrator of a person's estate to the person's spouse or common-law partner or former spouse or common-law partner. Evidence of eligibility for exemption 114(2) A transferee who claims an exemption under clause (1)(e) shall verify the claim by filing with the collector a statutory declaration in a form satisfactory to the collector. Affidavit of value 115(1) There shall be filed with each transfer tendered for registration an affidavit setting out the fair market value of the land as a whole with respect to which the transfer is tendered for registration. By whom affidavit made 115(2) The affidavit of value required under subsection (1) may be made by the transferor, the transferee, a person acting for either of them under a power of attorney, an agent accredited in writing by the transferor or the transferee, a solicitor for either the transferor or the transferee, or some other person approved by the minister. Certificate of value 115(3) If a district registrar is not satisfied that the fair market value set out in an affidavit under this section is correct, the district registrar may require the person tendering the transfer to produce an appraisal or any other evidence. S.M. 2005, c. 40, s. 107; S.M. 2011, c. 35, s. 49; S.M. 2013, c. 11, s. 79. Protest of payment of tax 116(1) Where the right of the collector to require payment of tax is disputed by a person tendering a transfer for registration, the person shall pay the tax as provided in this Part, and shall file, without fee, with the collector at the time of payment, a notice of protest. Protest referred to minister 116(2) Where a person tendering a transfer for registration files a protest under subsection (1), the collector shall forthwith send the notice to the minister. 116(3) The notice of protest shall contain the reasons for the protest and shall state all relevant facts, including an estimate of the fair market value of the land as a whole with respect to which the transfer is tendered for registration where the person protesting considers that estimate to be relevant to the objection. Minister's determination 116(4) On receipt of the notice of protest and all relevant information, the minister shall determine the amount of tax owing. 116(5) The minister shall notify by mail the person who made the protest of the minister's decision and shall include, if applicable, a notice of assessment. 116(6) Where the person who paid the tax disagrees with the decision of the minister under subsection (4), that person may, within 30 days of the date the decision is made or such further period as the court may allow, appeal the decision to the Court of Queen's Bench. 117(1) The minister may, on information available to him or her, (a) determine the fair market value of the land as a whole with respect to which a transfer is tendered for registration and the correct amount of tax payable; (b) determine whether tax is payable in respect of a transaction and, if so, the correct amount of tax payable; and (c) if he or she is satisfied that section 119.1 (general anti-avoidance rule) applies to a transaction or series of transactions, determine the correct amount of tax payable in respect of the transaction or series of transactions in accordance with that section. Notice to transferee 117(2) Where the minister determines that the correct amount of tax has not been paid, the minister shall make an assessment and mail a notice of assessment to the transferee. Contents of notice 117(3) The notice of assessment shall contain the determination made by the minister under subsection (1), the total amount of tax payable, the amount of tax paid, the balance owing or overpaid and the date of the notice of assessment. 117(4) The transferee shall pay to the minister the amount of tax owing as set out in the notice of assessment within 30 days after the date shown on the notice of assessment whether or not an objection to the assessment is made. 117(5) Except as provided in this Part, the minister shall issue the notice of assessment within two years after the later of (a) the date that the transfer was registered in the land titles office, or (b) the tax became payable. Formal errors 117(6) An assessment, subject to being varied or vacated on objection or by reassessment, is valid and binding, notwithstanding any error, defect, omission or error in procedure. Interest on tax owing 117(7) The tax owing under a notice of assessment bears interest, beginning the 30th day after the assessment date shown on the notice, as prescribed under The Financial Administration Act. The interest is payable to the minister for the use of the Crown. Notice of objection 118(1) A person who objects to an assessment made under section 117 shall mail a notice of objection to the minister within 90 days after the date shown on the notice of assessment. 118(2) The notice of objection shall contain the reasons for the objection and shall state all relevant facts, including an estimate of the fair market value of the land as a whole with respect to which the transfer is tendered for registration where the person objecting considers that estimate to be relevant to the objection. 118(3) On receipt of the notice of objection and all relevant information, the minister shall determine the amount of tax owing. 118(4) The minister shall notify by mail the person who made the objection of the minister's decision and shall include, if applicable, a notice of assessment. 118(5) The time within which a notice of objection is to be mailed may be extended by the minister if application for extension is made in respect of a notice of objection under subsection (1) before the expiry of the time allowed under subsection (1) for mailing of the notice of objection, and the application contains the reason for the extension and specifies the period of time applied for. S.M. 2005, c. 40, s. 107; S.M. 2007, c. 6, s. 95. Failure to pay tax 119(1) A person who fails to pay the tax imposed by this Part commits an offence. False affidavits, etc 119(2) A person commits an offence who (a) has made a false or deceptive statement in an affidavit required to be made under this Part; (b) in order to evade payment of tax, has destroyed, altered, mutilated, secreted or otherwise disposed of a record of a transferor or transferee; (c) has, in a record of a transferor or transferee, made a false or deceptive entry or omitted or assented to or acquiesced in the omission to enter a material particular; or (d) [repealed] S.M. 1990-91, c. 12, s. 17; (e) has wilfully, in any manner, evaded or attempted to evade compliance with this Act or the regulations or remittance or payment of taxes required by this Act or the regulations. Persons acquiescing 119(3) A person who participates in, assents to or acquiesces in any of the acts referred to in subsection (2) commits an offence. 119(4) Where a corporation commits an offence under this section, every director, officer, employee or agent of the corporation who authorized, permitted or acquiesced in the offence commits an offence. Fine on corporation 119(5) A corporation convicted of an offence under subsection (1), (2) or (3) is liable to a fine equal to (a) the amount of tax not paid or remitted, with interest, plus (b) an amount not less than $5,000. and not more than $50,000. Fine on individual 119(6) An individual convicted of an offence under subsection (1), (2), (3) or (4) is liable to (a) a fine equal to (i) the amount of tax not paid or remitted, with interest, plus (ii) an amount not less than $1,000. and not more than $25,000.; (b) imprisonment for not more than two years; or (c) both fine and imprisonment. Minister's certificate 119(7) In a prosecution under this section, the certificate signed by the minister or the authorized person stating the amount of tax and interest is evidence of the amount of tax and interest referred to in subsection (5) or (6). No action 119(8) No action taken under this section shall suspend or affect any remedy for the recovery of any tax or amount payable under this Act. 119.1(1) The following definitions apply in this section. (b) that is part of a series of transactions that, but for this section, would result, directly or indirectly, in a tax benefit; (d) not to result directly or indirectly in a misuse of the provisions of this Part or an abuse having regard to the provisions of this Part read as a whole. (« opération d'évitement ») "tax benefit" means a reduction, avoidance or deferral of tax or an increase in a refund of tax. (« avantage fiscal ») 119.1(2) The minister may, by assessment under section 117, determine or redetermine the tax consequences of an avoidance transaction, or of a series of transactions that includes an avoidance transaction, as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction. 119.1(3) Within 180 days after an assessment in respect of a transaction or series of transactions is mailed to a person, any other person involved in the same transaction or series may, by written notice to the minister, request the minister to adjust, under subsection (2), tax consequences to the person of that transaction or series. Minister's response 119.1(4) On receipt of the request, the minister must consider the request and determine the tax consequences under subsection (2) to the person who made the request. 119.1(5) Without limiting the generality of subsection (2), in determining or redetermining the tax consequences to a person of a transaction or series of transactions under that subsection, the minister may do one or more of the following: (a) determine or redetermine the fair market value of land as a whole; (b) allow or disallow an exemption in relation to a transfer; (c) recharacterize the nature of a transaction or series of transactions; (d) ignore the tax effects that would otherwise result under this Part. 119.2(1) The minister may, upon written application, make an advance ruling regarding the application of section 119.1 in respect of a proposed transaction or series of transactions. 119.2(2) A person who applies for an advance ruling regarding the application of section 119.1 must pay the following fees to the Minister of Finance: (a) at the time of applying for the ruling, a minimum non-refundable fee of $300; (b) upon receiving the ruling or withdrawing the application for it, an additional fee of $60 per hour for time in excess of five hours spent in considering the application and, where applicable, preparing the ruling. Application of Part I 120 The provisions of Part I (Tax Administration) apply with necessary modifications to the collection of tax, penalties and interest payable under this Part. 120.1(1) Money and other property of a collector, and property held by a secured creditor, that but for a security interest would be property of the collector, equal in value to the tax collected is deemed, from the time the tax is collected until it is remitted, 120.1(2) Money held in trust under subsection (1), and the proceeds of any other property held in trust under that subsection, must be paid to the minister in priority to all security interests, including one that arose before this subsection came into force or before the money or other property became subject to the trust. 121 Notwithstanding any other provision of this Part, the minister may, where there has been fraud or misrepresentation, assess tax payable and prosecute for an offence at any time within two years of becoming aware of the fraud or misrepresentation. ENVIRONMENTAL PROTECTION TAX 122 In this Part, "beer" means beer as defined in The Liquor, Gaming and Cannabis Control Act; (« bière ») "collector" means a person appointed as a collector under subsection 124(1), but does not include a deputy collector; (« collecteur ») "dealer" means any person who in the province sells liquor or offers or keeps liquor for sale by retail; (« marchand ») "deposit" means an amount of money that is paid to a dealer by a purchaser as security for the return of the container in which the liquor is sold and that is refundable to the purchaser upon surrender of the container to the dealer or an authorized agent; (« dépôt ») "deputy collector" means a person duly appointed by a collector under subsection 124(2), or deemed to have been appointed by a collector under subsection 124(3); (« collecteur adjoint ») "liquor" means liquor as defined in The Liquor, Gaming and Cannabis Control Act; (« boisson alcoolisée ») "tax" means the tax imposed under section 123. (« taxe ») S.M. 2005, c. 40, s. 111; S.M. 2013, c. 51, Sch. B, s. 203; S.M. 2018, c. 9, s. 55. 123(1) Every purchaser of liquor in its original bottle, original can or other original container shall, where no deposit is payable at the time of purchase in respect of such container, pay to Her Majesty in right of Manitoba for the public use of the government a tax, in recognition of the cost of protecting the environment against damage or deterioration caused by the disposal of bottles, cans and other containers in which liquor is sold, (a) with respect to (i) liquor sold in cans, at the rate of 10¢ for each can, and (ii) with respect to liquor, other than beer, sold in containers, other than cans, with a content capacity of less than 750 millilitres, at the rate of 5¢ for each container; (b) with respect to (i) beer sold in containers, other than cans, and (ii) liquor, other than beer, sold in containers, other than cans, with a content capacity of 750 millilitres or more, at the rate of 10¢ for each container. 123(2) Subsection (1) does not apply to a person who acquires liquor in its original closed bottle, original closed can or other original closed container for resale in that container whether that container is open or closed at the time of resale. 124(1) The minister may appoint any person to be a collector of the tax payable under this Part and may enter into agreements with collectors with respect to the collection of the tax. Deputy collectors 124(2) A collector may, with the approval of the minister, appoint deputy collectors and shall forthwith notify the minister in writing of the name and address of any person so appointed. Dealers deemed to be deputy collectors 124(3) Except where the dealer is a collector appointed under subsection (1), every dealer to whom liquor is sold or delivered by a collector is deemed to have been appointed a deputy collector by the collector who makes the sale or delivery, and shall carry out and perform the duties imposed on a deputy collector under this Part. Duty of collectors 124(4) Every collector shall collect the tax, or cause it to be collected, from each purchaser who purchases liquor in respect of which the tax is payable from the collector or from a dealer who is a deputy collector appointed or deemed to have been appointed by the collector. Duty of deputy collectors 124(5) Every dealer who is also a deputy collector, from whom liquor is purchased in respect of which the tax is payable, shall collect the tax from the purchaser thereof. Remission of proceeds 124(6) A deputy collector who collects the tax from a purchaser as provided in subsection (5) shall, in the manner and at the times agreed by the collector and the deputy collector, remit to that collector the moneys collected as proceeds of the tax. Remission of tax by collectors 124(7) Every collector shall remit to the minister all moneys received by the collector under this section from purchasers or through deputy collectors as proceeds of the tax, and the remittance shall be accompanied by a return of information required by the minister. Agents of Crown 124(8) Every collector and every deputy collector is an agent of Her Majesty for the purposes of the collection of the tax and the remission of the moneys collected as proceeds of the tax. Revenue officers 124(9) Every collector and every deputy collector is, for the purposes of collecting and remitting the tax but not otherwise, a revenue officer within the meaning of The Financial Administration Act, and is subject to the duties and liabilities of a revenue officer under that Act. 125 The Lieutenant Governor in Council may make regulations respecting any matter considered necessary or advisable by the Lieutenant Governor in Council to carry out effectively the intent and purpose of this Part. C.C.S.M. REFERENCE 126 This Act shall no longer be referred to as chapter R150 of the Continuing Consolidation of the Statutes of Manitoba but may be referred to as chapter T2 of the Continuing Consolidation of the Statutes of Manitoba. TABLE OF CONCORDANCE Provisions repealed or renumbered by S.M. 2005, c. 40, Part 12. An asterisk (*) indicates that the provision was also amended. Former Section New Section R.S.M. 1987 Supp., c. 32, Pt. III, s. 1; S.M. 1988-89, c. 11, s. 23; S.M. 1988-89, c. 19, s. 54; S.M. 1993, c. 46, s. 83; S.M. 1998, c. 30, s. 64; S.M. 2000, c. 39, s. 94. R.S.M. 1987 Supp., c. 32, Pt. III, s. 2 and 3; S.M. 1994, c. 23, s. 36 and 37; S.M. 2000, c. 39, s. 95; S.M. 2002, c. 19, s. 63. 97-99 * 3.1(1)-(2) 100(1)-(2) 100(3) * S.M. 1994, c. 23, s. 38; S.M. 2004, c. 43, s. 103. 100(4)-(6) * S.M. 2003, c. 4, s. 103. S.M. 1992, c. 52, s. 71; S.M. 2003, c. 4, s. 104. 6(1)-(2) 6(8)-(13) S.M. 1995, c. 30, s. 27; S.M. 2000, c. 39, s. 96; S.M. 2002, c. 19, s. 64; S.M. 2003, c. 4, s. 105; S.M. 2004, c. 43, s. 104. 12 to 22.1 R.S.M. 1987 Corr.; R.S.M. 1987 Supp., c. 28, s. 11; S.M. 1992, c. 52, s. 72; S.M. 1993, c. 46, s. 84; S.M. 1998, c. 30, s. 65 to 68; S.M. 2002, c. 19, s. 65 and 66; S.M. 2003, c. 4, s. 107 and 108; S.M. 2004, c. 43, s. 106 and 107. S.M. 1992, c. 52, s. 73; S.M. 1995, c. 30, s. 29; S.M. 2003, c. 4, s. 109; S.M. 2004, c. 43, s. 109. 109-110 * Part II (sections 25-32) S.M. 2003, c. 4, s. 110 and 111; S.M. 2004, c. 43, s. 110. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4; S.M. 1989-90, c. 15, s. 68; S.M. 1993, c. 48, s. 98; S.M. 1996, c. 64, s. 15; S.M. 2002, c. 19, s. 67; S.M. 2004, c. 42, s. 81. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4; S.M. 1989-90, c. 15, s. 69; S.M. 2004, c. 43, s. 111. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4; S.M. 1988-89, c. 19, s. 55 and 56; S.M. 1995, c. 30, s. 30 and 31; S.M. 2002, c. 19, s. 68. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4; S.M. 2002, c. 19, s. 69. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4; S.M. 1989-90, c. 15, s. 70 to 73; S.M. 2002, c. 19, s. 70. S.M. 1988-89, c. 19, s. 57. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4; S.M. 1990-91, c. 12, s. 17. R.S.M. 1987 Supp., c. 32, Pt. III, s. 4. S.M. 1989-90, c. 15, s. 74; S.M. 1991-92, c. 31, s. 33; S.M. 2003, c. 4, s. 112; S.M. 2004, c. 43, s. 112.

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professional_accounting

What Is Level Of Activity In Accounting? Which Of The Following Are Examples Of Batch What Is An Activity Cost Pool? What Is An Example Of A Step Cost? Activity Based Costing Importance Of Batch Level Costing As you can see in the far right column, all costs can be allocated to products for internal reporting purposes. Table 3.1 “Examples of Costs Allocated to Products” provides examples of costs that could be allocated to products. (also called business sustaining activity) is an activity that supports business operations in general and cannot be traced to individual units, batches, or products. Unit-level activities happen each time a product is made. The activities that cause costs to be incurred are also called cost drivers. An entity, such as a particular product, service, or department, to which a cost is assigned is called a cost object. If the annual cost of conditional setups is $1 million, product AA is assigned $10,000, as are all other products. Difficult to evaluate cost on the basis of activities. Sufficient information can be obtained to make decisions about the profitability of different product lines. Both products were designed by an internal development team. The first product is GLASSESong, a pair of sunglasses with a built-in music player. The other is CAPlayer, a golf cap with a built-in music player having a very short unobtrusive cord from the cap to the speakers. Suggest another approach to dividing up the cost of rent. Credit for developing the cost hierarchy is generally given to R. Product cost determination under activity-based costing is more accurate and reliable because it focuses on the cause and effect linkage of costs and activities in the context of producing goods. As a result, practitioners may be familiar with different variations of ABC. The cost of finished goods inspections falls in this category. Is any activity that has a direct relationship with the resources consumed. To accomplish that, the company will choose resource consumption cost drivers. In this case, the unit cost for a hollow center ball is $0.52 and the unit cost for a solid center ball is $0.44. Product AA remains the high-volume product, representing 70% of the total factory output. Because it is the highest volume product, it is likely to incur most of the conditional setups because it will be produced more often. Product activities include all the activities to ensure that production—manufacturing or service—has the capability to produce the product. These activities include maintenance of routings, recipes, test programs and software, as well as product-specific training. These activities do not vary with the number of units or the number of batches. To further illustrate this distortion, consider the data in Exhibit 1. There is one production line, and it must be “set up” for each production batch. Automated machinery is leased from Rebel Robotics, which bases its rental charges on a “units processed” basis. Following is an analysis of GAME’s cost of production by product. The GLASSESong units are sold over the internet, and individual purchasers average one call per unit sold. For example, a public company in the USA must incur substantial costs to comply with Sarbanes-Oxley legislation. The preceding “levels” provide a frame of reference that is helpful in considering the important activities unique to an organization. As a general rule, a company would develop a list of every conceivable activity, segregate the activities according to level, and look for logical ways to combine similar activities within each level. Are carried out at the product level, no matter the volume of production. Direct labor hours worked in all departments are expected to total 40,000 . ABC systems commonly use a cost hierarchy having y y y g four levels. These cost drivers differ in their relationship between the indirect cost and the product or service. Output unit-level costs are the costs of activities performed on each individual unit of a product or service. Make the journal entry to record overhead applied to the commercial product for the month of September. Using the plantwide approach, calculate the profit for each product. For each loan product, calculate the total cost per loan approved for the month of July. Make the journal entry to record overhead applied to the desk product for the month of March. In most cases, a batch requires a setup to prepare the material for processing. Common setup activities include data recording, quality control and material handling. This cost measurement should not interfere with providing the most relevant cost measurement for customer and product profitability . As a result, practitioners may be familiar with different variations of ABC. Batch activities occur every time a batch—lot size of one or greater—enters and exits a work station. Operational control setup takes place based on quality-control requirements. For example, in check processing, 300 checks are grouped into a batch with a control document containing the value of the lot. This is used for reconciliation throughout the process. Thus, proper batch level costing is the key for a company to effectively fight competition, increase its sales, market share, and, most importantly, its profitability. An example is a change in the cost of warehousing or a change in the level of production. Arguably, product diversification has been a major contributing factor to the management accountant’s pursuit of alternative costing methods like ABC. Facility-level activities are required to sustain facility operations and include items such as building rent and management of the factory. These costs are generally changed over long time horizons and are incurred regardless of how many product-, batch-, or unit-level activities take place. Are required to produce individual units of product and include items such as energy to run machines, direct labor, and direct materials. Provide one example of an appropriate allocation base for each item. Novak Corporation manufactures custom-made kayaks and accessories. Gretel Bakken forgot to journalize and post the adjusting entry for prepaid insurance at the end of the June fiscal period. Activity-based costing is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. This model assigns more indirect costs into direct costs compared to conventional costing. Is an activity that relates to specific customers, not specific products. Examples of customer-level activities include IT support, sales calls, sales visits, and catalog mailings. By determining the actual activities that occur in various departments it is then possible to more accurately relate these costs to customers, products and services. Activities consume overhead resources and are considered cost objects. For each product, calculate the overhead cost per unit for the month of January. Costs for activities that result from delivering defective products to customers. Costs incurred as a result of detecting defective products before they are delivered to customers. Costs for activities that detect defective products before they are delivered to customers. Now, we can allocate the machine set up cost to each of the batches correctly. Unit activities occur every time a unit is processed. Examples include grinding, finishing, assembly and painting. Field-based research techniques were employed to gain a deeper understanding of manufacturing processes and to identify events that may impact setup activities. Further evidence of the effects of deviations from an optimal schedule is presented by comparing the standard setup times allowed for the actual number of setups under two different conditions. Alternatively, batch level activity examples production cycles 7-12 were gathered during a period when controls were implemented to minimize production time lost to setups. Production schedules were based on characteristics of the tube mill relative to the engineering specifications of the products to be manufactured. Production was scheduled to minimize downtime and increase overall throughput. Label each entry in the T-accounts by transaction number, and total each T-account. Completed goods costing $155,000 were transferred out of work-in-process inventory. Activity-based costing attempts to overcome the perceived deficiencies in traditional costing methods by more closely aligning activities with products. This requires abandoning the traditional division between product and period costs, instead seeking to find a more direct linkage between activities, costs, and products. This means that products will be charged with the costs of manufacturing and nonmanufacturing activities. Extended production cycles often result in delayed shipments. Thus, maintaining the integrity of the production schedule is extremely important. Figure VI illustrates the asymmetrical pattern of a theoretically optimal tube mill setup schedule. The schedule is designed to permit changes of all three sections, followed by changes of only two sections, followed by changes of only one section. As illustrated in Figure VI, the schedule is optimized when only two three-section setups are performed within a production cycle. Using the plantwide allocation method, calculate the predetermined overhead rate and determine the overhead cost per unit allocated to the regular and flat panel products. Table 3.1 "Examples of Costs Allocated to Products" provides examples of costs that could be allocated to products. It also includes cost categories—product, selling, and general and administrative (G&A)—and indicates whether the cost allocation complies with U.S. Unit-level activities are those that support making each individual unit, while batch-level include a group of units. For example, a company must pay property taxes, utilities, and insurance, irrespective of what it does to produce goods for sale or provide services to customers. It is important to fully consider many variables, some of which are not always apparent. Three activities were identified, and rates were calculated for each activity. It helps to correctly identify small costs that should be part of the final pricing of a product. Otherwise, there is a risk of ignorance of these costs. In other words, it helps to get the pricing right of the product. Also, it may help to correct the pricing of over-priced products in its portfolio. What Are The Four Hierarchical Levels Of Activity? Batch processing occurs when one or more units enters a work activity, is changed by the work activity and exits the work activity. For example, a furnace may heat 50 units at a time or a process for handling paper currency may use 100-unit batches. Product cost determination under activity-based costing is more accurate and reliable because it focuses on the cause and effect linkage of costs and activities in the context of producing goods. Low cost per unit is allocated to a product which is using a high level of resources. Direct labor costs are expected to total $800,000 . The Design department expects to incur direct labor costs of $500,000, and the Wetlands Maintenance department expects to work 30,000 direct labor hours . Calculating Department Predetermined Overhead Rates. Manufacturing overhead https://personal-accounting.org/ costs totaling $1,000,000 are expected for this coming year—$400,000 in the Assembly department and $600,000 in the Finishing department. The Assembly department expects to use 4,000 machine hours, and the Finishing department expects to use 30,000 direct labor hours. For cost accounting purposes, it may be considered necessary to assign the batch cost to individual units within a batch. Machine setup is an often-used example of a batch-level activity. The way in which companies will structure the schedule by which machines are set up is an example of how batch-level activity accounting can influence the practices of a manufacturer. This type of practice is likely to have been developed out of an awareness of the specific costs related to producing a batch of each product. Some production runs require a complete breakdown and setup of all three stations because of characteristics, such as tube diameter, that radically differ from the tubing currently under production. Alternatively, some setups require changing only the last section or sections of the tube mill to accommodate square or rectangular specifications made from an identical tube from the finishing section. For example, changeovers from a 2 x 3 rectangle to a 2 1/2 x 2 1/2 square would require changing only the third, or final shaping section. The same round tube produced by the finishing section is used for both products. Alternatively, changeovers from a 2 x 3 rectangle to a 4 x 6 rectangle would require changing over all sections because of the large size differential. Vorheriger BeitragZurück Форекс Брокер 770 Capital , Какие Отзывы? Nächster BeitragWeiter How To Make A Bitcoin Paper Wallet To Store Btc Offline

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professional_accounting

Investment Capabilities Be Nimble with Liquid ETFs Invest Thematically in New Economy ETFs Uncover Opportunities in Mid Caps Simplify Investing with Fixed Income ETFs Invest with Sector ETFs Build a Strong Low-Cost Core Portfolio Invest in Gold ETFs ETF Model Portfolios The Big What If 2020 ETF Market Outlook Bond Compass SPDR Blog Comparing ETFs, Mutual Funds and Stocks How ETFs Are Created and Redeemed How to Use ETFs in a Portfolio Addressing Cognitive Decline Multigenerational Wealth Management 529 Plans: Saving for Education Tools & Announcements Centralized Systematic Valuation Aggregated Cash Flow (ACF) Files Fund Comparison Tool Resources for Authorized Participants Stay Invested, but Limit Downside Risk Actively Balance Risk in the Hunt for Yield Position to Temper the Impact of Macro Volatility With stocks and bonds expensive, as well as susceptible to macro-induced volatility shocks, focus on strategies with low correlations to traditional markets. Stocks get all the press. Daily financial news programs cover the bull market reaching new all-time highs, and an avalanche of articles follows, proclaiming that either there is more room to run or that it’s a sign of a market top. The 24/7 news cycle churns out the story and presidential tweets keep the hoopla going. By mid-November, the S&P 500 Index, NASDAQ Composite Index, and Dow Jones Industrial Average Index had each just hit all-time highs,1 and the MSCI ACWI IMI Index was only 2% below its own all-time high.2 Lost in all the commotion is that as stocks have hit multiple all-time highs in 2019, so have bonds. In fact, bonds have broken more records than stocks in 2019. The Bloomberg Barclays US Aggregate Bond Index (Agg) has already registered 51 all-time highs this year, after just five new highs over the past two years. With broad-based stocks and bonds at all-time highs — and an ever-evolving macro backdrop also experiencing all-time high policy uncertainty3 — having an alternative solution with low correlations to traditional markets as part of the asset allocation mix may be beneficial in 2020. Icarus Level Valuations Lead to a Smaller Safety Net Valuations are now becoming a concern due to all of these recent all-time highs. Certain analysis will point to the Fed model, a system introduced in the early 1990s that compares the stock earnings yield to the yield on bonds. If the stocks’ yield is above that of bonds, stocks are attractive, and vice versa. Today, the Fed model reveals that stocks are attractive, given that the earnings yield is 4.87% for US equities, versus a yield-to-worst of 2.4% for the Agg.4 A global view reveals the same conclusion — there is a 3.6 percentage point difference between global stocks and the global Agg.5 Of course, by comparing two equally expensive segments relative to their own history, the Fed model obscures the larger point: stocks and bonds are both rich today versus their own history. And that matters more for portfolio construction. As shown below, the percentile ranking for a five-factor ensemble valuation metric6 for both US and global stocks plotted against the percentile ranking for the yields on bonds (for bonds, a high ranking equals low yields) shows that both have elevated valuations. please insert chart here Source: Bloomberg Finance L.P., Calculations by SPDR Americas Research as of 11/8/2019. Past performance is not a guarantee of future results. High valuations indicate that there is less room to maneuver if volatility strikes, as fundamentals are unable to act as a backstop, or safety net. They create an inability to fully offset duration-induced price declines or to reduce the risk of investors no longer willing to pay high multiples for declining earnings growth. Navigating Macro Risk Surprises The larger risk to valuations is the confluence of risks that are difficult to model or prepare for. Geopolitical events have ignited macro risk surprises, upending sentiment and briefly knocking the market off its course. In fact, the Citi Macro Risk Index has oscillated between near five-year highs and lows over the past 18 months.7 The future is unlikely to be any less unpredictable, with another UK election, a new European Central Bank (ECB) president advocating more fiscal change rather than monetary change, a contentious US election during an impeachment inquiry, renewed unrest in the Middle East, and populist angst sweeping across the world. “Form ever follows function” is a popular phrase coined by architect Louis Sullivan, but it applies to the construction of portfolios as well as skyscrapers. With bonds expensive and stocks susceptible to volatility shocks, investors may need to consider low-correlating strategies to traditional markets. Yet, it is important to note that the “form” of these nontraditional strategies does not need to be complex to achieve the “function” of enhanced portfolio efficiency, asymmetric return capture and risk reduction. Source: Bloomberg Finance L.P., Calculations by SPDR Americas Research. Data from January 1, 1999 – October 31, 2019. Gold = gold spot price. Commodities = S&P GSCI Total Return Index, REITs = FTSE NAREIT All Equity REITS Total Return Index, Hedge Funds = HFRI FOF Diversified Index, Private Equity = LPX50 Listed Private Equity Total Return Index. Correlations based on monthly returns against a 60/40% allocation of the MSCI All-Country World Index Total Return Net Index and the Bloomberg Barclays Global Aggregate Bond Index, rebalanced monthly. Past performance is not a guarantee of future results. Gold is a simple, transparent and relatively liquid option among the opportunity set of alternative assets. This is particularly true given the shifting correlations for many proposed diversifying assets and liquid alternatives. Since the 2008 financial crisis, gold has provided a source of low correlation to a balanced stock and bond portfolio, and it has seen a decrease from its correlation compared with before and during the crisis.8 This has not been the case for other alternatives, such as commodities and REITs, which have seen a dramatic extension in their correlations since 2008.9 The historical low-correlation structure of gold to stocks and bonds10 has manifested itself in positive average returns during bouts of volatility for each market. During trading weeks when the CBOE VIX Index experienced a two standard deviation move from its mean, gold’s average weekly return was +0.14%, versus the S&P 500 return of -1.24%, on average. And as shown below, gold has averaged a weekly return of 0.54%, on average, when rate volatility, as measured by the MOVE Index, has spiked alongside a decline in equities. Source: Bloomberg Finance L.P., Calculations by SPDR Americas Research Data from 1/1/1990 - 11/08/2019. Past performance is not a guarantee of future results Implementation Ideas In 2020, gold may provide a robust and multi-faceted source of diversification, as evidenced by its historical correlation structure and performance during prior tumultuous risk-on events. Investors seeking to mitigate the impact of idiosyncratic macro shocks on portfolios amid elevated valuations for traditional assets may consider the SPDR® Gold Family: SPDR® Gold Shares seeks to reflect the performance of the price of gold bullion, less the Trust's expenses. GLD allows investors to place a higher emphasis on liquidity and trading costs. View Fund Details GLDM SPDR® Gold MiniSharesSM seeks to reflect the performance of the price of gold bullion less the Trust's expenses. GLDM enables investors to place a higher emphasis on share price and management fees. 1 Bloomberg Finance L.P. as of 11/13/2019 3 Source: Bloomberg Finance L.P. based on data from Boom, Baker, Davis As of September 30, 2019. 4 Bloomberg Finance L.P. as of 11/13/2019 based on the S&P 500 Index and Bloomberg Barclays US Aggregate Bond Index 5 Bloomberg Finance L.P. as of 11/13/2019 based on the MSCI World Index and Bloomberg Barclays Global Aggregate Bond Index 6 The five metrics are Price-to-Book, Price-to-Earnings, Price-to-Next-Twelve-Month-Earnings, Price-to-Sales, and Enterprise Value-to-EBITDA 8 Bloomberg Finance L.P., Calculations by SPDR Americas Research. Data from January 1, 1999 – October 31, 2019. 10 The spot price of gold has a historical correlation to the MSCI World Index of 0.06 and the Bloomberg Barclays US Aggregate Bond Index of 0.21 from 10/1989 to 10/2019 based on monthly returns per Bloomberg Finance L.P. as of 10/31/2019. Bloomberg Barclays U.S. Aggregate Bond Index A benchmark that provides a measure of the performance of the US dollar denominated investment grade bond market, which includes investment grade bond market, investment grade government bonds, investment grade corporate bonds, mortgage pass through securities, commercial mortgage backed securities. CBOE VIX Index A measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Citi Macro Risk Index The Citi Macro Risk Index measures risk aversion in global financial markets. It is an equally weighted index of emerging market sovereign spreads, US credit spreads, US swap spreads and implied FX, equity and swap rate volatility. Dow Jones Industrial Average Index A price-weighted benchmark of 20 “blue-chip” US stocks that, at 100-plus years, is the oldest continuing U.S. market index. Price weighting means stocks in “the Dow” with higher share prices are given a greater weight in the index. Launched in 1896, the Dow was named for its inventor Charles Dow and his partner Edward Jones. FTSE NAREIT All Equity REITS Total Return Index A free-floated adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property. HFRI FOF Diversified Index FOFs classified as “Diversified” exhibit one or more of the following characteristics: invests in a variety of strategies among multiple managers; historical annual return and/or a standard deviation generally similar to the HFRI Fund of Fund Composite Index; demonstrates generally close performance and returns distribution correlation to the HFRI Fund of Fund Composite Index. A fund in the HFRI FOF Diversified Index tends to show minimal loss in down markets while achieving superior returns in up markets. LPX50 Listed Private Equity Total Return Index Designed and calculated by LPX Group, index contains the largest private equity companies listed on global stock exchanges. The index composition is well diversified across listed private equity categories, styles, regions and vintage years. MOVE Index A well-recognized measure of U.S interest rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on 2-year, 5-year, 10-year and 30-year Treasuries. MSCI ACWI IMI Index A free-float weighted global equity index that includes companies in 23 emerging market countries and 23 developed market countries and is designed to be a proxy for most of the investable equities universe around the world. NASDAQ Composite Index The market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. A statistical measure of volatility that quantifies the historical dispersion of a security, fund or index around an average. Investors use standard deviation to measure expected risk or volatility, and a higher standard deviation means the security has tended to show higher volatility or price swings in the past. As an example, for a normally distributed return series, about two-thirds of the time returns will be within 1 standard deviation of the average return. S&P GSCI Total Return Index A composite index of commodities that measures the performance of the commodity market. The index is designed to be investable, and there are ETF products designed to track its performance The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy. Important Risk Discussion The views expressed in this material are the views of Michael Arone and Matthew Bartolini through the period ended November 15, 2019 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Important Risk Information Investing involves risk, and you could lose money on an investment in each of SPDR® Gold Shares Trust ("GLD®") and SPDR® Gold MiniSharesSM Trust ("GLDMSM"), a series of the World Gold Trust (together, the "Funds"). Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Past performance is not a guarantee of future results. Diversification does not ensure a profit or guarantee against loss. Investing in commodities entails significant risk and is not appropriate for all investors. Important Information Relating to SPDR® Gold Trust ("GLD®") and SPDR® Gold MiniSharesSM Trust ("GLDMSM "): The SPDR Gold Trust ("GLD") and the World Gold Trust have each filed a registration statement (including a prospectus) with the Securities and Exchange Commission ("SEC") for GLD and GLDM, respectively. Before you invest, you should read the prospectus in the registration statement and other documents each Fund has filed with the SEC for more complete information about each Fund and these offerings. Please see each Fund's prospectus for a more detailed discussion of the risks of investing in each Fund's shares. The GLD prospectus is available by clicking here and the GLDM prospectus is available by clicking here. You may get these documents for free by visiting EDGAR on the SEC website at sec.gov or by visiting spdrgoldshares.com. Alternatively, the Funds or any authorized participant will arrange to send you the prospectus if you request it by calling 866.320.4053. None of the Funds is an investment company registered under the Investment Company Act of 1940 (the "1940 Act"). As a result, shareholders of each Fund do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act. GLD and GLDM are not subject to regulation under the Commodity Exchange Act of 1936 (the "CEA"). As a result, shareholders of each of GLD and GLDM do not have the protections afforded by the CEA. The values of GLD shares and GLDM shares relate directly to the value of the gold held by each Fund (less its expenses), respectively. Fluctuations in the price of gold could materially and adversely affect an investment in the shares. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by them. 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Lanier Technical College, a unit of the Technical College System of Georgia, will pay $53,000 in back pay and compensatory damages and revise its policies and procedures to settle a Justice Department lawsuit alleging the College violated the Americans with Disabilities Act (ADA) by terminating along-time College employee based on her multiple sclerosis filed in the Northern District Of Georgia on November 4, 2019. In addition to this disability discrimination allegation, the Justice Department complaint also alleges the removed the employee from the teaching schedule for an entire school semester, thus reducing her hours and pay to zero, due to her multiple sclerosis after the employee took three days of sick leave one summer. The lawsuit and its settlement reminds academic health care and other public and private employers about the need to use appropriate care to avoid inappropriate discrimination against individuals with disabilities in employment and other operations. The College had employed the terminated employee as a part-time emergency medical technician (EMT) lab assistant for over three years before the events prompting the lawsuit took place. The essential functions of her job involved assisting instructors in the classroom and in the lab, and perform “check offs” to authorize and certify that the students mastered particular technical competencies (e.g., properly taking blood pressure, starting a patient’s I.V., assessing a patient’s vital signs). In addition to her employment with the College, the former employee also worked as a paramedic for an unrelated employer. She continued to work as a full-time paramedic for nearly three years after the College terminated her employment as a part-time lab assistant. Less than a year into her employment at the College, the former employee was diagnosed with multiple sclerosis (MS) in 2010. Shortly after her diagnosis the former employee notified among others, notified the Director of the Lanier Paramedicine Technology (PMT) Department, Sam Stone, of her condition and Mr. Stone subsequently discussed her MS and treatment with her over the course of her employment with the College. According to the Justice Department complaint, the former employee did not require any reasonable accommodations for her disability, remained qualified to perform the essential functions of the part-time lab assistant job, and did so successfully until College discharged her or otherwise altered her compensation, terms, conditions, or privileges of employment. In 2012, the former employee assisted with classes and labs taught by Instructor Andy Booth. Instructor Booth managed the work schedule for all the part-time EMT lab assistants who assisted with his classes, including that of the former employee. This included the ability to remove lab assistants from any shifts they requested. Director Stone then completed a final review of the semester and approved the schedule and any changes to it. During the summer of 2012, the former employee had to miss her assigned workdays on two or three occasions due to her MS and its treatment. She also was on disability leave from her paramedic job for a period during that summer, returning to work full-time in early August. Following these absences, Instructor Booth on August 30, 2012 sent an email to lab assistants, including the former employee requesting that lab assistants sign up for open shifts on the work schedule, as he was “still short on help.” The schedule with available shifts was posted for September through December 2012. The former employee signed up for seven or eight four-hour shifts over the course of the fall semester that same day and emailed Instructor Booth the evening of August 30 to inform him of this. In her email, she indicated that she was no longer on disability leave from her other job. Two weeks later, on September 12, 2012, the College removed the former employee from the work schedule for the entire fall semester schedule on the written instructions of Instructor Booth with the approval of Director Stone. Instructor Booth’s September 12 email instructions to his assistant provided a link to the online work schedule for the lab assistants and stated: “Any day you see [the former employee], just take her off.” Director Stone was copied on this email. That same day, Director Stone replied to Instructor Booth’s email, stating that he had reviewed all of the dates up to December and approved the schedule. The College knew that, by removing the former employee from the schedule, it was terminating her employment with Lanier. When the former employee realized that someone removed her from the schedule for the entire semester, she contacted Instructor Booth. He told the former employee, by text message, that it was Director Stone’s decision and that Director Stone wanted to give the former employee “some time to heal.” Instructor Booth also stated that Director Stone seemed upset about the former employee missing a few days in the summer due to her MS. Instructor Booth then directed the former employee to speak to Director Stone. He did not offer to reinstate her for any of the days she signed up for or for any future dates. Thereafter, on September 26, 2012, the former employee contacted Director Stone by email. After telling Director Stone i her email that Instructor Booth said Director Stone was managing the schedule and had wanted to give her “some time to heal,” she reassured him that she appreciated his concern but that she felt she was “OK.” When Director Stone responded on September 23, he confirmed the correctness of Director Stone’s email and also confirmed that he was concerned with the former employee’s health. He offered to discuss these concerns further with her in private. He did not offer to reinstate her for any of the days she signed up for or for any future dates. Later that day, the former employee called Director Stone. On the call, Director Stone expressed concern about legal and liability issues and whether the former employee was fit to work because of her MS. He said that he, as the Department Director, had to be concerned about her health and medical issues, because a student could challenge a grade on the basis that her MS made her unfit to evaluate students. Director Stone also referenced a couple days that the former employee missed work due to her MS during the summer, and stated that she was less reliable than other lab assistants were at that point. He did not offer to reinstate her for any of the days she signed up for or for any future dates. Approximately six months later, College removed the former employee from the payroll and changed her payroll status to “terminated.” On September 26, 2012, the former employee filed a timely charge of discrimination with the United States Equal Employment Opportunity Commission (EEOC), alleging that College terminated her because of her disability in violation of the ADA. The Justice Department filed the lawsuit after the EEOC referred the former employee’s complaint to it. Title I of the ADA prohibits covered entities including the College from discriminating against a qualified individual on the basis of disability in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment. 42 U.S.C. § 12112(a); 29 C.F.R. § 1630.4. The Justice Department complaint against the College charged that the College violated the ADA by discriminating against her on the basis of her disability by: Removing her from the lab assistant work schedule for a semester and reducing her work hours and compensation to zero; and Terminating her on the basis of her disability As a consequence of these discriminatory actions, the complaint charged the former employee suffered lost earnings, benefits and job advancement opportunities, as well as substantial emotional distress, pain and suffering and other nonpecuniary losses. The complaint asked the District Court to redress these injuries by: Declaring the College in violation of the Title I of the ADA and its accompanying regulation; Enjoining the College and its agents, employees, successors, and all persons in active concert or participation with it, from engaging in discriminatory employment policies and practices that violate Title I of the ADA; Requiring the College to modify its policies, practices, and procedures as necessary to bring its employment practices into compliance with Title I of the ADA and its implementing regulation; Ordering the College to train its supervisors and human resource staff regarding the requirements of Title I of the ADA; and Awarding the former employee back pay with interest; the value of any lost benefits with interest; and compensatory damages, including damages for emotional distress, for injuries suffered as a result of Defendant’s failure to comply with the requirements of the ADA; Under the settlement agreement announced November 7, 2019 by the Justice Department, the College must pay the former employee $53,000 in back pay and compensatory damages, revise its policies and training staff on the ADA to ensure compliance with the ADA, train staff on the ADA, and report to the Justice Department on implementation of the settlement agreement. Reaching this settlement allowed the College to eliminate its exposure to potentially much greater liability. In addition to actual lost compensation and benefit damages, a loss at trial could have resulted in a jury award that also ordered the College to pay attorneys’ fees and other costs, interest and exemplary damages of up to $300,000. We hope this update is helpful. For more information about employment discrimination or other labor and employment, compensation, benefits or other related management and compliance concerns or developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297. Solutions Law Press, Inc. invites you receive future updates and join discussions about these and other human resources, health and other employee benefit and patient empowerment concerns by participating and contributing to the discussions in our Solutions Law Press HR & Benefits Update Compliance Update Group and registering for updates on our Solutions Law Press Website.. Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of management focused employment, health care, employee benefit and insurance, workforce and other management work, public policy leadership and advocacy, coaching, teachings, and publications including extensive work with businesses on compliance, risk management and defense. Author of numerous highly regarding publications on disability and other discrimination and other employment, employee benefit, compensation, regulatory compliance and internal controls and other management concerns affecting health care, education, insurance, housing and other operations, Ms. Stamer’s clients include health care, insurance and financial services, educational and other employer and services organizations; employer, union, association, government and other insured and self-insured health and other employee benefit plan sponsors, benefit plans, fiduciaries, administrators, and other plan vendors; domestic and international public and private health care, education and other community service and care organizations; managed care organizations; insurers, third-party administrative services organizations and other payer organizations; and other private and government organizations and their management leaders. In addition to her legal and management operations work. Ms. Stamer’s experience includes 30 plus years’ of legislative and regulatory policy advocacy and drafting, design, compliance and enforcement including testifying to the EBSA Advisory Council on Employee Welfare and Pension Benefit Plans in on the effectiveness of employee benefit plan disclosures during 2017 hearings on on reducing the burdens and increasing the effectiveness of ERISA mandated disclosures as well as advice, representation, advocacy and testimony to and before and other work with various foreign governments, Congress, state legislatures, and a multitude of federal, state and local agencies. Throughout her 30 plus year career, Ms. Stamer has continuously worked with these and other management clients to design, implement, document, administer and defend hiring, performance management, compensation, promotion, demotion, discipline, reduction in force and other workforce, employee benefit, insurance and risk management, health and safety, and other programs, products and solutions, and practices; establish and administer compliance and risk management policies; manage labor-management relations, comply with requirements, investigate and respond to government, accreditation and quality organizations, regulatory and contractual audits, private litigation and other federal and state reviews, investigations and enforcement actions; evaluate and influence legislative and regulatory reforms and other regulatory and public policy advocacy; prepare and present training and discipline; handle workforce and related change management associated with mergers, acquisitions, reductions in force, re-engineering, and other change management; and a host of other workforce related concerns. Ms. Stamer’s experience in these matters includes supporting these organizations and their leaders on both a real-time, “on demand” basis with crisis preparedness, intervention and response as well as consulting and representing clients on ongoing compliance and risk management; plan and program design; vendor and employee credentialing, selection, contracting, performance management and other dealings; strategic planning; policy, program, product and services development and innovation; mergers, acquisitions, bankruptcy and other crisis and change management; management, and other opportunities and challenges arising in the course of workforce and other operations management to improve performance while managing workforce, compensation and benefits and other legal and operational liability and performance. A Fellow in the American College of Employee Benefit Counsel and Past Chair of both the ABA Managed Care & Insurance Interest Group and it’s RPTE Employee Benefits and Other Compensation Group, Ms. Stamer also has leading edge experience in health benefit, health care, health, financial and other plan, program and process design, administration, documentation, contracting, risk management, compliance and related process and systems development, policy and operations; training; legislative and regulatory affairs, and other legal and operational concerns. A former lead consultant to the Government of Bolivia on its Pension Privatization Project with extensive domestic and international public policy concerns in pensions, healthcare, workforce, immigration, tax, education and other areas, Ms. Stamer has been extensively involved in U.S. federal, state and local health care and other legislative and regulatory reform impacting these concerns throughout her career. Her public policy and regulatory affairs experience encompasses advising and representing domestic and multinational private sector health, insurance, employee benefit, employer, staffing and other outsourced service providers, and other clients in dealings with Congress, state legislatures, and federal, state and local regulators and government entities, as well as providing advice and input to U.S. and foreign government leaders on these and other policy concerns. Author of leading works on a multitude of labor and employment, compensation and benefits, internal controls and compliance, and risk management matters and a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer also shares her thought leadership, experience and advocacy on these and other related concerns by her service in the leadership of the Solutions Law Press, Inc. Coalition for Responsible Health Policy, its PROJECT COPE: Coalition on Patient Empowerment, and a broad range of other professional and civic organizations including North Texas Healthcare Compliance Association, a founding Board Member and past President of the Alliance for Healthcare Excellence, past Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; former Board President of the early childhood development intervention agency, The Richardson Development Center for Children (now Warren Center For Children); current Vice Chair of the ABA Tort & Insurance Practice Section Employee Benefits Committee, current Vice Chair of Policy for the Life Sciences Committee of the ABA International Section, Past Chair of the ABA Health Law Section Managed Care & Insurance Section, a current Defined Contribution Plan Committee Co-Chair, former Group Chair and Co-Chair of the ABA RPTE Section Employee Benefits Group, past Representative and chair of various committees of ABA Joint Committee on Employee Benefits; an ABA Health Law Coordinating Council representative, former Coordinator and a Vice-Chair of the Gulf Coast TEGE Council TE Division, past Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee, a former member of the Board of Directors of the Southwest Benefits Association and others. For more information about Ms. Stamer or her work, services, experience and involvements, see here or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here. About Solutions Law Press, Inc.™ Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources here. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating your profile here. We also invite you to join the discussion of these and other human resources, health and other employee benefit and patient empowerment concerns by participating and contributing to the discussions in our Health Plan Compliance Group or COPE: Coalition On Patient Empowerment Groupon LinkedIn or Project COPE: Coalition on Patient Empowerment Facebook Page. NOTICE: These statements and materials are for general informational and purposes only. They do not establish an attorney-client relationship, are not legal advice or an offer or commitment to provide legal advice, and do not serve as a substitute for legal advice. Readers are urged to engage competent legal counsel for consultation and representation in light of the specific facts and circumstances presented in their unique circumstance at any particular time. No comment or statement in this publication is to be construed as legal advice or an admission and its content is not tailored to any particular situation and does not necessarily address all relevant issues. Because the law is rapidly evolving and rapidly evolving rules makes it highly likely that subsequent developments could impact the currency and completeness of this discussion.otherwise notify any participant of any such change, limitation, or other condition that might affect the suitability of reliance upon these materials or information otherwise conveyed in connection with this program. Readers may not rely upon, are solely responsible for, and assume the risk and all liabilities resulting from their use of this publication. Circular 230 Compliance. The following disclaimer is included to ensure that we comply with U.S. Treasury Department Regulations. Any statements contained herein are not intended or written by the writer to be used, and nothing contained herein can be used by you or any other person, for the purpose of (1) avoiding penalties that may be imposed under federal tax law, or (2) promoting, marketing or recommending to another party any tax-related transaction or matter addressed herein. ©2019 Cynthia Marcotte Stamer. Non-exclusive right to republish granted to Solutions Law Press, Inc.™ For information about republication or the topic of this article, please contact the author directly. All other rights reserved. Leave a Comment » | Absenteeism, Academic Medicine, Accommodation, ADA, board of directors, compliance, Corporate Compliance, directors, Disability, Disability, Disability Discrimination, Disability Leave, Education, Educational Privacy, EEOC, EEOC, employee, Employee Benefits, Employer, Employers, Employment, Employment Agreement, Employment Policies, Employment Tax, ERISA, Excise Tax, FICA, health benefit, health Care, health insurance, Income Tax, Labor Management Relations, Management, NLRA, Payroll Tax, Reporting & Disclosure, Retirement Plans, Risk Management, Tax, Tax Fraud, Uncategorized, Unfair Labor Practice, Union, Union elections, Worker Classification | Tagged: ADA, Disability Discrimination, Education, Emergency Medicine, Employees, higher education, MS, news, Paramedic, school, Training | Permalink ADEA Age Discrimination Ban Applies To All State & Local Government Employers State and local political subdivisions employing fewer than 20 employees should reconfirm the defensibility of their employment policies and practices under the Age Discrimination and Employment Act (ADEA) and the Fair Labor Standards Act (FLSA) and various other laws in light of the unanimous[1] ruling issued this morning by the United State Supreme Court holding that the ADEA applies to all state and local political subdivisions regardless of size. In its ruling in Mount Lemmon Fire District v. Guido, – U.S. -, 2018 WL 5794639 (November 6, 2018) released this morning, the United States Supreme Court unanimously ruled that the ADEA applies to all state and local subdivisions regardless of the number of employees the political subdivision employs. The Supreme Court’s ruling arose from an ADEA lawsuit brought by John Guido and Dennis Rankin against a small Arizona fire department, the Mount Lemmon Fire District (District) challenging their layoff by the District. Faced with a budget shortfall, the District laid off Guido and Rankin, who at the time were the District’s two oldest full-time firefighters. Guido and Rankin sued the Fire District, alleging that their termination violated the Age Discrimination in Employment Act of 1967 (ADEA), 81 Stat. 602, as amended, 29 U. S. C. §621 et seq. The Fire District sought dismissal of the suit on the ground that the District was too small to qualify as an “employer” within the ADEA’s compass. In response to Guido and Rankin’s lawsuit, the District asserted that was not covered by the ADEA because its employment of fewer than 20 employees rendered it “too small” to qualify as an “employer” as defined by 29 U. S. C. §630(b). In its ruling against the Fire District this morning, the Supreme Court rejected this numerosity defense, holding instead that the ADEA applies to all political subdivisions regardless of the size of their workforce. In the unanimous opinion authored by Justice Ginsburg, the Supreme Court pointed out that the ADEA definition of “employer” distinguishes between private sector employers and State and local political subdivisions. The Supreme Court noted that before 1974, State and local political subdivisions were exempt from the ADEA. In 1974, however, Congress added a special definition of “employer” for States and political subdivisions to the ADEA and FLSA when it amended the ADEA and FLSA to apply to all State and local government employers regardless of their size. Thus, since 1974, the ADEA and FLSA definitions of “employer” have read as follows: “The term ‘employer’ means a person engaged in an industry affecting commerce who has twenty or more employees . . . . The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State . . . .” 29 U. S. C. §630(b); 29 U. S. C. §203(d), (x). In construing this definition, the Supreme Court weighed whether the phrase “also means” added new categories to the definition of “employer” or merely clarified that States and their political subdivisions are a type of “person” included in §630(b)’s first sentence. While acknowledging that various Courts of Appeals previously have reached differing conclusions concerning the appropriate interpretation, the Supreme Court ruled that the phase “also means” added a new category to the definition of “employer” for purposes of the ADEA. Accordingly, the Supreme Court rejected the District’s claim that the ADEA definition of “employer” includes the requirement of employment of at least 20 employees applicable to the ADEA’s private sector definition of “employer. Accordingly, the Supreme Court unanimously ruled that the ADEA applies to all State and local political subdivisions. In light of the Supreme Court’s ruling, any State or local subdivision that has operated in reliance upon the now discredited interpretations of the ADEA or FLSA definitions of “employer” as applicable only to State or local governmental entities employing at least 20 employees immediately should take all necessary corrective action to bring their policies into compliance with the ADEA and FLSA. These governmental entities also should seek the advice of qualified legal counsel about the advisability of taking any retrospective action to self-correct any potential past deficiencies in compliance, if any, for which the entity might bear potential liability to the extent that the applicable state of limitations has not run on those claims. [1] Justice Kavanaugh did not join in the opinion as he took no part in the consideration or decision of the case. Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of management focused employment, employee benefit and insurance, workforce and other management work, public policy leadership and advocacy, coaching, teachings, and publications. Highly valued for her rare ability to find pragmatic client-centric solutions by combining her detailed legal and operational knowledge and experience with her talent for creative problem-solving, Ms. Stamer’s clients include employers and other workforce management organizations; employer, union, association, government and other insured and self-insured health and other employee benefit plan sponsors, benefit plans, fiduciaries, administrators, and other plan vendors; domestic and international public and private health care, education and other community service and care organizations; managed care organizations; insurers, third-party administrative services organizations and other payer organizations; and other private and government organizations and their management leaders. Throughout her 30 plus year career, Ms. Stamer has continuously worked with these and other management clients to design, implement, document, administer and defend hiring, performance management, compensation, promotion, demotion, discipline, reduction in force and other workforce, employee benefit, insurance and risk management, health and safety, and other programs, products and solutions, and practices; establish and administer compliance and risk management policies; comply with requirements, investigate and respond to government, accreditation and quality organizations, regulatory and contractual audits, private litigation and other federal and state reviews, investigations and enforcement actions; evaluate and influence legislative and regulatory reforms and other regulatory and public policy advocacy; prepare and present training and discipline; handle workforce and related change management associated with mergers, acquisitions, reductions in force, re-engineering, and other change management; and a host of other workforce related concerns. Ms. Stamer’s experience in these matters includes supporting these organizations and their leaders on both a real-time, “on demand” basis with crisis preparedness, intervention and response as well as consulting and representing clients on ongoing compliance and risk management; plan and program design; vendor and employee credentialing, selection, contracting, performance management and other dealings; strategic planning; policy, program, product and services development and innovation; mergers, acquisitions, bankruptcy and other crisis and change management; management, and other opportunities and challenges arising in the course of workforce and other operations management to improve performance while managing workforce, compensation and benefits and other legal and operational liability and performance. Past Chair of the ABA Managed Care & Insurance Interest Group and, a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, heavily involved in health benefit, health care, health, financial and other information technology, data and related process and systems development, policy and operations throughout her career, and scribe of the ABA JCEB annual Office of Civil Rights agency meeting, Ms. Stamer also is widely recognized for her extensive work and leadership on leading edge health care and benefit policy and operational issues. She regularly helps employer and other health benefit plan sponsors and vendors, health industry, insurers, health IT, life sciences and other health and insurance industry clients design, document and enforce plans, practices, policies, systems and solutions; manage regulatory, contractual and other legal and operational compliance; vendors and suppliers; deal with Medicare, Medicaid, CHIP, Medicare/Medicaid Advantage, ERISA, state insurance law and other private payer rules and requirements; contracting; licensing; terms of participation; medical billing, reimbursement, claims administration and coordination, and other provider-payer relations; reporting and disclosure, government investigations and enforcement, privacy and data security; and other compliance and enforcement; Form 990 and other nonprofit and tax-exemption; fundraising, investors, joint venture, and other business partners; quality and other performance measurement, management, discipline and reporting; physician and other workforce recruiting, performance management, peer review and other investigations and discipline, wage and hour, payroll, gain-sharing and other pay-for performance and other compensation, training, outsourcing and other human resources and workforce matters; board, medical staff and other governance; strategic planning, process and quality improvement; HIPAA administrative simplification, meaningful use, EMR, HIPAA and other technology, data security and breach and other health IT and data; STARK, antikickback, insurance, and other fraud prevention, investigation, defense and enforcement; audits, investigations, and enforcement actions; trade secrets and other intellectual property; crisis preparedness and response; internal, government and third-party licensure, credentialing, accreditation, HCQIA, HEDIS and other peer review and quality reporting, audits, investigations, enforcement and defense; patient relations and care; internal controls and regulatory compliance; payer-provider, provider-provider, vendor, patient, governmental and community relations; facilities, practice, products and other sales, mergers, acquisitions and other business and commercial transactions; government procurement and contracting; grants; tax-exemption and not-for-profit; 1557 and other Civil Rights; privacy and data security; training; risk and change management; regulatory affairs and public policy; process, product and service improvement, development and innovation, and other legal and operational compliance and risk management, government and regulatory affairs and operations concerns. For more information about Ms. Stamer or her health industry and other experience and involvements, see here or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here. Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources here such as the following: Plan Ahead to Celebrate National Apprenticeship Week 11/12-18 CMS Hosts 11/6 Health Plan EDGE Server Webinar for Insurers & TPAs Businesses Urged To Comment Positively On Proposed NLRB Joint Employment Rule By 12/13/18 Maintaining Current Enterprise Wide Security Risk Assessment Critical To Managing HIPAA Security Rule & Other Breach Risks Record $16M Anthem HIPAA Settlement Signals Need to Tighten Your Health Plan HIPAA Compliance & Risk Management Senate Confirms Charles Rettig As Next IRS Commissioner House W&M Committee To Markup Retirement and Other “Tax Reform 2.0” Bills Thursday Markup Tomorrow On Retirement & Other Republican‘s TCJA Tax Reform 2.0 Bills Free Poster for Upcoming October National Disability Employment Awareness Month 2018 Available Employer’s Employment Tax Fraud Indictment Warns Employers To Properly Pay Withheld Employment Taxes Flurry of Reform Activity Sign Employers, Health Plans Should Prepare To Respond To Last Minute Health Reforms This Fall Relationships Matter OFCCP Extends TRICARE Affirmative Action Moratorium Trump Blue Print To Reduce Drug Costs Announced If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating your profile here. NOTICE: These statements and materials are for general informational and purposes only. They do not establish an attorney-client relationship, are not legal advice or an offer or commitment to provide legal advice, and do not serve as a substitute for legal advice. Readers are urged to engage competent legal counsel for consultation and representation in light of the specific facts and circumstances presented in their unique circumstance at any particular time. No comment or statement in this publication is to be construed as legal advise or an admission. The author reserves the right to qualify or retract any of these statements at any time. Likewise, the content is not tailored to any particular situation and does not necessarily address all relevant issues. Because the law is rapidly evolving and rapidly evolving rules makes it highly likely that subsequent developments could impact the currency and completeness of this discussion. The presenter and the program sponsor disclaim, and have no responsibility to provide any update or otherwise notify any participant of any such change, limitation, or other condition that might affect the suitability of reliance upon these materials or information otherwise conveyed in connection with this program. Readers may not rely upon, are solely responsible for, and assume the risk and all liabilities resulting from their use of this publication. Leave a Comment » | adea, Age Discrimination, board of directors, compliance, Corporate Compliance, corporate governance, directors, Discrimination, EBSA, Education, EEOC, employee, Employee Benefits, Employee Handbook, Employers, Employment, Employment Discrimination, Employment Policies, Exempt, Fair Labor Standards Act, FLSA, Government Accountability, government employer, government plan, HR, Human Resources, Insurance, Labor Management Relations, Leadership, Management, Managment, officers, Overtime, Restructuring, retirement plan, Retirement Plans, Retirements, Risk Management, Schools, Supreme Court, Uncategorized | Tagged: #agediscrimination, #mountlemmon #adea, #schooldistrict #publichospital #firedepartment #publicschool #university #publichealth, Mount Lemmon | Permalink The official poster for the upcoming National Disability Employment Awareness Month 2018 in October is now available in both English and Spanish. You can download the free poster from the Office of Disability Employment (ODEP) website here or order it in hard copy here. Observed each October, NDEAM celebrates the contributions of workers with disabilities and educates about the value of a workforce inclusive of their skills and talents. The 2018 National Disability Employment Awareness Month (NDEAM) theme is “America’s Workforce: Empowering All.” In keeping with this theme, the 2018 poster features an office scene of coworkers with and without disabilities, and highlights the theme of “America’s Workforce: Empowering All.” Leave a Comment » | Accommodation, ADA, Affirmative Action, compliance, Corporate Compliance, Disability, Disability Discrimination, Discrimination, EEOC, Employers, Employment, Employment Discrimination, Employment Policies, Government Contractors, Labor Management Relations, OFCCP, Rehabilitation Act | Permalink OFCCP Extends TRICARE Affirmative Action Morotorium Today the U.S. Department of Labor issued a press release about the publication of a new OFCCP Directive extending the enforcement moratorium relating to the affirmative obligations of TRICARE providers for two years. This moratorium has been in effect for four years, and will now expire on May 7, 2021; it will also now apply to Veterans Affairs Health Benefits Program providers. This extension will provide OFCCP time to receive feedback from stakeholders, relieve uncertainty, and give OFCCP an opportunity to evaluate and address legislation that may be enacted on this issue. A Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation; Former Chair of the RPTE Employee Benefits and Compensation Committee, a current Co-Chair of the Committee, and the former Chair of its Welfare Benefit and its Defined Compensation Plan Committees and former RPTE Joint Committee on Employee Benefits Council (JCEB) Representative, Cynthia Marcotte Stamer is a Martindale-Hubble “AV-Preeminent” practicing attorney and management consultant, author, public policy advocate, author and lecturer repeatedly recognized for her 30 plus years’ of work and pragmatic thought leadership, publications and training on health, pension and other employee benefit, insurance, labor and employment, and health care fiduciary responsibility, payment, investment, contracting and other design, administration and compliance concerns as among the “Top Rated Labor & Employment Lawyers in Texas,” a “Legal Leader,” a “Top Woman Lawyer” and with other awards by LexisNexis® Martindale-Hubbell®; as among the “Best Lawyers In Dallas” for her work in the field of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, in International Who’s Who of Professionals and with numerous other awards and distinctions. Highly valued for her ability to meld her extensive legal and industry knowledge and experience with her talents as an insightful innovator and pragmatic problem solver, Ms. Stamer advises, represents and defends employer, union, multi-employer, association and other employee benefit plan sponsors, insurers and managed care organizations, fiduciaries, plan administrators, technology and other service providers, government and community leaders and others about health and other employee benefit and insurance program and policy design and innovation, funding, documentation, administration, communication, data security and use, contracting, plan, public and regulatory reforms and enforcement, and other risk management, compliance and operations matters. Her experience encompasses leading and supporting the development and defense of innovative new policies, programs, practices and solutions; advising and representing clients on routine plan establishment, plan documentation and contract drafting and review, administration, change and other compliance and operations; crisis prevention and response, compliance and risk management audits and investigations, enforcement actions and other dealings with the US Congress, Departments of Labor, Treasury, Health & Human Services, Federal Trade Commission, Justice, Securities and Exchange Commission, Education and other federal agencies, state legislatures, attorneys general, insurance, labor, worker’s compensation, and other agencies and regulators, and various other foreign and domestic governmental bodies and agencies. She also provides strategic and other supports clients in defending litigation as lead strategy counsel, special counsel and as an expert witness. Alongside her extensive legal and operational experience, Ms. Stamer also is recognized for her work as a public and regulatory policy advocate and community leader with a gift for finding pragmatic solutions and helping to forge the common ground necessary to build consensus. Best known for her domestic public policy and community leadership on health care and insurance reform, Ms. Stamer’s lifelong public policy and community service involvement includes service as a lead consultant to the Government of Bolivia on its pension privatization project, as well as extensive legislative and regulatory reform, advocacy and input workforce, worker classification, employee benefit, public health and healthcare, social security and other disability and aging in place, education, migration reforms domestically and internationally throughout her adult life. In addition to her public and regulatory policy involvement, Ms. Stamer also contributes her service and leadership to a professional and civic organizations and efforts including her involvement as the Founder and Executive Director of the Coalition on Responsible Health Policy and its PROJECT COPE; Coalition on Patient Empowerment, a founding Board Member and past President of the Alliance for Healthcare Excellence; Vice Chair of the ABA Tort & Insurance Practice Section Employee Benefits Committee; Vice Chair, Policy for the Life Sciences Committee of the ABA International Section, Past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group; current Fiduciary Responsibility Committee Co-Chair and Membership Committee member of the ABA RPTE Section; former RPTE Employee Benefits and Other Compensation Group Chair, former Chair and Co-Chair of its Welfare Plans Committee, and Defined Contribution Plans Committee; former RPTE Representative to ABA Joint Committee on Employee Benefits Council; former RPTE Representative to the ABA Health Law Coordinating Counsel; former Coordinator and a Vice-Chair of the Gulf Coast TEGE Council TE Division, past Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee, former Board Member, Continuing Education Chair and Treasurer of the Southwest Benefits Association; Vice President of the North Texas Healthcare Compliance Professionals Association; past Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; former Board President of the early childhood development intervention agency, The Richardson Development Center for Children; past Dallas World Affairs Council Board Member, and in leadership of many other professional, civic and community organizations. Ms. Stamer also is a highly popular lecturer, symposia chair and author, who publishes and speaks extensively on health and managed care industry, human resources, employment and other privacy, data security and other technology, regulatory and operational risk management for the American Bar Association, ALI-ABA, American Health Lawyers, Society of Human Resources Professionals, the Southwest Benefits Association, the Society of Employee Benefits Administrators, the American Law Institute, Lexis-Nexis, Atlantic Information Services, The Bureau of National Affairs (BNA), InsuranceThoughtLeaders.com, the Society of Professional Benefits Administrators, Benefits Magazine, Employee Benefit News, Texas CEO Magazine, HealthLeaders, the HCCA, ISSA, HIMSS, Modern Healthcare, Managed Healthcare, Institute of Internal Auditors, Society of CPAs, Business Insurance, Employee Benefits News, World At Work, Benefits Magazine, the Wall Street Journal, the Dallas Morning News, the Dallas Business Journal, the Houston Business Journal, and many other symposia and publications. She also has served as an Editorial Advisory Board Member for human resources, employee benefit and other management focused publications of BNA, HR.com, Employee Benefit News, InsuranceThoughtLeadership.com and many other prominent publications and speaks and conducts training for a broad range of professional organizations and for clients, serves on the faculty and planning committee of many workshops, seminars, and symposia, and on the Advisory Boards of InsuranceThoughtLeadership.com, HR.com, Employee Benefit News, and many other publications. Beyond these involvements, Ms. Stamer also is active in the leadership of a broad range of other public policy advocacy and other professional and civic organizations and involvements. Through these and other involvements, she helps develop and build solutions, build consensus, garner funding and other resources, manage compliance and other operations, and take other actions to identify promote tangible improvements in health care and other policy and operational areas. Before founding her current law firm, Cynthia Marcotte Stamer, P.C., Ms. Stamer practiced law as a partner with several prominent national and international law firms for more than 10 years before founding Cynthia Marcotte Stamer, P.C. to practice her unique brand of “Solutions law™” and to devote more time to the pragmatic policy and system reform, community education and innovation, and other health system improvement efforts of her PROJECT COPE: the Coalition on Patient Empowerment initiative. Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources at SolutionsLawPress.com such as the following ▪DOL Spending Reports Required As Taxpayer Tool Need Improvement ▪Check & Protect Health & Other Electronic Systems & Data Against New Security Threat ▪April 1 New Deadline To Update Benefit Plan Disability Determination Claims & Appeals Procesures; Hear More on 1/26 ▪Arizona Proposal To Ban Sexual Harassment Confidentiality Agreements Sign Of Growing Employer Risks ▪$23M Penalty Small Part of 21st Century’s Data Breach Fallout; Offers Data Breach Lessons For Other Businesses ▪Take Care of Your Good People ▪Read Tax Cuts and Jobs Act Conference Report For Tax Reform From Source ▪Check How IRS 2018 Retirement & Saving Plan Limits and Amounts Cost Of Living Adjustments Impact Your HR & Retirement Plan Administration & Planning ▪IRS Prepares To Nail Employers Under Obamacare Mandate While Giving Some Individual Mandate Relief ▪Hiring & Retaining Workers Growing Business Challenge If you or someone else you know would like to receive future updates about developments on these and other concerns, please provide your current contact information and preferences including your preferred e-mail by creating or updating your profile here. NOTICE: These statements and materials are for general informational and purposes only. They do not establish an attorney-client relationship, are not legal advice, and do not serve as a substitute for legal advice. Readers are urged to engage competent legal counsel for consultation and representation in light of the specific facts and circumstances presented in their unique circumstance at any particular time. No comment or statement in this publication is to be construed as an admission. The author reserves the right to qualify or retract any of these statements at any time. Likewise, the content is not tailored to any particular situation and does not necessarily address all relevant issues. Because the law is rapidly evolving and rapidly evolving rules makes it highly likely that subsequent developments could impact the currency and completeness of this discussion. The presenter and the program sponsor disclaim, and have no responsibility to provide any update or otherwise notify any participant of any such change, limitation, or other condition that might affect the suitability of reliance upon these materials or information otherwise conveyed in connection with this program. Readers may not rely upon, are solely responsible for, and assume the risk and all liabilities resulting from their use of this publication. ©2018 Cynthia Marcotte Stamer. Non-exclusive right to republish granted to Solutions Law Press, Inc.™ For information about republication, please contact the author directly. All other rights reserved. Leave a Comment » | Affirmative Action, Civil Rights, compliance, Corporate Compliance, corporate governance, Disability, Disability Discrimination, Discrimination, EEOC, EEOC, Employee Benefits, Employer, Employers, OFCCP, Uncategorized, veterans, VEVRAA | Permalink Time To Tighten Business Travel Policies Businesses with employees that travel regularly or for the occasional training or other isolated business trip should review and update their travel related policies, practices, and procedures for evolving laws, risks and management needs. To start with, 2017 tax reforms impact the tax treatment of various employee relocation and travel related expense. Businesses should review these changes and make appropriate updates now to avoid headaches for the business and its employees later. While many employers mostly focus upon travel expense management, reporting and reimbursement, smart employers also understand there’s much more to consider. First and foremost, since employees often forget that the purpose of business travel is carrying out the business of the company and not a boondoggle, business travel policies and communications should make clear to employees that their trip is about work. Policies should make clear to employees their tesponsibility for attending meetings and performing other business-related responsibilities as well as for conducting themselves at all times consistent with company policy and to promote a positive impression of the employer and the company. Naturally all travel policies also should require compliance with all applicable laws and customs. For international travel, this includes compliance with the Foreign Corrupt Practices Act, the Patriot Act, U.S. and foreign immigration and customs, and other relevant laws, rules and customs. However, domestic travelers also should be reminded if their duty to comply with local laws as well. Amid the current “Me Too” frenzy, however, companies also should consider addressing other potentially risky behavior that tends to arise when employees travel on business. Unfortunately history proves that many employees actually do need to be told and reminded to abstain from inappropriate alcohol, sexual harassment or other behavior that could create liability or embarrassment for the company when traveling for business or engaging in other activities. Because business travel tends to blur distinctions between business and personal time, most businesses will want to establish and communicate high expectations concerning on and off-duty conduct when traveling on business to head off potential problems. Updated direction about hosting or participating in entertainment and other social activities with co-workers, customers, vendors, prospects and others also often are warranted. Beyond communicating expectations of employees while on business travel, businesses also should confirm their company’s compensation, expense reimbursement, timekeeping and reporting, hours of work, and other policies comply with current laws and capture and retain appropriate documentation. Businesses must recognize, for instance, that training and other work related travel typically is considered hours of work for wage an hour, safety and various other purposes. Employers should confirm their policies and practices properly capture and count all required hours of compensable work and pay hourly workers for time on the road properly in accordance with Labor Department requirements. Many employers unfortunately get nailed for overtime violations because of assumptions or misunderstandings of rules. For instance, many employers improperly fail to count air travel and certain other travel time as compensable when required to do so under Labor Department Fair Labor Standards Act (FLSA) rules. Likewise, improperly structured expense reimbursement policies or practices can bump up overtime pay liability by requiring the employer to include otherwise excludable expense reimbursements payments in the hourly rate of pay when calculating regular and overtime pay. Employers must ensure they understand these rules and take appropriate steps to capture, track, report and pay for time and expenses upfront to defend an audit or other challenge effectively and efficiently. Reviewing and tightening workforce travel related policies, practices and procedures to meet current laws, business and social expectations and management needs can boost the bang businesses realize for their business travel buck while mitigating a host of legal and business risks. DOL Spending Reports Required As Taxpayer Tool Need Improvement Check & Protect Health & Other Electronic Systems & Data Against New Security Threat April 1 New Deadline To Update Benefit Plan Disability Determination Claims & Appeals Procesures; Hear More on 1/26 Arizona Proposal To Ban Sexual Harassment Confidentiality Agreements Sign Of Growing Employer Risks $23M Penalty Small Part of 21st Century’s Data Breach Fallout; Offers Data Breach Lessons For Other Businesses Take Care of Your Good People Read Tax Cuts and Jobs Act Conference Report For Tax Reform From Source Check How IRS 2018 Retirement & Saving Plan Limits and Amounts Cost Of Living Adjustments Impact Your HR & Retirement Plan Administration & Planning IRS Prepares To Nail Employers Under Obamacare Mandate While Giving Some Individual Mandate Relief Hiring & Retaining Workers Growing Business Challenge ©2018 Cynthia Marcotte Stamer. Non-exclusive right to republish granted to Solutions Law Press, Inc.™ For information about republication, please contact the author directly. All other rights reserved Leave a Comment » | Absenteeism, Affirmative Action, board of directors, Brokers, business travel, Civil Rights, compensation, compliance, conflict of interest, Corporate Compliance, corporate governance, directors, Discrimination, Drug & Alcohol, E-Verify, Education, EEOC, EEOC, employee, Employee Benefits, Employee Handbook, Employer, Employers, Employment, Employment Agreement, Employment Discrimination, Employment Policies, enforcement, Executive Compensation, Fair Labor Standards Act, FICA, FLSA, Fringe Benefit, Government Contractors, Hiring, HR, Human Resources, I-9, Immigration, Insurance, Internal Controls, Internal Investigations, Internal Revenue Code, IRC, Labor Management Relations, Leadership, Management, Nonresident aliens, occupational safety, OSHA, Overtime, Pay, Payroll Tax, Risk Management, Sexual Harassment, Telecommuting, Uncategorized, visas, Wage & Hour, Whistleblower, Worker Classification, Workforce | Permalink Department of Labor (DOL) and other agencies’ spending reports posted at USASpending.gov to comply withthe Digital Accountability and Transparency Act of 2014 (DATA Act) are intended to help taxpayers, government leaders and others monitor and evaluate agency spending. However a new report from the DOL Office of Inspector General (OIG) found data reporting and other issues have compromised the reliability of the data reported in DOL reports posed on USASpending.gov. The Data Act requires federal agencies to report spending data in accordance with new government-wide data standards developed by the Office of Management and Budget (OMB) and the Department of Treasury (Treasury). The data reports are posted on so taxpayers and policy makers understand how the Department is spending its funds. The Act requires federal agencies to report spending data in accordance with new government-wide data standards developed by the Office of Management and Budget (OMB) and the Department of Treasury (Treasury). The Act also requires the Inspectors General of each federal agency to conduct a review of the agency’s DATA Act compliance every two years and report on the completeness, timeliness, accuracy, and quality of the agency’s data. The new report reports OIG’s findings from a performance audit OIG performed to assess: (1) the completeness, timeliness, accuracy, and quality of data submitted by the Department; and (2) the Department’s implementation and use of the Government-wide data standards established by OMB and Treasury for the Fiscal Year 2017 second quarter. While OIG found DOL effectively implemented and used the Government-wide data standards established by OMB and Treasury to prepare the reports and timely submitted the DATA Act required reports, it found numerous issues with the overall quality of the spending data it submitted for publication on USAspending.gov. Among other things, OIG reports that DOL: Did not report all the required data elements for 19 percent of the transactions sampled. OIG found 77% of these errors occurred because the Department did not include Unique Record Identifiers for transactions when it was required to. This could cause issues when linking financial data with grant data on USAspending.gov. 74% of the transactions sampled contained an error in one or more data elements. OIG reports many of these errors resulted from issues in the Treasury’s DATA Act broker data extraction process. Excluding those errors, 52% of the transactions sampled contained inaccurate information. In addition to errors uncovered from OIG’s sampling audit, DOL also reported inaccurate program activity and object class codes for 5 and 7 percent of transactions, respectively, in its File B submission. OIG attributes these errors in accuracy and completeness occurred because of data entry mistakes, data extraction issues, and weak data validation processes and concluded that these control deficiencies will have a negative impact on the quality of the data DOL reports until corrected. Based on these findings, OIG has made eight recommendations to DOL’s Principal Deputy Chief Financial Officer to improve the quality of the data the DOL reports to USAspending.gov in the future and to strengthen internal controls over its data management processes. While OIG reports DOL has concurred with these recommendations and has stated it has implemented additional controls, resulting in fewer errors with each submission, taxpayers and others using past reports need to consider the reported deficiencies in their evaluation and use of the data as well as assess the validity of future reported data for possible issues for future assessments. Even considering these issues, however, taxpayers and government leaders should consider consulting the data when investigating or evaluating DOL or other program activities or expenditures for policy, enforcement priority or other purposes. Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources at SolutionsLawPress.com such as the following: Individual Accountability For Performance Matters DOL Proposes Changing FLSA Tipped Employee Pay Rules Consider Internal Investigation & Defense Costs When Administering Compliance Programs Recruiting Qualified Workers Biggest Challenge US Manufacturers See In Otherwise Optimistic 3rd Quarter 2017 Government Retirees Get New Thrift Plan Distributing Choices Jennifer A. Abruzzo Named NLRB Acting General Counsel Bill Mandating E-Verify, Raising Employer I-9 Penalties Approved By House Judiciary Committee Address Workplace Harassment During October Stop Bullying Month NIOSH Proposed Updated Occupational Safety Chemical Monitoring Rules 2018 Social Security COLAs Set IRS Updates Defined Benefit Plan Guidance Read Trump Health Care Executive Order Dealing With HR, Benefits & Other Headaches From Equifax and Other Data BreachEmployers Should Manage Potential Unfair Labor Practice Risks From Recording, Acceptable Use, Fighting, Integrity & Other Employment Policies Leave a Comment » | 401(k), Civil Rights, Claims Administration, COBRA, compensation, compliance, Corporate Compliance, corporate governance, Defined Benefit Plans, Defined Contribution Plans, Discrimination, Disease Management, Drug & Alcohol, EBSA, EEOC, employee, Employee Benefits, Employer, Employers, Employment, Employment Discrimination, Employment Policies, enforcement, ERISA, Executive Compensation, Fair Labor Standards Act, family leave, fiduciary duty, Fiduciary Responsibility, FLSA, Government Accountability, Government Contractors, h-2A Visa, Health Benefits, health insurance, health insurance marketplace, health plan, Health Plans, HR, Human Resources, Insurance, insurers, Internal Controls, Labor Management Relations, LEP, LGBT, Management, medical leave, Mental Health, MEWA, Military Leave, mine safety, MSHA, NLRA, Obamacare, occupational safety, officers, OSHA, Overtime, Patient Empowerment, Pay, pension plan, Plan Admistrator, Prescription Drugs, Public Policy, Reporting & Disclosure, Retirement Plans, Retirements, Sexual Harassment, Unfair Labor Practice, Union, VEVRAA, Wellness Programs | Permalink The Justice Department’s report Tuesday that the Justice Department spent $3.2 million on Special counsel Robert Mueller’s Russia probe its first four-and-a-half months highlights the importance for leaders accountable for their organizations’s Federal Sentencing Guideline, sexual harassment and other corporate compliance programs to appropriately plan and budget for potential investigation and defense costs as part of their compliance and risk management planning. Conducting an internal investigation or defending a government or other allegation of wrongdoing often proves surprisingly expensive. While how much an internal investigation costs can vary widely depending on the issue, its potential civil and criminal liability and public relations implications on the organization and its management, it’s timing, the adequacy of the pre-event compliance management and record keeping relating to the issue, and a host of other concerns, investigation and defense costs often become largely irrelevant when an organization is required to investigate or defend against charges of legal or other business misconduct that expose the organization or its leadership to potentially devastating legal or business consequences. When these events happen, organizations and their leaders often see little option to spend whatever is necessary to defend their organization and its reputation. Compared to the reported internal investigation and defense expenditures of private sector organizations that have faced these these make or break investigations, the Justice Department’s reported expenditures to date on the Russian probe look small. For instance, Twenty-First Century Fox in March, 2017 Securities and Exchange Commission (SEC) filings disclosed spending $45 million tied to litigation related to harassment allegations in the 9 first three quarters of 2017 and $10 million “related to settlements of pending and potential litigations” during its fiscal third quarter as well as having received investigative inquiries and stockholder demands to inspect the books and records of the company which could lead to future litigation in the aftermath of sexual harassment allegations at Fox News. In contrast, Avon Products spent nearly $500 million conducting its internal investigation before paying a $135m fine to the US government to settle charges it violated the Foreign Corrupt Practices Act by giving Chinese authorities $8 million in gifts and cash while it sought to obtain the first “direct sell” license in China. These and other publicly disclosed expenditures make clear that corporate officers and directors need to reassess their investment in compliance both to strengthen the effectiveness of their efforts and to plan to deal with the financial, legal, operational and other costs of investigating and defending potential charges. Aboaut The Author Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: Erisa & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for management work, coaching, teachings, and publications. Ms. Stamer works with businesses and their management, employee benefit plans, governments and other organizations deal with all aspects of human resources and workforce, internal controls and regulatory compliance, change management and other performance and operations management and compliance. Her day-to-day work encompasses both labor and employment issues, as well as independent contractor, outsourcing, employee leasing, management services and other nontraditional service relationships. She supports her clients both on a real-time, “on demand” basis and with longer term basis to deal with all aspects for workforce and human resources management, including, recruitment, hiring, firing, compensation and benefits, promotion, discipline, compliance, trade secret and confidentiality, noncompetition, privacy and data security, safety, daily performance and operations management, emerging crises, strategic planning, process improvement and change management, investigations, defending litigation, audits, investigations or other enforcement challenges, government affairs and public policy. Well-known for her extensive work with health, insurance, financial services, technology, energy, manufacturing, retail, hospitality, governmental and other highly regulated employers, her nearly 30 years’ of experience encompasses domestic and international businesses of all types and sizes. A Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer also shares her thought leadership, experience and advocacy on these and other concerns by her service as a management consultant, business coach and consultant and policy strategist as well through her leadership participation in professional and civic organizations such her involvement as the Vice Chair of the North Texas Healthcare Compliance Association; Executive Director of the Coalition on Responsible Health Policy and its PROJECT COPE: Coalition on Patient Empowerment; former Board President of the early childhood development intervention agency, The Richardson Development Center for Children; former Gulf Coast TEGE Council Exempt Organization Coordinator; a founding Board Member and past President of the Alliance for Healthcare Excellence; former board member and Vice President of the Managed Care Association; past Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; a member and policy adviser to the National Physicians’ Council for Healthcare Policy; current Vice Chair of the ABA Tort & Insurance Practice Section Employee Benefits Committee; current Vice Chair of Policy for the Life Sciences Committee of the ABA International Section; Past Chair of the ABA Health Law Section Managed Care & Insurance Section; ABA Real Property Probate and Trust (RPTE) Section former Employee Benefits Group Chair, immediate past RPTE Representative to ABA Joint Committee on Employee Benefits Council Representative, and Defined Contribution Committee Co-Chair, past Welfare Benefit Committee Chair and current Employee Benefits Group Fiduciary Responsibility Committee Co-Chair, Substantive and Group Committee member, Membership Committee member and RPTE Representative to the ABA Health Law Coordinating Council; past Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee; a former member of the Board of Directors, Treasurer, Member and Continuing Education Chair of the Southwest Benefits Association and others. Ms. Stamer also is a widely published author, highly popular lecturer, and serial symposia chair, who publishes and speaks extensively on human resources, labor and employment, employee benefits, compensation, occupational safety and health, and other leadership, performance, regulatory and operational risk management, public policy and community service concerns for the American Bar Association, ALI-ABA, American Health Lawyers, Society of Human Resources Professionals, the Southwest Benefits Association, the Society of Employee Benefits Administrators, the American Law Institute, Lexis-Nexis, Atlantic Information Services, The Bureau of National Affairs (BNA), InsuranceThoughtLeaders.com, Benefits Magazine, Employee Benefit News, Texas CEO Magazine, HealthLeaders, the HCCA, ISSA, HIMSS, Modern Healthcare, Managed Healthcare, Institute of Internal Auditors, Society of CPAs, Business Insurance, Employee Benefits News, World At Work, Benefits Magazine, the Wall Street Journal, the Dallas Morning News, the Dallas Business Journal, the Houston Business Journal, and many other symposia and publications. She also has served as an Editorial Advisory Board Member for human resources, employee benefit and other management focused publications of BNA, HR.com, Employee Benefit News, InsuranceThoughtLeadership.com and many other prominent publications and speaks and conducts training for a broad range of professional organizations and for clients on the Advisory Boards of InsuranceThoughtLeadership.com, HR.com, Employee Benefit News, and many other publications. Want to know more? See here for details about the author of this update, attorney Cynthia Marcotte Stamer, e-mail her here or telephone Ms. Stamer at (469) 767-8872. Celebrate National Apprenticeship Week November 13-19, 2017 NIOSH Proposed Updated Occupational Safety Chemical MonitoringHeadaches From Equifax and Other Data Rules Dealing With HR, Benefits & Other Breach DOL Announces $40M in Hurricane Unemployment Help Employers Should Manage Potential Unfair Labor Practice Risks From Recording, Acceptable Use, Fighting, Integrity & Other Employment Policies. Leave a Comment » | ADA, Affirmative Action, board of directors, Brokers, Child Labor, Civil Monetary Penalties, Civil Rights, Claims Administration, compliance, conflict of interest, Corporate Compliance, corporate governance, Data Breach, Data Security, directors, E-Verify, EEOC, Employers, Employment, Employment Discrimination, Employment Policies, Employment Tax, English As A Second Language, ERISA, Executive Compensation, Fair Credit Reporting Act, Fair Labor Standards Act, FICA, fiduciary duty, Fiduciary Responsibility, Financial Security, FINRA, FLSA, GINA, Government Contractors, h-2A Visa, health benefit, health plan, HIPAA, Human Resources, I-9, Identity Theft, Insurance, insurers, Internal Controls, Internal Investigations, Labor Management Relations, Leadership, LEP, LGBT, Management, Managment, Military Leave, Non-Compete, Nonresident aliens, occupational safety, OFCCP, officers, OSHA, Overtime, Pay, Plan Admistrator, Privacy, Professional Liability, Rehabilitation Act, Retaliation, Safety, Uncategorized, USERRA, VEVRRA, visas, Wage & Hour, Whistleblower, Worker Classification | Permalink You are currently browsing the archives for the EEOC category.

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professional_accounting

Your browser version is out of date and no longer supported. Please upgrade to one of our supported browser versions. Strengthening Organizations, Advancing Economies ABOUT IFAC Organization Overview Structure & Governance Forum of Firms and Transnational Auditors Intellectual Property, Translations & Permissions Membership & Compliance Program Careers at IFAC IFAC FOCUS AREAS Accountability. Now. Adoption of International Standards Developing the Global Profession Global Representation and Advocacy Professional Accountants in Business Small and Medium Practices Your Portal to Global Accountancy Knowledge, Resources, and News Global Knowledge Gateway Business Reporting Finance Leadership & Development Performance & Financial Management Risk Management & Internal Control GatewayTV: Video Interviews, Learning & Event Coverage IFAC Global Independent Standard-Setting Boards The International Auditing and Assurance Standards Board sets high-quality international standards for auditing, assurance, and quality control that strengthen public confidence in the global profession. The International Accounting Education Standards Board establishes standards, in the area of professional accounting education, that prescribe technical competence and professional skills, values, ethics, and attitudes. The International Ethics Standards Board for Accountants sets high-quality, internationally appropriate ethics standards for professional accountants, including auditor independence requirements. The International Public Sector Accounting Standards Board develops standards, guidance, and resources for use by public sector entities around the world for preparation of general purpose financial statements. Standard-Setting Boards About IAASB Clarity Center Publications & Resources Projects Meetings News & Events CAG Home › Auditing & Assurance › Clarity Center › Support and Guidance The Clarified Standards ISA Implementation Monitoring FAQs and Other Clarity Resources Implementation of the Clarified Standards The clarified standards will introduce significant changes to audits. Both users of the current suite of ISAs and ISQC 1, and users of national standards based on these, will be affected, in addition to jurisdictions planning adoption of the new standards. The level of effort that is needed for successful implementation should not be underestimated. It is, therefore, particularly important to take action at the earliest opportunity to deal with all aspects of implementation. This includes education, continuing professional development courses, and appropriate adjustments to current audit programs and procedures. Successful implementation of the clarified standards will depend upon the level of preparation when the new standards come into effect. The IAASB has created an overview and guide to the resources that have been developed to support implementation of the clarified ISAs. Momentum of Adoption and Implementation Efforts Some may find it helpful in their adoption and implementation efforts to understand adoption and implementation efforts in other jurisdictions. For this purpose, the following table identifies countries that use the clarified standards, or indicated that the clarified standards will be used in 2014 and beyond. The Basis for ISA Adoption by Jurisdiction chart, prepared by the IFAC Member Body Compliance Program, illustrates ISA adoption approaches that may be taken by these jurisdictions. This table has been compiled as of May 21, 2019, from publicly available information about adoption status in different jurisdictions and from information provided to IFAC Staff by national auditing standards setters. It is included for illustrative purposes only and may not be complete or up-to-date. Jurisdictions that have adopted or plan to adopt the clarified standards who are not listed on this table are encouraged to inform IFAC of their adoption and implementation plans, including the timing of such plans. Jurisdictions Using the Clarified ISAs or Committed to Using Them in the Near Future (130): France (CSOEC) United Arab Emirates* United States** Puerto Rico** Kuwait Romania ** Private Companies * Abu Dhabi and Dubai In October 2008, the staff of the IAASB issued a Clarity Project Update, which encourages all those with responsibilities relating to audits of financial statements to consider implementation issues as soon as practicable. It provides general considerations that may be relevant to: National standards setters, legislators, and others involved in setting standards; Regulators and oversight bodies; IFAC member bodies; and Accounting firms and audit practitioners Staff Questions and Answers In August 2009, the staff of the IAASB released a Questions & Answers publication, Applying ISAs Proportionately with the Size and Complexity of an Entity, to highlight how the design of the ISAs issued under the Clarity Project enables them to be applied in a manner proportionate with the size and complexity of an entity. The publication is relevant in the context of any audit, but will be of particular help to those who audit, or oversee the audits of, small- and medium-sized entities. ISA Modules IAASB staff has developed a series of ISA Modules focusing on some of the new and more significantly revised ISAs. Each module consists of a short video and slides that explain the key principles of, and major changes in, individual ISAs. This non-authoritative material is designed to be of assistance to auditors in the field, trainers, and those responsible for promoting adoption and implementation of the clarified ISAs. Videos and slide presentations are available for the titles listed below: ISA Modules Issued in 2010 ISA 580, Written Representations ISA 620, Using the Work of an Auditor's Expert Materiality, Misstatements and Reporting - Part I Materiality, Misstatements and Reporting - Part II Materiality, Misstatements and Reporting - Part III Introduction to the Clarity Project The Clarified ISAs, Audit Documentation, and SME Audit Considerations (ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs, and ISA 230, Audit Documentation) ISA 260, Communication with Those Charged with Governance ISA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Managements ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures ISA 550, Related Parties ISA 600, Special Considerations - Auditors of Group Financial Statements (Including the Work of Component Auditors) Permissions and Translations For requests regarding translations of the videos, slides or supporting notes, or for transcripts of the videos for translation purposes, please email [email protected]. IAASB on Twitter The IAASB invites you to join one of three special webinars (English, French and Spanish) covering the recently released Less Complex Entities Discussion Paper https://t.co/z5S1BWu7ek on July 22,2019 (English); July 23, 2019 (French); July 24, 2019 (Spanish) (1 week ago) Register here: July 22 7:00am – 8:00am EST https://t.co/QE3MNa8Td3 (English) July 23 8:00am – 9:00am EST https://t.co/dfBimKFpix (French) July 24 9:00am – 10:00am EST https://t.co/YOgGuPExcF (Spanish) (1 week ago) RT @IFAC_SMP: Exploring the Future Options for Audits of Less Complex Entities @IAASB_News @IFAC https://t.co/sh1IUGkmaQ (2 weeks ago) The IAASB welcomes new Chair, Tom Seidenstein on his first day with the IAASB team. https://t.co/VhtdwgYBts (2 weeks ago) Deadline for comments on Quality Management EDs - Firm level (ISQM 1), Engagement level (ISA 220 Revised), & EQRs (ISQM 2) is July 1, 2019. Submit your comments here https://t.co/WgBcOxob0e (3 weeks ago) HOME | ABOUT IFAC | PUBLICATIONS & RESOURCES | NEWS & EVENTS | IP, TRANSLATIONS & PERMISSIONS | CAREERS AT IFAC | CONTACT | SITE MAP GATEWAY: AUDIT & ASSURANCE | BUSINESS REPORTING | ETHICS | FINANCE LEADERSHIP & DEVELOPMENT | GOVERNANCE | PERFORMANCE & FINANCIAL MANAGEMENT | PRACTICE MANAGEMENT | RISK MANAGEMENT & INTERNAL CONTROL | SUSTAINABILITY | TECHNOLOGY | GATEWAYTV: VIDEO INTERVIEWS, LEARNING & EVENT COVERAGE STANDARD-SETTING BOARDS: IAASB | IAESB | IESBA | IPSASB COMMITTEES: NOMINATING | PAIB | PAO DEVELOPMENT | SMP | TAC | CAP Click to subscribe to a feed... Spotlight News Copyright © 2019 International Federation of Accountants. All rights reserved. Any person accessing this site agrees to the Terms of Use and Privacy Policy. Please add your name (optional): All publications are available to the public; however, you must register/login to view them. Important Note: Please read our website Terms of Use. ALL RIGHTS ARE RESERVED. You may not reproduce, store, transmit in any form or by any means, with the exception of non-commercial use (i.e. professional and personal reference and research work), translate, modify or create derivative works or adaptations based on such publications, or any part thereof, without the prior written permission of the International Federation of Accountants (IFAC). Please direct permission requests to [email protected]. See also Permissions Information. Agree & Sign In Agree & Register

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professional_accounting

There are many facets to running a business, but the one area that arises in every business owner’s mind is taxes. Specifically, the question is how to operate the business while paying the least amount of taxes possible. This article will touch on six areas that will help you minimize your tax burden. Choosing the right type of entity under which to run your business is a very important decision regarding taxes and protection of your personal assets. The choices available are sole proprietorship, partnership, corporation (S Corp or C Corp), and limited liability company (LLC). The income and expenses for a sole proprietorship are reported on Schedule C and any profit of $400 or more from the business is subject to self-employment tax as well as your ordinary income tax rate. The net loss from this type of entity can be used to offset any other ordinary income reported on the 1040. Partnerships and S Corps are what the Internal Revenue Service refer to as “flow through” entities. Income and expenses are reported on Form 1120S (S Corp) or Form 1065 (partnership). These two entity types do not pay taxes on their profits. The profit flows through to the shareholder(s) in an S Corp and partners in the partnership and taxed at their ordinary income tax rate on their individual tax return. The losses also flow through, but there might be some limitations to how much you can deduct. The advantage of the S Corp is that its profits are not subject to self-employment tax. Depending on the type of partnership you choose, the profits from this entity are likely subject to self-employment tax. The C Corp pays taxes on its profits and income and expenses are reported on Form 1120. This is a legal entity separate from its owners (shareholders). Shareholders are taxed if the corporation issues dividends. This is where “double taxation” occurs. An LLC may be classified for Federal income tax purposes as either a sole proprietorship, a partnership or a corporation. A domestic LLC with at least two members is automatically classified as a partnership unless it elects to be treated as a corporation. This is done by filing IRS Form 8832 and provides the advantages of a corporation. The main advantage of choosing an LLC is that members normally have no personal liability for the debts and obligations of the company. Most business owners shy away from this deduction because of the scrutiny exercised by the IRS in recent years. But if done correctly, you could reduce your taxable income. Remember that the office space must be used exclusively for your business and that you have no other location where you substantially conduct administrative or management activities of your business. You can deduct the business percentage of mortgage interest or rent, property taxes, insurance, utilities, and also depreciate part of the purchase price of your home. If you frequently use your vehicle to conduct business, you can deduct the cost of the miles driven. The key is to keep a good record of the miles traveled. Note the date, destination, and miles. The miles could add up and the current standard mileage rate for 2012 is 55.5 cents per mile. A good idea is to hire your child to work in your business. You can deduct the wages and other payroll costs to help reduce taxable income. And if the gross wages amount to less than the standard deduction for 2012 ($5,950), your child will not have to report the income. The cost of equipment used in your business must be depreciated and deducted over several years. But the IRS allows the Section 179 Expense for equipment placed in service during the tax year. You can deduct the full cost of newly purchased equipment up to certain limits. Also allowed is Bonus Depreciation. For 2012, you can deduct 50% of the cost of equipment placed in service during the tax year. The remaining cost must be deducted according to depreciation rules. You cannot overlook the importance of a good accounting or bookkeeping system. Good record keeping will help you not miss deductions that could get lost otherwise, and help substantiate every deduction to which you are entitled. It will reduce your tax preparation costs and make your tax preparer a much happier person. Raul is the owner and President of the public accounting firm Raul Valdivia, CPA, a business of Valdivia Financial, Inc. located in Salem, OR. He is a Certified Public Accountant and a Certified Fraud Examiner with 22 years in the accounting profession, including eight years as a grants manager/accountant with a nonprofit organization and over eleven years as an auditor with the Oregon Secretary of State Audits Division. The firm specializes in assisting small businesses get on the right track regarding their accounting, tax, and bookkeeping needs, as well as business consultation.

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professional_accounting

Study of Treasury Bills and Yield Curve in Time-Varying Interest Rates The bonds which are issued by U.S. Government are called Treasury bonds. This is no uncertainty when it comes to repayment of treasuries. The debt which is associated with treasury is issued by the treasury department of the U.S. Treasuries are of three types: Treasury Bills or T-Bills which have maturity of less than a year. Treasury notes whose maturity can range from 1 to 10 years. Treasury bonds which have maturity of more than 10 years. Those bonds which have a period of 30 years are called long bonds. In the month of October 2004, the U.S. owned treasuries which were worth $7.4 trillion. Buyers and sellers of treasuries’ are found very easily therefore the transaction of treasuries do not pose any problem. Trading volume plays a very crucial role in the economy’s GDP. In 2004, the trading value was $130 trillion per annum, which was nearly ten times of the economy’s GDP. The interest rate on treasuries vary according to their terms of maturity. Yield curve plays an important role in determining the interest rate on treasuries. It is represented in the form of a graph, where the time of maturity is plotted on the x-axis while the annualized interest rates are plotted on the y-axis REVIEW QUESTION 1.Explain the different types of treasuries. 5.3 A SHAPES OF YIELD CURVES Generally, four shapes are taken into consideration while studying yield-curves. These are explained below: Flat: When the difference between annualized short term and long term rates are very little, it gives rise to a flat curve. Upward sloping: upward sloping curves are normal curves. Here, the short term rates are lower than long term rates. Downward sloping: The short term rates are higher than long term rates. This is the inverted curve. Humped: Long and short-term rates are lower than medium rates. These curves are illustrated below: 5.3 B AN EXAMPLE: THE YIELD CURVE OF DECEMBER 31, 2004 The situation of December 31, 2004 has been explained with the help of a graph. As we can see, it is an upward-slopping graph. It says that a three month treasury bought would have yielded an annual interest rate of 1.63% per annum and a purchase of a 20-year bond would have yielded an annual interest rate of 4.85% per annum. The process of interpolation is used for determining an interest rate on a non-listed bond. Forward rate of return:When investors buy a stock today, they expect a return value in future. This is known as forward rate of return. Holding rate of return:The return which is realized by the investor during a real or expected value of time is called holding rate of return. It is calculated as the income plus the price appreciation during the specific year, divided by the cost of the investment. 5.3 C BOND PAYOFFS AND INVESTMENT HORIZON There is no relation between the kind of bonds and your investment horizon. Let a 3-year bond offer 2.85% and the 1-year bond offer 2. 23%. If you want the money in one year, how will you do it? There is a provision of buying a 3-year bond today and selling it out the next year. At that time, it would have become a 2-year bond. But, this investment strategy will give you only 2.23%, which the 1-year bond was providing you. 5.3 D EFFECT OF INTEREST RATE ON SHORT AND LONG TERM BONDS It has often been found that long term bonds are riskier than short-term bonds. There is no uncertainty associated with payment of treasury bonds. Let us study the effect of sudden interest rate change on the maturity of the bonds. Let us understand this by studying a 20-year bond and a 1-year note. If the interest rate is 4.85%, then a $1000 20-year zero-bond investment will cost around $387. If the interest rate will go up, you will be at a loss, and vice-versa. The effect of a 10 basis point will change the value of the bond in the following way: Every $1 million investment will result in a risk of $19,000 in case of 20-year bond. Let us now assume a bank note, which has the interest rate of 4.85 and a 10 basis point change, as the previous case. Here, the values of the computation are $954.65 at 4.75%, $953.74 at 4.85%, and $952.83 at 4.95%. The instant rates of return are given by Every $1 million investment will result in a risk of $9, 50 in case of the 1-year bank note. The effect of rate of interest is more pronounced in long term bonds. Treasury bonds are said to be risk-free because they return the promised payment, but the interim interest rate can change their value. Therefore, in true sense only short-term Treasury Bills can be considered risk-free. A one-year and a 10-year zero bond, both offering an interest rate of 8% per annum. What is the effect of an increase of 1 basis interest rate in the 1-year bond? What is the effect of an increase of 1 basis interest rate in the 10-year bond? Calculate the ratio of the changed values obtained in the above two questions. This is called the derivative of the value with respect to the change in the interest rate. Which one is the larger derivative? Links of Previous Main Topic:- Introduction of corporate finance The time value of money and net present value Stock and bond valuation annuities and perpetuities Working with time varying rates of return Links of Next Financial Accounting Topics:- Why is the slope of yield curve upward Corporate insights about time varying costs of capital obtained from the yield curve Extracting forward interest rates Shorting and locking in forward interest rate Bond duration Duration stability Duration hedging Continuous compounding Institutional knowledge about compounding and price quotes

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professional_accounting

Justia Forms Business Contracts JOHNSON OUTDOORS INC Description of Registrants Securities Description of Registrants Securities EX-4.1 2 ex4_1.htm EXHIBIT 4.1 DESCRIPTION OF CAPITAL STOCK The following is a summary description of the material terms of the common stock (including Class A and Class B common stock) and preferred stock of Johnson Outdoors Inc. (the “Company,” “we,” “us” or “our”). It may not contain all the information that is important to you. For additional information, you should look at our articles of incorporation, as amended, and our amended and restated by-laws, copies of which are on file with the SEC as exhibits to our periodic reports and are incorporated by reference. Our Class A common Stock is the only class of securities of the Company registered under Section 12 of the Securities Exchange Act of 1934. We are authorized to issue up to 20,000,000 shares of Class A common stock, $0.05 par value per share, and up to 3,000,000 shares of Class B common stock, $0.05 per share. Dividend Rights. Subject to limitations under Wisconsin law and the rights of any outstanding shares of preferred stock, holders of our common stock are entitled to ratably receive dividends or other distributions when and if declared by our board of directors out of funds legally available for that purpose. Additionally, our articles of incorporation, as amended, provide that no dividend, other than a dividend payable in shares of our common stock, may be declared or paid upon the Class B common stock unless such dividend is declared or paid upon both classes of common stock. Whenever a dividend (other than a dividend payable in shares of our common stock) is declared or paid upon any shares of Class B common stock, at the same time there must be declared and paid a dividend on the shares of Class A common stock equal in value to 110% of the amount per share of the dividend declared and paid on the shares of Class B common stock. Whenever a dividend is payable in shares of our common stock, such dividend must be declared or paid at the same rate on the Class A common stock and the Class B common stock. Holders of Class A common stock are entitled to elect 25%, or the next highest whole number, of the members of our Board of Directors and holders of Class B common stock are entitled to elect the remaining directors with each outstanding share of our common stock (whether Class A common stock or Class B common stock) being entitled to one vote per share held of record in connection with the election of our directors. Additionally, each outstanding share of our Class A common stock and Class B common stock is entitled to one vote per share held of record on all matters to be voted upon by the holders of such shares in any matter where such holders vote as separate classes. With respect to matters other than the election of directors or any matters for which class voting is not required by our articles on incorporation or by applicable law, holders of our Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to ten votes per share. At a meeting of shareholders at which a quorum is present, for all matters other than the election of directors, a matter is approved if the votes cast favoring the matter exceed the votes cast opposing the matter unless the matter is one upon which a different vote is required by our articles of incorporation, as amended, our amended and restated by-laws or the Wisconsin Business Corporation Law. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present, taking into account the voting by class of common stock set forth above. There is no cumulative voting with respect to the election of directors or any other matter. Under the Wisconsin Business Corporation Law, the affirmative vote of shareholders holding at least a majority of the shares entitled to vote (taking into account our two class voting structure described above) is generally required to approve (i) a merger to which we are a party, (ii) the sale, lease, exchange or other disposition of all or substantially all of our assets, (iii) an amendment to our articles of incorporation, as amended, which requires a shareholder vote, and (iv) our dissolution. Liquidation, Dissolution or Winding Up. If we liquidate, dissolve or wind up, subject to the rights of any outstanding shares of preferred stock, the holders of our common stock (with each of the Class A common stock and Class B common stock treated equally) are entitled to share ratably in all assets legally available for distribution to our shareholders after the payment of all of our debts and other liabilities. Conversion Rights. Each share of Class B common stock is convertible at any time by the holder into one share of Class A common stock. Rights and Preferences. Holders of our common stock have no preemptive, conversion (other than the conversion rights granted to holders of the Class B common stock described above) or subscription rights. There are no redemption or sinking fund provisions applicable to shares of our common stock. All outstanding shares of our common stock are fully paid and not liable to further calls or assessments by us. Transfer Agent and Registrar. Equiniti serves as the registrar and transfer agent for our Class A common stock. Stock Exchange Listing. Our Class A common stock is listed on the NASDAQ Global Select Market SM under the trading symbol “JOUT”. The Company is authorized to issue 3,000,000 shares of preferred stock with a par value of $1.00 per share. Our board of directors has the authority, without further action by our shareholders, to issue preferred stock in one or more series and to fix from time to time the number of shares to be included in each such series and the designation of such series, and to fix the relative rights and preferences of the shares of any such series, with respect to: the rate of dividend, which may be cumulative; the price at and the terms and conditions on which shares may be redeemed; the amount payable upon shares in the event of voluntary or involuntary liquidation; whether or not and to what extent such series has voting rights, including with respect to the election of directors; sinking fund provisions for the redemption or purchase of shares; and the terms and conditions on which shares may be converted into shares of any other class or series. Except as to the matters expressly set forth in the bullet points above or as otherwise stated in our articles of incorporation, as amended, all series of preferred stock, whenever designated and issued, must have the same preferences, limitations and relative rights and will rank equally, share ratably and be identical in all respects as to all matters. Our board of directors may authorize the issuance of shares of preferred stock with rights that could adversely affect the rights of the holders of our common stock. The purpose of authorizing our board of directors to issue shares of preferred stock and determine its rights and preferences is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of the Company and may adversely affect the market price of our Class A common stock and the voting and other rights of the holders of our common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of our common stock until our board of directors determines the specific rights attached to that preferred stock. Wisconsin Anti-Takeover Provisions Under Section 180.1150 of the Wisconsin Business Corporation Law, unless the board of directors otherwise specifies, the voting power of shares of a “resident domestic corporation,” such as us, which are held by any person holding in excess of 20% of the voting power of our stock will be limited to 10% of the full voting power of the shares. This statutory voting restriction does not apply to shares acquired directly from us, acquired in a transaction incident to which our shareholders vote to restore the full voting power of the shares and under other circumstances more fully described in Section 180.1150 of the Wisconsin Business Corporation Law. Sections 180.1141 through 180.1144 of the Wisconsin Business Corporation Law provide that a “resident domestic corporation,” such as us, may not engage in a “business combination” with a person beneficially owning 10% or more of the voting power of our outstanding stock (an “interested stockholder”) for three years after the date the interested shareholder acquired its 10% or greater interest, unless the business combination or the acquisition of the 10% or greater interest was approved before the stock acquisition date by our Board of Directors. After the three-year period, a business combination that was not so approved can be completed only if it is approved by a majority of the outstanding voting shares not held by the interested shareholder or is made at a specified price intended to provide a fair price for the shares held by noninterested shareholders. Sections 180.1130 through 180.1132 of the Wisconsin Business Corporation Law provide that a “resident domestic corporation,” such as us, may not engage in a “business combination” with a person beneficially owning 10% or more of the voting power of our outstanding stock (a “significant stockholder”) unless the business combination either satisfies certain fair price criteria or the business combination is approved by at least 80% of the voting power of our stock and at least two-thirds of the voting power of our stock not beneficially owned by the significant stockholder. Requirements for Advance Notification of Shareholder Nominations and Proposals Our amended and restated by-laws establish advance notice procedures with respect to shareholder proposals to be brought before a shareholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

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professional_accounting

[email protected] Tax Diary February/March 2018 Tax Rate Guide Tax Rates & Tables ⇒ NavigateHomeAbout Us– The Team– Testimonials– Job OpportunitiesAccountancy Services– Accounts– Management Accounting– Bookkeeping Services– Payroll Services– VAT Services– TaxationNews/Events– Blog– Auto EnrolmentResources– Tax Diary February/March 2018– Autumn Budget 2017– Tax Rate Guide– Newsletters– Calculators– Downloadable Forms– Tax Rates & Tables– Useful LinksContact Archive for the ‘Landlords’ Category Autumn Statement Summary Tuesday, December 1st, 2015 Tax Credit U-Turn In the Summer Budget the Chancellor proposed cutting the rates and thresholds for working and child tax credits. This would have reduced the income of many low-paid families significantly. The House of Lords blocked the legislation which was to have introduced this change. The Chancellor has now announced that the rates and thresholds for tax credits will be frozen for 2016/17 at the 2015/16 levels. There is one exception – the disregard of rising income is to be brought in line with the disregard for falling income. Both will be set at £2,500 for 2016/17. The Government is also proposing to review the rules concerning making single or joint claims for tax credits as this is an area where claimants are easily confused and many mistakes are made. Property Investors hit with stamp duty and land tax increases In the Summer Budget the Chancellor announced a restriction on the deductibility of interest from rental income for individual landlords of residential property. This restriction will be phased in from 2017/18 to 2020/21, and it may make letting uneconomic for landlords whose businesses are relatively highly geared. The latest attack on property investors is a proposed 3% increase in Stamp Duty Land Tax. Landlords who can buy properties to let without a mortgage are not affected by the interest restriction. To discourage such cash-rich individuals from purchasing multiple properties to let or to hold as second homes, particularly in holiday areas like Cornwall, an additional SLDT charge of 3% will be payable by individual purchasers of residential properties worth over £40,000 from 1 April 2016. This supplemental SDLT charge won’t be payable by corporate purchasers (15 properties or more) or by funds such as Real Estate Investment Trust (REITS). The proposed rates are: Purchase price SDLT rate, cumulative Up to £125,000 3% £3,750 £125,000 – £250,000 5% £10,000 £925,000 – £1,500,000 13% £138,750 £1,500,001 and over 15% SDLT is currently payable within 30 days of the completion of the purchase and the SDLT return must be filed within the same period. The Government is proposing to reduce the payment and filing period to just 14 days from the completion date of the sale, sometime in 2017/18. Capital Gains Tax changes CGT is normally payable by individuals by 31 January after the end of the tax year in which the gain arose. This gives the taxpayer between 10 and 22 months from receipt of the proceeds to calculate the tax due and pay it over to HMRC. From 6 April 2015 non-resident taxpayers have had a shorter time frame in which to report the sale of UK residential property and pay the tax due – only 30 days from the completion of the disposal. HMRC now propose to extend the 30 day reporting and CGT payment deadline to all UK taxpayers who make taxable gains when selling residential properties for disposals on or after 6 April 2019. ISA Limits for 2016/2017 to stay the same The annual limit for savings in an ISA has been frozen at £15,240 for 2016/17. The Junior ISAs limit has been frozen at £4,080. Car and Fuel benefit charges Diesel company cars currently carry a 3% supplement on the percentage of list price used to calculate the taxable benefit. This diesel supplement was to be removed from 6 April 2016, but it will now stay in place until 2020/21. Employees and directors with company cars, and who also have some or all of their private fuel paid for by their employers, are subject to the fuel benefit charge – determined by multiplying a notional list price by the appropriate percentage for the car, based on its CO2 emissions. The car fuel notional list price will increase from £22,100 to £22,200 with effect from 6 April 2016. For a company car emitting between 111 to 115g CO2 per km, the scale charge would be 20% of £22,200 and this would result in taxable fuel benefit of £4,440 and £1,776 income tax for a 40% taxpayer. At 11p per mile the employee would need to drive 16,145 private miles to make having private fuel paid for worthwhile. Private use of company vans Where employees are provided with a company van, the taxable benefit increases from £3,150 to £3,170 for 2016/17 and there will be an additional taxable benefit of £598 where private fuel is provided by their employer. Note that this charge does not apply to all company van drivers, only those who use the van for private journeys. Company Car advisory fuel rates Not part of the Autumn Statement, but you need to know that some of the rates are reduced from 1 December 2015 (previous rates are shown in brackets where there was a change): engine size petrol diesel LPG 1,400 cc or less 11p 7p 1,600 cc or less 9p 1,401cc to 2,000cc 13p (14p) 9p 1,601cc to 2,000cc 11p over 2,000cc 20p (21p) 13p 13p (14p) National Insurance Rates frozen for 2016/2017 There will be no increase in the rates of national contributions (NICs) for employers, employees nor the Class 4 rate for the self-employed for 2016/17, although the Upper Earnings Limit for employee contributions and Upper Profits Limit for Class 4 contributions will be increased to £43,000, in line with the higher rate tax threshold. Employees’ contributions will be payable at 12% on earnings between £155 per week and £827 per week and 13.8% employers contributions will start at £156 per week. The employment allowance increases to £3,000 for 2016/17 and will continue to be deductible from employers’ NIC, although it will no longer be available to one man companies. Apprenticeship levy from 2017 A new apprenticeship levy will be introduced from 6 April 2017. Although all employers will be required to pay this new levy, set at 0.5% of their annual payroll cost, each employer will also have an annual credit equivalent to £15,000 to set against the levy, which means only the largest employers with payrolls of £3 million or more will actually pay the levy. Based on an average salary, this means that only employers with more than around 100 to 120 employees will be affected. It is not clear at this stage as to what is meant by payroll. Employers who take on apprentices will receive vouchers funded by the apprenticeship levy to set against the cost of those apprentices. Announcements for businesses Support for smaller businesses The Chancellor reported that the UK’s small and medium sized enterprises now employ 15.6 million people, up from 13.7 million in 2010. Over the last two years the number of small businesses employing someone other than the owner has grown by 100,000. The government understands that small businesses need tailored support. Already, Start-Up Loans have provided £180 million of funding to 33,600 entrepreneurs and in the last Parliament, the government cut the cumulative burden of regulation by over £10 billion. Other support for smaller businesses that have previously been announced include: From April 2016 the Employment Allowance will rise to £3,000, benefiting over 1 million employers, and helping many businesses take on their first employee. The cancellation of the planned September 2015 fuel duty increase means a small business with a van will have saved £1,357 by the end of 2015-16 compared to plans inherited by the government at the start of the last Parliament. The government will meet its commitment to 75,000 Start-Up Loans by the end of this Parliament. English firms can claim the small business rates relief if they only use one property and its rateable value is less than £12,000. This relief was due to end on 31 March 2016. The Chancellor has announced today that the relief will be extended for a further year. Businesses will now get 100% relief until 31 March 2017 for properties with a rateable value of £6,000 or less. This means you won’t pay business rates on properties with a rateable value of £6,000 or less. The rate of relief will gradually decrease from 100% to 0% for properties with a rateable value between £6,001 and £12,000. Car benefit diesel supplement The 3% supplement added to the benefit in kind charge for drivers of diesel powered company cars is to continue beyond April 2016 and will now cease to apply from April 2021. Announcements for home owners London help to buy loan scheme The present help to buy loan scheme that applies across the UK, provides a 20% contribution from government, requires a 5% deposit from the buyer, with the balance funded by a 75% mortgage. As house prices are running at much higher levels in London, from early 2016 qualifying buyers in London will still need to find a 5% deposit, but government will contribute up to 40% with the required mortgage funding dropped to 55%. These government equity loans will now be available until 2021. Help to buy shared ownership scheme to be extended Shared ownership allows families in England, on lower incomes, to buy an interest in their home and rent the rest. People can buy between 25% and 75% of a home in this way. The rent charge won’t be more than 3% of the non-purchased part of the property. The qualifying income limits are to be changed. Current restrictions will be lifted from April 2016. Anyone who has a household income of less than £80,000 outside London, or less than £90,000 inside London, will be able to participate. First time buyers’ starter homes discount 200,000 new homes are to be designated Starter Homes and developers will be able to offer them to first time buyers aged under 40 at a 20% discount. Stamp duty increase for second homes and buy-to-lets From 1 April 2016, individuals buying a second home or a buy-to-let property will face an extra 3% stamp duty charge above the current stamp duty land tax rates. Housing Association tenants Rights to buy to be extended to Housing Association tenants during 2016. Potentially, this could give 1.3 million households the opportunity to buy their own home. Capital Gains Tax (CGT) on sale of residential property From 2019, the government intends to require a payment on account, within 30 days of a sale, of any CGT due on the disposal of a residential property. This will not apply where no CGT is payable, for example if covered by Private Residence Relief. Announcements for individuals As announced in the introduction to this statement the intended reduction in tax credits next year has been withdrawn. For 2016-17: The rate at which a claimant’s award is reduced over the income threshold, will remain at 41% of gross income. The income threshold will remain at £6,420. The income threshold for child tax only claimants will remain at £16,105. The income disregard will reduce from £5,000 to £2,500. As the other elements that make up the payment of tax credits are also unchanged claimants should find their benefits from this source unchanged from April 2016, unless their personal circumstances or income levels have changed. The Chancellor did comment that tax credits are being phased out in any event and replaced by universal credits. Basic state pension increase announced From April 2016, the basic weekly state pension will increase to £119.30, an increase of £3.35. Part-time rail season tickets and money back… Two new features to be introduced: Commuters will be able to buy part-time season tickets on selected routes, and Commuters will be able to claim money back if a train is more than 15 minutes late. VAT raised on sales of women’s sanitary products The UK is unable to zero rate VAT on these products under existing EU rules. Whilst representations are being made the Chancellor is to redirect the VAT revenue raised to selected women’s charities. George Osborne said: “300,000 people have signed a petition arguing that no VAT should be charged on sanitary products. We already charge the lowest 5% rate allowable under European law and we’re committed to getting the EU rules changed. Until that happens, I’m going to use the £15 million a year raised from the Tampon Tax to fund women’s health and support charities. The first £5 million will be distributed between the Eve Appeal, SafeLives, Women’s Aid, and The Haven – and I invite bids from other such good causes.” Warm home discount scheme extended The present £140 discount from electricity bills for certain low income households is to be extended and can be claimed from suppliers to 2020-21. Minor whiplash claims to be curtailed In an attempt to curtail exaggerated whiplash claims the government is ending the right to claim cash compensation. More injuries will be able to go to the small claims court as the upper limit is to be increased from £1,000 to £5,000. This may reduce the cost of insurance for motorists – estimated falls of £40 to £50 a year can be expected. This entry was posted on Tuesday, December 1st, 2015 at 5:04 pm by Slaters and is filed under Budget, Business, Business planning, Company Tax, Employers, Government, HMRC, Landlords, Personal Tax, Renting, RTI, Tax, Tax planning, Tax relief. You can follow any responses to this entry through the RSS 2.0 feed. Business rates appeal proposals are a ‘barrier to justice’ The Enterprise Bill is currently going through Parliament. Part of the Bill reforms the business rates appeals system. The government’s changes have been criticised by rates experts and business groups, amid concerns that the changes will act as a ‘barrier to justice’. The Valuation Office Agency (VOA), which is part of HMRC, is responsible for compiling and maintaining non-domestic rating lists. Currently officers of the VOA are prevented from sharing the information they collect about properties and ratepayers with local government. This means that businesses have to provide the same information twice to the VOA and local government. It can also mean that the properties have to be inspected by both the VOA and the local authority. The Bill therefore allows the VOA to disclose information to a ‘qualifying person for a qualifying purpose’ such as a local authority. The changes have been criticised by some people. They say the legislation will act as a ‘barrier to justice’ for businesses seeking to appeal. Transparency around how business rates or tax on commercial property is measured has long been called for by small businesses. Critics of the bill claim that it has failed to address this issue, as it permits the VOA to share rate measurement information with local authorities but not with individual businesses. Jerry Schurder, former chairman of the Royal Institution of Chartered Surveyors said: ‘In business rates, your own liability depends not on your own property but what’s being paid by lots of other people and you have no right to obtain that information. In any other tax, the taxpayer has the relevant information to make an appeal but not on rates.’ Meanwhile John Allan, national chairman at the Federation of Small Businesses, commented: ‘While we support moves to make it easier to navigate business rates appeals, we have concerns around the proposals in the Bill. Their primary aim seems to be reducing the number of appeals by making the process more difficult, rather than by addressing the underlying issues, in particular making the appeals system and the VOA more transparent. If increased transparency is not delivered, then confidence in the business rates system will continue to be undermined.’ Read more about the legislation – click here Read the full article – click here This entry was posted on Tuesday, October 13th, 2015 at 11:31 am by Slaters and is filed under Business, Company Tax, Employers, HMRC, Landlords, Property, Renting, Tax, Tax planning. You can follow any responses to this entry through the RSS 2.0 feed. Annual Tax on Enveloped Dwellings (ATED) updated procedures Since 2013 a range of measures have been introduced to discourage the holding of residential property in the UK via companies, partnerships and collective investment schemes. In summary, these measures are: Stamp Duty Land Tax (SDLT) is payable at 15% on the acquisition on or after 20 March 2014 of properties costing more than £500,000 an Annual Tax on Dwellings (ATED) applies at a fixed amount depending on value and Capital gains tax (CGT) at 28% is payable on a proportion of gains for the period that the property has been subject to ATED. There are specific reliefs and exemptions for certain types of properties. Changes in limits Prior to 1 April 2015 the lower property value threshold for ATED was a value of more than £2m on 1 April 2012, or at acquisition, if later. With effect from 1 April 2015, residential properties valued at more than £1m and up to £2m on 1 April 2012, or at acquisition if later, were brought into the charge. From 1 April 2016 another new valuation band comes into effect for properties valued at more than £500,000 but less than £1 million. The threshold for ATED-related CGT disposal consideration has also reduced from £2m to £1m from 6 April 2015 and will further reduce to £500,000 from 6 April 2016. ATED Procedures ATED is reported and the tax paid through an annual return. The return periods run from 1 April to 31 March each year. Normally an ATED return must be made within 30 days of the date on which the property first comes within the charge to ATED for any chargeable period. Where the property is within the scope of ATED on 1 April each year, the return must be filed by 30 April in the year of charge. Payment of the tax is due with the return. There is a special rule for properties coming within the scope of ATED from 1 April 2015 under the lower threshold of £1m detailed above. The rule is that returns for the chargeable period beginning 1 April 2015 must be filed by 1 October 2015 if the property was held on 1 April 2015 or within 30 days of acquisition if this is later. Payment of the tax is due 31 October 2015. The chargeable person must submit an ATED return for any property that is within the scope of ATED for the relevant chargeable period. There are reliefs available which may reduce the liability in part or to zero. However, all claims for reliefs must be made in a new ‘relief declaration return’ and these new returns to claim relief have now been made available. Returns for properties falling within the lower band of £500,000 are due for the chargeable period 1 April 2016 to 31 March 2017. The normal filing dates apply to properties within this new band. For example, if you hold a property valued at more than £500,000 on 1 April 2016, you must file your return and pay the tax by 30 April 2016. In addition, a new ‘relief declaration return’ is introduced. Broadly, for each type of ATED relief being claimed, the company can submit a relief declaration return stating that a relief is being claimed in respect of one or more properties held at that time. No details are required of the individual properties or the number of properties eligible. Where a property is acquired in-year which also qualifies for the same type of relief, the existing return is treated as also having been made in respect of that property. A normal ATED return will still be required in respect of any property which does not qualify or ceases to qualify for a relief i.e. where tax is due. ATED and the reliefs available are a complex area. Please contact us if you would like specific advice. More information is available from the Government Website This entry was posted on Wednesday, September 9th, 2015 at 9:07 am by Slaters and is filed under Bookkeeping, Business, Employers, Government, HMRC, Landlords, Mortgages, Personal Tax, Property, Tax, Tax planning. You can follow any responses to this entry through the RSS 2.0 feed. New rules to safeguard value for money in workplace pensions From April, people automatically enrolled into a workplace pension will see their charges capped at 0.75%, unless they have chosen a more expensive option. The details are set out in draft regulations laid before Parliament on 4 February 2015. For an average earner currently paying into a fund with a charge of 1.5%, this new cap could save them around £100,000 over the course of their working life. Over the next decade, the default fund charge cap will transfer around £200 million from the pensions industry to savers. Minister for Pensions Steve Webb said: Today is an excellent day for pension savers. It is vital that workplace pension schemes are run in the interests of their members and that their hard-earned savings are not eaten away by excessive charges. Over 5 million people have now been automatically enrolled into a workplace pension and by 2018 millions more will be saving for the first time, or saving more. This is why we are building a pensions system that these workers can save into with confidence – and not see their money disappear in opaque charging structures. There is an understandable buzz around what April will bring for those retiring now, with the unprecedented pension freedoms coming in. But these reforms show we are also determined to help the pensioners of tomorrow – people working hard and saving hard for their families’ future. The next stage of the government’s work to ensure full disclosure of costs and charges throughout the value chain is also set out in the February paper – with the plan to publish a joint call for evidence with the Financial Conduct Authority in spring 2015. Most of the updated draft regulations will come in to force on 6 April 2015, subject to Parliamentary approval. This entry was posted on Thursday, February 12th, 2015 at 12:00 am by Slaters and is filed under Auto Enrolment, Buy to let, Landlords, Personal Pension, Property, Renting, Workplace Pension. You can follow any responses to this entry through the RSS 2.0 feed. Staff loans for would be tenants Housing Minister Brandon Lewis announced recently government-wide support for a new scheme that will become available to thousands of potential tenants. The minister said he was determined to “create a bigger, better private rented sector”. All of Whitehall has now agreed to offer deposit loans to staff looking to take up new tenancies in the private rented sector, following in the footsteps of the Department for Communities and Local Government. This includes the Home Office, Ministry of Defence, Department for Work and Pensions, HM Revenue and Customs and the Department of Health. More help for tenants The scheme, which works in the same way as a staff season ticket loan, will allow employees to borrow some of their salary upfront in order to pay for rental deposits, which is then repayable from salary payments over up to a year. It is available to be taken up in both the public and private sectors. The Department for Communities and Local Government last October became the first government department to roll the scheme out to its staff, with ministers pushing other parts of government and the public sector to follow suit. The department is working with the Department for Business Innovation and Skills to increase availability across the private sector. Brandon Lewis said: With millions of people across the country renting their home we are determined to create a bigger, better private rented sector that is fair to tenants. Today’s move will mean thousands of people will be offered a helping hand to rent privately through season ticket style loans from their employers. I hope to see more employers in the public and private sector joining the scheme in the near future. The tenancy deposit scheme can be adapted by different employers to suit their needs, but generally employees are offered interest-free loans to pay their deposits when they move into a privately rented home, which are then paid back through their salary over the course of up to a year. This entry was posted on Wednesday, February 11th, 2015 at 12:00 am by Slaters and is filed under Landlords, Personal Tax, Property, Tax relief. You can follow any responses to this entry through the RSS 2.0 feed. You are currently browsing the archives for the Landlords category. 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Minivan News – Archive FIRST FOR INDEPENDENT NEWS IN THE MALDIVES Archives Select Month July 2015 June 2015 May 2015 April 2015 March 2015 February 2015 January 2015 December 2014 November 2014 October 2014 September 2014 August 2014 July 2014 June 2014 May 2014 April 2014 March 2014 February 2014 January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 July 2009 June 2009 May 2009 April 2009 January 2009 December 2008 September 2008 April 2008 February 2008 January 2008 October 2007 August 2007 July 2007 June 2007 May 2007 March 2007 January 2007 December 2006 November 2006 September 2006 August 2006 July 2006 May 2006 April 2006 March 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005 June 2005 May 2005 April 2005 March 2005 February 2005 January 2005 December 2004 November 2004 November 1999 0 Business & Tourism Features & Comment Maldives Decides 2013 – select a candidate Candidate 1: Gasim Ibrahim Candidate 2: Dr Mohamed Waheed Candidate 3: Abdulla Yameen Candidate 4: Mohamed Nasheed Tag: Auditor General Niyaz Ibrahim Former presidential advisor accuses tourism minister, finance minister of corruption in Fushidhiggaru deal Former presidential advisor Ahmed ‘Sandhaanu’ Didi has accused Tourism Minister Ahmed Adeeb and Finance Minister Abdulla Jihad of illegally selling off Fushidhiggaru Lagoon in Kaafu Atoll without the knowledge of then – President Dr Mohamed Waheed Hassan. Speaking at a press conference today, Didi showed an agreement signed between the government and Ukranian company Prime Capital Pvt Ltd during Waheed’s administration on developing Fushidhiggaru. The former Special Envoy on Human Rights claimed Waheed only discovered news of the deal when the investors attempted to register a joint venture company at the Ministry of Economic Development, but said both ministers denied the move at the time. “I was at the president’s office then. Dr Waheed summoned Adeeb and Jihad and asked whether Fushidhiggaru lagoon had been sold off to a foreign party and they denied that any such thing was done,” he told the press. Neither Adeeb nor Jihad were responding to calls at the time of press. The Fushidhiggaru deal first came to light during the 2013 presidential elections, when current Home Minister Umar Naseer claimed Adeeb had sold off the lagoon without a transparent and public bidding process. JP coalition claimed that the agreement was compiled, signed and stamped without legal advice from the Attorney General, in the late hours of January 18, 2013, a Friday night. At the time, Adeeb denied the existence of an “official” lease agreement and dismissed the allegations as an attempt at “political assassination.” Despite Adeeb’s denial, local media in September 2013 reported that the Economic Ministry had refused to register a joint venture company for the development of Fushidhiggaru lagoon with Prime Capital. The company subsequently filed a lawsuit against the Economic Ministry at the Civil Court. In a verdict (Dhivehi) delivered on July 15, Civil Court Judge Ali Naseer ordered the government to register the joint venture company within a seven-day period, sign a master lease agreement within five days of registration, “and [to] make all arrangements undertaken by the government in accordance with the agreement.” Didi today said he has submitted relevant documents and letters to the Prosecutor General’s Office, the Anti-corruption Commission and Maldives Police Services requesting the matter be investigated. “This is the most deceitful and biggest embezzlement in recent Maldivian history,” he said. “I am aware that by talking about this I am endangering my own safety, but this must be done for the future generation. Prophet Mohamed, peace be upon him advised us to reveal the truth no matter how bitter it may be.” Didi was imprisoned in 2003 for writing and distributing a newsletter called “Sandhaanu” which criticized President Maumoon Abdul Gayoom’s policies. Former Auditor General Niyaz Ibrahim in November released a report implicating Adeeb in a US$6million corruption scandal. Adeeb has denied allegations, and accused Niyaz of colluding with MP and former Deputy Speaker of parliament Ahmed Nazim in releasing the audit report. Adeeb suggested Nazim had a personal vendetta against him following his refusal to support Nazim for the Majlis Speakership in May. Niyaz was subsequently dismissed from the post through a surprise amendment to the Audit Act, and Hassan Ziyath, the brother of an official implicated alongside Adeeb, was appointed as the new Auditor General. The Criminal Court on October 26 withheld Nazim’s passport on allegations of blackmail while the Supreme Court today held the first hearing into an appeal of the High Court’s acquittal of Nazim from four counts of corruption. Photo: President Abdulla Yameen’s cabinet Court overrules government on lagoon development joint venture Singaporean company sues three government ministries over lagoon lease Tourism Minister implicated in US$6million corruption scandal Supreme Court to hear corruption charges against MP Ahmed Nazim Posted on February 18, 2015 Author Mohamed Saif FathihCategories Crime, PoliticsTags Anti-Corruption Commission (ACC), Auditor General Niyaz Ibrahim, Fushidhiggaru lagoon, Maldives police services, Minister of Finance and Treasury Abdulla Jihad, Minister of Tourism Ahmed Adeeb, MPs, Prosecutor General's Office, Sandhaanu Ahmed Didi2 Comments on Former presidential advisor accuses tourism minister, finance minister of corruption in Fushidhiggaru deal High Court to rule on Majlis reappointment of auditor general The High Court has today accepted a complaint lodged by former Auditor General (AG) Niyaz Ibrahim challenging the appointment of his replacement. Niyaz was dismissed from his job when President Abdulla Yameen on Monday approved Hassan Ziyath as the new AG hours after 59 MPs voted in his favour. The ruling Progressive Party of the Maldives (PPM) had pushed through a surprise amendment to the Audit Act on October 29 requiring the AG be reappointed within 30 days. Niyaz’s lawyer Ibrahim Riffath told Minivan News Niyaz could not be dismissed half way through his seven year term through an amendment to the Audit Act. “Article 215 of the Constitution clearly sets the AG’s term to seven years. Niyaz was appointed in May 2011. Further, Article 218 states the AG’s position only becomes vacant if the incumbent resigns or through a no confidence vote by the People’s Majlis,” he explained. “The Majlis will have to amend the constitution to dismiss him by any other means.” Niyaz has also requested that the High Court issue an injunction on the enforcement of the new amendment. Posted on November 26, 2014 Author Minivan NewsCategories News in BriefTags Auditor General Niyaz Ibrahim, Hassan Ziyath, maldives, maldives news MDP may challenge constitutionality of amendment to Audit Act The opposition Maldivian Democratic Party’s (MDP) parliamentary group has decided to make a recommendation to the party’s national executive committee (NEC) to challenge the constitutionality of amendments brought to the Audit Act last week. “The NEC will make a decision tomorrow,” MP Rozaina Adam said at a press conference this morning. Under Article 143 of the Constitution, the Supreme Court and High Court has the jurisdiction “to enquire into and rule on the constitutional validity of any statute or part thereof enacted by the People’s Majlis.” Rozaina argued that the amendment stipulating that the president shall reappoint an auditor general within 30 days was unconstitutional. Progressive Party of Maldives (PPM) MP Ahmed Thoriq had proposed adding a clause to the audit law stating that the president shall nominate for parliamentary approval an individual or individuals to the post of auditor general within 30 days of ratifying the amendments. The amendment was passed with 36 votes in favour and 22 against at Wednesday’s (October 29) sitting of parliament. At today’s press conference, MP Imthiyaz Fahmy meanwhile stressed the importance of the public protesting the unconstitutional move. Imthiyaz said he had learned that parliament’s Counselor General Fathmath Filza had also advised Speaker Abdulla Maseeh Mohamed that the amendment was unconstitutional. President Abdulla Yameen ratified the amendments less than 24 hours after it was passed, he noted. Imthiyaz said the haste with which the amendment was passed and ratified shows the PPM government’s eagerness to replace the auditor general following allegations of corruption made against the party’s deputy leader – Tourism Minister Ahmed Adeeb – in a special audit report of the Maldives Marketing and Public Relations Company (MMPRC). Meanwhile, Auditor General Niyaz Ibrahim told newspaper Haveeru last night that he would also contest the constitutionality of the amendment at the Supreme Court. The amendment contravenes the process specified in the Constitution for the appointment and removal of the auditor general, Niyaz contended. Article 218 of the Constitution states that the auditor general could be removed from office “(a) on the ground of misconduct, incapacity or incompetence; and (b) a finding to that effect by a committee of the People’s Majlis, pursuant to article (a) and upon the approval of such finding by the People’s Majlis by a majority of those present and voting, calling for the Auditor General’s removal from office”. Niyaz told the local daily that he does not intend to remain in the post even if the Supreme Court strikes down the amendment. Following the release of the MMPRC special audit report, Niyaz revealed that death threats were sent to both himself and his family. Niyaz is currently on leave. During last week’s parliamentary debate, PPM MP Thoriq said he proposed the amendment with reference to Article 211(b) of the Constitution, which states, “A statute shall specify the responsibilities, powers, mandate, qualifications, and ethical standards of the Auditor General.” Thoriq noted that the Audit Act was passed in 2007 before the ratification of the Constitution the following year and did not specify the responsibilities, mandate, qualification and ethical standards of the auditor general. PPM MP Ibrahim Waheed has meanwhile told local media that the post of auditor general became vacant with the president’s ratification of the amendments. Waheed contended that as Niyaz was appointed under the 2007 audit law, a new auditor general must be appointed in accordance with the Constitution following the amendments to the Audit Act. Article 210 of the Constitutions states, “The President shall appoint as Auditor General a person approved by a majority of the total membership of the People’s Majlis from the names submitted to the People’s Majlis as provided for in law.” Waheed argued that Niyaz was appointed in the absence of a law passed after the adoption of the Constitution in August 2008. “So the legal obligations and responsibilities of the present Auditor General will stop. And if he is willing to go ahead, he also has to apply to the post just like others. An Auditor General will be appointed under this constitution after the parliament approves the name sent by the president,” he was quoted as saying by Sun Online. The 17th People’s Majlis had unanimously approved former President Mohamed Nasheed’s nomination of Niyaz Ibrahim to the post of auditor general in May 2011. Posted on November 3, 2014 November 3, 2014 Author Minivan NewsCategories PoliticsTags amendments to Audit Act, Auditor General Niyaz Ibrahim, corruption, maldives news, MDP, mmprc, MP Imthiyaz Fahmy, MP Rozaina Adam, MPL, MTDC, ppm, supreme court, Tourism Minister Ahmed Adeeb1 Comment on MDP may challenge constitutionality of amendment to Audit Act Prosecutor general questions timing of MMPRC audit report release Prosecutor General (PG) Muhthaz Muhsin has questioned the timing of the Auditor General’s Office’s release of a special audit report of the Maldives Marketing and Public Relations Company (MMPRC) implicating Tourism Minister Ahmed Adeeb in corrupt transactions worth US$6 million. Muhsin told Sun Online yesterday that the report’s release on the same day (Thursday, October 30) that President Abdulla Yameen ratified amendments to the Audit Act that could see Auditor General Niyaz Ibrahim replaced was questionable. The timing of the report’s release would create doubts and questions among the public, Muhsin said. “I am not questioning the status of his post,” he added. The Progressive Party of Maldives (PPM) meanwhile issued a press release on Thursday contending that the report was politically motivated, “baseless” and intended to defame Adeeb – also the party’s deputy leader. The ruling party condemned Auditor General Niyaz Ibrahim for basing the report on “falsehoods”. The opposition Maldivian Democratic Party has meanwhile called on the PG to prosecute the tourism minister for corruption and abuse of office. Posted on November 1, 2014 Author Minivan NewsCategories News in BriefTags Auditor General Niyaz Ibrahim, maldives news, MDP, ppm, Prosecutor General Muhthaz Muhsin, Tourism Minister Ahmed Adeeb Adeeb denies corruption allegations as MDP calls for prosecution Tourism Minister Ahmed Adeeb has denied allegations of corruption in a special audit report of the Maldives Marketing and Public Relations Company (MMPRC) while the opposition has called on the prosecutor general to press charges. The report (Dhivehi) – made public on Thursday (October 30) – implicated Adeeb in corrupt transactions worth US$6 million between the MMPRC and the Maldives Ports Limited (MPL) and the Maldives Tourism Development Corporation (MTDC). The MMPRC obtained MVR77 million (US$5 million) from MPL to be paid back in dollars and US$1 million from MTDC as a loan, which was immediately transferred to two companies – Millenium Capital Management Pvt Ltd and Montillion International Private Ltd, both with ties to Adeeb. Speaking at a press conference at private broadcaster DhiTV’s studio last night (October 31), Adeeb insisted that the MVR77 million was not a financial loss to the state, noting that US$3 million has been repaid to MPL with the remainder due in December. “Under my [tenure] as tourism ministry, in order to avoid state companies going into the dollar black market, I have obtained dollars for the state from one state company to another, the tourism industry, and various private parties,” Adeeb said. Adeeb claimed to have arranged for local businessmen to purchase treasury bills worth MVR800 to 900 million as of October 2013 to ease the government’s cash flow problems. The agreement between MMPRC and MPL was approved by the respective boards of the state-owned enterprises, the ruling Progressive of Party of Maldives’ (PPM) deputy leader stressed. The MVR77 million from MPL was not embezzled or misappropriated, he insisted, claiming that the government routinely converts rufiyaa into dollars through private parties. On the allegation that the tourism ministry awarded an italian-owned company an island for resort development to pay back US$2.25million of the US$6million MMPRC owed to MPL and MTDC, Adeeb claimed that Dhaalu Maagau was used as a picnic island by PPM MP Ahmed Nazim’s friends. The former deputy speaker of parliament had repeatedly sought to secure the island, Adeeb said, dismissing the allegation that the Italian paid the lease rent for the island through Adeeb’s father’s Montillion company. Adeeb also pledged to release his financial statement to the media on Sunday (November 2) and denied failing to declare assets. According to the audit report, Adeeb has failed to declare assets as stipulated by Article 138 of the Constitution since he was appointed tourism minister in 2012. Counter-allegations When the US$6 million corruption scandal first surfaced in May, Adeeb told Minivan News that the “defamation attempt” was linked to his refusal to support certain individuals for speaker and deputy speaker of the 18th People’s Majlis. Minivan News understands MP Ahmed Nazim was involved in leaking documents related to the case to online news outlet CNM, which first broke the story of the Anti-Corruption Commission (ACC) investigating the transactions. Nazim’s passport was withheld last week, but he left the country on the date the court order was issued. In May, Adeeb confirmed to Minivan News that two repayment cheques dated May 10 and 15 bounced due to insufficient funds. The MTDC’s US$1 million had been reimbursed, Adeeb said, while MPL had been paid one-third of the owed amount in dollars. The remaining two thirds are due in June, he added. At last night’s press briefing, Adeeb alleged “extraordinary ties” between Nazim and Auditor General Niyaz Ibrahim. Following his refusal to support Nazim for the deputy speaker’s post, Adeeb said Nazim threatened to put out audit reports implicating him as well as family members in corrupt dealings. Moreover, the auditor general’s office neither sought a statement from him nor posed any questions regarding the transactions, Adeeb said. “I am most saddened that professionals, specialised people, are brought in between our political rivalry in the political arena,” he said. The opposition Maldivian Democratic Party (MDP) meanwhile released a press statement yesterday condemning the government’s “unconstitutional” and “unlawful” attempts to replace the auditor general before the end of his seven-year term. Last week, parliament passed amendments to the Audit Act requiring the president to reappoint an auditor general within 30 days of ratifying the amendments. President Abdulla Yameen ratified the amendments on Thursday. The MDP contended that the auditor general could only be removed from office through the process specified in the Constitution, which was “(a) on the ground of misconduct, incapacity or incompetence; and (b) a finding to that effect by a committee of the People’s Majlis, pursuant to article (a) and upon the approval of such finding by the People’s Majlis by a majority of those present and voting, calling for the Auditor General’s removal from office”. The attempt to remove the auditor general shows the level of corruption in the current administration, the press release stated, adding that the government was undermining independent institutions. Posted on November 1, 2014 November 1, 2014 Author Ahmed NaishCategories PoliticsTags Auditor General Niyaz Ibrahim, maldives news, MDP, mmprc, MP Ahmed Nazim, MPL, MTDC, ppm, special audit, Tourism Minister Ahmed Adeeb10 Comments on Adeeb denies corruption allegations as MDP calls for prosecution Majlis passes amendment allowing president to reappoint auditor general Parliament today approved an amendment proposed by Progressive Party of Maldives (PPM) MP Ahmed Thoriq to the Audit Act enabling the president to reappoint the auditor general – four years before the end of the incument Niyaz Ibrahim’s seven year term. Following the presentation of a report (Dhivehi) by the economic affairs committee to the People’s Majlis floor after reviewing amendments submitted by the government to the Audit Act, Thoriq proposed adding a clause stating that the president shall nominate for parliamentary approval an individual or individuals to the post of auditor general within 30 days of ratifying the amendments. Thoriq’s amendment – seconded by PPM MP Ibrahim Didi – passed with 36 votes in favour and 22 against while opposition Maldivian Democratic Party (MDP) MPs protested vociferously, contending that the amendment was unconstitutional. The amendments should not have been put to a vote as it allows the dismissal of an incumbent auditor general without following the constitutional process for impeachment, opposition MPs argued. Thoriq’s amendment was added to revisions to the Audit Act submitted on behalf of the government by PPM MP Ibrahim Waheed to bring the 2007 law in line with the Constitution adopted in August 2008. The legislation was part of a raft of bills submitted by the government to abolish provisions in conflict with the new constitution. Waheed’s amendments did not include revisions to sections dealing with the appointment and dismissal of the auditor general. During the final debate on the government-sponsored amendments at today’s sitting, Thoriq said he proposed the amendment with reference to Article 211(b) of the Constitution, which states, “A statute shall specify the responsibilities, powers, mandate, qualifications, and ethical standards of the Auditor General.” However, he added, the amendments submitted by the government do specify the criteria. “The current auditor general is competent. I wish and believe as well that when this amendment is passed and ratified his name will be sent for our approval,” he said. However, MDP MPs insisted that the purpose of Thoriq’s amendment was replacing the current auditor general. The amendment bill – with Thoriq’s amendment – was passed with 40 votes in favour and 25 against. Appointment and dismissal The 17th People’s Majlis unanimously approved former President Mohamed Nasheed’s nomination of Niyaz Ibrahim to the post of auditor general in May 2011. During a meeting of the public accounts committee last week with Niyaz and Finance Minister Abdulla Jihad concerning the audit office’s budget for 2015, Thoriq alleged that 60 percent of audit office staff were unhappy with Niyaz’s leadership. Thoriq also accused the auditor general of releasing a damning audit report of the finance ministry ahead of the parliamentary polls in March and withholding reports exposing corruption in the MDP government. In response, Niyaz said he was not surprised that employees of the audit office met politicians to complain about the auditor general, contending that some staff members were unhappy with stricter workplace regulations. A timetable or schedule for publishing audit reports has been shared with the public accounts committee, he noted. Moreover, the majority of audit reports released during his tenure were of government ministries and state institutions under the administration of former President Mohamed Nasheed, Niyaz observed, adding that it was used as “campaign material” against the MDP presidential candidate during last year’s presidential election. Niyaz was appointed to the post following parliament’s dismissal of former Auditor Ibrahim Naeem in March 2010 in a no-confidence motion. Naeem was accused of corruption by the Anti-Corruption Commission (ACC) of using state funds to buy a tie and visit Thulhaadhoo in Baa Atoll. Naeem had claimed the charges were an attempt to discredit his office and prevent him from reclaiming the government’s money stored in overseas bank accounts. “A lot of the government’s money was taken through corrupt [means] and saved in the banks of England, Switzerland, Singapore and Malaysia,” Naeem told the press ahead of the no-confidence vote. Posted on October 29, 2014 October 30, 2014 Author Minivan NewsCategories PoliticsTags annual budget, Audit Act, Auditor General Niyaz Ibrahim, maldives news, MDP, MP Ahmed Thoriq, ppm Fisheries ministry denies auditor general’s allegations of missing documents The Ministry of Fisheries and Agriculture has denied allegations made by Auditor General Niyaz Ibrahim in a letter to parliament’s public accounts committee. Niyaz had informed the oversight committee that his office has been unable to complete the audit of the ministry for 2009 due to missing documents. At a press conference today, Permanent Secretary Abdulla Naseer said all documents requested by the audit office were provided following a request on August 29, 2013. He added, however, that the ministry was unable to find six payment vouchers. In addition, employees did not submit travel reports for 10 overseas trips in 2009, Naseer continued, which were among the documents the auditor general claimed were missing. Meanwhile, in his letter, Niyaz told MPs that the audit office has decided to conduct a compliance audit of the ministry for 2009 in lieu of a full financial audit. Posted on August 6, 2014 August 6, 2014 Author Minivan NewsCategories News in BriefTags Auditor General Niyaz Ibrahim, fisheries ministry, maldives news, missing documents Auditor General questions valuation of assets of state-owned enterprises The Auditor General’s Office has questioned the valuation of assets of the Thilafushi Corporation Ltd (TCL) and State Electricity Company (STELCO) in audit reports of the state-owned enterprises for 2013. The TCL audit report released last week explained that the Finance Ministry transferred land and buildings on Thilafushi Industrial Island to the corporation at a value of MVR12 billion (US$778 million). “The consideration for such transfer had been made by the issue of 150,000,000 equity shares of MVR10 each issued at a premium of MVR74.13 to Ministry of Finance and Treasury,” the report stated. Following valuation of the island and property therein by a professionally qualified party “on the basis of capitalised lease rentals to perpetuity,” the leased land was valued at MVR5,725 (US$371) per square foot. Additionally, “land pending reclamation and lease at the time” was valued at MVR1,200 per square foot, “the reasonableness of which cannot be readily established.” The report noted that the transaction took place between TCL and the Finance Ministry, “its sole shareholder.” Moreover, in the “absence of a valuation adopting alternative approaches in the context that this is the first purchase of land transaction at Thilafushi,” the Auditor General’s Office was “unable to conclude whether the rates per square foot derived above are reasonable.” The report stated that auditors were “unable to satisfy ourselves whether the land and buildings thereon and share premium shown in the balance at MVR12,618, 789,042 and MVR11,118,789,042 [US$713 million] respectively are fairly stated.” The report also noted that MVR33 million (US$2 million) was paid to Heavy Load Maldives for land reclamation, which was stated in the balance sheet as capital work in progress. However, in 2011, the company incurred a further MVR23 million (US$1.4 million) for the project, increasing the total capital work-in-progress amount to MVR61 million (US$3.9 million). Auditors found that the MVR23 million had been “capitalised by transferring the amount from capital work-in-progress to land towards the industrial zone reclamation,” while the remaining amount had not been capitalised. “In the absence of evidences supporting the work done for the remaining amount of MVR38,889,767, we are unable to conclude whether the company has received value for the amount paid and therefore whether the capital work-in-progress has been fairly stated,” the report concluded. In January 2013, local media reported that TCL incurred MVR650 million (US$42 million) worth of losses as a result of Heavy Load not reclaiming the agreed 152 hectares of land within the granted six month period. As a result of the issues flagged in the report, the audit office was “unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion,” and subsequently did not express an opinion on TCL’s financial statement. STELCO and MPL In the audit report of STELCO for 2013, the audit office noted that while the company’s financial statements gave “a true and fair view” of its financial position, performance and cash flow as of December 31, 2013, Auditor General Niyaz Ibrahim qualified his opinion due to questions over the valuation of assets. The report explained that the government-owned company’s property, plant and equipment were revalued by an external valuer during 2011. “Accordingly, the assets having net book value of MVR434,455,893 [US$28 million] as at 31 December 2011 were revalued for MVR847,932,997 [US$54 million] and a revaluation surplus of MVR413,477,104 was recognised in the books of account,” the report revealed. However, it added, assets worth MVR26 million (US$1.6 million) were excluded from the revaluation report and “the company accounted these assets at their respective net book values based on historical cost,” which was in violation of international accounting standards. Consequently, “in the absence of valuation of these assets,” auditors were unable to conclude that MVR15 million (US$972,762) included in the property, plant and equipment of MVR1.5 billion (US97 million) as well as a revaluation reserve of MVR314 million (US$20 million) in the balance sheet was “fairly stated.” Meanwhile, the audit report of the Maldives Ports Ltd (MPL) for 2013 noted that the company was owed MVR13 million (US$8 million) from the dissolved Maldives National Shipping Ltd, which was a receivable that has been “outstanding for more than four years and therefore, doubtful of recovery.” As a result, the report noted, auditors were unable to conclude “whether the amount shown under related party receivables in the statement of financial position is recoverable and [whether] the results for the year and receivables were are fairly stated.” Auditors also found that MVR24 million (US$1.5 million) was “incurred on the construction of a tug boat for harbour operations.” However, the construction had been discontinued since 2010 “due to a dispute with the constructor,” auditors found. “Further, we were not allowed to access the premises of the tug boat. Hence, we are unable to satisfy ourselves regarding the physical existence and recoverability of the asset,” the report stated. Posted on July 13, 2014 July 13, 2014 Author Ahmed NaishCategories Business & Tourism, PoliticsTags Auditor General Niyaz Ibrahim, Auditor General's Office, maldives news, Maldives Ports Ltd, STELCO, Thilafushi Corporation, valuation of assets3 Comments on Auditor General questions valuation of assets of state-owned enterprises PPM denies using presidential residence for party functions Functions of the ruling Progressive Party of Maldives (PPM) held at the official presidential residence Muleeage are not funded from the state budget, President Abdulla Yameen has said. Speaking to the press at a PPM event in Muleeage on Thursday night (June 5), President Yameen reportedly said he did not believe using the official residence for meetings or party activities amounted to misuse of state resources. The president’s remarks followed Auditor General Niyaz Ibrahim’s insistance last week that state property could not be used for party activities. Niyaz told local media that Muleeage could only be used either for functions held by the president or the first lady in their official capacity or for meeting invited guests. Recent signing ceremonies to welcome high-profile new members to the ruling party – most recently Independent MP Abdulla Khaleel and Environment Minister Thoriq Ibrahim – have been held in Muleeage. President Yameen told reporters Thursday night that while he respected the auditor general’s opinion he did not believe using Muleeage for party functions was a problem. “No money from the government’s budget or Muleeage budget is spent for any work done here. If there’s a tea or anything else here, we make the expenses outside the budget. So this is not a resource that is consumed,” Yameen was quoted as saying by newspaper Haveeru. Yameen said he meets members of the public as well as MPs at Muleeage, adding that meeting MPs at the President’s Office to discuss parliamentary affairs would be “too official.” “If expenses are not made from the government budget, it would be best if the place [Muleeage] is not made too much of an issue,” he suggested. After assuming office in November, President Yameen had announced that he would continue to live in his private residence. However, the budget allocated for the official residence was increased by MVR2 million (US$130,208) in the state budget for 2014 – rising to MVR19.1 million (US$1.2 million). In April this year, parliament approved amendments to to the law governing renumeration and benefits for the president and vice president making it mandatory for the state to cover expenses of the pair’s private residences should either choose not to live in the official residences. “Biased and misleading” Meanwhile, the PPM also put out a press statement last week contending that the auditor general’s remarks were biased, misleading and politically motivated. “This party’s activities have not been held in the president’s official residence Muleeage so far,” the party claimed. The party also contended that the president holding meetings in Muleeage with various individuals could not be considered “a political party activity.” Alleging that a number of party activities and functions – without the participation of the president – had been held in Muleeage during the administration of former President Mohamed Nasheed, the PPM noted that “the auditor general had not said anything about it” at the time. The press release went on to criticise the auditor general for not objecting to political party activities allegedly held at the Malé City Council premises as well as the use of the Dharubaaruge convention centre by protesters of the opposition Maldivian Democratic Party (MDP) in the wake of the controversial transfer of power in February 2012. “Therefore, as this party believes that the interviews given by the auditor general to the media saying that the president’s official residence is being used for this party’s activities were biased and political, we express deep concern about the matter,” the press release stated. The statement concluded by calling on the auditor general not to make statements without “properly considering the truth of the matter.” Posted on June 8, 2014 June 8, 2014 Author Ahmed NaishCategories PoliticsTags Auditor General Niyaz Ibrahim, maldives news, muleeage, official presidential residence, party functions, ppm, state budget5 Comments on PPM denies using presidential residence for party functions

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Tag: Invesco PowerShares KBW Announces Index Rebalancing for Third-Quarter 2019 This quarter, there are constituent changes within three of our indexes, including the KBW Nasdaq Financial Technology Index (Index Ticker: KFTX), … NEW YORK, Sept. 13, 2019 (GLOBE NEWSWIRE) — Keefe, Bruyette & Woods, Inc., a full‐service, boutique investment bank and broker‐dealer that specializes in the financial services sector and a wholly owned subsidiary of Stifel Financial Corp. (SF), announces the upcoming index rebalancing for the third quarter of 2019. This quarter, there are constituent changes within three of our indexes, including the KBW Nasdaq Financial Technology Index (Index Ticker: KFTX), the KBW Nasdaq Financial Sector Dividend Yield Index (Index Ticker: KDX), and the KBW Nasdaq Bank Index (Index Ticker: BKX). These changes will be effective prior to the opening of business on Monday, September 23, 2019. As part of this rebalancing, below are the component level changes across various indices: KBW Nasdaq Financial Technology Index (Index Ticker: KFTX, ETF Ticker: FTEK.LN) Add (1): RealPage, Inc. (RP) Delete (1): Total System Services, Inc. (TSS) KBW Nasdaq Financial Sector Dividend Yield Index (Index Ticker: KDX, ETF Ticker: KBWD) Delete (1): Oritani Financial Corp. (ORIT) KBW Nasdaq Bank Index (Index Ticker: BKX; ETF Ticker: KBWB) Add (1): CIT Group Inc. (CIT) Delete (1): SunTrust Banks, Inc. (STI) Several of the KBW Nasdaq indices have tradable exchange‐traded funds licensed: KBW Nasdaq Bank Index (Index Ticker: BKXSM, ETF Ticker: KBWBSM); KBW Nasdaq Capital Markets Index (Index Ticker: KSXSM); KBW Nasdaq Insurance Index (Index Ticker: KIXSM); KBW Nasdaq Regional Banking Index (Index Ticker: KRXSM, ETF Ticker: KBWRSM); KBW Nasdaq Financial Sector Dividend Yield Index (Index Ticker: KDXSM, ETF Ticker: KBWDSM); KBW Nasdaq Premium Yield Equity REIT Index (Index Ticker: KYXSM, ETF Ticker: KBWYSM); KBW Nasdaq Property and Casualty Insurance Index (Index Ticker: KPXSM, ETF Ticker: KBWPSM); KBW Nasdaq Global Bank Index (Index Ticker: GBKXSM); KBW Nasdaq Financial Technology Index (Index Ticker: KFTXSM, ETF Ticker: FTEK.LNSM). Not all of the listed securities may be suitable for retail investors; in addition, not all of the listed securities may be available to U.S. investors. European investors interested in FTEK LN can contact Invesco athttps://etf.invesco.com/gb/private/en/product/invesco-kbw-nasdaq-fintech-ucits-etf-acc/trading-information. U.S. investors cannot buy or hold FTEK LN. An investor cannot invest directly in an index. About KBW KBW (Keefe, Bruyette & Woods, Inc., operating in the U.S., and Stifel Nicolaus Europe Limited, also trading as Keefe, Bruyette & Woods Europe, operating in Europe) is a Stifel company. Over the years, KBW has established itself as a leading independent authority in the banking, insurance, brokerage, asset management, mortgage banking and specialty finance sectors. Founded in 1962, the firm maintains industry‐leading positions in the areas of research, corporate finance, mergers and acquisitions as well as sales and trading in equities securities of financial services companies. Neil Shapiro, (212) 271-3447 [email protected] Author hiswai publishingPosted on September 12, 2019 Categories TechnologyTags Exchange-traded funds, Finance, Financial services, Invesco PowerShares, Investment, KBW, Keefe Bruyette & Woods, Keefe, Bruyette & Woods, Inc., NASDAQ, SPDR, Standard & Poor's US Stock ETFs Wobble as Traders Look to Rate Cuts Ahead U.S. markets and stock ETFs ended flat after Monday as traders vacillated on the likely outcome in the direction of monetary policy from the Federal … U.S. Stock ETFs Maintain Momentum on Rate Cut Hopes U.S. Stock ETFs Push Higher, Wait on Fed Meeting QQQ, SPY, DIA Up 2% on Fed Rate Cut Hopes U.S. Stock ETFs Retreat After Fed Weighs on Rate Cut Hopes U.S. markets and stock ETFs ended flat after Monday as traders vacillated on the likely outcome in the direction of monetary policy from the Federal Reserve’s meeting later this month. On Monday, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) closed up 0.19% and the SPDR S&P 500 ETF (NYSEArca: SPY) closed 0.05% higher. Analysts saw little driving market direction as equities wavered toward mid-Monday, the Wall Street Journal reports. “It definitely continues to feel that central banks have the market’s back,” R.J. Grant, director of equity trading at KBW, told the WSJ. “It’s more of a positive feedback loop right now.” The markets originally believed that the Fed could continue to cut interest rates later this month after last week’s weaker-than-expected August jobs report. The expectations of a looser monetary policy helped drive most of the risk-on market gains this year. Fed to “act as appropriate” Federal Reserve Chairman Jerome Powell late last week also stated that the central bank would “act as appropriate” to maintain an expanding economy, a phrase that many translated as a sign of additional interest rate cuts. However, there is no full consensus on how much the Fed could cut rates, which may leave stocks exposed to potential risks if the central bank fails to meet more aggressive expectations. “We’ve seen a strong move lower on this expectation on stimulus measures, and now the market’s doing a wait and see,” David Cheetham, chief market analyst for online foreign-exchange brokerage XTB, told the WSJ. Related: ETFs to Help Investors Get Defensive Further supporting recent market gains, the U.S. and China are moving forward with trade negotiations, with the U.S. Treasury Secretary Steven Mnuchin projecting a positive year ahead for the U.S. economy. “Investors are hopeful that both sides will get close to agreeing on a cosmetic deal or maybe a truce,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters. For more information on the markets, visit our current affairs category. Current AffairsDIADow Jones Industrial AverageNASDAQPowershares QQQS&P 500SPY Author hiswai publishingPosted on September 8, 2019 Categories TechnologyTags Dow Jones Industrial Average, DOW JONES INDUSTRIAL AVERAGE INDEX, Exchange-traded funds, Finance, Financial markets, Invesco PowerShares, Investment, S&P 500 Index, SPDR, United States, XTBs Silicon Valley Capital Partners Buys iShares Edge MSCI Min Volatility USA ETF, Qualcomm Inc … Silicon Valley Capital Partners Buys iShares Edge MSCI Min Volatility USA ETF, Qualcomm Inc, NVIDIA Corp, Sells Bloom Energy Corp, iShares Core … Investment company Silicon Valley Capital Partners (Current Portfolio) buys iShares Edge MSCI Min Volatility USA ETF, Qualcomm Inc, NVIDIA Corp, American Tower Corp, Boeing Co, sells Bloom Energy Corp, iShares Core S&P Mid-Cap ETF, Destination Maternity Corp during the 3-months ended 2019Q2, according to the most recent filings of the investment company, Silicon Valley Capital Partners. As of 2019Q2, Silicon Valley Capital Partners owns 33 stocks with a total value of $230 million. These are the details of the buys and sells. New Purchases: QCOM, NVDA, AMT, SGMNF, Added Positions: QQQ, USMV, AMZN, VUG, GOOGL, ADBE, BA, CRM, Reduced Positions: SPY, AAPL, ONEQ, FB, IVV, JPM, Sold Out: BE, IJH, DEST, USMV 30-Year Financial Data The intrinsic value of USMV Peter Lynch Chart of USMV For the details of Silicon Valley Capital Partners’s stock buys and sells,go to https://www.gurufocus.com/guru/silicon+valley+capital+partners/current-portfolio/portfolioportfolio These are the top 5 holdings of Silicon Valley Capital Partners SPDR S&P 500 ETF Trust (SPY) – 335,863 shares, 42.78% of the total portfolio. Shares reduced by 1.9% PowerShares QQQ Trust Ser 1 (QQQ) – 224,450 shares, 18.22% of the total portfolio. Shares added by 11.07% iShares S&P 500 Growth ETF (IVW) – 164,300 shares, 12.80% of the total portfolio. Shares added by 0.25% iShares Edge MSCI Min Volatility USA ETF (USMV) – 240,204 shares, 6.45% of the total portfolio. Shares added by 21.86% Vanguard Growth ETF (VUG) – 67,436 shares, 4.79% of the total portfolio. Shares added by 4.64% New Purchase: Qualcomm Inc (QCOM) Silicon Valley Capital Partners initiated holding in Qualcomm Inc. The purchase prices were between $55.9 and $89.29, with an estimated average price of $73.23. The stock is now traded at around $71.26. The impact to a portfolio due to this purchase was 0.48%. The holding were 14,551 shares as of . New Purchase: NVIDIA Corp (NVDA) Silicon Valley Capital Partners initiated holding in NVIDIA Corp. The purchase prices were between $133.78 and $192.1, with an estimated average price of $165.75. The stock is now traded at around $158.26. The impact to a portfolio due to this purchase was 0.18%. The holding were 2,514 shares as of . New Purchase: American Tower Corp (AMT) Silicon Valley Capital Partners initiated holding in American Tower Corp. The purchase prices were between $189.85 and $217.52, with an estimated average price of $200.93. The stock is now traded at around $221.02. The impact to a portfolio due to this purchase was 0.09%. The holding were 1,062 shares as of . New Purchase: Sutter Gold Mining Inc (SGMNF) Silicon Valley Capital Partners initiated holding in Sutter Gold Mining Inc. The purchase prices were between $0.01 and $0.01, with an estimated average price of $0.01. The stock is now traded at around $0.01. The impact to a portfolio due to this purchase was less than 0.01%. The holding were 10,000 shares as of . Added: iShares Edge MSCI Min Volatility USA ETF (USMV) Silicon Valley Capital Partners added to a holding in iShares Edge MSCI Min Volatility USA ETF by 21.86%. The purchase prices were between $58.77 and $62.47, with an estimated average price of $60.01. The stock is now traded at around $63.42. The impact to a portfolio due to this purchase was 1.16%. The holding were 240,204 shares as of . Added: Boeing Co (BA) Silicon Valley Capital Partners added to a holding in Boeing Co by 51.03%. The purchase prices were between $337.37 and $395.86, with an estimated average price of $364.73. The stock is now traded at around $336.35. The impact to a portfolio due to this purchase was 0.05%. The holding were 1,024 shares as of . Sold Out: Bloom Energy Corp (BE) Silicon Valley Capital Partners sold out a holding in Bloom Energy Corp. The sale prices were between $10.1 and $15.26, with an estimated average price of $12.26. Sold Out: iShares Core S&P Mid-Cap ETF (IJH) Silicon Valley Capital Partners sold out a holding in iShares Core S&P Mid-Cap ETF. The sale prices were between $180.31 and $197.09, with an estimated average price of $190.89. Sold Out: Destination Maternity Corp (DEST) Silicon Valley Capital Partners sold out a holding in Destination Maternity Corp. The sale prices were between $0.78 and $2.52, with an estimated average price of $1.82. Here is the complete portfolio of Silicon Valley Capital Partners. Also check out: 1. Silicon Valley Capital Partners’s Undervalued Stocks 2. Silicon Valley Capital Partners’s Top Growth Companies, and 3. Silicon Valley Capital Partners’s High Yield stocks 4. Stocks that Silicon Valley Capital Partners keeps buying Author hiswai publishingPosted on August 8, 2019 Categories CompanyTags Exchange-traded funds, Finance, Financial markets, Invesco PowerShares, Investment, IShares, Source UK Services, SPDR Centaur Total Return Fund Semi-Annual 2019 Shareholder Letter The equity sleeve is tilted towards Value and defensive securities to provide capital preservation and an above-market yield. We invested the equity … Dear Fund Investors, The six-month period running from November 1, 2018 through April 30, 2019 was a transitional period for the Centaur Total Return Fund (the “Fund”) as DCM Advisors, LLC took over the interim management of the Fund on November 16, 2018. During the transition, the Fund had a cash and cash-equivalent security balance of almost 70% as the previous manager had liquidated a majority of the equity positions. For the six-month period ending April 30, 2019, the Fund produced a positive return of 1.97%. The S&P 500 produced a return of 9.76% over the same period. The performance differential can be attributed to (a) the substantial cash position of the Fund during the unique transition period and (b) the high volatility in the equity and bond markets during the transition period when the Fund held high cash balances. Following the transition period, the Fund was positioned as a balanced fund with a combination of defensive equities and fixed income, initially set at 60% equities and 40% fixed income. The equity sleeve is tilted towards Value and defensive securities to provide capital preservation and an above-market yield. We invested the equity portion of the Fund in a diversified portfolio of primarily dividend-paying blue-chip stocks with attractive valuations, and sustainable, high profitability. We also focus on stocks where earnings are supported by cash flows, and where earnings and price momentum are positive. The fixed income portion of the Fund was invested in cash and short-duration bonds for a majority of the first quarter ending on January 31, 2019. The spread between two-year maturity and ten-year maturity notes was in the 12.5 to 20 basis point range. Given the uncertainties of investing we opted for the defensiveness of the short notes. We then built a corporate bond portfolio with maturities from 2020 to 2025. The fixed income portion of the benchmark is mainly in long-duration bonds. Toward the end of March 2019, we rebalanced the fixed income holdings to increase the yield. We swapped many individual bond positions for fixed income Exchange Traded Funds (“ETF”) to provide more yield and broader credit diversification. Each ETF consists of an extensive underlying portfolio of securities that can mirror its overall respective market activity. We invested in both investment grade and high yield ETFs, again to provide us with what we feel is higher investment income and broader credit holdings. We feel this gives us liquidity, broad credit diversification, and an attractive yield component to the Fund. The U.S. equity market was very volatile over the six-month period, with a sharp sell-off over the October-December 2018 period, followed be a sharp rebound from the end of December through the end of April 2019. The market dropped almost 16.5% from November 7, 2018 through December 24, 2018. Market volatility increased as the markets absorbed the fact that the U.S. economy and earnings growth would slow down in 2019 as the effects of the 2018 tax cuts faded. In addition, the threat of trade tariffs against China, and the possible disruption of the global supply chains roiled equity markets. Further, economic data from China and Europe was weaker than expected. Weaker economic data and increased market volatility led the Federal Reserve to adopt a neutral stance following three rate hikes in 2018. This contributed to a huge rally in the equity and fixed income markets. From the low of December 24, 2018 to the end of April 2019, equities rallied 25%, one of the sharpest rallies in a four-month period. Value and high dividend securities have lagged the market during this rally. The S&P 500 index was up 25.3% through the end of April 2019. The S&P Value index lagged the S&P index by -2.4%.The equity sleeve of the portfolio has lagged the broad market due to its defensive and dividend-oriented style. We expect the Fund to catch up with the category over time as the current risk-on rally fades, and Value and dividend yield comes back into favor. The 10-year U.S. Treasury note prices rallied strongly when yields fell from 3.1% on October 31, 2018 to 2.6% at the end of January 2019. This rally was linked to signs of weaker global growth data, and the dovish stand adopted by the Federal Reserve over the course of the quarter. The fixed income portion of the benchmark rallied almost 3.0% (as reflected in the Barclays U.S. Aggregate Index) while cash and short-duration bonds in the Fund did not fully participate in this rally due to their short duration. At the end of the first quarter the bond positions were spread over technology, finance, energy, consumer products and durables. Current positioning The top five equity holdings as of April 30, 2019 were PennyMac Mortgage Investment Trust, CSX Corporation, Popular, Inc., Mastercard Inc. Class A, and ConocoPhillips. The portfolio is diversified across sectors, with overweights relative to the S&P 500 index in Information Technology, Materials, Energy and Real Estate. The portfolio is underweight in Health Care, Consumer Staples, and Communication Services. The equity sleeve of the Fund has a trailing PE ratio of 14.5x compared with 20.3x for the S&P index. The price-to-book ratio for the portfolio is 2.4x compared with 3.5x for the benchmark. However, the forecast 3-5 year EPS growth rate is 11.6% which is only marginally lower than that of the benchmark at 11.8%. In April 2019, Morningstar moved the Fund from the Moderate Target Risk Allocation category to the Moderately Conservative Target Risk Allocation category. This category has a benchmark that is roughly 40% in equities and 60% in fixed income. In the middle of April, we made an asset allocation shift and rebalanced the Fund to a “50%/50%” equity/fixed income split. With equity valuations that were extended, and profit expectations that were likely to be further reduced, especially for the fourth quarter of 2019, we felt it was prudent to reduce equities. The Fund’s portfolio held 58 securities at the end of April 2019, including 46 equity securities or ETFs, and 12 fixed income securities or ETFs. The Fund has a current gross yield of 3.9% across its equity and fixed income positions. The equity sleeve has a gross dividend yield of 3.4% which is roughly 80% higher than that of the S&P Index (which has a gross yield of 1.9%). On the fixed income side, our duration is closer to that of the category benchmark. In summary, we believe that the Fund is appropriately positioned to perform well relative to its category over the coming quarters. Vijay Chopra and Gregory Serbe Co-Portfolio Managers, Centaur Total Return Fund This article first appeared on GuruFocus. SPY 15-Year Financial Data The intrinsic value of SPY Peter Lynch Chart of SPY Author hiswai publishingPosted on August 6, 2019 Categories TechnologyTags Actuarial science, Asset allocation, Bond, DCM Advisors LLC, Economy, Equity, Exchange-traded funds, Finance, Fixed income, Invesco PowerShares, Investment, Money, Outline of finance, S&P 500 INDEX - CBOE The Vanguard Health Care Fund Buys Pfizer, Humana The largest guru shareholder of the company is Jim Simons (Trades, Portfolio)’ Renaissance Technologies with 2.30% of outstanding shares, followed … The Vanguard Health Care Fund (Trades, Portfolio) bought shares of the following stocks during the second quarter. The fund established a new position in Pfizer Inc. (NYSE:PFE), buying 22.29 million shares. The trade had an impact of 2.22% on the portfolio. The pharmaceutical company has a market cap of $212.67 billion and an enterprise value of $246.56 billion. GuruFocus gives the company a profitability and growth rating of 7 out of 10. The return on equity of 18.97% and return on assets of 7.79% are outperforming 51% of companies in the Drug Manufacturers industry. Its financial strength is rated 5 out of 10. The equity-asset ratio of 0.38 is below the industry median of 0.63. Warning! GuruFocus has detected 2 Warning Signs with PFE. Click here to check it out. PFE 30-Year Financial Data The intrinsic value of PFE Peter Lynch Chart of PFE Another notable guru shareholder is Barrow, Hanley, Mewhinney & Strauss with 0.37% of outstanding shares, followed by Pioneer Investments (Trades, Portfolio) with 0.22%. Vanguard bought 3.74 million shares of Alcon Inc. (NYSE:ALC). The trade had an impact of 0.53% on the portfolio. The company has a market cap of $28.02 billion and an enterprise value of $31.73 billion. GuruFocus gives the company a profitability and growth rating of 2 out of 10. The return on equity of -1.48% and return on assets of -1.15% are underperforming 100% of companies in the Medical Instruments and Equipment industry. Its financial strength is rated 5 out of 10. The cash-debt ratio of 0.14 is below the industry median of 1.45. The company’s largest guru shareholder is Vanguard with 0.77% of outstanding shares, followed by Ken Fisher (Trades, Portfolio) with 0.28%. The fund boosted its Anthem Inc. (NYSE:ANTM) holding by 17.36%. The portfolio was impacted by 0.39%. The managed care company has a market cap of $74.94 billion and an enterprise value of $69.53 billion. GuruFocus gives the company a profitability and growth rating of 4 out of 10. The return on equity of 13.85% and return on assets of 5.50% are underperforming 61% of companies in the Health Care Plans industry. Its financial strength is rated 5 out of 10. The cash-debt ratio of 0.21 is below the industry median of 0.51. The company’s largest guru shareholder is Andreas Halvorsen (Trades, Portfolio) with 2.41% of outstanding shares, followed by Barrow, Hanley, Mewhinney & Strauss with 0.74% and First Eagle Investment (Trades, Portfolio) with 0.71%. Vanguard increased its Mylan NV (NASDAQ:MYL) position by 20.82%. This trade impacted the portfolio by 0.33%. The pharmaceutical company has a market cap of $10 billion and an enterprise value of $23.89 billion. GuruFocus gives the company a profitability and growth rating of 8 out of 10. The return on equity of 0.29% and return on assets of 0.11% are underperforming 96% of companies in the Drug Manufacturers industry. Its financial strength is rated 4 out of 10. The cash-debt ratio of 0.02 is below the industry median of 1.43. Another notable guru shareholder of the company is Richard Pzena (Trades, Portfolio) with 4.08% of outstanding shares, followed by John Paulson (Trades, Portfolio) with 2.14% and First Pacific Advisors (Trades, Portfolio) with 1.81%. The health care-focused fund established a new position in Intuitive Surgical Inc. (NASDAQ:ISRG), buying 173,700 shares. The portfolio was impacted by 0.21%. The company, which makes robotic systems for minimally invasive surgery, has a market cap of $60.39 billion and an enterprise value of $57.68 billion. GuruFocus gives the company a profitability and growth rating of 8 out of 10. The return on equity of 18.27% and return on assets of 15.60% are outperforming 71% of companies in the Medical Instruments and Equipment industry. Its financial strength is rated 9 out of 10 with no debt. The largest guru shareholder of the company is Spiros Segalas (Trades, Portfolio) with 0.74% of outstanding shares, followed by Pioneer Investments with 0.14%, Stanley Druckenmiller (Trades, Portfolio) with 0.11% and Steven Cohen (Trades, Portfolio) with 0.07%. Vanguard increased its Humana Inc. (NYSE:HUM) position by 52.48%, impacting the portfolio by 0.20%. The company, which provides Medicare Advantage plans in the U.S., has a market cap of $39.03 billion and an enterprise value of $30.19 billion. GuruFocus gives the company a profitability and growth rating of 4 out of 10. The return on equity of 23.33% and return on assets of 8.67% are outperforming 60% of companies in the Health Care Plans industry. Its financial strength is rated 5 out of 10. The cash-debt ratio of 0.81 is above the industry median of 0.58. The largest guru shareholder of the company is Jim Simons (Trades, Portfolio)’ Renaissance Technologies with 2.30% of outstanding shares, followed by Larry Robbins (Trades, Portfolio) with 0.97% and Lee Ainslie (Trades, Portfolio) with 0.46%. The fund bolstered its holding of Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) by 15.79%. The portfolio was impacted by 0.13%. The generic pharmaceuticals manufacturer has a market cap of $8.87 billion and an enterprise value of $36.72 billion. GuruFocus gives the holding company a profitability and growth rating of 5 out of 10. The return on equity of -21.25% and return on assets of -5.24% are underperforming 100% of companies in the Drug Manufacturers industry. Its financial strength is rated 4 out of 10. The cash-debt ratio of 0.07 is below the industry median of 1.43. Another notable guru shareholder of the company is Warren Buffett (Trades, Portfolio) with 3.96% of outstanding shares, followed by David Abrams (Trades, Portfolio) with 1.65% and Barrow, Hanley, Mewhinney & Strauss with 0.27%. Disclosure: I do not own any stocks mentioned. Ken Fisher Curbs Total, ING Groep Stakes Insiders Roundup: Bezos Sells Amazon 6 Low Price-Sales Stocks Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here. Vanguard Health Care Fund Undervalued Stocks Vanguard Health Care Fund Top Growth Companies Vanguard Health Care Fund High Yield stocks, and Stocks that Vanguard Health Care Fund keeps buying Tiziano Frateschi You can read about me on www.theextraincome.info, which gives suggestions on position trading. Visit Tiziano Frateschi’s Website Author hiswai publishingPosted on August 4, 2019 Categories CompanyTags Corporate finance, Equity, Finance, Financial markets, Financial ratios, Invesco PowerShares, Outline of finance, Pfizer Inc., Return on equity, Stock market, Vanguard Health Care Fund SP Funds Launches its First Family of Sharia-Compliant ETFs Top 10 Strategic Technology Trends for 2020 Here’s what tech CEOs are most worried about going into 2020 — and why they’re looking to the … New Hanover County leaders to visit Apple headquarters to discuss workforce development Dimension Chain 24 Hour Volume Hits $2.34 Million (EON)

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professional_accounting

Client Login Pay Online Art at The Marston Group Lewis Clark Pinkney Herbert Zeinu Mudeser Denise Rose St. Blues Ephraim Urevbu Art Wilson Kathleen Shelton Williams Financial Advisory & Consulting Financial Planning & Advisory Services Final IRS Regulations Issued Affecting Business Taxpayers For the 2014 Year and Beyond | Client Login | Pay Online After several years of struggle, the IRS has finally completed its “repair regulations” project and has issued the long-awaited final version of regulations (also known as the “regs” or “repair regs”) that will affect nearly all businesses for the 2014 tax year and beyond, since virtually all businesses have tangible assets. The regs explain the tax treatment of amounts paid to acquire, produce, or improve tangible property. The heart of the “repair regs,” Reg. §1.263(a)-3), provides a framework that integrates the basic rules and concepts that have been developed over the years in both court cases and IRS guidance for distinguishing capital expenditures from currently deductible repairs. If the regs require an accounting method that is different from an accounting method the taxpayer currently uses, then an Application for Change in Accounting Method (Form 3115) must generally be filed for the tax year. Because many of the provisions are applicable to tax years starting after December 31, 2013, it creates an immediate compliance challenge for businesses that operate on a calendar year and are currently entering the filing season for 2014 tax returns. The regs are lengthy and very complex. The summary below will provide a broad overview of how the regs treat the issues of capitalization vs. deduction of the costs of tangible property. Capitalization vs. Deduction The regs set forth the general rule that amounts paid to improve a “unit of property” must be capitalized. An improvement is defined as an expenditure that betters a unit of property, restores it, or adapts it to a new and different use. On the other hand, the regs allow a current deduction for repairs and maintenance to property. Deductible repair and maintenance expenses are defined as those which are not otherwise required to be capitalized. “Unit of Property” – One key concept in the regs is the “unit of property” (UOP) that is being improved or repaired. The categorization of an expenditure as a capitalized improvement or as a deductible repair is greatly affected by the size of the UOP being worked on. The smaller the UOP, the more likely it is that costs incurred in connection with it will have to be capitalized. The larger the UOP, the more likely it is that costs will be characterized as a repair rather than as a capital expenditure. In general, for property other than buildings, a single UOP consists of all components that are functionally interdependent, such that one component can’t be placed in service without the other components. For buildings, the regs generally treat each building and its structural components as one UOP – the “building.” Although an entire building is technically defined as a single UOP, the improvement rules are applied separately to each of nine enumerated building systems and to the remaining building structure. In effect, each building system and the remaining building structure are considered separate UOPs. The nine building systems are: All escalators All elevators Fire-protection and alarm systems Gas distribution systems Other structural components that are specifically designated as building systems in future published guidance If a taxpayer restores a building structure, such as by replacing the entire roof, the expense is treated as an improvement to the single UOP consisting of the building. If the taxpayer makes an improvement to a building system, such as the HVAC system, that expense is also an improvement to the building UOP. In the case of a lessee who leases an entire building, the UOP is the entire building and the improvement rules are applied to the building structure and each building system in the same manner as if the lessee owned the building. Deducting Materials and Supplies A deduction is allowed for amounts paid to produce and acquire materials and supplies that are consumed during the year. “Materials and supplies” are defined to include five specific categories of property used or consumed in the business operations and that are not inventory. UOPs with an economic useful life of no more than 12 months qualified as materials and supplies under this rule. In addition, certain inexpensive items qualify as materials and supplies, such as a UOP that costs $200 or less to acquire or produce. De minimis safe harbor – The regs allow a taxpayer to deduct certain limited amounts paid for tangible property that are expensed for financial accounting purposes. Under the 2011 temporary regs, this safe harbor was only available to taxpayer that had an applicable financial statement (an AFS, which can be a certified audited financial statement used for credit purposes, reporting to partners, or other non-tax purpose). The final regs change this by allowing businesses without an AFS to use the de minimis safe harbor. A taxpayer with an AFS can rely on the safe harbor if no more than $5,000 per invoice, or per item as substantiated by the invoice, was paid for the property. For businesses without an AFS, the maximum amount is $500 rather than $5,000. Routine Maintenance Safe Harbor The regs include a safe harbor that allows certain expenses of routine maintenance to be deducted rather than capitalized. Routine maintenance means recurring activities that keep business property in ordinarily efficient operating condition, such as inspection, cleaning, testing, and replacement of damaged or worn parts. The maintenance must be attributable to the taxpayer’s use of the property. Thus, the safe harbor does not apply to scheduled maintenance performed shortly after purchasing a used machine or an existing building. In the case of a building, the building structure and each building system is treated as a separate UOP. For a building structure or building system, the taxpayer must reasonably expect to perform the maintenance more than once during the 10-year period that begins when the structure or system is placed in service. For property other than buildings, the taxpayer must reasonably expect to perform the activities more than once during the property’s class life for depreciation purposes. The routine maintenance safe harbor is not elective and is considered an accounting method change. Per-Building Safe Harbor for Qualifying Small Taxpayers The final regs add a new safe harbor that allows qualifying small taxpayers (those with average annual gross receipts of $10 million or less in the three preceding tax years) to deduct improvements made to a building property with an unadjusted basis of $1 million or less. This safe harbor only applies if the total amount paid during the tax year for repairs, maintenance, and improvements to the building does not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis. This safe harbor can be elected annually on a building-by-building basis. It is elected by including a statement on a timely filed tax return (including extensions) for the year the costs are incurred for the building. In the case of a partnership or S corporation that owns or leases a building, the partnership or S corporation makes the election. The election may not be made on an amended return unless permission to file a late election on an amended return is first obtained. The election is irrevocable. The safe harbor for qualifying small taxpayers is not considered an accounting method change. Election to Capitalize In Accordance With Books A new safe harbor under the final repair regs allow a taxpayer to confirm its tax capitalization policy to its book capitalization policy (Reg. §1.263(a)-3(n)). Rather than going through a potentially complicated analysis to determine whether a trade or business expenditure is a currently deductible repair or a capitalized improvement, the regs allow a taxpayer to make an annual election to capitalize and depreciate as a separate asset any expenditure for repair and maintenance if the taxpayer capitalizes the expenditure on the books and records it regularly uses to compute its trade or business income. The election applies to all amounts paid for repair and maintenance of tangible property that are treated as capital expenditures on the taxpayer’s books for the tax year that is covered by the election. These amounts are not treated as amounts paid for repair and maintenance, and, thus, are not currently deductible. In effect, the election is a safe harbor, because the IRS cannot challenge an electing taxpayer’s characterization of a repair expense as a capital expenditure. However, the election works in only one direction. Amounts that are expensed as repairs on the taxpayer’s books may not be deducted as repairs for tax purposes under the protection of the book capitalization safe harbor. Repair deductions claimed for tax purposes must be allowable under the standards set forth in the repair regulations. The election to capitalize in accordance with books is not an accounting method. However, a taxpayer that does not make this election is adopting an improper accounting method when it improperly capitalizes a repair expense. To change from an improper capitalization of a repair expense and from an improper deduction of a capital expenditure, taxpayers use change 184 of Rev. Proc. 2014-16. Please contact our office if you would like to discuss any of the provisions of the final repair regulations or need more information about this important IRS guidance. The Marston Group, PLC Email: [email protected] © 2013-2021 The Marston Group, PLC | All Rights Reserved | Privacy Policy | Return Policy

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professional_accounting

Amgen Reports Second Quarter 2016 Financial Results THOUSAND OAKS, Calif., July 27, 2016 /PRNewswire/ -- Amgen (NASDAQ:AMGN) today announced financial results for the second quarter of 2016. Key results include: Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion. Product sales grew 5 percent driven by Enbrel® (etanercept), Prolia® (denosumab), KYPROLIS® (carfilzomib) and XGEVA® (denosumab). GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins. GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent. Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins. Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent. 2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis. The Company generated $2.5 billion of free cash flow. "We delivered another strong quarter and are on track to meet or exceed our long-term objectives," said Robert A. Bradway, chairman and chief executive officer. "We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones." $Millions, except EPS and percentages YOY Δ Total Revenues GAAP EPS Non-GAAP EPS References in this release to "non-GAAP" measures, measures presented "on a non-GAAP basis" and to "free cash flow" (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations. Product Sales Performance Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA. ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition. Neulasta® (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.). Aranesp® (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from EPOGEN® (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price. Prolia sales increased 30 percent driven by higher unit demand. Sensipar/Mimpara® (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand. XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price. EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp. NEUPOGEN® (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S. KYPROLIS sales increased 45 percent driven by higher unit demand. Vectibix® (panitumumab) sales were flat. Nplate® (romiplostim) sales increased 14 percent driven by higher unit demand. BLINCYTO® (blinatumomab) sales increased 76 percent driven by higher unit demand. Product Sales Detail by Product and Geographic Region $Millions, except percentages Enbrel® Neulasta® Aranesp® Prolia® Sensipar® / Mimpara® XGEVA® EPOGEN® NEUPOGEN® KYPROLIS® Vectibix® Nplate® BLINCYTO® Repatha® Other** Total product sales * Not meaningful ** Other includes MN Pharma, Bergamo, IMLYGIC®and Corlanor® Operating Expense, Operating Margin and Tax Rate Analysis On a GAAP basis: Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts. Operating Margin improved by 3.8 percentage points to 43.5 percent. Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings. On a non-GAAP basis: Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts. Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings. % of product sales (1.6) pts Selling, General & Administrative 1.4 pts operating income as a % of product sales pts: percentage points Cash Flow and Balance Sheet The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015. The Company's third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016. During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization. $Billions, except shares ($0.6) Dividends Paid Share Repurchase Avg. Diluted Shares (millions) Cash and Investments Debt Outstanding Note: Numbers may not add due to rounding For the full year 2016, the Company now expects: Total revenues in the range of $22.5 billion to $22.8 billion. Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion. On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent. Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged. On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent. Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged. Capital expenditures to be approximately $700 million. Second Quarter Product and Pipeline Update Key development milestones: Clinical Program Repatha® (evolocumab) Phase 3 coronary imaging data expected H2 2016 Phase 3 CV outcomes data expected Q1 2017* KYPROLIS Newly diagnosed multiple myeloma Phase 3 data expected H2 2016* Pediatric Ph- R/R B-cell precursor ALL FDA priority review Parsabiv™ (etelcalcetide)† Secondary hyperparathyroidism Global regulatory reviews XGEVA Prevention of SREs in multiple myeloma Romosozumab Postmenopausal osteoporosis US regulatory review Global regulatory submissions Erenumab (AMG 334) Migraine Prophylaxis Phase 3 episodic migraine data expected H2 2016 (biosimilar bevacizumab) (biosimilar adalimumab) (biosimilar trastuzumab) *Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia The Company provided the following updates on selected product and pipeline programs: Repatha In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex™ system (on-body infusor with prefilled cartridge) for monthly single-dose administration. Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016. Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017. In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data. Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016. BLINCYTO In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016. In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA. Erenumab In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint. In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer. Erenumab is developed in collaboration with Novartis Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP. The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor's overall understanding of the financial performance and prospects for the future of the Company's ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company's liquidity. The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. No forward-looking statement can be guaranteed and actual results may differ materially from those we project. Our results may be affected by our ability to successfully market both new and existing products domestically and internationally, clinical and regulatory developments involving current and future products, sales growth of recently launched products, competition from other products including biosimilars, difficulties or delays in manufacturing our products and global economic conditions. In addition, sales of our products are affected by pricing pressure, political and public scrutiny and reimbursement policies imposed by third-party payers, including governments, private insurance plans and managed care providers and may be affected by regulatory, clinical and guideline developments and domestic and international trends toward managed care and healthcare cost containment. Furthermore, our research, testing, pricing, marketing and other operations are subject to extensive regulation by domestic and foreign government regulatory authorities. We or others could identify safety, side effects or manufacturing problems with our products after they are on the market. Our business may be impacted by government investigations, litigation and product liability claims. In addition, our business may be impacted by the adoption of new tax legislation or exposure to additional tax liabilities. If we fail to meet the compliance obligations in the corporate integrity agreement between us and the U.S. government, we could become subject to significant sanctions. Further, while we routinely obtain patents for our products and technology, the protection offered by our patents and patent applications may be challenged, invalidated or circumvented by our competitors, or we may fail to prevail in present and future intellectual property litigation. We perform a substantial amount of our commercial manufacturing activities at a few key facilities and also depend on third parties for a portion of our manufacturing activities, and limits on supply may constrain sales of certain of our current products and product candidate development. In addition, we compete with other companies with respect to many of our marketed products as well as for the discovery and development of new products. Discovery or identification of new product candidates cannot be guaranteed and movement from concept to product is uncertain; consequently, there can be no guarantee that any particular product candidate will be successful and become a commercial product. Further, some raw materials, medical devices and component parts for our products are supplied by sole third-party suppliers. The discovery of significant problems with a product similar to one of our products that implicate an entire class of products could have a material adverse effect on sales of the affected products and on our business and results of operations. Our efforts to acquire other companies or products and to integrate the operations of companies we have acquired may not be successful. We may not be able to access the capital and credit markets on terms that are favorable to us, or at all. We are increasingly dependent on information technology systems, infrastructure and data security. Our stock price is volatile and may be affected by a number of events. Our business performance could affect or limit the ability of our Board of Directors to declare a dividend or our ability to pay a dividend or repurchase our common stock. Trish Hawkins, 805-447-5631 (media) Consolidated Statements of Income - GAAP (In millions, except per share data) Six months ended Revenues: Other revenues Interest expense, net Interest and other income, net Income before income taxes Earnings per share: Weighted average shares used in calculation of earnings per share: Consolidated Balance Sheets - GAAP Cash, cash equivalents and marketable securities Trade receivables, net Property, plant and equipment, net Intangible assets, net Accounts payable and accrued liabilities Current portion of long-term debt Long-term deferred tax liability Other noncurrent liabilities GAAP to Non-GAAP Reconciliations GAAP cost of sales Adjustments to cost of sales: Acquisition-related expenses (a) Certain net charges pursuant to our restructuring initiative Total adjustments to cost of sales Non-GAAP cost of sales GAAP cost of sales as a percentage of product sales Acquisition-related expenses Non-GAAP cost of sales as a percentage of product sales GAAP research and development expenses Adjustments to research and development expenses: Total adjustments to research and development expenses Non-GAAP research and development expenses GAAP research and development expenses as a percentage of product sales Non-GAAP research and development expenses as a percentage of product sales GAAP selling, general and administrative expenses Adjustments to selling, general and administrative expenses: Acquisition-related expenses (b) Total adjustments to selling, general and administrative expenses Non-GAAP selling, general and administrative expenses GAAP selling, general and administrative expenses as a percentage of product sales Non-GAAP selling, general and administrative expenses as a percentage of product sales GAAP operating expenses Adjustments to operating expenses: Adjustments to cost of sales Adjustments to research and development expenses Adjustments to selling, general and administrative expenses Certain net charges pursuant to our restructuring initiative (c) Expense related to various legal proceedings Acquisition-related adjustments Total adjustments to operating expenses Non-GAAP operating expenses Adjustments to operating expenses GAAP operating income as a percentage of product sales Non-GAAP operating income as a percentage of product sales GAAP income before income taxes Non-GAAP income before income taxes GAAP provision for income taxes Adjustments to provision for income taxes: Income tax effect of the above adjustments to operating expenses (d) Other income tax adjustments (e) Total adjustments to provision for income taxes Non-GAAP provision for income taxes GAAP tax rate as a percentage of income before taxes Non-GAAP tax rate as a percentage of income before taxes Adjustments to net income: Adjustments to income before income taxes, net of the income tax effect Total adjustments to net income The following table presents the computations for GAAP and non-GAAP diluted EPS. Weighted-average shares for diluted EPS Diluted EPS The adjustments related primarily to non-cash amortization of intangible assets acquired in business combinations. For the three months ended June 20, 2016 as well as the three and six months ended June 30, 2015, the adjustments related primarily to non-cash amortization of intangible assets acquired in business combinations. For the six months ended June 30, 2016, the adjustments related primarily to a $73-million charge resulting from the reacquisition of Prolia®, XGEVA®and Vectibix®license agreements in certain markets from Glaxo Group Limited, as well as non-cash amortization of intangible assets acquired in business combinations. The adjustments related primarily to severance expenses. The tax effect of the adjustments between our GAAP and non-GAAP results takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). Generally, this results in a tax impact at the U.S. marginal tax rate for certain adjustments, including the majority of amortization of intangible assets, whereas the tax impact of other adjustments, including restructuring expense, depends on whether the amounts are deductible in the respective tax jurisdictions and the applicable tax rate(s) in those jurisdictions. Due to these factors, the effective tax rates for the adjustments to our GAAP income before income taxes, for the three and six months ended June 30, 2016, were 33.8% and 32.1%, respectively, compared with 31.8% and 32.2% for the corresponding periods of the prior year. The adjustments related to certain prior period items excluded from non-GAAP earnings, primarily the impact related to the stock options from the adoption of ASU 2016-09. Reconciliations of Cash Flows Net cash used in investing activities Net cash (used in) provided by financing activities (Decrease) increase in cash and cash equivalents (a) Restated to include $470 million and $623 million for the three and six months ended June 30, 2015, respectively, which was previously included in Net cash (used in) provided by financing activities, as a result of the adoption of ASU 2016-09. Reconciliation of GAAP EPS Guidance to Non-GAAP EPS Guidance for the Year Ending December 31, 2016 GAAP diluted EPS guidance Known adjustments to arrive at non-GAAP*: Restructuring charges Legal proceeding charge Tax adjustments Non-GAAP diluted EPS guidance The known adjustments are presented net of their related tax impact which amount to approximately $0.71 to $0.73 per share, in the aggregate. The adjustments relate primarily to non-cash amortization of intangible assets acquired in prior year business combinations. The adjustments relate to certain prior period items excluded from non-GAAP earnings. Reconciliation of GAAP Tax Rate Guidance to Non-GAAP Tax Rate Guidance for the Year Ending December 31, 2016 GAAP tax rate guidance Tax rate effect of known adjustments discussed above Non-GAAP tax rate guidance To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/amgen-reports-second-quarter-2016-financial-results-300305046.html

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Stimulus Payments, Paycheck Protection Program, Expense Deductibility Headline, Tax Changes In Latest Covid Relief Package Tax Tips / December 23, 2020 December 23, 2020 / Covid Relief Package, Expense Deductibility Headline, Paycheck Protection Program, Stimulus Payments, Tax Changes Covid Relief Package When Congress initially responded to the Covid-19 pandemic by passing the CARES Act on March 27th, 2020 — handing down individual stimulus payments, Paycheck Protection Program loans, supplemental unemployment benefits and a bevy of additional tax breaks to struggling businesses — many anticipated that if the virus continued to spread unabated, additional relief would quickly follow. Nearly nine months have passed, however, and while daily deaths have skyrocketed and closures designed to contain the virus have caused untold economic damage, another round of relief has thus far remained elusive. On late Sunday, however, members of the House and Senate at long last agreed to a second significant stimulus package as part of a broader spending package that, in total, exceeds 5,500 pages in length. As we’ll soon see, the package — which we’ll simply refer to as “the bill” — doubles down on some earlier Covid tax incentives while also providing as-yet-unseen forms of relief. Let’s take a look at what made it in to the final bill, and what it means for the tax fortunes of individuals and businesses. We’ll begin our journey in subtitle B of Title II of Division N of the bill – the Covid-related Tax Relief Act of 2020. Virtual Tax USA | If you are a US Expat and looking for a Professional Expat Tax Service provider to file your Taxes then You have come to the right place. Virtual Tax USA offers a wide range of Expat tax services for business owners, individuals, Professionals, and US Expats around the Globe. Virtual Tax USA’s team is friendly, Professional and has years of experience in Assurance, US, and international tax disciplines. PLEASE CONTACT US FOR A FREE INITIAL CONSULTATION. Stimulus Payments The bill provides another much-needed round of individual stimulus payments, albeit smaller than those available under the CARES Act: up to $600 for individuals and $1,200 for a married couple filing jointly, plus $600 for each dependent child under the age of 17 (no payment is available for an adult dependent). Taxpayers eligible to be claimed as a dependent on another’s return are not eligible to receive a payment. Once again, the payments phase out once adjusted gross income exceeds $75,000 for a single taxpayer and $150,000 for a married couple. The checks will be cut in the coming weeks, and will be based on your 2019 filing information. But as was the case with the first round of stimulus checks, the payments represent an ADVANCE against a credit taxpayers will claim on their 2020 tax return. And once again, if the ACTUAL credit a taxpayer is owed on his or her 2020 return exceeds the ADVANCE payment received, they will claim an additional refundable credit for the balance. To the contrary, if the ADVANCE payment exceeds the ACTUAL credit, the taxpayer is not required to “true-up” by making a payment back to the IRS. Kelly Phillips Erb has all the detail you could need on stimulus checks right here. The headliner of the CARES Act was the establishing of the Paycheck Protection Program, which made loans of up to $10 million available under Section 7 of the Small Business Act to borrowers who, in general, had fewer than 500 employees. The loans could be used to pay for payroll, rent, mortgage payments and utilities. The most appealing part of the PPP loans, however, was that any amounts spent during the 24 week period beginning with the disbursement of the loan would be eligible to be forgiven by the SBA, and even better, Congress declared that the forgiveness would not create taxable income, a deviation from the general tax rules. The subsequent rollout of the PPP, however, was riddled with problems: much of the necessary guidance was nonexistent, and what little was published was either too late to help or inconsistent with the legislative text of the CARES Act. The biggest problem, of course, was that soon after borrowers began obtaining the loan, the IRS issued Notice 2020-32, which concluded that expenses paid with PPP funds would not be deductible. Thus, while the forgiveness of the funds would not generate taxable income, the denial of a deduction related to the use of the funds would effectively make the loan taxable. And while that may well be the correct result from a tax policy perspective, it came as quite the unwelcome news to thousands of borrowers. The bill made substantial changes to PPP loans — both existing and new — but let’s not bury the lede here. Deductibility of Expenses Paid with Forgiven PPP Funds Ever since the IRS published Notice 2020-32, borrowers and tax professionals alike have put their faith in Congress to overrule the Service and provide a double benefit: tax-free forgiveness of loan proceeds AND deductible expenses paid with PPP funds. Section 276 of Division N of the latest bill does just that, providing that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.” Importantly, this rule applies to ALL borrowers; even those who have already applied for forgiveness. Thus, expenses paid with PPP funds are now completely deductible. Changes to the Existing PPP Program The bill reopens the original Paycheck Protection Program by earmarking $35 billion for those who have not yet borrowed. For those who have already partaken, the bill makes several changes to the existing program; unfortunately, if a taxpayer has already applied for forgiveness, the rules discussed below will NOT apply. If a borrower has not yet applied for forgiveness yet, however, the below changes are all in play. 1. New Expenses Eligible for Use/Forgiveness The bill gives PPP borrowers who have not yet applied for forgiveness the opportunity to spend proceeds on four new types of expenses. Those costs are also eligible for forgiveness, subject to limitation. I say “subject to limitation” because each of the four expenses are non-payroll costs, and the sum of all non-payroll costs cannot exceed 40% of the TOTAL costs eligible for forgiveness. So what are the four new expenses? Covered operations expenditures. Payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses. Covered property damage costs: Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation. Covered supplier cost: An expenditure made by an entity to a supplier of goods that are: Essential to the operations of the entity at the time at which the expenditure is made, or Is made pursuant to a contract, order, or purchase order that was either 1) in effect at any time before the covered period with respect to the loan, or 2) with respect to perishable goods, in effect before or at any time during the period. Covered worker protection. These are operating or capital expenditures that are required to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the CDC, or OSHA during the period beginning on March 1, 2020 and ending on the date on which the national emergency declared by the President under the National Emergencies Act expires. Eligible costs are those related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to Covid–19. The term includes: The purchase, maintenance, or renovation of assets that create or expand a drive-through window facility; an indoor, outdoor, or combined air or air pressure ventilation or filtration system; a physical barrier such as a sneeze guard; an indoor, outdoor, or combined commercial real property; an onsite or offsite health screening capability; or other assets relating to the compliance with the requirements of certain protective guidance. The purchase of covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation; particulate filtering facepiece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or 0ther kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor. Not included in the definition of covered worker protection costs, however, are residential real property or intangible property. 2. New Options for Covered Periods Only those PPP proceeds paid or incurred during the “covered period” are eligible for forgiveness. As of yesterday, there were only two options for a covered period: 8 or 24 weeks. The bill, however, gives a borrower the right to choose ANY covered period beginning on the date a borrower receives the loan and ending on a date selected by the borrower during the period— beginning on the date that is 8 weeks after such date of origination; and ending on the date that is 24 weeks after such date of origination. Or stated in a simpler manner, a borrower is no longer locked into an 8 or 24 week period; instead, they can choose any period lasting BETWEEN 8 and 24 weeks as well. 3. Streamlined Forgiveness for Borrowers under $150,000 This one is important: The bill delivers long-rumored streamlined forgiveness for loans of less than $150,000. These borrowers will only be required to submit a one-page online or paper form, and will only be subject to audit if they commit fraud or use the proceeds for improper purposes. It appears a small borrower will not be subjected to the required reductions in forgiveness amounts generally caused by slashing salaries or slashing headcount. Second Round PPP Loans In addition to expanding upon the first tranche of PPP loans, the bill creates a SECOND round of loans at Section 7(a)(37) of the Small Business Act (the original PPP loans were at Section 7(a)(36)) for those who have already borrowed and fully extinguished their original PPP proceeds. For these borrowers, the loan is generally determined by multiplying 2.5 by the average monthly payroll for 2019, limited to $2 million. In addition, hard hit businesses in the hospitality industry – think: bars, restaurants and hotels – will be permitted to borrow 3.5 times average monthly payroll, again limited to $2 million. Additional computational rules are provided for seasonal employers. More importantly, eligibility for a second round of borrowing is more stringent than before. A borrower will have to have fewer than 300 employees (down from 500), and be able to establish, in general, that they experienced a 25% drop in gross receipts during a quarter in 2020 relative to that same quarter in 2019. At this point, guidance on determining gross receipts is absent, but the bill does require the SBA to issue regulations within 10(!) days of the passage of the bill. Eligible entities must be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives. Ineligible entities include: entities listed in regulations at 13 C.F.R. 120.110, and except for nonprofits and religious organizations; entities involved in political and lobbying activities, entities affiliated with entities in the People’s Republic of China; registrants under the Foreign Agents Registration Act; and entities that receive a grant under the Shuttered Venue Operator Grant program (we’ll discuss that later). For eligible new borrowers, the covered period will be a choice of any stretch of time beginning on the date of disbursement and ending between 8 and 24 weeks later. Like the first round of loans, proceeds can be used on payroll costs, rent, utilities, mortgage principal interest, and the four new eligible buckets of expenses discussed above. As we’ll discuss more fully below, because PPP borrowers may now also claim the Employee Retention Credit, any wages for which a credit is computed will not be treated as forgivable payroll costs for purposes of the PPP. Once again, the amount of forgiveness attributable to non-payroll costs cannot exceed 40% of the total amount forgiven. Under the bill, however, the final forgiveness amount will no longer be reduced by any EIDL grant received. There’s one interesting twist: in general, a borrower’s amount eligible for forgiveness is reduced if they either slash salaries of certain employees or cut headcount during the covered period. There are a few bailouts provided, however, if the borrower can restore the salary or headcount prior to the earlier of 1) the date the borrower files the application for forgiveness, or 2) December 31, 2020. An earlier version of this bill moved the safe harbor date back to September 30, 2021, which makes sense given the second round of PPP borrowing. But I don’t see where it’s made it into the final bill, which may mean that a technical correction is in order. Other Loan Forgiveness Issues The bill provides taxpayers to double dip in a number of scenario: for example, receipt of an Economic Injury Disaster Loan advance will no longer be taxable, and any expenses paid with the advance will remain deductible. The same holds true for borrowers of traditional Section 7 SBA loans who had six months of their principal and interest paid pursuant to the CARES Act. Additional SBA Debt Programs Grants for Shuttered Venue Operators The bill authorizes $15 billion for the SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues quarter-over-quarter comparing 2020 to 2019. The taxpayer had to be fully operational as of February 29, 2020. The SBA will make an initial grant of 45% of gross revenue earned in 2019, up to $10 million. A second grant of up to 50% of the first grant can also be made, but the total of both grants cannot exceed $10 million. The grants must be used to pay the following expenses: Payroll costs, Rent, utilities or mortgage interest and principal, Interest on other debt outstanding prior to February 15, 2020, Covered worker protection expenses (as defined above in the PPP section), Up to $100,000 in payments to an independent contractor, Other ordinary and necessary expenses including maintenance, administrative costs, state and local taxes, insurance premiums, advertising, and more. The grant CANNOT be used to purchase real estate, pay interest or principal on debts taken out after February 15, 2020, or lobbying expenses. Pursuant to the bill, the grants will not be included in taxable income. Other Debt Relief Programs The CARES Act authorized the SBA to pay six months’ worth of a borrower’s principal and interest on an existing Section 7 loan (not a PPP loan). The bill would compel the SBA to pay an additional three months of principal and interest beginning in February 2021. Employee Payroll Tax Deferral Over the summer, President Trump used an executive order to allow certain employees to defer the 6.2% share of Social Security tax on wages paid from September 1, 2020 through the end of the year until the first four months of 2021. The bill extends the due date for that deferral to be repaid from April 30, 2021 until December 31, 2021. FFCRA Credits The Families First Coronavirus Response Act required certain small employers to pay up to 10 weeks of qualified family leave when an adult couldn’t work because a child was without school or care, and up to 2 weeks of sick leave for a variety of Covid-related reasons. In turn, the employer would receive a fully refundable dollar-for-dollar payroll tax credit equal to the wages paid. The bill extends the credit provisions from December 31, 2020 through March 31, 2021. The bill provides an additional $300 per week for all workers receiving unemployment benefits, through March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally-funded unemployment benefits to individuals who exhaust their regular state benefits. Additionally, the bill increases the maximum number of weeks an individual may claim benefits through regular state unemployment plus the PEUC program, or through the PUA program, to 50 weeks. The bill also provides an extra benefit of $100 per week for certain workers who have both wage and self-employment income but whose base UI benefit calculation doesn’t take their self-employment into account. Alright. Next, let’s head into Division EE, the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Extension of the Employee Retention Tax Credit The CARES Act gave rise to the Employee Retention Credit (ERC), a mutually exclusive option to a PPP loan. The credit was only available for 2020, and offset a taxpayer’s payroll tax liability. The credit was equal to 50% of the first $10,000 of qualified wages paid to an employee during an “eligible quarter;” generally, either a quarter in which 1) the business had its operations fully or partially suspended by an appropriate government order, or 2) the business had a precipitous drop in gross receipts quarter-over-quarter when comparing 2020 to 2019. The credit was computed differently if the business had more than 100 employees – above that threshold, the employer could only claim the credit on wages paid to employees NOT to work. The bill extends the ERC through July 1, 2021, and greatly expends several aspects of the credit for amounts paid in the first two quarters of 2021. First, the credit percentage is increased from 50% to 70% of qualified wages. Qualified wages, in turn, are increased from $10,000 in TOTAL per employee to $10,000 per quarter per employee, while the change in treatment of qualified wages that once occurred above 100 employees now does not kick in until employees exceed 500. In addition, a mere 20% drop in quarter-over-quarter receipts are now required to make a quarter an “eligible quarter,” rather than the 50% initially required by the CARES Act. Perhaps most importantly, it appears that a taxpayer may now claim the ERC AND take out a PPP loan; they are no longer mutually exclusive. Any wages upon which an ERC is computed, however, would not be forgivable costs under the PPP program. Full Business Meals Deduction Permitted in 2021 and 2022 Yup, it’s as simple as that. Section 274(n)(2) has been modified to allow for full expensing of “restaurant” meals purchased in 2021 and 2022 provided the other requirements for deductibility under Reg. Section 1.274-12 are met; i.e., not lavish, the taxpayer is present, as is an employee or business associate, etc… Changes to Charitable Contributions The CARES Act permitted taxpayer who do NOT itemize their deductions to claim up to a $300 charitable deduction in arriving at adjusted gross income for 2020 only, provided the contribution were paid in cash to a public charity. The bill extends the provision to 2021, but increases the deduction to $600 for a married couple filing jointly. The CARES Act also temporarily increased the limitation for deductible cash contributions to a public charity from 60% to 100%. The bill extends this treatment into 2021. Special “Lookback” for EITC and CTC: The bill includes a special temporary rule allowing lower-income individuals to use their earned income from tax year 2019 to determine the Earned Income Tax Credit and the refundable portion of the Child Tax Credit (i.e., the Additional Child Tax Credit) in the 2020 tax year. This will help workers who experienced lower wages this year, due to the pandemic, to get a larger refund that is consistent with their earnings from prior filing seasons. Extension of Certain Expiring Provisions The bill revives several provisions that were set to expire at the end of 2020, some permanently, some for shorter durations. Here are a few of the provisions that are now permanent fixtures of the Code: Unreimbursed medical expenses are deductible to the extent they exceed 7.5% of adjusted taxable income. This floor was slated to increase to 10% in 2021, but the bill makes permanent the 7.5% floor. Section 179D, which allows for a limited deduction upon making energy efficient improvements to nonresidential rental, was set to expire at the end of 2020. It is now permanent. The deduction in arriving at adjusted gross income for qualified tuition expenses – which was set to expire at the end of 2020 – WILL be allowed to expire, though it will be replaced with increased income phase-out thresholds on the Lifetime Learning Credit under Section 25A. And then there are a few provisions that were extended for five years, until December 31, 2025. They include: The New Markets Tax Credit of Section 45D; The Work Opportunity Credit; Section 108(a)(1)(E), which allows for up to $2 million of mortgage principle secured by a taxpayer’s principal residence to be forgiven tax-free. The new limit, however is $750,000 for a married couple, $375,000 for a single taxpayer; Section 181, which allows for immediate expensing of certain qualified film and television and live theatrical productions; Section 127, which had historically allowed an employer to pay up to $5,250 of an employee’s qualified tuition each year tax-free before being amended by the CARES Act to include within that limit – for 2020 only — payments of an employee’s student loan principal and interest, has been amended to allow for student loan payments through the end of 2025. The bill also extended through the end of 2021 a host of soon-to-expire energy credits, including the credits for nonbusiness energy property, energy efficient homes, and fuel cell motor vehicles. Changes to Depreciation of Certain Residential Real Property It appears the bill allows taxpayers who elect out of the interest limitation rules of Section 163(j) – and are thus required to depreciate their nonresidential real property, residential real property, and qualified improvement property over their alternative depreciation system lives of Section 168(g) – may depreciate residential real property placed in service PRIOR TO 2018 over 30 years rather than the 40 years that was previously mandated for that time period. That should do it. There’s a lot to digest, particularly in the realm of the expanded Employee Retention Credit and the second round of PPP loans. A deeper dive into those two issues awaits, but in the meantime, hopefully this discussion gives you a decent look at what’s new in Congress’s latest stimulus efforts. Source: Forbes.com

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professional_accounting

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate investors about municipal bonds. For additional assistance, investors can call the SEC's Office of Investor Education and Advocacy at 1-800-SEC-0330, or ask a question using this online form. Municipal bonds are debt securities issued by states, cities, counties and other governmental entities to finance capital projects, such as building schools, highways or sewer systems, and to fund day-to-day obligations. Investors who buy municipal bonds are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually, and the return of the original investment, or “principal.” The date when the issuer repays the principal, the bond’s maturity date, may be years in the future. Short-term bonds mature in one to three years, while long-term bonds won’t mature for more than a decade. General obligation bonds are issued by states, cities or counties and not secured by any assets; instead, they are backed by the “full faith and credit” of the issuer, which has the power to tax residents to pay bondholders. Revenue bonds are not backed by government’s taxing power but by revenues from a specific project or source, such as highway tolls or lease fees. Revenue bonds usually are non-recourse, meaning that if the revenue stream dries up, the bondholders do not have a claim on the underlying revenue source. In addition, municipal borrowers sometimes issue bonds on behalf of private entities such as non-profit colleges or hospitals. These “conduit” borrowers typically agree to repay the issuer, who pays the interest and principal on the bonds. In cases where the conduit borrower fails to make a payment, the issuer usually is not required to pay the bondholders. Recently, many municipalities also began to issue taxable Build America Bonds and other taxable municipal bonds with associated tax credits or direct federal payments to the issuer that were authorized by the American Recovery and Reinvestment Act of 2009. Call risk. Call risk refers to the potential for a bond issuer to retire a bond before its maturity date, something that an issuer may do if interest rates decline -- much as a homeowner might refinance a mortgage loan to benefit from lower interest rates. A callable municipal bond allows the issuer to redeem some or all of the outstanding municipal bonds on or after a specified “call date” before the specified maturity date. The price the municipality pays for called municipal bonds is predetermined and may include a premium. Bond calls are less likely when interest rates are stable or moving higher. Many municipal bonds are “callable,” so investors who want to hold a municipal bond to maturity should research the bond’s call provisions before making a purchase. Investors wishing to research municipal bonds may access disclosure documents and real-time price data online free of charge at the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) website. Credit risk. This is the risk that the bond issuer may experience financial problems that make it difficult or impossible to pay interest and principal in full. Defaults can more commonly occur with conduit borrowers that finance projects by borrowing through a municipal issuer. A handful of municipal borrowers also have run into trouble, as in the recent case of Jefferson County, Alabama, which defaulted on payments on $3.8 billion of sewer bonds in 2008, when complex interest rate swap agreements increased the county’s debt load beyond what the county could cover. Recent economic weakness has reduced states’ revenues from taxes while increasing outlays for social insurance programs, straining budgets. The need to fund public pension plans could increase financial pressure on municipal borrowers, thus raising credit risk for bondholders. Interest rate risk. Bonds have a fixed face value, known as the “par” value. If bonds are held to maturity, the investor will receive the face value amount back, plus interest that may be set at a fixed or floating rate. The bond’s price will move up as interest rates move down and it will decline as interest rates rise, so that the market value of the bond may be more or less than the par value. U.S. interest rates have been low for some time. If they move higher, investors who hold a fixed-rate municipal bond and try to sell it before it matures could lose money. Rising interest rates will make newly issued bonds more appealing to investors because the newer bonds will pay a higher rate of interest than the older ones. Liquidity risk. This refers to the risk that investors won’t find an active market for the municipal bond, potentially preventing them from buying or selling when they want and making pricing more difficult. Many investors buy municipal bonds to hold them rather than to trade them, so the market for a particular bond may not be especially liquid and quoted prices for the same bond may differ. Investors can access real-time price data at no charge and see how their municipal bonds or similar bonds have traded recently at the Municipal Securities Rulemaking Board’s EMMA website at www.emma.msrb.org. Recent price information may not be available for bonds that do not trade frequently. What is the SEC doing to strengthen protections for municipal bond investors? Public companies that issue stocks are required to provide ongoing disclosure to the SEC and to investors. In contrast, most offerings by municipal issuers are exempt from the provisions of federal law requiring filings with the SEC. However, for most municipal securities issued after July 3, 1995, annual financial information and operating data, as well as notice of certain events, is required by SEC dealer regulations to be filed with the Municipal Securities Rulemaking Board and is available at no charge to investors at www.emma.msrb.org. Improved disclosure is underway: the SEC approved changes to its rules in May 2010 designed to increase the quality and timeliness of disclosure about municipal bonds, including newly issued variable rate demand obligations. Those changes are slated to take effect on the compliance date of December 1, 2010. sales practices and potential conflicts of interest. The hearings will help inform a planned SEC staff report that will recommend ways to better protect municipal bond investors.

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professional_accounting

HKICS Home Technical Submissions Studentship Risk awareness starts with the board CSj takes a look at recent revisions to Hong Kong’s Corporate Governance Code designed, among other things, to clarify that the board has an ongoing responsibility to oversee companies’ risk management and internal control systems. If the global financial crisis taught the world only one lesson, it was the importance of detecting and dealing with risks. Since the crisis, as you might expect, risk governance and internal controls have become key areas for companies – listed and private, global and national – to ensure that unpredicted events or challenging trends are dealt with so that threats are minimised and opportunities seized. Companies are not the only market participants getting involved – regulators in most markets around the world have been revising their compliance requirements relating to risk governance and trying to foster a ‘risk culture’. In December 2014 the stock exchange amended Hong Kong’s Corporate Governance Code to highlight the importance of risk management and effective internal controls. In summary, the main changes to the Code include: incorporating risk management into the Code where appropriate defining the roles and responsibilities of the board and management clarifying that the board has an ongoing responsibility to oversee the issuer’s risk management and internal control systems upgrading to Code Provisions the Recommended Best Practices regarding the annual review of the effectiveness of the issuer’s risk management and internal control systems, and disclosures in the Corporate Governance Report, and upgrading to a Code Provision the Recommended Best Practice that issuers should have an internal audit function, and those without to review the need for one on an annual basis. The revisions to the Code will apply to accounting periods beginning on or after 1 January 2016, so companies still have up to two years before compliance with the new Code Provisions falls due. Moreover, Code Provisions are not mandatory Listing Rules; companies can adopt alternative measures as long as they explain these to stakeholders in their Corporate Governance Reports. David Graham, Chief Regulatory Officer and Head of Listing at Hong Kong Exchanges and Clearing Ltd (HKEx), explained that good management of risks – that threaten the achievement of the strategic and operational objectives of an organisation – is a core element of good corporate governance. ‘The amendments to the Corporate Governance Code which we adopted in the consultation conclusions published in December 2014 are intended to help improve the overall corporate governance standards of our issuers and to bring our Code in this area more in line with the latest international best practices’, he told CSj. The amendments emphasise that internal controls are an integral part of risk management. While risk management focuses on identifying threats and opportunities, internal control helps counter the threats and take advantage of opportunities. The amendments also focus on ensuring that stakeholders are informed of the effectiveness of companies’ risk management and internal control systems. Investors are taking an increased interest in this area. According to a survey conducted by accountancy firm EY, more than 80% of institutional investors are willing to pay a premium for companies with good risk management practices. Similarly, a majority of respondents to the same survey said that they had passed up the opportunity to invest in a company because they believed risk management was insufficient. ‘Understandably, investors don’t like negative surprises – they want to know things are under control; they want open communication and information on control systems’, the EY report said. ‘One thing is certain: investors can’t value what they can’t see. As well as being critical to the overall success of a business, a good investor communications programme is a key tool of risk management’. The impact of the Code changes Other jurisdictions, such as the UK, Australia and Singapore, have already adopted similar requirements within their respective corporate governance codes. For many companies with overseas listings, therefore, the new rules will not require any significant changes. Paul Stafford FCIS FCS, Corporation Secretary and Regional Company Secretary Asia-Pacific of the Hongkong and Shanghai Banking Corporation (HSBC), welcomes the amendments to the Code and explains that they will help align the rules on risk management globally. ‘Many of the changes have already happened in the jurisdictions where we are subject to similar rules. So in many ways, these represent an alignment with other markets where we’re already in operation to the same sorts of expectations’, he said. ‘This is particularly the case for financial services and banking companies where there has been a huge focus on risk management over many years, and especially since the global financial crisis’. A few years ago, HSBC established separate audit and risk committees. Although there are overlapping areas between the audit and risk committees, responsibilities and skill sets among its members are somewhat different. Paul Stafford said he appreciates that the HKEx Code will now provide flexibility for companies to operate with separate audit and risk committees as well as a single audit committee. He also said the separation of audit and risk committees brings new challenges for the company secretary because of the crossover of responsibilities between the two committees. ‘Having two separate committees sometimes raises interesting situations’, he said. ‘In some cases we have to work out if it’s an audit committee question or a risk committee question. Sometimes the answer is that it’s both’. Internal control is a good example, he added. Internal control over financial reporting would tend to be within the audit committee’s remit, but internal control in general will fall within the risk committee’s remit. Having a separate risk committee is not obligatory under the revised Code. HKEx leaves it up to issuers to decide this question for themselves. For some issuers, the consultation paper states, it may be appropriate to establish a risk committee. But for others – particularly smaller issuers with fewer directors – establishing another board committee may be a strain on their resources. In those cases, the paper adds, the risk committee would be likely to comprise the same directors that sit on all the other board committees. Most audit committees already take responsibility for risk management and internal control. Some companies prefer to keep it that way rather than create a separate risk committee. Edith Shih FCIS FCS(PE), Head Group General Counsel and Company Secretary at Hutchison Whampoa, is also supportive of the new requirements – she points out that risk management and internal control go hand in hand. For the port-to-telecom conglomerate, the Code revisions won’t mean any major changes – risk management and internal controls have for years been an integral part of its operations. At Hutchison Whampoa the board takes responsibility for internal control and risk management of the company. The monitoring is delegated to the audit committee, Edith Shih explained. They do not have a separate risk committee. ‘Risk management is such an integral part of corporate governance that it’s right that the Code changes have been introduced’, she said. ‘Some think that it would have been better to introduce them earlier, but I understand that many smaller companies might not have had the manpower and infrastructure to deal with the requirements all at once’. Some of Hutchison Whampoa’s business units, like Canadian oil and gas company Husky Energy, have a separate risk committee due to their specialised business areas where risk management is particularly important. Hutchison Whampoa follows an internal control model promoted by COSO, the Committee of Sponsoring Organisations of the Treadway Commission. The model – effected by an organisation’s board of directors, management and other personnel – is basically designed to provide guidance for effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. Under this model, the board assesses risk and internal control in all of Hutchison Whampoa’s business units. Focus is somewhat different in the Group’s different units depending on their business nature and risk profile. Its retail businesses, like ParknShop and Watsons, have tight control of cash and stock management, while its container port business unit focuses a great deal on safety for employees and machinery. Still, there is a framework of questions which all business units have to reply and report back on to the board. It is essentially a top-down process to scrutinise the effectiveness of internal control and to safeguard shareholder value. The model is based on self-assessment but is not solely reliant on self-assessment, Edith Shih explained. ‘It is a very stringent system’, she said. After all the questions have been answered, the managing director and finance director of each business unit have to sign and confirm the responses given. Then the company’s internal auditor conducts his separate review and provides his own report which is compared against that of the business units. The work of the internal auditor is then verified by the external auditor. Finally, the board assures in the company’s annual report that the risk and internal control review is satisfactory. The risk management and internal control review is ongoing throughout the year but the company provides a report twice a year, in its interim and annual reports. Who is responsible for looking after risk? Ultimately the responsibility for risk management rests with the board, but a good company secretary will be closely involved in the process in a number of ways. Company secretaries are not only there to handle the paperwork, Edith Shih points out – they assist in monitoring and policing the risk management process, ensuring that a risk review is on the board’s agenda and providing advice to the board in this area. This advisory function is one area where the company secretary’s services are increasingly in demand because tougher regulations have increased directors’ responsibility and potential liability. As mentioned earlier in this article, the recent amendments to the Code aim to improve the definition and understanding of the roles and responsibilities of the board and management in risk management. Andrew Weir, Regional Senior Partner of KPMG in Hong Kong, points out that the amendments to the Code include new principles that clearly distinguish the role of the board from the role of management. Boards are being encouraged to promote a ‘risk awareness’ culture rather than one of compliance, and this starts with robust discussion of risk and control in the boardroom. The principles state that the board is responsible for determining and evaluating the risks the company is willing to take, while management is responsible for designing, implementing and monitoring the risk management and internal control systems. Management should also provide confirmation to the board of the effectiveness of these systems. ‘Ultimate responsibility rests with the board, however everyone within the organisation has a role to play’, Andrew Weir said. ‘This is why culture is such an important factor’. This will give company secretaries a key role to play, he added. They will be involved in both the implementation of a structured approach to risk management and in promoting the importance and benefits of effective risk management across the organisation. Best practice risk management employs a ‘three lines of defence’ model reporting to the board. Operational management and oversight functions form the first and second lines, and a third line of defence is provided by internal auditors. As mentioned earlier, the recent amendments to the Code have introduced a Code Provision that issuers should have an internal audit function. This is intended to help issuers carry out analysis and independent appraisal of their risk management and internal control systems. This Code provision is likely to attract significant attention from a compliance point of view. Today, only half of the companies listed on the Hong Kong stock exchange have an internal auditor. Moreover, hiring one is easier said than done – HKEx warned in its consultation paper on risk management that there is a limited supply of qualified, experienced internal audit personnel. There may also be concerns about the independence of the internal audit function in smaller companies as some issuers may utilise existing staff involved with preparing the issuer’s financial statements to conduct the internal audit as well. The effort taken to implement risk management should not be underestimated, but those companies who do so effectively will find that it has clear operational and governance benefits. Since the 2008 global financial crisis, risk has been most often identified with financial risk, but this is far from being the only area of risk that companies need to monitor. Today, organisations face a wide range of uncertain internal and external factors that may affect the achievement of their objectives. The risk agenda has broadened into many different areas including: operational, regulatory, legal, social, environmental and reputational risks. Worryingly, there are many areas of risk that are overlooked or ignored. Andrew Weir lists some risks that he believes deserve greater attention than they are currently getting. Regulation in Hong Kong, across Asia and globally is growing in its complexity and companies need to make sure they are abreast of all requirements that apply to the markets that they operate in. A company’s regulatory burden is multiplied when it operates across multiple jurisdictions. Cybersecurity is often an area overlooked by organisations and frequently delegated to the head of IT. There is a self-review risk inherent in this that has exposed numerous organisations to data and financial loss. There is the risk of overconfidence in a companies’ ability to mitigate risks. The question needs to be asked whether an organisation is sufficiently prepared for an anticipated or unexpected event. Companies need to ask: are good risk management practices in place? Have they been tested? If we haven’t been exposed in the past is it due to good management or good luck? The rise of social media and the increasing speed at which information travels is also impacting the speed at which companies must react to adverse events. There have been many examples in recent months which show both markets and regulators to be unforgiving to companies who are unable to respond effectively with sufficient speed. Another peril is that risk committees still tend to rely on information generated within the business. Risk management and internal control need to encompass a wider perspective since organisations are affected by many variables – often outside their direct control. Johan Nylander, Journalist The HKEx consultation paper and consultation conclusions regarding the recent Corporate Governance Code changes are available on the HKEx website (www.hkex.com.hk). Relevant Frequently Asked Questions can also be downloaded from the ‘Rules & Regulations/ Rules and Guidance on Listing Matters/Interpretation and Guidance’ section of the HKEx website. SIDEBAR: In other words “The amendments to the Corporate Governance Code which we adopted in the consultation conclusions published in December 2014 are intended to help to improve the overall corporate governance standards of our issuers and to bring our Code in this area more in line with the latest international best practices.” David Graham, Chief Regulatory Officer and Head of Listing at Hong Kong Exchanges and Clearing Ltd (HKEx) “Many of the changes have already happened in the jurisdictions where we are subject to similar rules. So in many ways, these represent an alignment with other markets where we’re already in operation to the same sorts of expectations.” Paul Stafford FCIS FCS, Corporation Secretary and Regional Company Secretary Asia-Pacific of the Hongkong and Shanghai Banking Corporation (HSBC) “Risk management is such an integral part of corporate governance that it’s right that the Code changes have been introduced. Some think that it would have been better to introduce them earlier, but I understand that many smaller companies might not have had the manpower and infrastructure to deal with the requirements all at once.” Edith Shih FCIS FCS(PE), Head Group General Counsel and Company Secretary at Hutchison Whampoa “Ultimate responsibility [for risk management] rests with the board, however everyone within the organisation has a role to play. This is why culture is such an important factor.” Andrew Weir, Regional Senior Partner, KPMG Hong Kong MarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember CSJ is published by Ninehills Media Limited © Copyright 2021. The Hong Kong Institute of Chartered Secretaries 香港特許秘書公會 (Incorporated in Hong Kong with limited liability by guarantee). All rights reserved.

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professional_accounting

Average property tax per unit Assignment Help Accounting Basics Reference no: EM13127880 At a sales volume of 37,300 units, Bonham Corporation's property taxes (a cost that is fixed with respect to sales volume) total $574000. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 41300 units? (Assume that this sales volume is within the relevant range.) How many grams of ch4 is needed CH4(g) + 3 Cl2(g) CHCl3(g) + 3 HCl(g) How many grams of CH4 is needed to produce 43.0 g CHCl3? Probability booked passengers actually show up for flight Past studies have shown that only 95% of booked passengers actually show up for the flight. What is the probability that exactly 99 booked passengers actually show up for the flight? Explanation of implicit differentiation Find dy/dx by implicit differentiation. where p is the unit price in dollars and x is the quantity demanded each week, measure in units of a thousand. Compute the elasticity of demand and determine whether the demand is elastic, inelastic, or unit.. Restructuring of the bank As stipulated, your company is having financial difficulty and has asked the bank to restructure its $3 million note outstanding. The present note has 3 years remaining and pays a current interest rate of 10%. Tv is bad (or good) for children You have to write a persuasive essay, Length between 500 to 700. This means you need to pick a topic and try to convince your reader to accept a proposition about that topic. You actually need to try to win over your reader in some way. That proposit.. How many grams of c6h12o6 must be added how many grams of C6H12O6 must be added to 250g of water to lower the vapor pressure by 1.30mm Hg at 40C degrees? the vapor pressure of water at 40C degrees is 55.3mm Hg. Objective function coefficients-constraint quantity values Gilbert Moss and Angela Pasaic spent several summers during their college years working at archaeological sites in the Southwest. Calculate the pressure of gas 952 cm3 container of gas is exerting a pressure of 108 kpa while at a temperature of 48 degrees celsius. calculate the pressure of this same amount of gas in a 1236 cm3 at a temperature of 64 degrees celsius. Confidence intervals for average daily maximum temperature Compute 99% confidence intervals for the average daily maximum temperature in August for each of the three years in which you collected data. How do they compare? Problem related to salvage value Pare Long-Haul, Inc. is considering the purchase of a tractor-trailer that would cost $104,520, would have a useful life of 6 years, and would have no salvage value. Taxation and corporation taxes Betsy receives a salary of $50,000 from her employer (a retail clothing store) and several fringe benefits. Her employer pays premiums of $300 for her $40,000 group term life insurance coverage and pays $2,400 for medical insurance premiums. Code of conduct in large company Conduct online research for a large company to see if you can find their code of conduct. What influence do you believe these codes of conduct have on the decision-making behavior of their members or employees? Problem related to depreciation method A fixed asset has a cost of $12,000 and a salvage value of $3,000. The asset has a three-year life. If depreciation in the third year amounted to $1,500, which depreciation method was used? Investments net present value The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: Accounting research methodology Please explain to me the accounting research methodologies of deductive, inductive and pragmatic research methods. Give me some examples to reinforce these methods. What should marc say to kelly In this way we could combine the recording and posting process into one step and save ourselves a lot of time. What do you think? Compute the accounts receivable balance Determine the EOQ before and after the change in the cash discount policy. Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy. Current price of common stock The last dividend paid by XYZ Company was $1.00. XYZs growth rate is expected to be a constant 5 percent. XYZ's required rate of return on equity (ks) is 10 percent. What is the current price of XYZ's common stock? Determining nominal output problem Suppose that nominal output rises from $12.5 trillion in 2005 to $13 trillion in 2006. Assume also that the GDP deflator rises from 100 to 105. Cash versus accrual method of accounting How much revenue will Drysdale recognize under the cash method and under the accrual basis? Describe how Drysdale should apply the matching principle to recognize expenses. Prepare an income statement according to the accrual method. Ignore income ta.. Indicate the generally accepted accounting principles Provide the fund level entries in general journal form needed to conform to basically accepted accounting principles. If no entry is needed, so indicate. Economy in tax-sparing credits What benefits do you see for the U.S. economy in tax-sparing credits? Should it be expanded or reduced? Why or why not?

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professional_accounting

The Practice Areas Market Entry & Licensing Tax Advisory & Structuring Immigration & Work Permits IT, Software Development & E-Commerce Production & Technology Tag Archive: #token Digital Asset Taxes for Cryptocurrency and Digital Tokens March 31, 2022 10:31 am Comments Off on Digital Asset Taxes for Cryptocurrency and Digital Tokens The revenue department’s announcement regarding taxing cryptocurrency has been in effect on 13 May 2018; however, investors continue to face confusion, controversy, and other difficulties. In January, the department held a public hearing with representatives from the public and private sectors. To explore digital asset tax guidelines, representatives from the Bank of Thailand, the Securities and Exchange Commission (SEC), the Thai Digital Asset Association, the Fiscal Policy Office and investor groups met to arrive at a digital asset tax collection approach appropriate for the current situation. The guidelines are under the Revenue Code Amendment Act (No. 19) B.E. 2561 (2018). The taxable transactions must be conducted through the digital asset exchange platform under the SEC only. These are as follows: Assessable income tax (net profit/capital gain) can be calculated so that the loss is the offsetting of losses against gains within the same tax year. If losses arise from any cryptocurrencies/digital tokens incurred in the same tax year, these can be offset against the profits. However, only transactions involving digital assets that are regulated by the Office of the Stock Exchange of Thailand and the Stock Exchange of Thailand are permitted. Withholding tax: if the payee cannot be identified and is unaware of the amount of income to be withheld, there is no requirement to withhold tax. The value-added tax (VAT) shall be an exemption for the transactions conducted through business operators or exchanges regulated by the SEC and on digital assets issued by the BOT. The Revenue Department has classified cryptocurrency and digital token income earners who are expected to file personal income tax by submitting a personal income tax return (PND 90/91) by 31 March 2023 into five categories: 1.Exchange or disposal of cryptocurrencies or digital tokens The income derived from trading, exchanging, selling, transferring, or disposal of cryptocurrency/digital tokens is regarded as assessable income under Section 40 (4) (g) of the Revenue Code Amendment Act (No. 19). The income and profit from the sale, payment, transfer, or trading of the cryptocurrency and digital token shall be calculated as follows: The First In, First Out (FIFO) method assumes that cryptocurrencies or digital tokens purchased first are sold first. The moving average cost is the cost calculation for each type of cryptocurrency/ or digital tokens is determined by the average cost of the same type of cryptocurrencies/ or digital tokens at the beginning of the year as the cost of cryptocurrencies/ or digital tokens purchased during the year. This is calculated every time you buy cryptocurrencies/ or digital tokens. Once a costing method is selected, it must be followed throughout the tax year. And the cost must include the necessary expense such as transfer fees and other expenses. 2.Cryptocurrency mining As of the date of receipt of mining cryptocurrencies, they are not considered assessable income. When the mined cryptocurrencies are sold, paid, transferred, or traded, they are considered assessable income under Thai Revenue Code Section 40(8) by deducting expenses incurred as necessary and reasonable. However, the miners must keep relevant documentation and prepare the cost accounting such as computer maintenance costs, employee wages, electricity bill and internet fees that occurred in the tax year, including expenses that are in the nature of investments in assets such as computers, which are gradually deducted from the property’s depreciation as required by law. 3.Getting paid in cryptocurrencies as salary or wages The employees are paid a salary in cryptocurrencies as income, as employment is considered under Section 40 (1) assessable income. The employees who received remuneration in cryptocurrencies are deemed as income whether from the job, or the position employees are employed. Whether a full-time or a part-time job, it is considered the recipient of the assessable income under Section 40(2). If the employees are receiving a salary that is assessable income under Section 40 (1) and receiving wage which is assessable income under Section 40 (2) from the same employer, the recipient of the income must collectively present it under Section 40 (1). 4.Receiving cryptocurrencies as a gift, award, prize Receiving cryptocurrency/digital tokens from giving or receiving as a gift is considered income under section 40 (8), for example, as a giveaway when participating in an event or receiving promotional rewards. A digital cryptocurrency valuation can be made by calculating cost and revenue using its value at the time of acquisition or its average price on the date of purchase. When receiving cryptocurrency/digital tokens and the value has been taxed, they can be used as a cost in calculating tax when sold. 5.Return on Investment from holding a digital token or cryptocurrencies such as Yield Farming or Staking. Under Section 40 (4)(h), it is considered income: profit-sharing or similar benefits derived from holding digital tokens. Both cost and revenue measurements for digital tokens are based on the value at the time of acquisition or the average price on the date of purchase. In the case of receiving digital tokens and the value has been taxed, they can be used as a cost in calculating tax when sold. If you have any questions, please contact us at [email protected] or +66 02 117 9131. © 2020 FRANK Legal & Tax - All Rights Reserved | Privacy Statement |

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professional_accounting

Dec 31 2019 Year-end Supplemental Distribution Scheduled for 12/31/19 - Read More This fund paid a supplemental income distribution of $0.0268 per share on 12/31/19, in addition to its regular monthly distribution. This supplemental distribution was paid to meet the distribution requirements for regulated investment companies and is anticipated to be considered a dividend for tax purposes. Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. If you have any questions, please contact your financial advisor or Shareholder Services. FLDAX Franklin Low Duration Total Return Fund Calendar Year Returns Cumulative Total Returns After-Tax Average Annual Total Returns Average Annual Total Returns [further-information] Average annual total return shows the investment's average annual change in value over the indicated periods. It is not the same as a year-by-year annual return. Figures reflect reinvestment of dividends and capital gains. Month End Quarter End Read important information about results and other investment disclosures Month EndAs of 12/31/2019 Since InceptionInception 11/17/2004 Fund without Sales Charge (%) (NAV) Fund with Sales Charge (%) (POP) Bloomberg Barclays US Government & Credit (1-3 Year) Index (%) Quarter EndAs of 12/31/2019 4.48 0.59 1.22 2.67 -0.59 1.01 1.22 4.08 0.60 4.79 2.12 -1.62 -1.09 0.40 -2.82 -1.23 -1.10 1.76 -1.69 2.47 Cumulative Total Returns [further-information] Cumulative total return shows the change in the investment's value over the time period indicated. Figures reflect reinvestment of dividends and capital gains. Since Inception since 11/17/2004 4.48 4.48 6.38 8.58 21.79 50.74 HYPOTHETICAL $10K INVESTMENT After-Tax Average Annual Total Returns [further-information] After-tax average annual total returns represent the average change in value of an investment on an annualized basis. Returns are calculated using the highest individual federal income tax rates; state and local taxes are not considered. Your actual after-tax return depends on your particular tax situation and may differ from those shown. "Before Shares Sold" figures assume taxes are paid on fund distributions (dividends and capital gains) but do not reflect taxes that may be incurred upon sale or exchange of shares. "After Shares Sold" figures also adjust for taxes due if the fund investment is sold at the end of the measurement period. After-tax average annual total returns represent the average change in value of an investment on an annualized basis. Returns are calculated using the highest individual federal income tax rates; state and local taxes are not considered. Your actual after-tax return depends on your particular tax situation and may differ from those shown. &#34;Before Shares Sold&#34; figures assume taxes are paid on fund distributions (dividends and capital gains) but do not reflect taxes that may be incurred upon sale or exchange of shares. &#34;After Shares Sold&#34; figures also adjust for taxes due if the fund investment is sold at the end of the measurement period. No chart available for this data. Before Shares Sold After Shares Sold SALES CHARGE, EXPENSES & FEES As of 03/01/2019 (updated annually) Gross Expense Ratio Net Expense Ratio [further-information] Net Expense Ratio represents the expense ratio applicable to investors. Max Initial Sales Charge CDSC Volatility Measures [further-information] The difference between a fund's actual returns versus its expected performance, given its level of market risk as measured by beta. A positive alpha indicates the fund performed better than its beta would predict while a negative alpha indicates the fund's under performance based on the expectations indicated by the fund's beta. A measure of a fund's volatility in relation to the stock market, as measured by a stated index. By definition, the beta of the stated index is 1; a fund with a higher beta has been more volatile than the index, and a fund with a lower beta has been less volatile than the index. The Sharpe ratio, developed by Nobel Prize winner William Sharpe, provides a measure of a fund's historical risk-adjusted performance. A higher number indicates better historical risk-adjusted performance. The linear relationship between two return series. Correlation shows the strength of the relationship between two return series. The higher the relationship, the more similar the returns. This number indicates what percentage of a fund's performance fluctuation can be explained by movements in the benchmark index. R-squared (correlation) ranges from 0 to 100. An R-squared of 100 would mean that the fund is tracking its benchmark exactly. A low R-squared indicates that very few of the fund's movements are explained by movements of its benchmark. R-squared can help determine the significance of the fund's beta. A higher R-squared generally indicates a more useful beta. Lower R-squared means the fund's beta is less relevant to its performance. This figure provides a statistical measure of the range of a fund's returns. A high standard deviation indicates a wide range of returns and thus greater volatility. As of 12/31/2019 Updated Monthly, based on a 3-year period [further-information-text] A benchmark is a comparable broad-based index that can be used to evaluate a fund's performance. Bloomberg Barclays US Government & Credit (1-3 Year) Index All investments involve risks, including possible loss of principal. Interest rate movements and mortgage prepayments will affect the fund's share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the fund adjust to a rise in interest rates, the fund's share price may decline. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect its value. The risks associated with higher-yielding, lower-rated securities include higher risk of default and loss of principal. Investment in foreign securities also involves special risks, including currency fluctuations, and political and economic uncertainty. Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause the fund to participate in losses (as well as gains) on an amount that exceeds the fund's initial investment. The fund may not achieve the anticipated benefits, and may realize losses when a counterparty fails to perform. These and other risk considerations are discussed in the fund's prospectus. Portfolio holdings are subject to change. U.S. government-sponsored entities, such as Fannie Mae and Freddie Mac, may be chartered by acts of Congress; their securities are neither issued nor guaranteed by the U.S. government. Although the U.S. government has recently provided financial support to Fannie Mae and Freddie Mac, no assurance can be given that the U.S. government will always do so. Duration shown is the option-adjusted duration. Duration is an indication of a fund's sensitivity to changes in interest rates. The option-adjusted duration formula takes into account embedded call options and redemption features that impact a bond's expected cash flows, and thus its interest rate sensitivity. Percentage of the fund's returns explained by movements in the Barclays US Government & Credit (1-3 Year) Index. 100 equals perfect correlation to the index. Based on the 3-year period ended as of the date of the calculation. A measure of the fund's volatility relative to the market, as represented by the Barclays US Government & Credit (1-3 Year) Index. A beta greater than 1.00 indicates volatility greater than the market. Based on the 3-year period ended as of the date of the calculation. Source: Morningstar®. The style box reveals a fund's investment style. For credit quality of the bonds owned, Morningstar combines credit rating information provided by the fund companies (only using ratings assigned by a Nationally Recognized Statistical Rating Organization - "NRSRO") with an average default rate calculation to come up with a weighted-average credit quality. The weighted-average credit quality is currently a letter that roughly corresponds to the scale used by a leading NRSRO. Funds with a low credit quality style box placement are those whose weighted-average credit quality is less than BBB-; medium are those less than AA- but greater or equal to BBB-; and high are those of AA- or higher. When classifying a bond portfolio, Morningstar first maps the NRSRO credit ratings of the underlying holdings to their respective default rates (as determined by Morningstar's analysis of actual historical default rates). Morningstar then averages these default rates to determine the average default rate for the entire bond fund. Finally, Morningstar maps this average default rate to its corresponding credit rating along a convex curve. For interest-rate sensitivity, Morningstar obtains from fund companies the average effective duration. Generally, Morningstar classifies a fixed-income fund's interest-rate sensitivity based on effective duration of the Morningstar Core Bond Index (MCBI), which is currently three years. The classification of Limited will be assigned to those funds whose average effective duration is between 25% to 75% of MCBI's average effective duration; average effective duration between 75% to 125% of the MCBI will be classified as Moderate; and those at 125% or greater of the MCBI will be classified as Extensive. Shaded areas show the past 3 years of quarterly data. Past performance does not guarantee future results. The hypothetical scenario does not take into account federal, state or municipal taxes. If taxes were taken into account, the hypothetical values shown would have been lower. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ('NRSRO'), such as Standard & Poor's, Moody's and Fitch. The ratings are an indication of an issuer's creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. The NR category consists of ratable securities that have not been rated by an NRSRO. The N/A category consists of nonratable securities (e.g., equities). Cash includes equivalents, which may be rated. The Gross Expense Ratio does not include an expense reduction or fee waiver related to the Fund's investment in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/29/20. Fund investment results reflect the fee reduction; without this reduction, the results would have been lower. Please see the prospectus for additional information. Interest Rate Derivatives sector consists of Treasury, interest rate and other derivatives that are primarily used for duration management; a negative number indicates that we are seeking to hedge interest rate risk. After-tax average annual total returns represent the average change in value of an investment on an annualized basis. Returns are calculated using the highest individual federal income tax rates; state and local taxes are not considered. Your actual after-tax returns depend on your particular tax situation and may differ from those shown. The before shares sold calculation assumes taxes are paid on fund distributions (dividends and capital gains) but does not reflect taxes that may be incurred upon sale or exchange of shares. The after shares sold calculation also adjusts for taxes due if the fund investment is sold at the end of the measurement period.

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professional_accounting

Module 2 1. Identify strengths and weaknesses using the 20 principles outlined in COSO’s 2006 Guidance. Control Environment •Integrity and Ethical Values- he company and human resources department developed a code of conduct for Biltrite detailing expected standards of ethical behavior and distributed it to all existing employees. his instills a high ethical value into the environment, and shoes that management is wanting a high ethical and integrity of the company. •Board of Directors- Regarding the board of directors, it is necessary for additional information to determine whether they exercise oversight and responsibility related to financial reporting and related internal control. Additional information is needed in order to identify if the company analyzes risks to the achievement of financial reporting objectives as a basis for determining how the risks should be managed. •Fraud Risk: there is locks on the machine when it is not being used to sign checks and the key is in the custody of the check signer. Control Activities •Integration with Risk Assessment: Biltrite uses the control group then monitors the reprocessing of the misstatements after satisfying themselves that the misstatements were unintentional. Any misstatements that occurring during processing runs are logged into the console and are accessible only by the control group. •Selection and development of control activities: the processes that are in use are very effective and have been chosen due to the cost and benefit of the control activities. •Policies and Procedures: Additional information could be useful to determine whether the policies are communicated throughout the company. Biltrite does clearly state they have adequate training programs and have a code of conduct for existing employees. Information technology: Biltrite’s software has adequate controls regarding computer input and output. Any misstatements are addressed, and other controls such as bank account reconciliation. Information and Communication •Financial Reporting Information: Additional information is needed to identify if the information is used at all levels of the company, and distributed in a form and timeframe that supports the achievement of financial reporting objectives. Internal Control Information: The information that is used is of adequate timeframe, and does not hinder the ability of the personnel to carry out their internal control responsibilities. •Internal Communication: The internal control objectives, process, and individual responsibilities at all levels are supported by strong communication. •External Communication: Additional information is used to distinguish if matters affecting the achievements of financial reporting objectives are communicated with outside parties. Monitoring •Ongoing and separate evaluations: They have a continuous evaluations that do enable management to determine whether internal control over financial reporting is present and functioning. •Reporting Deficiencies: The corrective action is established with employees so that the corrective actions, can be taken in a timely matter, and are appropriate. 2. Severe deficiencies in the design of controls are suggesting an increased likelihood of material misstatement.

{'timestamp': '2019-04-26T06:11:19Z', 'url': 'https://tangierhotels.net/biltrite-module-2-3840/', 'language': 'en', 'source': 'c4'}

professional_accounting

Blog / Accounting and Inventory written by | May 2, 2022 What is Inventory Valuation, and Why is it Important? Inventory valuation is an accounting process businesses use to determine the value of unsold inventory items when generating their financial accounts. Inventory makes up a significant amount of the assets of any firm that sells tangible goods, and therefore it's critical to keep track of its value. A deep understanding of inventory valuation can aid in maximising profits, and it also assures that its inventory value is appropriately represented in its financial accounts. Businesses can use this amount to calculate their inventory turnover ratio, which can help you plan your purchases. The accounting treatment for inventories is provided by Ind AS-2 and AS-2, particularly in terms of their measurement and disclosure. The technique used to value inventories can impact a company's gross profit within a given accounting period. Inventory valuation directly impacts COGS, i.e. Cost of Goods Sold and is an important factor in measuring your company's overall financial health. Also Read: Everything You Need to Know about Inventory Costing Methods What is Inventory Valuation? The monetary amount associated with the goods in inventory at the end of an accounting period is known as inventory valuation. The price is determined by the costs of acquiring the goods and preparing it for sale. The largest current business assets are inventories. Inventory valuation helps you assess your cost of goods sold (COGS) and, as a result, your profitability. FIFO (first-in, first-out), LIFO (last-in, first-out), and WAC are the most commonly utilised valuation methodologies (weighted average cost). Why is Inventory Valuation Important? Inventory valuation provides precise metrics utilised to make strategic decisions and prepare accurate financial accounts. Following a thorough inventory assessment, a more informed decision can be taken on many firm parts. The list given below includes all the reasons why the valuation of the inventory is advisable for every business:- Impact on COGS There is much less expensive to charge the Cost of Products Sold when closing inventory has a higher valuation and vice versa. As a result, the profit levels stated are heavily influenced by inventory valuation. Impact on Ratios Relevant to Loan Finance If a business has obtained a loan from a lender, the loan agreement may restrict the allowable proportions of current assets to current liabilities. If the entity fails to meet the target ratio, the lender can call the loan. Because inventory is often a large component of this current ratio, inventory valuation is critical. Impact on Income Taxes The cost-flow technique utilised can affect the amount of taxes paid. During heightened prices, the LIFO technique is often employed to reduce the income taxes paid. Impact on Multiple Periods Because the incorrect ending balance in the first period will be incorrect, it will carry over into the beginning inventory balance in the next reporting period, causing the reported profits in two consecutive quarters to be incorrect. Objectives of Inventory Valuation The ultimate purpose of inventory valuation is to assist in the formulation of an accurate picture of a firm's total profit and financial situation. The gross profit of a corporation is determined by deducting the Cost of Goods Sold (COGS) from net sales (total sales, fewer returns and discounts, and any other income not related to sales). How a company assesses its inventory directly affects its gross profit and income statement, which banks and investors use to evaluate financial performance. The value of inventory impacts a company's balance sheet, which reflects the company's assets and liabilities. Inventory, together with cash, short-term investments, accounts receivable, supplies and prepaid insurance, is considered a current asset for accounting purposes. Different Inventory Valuation Methods The inventory valuation technique is a method for calculating the overall value of a company's inventory at any given time. The inventory value is computed using the total cost of purchasing and preparing the inventory for sale. This is critical in accounting because the valuation of any item is used to calculate the Cost of Goods Sold, which directly impacts the income statement and balance sheet. The most popular methods of inventory valuation are as follows:- 1. First-In, First-Out (FIFO) According to the First-In-First-Out (FIFO) value strategy, inventory products are sold in the same order as purchased or manufactured. The oldest inventory products are sold first, according to the FIFO principle. The FIFO value method is the most often used inventory valuation method since most companies sell their products in the same order that they buy them. There are two fundamental drawbacks of FIFO. For starters, a larger gross income means a higher tax burden. Second, FIFO can lead to financial statements that are misleading to investors during periods of strong inflation. 2. Last In, First-Out (LIFO) This inventory valuation approach is the opposite of the First-In-First-Out (FIFO) inventory valuation method. It is assumed that the products purchased or manufactured most recently are sold first. LIFO allows for a more precise match between expenses and revenue. It also lowers the company's tax bill while increasing COGS. 3. Weighted Average Cost (WAC) Inventory and Cost of Goods Sold (COGS) are determined using the Weighted Average Cost inventory valuation method, which uses the average cost of all things purchased over a period. This strategy is primarily employed by businesses that do not have inventory variances. Also Read: Learn About Safety Stocks Examples of the above 3 methods of inventory valuation Rate per unit Items Purchased Items Sold Items unsold Now the value of purchases is ₹23,750 (100*20 200*30 350*45) The value of inventory under the three methods will be as follows:- FIFO – Items bought will be sold first. The value of sales will be ₹10,250 (100*20 200*30 50*45). Now the closing stock will be ₹23,750 – ₹10,250 = ₹13,500. LIFO – Items bought will be sold first. The value of sales will be ₹15,750 (350*45). Therefore, the closing stock will be ₹23,750 – ₹15,750 = ₹8,000. Weighted Average Cost – The total value of purchases is divided by the total number of units to get the average cost. Average Cost = ₹23,750/500 = ₹47.5 Sales = 350*47.5 = ₹16,625 Closing Stock = ₹23,750 – ₹16,625 = ₹7,125. Choosing the Right Inventory Valuation Method There are no hard rules for which valuation method is best for a particular business, but let's look at the advantages and disadvantages of each method: • At the moment, FIFO yields the grossest income, LIFO the least, and WAC somewhere in the centre. This is based on a standard inflationary scenario in which supplier costs rise over time. As a result, FIFO has the highest tax burden, while LIFO has the lowest, with WAC in the middle. • LIFO is permissible under the US Generally Accepted Accounting Principles (GAAP) but not by International Financial Reporting Standards (IFRS) (IFRS). As a result, while LIFO is available in the United States, it is not in many other countries. LIFO can match current income with recent costs, reducing the effects of inflation and deflation. • The apparent solution is to use a specific ID when you, your shareholders or your clients want to know the cost and the selling price of each unit. People who purchase and sell art may be interested in how the price of a Rembrandt changed from when it was last purchased to when it was sold. Challenges of Inventory Valuation When valuing inventory, there are two primary challenges: the company must estimate the overall cost of its inventory, and to do so, it must first figure out how much inventory it has, which can be difficult. Keep Track of Your Inventory Costs The following is the basic equation for calculating the value of your remaining inventory at the end of an accounting period: COGS = Opening Stock Purchases – Closing Stock. Closing Stock = Opening Stock Purchases – COGS. The importance of beginning and ending inventory, on the other hand, may not be as straightforward as it appears. Anything you can't sell for full price due to damage, obsolescence or simply shifting consumer tastes needs to be marked down and valued properly. Determining the Amount of Inventory This can also be more difficult than it may seem, and it may also be necessary to undertake physical inventory counts. A periodic inventory system is used by many businesses to keep track of goods, and companies use this technique to evaluate inventories after each accounting period. On the other hand, a perpetual inventory system tracks every purchase order and sale and changes inventory to reflect those activities constantly. The Cost of Goods Sold (COGS), gross income and the monetary worth of inventory remaining at the end of each period are affected by how a company values its inventory. As a result, inventory valuation impacts a company's profitability and future value, as shown in its financial accounts. It's also crucial to choose an inventory valuation method since once a corporation has decided, it should generally stay to it. Q: How do you calculate closing stock? Opening stock net purchases: COGS = closing stock is the basic formula for calculating ending inventory. The closing stock of the previous period is your starting inventory, and the products you've purchased and added to your inventory count are net purchases. Q: Why is FIFO the best method? When utilised in an industry where the price of a product is stable, and the company sells its oldest products first, FIFO is most successful. Because FIFO is predicated on the cost of the first item purchased, it ignores any price increases or decreases for newer units. Q: How to calculate inventory value using the weighted average cost method? According to the Weighted Average Cost approach, the value of closing inventory should be calculated using the average price of inward inventory values. The following is the formula: Average cost per unit = Total inward value / Total inward quantity. Q: When is the inventory valuation accounted for? Each inventory is evaluated at the end of a particular reporting period. Q: Can you change your inventory valuation midway? While changing your method during your business cycle is doable, it can be a time-consuming and laborious procedure. The approach, however, cannot be modified in the middle of a business cycle year. Q: What is included in valuing inventory? Inventory value takes into account a wide range of expenses. All included are direct labour and materials, factory overhead, freight-in, handling and import duties or other taxes on inventory purchases. Q: Is inventory valued at cost or selling price? In most cases, inventory is valued based on its cost. Calculating cost might be difficult depending on the type of business and the inventory valuation method employed. To figure out how much inventory the firm has at various production phases, the company must first figure out how much inventory it has. Q: How is inventory valuation calculated? There are several methods for calculating the value of inventory. The main three methods are First In First Out (FIFO), Last In First Out (LIFO) and Weighted Average Cost (WAC). 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professional_accounting

Selden Fox Ltd. (“Selden Fox”, “Firm”, or “we”) is an accounting firm which provides audit, assurance, taxation, accounting, and consulting services to privately held businesses, government entities, nonprofit organizations, and individuals. All content on this site has been provided by Selden Fox, LTD. and its affiliates for general information purposes. It does not constitute legal, accounting, tax or other professional advice or services, and is presented without any representation or warranty as to the accuracy or completeness of the information. For specific situations, you should contact a Selden Fox professional and seek advice. Selden Fox, LTD.; the names of their respective products and services; and all page headers, footers and icons are trademarks or registered trademarks of Selden Fox, LTD. Use of any written text, graphics, logos or company names without prior written permission is prohibited. All other product names mentioned on this site may be trademarks or registered trademarks of their respective owners and are mentioned for identification purposes only. This site also contains links to other organizations, sites and documents and may contain content provided and maintained by individuals or entities other than Selden Fox which has no control over information contained in the links and makes no guarantees or warranties regarding accuracy. Links to information on sites other than those operated by, or on behalf of, Selden Fox, LTD. are for your convenience only and are not an endorsement or recommendation of those sites. While Selden Fox, LTD. has made every attempt to ensure that the information contained on this site has been obtained from reliable sources, Selden Fox, LTD. is not responsible for any errors or omissions, or for the results obtained from the use of this information. ALL INFORMATION IN THIS SITE IS PROVIDED “AS IS,” WITH NO GUARANTEE OF COMPLETENESS, ACCURACY, TIMELINESS OR OF THE RESULTS OBTAINED FROM THE USE OF THIS INFORMATION, AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF PERFORMANCE, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. In no event will Selden Fox, LTD., or Selden Fox, LTD.’s partners, agents, or employees be liable to you or anyone else for any decision made or action taken in reliance on the information on this site or for any consequential, special or similar damages, even if advised of the possibility of such damages. Pursuant to Treasury Regulations (Circular 230), we are required to inform you that, unless expressly stated otherwise in writing, any United States federal tax advice contained within our site is not intended or written to be used, and in fact cannot be used, by you or any taxpayer for the purpose of avoiding penalties that may be imposed on you or any other taxpayer under the Internal Revenue Code of 1986, as amended. No one, without our prior express written consent, may use any part of this communication relating to any federal tax matter in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any other taxpayer.

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professional_accounting

Pre-year end tax planning is an important consideration and this factsheet outlines some of the key areas. Topics covered include corporation tax, capital allowances, dividends payments and capital gains. Call 01189732149 or email [email protected] Tax saving opportunities often need to be considered prior to the year end of the company or prior to the tax year end of the individuals who are shareholders or directors of the company. At Ardhurst Accountants, we can provide pre-year end tax planning advice for your company in the Wokingham area. Due to the ever changing tax legislation and commercial factors affecting your company, it is advisable to carry out an annual review of your company's tax position. Pre-year end tax planning is important as the current year's results can normally be predicted with some accuracy and time still exists to carry out any appropriate action. We outline below some of the areas where advance planning may produce tax savings. For further advice please do not hesitate to contact us. Advancing expenditure Expenditure incurred before the company's accounts year end may reduce the current year's tax liability. In situations where expenditure is planned for early in the next accounting year, the decision to bring forward this expenditure by just a few weeks can advance the related tax relief by a full 12 months. Examples of the type of expenditure to consider bringing forward include: building repairs and redecorating advertising and marketing campaigns redundancy and closure costs. Note that payments into company pension schemes are only allowable for tax purposes when the payments are actually made as opposed to when they are charged in the company's accounts. Consideration should also be given to the timing of capital expenditure on which capital allowances are available to obtain the optimum reliefs. Single companies irrespective of size are able to claim an Annual Investment Allowance (AIA) which provides 100% relief on expenditure on plant and machinery (excluding cars). The maximum amount of the AIA depends on the date of the accounting period and the date of expenditure. The AIA from 1 January 2019 is £1 million for three years. It will revert to £200,000 from 1 January 2022. Companies with accounting periods which straddle 1 January 2022 will be entitled to calculate a hybrid allowance using the two rates. Complex rules may apply to the straddle period AIA calculation. Where purchases exceed the AIA, a writing down allowance (WDA) is due on any excess in the same period. Groups of companies have to share the allowance. Expenditure on qualifying plant and machinery in excess of the AIA is eligible for writing down allowance (WDA) of 18%. Where the capital expenditure is incurred on integral features the WDA is 6%. Limited allowances are also available for investments in certain types of building. Trading losses Companies incurring trading losses have three main options to consider in utilising these losses: they can be set against any other income (for example bank interest) or capital gains arising in the current year they can be carried back for up to one year and set against total profits they can be carried forward and set against profits arising from different types of income in future years. There is a restriction on the use of carry forward losses where a company’s or group’s losses are in excess of £5 million. Profits cannot be reduced by more than 50% by brought forward losses. Losses that have arisen at any time are subject to these restrictions. Extracting profits Directors/shareholders of family companies may wish to consider extracting profits in the form of dividends rather than as increased salaries or bonus payments. This can lead to substantial savings in national insurance contributions (NICs). Note however that company profits extracted as a dividend remain chargeable to corporation tax at a minimum of 19%. From the company’s point of view, timing of payment is not critical, but from the individual shareholder’s perspective, timing can be an important issue. A dividend payment in excess of the Dividend Allowance which is delayed until after the tax year ending on 5 April may give the shareholder an extra year to pay any further tax due. The Dividend Allowance is £2,000 for 2020/21. The deferral of tax liabilities on the shareholder will be dependent on a number of factors. Please contact us for detailed advice. Loans to directors and shareholders If a 'close' company (broadly, one controlled by its directors or by five or fewer shareholders) makes a loan to a shareholder, this can give rise to a tax liability for the company. If the loan is not settled within nine months of the end of the accounting period, the company is required to make a payment equal to 32.5% of the loan to HMRC. The money is not repaid to the company until nine months after the end of the accounting period in which the loan is repaid by the shareholder. A loan to a director may also give rise to a tax liability for the director on the benefit of a loan provided at less than the market rate of interest. Rates of tax The main rate of corporation tax is 19%. The rate for the Financial Year beginning on 1 April 2020 was due to fall to 17% but in the 2019 Budget the Chancellor kept the rate at 19%. Under the self assessment regime most companies must pay their tax liabilities nine months and one day after the year end. Companies which pay (or expect to pay) tax at the main rate are required to pay tax under the quarterly accounting system. If you require any further information on the quarterly accounting system, we have a factsheet which summarises the system. Corporation tax returns must be submitted within twelve months of the year end and are required to be submitted electronically. In cases of delay or inaccuracies, interest and penalties will be charged Companies are chargeable to corporation tax on their capital gains less allowable capital losses. The rules that potentially limit the use of brought forward trading losses has been extended to include brought forward capital losses. The changes will have effect where carried forward capital losses are used to offset chargeable gains accruing from 1 April 2020. Planning of disposals Consideration should be given to the timing of any chargeable disposals to minimise the tax liability. This could be achieved (depending on the circumstances) by accelerating or delaying sales and the availability of losses or the feasibility of rollover relief (see below) should also be considered. Purchase of new assets It may be possible to avoid a capital gain being charged to tax if the sale proceeds are reinvested in a replacement asset. The replacement asset must be acquired in the four year period beginning one year before the disposal, and only certain trading tangible assets qualify for relief. Tax saving opportunities for companies can only be achieved if an appropriate course of action is planned in advance. It is therefore vital that professional advice is sought at an early stage. If your company is in the Wokingham area we would welcome the chance to tailor a plan to your specific circumstances. Please do not hesitate to contact us at Ardhurst Accountants. Business motoring - tax aspects Capital allowances Cash basis for the self-employed Companies - tax saving opportunities Corporation tax - quarterly instalment payments Corporation tax self assessment Fixed rate expenses Homeworking costs for the self-employed Incorporation IR35 personal service companies Research and development The Construction Industry Scheme If you are looking for a team of reliable, professional, approachable accountants who will do more than just respond to your needs - who will work with you in a proactive manner to help you succeed, we would be delighted to be of service. [email protected] Ardhurst Accountants Limited, Heath Ride, Finchampstead, Wokingham, Berkshire RG40 3QE © 2021 Ardhurst Accountants Limited. All rights reserved. powered by totalSOLUTION Ardhurst Accountants Limited is registered in England & Wales. Registration number: 6600809 Registered office address: Ardhurst, Heath Ride, Finchampstead, Berkshire RG40 3QE

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professional_accounting

Financial Advisor Careers Financial Advisor Portfolio Construction Permanent Portfolio Reviewed by James Chen DEFINITION of Permanent Portfolio The permanent portfolio is an investment portfolio designed to perform well in all economic conditions. It was devised by free-market investment analyst Harry Browne in the 1980s. The permanent portfolio is composed of equal allocation of stocks, bonds, gold and cash or Treasury bills. BREAKING DOWN Permanent Portfolio The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury bills would be an ideal investment mixture for investors seeking safety and growth. Browne argued that the portfolio mix would be profitable in all types of economic situations: growth stocks would prosper in expansionary markets, precious metals in inflationary markets, bonds in recessions and Treasury bills in depressions. Browne eventually created what was called the Permanent Portfolio Fund, with an asset mix similar to his theoretical portfolio in 1982. From 1976 to 2016, a hypothetical permanent portfolio would have generated an 8.65 percent annual return, for a total return of 2,600 percent. A more standard 60/40 portfolio would have generated a 10.13 percent annual return for a total return of 5,050 percent. The permanent portfolio did have some advantages during this period, though. The 60/40 portfolio had a standard deviation of 9.6, compared with 7.2 for the permanent portfolio. During the October 1987 market crash, the 60/40 portfolio would have declined in value 13.4 percent, while the permanent portfolio would have declined only 4.5 percent. The permanent portfolio would have generated lower returns over the long term, but it would have been a much smoother ride. That makes the permanent portfolio an appealing option to risk-averse investors. Construction of the Permanent Portfolio 25 percent in U.S. stocks, to provide a strong return during times of prosperity. For this portion of the portfolio, Browne recommends a basic S&P 500 index fund such as VFINX (Vanguard 500 Index) or FSMKX (Fidelity Spartan 500 Index). 25 percent in long-term U.S. Treasury bonds, which do well during times of prosperity and during times of deflation (but which do poorly during other economic cycles). 25 percent in cash to hedge against periods of “tight money” or recession. In this case, “cash” means short-term U.S. Treasury bills. 25 percent in precious metals (gold) to provide protection during periods of inflation. Browne recommends gold bullion coins. Browne recommends rebalancing the portfolio once a year to maintain the 25 percent target weights. Rebalancing involves realigning the weightings of a portfolio of assets by periodically buying or selling assets to keep the original asset allocation. Growth and Income: Is a Balanced Fund the Best of Both Worlds? Balanced funds are mutual funds that invest money across asset classes, a mix of low- to medium-risk stocks, bonds, and other securities. Their holdings are balanced between equity and debt, with their objective between growth and income. Granular Portfolio A granular portfolio is an investment portfolio that is well diversified across a wide variety of assets, typically with a significant number of holdings. Safe Asset Definition Safe assets are assets which, in and of themselves, do not carry a high risk of loss across all types of market cycles. A safe haven is an investment that is expected to retain its value or even increase in value during times of market turbulence. Recession Proof Definition Recession proof is a term used to describe an asset, company, industry or other entity that is believed to be economically resistant to the effects of a recession. What is a permanent portfolio? Why a 60/40 Portfolio Is No Longer Good Enough The Better Inflation Hedge: Gold or Treasuries? Deflate Inflation with These 9 Assets How to Profit From Inflation Asset Allocation vs. Security Selection: What's the Difference?

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professional_accounting

854 F. 2d 755 - Herrington v. Commissioner of Internal Revenue 854 F2d 755 Herrington v. Commissioner of Internal Revenue 62 A.F.T.R.2d 88-5648, 88-2 USTC P 9507 Clemon J. and Ivy C. HERRINGTON, Petitioners-Appellants, COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. United States Court of Appeals, Fifth Circuit. Sept. 13, 1988. Rehearing Denied Nov. 1, 1988. Robert Jackson Herrington, Baton Rouge, La., for petitioners-appellants. Clemon Herrington and Ivy Herrington, Alexander, La., pro se. Kenneth L. Greene, Michael L. Paup, Chief Appellate Section Tax Div., Dept. of Justice, William F. Nelson, Chief Counsel, I.R.S., Roger M. Olsen, William S. Rose, Richard Farber, Washington, D.C., for respondent-appellee. Appeal from the Decision of the United States Tax Court. Before KING and JOHNSON, Circuit Judges, and LITTLE,* District Judge. JOHNSON, Circuit Judge: Taxpayers appeal a Tax Court decision upholding gain on the second half of a "straddle" transaction adjudged a sham by the Tax Court in a companion case. Because we hold that the "duty of consistency" doctrine estops the taxpayers from relying on the sham transaction holding, we affirm. From 1976 through 1978, Clemon and Ivy Herrington carried out a series of "straddle" transactions on the London Metal Exchange. These transactions made use of futures contracts pairing "put options" (rights to sell) and "call options" (rights to buy) in such a way as to produce a loss in one year and a gain in the following year. The straddles offered the taxpayer the advantage that the loss in the first year could be deducted as an ordinary loss, but the gain in the second year could be reported as capital gain and taxed at a lower rate than the corresponding loss. On their 1976 tax return, the Herringtons reported and deducted a $60,244 loss from the first leg of a London Metal Exchange straddle. In 1977, the Herringtons reported a $54,231 capital gain corresponding to the 1976 loss. Also in 1977, the Herringtons reported and deducted $60,040 as the first leg of a second straddle. The Herringtons' 1978 tax return reported a capital gain of $59,686, closing out the second straddle transaction. The Internal Revenue Service (IRS) audited the Herringtons' 1977 and 1978 tax returns, but allowed the statute of limitations period to expire on their 1976 tax return. Finding the 1977 to 1978 straddle to be a sham transaction without economic substance, the Service assessed a deficiency. The IRS Appeals Board affirmed the deficiency. The Herringtons petitioned for a redetermination to the United States Tax Court, and that court consolidated their case with more than a thousand other cases involving London Metal Exchange straddles. Glass v. Commissioner, the consolidated case, found that the type of straddle transaction engaged in by the Herringtons and the other taxpayers on the London Metal Exchange was a sham and had no real economic purpose other than tax avoidance. 87 T.C. 1087 (1986). Specifically, the Tax Court stated: In conclusion, we hold that the London Option Transaction--petitioners' multiple and complex tax straddle scheme encompassing prearranged results--lacked economic substance and was a sham. Petitioners consequently may not deduct the losses claimed by them in Year One of their straddle transactions. It follows, of course, that since the straddle transactions were a sham, gains reported by petitioners in Year Two and thereafter do not constitute taxable income to them, and we so hold. 87 T.C. at 1177 (emphasis added). The Tax Court then determined that the Herringtons owed a deficiency of $32,417.57 in the 1977 tax year, attributable to the 1977 capital gain leg of the 1976-1977 straddle. It is this first straddle that is the subject of the instant appeal by the Herringtons. II. DISCUSSION The Herringtons argue that because the Tax Court has held that both the gains and losses in the London Metal Exchange straddles "lacked economic substance," the court cannot, without contradiction, treat their 1977 straddle gain as real and tax it. The Herringtons acknowledge that they received a loss deduction for the first leg of the same straddle in 1976, but they point out that the IRS cannot undo this loss deduction because the statute of limitations has run on the 1976 tax year. While the Herringtons admit that some inequity would result if they were allowed to deduct the 1976 loss without reporting the corresponding 1977 gain, they argue that this inequity is inherent in any statute of limitations. Of course, the IRS has not technically violated the statute of limitations, since its gain characterization affects the 1977, not the 1976, tax year. More importantly, the Herringtons are precluded from raising the sham transaction argument by a type of estoppel developed in tax cases, known as "quasi estoppel" or the "duty of consistency." The Supreme Court has long held that general principles of estoppel apply in tax cases. R.H. Stearns Co. v. United States, 291 U.S. 54, 54 S.Ct. 325, 78 L.Ed. 647 (1934); Magee v. United States, 282 U.S. 432, 51 S.Ct. 195, 75 L.Ed. 442 (1931). The duty of consistency is a doctrine that prevents a taxpayer from taking one position one year, and a contrary position in a later year, after the limitations period has run in the first year. Union Carbide Corp. v. United States, 612 F.2d 558, 566, 222 Ct.Cl. 75 (1979); Beltzer v. United States, 495 F.2d 211 (8th Cir.1974); Mayfair Minerals, Inc. v. C.I.R., 456 F.2d 622 (5th Cir.1972); Crosley Corp. v. United States, 229 F.2d 376, 380-81 (6th Cir.1956); Johnson v. C.I.R., 162 F.2d 844 (5th Cir.1947); Joplin Bros. Mobile Homes, Inc. v. United States, 524 F.Supp. 800, 803 (W.D.Mo.1981).1 For example, in Beltzer, the taxpayer inherited stock, had the stock valued, and paid estate taxes on that value. Several years later, after the statute of limitations had run, the taxpayer sold the stock, had its value at the time of acquisition recalculated, and claimed the recalculated, higher value as his basis. The court held the taxpayer to his original, lower basis. Beltzer, 495 F.2d at 212-13. Similarly, in Mayfair Minerals, the taxpayer had accrued and deducted refunds to be paid to its customers. 456 F.2d 622. Later, after the statute of limitations had run, the taxpayer learned that it had not been liable for the refunds. The IRS characterized this event as the extinguishing of a liability, equivalent to realizing taxable income. The taxpayer argued that the liability had not really existed in the earlier year, and, therefore, there had been no extinguishing or income in the later year. This Court held that the taxpayer was bound by its characterization of the liability in the earlier year. Id. at 623. The elements of the duty of consistency are: (1) a representation or report by the taxpayer; (2) on which the Commission has relied; and (3) an attempt by the taxpayer after the statute of limitations has run to change the previous representation or to recharacterize the situation in such a way as to harm the Commissioner. Beltzer, 495 F.2d at 212; Crosley Corp., 229 F.2d at 380-81; Joplin Bros., 524 F.Supp. at 803. If this test is met, the Commissioner may act as if the previous representation, on which he relied, continued to be true, even if it is not. The taxpayer is estopped to assert the contrary. The requirements for estoppel have been met in the instant case. First, the Herringtons filed a tax return for 1976 claiming a deduction on the first leg of the 1976 to 1977 straddle. By claiming this deduction, the Herringtons represented to the Commissioner that the straddle had economic substance. Second, the Commissioner relied on this representation of the Herringtons by accepting their 1976 return and allowing the statute of limitations to run. Third, the Herringtons now argue, contrary to their previous representation, that the straddles were in fact a sham and that the gain realized in 1977 was not real, taxable income. Of course, the Herringtons' subsequent inconsistent representation was forced on them by the Tax Court when that court held, in Glass, that the London Metal Exchange straddles lacked economic substance. However, the Herringtons did not appeal that holding. The Herringtons have now adopted the Glass case as their sole argument against their 1977 tax deficiency. Hence, the Herringtons now assert that the London Metal Exchange straddles were shams. Finally, the Herringtons argue that the duty of consistency does not apply when the inconsistency concerns a pure question of law and both the taxpayer and the Commissioner had equal access to the facts. This is correct. Mayfair Minerals, Inc., 456 F.2d at 623; Crosley Corp., 229 F.2d at 380; Joplin Bros., 524 F.Supp. at 803. However, the economic substance of the London Metal Exchange straddles was clearly a question of fact, or at best a mixed question of fact and law, concerning which the taxpayers had more information than the Commissioner at the time the initial representations were made. To summarize: although the Tax Court has found that the London straddle transactions engaged in by the Herringtons were sham transactions, the Tax Court was also entitled to find that the Herringtons realized real gain on one of these transactions in 1977. The duty of consistency doctrine estops the Herringtons from disavowing their characterization of the transaction as real on their 1977 tax return. District Judge of the Western District of Louisiana, sitting by designation Something akin to the duty of consistency has been applied by the Supreme Court against the IRS. In Bull v. United States, the Commissioner erroneously subjected certain partnership receipts to the estate tax. 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421 (1935). Several years later, after the statute of limitations had run, the Commissioner sued the executor to recover income tax on the same receipts. The Court held that the statute of limitations was no bar to the executor asserting the earlier tax assessment as a defense. 295 U.S. at 260-62, 55 S.Ct. at 700-01

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professional_accounting

Audits With Deficiencies Increased in 2021, According to New PCAOB Staff Report Chair Williams sees troubling trend with 2022 comment forms also on the rise, tells firms to “sharpen focus” Washington, DC, Dec. 8, 2022 A new PCAOB staff report shows a year-over-year increase in the number of audits with deficiencies at audit firms that the PCAOB inspected in 2021. The report, “Staff Update and Preview of 2021 Inspection Observations,” presents aggregate observations from the PCAOB’s inspections of 141 annually and triennially inspected audit firms in 2021. According to the report, PCAOB staff expects approximately 33% of the audits reviewed will have one or more deficiencies that will be discussed in Part I.A of the individual audit firm’s inspection reports, up from 29% in 2020. Part I.A of the individual audit firm’s inspection report discusses deficiencies, if any, that were of such significance that PCAOB staff believes the audit firm, at the time it issued its audit report(s), had not obtained sufficient appropriate audit evidence to support its opinion on the public company’s financial statements and/or internal control over financial reporting. “Higher deficiency rates in 2021, coupled with the fact that the PCAOB is also seeing an increase in comment forms for 2022, are a warning signal that the audit profession needs to sharpen its focus on improving audit quality and protecting investors,” said PCAOB Chair Erica Y. Williams. “The PCAOB will continue our work to increase audit quality by modernizing our standards, enhancing our inspections, and strengthening our enforcement.” Comment forms are the initial communication to audit firms of potential observed deficiencies from the PCAOB’s inspections. Audit firms are allowed the opportunity to provide a written response to the comment form. The 2021 preview report also notes the following: PCAOB staff continued to identify auditing deficiencies that have recurred for many years. PCAOB staff expects that approximately 40% of the audits reviewed will have one or more deficiencies discussed in Part I.B of the individual firm’s inspection reports, up from 26% in 2020. In Part I.B of our inspection reports, the PCAOB’s staff provide observations regarding instances of noncompliance with PCAOB standards or rules that do not relate directly to the sufficiency or appropriateness of evidence the audit firm obtained to support its opinion(s), such as critical audit matters, Form AP, and certain independence related deficiencies. PCAOB staff noted that a significant portion of the increase in deficiencies was driven by an increase in deficiencies related to critical audit matters (CAMs), particularly among triennially inspected audit firms (those with fewer than 100 public company audit clients). December 15, 2020 was the effective date for the requirements related to CAMs for companies other than large accelerated filers, meaning that many firms were complying with CAMs requirements for the first time. Among the CAMS-related deficiencies, most were instances in which auditor procedures to determine CAMs did not include every matter that should have been analyzed as a potential CAM. These instances of non-compliance do not necessarily mean that other CAMs should have been communicated in the auditor’s report. Some audits have both Part I.A and Part I.B deficiencies, and so PCAOB staff expects that approximately 55% of the 690 audits the PCAOB reviewed in 2021 will have one or more Part I.A and/or Part I.B deficiencies, up from 44% percent in 2020. PCAOB staff also observed good practices that may be effective in enhancing audit firms’ systems of quality control and audit quality generally, for example: making it easier for audit firm employees to import information from their financial holdings directly into the firm’s internal tracking systems as a safeguard against conflicts of interest; the use (and proper integration) of specialists; robust risk assessment; and proper/timely responses to audit supervision. Inspections are critical to the PCAOB’s fulfillment of its investor-protection mission, and enhancing PCAOB inspections is a top strategic goal for the organization. This staff Spotlight advances that strategic goal by helping investors and other stakeholders gain a better understanding of the staff’s findings from the 2021 inspection cycle. Auditors may find this information useful as they continue to plan and perform their audits, and audit committees may benefit from the use of this publication as a reference point when engaging with their auditors. This information may help investors and other stakeholders become better informed about the matters PCAOB staff finds in inspections. The publication can be found at the Staff Publications page on the PCAOB website, along with other resources on the PCAOB’s activities and observations. Learn more about PCAOB inspections on our Basics of Inspections page. About the PCAOB The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws. PCAOB Office of Communications and Engagement

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professional_accounting

About Endeavor Law Fee Arrangements Endeavor Law Business Blog What? Business Structure. Where? Jurisdcition Matters. How? Incorporation Services. Contact Endeavor Law Endeavor Business Blog Public Issuers & Capital Markets Retail & Service Industry Broker-Dealers & Advisers Cyrpto-Assets Exempt Distributions TSX/TSXV Lawyers & Clients Shareholder Remedies Canadian Securities Administrators Review of Reporting Issuers in the Cannabis Industry Staff of the Canadian Securities Administrators have published a notice based on a review conducted by the securities regulatory authorities in Alberta, British Columbia, Ontario and Québec for the purpose of highlighting good disclosure practices for issuers in the cannabis industry so that investors are provided with transparent information about financial performance and risks and uncertainties, to support informed investing decisions. Staff at the Canadian Securities Administrators (the "CSA") have published CSA Staff Notice 51-357 - Staff Review of Reporting Issuers in the Cannabis Industry (see here) based on a review conducted by the securities regulatory authorities in Alberta, British Columbia, Ontario and Québec. Staff reviewed the disclosure of 70 reporting issuers operating in the cannabis industry. This review included reporting issuers with varying levels of involvement in the industry and with operations in different countries. Staff were seeking to highlight good disclosure practices for issuers in the cannabis industry so that investors are provided with transparent information about financial performance and risks and uncertainties, to support informed investing decisions. Staff noted that the cannabis industry had benefited from increasingly permissive legal frameworks and had grown significantly as an emerging public market sector. The review identified industry specific disclosure deficiencies, which are notable given the recent rapid growth of this industry and perhaps in recent weeks, the volatility experienced in and around the implementation of federal legalization. The review identified three categories of what they felt were substantive disclosure deficiencies. Licensed cannabis producers ("LPs") often did not provide sufficient information in their financial statements and management’s discussion and analysis ("MD&A") for an investor to understand their financial performance, including: Impact of Fair Value Accounting on Financial Statements. LPs often included fair value adjustments in the 'cost of goods sold' in their statements of profit and loss ("P&L"). Issuers with agricultural operations are required to measure biological assets (i.e. living plants) at their fair value under International Financial Reporting Standards ("IFRS"). The CSA expects issuers to separately disclose unrealized gains and or losses due to fair value changes on growth of biological assets, and realized fair value amounts included in the cost of inventory sold. Accounting Policies Related to Biological Assets. Most LPs had a P&L line item called 'production costs' or 'costs of goods sold' put failed to breakdown the composition of the item. The CSA expects issuers to clearly disclose what it considers to be a direct or indirect cost of production associated with biological assets, which P&L line item(s) these direct and indirect costs are recorded in, and whether the direct/indirect costs of biological assets are capitalized or expensed as incurred. Expense Costs Related to Biological Assets/ Cost of Cannabis Sold. CSA encouraged issuers who expense biological assets as incurred to provide supplemental information in their MD&A, such as the impact that capitalization of direct and indirect costs related to biological assets would have had on the P&L so that investors have information about the cost of cannabis sold in the period regardless of whether the issuer elects to capitalize or expense biological assets. Presentation of a Gross Profit Subtotal. Staff noted issuers that expense direct and indirect costs of biological assets should consider an alternative to the common 'gross profit' subtotal item in their P&L in order to male it explicit that costs of these assets includes costs incurred on good which have not yet been sold. Fair Value Measurement Process. 100% of the LPs reviewed needed to improve their fair value and fair value related disclosures. Investors must be able to understand the judgements management makes about growing cannabis plants at various stages prior to harvest and the notice provides examples of how the disclosure can be improved, including providing a description of the valuation techniques and processes. Non-GAAP Financial Measures Developed in Response to Fair Value. LPs should clearly disclose how non-GAAP financial measures are calculated to show the cost of production after excluding non-cash fair value adjustments. LPs should also ensure that reconciling items and assumptions used to calculate non-GAAP measures are fully explained. General Disclosures Some issuers did not consistently comply with securities requirements for forward-looking information, guidance for providing balanced disclosure and certain other requirements, including: Production Estimates. LPs making announcements about anticipated production capacity in new facilities should disclose related material factors and assumptions which should further be based on specific and comprehensive details, referencing how each assumption contributes to the projection. Misleading or Unbalanced Disclosure. Existing and potential cannabis industry issuers must ensure that announcements are balanced and not misleading including, in many cases, enhancing disclosure by stating factors upon which a transaction is contingent (for example, regulatory approval). Impairment. Issuers with material cannabis-related assets should perform appropriate impairment testing in response to impairment events, including industry-wide changes in cannabis valuations or regulatory frameworks. Material Contracts. Cannabis industry issuers that are substantially dependent on licenses to cultivate or sell cannabis, or on leased facilities, should consider filing these as material contracts under existing continuous disclosure requirements. Regulatory Frameworks. Cannabis industry issuers operating outside North America should provide disclosure about the foreign regulatory frameworks that are applicable to them (similar to obligations on cannabis industry issuers with U.S. cannabis related activities discussed below). Issuers with U.S. Cannabis Operations 74% of issuers with cannabis operations in the U.S. did not provide sufficient disclosure about the risks related to their U.S. operations to satisfy the disclosure expectations set out in CSA Staff Notice 51-352 (Revised) - Issuers with U.S. Marijuana-Related Activities (see here). CSA staff reiterated the following relevant disclosure expectations: a description of the issuer's involvement in the U.S. cannabis industry; a statement disclosing that marijuana is illegal under U.S. federal law and that enforcement of such laws is a significant risk; disclosure of related risks, such as the possibility of third party service providers withdrawing services or that regulatory bodies may impose certain restrictions on the issuer's ability to operate in the U.S.; a discussion pertaining to the issuer's ability to access public and private capital, including the financing options available; and a quantification of the issuer's balance sheet and operating statement exposure to U.S. marijuana-related activities. Additional disclosure may be required dependent upon whether the issuer has a direct, indirect or ancillary involvement with U.S. marijuana-related activities. Where deficient disclosure was identified during the CSA staff review, issuers either committed to prospective improvements or, when the deficiencies were pervasive, refiled certain documents. Endeavor Law can assist issuers with Canadian securities law continuous disclosure, compliance and regulatory matters. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client. Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction. Going Public In Canada - Reverse Takeovers (RTOs) Small Business & Start-ups: Part 2: Financing SECURITIES LAW UPDATE: New Capital Raising Option for Canadian Listed Issuers © 2022 by Endeavor Law Corporation.

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professional_accounting

As filed with the Securities and Exchange Commission on April 1, 2020 Registration No. 333- FORM S‑3 REGISTRATION STATEMENT SECURITIES ACT OF 1933 YIELD10 BIOSCIENCE, INC. (State or other jurisdiction of incorporation or organization) 19 Presidential Way Woburn, Massachusetts 01801 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) Dr. Oliver P. Peoples, Ph.D. (Name, address, including zip code, and telephone number, including area code, of agent for service) with copies to: Megan N. Gates, Esq. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ý If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. o If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o CALCULATION OF REGISTRATION FEE Title of Each Class of Securities to be Registered(1) Amount to be Registered(2)(3) Proposed Maximum Offering Price Per Unit(3)(4) Amount of Registration Fee(5) Common Stock, par value $0.01 per share Preferred Stock, par value $0.01 per share Subscription Rights $ 676.72(6) This registration statement also covers (i) common stock and preferred stock that may be issued upon exercise of warrants and/or subscription rights and (ii) such indeterminate amount of securities as may be issued in exchange for or upon conversion of, as the case may be, the securities registered hereunder. In addition, securities registered hereunder may be sold separately or as units with other securities registered hereunder. An indeterminate number of the securities is being registered as may at various times be issued at indeterminate prices, with an aggregate public offering price not to exceed $25,000,000 or the equivalent thereof in one or more currencies. Not specified as to each class of securities to be registered pursuant to General Instruction II.D of Form S-3 under the Securities Act. The proposed maximum offering price per unit will be determined from time to time by the registrant in connection with, and at the time of, the issuance of the securities registered hereunder. Calculated pursuant to Rule 457(o) under the Securities Act, based on the proposed maximum aggregate offering price. Pursuant to Rule 415(a)(6) under the Securities Act of 1933, as amended, this registration statement includes a total of $19,786,410.82 of unsold securities that had previously been registered under the Registrant's registration statement on Form S-3 initially filed on March 31, 2017, File No. 333-217051 (the “Prior Registration Statement”). The Prior Registration Statement registered securities for a maximum offering price of $25,000,000. The Registrant sold an aggregate of $5,213,589.18 of securities thereunder, leaving a balance of unsold securities with an aggregate offering price of $19,786,410.82. In connection with the registration of such unsold securities on the Prior Registration Statements, the Registrant paid registrations fee of $2,293.25 for such unsold securities, which fee will continue to be applied to such unsold securities. Accordingly, the amount of the registration fee has been calculated based on the proposed maximum offering price of the additional $5,213,589.18 of securities registered on this registration statement. Pursuant to Rule 415(a)(6), the offering of the unsold securities registered under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of this registration statement. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED APRIL 1, 2020 This prospectus relates to common stock, preferred stock, warrants and subscription rights that we may sell from time to time in one or more offerings up to a total public offering price of $25,000,000 on terms to be determined at the time of sale, which securities may be sold either individually or in units. We will provide specific terms of these securities in supplements to this prospectus. You should read this prospectus and any supplement carefully before you invest. This prospectus may not be used to offer and sell securities unless accompanied by a prospectus supplement for those securities. Our common stock is traded on The Nasdaq Capital Market under the symbol “YTEN.” These securities may be sold directly by us, through dealers or agents designated from time to time, to or through underwriters or through a combination of these methods. See “Plan of Distribution” in this prospectus. We may also describe the plan of distribution for any particular offering of these securities in any applicable prospectus supplement. If any agents, underwriters or dealers are involved in the sale of any securities in respect of which this prospectus is being delivered, we will disclose their names and the nature of our arrangements with them in a prospectus supplement. The net proceeds we expect to receive from any such sale will also be included in a prospectus supplement. As of March 30, 2020, the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold or the average bid and asked price of such common equity on that date, was approximately $5,725,732, based on 1,923,184 shares of outstanding common stock, of which 1,487,203 were held by non-affiliates. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75.0 million. We have not offered any securities pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and including the date of this prospectus. Investing in our securities involves a high degree of risk. See “Risk Factors” on page 5 of this prospectus. We may include additional risk factors in an applicable prospectus supplement under the heading “Risk Factors.” You should review that section of the prospectus supplement for a discussion of matters that investors in our securities should consider. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus or any accompanying prospectus supplement. Any representation to the contrary is a criminal offense. Our principal executive office is at 19 Presidential Way, Woburn, Massachusetts 01801, and our telephone number is (617) 583-1700. The date of this prospectus is ______, 2020. ABOUT THIS PROSPECTUS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ABOUT YIELD10 BIOSCIENCE, INC. DESCRIPTION OF CAPITAL STOCK DESCRIPTION OF WARRANTS DESCRIPTION OF SUBSCRIPTION RIGHTS DESCRIPTION OF UNITS PLAN OF DISTRIBUTION WHERE YOU CAN FIND MORE INFORMATION INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS, ANY PROSPECTUS SUPPLEMENT OR ANY DOCUMENT TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT MAY BE USED ONLY WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS CURRENT ONLY AS OF THE DATE ON THE FRONT OF THESE DOCUMENTS. This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or the SEC, using a “shelf” registration process. Under this shelf process, we may sell any combination of the securities described in this prospectus in one or more offerings up to a total public offering price of $25,000,000. This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the securities being offered and the terms of that offering. The prospectus supplement may also add to, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with the additional information described under the heading “Where You Can Find More Information” carefully before making an investment decision. Unless the context otherwise requires, in this prospectus, “Yield10,” “the Company,” “we,” “us,” “our” and similar names refer to Yield10 Bioscience, Inc. and its subsidiaries. This prospectus and any accompanying prospectus supplement (including any document incorporated by reference herein or therein) contain statements with respect to the Company which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and reflect our plans, estimates and beliefs, can generally be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. These forward-looking statements include, but are not limited to, statements concerning potential future collaborations and objectives for research and development, product development, and commercialization of current and future products. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors” in any prospectus supplement and in the documents incorporated by reference herein or therein. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in company expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. You should read this prospectus and any accompanying prospectus supplement and the documents that we reference herein and therein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus and any accompanying prospectus supplement is accurate as of the date on the front cover of this prospectus or such prospectus supplement only. Our business, financial condition, results of operations and prospects may change. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the Federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this prospectus and any accompanying prospectus supplement, and particularly our forward-looking statements, by these cautionary statements. Yield10 Bioscience, Inc. is an agricultural bioscience company that uses its "Trait Factory" and the Camelina oilseed “Fast Field Testing” system to develop high value seed traits for the agriculture and food industries. Yield10 is headquartered in Woburn, Massachusetts and has an Oilseed Center of Excellence in Saskatoon, Saskatchewan, Canada. Our goal is to efficiently develop superior gene traits for the major crops including corn, soybean, canola, and other crops to enable step-change increases in crop yield of at least 10-20 percent. Our “Trait Factory” encompasses discovery of gene targets using our GRAIN (“Gene Ranking Artificial Intelligence Network”) big data mining platform, deployment of trait gene targets in the oilseed Camelina and generation of field performance data. The “Trait Factory” enables two complementary commercial opportunities with different paths to market. The first is trait licensing to the major seed companies for corn, soybean, canola and other crops. Data from our trait field testing in Camelina has enabled Yield10 to establish research license agreements with leading seed companies including Bayer Crop Science division of Bayer AG ("Bayer"), Forage Genetics International, LLC a division of Land O'Lakes, Inc. ("Forage Genetics") and JR Simplot Company ("Simplot"). These companies are progressing the development of Yield10 traits in soybean, forage sorghum, and potato, respectively. The second commercial opportunity is to improve the performance and value of Camelina as a platform to develop a commercial crop product business producing nutritional oils and PHA biomaterials. Using this approach, Yield10 can leverage the resources of the major seed companies to efficiently develop superior gene traits for the major crops and focus internal resources on trait gene discovery and the commercial development of Camelina products. Our focus in the near term is to develop a revenue generating business using Camelina to produce nutritional oils. Yield10 has discovered a series of performance gene traits for Camelina focused on seed yield and oil content, the two primary drivers of value. Our plan is to focus on our traits deployed using genome editing which can be qualified as non-regulated under U.S. Department of Agriculture ("USDA") Animal and Plant Health Inspection Service ("APHIS") rules. In parallel, the Company plans to establish a program to develop herbicide tolerant Camelina lines. We believe this will enable Yield10 to develop a crop oil product business with a clear path to revenue and growth. This foundation will form a strong base to produce PHA biomaterials in the longer term for use in water treatment and plastics replacement applications. Yield10 believes crop based PHA biomaterials represent a compelling new market opportunity for agriculture addressing a non-traditional market with high upside potential. Yield10 brings a unique history and skill set, captured in our GRAIN data mining gene discovery platform, for developing advanced crop traits and increasing the concentration of specific biochemicals of commercial interest in crops. Our plan is to also use GRAIN to develop a source of revenue from funded research and development collaborations for traits, products and crops not being directly pursued internally. We are currently engaged in a range of discussions with third parties with respect to different crops, traits and products in the feed, food and pharmaceutical sectors. Over the last four years, we have been evaluating certain of our traits in greenhouse studies and field tests conducted in the United States and Canada. We currently have three non-exclusive research license agreements in place: with the Crop Science division of Bayer, for the evaluation of our C3003 and C3004 traits in soybean; with Forage Genetics for the evaluation of five yield traits in forage sorghum; and with Simplot for evaluation of three of our traits in potato. We have progressed our evaluation of C3003 and C3004 in field tests with Camelina and canola and plan to continue our field testing in the 2020 growing season. In Camelina we have demonstrated the potential of a series of traits, including C3003 and C3004 to significantly increase seed yield and genome edited traits including C3007-C3010 to increase seed oil content and filed a new patent application on a potentially breakthrough technology for producing PHA biomaterials. According to a United Nations report, crop production must be increased by over 70 percent in the next 35 years to feed the growing global population, which is expected to increase from 7 billion to more than 9.6 billion by 2050. During that time period, there will be a reduction in available arable land as a result of infrastructure growth and increased pressure on scarce water resources. Consumption of meat, seafood, and dairy products is also expected to increase based on dietary changes associated with increasing wealth and living standards. This will result in increased demand for feed grains and forage crops. Seafood production is increasingly based on aquaculture where fish diets have been increasingly moving to crop-based feed ingredients due to the limited availability and cost of processed ocean harvested fish as feed. Fish oil is the main source of omega-3 fatty acids which are essential in the human diet. Omega-3 oils have been shown to help prevent heart disease and stroke, may help control lupus, eczema, and rheumatoid arthritis, and may play protective roles in cancer and other conditions. Oils high in omega-3 fatty acids are in increasing demand as the supply of fish oil from ocean harvest is under increasing pressure. Aquaculture and other feed markets represent a growing opportunity for Camelina oil, which is high in the omega-3 fatty acid alpha linolenic acid (“ALA”). Harvestable food production per acre and per growing season must be increased to meet this demand. At the same time, with the increasing focus on health and wellness, food safety and sustainability in developed countries, we anticipate a rise in demand for new varieties of food and food ingredients with improved nutritional properties. With crop intensification (less land available and more production needed), we expect that improved crop genetics based on new gene traits will be a key driver of increased productivity, potentially resulting in the best performing yield traits commanding disproportionate value and disrupting the seed sector. We expect farmers and growers to be the major beneficiaries of these drivers, which represent potential opportunities for increased revenue and crop diversification. Today the global food market has an estimated value of $5 trillion. Yield10 brings unique capabilities and experience in advanced metabolic engineering and systems biology to optimize photosynthesis and carbon efficiency in crops to increase grain or biomass yield. These capabilities were developed based on sustained investment over many years when the company was named Metabolix. As Metabolix, we solved complex biological problems in the industrial/synthetic biology space to produce bioplastics. By 2012, we had begun work to increase photosynthesis in crops as part of those activities, which led to the creation in 2015 of the current Yield10 business focused on crop yield. In mid-2016 we sold our fermentation-based bioplastics assets to focus on our agricultural innovations and the company was rebranded as Yield10 Bioscience in January 2017. As of December 31, 2019, we held unrestricted cash, cash equivalents and short-term investments of $11.1 million. In March 2019, we closed on a registered direct offering of our common stock, raising $2.6 million, net of offering costs, and in November 2019, we closed on a public offering and a concurrent private placement of our securities, raising $10.2 million, net of offering costs. Through March 20, 2020, we received an additional $1.6 million from investor exercises of 204,796 outstanding warrants. We follow the guidance of Accounting Standards Codification ("ASC") Topic 205-40, Presentation of Financial Statements-Going Concern, in order to determine whether there is substantial doubt about the Company's ability to continue as a going concern for one year after the date its financial statements are issued. We have concluded, that the Company has sufficient cash and short-term investments to fund its operations into the second quarter of 2021. We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to any or all of the following: (a) lower than expected revenues from grants and licenses related to our technologies; (b) changes we may make to the business that affect ongoing operating expenses; (c) further changes we may make to our business strategy; (d) changes in our research and development spending plans; and (e) other items affecting our forecasted level of expenditures and use of cash resources. We will require additional capital resources to support the implementation of our business strategy and we may pursue one or more of a variety of financing options, including public or private equity financing, secured or unsecured debt financing, equity or debt bridge financing, as well as licensing or other collaborative arrangements. There can be no assurance that our financing efforts will be successful. If we are not able to secure such additional capital resources or otherwise fund our operations, we will be forced to explore strategic alternatives and/or wind down our operations and pursue options for liquidating our remaining assets, including intellectual property and equipment. If we issue equity or debt securities to raise additional funds in the future, we may incur fees associated with such issuances, our existing stockholders may experience dilution from the issuance of new equity securities, we may incur ongoing interest expense and be required to grant a security interest in our assets in connection with any debt issuance, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, utilization of our net operating loss and research and development credit carryforwards may be subject to significant annual limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), due to ownership changes resulting from equity financing transactions. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies or grant licenses on terms that are not favorable to us. We were incorporated in Massachusetts in June 1992 under the name of Metabolix, Inc. In September 1998, we reincorporated in Delaware. We changed our name to Yield10 Bioscience, Inc. in January 2017 to reflect our change in mission around innovations in agricultural biotechnology focused on developing disruptive technologies for step-change improvements in crop yield and niche crop products. Our corporate headquarters are located at 19 Presidential Way, Woburn, MA 01801, and our telephone number is +1 (617) 583-1700. Our website address is www.yield10bio.com. The information on our website is not incorporated by reference into this prospectus or any prospectus supplement and should not be considered to be part of this prospectus or any prospectus supplement. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as reports relating to our securities filed by others pursuant to Section 16 of such act, are available through the investor relations page of our Internet website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. Investing in our securities involves risk. The prospectus supplement applicable to each type or series of securities we offer will contain a discussion of the risks applicable to an investment in Yield10 and to the particular types of securities that we are offering under that prospectus supplement. Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the heading “Risk Factors” in the applicable prospectus supplement, together with all of the other information contained or incorporated by reference in the prospectus supplement or appearing or incorporated by reference in this prospectus. You should also consider the risks, uncertainties and assumptions discussed under the heading “Risk Factors” included in our most recent annual report on Form 10-K, as revised or supplemented by our most recent quarterly report on Form 10-Q, each of which are on file with the SEC and are incorporated herein by reference, and which may be amended, supplemented or superseded from time to time by other reports we file with the SEC in the future. We currently intend to use the estimated net proceeds from the sale of these securities for working capital and other general corporate purposes, and possibly acquisitions of other companies, products or technologies. Working capital and other general corporate purposes may include research and development expenditures, capital expenditures, operating and administrative expenditures, and any other purpose that we may specify in any prospectus supplement. While we have no current plans for any specific acquisitions at this time, we believe opportunities may exist from time to time to expand our current business through strategic alliances or acquisitions with other companies, products or technologies. We have not yet determined the amount of net proceeds to be used specifically for any of the foregoing purposes. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds from the sale of these securities. Pending any use, as described above, we intend to invest the net proceeds in high-quality, short-term, interest-bearing securities. Our plans to use the estimated net proceeds from the sale of these securities may change, and if they do, we will update this information in a prospectus supplement. The following description of our common stock and preferred stock, together with the additional information included in any applicable prospectus supplements, summarizes the material terms and provisions of these types of securities but is not complete. For the complete terms of our common stock and preferred stock, please refer to our Amended and Restated Certificate of Incorporation, as amended to date (our “certificate of incorporation”), and our Amended and Restated By-laws (our “by-laws”), each of which is incorporated by reference into the registration statement of which this prospectus is a part and, with respect to any new shares of preferred stock, the certificate of designation which will be filed with the SEC for each new series of preferred stock we may designate, if any. We will describe in a prospectus supplement the specific terms of any common stock or preferred stock we may offer pursuant to this prospectus. If indicated in a prospectus supplement, the terms of such common stock or preferred stock may differ from the terms described below. We have 65,000,000 shares of capital stock authorized under our certificate of incorporation, consisting of 60,000,000 shares of common stock, par value $0.01 per share and 5,000,000 shares of preferred stock, par value $0.01 per share, of which 2,504 shares are designated as Series A Convertible Preferred Stock and 5,750 shares are designated as Series B Convertible Preferred Stock. The authorized shares of common stock and undesignated preferred stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. If the approval of our stockholders is not so required, our board of directors may determine not to seek stockholder approval. As of March 30, 2020, there were 1,923,184 shares of our common stock outstanding held by 37 stockholders of record. Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding. Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all our debts and other liabilities, subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Except as described below in “Provisions of our Certificate of Incorporation and By-Laws and Delaware Anti-Takeover Law,” a majority vote of common stockholders is generally required to take action under our certificate of incorporation and by-laws. Our board of directors is authorized, without action by the stockholders, to designate and issue up to an aggregate of 5,000,000 shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of our company and might harm the market price of our common stock. There are no restrictions on our ability to repurchase or reclaim our preferred shares while there is any arrearage in the payment of dividends on our preferred stock. Our board of directors will make any determination to issue such shares based on its judgment as to our company’s best interests and the best interests of our stockholders. Provisions of our Certificate of Incorporation and By-Laws and Delaware Anti-Takeover Law Our certificate of incorporation and by-laws includes a number of provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below. Board Composition and Filling Vacancies. In accordance with our certificate of incorporation, our board is divided into three classes serving staggered three-year terms, with one class being elected each year. Our certificate of incorporation also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. No Written Consent of Stockholders. Our certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. Meetings of Stockholders. Our by-laws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our by-laws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting. Advance Notice Requirements. Our by-laws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the by-laws. Amendment to By-Laws and Certificate of Incorporation. As required by the Delaware General Corporation Law, any amendment of our certificate of incorporation must first be approved by a majority of our board of directors and, if required by law or our certificate of incorporation, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, directors, limitation of liability and the amendment of our by-laws and certificate of incorporation must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our by-laws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the by-laws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if the board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class. Blank Check Preferred Stock. Our certificate of incorporation provides for 5,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us. We may issue warrants for the purchase of preferred stock or common stock. Warrants may be issued independently or together with preferred stock or common stock and may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent in connection with the warrants and will not assume any obligation or relationship of agency or trust for or with any registered holders of warrants or beneficial owners of warrants. This summary of some provisions of the warrants is not complete. You should refer to the warrant agreement, including the forms of warrant certificate representing the warrants, relating to the specific warrants being offered for the complete terms of the warrant agreement and the warrants. That warrant agreement, together with the terms of the warrant certificate and warrants, will be filed with the SEC in connection with the offering of the specific warrants. The particular terms of any issue of warrants will be described in the prospectus supplement relating to the issue. Those terms may include: the title of such warrants; the aggregate number of such warrants; the price or prices at which such warrants will be issued; the terms of the securities purchasable upon exercise of such warrants and the procedures and conditions relating to the exercise of such warrants; the price at which the securities purchasable upon exercise of such warrants may be purchased; the date on which the right to exercise such warrants will commence and the date on which such right shall expire; any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the warrants; if applicable, the minimum or maximum amount of such warrants that may be exercised at any one time; if applicable, the designation and terms of the securities with which such warrants are issued and the number of such warrants issued with each such security; if applicable, the date on and after which such warrants and the related securities will be separately transferable; information with respect to book-entry procedures, if any; and any other terms of such warrants, including terms, procedures and limitations relating to the exchange or exercise of such warrants. The prospectus supplement relating to any warrants to purchase equity securities may also include, if applicable, a discussion of certain U.S. federal income tax considerations. Warrants for the purchase of preferred stock and common stock will be offered and exercisable for U.S. dollars only. Securities warrants will be issued in registered form only. Each warrant will entitle its holder to purchase the number of shares of preferred stock or common stock at the exercise price set forth in, or calculable as set forth in, the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will become void. We will specify the place or places where, and the manner in which, warrants may be exercised in the applicable prospectus supplement. Upon receipt of payment and the warrant certificate properly completed and duly executed at the corporate trust office of the warrant agent or any other office indicated in the applicable prospectus supplement, we will, as soon as practicable, forward the purchased securities. If less than all of the warrants represented by the warrant certificate are exercised, a new warrant certificate will be issued for the remaining warrants. Prior to the exercise of any warrants to purchase preferred stock or common stock, holders of the warrants will not have any of the rights of holders of preferred stock or common stock purchasable upon exercise, including the right to vote or to receive any payments of dividends on the preferred stock or common stock purchasable upon exercise. The following is a general description of the terms of the subscription rights we may issue from time to time. Particular terms of any subscription rights we offer will be described in the prospectus supplement or free writing prospectus relating to such subscription rights, and may differ from the terms described herein. We may issue subscription rights to purchase our securities. These subscription rights may be issued independently or together with any other security offered hereby and may or may not be transferable by the stockholder receiving the subscription rights in such offering. In connection with any offering of subscription rights, we may enter into a standby arrangement with one or more underwriters or other purchasers pursuant to which the underwriters or other purchasers may be required to purchase any securities remaining unsubscribed for after such offering. The applicable prospectus supplement will describe the specific terms of any offering of subscription rights for which this prospectus is being delivered, including the following: whether common stock, preferred stock, or warrants for those securities will be offered under the stockholder subscription rights; the price, if any, for the subscription rights; the exercise price payable for each security upon the exercise of the subscription rights; the number of subscription rights issued to each stockholder; the number and terms of the securities which may be purchased per each subscription right; the extent to which the subscription rights are transferable; any other terms of the subscription rights, including the terms, procedures and limitations relating to the exchange and exercise of the subscription rights; the date on which the right to exercise the subscription rights shall commence, and the date on which the subscription rights shall expire; the extent to which the subscription rights may include an over-subscription privilege with respect to unsubscribed securities; if appropriate, a discussion of material U.S. federal income tax considerations; and if applicable, the material terms of any standby underwriting or purchase arrangement entered into by us in connection with the offering of subscription rights. The description in the applicable prospectus supplement of any subscription rights we offer will not necessarily be complete and will be qualified in its entirety by reference to the applicable subscription rights certificate or subscription rights agreement, which will be filed with the SEC if we offer subscription rights. The following description, together with the additional information that we include in any applicable prospectus supplements, summarizes the material terms and provisions of the units that we may offer under this prospectus. While the terms we have summarized below will apply generally to any units that we may offer under this prospectus, we will describe the particular terms of any series of units in more detail in the applicable prospectus supplement. The terms of any units offered under a prospectus supplement may differ from the terms described below. We will incorporate by reference from reports that we file with the SEC, the form of unit agreement that describes the terms of the series of units we are offering, and any supplemental agreements, before the issuance of the related series of units. The following summaries of material terms and provisions of the units are subject to, and qualified in their entirety by reference to, all the provisions of the unit agreement and any supplemental agreements applicable to a particular series of units. We urge you to read the applicable prospectus supplements related to the particular series of units that we may offer under this prospectus, as well as any related free writing prospectuses and the complete unit agreement and any supplemental agreements that contain the terms of the units. We may issue units consisting of common stock, preferred stock, warrants, rights or purchase contracts for the purchase of common stock or preferred stock in one or more series, in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each security included in the unit. The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified date. We will describe in the applicable prospectus supplement the terms of the series of units being offered, including: the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held or transferred separately; any provisions of the governing unit agreement that differ from those described below; and any provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units. The provisions described in this section, as well as those set forth in any prospectus supplement or as described under “Description of Common Stock,” “Description of Preferred Stock,” “Description of Warrants,” “Description of Rights” and “Description of Purchase Contracts” will apply to each unit, as applicable, and to any common stock, preferred stock, warrant, right or purchase contract included in each unit, as applicable. Unit Agent The name and address of the unit agent for any units we offer will be set forth in the applicable prospectus supplement. Issuance in Series We may issue units in such amounts and in such numerous distinct series as we determine. Enforceability of Rights by Holders of Units Each unit agent will act solely as our agent under the applicable unit agreement and will not assume any obligation or relationship of agency or trust with any holder of any unit. A single bank or trust company may act as unit agent for more than one series of units. A unit agent will have no duty or responsibility in case of any default by us under the applicable unit agreement or unit, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder of a unit may, without the consent of the related unit agent or the holder of any other unit, enforce by appropriate legal action its rights as holder under any security included in the unit. We may sell the securities being offered pursuant to this prospectus directly to purchasers, to or through underwriters, through dealers or agents, or through a combination of such methods. The prospectus supplement with respect to the securities being offered will set forth the terms of the offering of those securities, including the names of the underwriters, dealers or agents, if any, the purchase price, the net proceeds to us, any underwriting discounts and other items constituting underwriters’ compensation, the public offering price, any discounts or concessions allowed or reallowed or paid to dealers and any securities exchanges on which such securities may be listed. If underwriters are used in an offering, we will execute an underwriting agreement with such underwriters and will specify the name of each underwriter and the terms of the transaction (including any underwriting discounts and other terms constituting compensation of the underwriters and any dealers) in a prospectus supplement. The securities may be offered to the public either through underwriting syndicates represented by managing underwriters or directly by one or more investment banking firms or others, as designated. If an underwriting syndicate is used, the managing underwriter(s) will be specified on the cover of the prospectus supplement. If underwriters are used in the sale, the offered securities will be acquired by the underwriters for their own accounts and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Unless otherwise set forth in the prospectus supplement, the obligations of the underwriters to purchase the offered securities will be subject to conditions precedent and the underwriters will be obligated to purchase all of the offered securities if any are purchased. We may grant to the underwriters options to purchase additional securities to cover over-allotments, if any, at the public offering price, with additional underwriting commissions or discounts, as may be set forth in a related prospectus supplement. The terms of any over-allotment option will be set forth in the prospectus supplement for those securities. If any underwriters are involved in the offer and sale, they will be permitted to engage in transactions that maintain or otherwise affect the price of the securities. These transactions may include over-allotment transactions, purchases to cover short positions created by the underwriter in connection with the offering and the imposition of penalty bids. If an underwriter creates a short position in the securities in connection with the offering by selling more securities than set forth on the cover page of the applicable prospectus supplement, the underwriter may reduce that short position by purchasing the securities in the open market. In general, purchases of a security to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. As noted above, underwriters may also choose to impose penalty bids on other underwriters and/or selling group members. This means that if underwriters purchase securities on the open market to reduce their short position or to stabilize the price of the securities, they may reclaim the amount of the selling concession from those underwriters and/or selling group members who sold such securities as part of the offering. Neither we nor any underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of such securities. In addition, neither we nor any underwriter make any representation that such underwriter will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. If dealers are used in an offering, we will sell the securities to the dealers as principals. The dealers then may resell the securities to the public at varying prices, which they determine at the time of resale. The names of the dealers and the terms of the transaction will be specified in a prospectus supplement. The securities may be sold directly by us or through agents we designate from time to time at a fixed price or prices, which may be changed, or at varying prices determined at the time of sale, such as in an at-the-market offering or arrangement. If agents are used in an offering, the names of the agents and the terms of the agency will be specified in a prospectus supplement. Unless otherwise indicated in a prospectus supplement, the agents will act on a best-efforts basis for the period of their appointment. Dealers and agents named in a prospectus supplement may be deemed to be underwriters (within the meaning of the Securities Act of 1933, as amended, also referred to in this prospectus as the “Securities Act”) of the securities described therein. In addition, we may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any resales thereof. Underwriters, dealers and agents may be entitled to indemnification by us against specific civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the underwriters or agents may be required to make in respect thereof, under underwriting or other agreements. The terms of any indemnification provisions will be set forth in a prospectus supplement. Certain underwriters, dealers or agents and their associates may engage in transactions with and perform services for us in the ordinary course of business. If so indicated in a prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by institutional investors to purchase securities pursuant to contracts providing for payment and delivery on a future date. We may enter into contracts with commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and other institutional investors. The obligations of any institutional investor will be subject to the condition that its purchase of the offered securities will not be illegal at the time of delivery. The underwriters and other agents will not be responsible for the validity or performance of such contracts. Direct sales to investors or our stockholders may be accomplished through subscription offerings or through subscription rights distributed to stockholders. In connection with subscription offerings or the distribution of subscription rights to stockholders, if all of the underlying securities are not subscribed for, we may sell any unsubscribed securities to third parties directly or through underwriters or agents. In addition, whether or not all of the underlying securities are subscribed for, we may concurrently offer additional securities to third parties directly or through underwriters or agents. If securities are to be sold through subscription rights, the subscription rights will be distributed as a dividend to the stockholders for which they will pay no separate consideration. Any common stock sold pursuant to a prospectus supplement will be eligible for quotation and trading on Nasdaq, subject to official notice of issuance. Any underwriters to whom securities are sold by us for public offering and sale may make a market in the securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. In order to comply with the securities laws of some states, if applicable, the securities offered hereby will be sold in those jurisdictions only through registered or licensed brokers or dealers. In addition, in some states securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and complied with. The validity of the securities offered hereby will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. If the securities are being distributed in an underwritten offering, certain legal matters will be passed upon for the underwriters by counsel identified in the applicable prospectus supplement. The consolidated financial statements of Yield10 Bioscience, Inc. as of December 31, 2019 and 2018, and for each of the years in the two-year period ended December 31, 2019 incorporated in this Prospectus by reference to the Yield10 Bioscience, Inc.’s annual report on Form 10-K filed on March 25, 2020 have been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report incorporated herein by reference, and have been incorporated in this Registration Statement in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. We are a public company and file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our SEC filings are also available to the public on the SEC’s website at http://www.sec.gov, or on our website at http://www.yield10bio.com/ under the “Investors” link. Information contained on our website is not part of this prospectus. This prospectus is only part of a Registration Statement on Form S-3 that we have filed with the SEC under the Securities Act, and therefore omits certain information contained in the Registration Statement. We have also filed exhibits with the Registration Statement that are excluded from this prospectus, and you should refer to the applicable exhibit for a complete description of any statement referring to any contract or other document. You may: inspect a copy of this prospectus, including the exhibits and schedules, without charge at the public reference room; obtain a copy of this prospectus from the SEC upon payment of the fees prescribed by the SEC; or obtain a copy of this prospectus from the SEC website. The SEC allows us to “incorporate by reference” information from other documents that we file with them, which means that we can disclose important information in this prospectus by referring to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede the information in this prospectus. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The documents we are incorporating by reference as of their respective dates of filing are: Our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 25, 2020; and Definitive Proxy Statement on Schedule 14A for the annual meeting of our stockholders to be held on May 19, 2020, filed with the SEC on March 25, 2020; Current Reports on Form 8-K filed on January 9, 2020, January 15, 2020, January 31, 2020, February 13, 2020; and March 19, 2020; and The description of our common stock contained in Item 1 of our Registration Statement on Form 8-A filed with the SEC on November 6, 2006, including any amendments or reports filed for the purpose of updating the description. All documents and reports filed by us with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (other than Current Reports on Form 8-K containing only information furnished under Item 2.02 or Item 7.01 of Form 8-K, unless otherwise indicated therein) after the date of this prospectus and prior to the termination of the offering made hereby shall be deemed to be incorporated by reference into this prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein or in any prospectus supplement modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. We will provide, without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request of such person, a copy of any or all of the documents incorporated herein by reference other than exhibits, unless such exhibits are specifically incorporated by reference into such documents or this document. Requests for such documents should be addressed in writing or by telephone to: INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses payable by us in connection with the offerings described in this registration statement, other than underwriting discounts and commissions. Amount to be paid ($) SEC registration fee Nasdaq Capital Market Listing Fee Printing Expenses Legal fees and expenses Accounting fees and expenses * These fees are calculated based on the securities offered and the number of issuances and accordingly, cannot be estimated at this time. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Delaware General Corporation Law and our certificate of incorporation and by-laws provide for indemnification of our directors and officers for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the registrant and, with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. Our certificate of incorporation provides that no director shall be personally liable to us or to our stockholders for monetary damages for breach of fiduciary duty as a director, except that the limitation shall not eliminate or limit liability to the extent that the elimination or limitation of such liability is not permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended. Our by-laws further provide for the indemnification of our directors and officers to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary. A principal effect of these provisions is to limit or eliminate the potential liability of our directors for monetary damages arising from breaches of their duty of care, subject to certain exceptions. These provisions may also shield directors from liability under federal and state securities laws. We have entered into indemnification agreements with each of our directors and certain of our executive officers. These agreements provide that we will indemnify each of our directors and certain of our executive officers to the fullest extent permitted by law. We also maintain a general liability insurance policy which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers. ITEM 16. EXHIBITS Exhibit No. Identification of Exhibit Form of Underwriting Agreement Amended and Restated Certificate of Incorporation, as amended, of the Registrant (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-33133) on August 9, 2018 and incorporated herein by reference) Certificate of Designation of Preferences, Rights and Limitations with respect to the Series A Preferred Stock (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K (File No. 001-33133) on November 20, 2019 and incorporated herein by reference). Certificate of Designation of Preferences, Rights and Limitations with respect to the Series B Preferred Stock (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K (File No. 001-33133) on November 20, 2019 and incorporated herein by reference). Amended and Restated By-laws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33133) on January 6, 2017 and incorporated herein by reference) Specimen Stock Certificate for shares of the Registrant's Common Stock (incorporated by reference herein to the exhibits to the Company's Registration Statement on Form S-1/A filed on September 21, 2006 (File No. 333-135760)). Form of Common Stock Warrant Agreement (together with form of Common Stock Warrant Certificate) Form of Preferred Warrant Agreement (together with form of Preferred Stock Warrant Certificate) Form of Certificate of Designation for the Preferred Stock (together with Preferred Stock Certificate) Form of Rights Agreement Form of Rights Certificate Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Consent of RSM US LLP, an independent registered public accounting firm. Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in Exhibit 5.1). Power of Attorney (included in the signature pages to the Registration Statement). Filed herewith. To be subsequently filed, if applicable, by an amendment to the Registration Statement or by a Current Report on Form 8-K. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however , that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by such clauses is contained in reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated herein by reference, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: (i) if the registrant is relying on Rule 430B: (A) each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and (B) each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or (ii) if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. (5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. (6) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Woburn, Commonwealth of Massachusetts, on April 1, 2020. /s/ Oliver P. Peoples Oliver P. Peoples We, the undersigned directors and officers of Yield10 Bioscience, Inc., hereby severally constitute and appoint Oliver P. Peoples, Charles B. Haaser, and Lynne H. Brum, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them singly, to sign for us and in our names in the capacities indicated below, the registration statement on Form S-3 filed herewith, and any and all pre-effective and post-effective amendments to said registration statement, and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of us might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Director, President and Chief Executive Officer (Principal Executive Officer) /s/ Charles B. Haaser Charles B. Haaser Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Sherri M. Brown Sherri M. Brown /s/ Richard W. Hamilton Richard W. Hamilton /s/ Joseph Shaulson Joseph Shaulson /s/ Anthony J. Sinskey Anthony J. Sinskey /s/ Robert L. Van Nostrand Robert L. Van Nostrand Exhibit 5.1 mintz.com We have acted as legal counsel to Yield10 Bioscience, Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission (the “Commission”) of a Registration Statement on Form S-3 (the “Registration Statement”), pursuant to which the Company is registering under the Securities Act of 1933, as amended (the “Securities Act”), the following: (i) common stock, $0.01 par value per share (the “Common Stock”); (ii) preferred stock, $0.01 par value per share (the “Preferred Stock”); (iii) warrants to purchase Common Stock or Preferred Stock (the “Warrants”), which may be issued under warrant agreements, to be dated on or about the date of the first issuance of the applicable Warrants thereunder, by and between the Company and a warrant agent to be selected by the Company (each, a “Warrant Agreement”); (iv) subscription rights to purchase Common Stock or Preferred Stock (the “Rights”), which may be issued pursuant to a rights agreement and certificates issued thereunder, to be dated on or about the date of the first issuance of the applicable Rights thereunder, by and between the Company and a rights agent to be selected by the Company (each, a “Rights Agreement”); and (v) units comprised of one or more shares of Common Stock, shares of Preferred Stock, Rights and Warrants, in any combination (the “Units”), which may be issued under unit agreements, to be dated on or about the date of the first issuance of the applicable Units thereunder, by and between the Company and a unit agent to be selected by the Company (each, a “Unit Agreement”). The Common Stock, the Preferred Stock, the Warrants, the Rights, and the Units are collectively referred to herein as the “Securities.” The Registration Statement relates to the registration of the Securities to be offered and sold by the Company from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. The maximum aggregate public offering price of the Securities being registered is $25,000,000. This opinion is being rendered in connection with the filing of the Registration Statement with the Commission. All capitalized terms used herein and not otherwise defined shall have the respective meanings given to them in the Registration Statement. In connection with this opinion, we have examined the Company’s Restated Certificate of Incorporation and Restated Bylaws, each as currently in effect; such other records of the corporate proceedings of the Company and certificates of the Company’s officers as we have deemed relevant; and the Registration Statement and the exhibits thereto. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In our capacity as counsel to the Company in connection with such registration, we are familiar with the proceedings taken and proposed to be taken by the Company in connection with the authorization and issuance of the BOSTON LONDON LOS ANGELES NEW YORK SAN DIEGO SAN FRANCISCO WASHINGTON Securities. For purposes of this opinion, we have assumed that such proceedings will be timely and properly completed, in accordance with all requirements of applicable federal and Delaware laws, in the manner presently proposed. The opinions set forth below are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of, or contribution to, a party with respect to a liability where such indemnification or contribution is contrary to public policy; and (iv) we express no opinion concerning the enforceability of any waiver of rights or defenses with respect to stay, extension or usury laws. We have relied as to certain matters on information obtained from public officials, officers of the Company, and other sources believed by us to be responsible and we have assumed that the Warrant Agreement, Rights Agreement and Unit Agreement will each be duly authorized, executed, and delivered by the warrant agent, rights agent, and unit agent, respectively, thereunder. With respect to our opinion as to the Common Stock and Securities convertible into or exercisable for shares of Common Stock, we have assumed that, at the time of issuance and sale, a sufficient number of shares of Common Stock are authorized and available for issuance under the Company’s Certificate of Incorporation as then in effect and that the consideration for the issuance and sale of the Common Stock (or Purchase Contracts, Preferred Stock, or Warrants or Rights exercisable for Common Stock) is in an amount that is not less than the par value of the Common Stock. With respect to our opinion as to the Preferred Stock and Securities convertible into or exercisable for shares of Preferred Stock, we have assumed that, at the time of issuance and sale, a sufficient number of shares of Preferred Stock are authorized, designated and available for issuance and that the consideration for the issuance and sale of the Preferred Stock (or Warrants or Rights exercisable for Preferred Stock) is in an amount that is not less than the par value of the Preferred Stock. We have also assumed that any Warrants, Rights or Units offered under the Registration Statement, and the related Warrant Agreement, Rights Agreement and Unit Agreement, as applicable, will be executed in the forms to be filed as exhibits to the Registration Statement or incorporated by reference therein. We have not independently verified any of the foregoing assumptions. It is understood that this opinion is to be used only in connection with the offer and sale of Securities while the Registration Statement is effective under the Securities Act. Our opinion is limited to the General Corporation Law of the State of Delaware and the laws of the State of New York. Without limiting the generality of the foregoing, we express no opinion with respect to (i) the qualification of the Shares under the securities or blue sky laws of any state or any foreign jurisdiction or (ii) the compliance with any federal or state law, rule or regulation relating to securities, or to the sale or issuance thereof. Please note that we are opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. The Securities may be issued from time to time on a delayed or continuous basis, but this opinion is based upon currently existing statutes, rules, regulations and judicial decisions, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein. Based upon the foregoing, we are of the opinion that: 1. With respect to the Common Stock, when (i) specifically authorized for issuance by the Company’s Board of Directors or an authorized committee thereof (the “Authorizing Resolutions”), (ii) the Registration Statement, as finally amended (including all post-effective amendments), has become effective under the Securities Act, (iii) an appropriate prospectus supplement with respect to the applicable shares of Common Stock has been prepared, delivered and filed in compliance with the Securities Act and the applicable rules and regulations thereunder, (iv) if the applicable shares of Common Stock are to be sold pursuant to a purchase, underwriting or similar agreement (an “Underwriting Agreement”), such Underwriting Agreement with respect to the applicable shares of Common Stock in the form filed as an exhibit to the Registration Statement, any post-effective amendment thereto or to a Current Report on Form 8-K, has been duly authorized, executed and delivered by the Company and the other parties thereto, (v) the terms of the sale of the Common Stock have been duly established in conformity with the Company’s then operative Certificate of Incorporation and By-laws and do not violate any applicable law or result in a default under or breach of any agreement or instrument binding on the Company and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, (vi) the Common Stock has been issued and sold as contemplated by the Registration Statement and the prospectus included therein, and (vii) the Company has received the consideration provided for in the Authorizing Resolutions and, if applicable, the Underwriting Agreement, the Common Stock will be validly issued, fully paid and nonassessable. 2. With respect to the Preferred Stock, when (i) specifically authorized for issuance by the Authorizing Resolutions, (ii) the Registration Statement, as finally amended (including all post-effective amendments), has become effective under the Securities Act, (iii) an appropriate prospectus supplement with respect to the applicable shares of Preferred Stock has been prepared, delivered and filed in compliance with the Securities Act and the applicable rules and regulations thereunder, (iv) if the applicable shares of Preferred Stock are to be sold pursuant to an Underwriting Agreement, such Underwriting Agreement with respect to the applicable shares of Preferred Stock in the form filed as an exhibit to the Registration Statement, any post-effective amendment thereto or to a Current Report on Form 8-K, has been duly authorized, executed and delivered by the Company and the other parties thereto, (v) an appropriate Certificate or Certificates of Amendment or Designation relating to a class or series of the Preferred Stock to be sold under the Registration Statement has been duly authorized and adopted and filed with the Secretary of State of the State of Delaware prior to the issuance of the Preferred Stock, (vi) the terms of issuance and sale of shares of such class or series of Preferred Stock have been duly established in conformity with the Company’s then operative Certificate of Incorporation and By-laws and do not violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Company and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, (vii) shares of such class or series of Preferred Stock have been duly issued and sold as contemplated by the Registration Statement and the prospectus included therein, and (viii) the Company has received the consideration provided for in the Authorizing Resolutions and, if applicable, the Underwriting Agreement, the Preferred Stock will be validly issued, fully paid and nonassessable. 3. With respect to the Warrants, when (i) specifically authorized for issuance by the Authorizing Resolutions, (ii) the Registration Statement, as finally amended (including all post-effective amendments), has become effective under the Securities Act, (iii) the Warrant Agreement relating to the Warrants has been duly authorized, executed, and delivered by the Company, (iv) an appropriate prospectus supplement with respect to the applicable Warrants has been prepared, delivered and filed in compliance with the Securities Act and the applicable rules and regulations thereunder, (v) if the applicable Warrants are to be sold pursuant to an Underwriting Agreement, such Underwriting Agreement with respect to the applicable Warrants in the form filed as an exhibit to the Registration Statement, any post-effective amendment thereto or to a Current Report on Form 8-K, has been duly authorized, executed and delivered by the Company and the other parties thereto, (vi) the terms of the Warrants and of their issuance and sale have been duly established in conformity with the Warrant Agreement and do not violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Company and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, (vii) the Warrants have been duly executed and countersigned in accordance with the Warrant Agreement and issued and sold as contemplated by the Registration Statement and the prospectus included therein, and (viii) the Company has received the consideration provided for in the Authorizing Resolutions and, if applicable, the Underwriting Agreement, the Warrants will constitute valid and legally binding obligations of the Company. 4. With respect to the Rights, when (i) specifically authorized for issuance by the Authorizing Resolutions, (ii) the Registration Statement, as finally amended (including all post-effective amendments), has become effective under the Securities Act, (iii) the Rights Agreement and any certificates relating to the Rights have been duly authorized, executed, and delivered by the Company, (iv) an appropriate prospectus supplement with respect to the applicable Rights has been prepared, delivered and filed in compliance with the Securities Act and the applicable rules and regulations thereunder, (v) if the applicable Rights are to be sold pursuant to an Underwriting Agreement, such Underwriting Agreement with respect to the applicable Rights in the form filed as an exhibit to the Registration Statement, any post-effective amendment thereto or to a Current Report on Form 8-K, has been duly authorized, executed and delivered by the Company and the other parties thereto, (vi) the terms of the Rights and of their issuance and sale have been duly established in conformity with the Rights Agreement and any rights certificates and do not violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Company and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, (vii) the Rights have been duly executed and countersigned in accordance with the Rights Agreement and issued and sold as contemplated by the Registration Statement and the prospectus included therein, and (viii) the Company has received the consideration provided for in the Authorizing Resolutions and, if applicable, the Underwriting Agreement, the Rights will constitute valid and legally binding obligations of the Company. 5. With respect to the Units, when (i) specifically authorized for issuance by the Authorizing Resolutions, (ii) the Registration Statement, as finally amended (including all post-effective amendments), has become effective under the Securities Act, (iii) the Unit Agreement relating to the Units has been duly authorized, executed, and delivered by the Company, (iv) an appropriate prospectus supplement with respect to the applicable Units has been prepared, delivered and filed in compliance with the Securities Act and the applicable rules and regulations thereunder, (v) if the applicable Units are to be sold pursuant to an Underwriting Agreement, such Underwriting Agreement with respect to the applicable Units in the form filed as an exhibit to the Registration Statement, any post-effective amendment thereto or to a Current Report on Form 8-K, has been duly authorized, executed and delivered by the Company and the other parties thereto, (vi) the terms of the Units and of their issuance and sale have been duly established in conformity with the Unit Agreement and do not violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Company and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, (vii) the Units have been duly executed and countersigned in accordance with the Unit Agreement and issued and sold as contemplated by the Registration Statement and the prospectus included therein, and (viii) the Company has received the consideration provided for in the Authorizing Resolutions and, if applicable, the Underwriting Agreement, the Units will constitute valid and legally binding obligations of the Company. We understand that you wish to file this opinion with the Commission as an exhibit to the Registration Statement in accordance with the requirements of Item 601(b)(5) of Regulation S-K promulgated under the Securities Act and to reference the firm’s name under the caption “Legal Matters” in the prospectus which forms part of the Registration Statement, and we hereby consent thereto. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder. /s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Registration Statement on Form S-3 and related Prospectus of Yield10 Bioscience, Inc. of our report dated March 24, 2020, relating to the consolidated financial statements of Yield10 Bioscience, Inc., appearing in the Annual Report on Form 10-K of Yield10 Bioscience, Inc. for the year ended December 31, 2019. We also consent to the reference to our firm under the heading “Experts” in such Registration Statement. /s/ RSM US LLP

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professional_accounting

bridgingtheculturegaap INTERNATIONAL/BUSINESS & INDUSTRY A guide to using foreign financial statements. by Susan M. Sorensen and Donald L. Kyle More CPAs are finding themselves working with foreign statements. As progress is made in convergence and harmonization between FASB and the IASB, the interpretation of foreign financial statements should become easier. CPAs in the United States should watch these developments carefully and familiarize themselves with IFRSs. Users should be ready to adjust their expectations about language, currency, accounting practices, methods and presentation when working with foreign statements. Even if a company’s statements have been audited, CPAs should be aware that the sophistication and enforcement of accounting rules vary significantly by country. Approximately half of the countries in the world have adopted international standards for publicly listed companies. Although the United States is not one of them, FASB and the IASB are working on convergence projects. Many domestic CPA firms can, through their international alliances and networks, help U.S.-based CPAs in business and industry understand foreign financial statements. Cultural differences often make foreign statements prepared using U.S. GAAP quite different from statements of U.S.-based companies. CPAs should not accept anything at face value. Susan M. Sorensen, CPA, PhD, has 30 years of public accounting experience and is an assistant professor of accounting, and Donald L. Kyle, CPA, PhD, is a professor of accounting, both at the University of Houston—Clear Lake. Their e-mail addresses are [email protected] and [email protected] , respectively. our Monday is off to a reasonably good start. The improvements you made last year to your company’s financial reporting system are paying off. You’re getting data faster and your boss, the president, is delighted with the new reports you created. But this morning’s call is not a request for yet another report. The Rise of Globalization In 1990 U.S. direct investment in Asia was $64.7 billion. By 2005 this number had increased to $376.8 billion. Source: U.S. Department of Commerce “Did you see what we’re paying for bearings for the new 800s?” blurts your boss. “Every time we turn around, our domestic supplier hikes prices. I’ve found a new supplier, and it’s for sale.” “Good,” you reply. “Where is it located?” “Ukraine,” he says. “And I want you to take a look at its financials. They’re in English.” If you have not already experienced this situation, you may soon. Globalization, once the exclusive realm of America’s largest companies, is now a reality for companies of all sizes—so all financial managers and CPAs must be prepared to work with foreign financial statements. You may need to include information from foreign statements in your own statements or tax returns, or to rely upon foreign financials when making investment decisions, securing credit or using foreign outsourcing firms. CPAs in industry may find themselves dealing with foreign subsidiaries or working for a subsidiary of a foreign company. As CPAs, you have expectations about language, currency, accounting practices, methods and presentation when reading and analyzing U.S. GAAP statements. When dealing with foreign or transnational statements—even if they are presumed to be prepared using U.S. GAAP—be ready to adjust your expectations. Behind the Numbers Common approaches foreign businesses take when providing financial statements to U.S. investors/creditors. Approach Language Currency Accounting principles Selected items reconciled to U.S. GAAP Statements reconciled to U.S. GAAP Do nothing Foreign* Foreign* Foreign No No Primary statements prepared under U.S. GAAP English U.S. U.S. GAAP N/A N/A Convenience translations English Foreign Foreign No No Convenience statements English U.S. Foreign No No Limited restatements English U.S./Foreign U.S./Foreign Yes No Reconciliation to U.S. GAAP (Minimum required by SEC–Form 20-F) English U.S./Foreign U.S./Foreign Yes Yes Secondary statements—country-specific for U.S.**/ Secondary statements—universal English/Commonly in English U.S./ U.S. or foreign U.S. GAAP/ May use IFRS/IAS N/A/ No N/A/ No *The term foreign does not preclude the possibility that English may be spoken, the company’s primary reporting language may be English, the primary reporting currency may be the U.S. dollar or the foreign company’s statements may be prepared using U.S. GAAP. **Meets SEC requirements. KNOW COMMON APPROACHES When providing statements to foreign users, companies adopt a variety of approaches based on factors such as language, currency and accounting practices. These cover the spectrum from not changing the primary foreign statement at all to preparing primary statements using U.S. GAAP (see exhibit 1 ). The specific approach may not be obvious and may vary from year to year. The options include: Doing nothing. If a company chooses to provide its primary statements without making any changes, it often will be apparent because the statements will be written in a foreign language. Primary statements under U.S. GAAP. Many foreign companies choose to prepare primary statements using U.S. GAAP. Convenience translation. Companies may translate the language into English, but provide no information about the accounting practices and currency. Volvo’s balance sheet in exhibit 2 is an example of a convenience translation. The currency is the Swedish krona (SEK) and the format does not follow U.S. GAAP. Volvo Group Balance Sheet for 2005 Consolidated balance sheet December 31 SEK M 2004 2005 Intangible assets 17,612 20,421 Property, plant and equipment 31,151 35,001 Assets under operating leases 19,534 20,839 Shares and participations 2,003 751 Long-term customer-financing receivables 25,187 31,184 Long-term interest-bearing receivables 1,741 1,433 Other long-term receivables 6,100 7,021 Inventories 28,598 33,937 Short-term customer-financing receivables 26,006 33,282 Short-term interest-bearing receivables 1,643 464 Other short-term receivables 29,647 35,855 Marketable securities 25,955 28,834 Cash and cash equivalents 8,791 8,113 Shareholders’ equity and liabilities Shareholders’ equity 1 70,155 78,768 Provisions for post-employment benefits 14,703 11,986 Other provisions 14,993 18,556 Loans 61,807 74,885 Other liabilities 62,310 72,940 Shareholders’ equity and liabilities 223,968 257,135 Shareholders’ equity and minority interests as percentage of total assets 31.3% 30.6% 1 Whereof minority interests SEK 260 M (229). Convenience statements. These contain translated language and, often, converted currency. They still lack information CPAs need about accounting practices, the translation method and how the currency was converted. Do not assume they are in or comparable with U.S. GAAP. Even large companies may choose to use convenience statements. Suzuki Motor Corp., for example, prepares statements that show both Japanese yen and U.S. dollars. Amounts are converted to U.S. dollars at the year-end exchange rate. Limited restatements. These attempt to provide more information by reconciling some significant items to U.S. GAAP. Critics argue they allow companies to selectively choose items that improve their financial picture. Reconciling to U.S. GAAP. Companies that cross-list their stock on foreign and U.S. exchanges must, at a minimum, prepare a reconciliation of their home-country statements to U.S. GAAP. These companies file Form 20-F in lieu of Form 10-K with the SEC; the filings are available on the SEC Web site at www.sec.gov/edgar.shtml . Secondary statements. These may be country-specific or universal. A U.S. country-specific secondary statement would be prepared using U.S. GAAP; universal statements may use International Accounting Standards/International Financial Reporting Standards (IASs/IFRSs). (See “ Understanding IASs and IFRSs. ”) Understanding IASs and IFRSs International Accounting Standards (IASs) were issued by the International Accounting Standards Committee (IASC) from 1973 to 2000. Although the IASC Foundation continues as the parent body of the International Accounting Standards Board (IASB), in 2001 the IASB took over the IASC’s standard-setting activities. The IASB has amended some IASs and proposed to amend others, proposed to replace some IASs with new International Financial Reporting Standards (IFRSs) and adopted or proposed certain new IFRSs on topics for which there were no previous IASs. Through committees, both the IASC and the IASB also have issued interpretations of standards. Financial statements may not be described as complying with IFRSs unless they comply with all the requirements of each applicable standard and interpretation. Source: Deloitte’s IAS Plus Web site, www.iasplus.com/standard/standard.htm . DETERMINE THE APPROACH If the reporting approach is not disclosed in the notes or referred to in the auditor’s report, CPAs can contact the company and make a detailed inquiry. The lack of notes to the financial statements explaining how they were prepared may show a lack of accounting sophistication on the foreign company’s part. Even if the statements have been audited, be aware that the sophistication and enforcement of accounting rules vary significantly by country. Some foreign accounting firms register with the Public Company Accounting Oversight Board (PCAOB) so they may conduct or participate in audits of companies filing with the SEC; they therefore are subject to PCAOB rules and oversight. About one-third of the more than 1,500 public accounting firms listed on the PCAOB Web site ( www.pcaobus.org ) are foreign. More than 90 countries permitted or required their domestic-listed companies to report under IFRSs in 2005, and the list is growing rapidly. Summaries of IFRSs are available at www.iasplus.com/standard/standard.htm . Although the summaries are inherently incomplete, they offer a quick read for the beginner. Be cautious, since implementation and enforcement of IFRSs vary from country to country. An updated list of adoption status by country is available at www.iasplus.com/country/useias.htm . Although Japan and the United States have not yet adopted IFRSs, both have committed significant resources toward international convergence. For the United States, progress is being made on harmonization under an agreement between FASB and the IASB. Significant differences, however, remain between IFRS and U.S. GAAP. Bridging the Culture GAAP The foreign financial statements you’re examining may have been prepared using U.S. GAAP, but was it applied in the same way it would have been in the United States? “In a lot of cases, probably not,” says Gregory S. Miller, CPA, a professor at Harvard Business School. “Conservatism [in financial reporting] is driven by the litigation environment.” Even if a foreign company is cross-listed on a U.S. exchange, it does not run the same risk of investor lawsuits as a U.S.-based company. Furthermore, research suggests there are country-specific biases, Miller says. For example, a company in Germany is far more likely than a company in Italy to interpret the same results negatively. Paul Neubelt, CPA, chairman of BDO International’s China region, agrees that accounting principles are applied differently according to the culture of the country where the statements are prepared. “Anyone looking to invest in another country needs to know something about the cultures of the country,” he says. That caution extends to choosing your own translators, who can explain the meaning behind the words. Changes to U.S. GAAP may present other problems with financial statements of foreign companies. “A company may say it knows U.S. GAAP and may have someone on staff who has lived in the United States, but it’s often not up to date,” Neubelt says. Even if you hire an expert in the country in question, ultimately you’ve got to have the courage and conviction that you understand the numbers yourself, Miller says. “The same [cultural] factors that make it difficult to understand the accounting can make it difficult to understand a local consultant.” —Matthew G. Lamoreaux is a senior editor of the JofA . Mr. Lamoreaux is an employee of the AICPA, and his views, as expressed in this article, do not necessarily reflect the views of the Institute. Official positions are determined through certain specific committee procedures, due process and deliberation. WATCH FOR PRESENTATION DIFFERENCES Some countries present items differently. For example, the Volvo balance sheet in exhibit 2 lists long-term assets before short-term assets and shareholders’ equity before liabilities. This format is consistent with the IAS-compliant model financial statements for 2005 available at www.iasplus.com/fs/2005modelfs.pdf . CPAs also should seek information about accounting practices such as the grouping or netting of accounts and the definition of current vs. noncurrent. These types of differences make it important to read the footnotes and to obtain country-specific information. Information about doing business in specific foreign countries can be obtained from sources such as HLB International ( www.hlbi.com/DBI_list.asp ) and the Tax and Accounting Sites Directory ( www.taxsites.com ). HLB International is a global network of accounting firms and business advisers whose Web site includes information on currency and languages, investment factors, business organizations and taxation. The Tax and Accounting Sites Directory provides links to a variety of other international information Web sites. It’s also important to know whether a company’s foreign statements reflect historical cost or contain inflation adjustments. Two common models for inflation adjustment are the general price-level-adjusted (GPLA) model and the current cost-adjusted (CCA) model. Information about the accounting methods and presentation rules may be disclosed in the supplemental information included with the statements. If the information is difficult to locate, a source of last resort may be the accounting principle disclosures or the reconciliation to U.S. GAAP in the statements of multinational corporations based in that country. Do not assume common accounting terms have the same meaning outside the United States. For example, although some companies in the United Kingdom have adopted IFRSs, many continue to use terminology that can be confusing to CPAs in the United States (see exhibit 3 ). U .K. vs. U.S. Reporting Terminology U.K. terminology U.S. equivalent or definition Accounts Financial statements Debtors Accounts receivable Hire charges Rent Stocks Inventories Turnover Sales and other operating income Source: BP’s 2004 Annual Report. DETERMINE THE CURRENCY The currency used in the financial statements may not be obvious, as shown in exhibit 2 . The SEK M above the “Assets” caption shows the statements are in the Swedish krona. Remember that Canada, Australia and Jamaica also call their currency “dollars” and many currencies use the familiar $ symbol. Translated financial statements are meaningful only if the reader knows the method used to convert foreign currencies to U.S. dollars. A basic convenience statement may be prepared by multiplying all the amounts on the income statement and balance sheet by the translation rate in effect at the balance sheet date. In that case there would not be any translation gains or losses, and the statements would not provide any information about the effects of rate changes over time. Multinational enterprises have been dealing with translation issues for many years because their foreign divisions and subsidiaries often keep records in the local currency. Exhibit 4 lists four common methods of translation. Each uses a different combination of the following three rates: the historical rate in effect on the date of the transaction, the rate in effect at the end of the current year and the weighted average rate for the period. Translation Methods and Rates Used for Asset Accounts Current rate method: Assets are translated at the current rate. Current/Noncurrent method: Current assets are translated using current rates and noncurrent assets are translated using historical rates. Monetary/Nonmonetary method: Monetary assets are translated using current rates and nonmonetary assets are translated using historical rates. Temporal method: Monetary assets such as cash and receivables are translated using current rates. Nonmonetary assets such as inventory and long-term investments are translated using current rates if they are carried on the books at current value. Other assets are translated using historical rates. Translation rules are addressed by FASB Statement no. 52 in the United States and by IAS 21 in the international standards. Current and historical exchange rate information is available from Web sites such as the Federal Reserve Bank ( www.federalreserve.gov/releases/H10/hist ) or the Federal Reserve Bank of St. Louis ( http://research.stlouisfed.org/fred2/ ). » Practical Tips Understand the common approaches foreign companies take when they provide statements to users in the United States. Understand the effects of currency translation on financial statements and the common conversion methods. Become familiar with IASs/IFRSs, since more than 90 countries have adopted these international standards. Line up sources of help in advance. Many accounting firms belong to international networks or alliances to expand their resources. Your domestic CPA firm may be able to help arrange for an accounting firm in the foreign country to provide assistance in interpreting the financial statements. Exhibit 5 , contains a list of some of the larger networks and alliances that provide international resources to accounting firms. CPA Firm Networks and Alliances Baker Tilly International, www.bakertillyinternational.com BDO International, www.bdointernational.com BKR International, www.bkr.com CPA Associates International, www.cpaai.com CPAmerica International, www.cpamerica.org DFK International, www.dfkintl.com GMN Enterprise, www.gmnen.com HLB International, www.hlbi.com IGAF Worldwide, www.igafworldwide.org Moores Rowland International, www.mri-world.com NACPAF, National Associated CPA Firms, www.nacpaf.com PKF North American Network, www.pkfnan.org RSM McGladrey Network, www.rsmi.com The global integration of national economies is well under way and will accelerate over the next two decades. The result is that U.S.-based CPAs will see more financial statements originating in foreign countries. Foreign investment in the United States also is likely to increase, and many financial executives in the United States may soon be required to report results in compliance with IFRSs. As progress is made in convergence and harmonization between FASB and the IASB, the interpretation of foreign financial statements should become easier. CPAs who develop expertise in the international reporting arena will be in increasingly high demand. AICPA RESOURCES International Versus U.S. Accounting: What in the World is the Difference? (# 731662JA). For more information or to make a purchase, go to www.cpa2biz.com . JofA Article “Financial Reporting Goes Global,” JofA , Sep.04, page 43. Deloitte IAS Plus list of IFRS/IAS adoption status by country, www.iasplus.com/country/useias.htm . Deloitte’s IFRS-compliant model financial statements, www.iasplus.com/fs/fs.htm . Federal Reserve Bank, www.federalreserve.gov/releases/H10/hist , or the Federal Reserve Bank of St. Louis, http://research.stlouisfed.org/fred2/ , for current and historical exchange rate information. HLB International information about doing business in foreign countries, www.hlbi.com/DBI_list.asp . International financial reporting standards summaries, www.iasplus.com/standard/standard.htm . PricewaterhouseCoopers’ Similarities & Differences—A comparison of IFRS and U.S. GAAP, www.pwcglobal.com . Tax and Accounting Sites Directory links to international information Web sites, www.taxsites.com .

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professional_accounting

Additional homestead exemption for persons 65 and older. 196.075 Additional homestead exemption for persons 65 and older.— (1) As used in this section, the term: (a) “Household” means a person or group of persons living together in a room or group of rooms as a housing unit, but the term does not include persons boarding in or renting a portion of the dwelling. (b) “Household income” means the adjusted gross income, as defined in s. 62 of the United States Internal Revenue Code, of all members of a household. 1(2) In accordance with s. 6(d), Art. VII of the State Constitution, the board of county commissioners of any county or the governing authority of any municipality may adopt an ordinance to allow either or both of the following additional homestead exemptions: (a) Up to $50,000 for any person who has the legal or equitable title to real estate and maintains thereon the permanent residence of the owner, who has attained age 65, and whose household income does not exceed $20,000; or (b) The amount of the assessed value of the property for any person who has the legal or equitable title to real estate with a just value less than $250,000 and has maintained thereon the permanent residence of the owner for at least 25 years, who has attained age 65, and whose household income does not exceed the income limitation prescribed in paragraph (a), as calculated in subsection (3). (3) Beginning January 1, 2001, the $20,000 income limitation shall be adjusted annually, on January 1, by the percentage change in the average cost-of-living index in the period January 1 through December 31 of the immediate prior year compared with the same period for the year prior to that. The index is the average of the monthly consumer-price-index figures for the stated 12-month period, relative to the United States as a whole, issued by the United States Department of Labor. (4) An ordinance granting an additional homestead exemption as authorized by this section must meet the following requirements: (a) It must be adopted under the procedures for adoption of a nonemergency ordinance specified in chapter 125 by a board of county commissioners or chapter 166 by a municipal governing authority, except that the exemption authorized by paragraph (2)(b) must be authorized by a super majority (a majority plus one) vote of the members of the governing body of the county or municipality granting such exemption. (b) It must specify that the exemption applies only to taxes levied by the unit of government granting the exemption. Unless otherwise specified by the county or municipality, this exemption will apply to all tax levies of the county or municipality granting the exemption, including dependent special districts and municipal service taxing units. (c) It must specify the amount of the exemption, which may not exceed the applicable amount specified in subsection (2). If the county or municipality specifies a different exemption amount for dependent special districts or municipal service taxing units, the exemption amount must be uniform in all dependent special districts or municipal service taxing units within the county or municipality. (d) It must require that a taxpayer claiming the exemption annually submit to the property appraiser, not later than March 1, a sworn statement of household income on a form prescribed by the Department of Revenue. (5) The department must require by rule that the filing of the statement be supported by copies of any federal income tax returns for the prior year, any wage and earnings statements (W-2 forms), any request for an extension of time to file returns, and any other documents it finds necessary, for each member of the household, to be submitted for inspection by the property appraiser. The taxpayer’s sworn statement shall attest to the accuracy of the documents and grant permission to allow review of the documents if requested by the property appraiser. Submission of supporting documentation is not required for the renewal of an exemption under this section unless the property appraiser requests such documentation. Once the documents have been inspected by the property appraiser, they shall be returned to the taxpayer or otherwise destroyed. The property appraiser is authorized to generate random audits of the taxpayers’ sworn statements to ensure the accuracy of the household income reported. If so selected for audit, a taxpayer shall execute Internal Revenue Service Form 8821 or 4506, which authorizes the Internal Revenue Service to release tax information to the property appraiser’s office. All reviews conducted in accordance with this section shall be completed on or before June 1. The property appraiser may not grant or renew the exemption if the required documentation requested is not provided. (6) The board of county commissioners or municipal governing authority must deliver a copy of any ordinance adopted under this section to the property appraiser no later than December 1 of the year prior to the year the exemption will take effect. If the ordinance is repealed, the board of county commissioners or municipal governing authority shall notify the property appraiser no later than December 1 of the year prior to the year the exemption expires. (7) Those persons entitled to the homestead exemption in s. 196.031 may apply for and receive an additional homestead exemption as provided in this section. Receipt of the additional homestead exemption provided for in this section shall be subject to the provisions of ss. 196.131 and 196.161, if applicable. (8) If title is held jointly with right of survivorship, the person residing on the property and otherwise qualifying may receive the entire amount of the additional homestead exemption. (9) If the property appraiser determines that for any year within the immediately previous 10 years a person who was not entitled to the additional homestead exemption under this section was granted such an exemption, the property appraiser shall serve upon the owner a notice of intent to record in the public records of the county a notice of tax lien against any property owned by that person in the county, and that property must be identified in the notice of tax lien. Any property that is owned by the taxpayer and is situated in this state is subject to the taxes exempted by the improper homestead exemption, plus a penalty of 50 percent of the unpaid taxes for each year and interest at a rate of 15 percent per annum. However, if such an exemption is improperly granted as a result of a clerical mistake or omission by the property appraiser, the person who improperly received the exemption may not be assessed a penalty and interest. Before any such lien may be filed, the owner must be given 30 days within which to pay the taxes, penalties, and interest. Such a lien is subject to the procedures and provisions set forth in s. 196.161(3). History.—s. 1, ch. 99-341; s. 1, ch. 2002-52; s. 1, ch. 2007-4; s. 26, ch. 2010-5; s. 1, ch. 2012-57; s. 9, ch. 2013-72; s. 27, ch. 2014-17; s. 1, ch. 2016-121. 1Note.—Section 4, ch. 2016-121, provides that “[t]his act shall take effect on the same date that CS/HJR 275 or a similar joint resolution having substantially the same specific intent and purpose takes effect, if such joint resolution is approved by the electors at the general election to be held in November 2016, and shall apply retroactively to the 2013 tax roll for any person who received the exemption under s. 196.075(2)(b) before the effective date of this act.” If the contingency occurs, subsection (2), as amended by s. 1, ch. 2016-121, will read: (2) In accordance with s. 6(d), Art. VII of the State Constitution, the board of county commissioners of any county or the governing authority of any municipality may adopt an ordinance to allow either or both of the following additional homestead exemptions: (a) Up to $50,000 for a person who has the legal or equitable title to real estate and maintains thereon the permanent residence of the owner, who has attained age 65, and whose household income does not exceed $20,000. 2(b) The amount of the assessed value of the property for a person who has the legal or equitable title to real estate with a just value less than $250,000, as determined in the first tax year that the owner applies and is eligible for the exemption, and who has maintained thereon the permanent residence of the owner for at least 25 years, who has attained age 65, and whose household income does not exceed the income limitation prescribed in paragraph (a), as calculated in subsection (3). 2Note.— A. Section 2, ch. 2016-121, provides that “[f]or purposes of s. 196.075(2)(b), Florida Statutes, as amended by this act, the just value determination for a person who received the exemption under s. 196.075(2)(b), Florida Statutes, before the effective date of this act shall be the just value as determined in the first tax year that the owner applied and was eligible for the exemption before the effective date of this act. Such person may reapply for the exemption in subsequent years, regardless of the current just value of his or her homestead property.” B. Section 3, ch. 2016-121, provides that “[f]or purposes of s. 196.075(2)(b), Florida Statutes, as amended by this act, a person who received the exemption under s. 196.075(2)(b), Florida Statutes, before the effective date of this act may apply to the tax collector for a refund, pursuant to s. 197.182, Florida Statutes, for any prior year in which the exemption was denied solely because the just value of the homestead property was greater than $250,000. The refund for any year shall be equal to the difference between the previous tax liability for that year without the exemption and the tax liability with the exemption.”

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professional_accounting

FORM 12b-25 NOTIFICATION OF LATE FILING Estimated average burden hours per response…………….2.50 SEC File Number: 001-33675 CUSIP Number: 767292 105 (Check One): þ Form 10-K o Form 20-F o Form 11-K o Form 10-Q o Form 10-D o Form N-SAR o Form N-CSR For Period Ended: December 31, 2021 o Transition Report on Form 10-K o Transition Report on Form 20-F o Transition Report on Form 10-Q o Transition Report on Form N-SAR For the Transition Period Ended: Nothing in this form shall be construed to imply that the Commission has verified any information contained herein. If the notification relates to a portion of the filing checked above, identify the item(s) to which the notification relates: PART I - REGISTRANT INFORMATION Full name of Registrant Former Name if Applicable 3855 Ambrosia Street, Suite 301 Address of Principal Executive Office (Street and Number) City, State and Zip Code PART II - RULES 12b-25(b) AND (c) If the subject report could not be filed without unreasonable effort or expense and the registrant seeks relief pursuant to Rule 12b-25(b), the following should be completed. (Check box if appropriate.) (a) The reasons described in reasonable detail in Part III of this form could not be eliminated without unreasonable effort or expense; þ (b) The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, Form 11-K, Form N-SAR, or Form N-CSR, or portion thereof, will be filed on or before the fifteenth calendar day following the prescribed due date; or the subject quarterly report or transition report on Form 10-Q, or portion thereof will be filed on or before the fifth calendar day following the prescribed due date; and (c) The accountant's statement or other exhibit required by Rule 12b-25(c) has been attached if applicable. PART III - NARRATIVE State below in reasonable detail the reasons why Forms 10-K, 20-F, 11-K, 10-Q, N-SAR, N-CSR, or the transition report portion thereof could not be filed within the prescribed time period. Riot Blockchain, Inc. (the “Registrant”) is unable to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report”) without unreasonable effort or expense for the reasons discussed below. During the fiscal year ended December 31, 2021, the Registrant completed the acquisition of two significant subsidiaries, Whinstone US, Inc. (“Whinstone”), and ESS Metron, LLC (“ESS Metron”), as reported on the Registrant’s Current Reports on Form 8-K filed May 26, 2021 and December 1, 2021, respectively. Whinstone and ESS Metron conduct separate businesses from the Registrant’s core Bitcoin mining business and the Registrant’s management, accounting, and financial reporting teams have devoted significant time and effort to completing the complex process of integrating and consolidating their business and financial reporting with the Registrant’s own as of December 31, 2021, thus delaying the completion of the audited consolidated financial statements to be included in the Annual Report. In addition, the Registrant is entering large accelerated filer status after previously qualifying as a smaller reporting company and, as a result, the filing deadline for the Annual Report has been accelerated to March 1, 2022, giving the Registrant 30 less days to complete these processes and finalize the audited consolidated financial statements for inclusion in the Annual Report. For the foregoing reasons, the Registrant requires additional time to complete the procedures relating to its year-end reporting processes, and, as a result, is unable to file the 2021 Annual Report by the prescribed filing deadline. The Registrant is working diligently to complete the necessary year-end processes, and it expects to file the Annual Report within the fifteen-day filing extension provided by Rule 12b-25 under the Securities Exchange Act of 1934, as amended. PART IV - OTHER INFORMATION (1) Name and telephone number of person to contact in regard to this notification: Jeffrey G. McGonegal, Chief Financial Officer (303) 794-2000 (Name) (Title) (Area Code) (Telephone Number) (2) Have all other periodic reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 or Section 30 of the Investment Company Act of 1940 during the preceding 12 months or for such shorter period that the registrant was required to file such report(s) been filed? If the answer is no, identify report(s). Yes þ No o (3) Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or portion thereof? Yes þ No o As discussed above, the Registrant completed the acquisition of two significant subsidiaries, Whinstone and ESS Metron, during the fiscal year ended December 31, 2021. As a result of these two significant acquisitions, the Registrant expects to report a significant change to its results of operations and consolidated statements of cash flows and shareholder equity in the Annual Report, beginning on the dates the acquisitions were completed (May 26, 2021 and December 1, 2021, respectively), as compared to the corresponding periods of the prior fiscal year. However, the Registrant is not able to quantify the anticipated changes in its results of operations at this time because its audited financial statements for the fiscal year ended December 31, 2021 have not been finally completed as of the date of this filing, and remain subject to final review by the Registrant’s auditors. This filing contains a number of forward-looking statements that involve risks and uncertainties, as well as assumptions that may not materialize or prove to be correct, which could cause our results to differ materially from those expressed in or implied by such forward-looking statements. All statements other than statements of historical fact are forward-looking statements. Words such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words or expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our beliefs and expectations relating to the filing of the 2021 Annual Report on Form 10-K. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond our control. Important factors that may affect our business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, further material delays in financial reporting, and the possibility that the ongoing reviews may identify errors, control deficiencies, misstatements, or material weaknesses in accounting practices. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this filing, except as required by applicable law or regulation. (Name of Registrant as Specified in Charter) Has caused this notification to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 1, 2022 By: /s/ Jeffrey G. McGonegal Jeffrey G. McGonegal

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professional_accounting

Attorneys Capabilities Resources About Us IRS Issues the Opportunity Zone Regulations; The Race Is On Stites & Harbison, PLLC, November 14, 2018 by James C. Seiffert and Jameson M. Seiffert On October 19, 2018, the U.S. Department of Treasury and the Internal Revenue Service released the first set of the proposed regulations (the “Proposed Regulations”), along with Rev. Rul. 2018-29 and an updated Internal Revenue Service (“IRS”) Frequently Asked Questions, which provide guidance on exactly how the Opportunity Zone program is intended to work¹. The Opportunity Zones program, enacted as part of the 2017 Tax Cuts and Jobs Act, incentivizes investors to invest private capital into low income, underserved communities in exchange for three significant tax breaks; (i) the deferral of the tax on the unrealized gains until December 31, 2026, or the date of a sale (whichever is earlier) if such gains are invested in a Qualified Opportunity Zone Fund (QOZF); (ii) a 10% step up in basis in the QOZF investment if held by the taxpayer for five years and an additional 5% step up in basis in such investment if held for seven years, and (iii) 100% exclusion from tax of any appreciation on the taxpayer’s QOZF investment if held for 10 years. With the recently issued guidance clarifying a number of the questions regarding the program’s application, investors, fund managers, developers, business owners and entrepreneurs are now in the position to finalize their investment and/or project models and tap into the projected $6.2 trillion unrealized corporate and individual capital gains available for investment in Opportunity Zones. Here is what the Proposed Regulations are telling us: TAXPAYERS, CAPITAL GAINS, ATTRIBUTES OF CAPITAL GAINS ​Deferral of Capital Gains. Only gains treated as capital gains for Federal income tax purposes invested by an eligible investor are eligible for tax deferral. The statute makes reference to both capital gains and gains from sale and exchanges of any property. The Proposed Regulations make it clear that only capital gains and not ordinary gains qualify. What remains unanswered is whether the phrase “treated as a capital gains” is intended to include Section 1231 gains, which contain an element of ordinary income. A taxpayer can make multiple elections of previously deferred gains from various parts of single sources, which include rollover deferral of previously deferred gains. Special rules apply in the case of certain gains (e.g., gains from "section 1256 contracts" and "offsetting-positions transactions.” Preservation of Tax Attributes of Gains. The law requires taxpayers at some point in time in the future to include in income the previously deferred gains. When this tax event occurs and the capital gains are recognized, the gains’ tax attributes, such as those identified in IRC Sections 1(h), 1231 and 1250, for example, are then taken into account when the gain is subject to tax. Eligible Taxpayers. The Proposed Regulations confirm that U.S. taxpayers that recognize capital gains for Federal income tax purposes are eligible to elect to defer the tax on capital gains. This includes individuals, corporations, partnerships, C corporations, S corporations, real estate investment trusts and other pass-through entities. While not addressed, it seems to be the consensus of many that foreign entities that have a U.S. tax liability can avail themselves of the deferral. It is also confirmed that a taxpayer must invest the eligible gain directly in eligible equity interests in the QOZF in order to qualify for gain deferral and not through intermediate partnerships. Partnerships (and other Pass-through Entities) Capital Gains Investment Period. A taxpayer must invest the capital gains in a QOZF within a 180-day period commencing on the day the sale or exchange which generates the capital gain. The Proposed Regulations provide guidance with respect to the 180-day investment period for partnership and other pass through entities. A special rule is created which provides the partnership the right to elect to defer its capital gains, but if the partnership declines to make the election, each of the partners, individually, may elect to defer their distributive share of the partnership’s capital gains. Each partner will have 180 days from the end of the partnership’s taxable year to invest in an QOZF or commence the investment period on the same date as the partnership’s investment period. Accordingly, capital gains recognized by a partnership early in 2018 (or even very late 2017) may still be eligible for investment in OZ Funds, even if 180 days have passed. Eligible Interests in QOZFs. Investors must receive equity interests in QOZF organized. Debt instruments do not qualify as an eligible investment. The Proposed Regulations identify preferred stock or partnership interests with special allocation as permissible equity investments. The recognition of a partnership interest with special allocations opens the discussion as to whether a “carried interest” can be paired with an equity investment for QOZF’s service providers. The Proposed Regulations clarify that “deemed contribution of money” derived from a partner’s share of partnership debt does not constitute an investments in QOZF nor does it create a separate, non-qualifying investment in the QOZF. Only the taxpayer's contribution of deferred gain to a QOZF will qualify for the tax. 10-Year Holding Period Rule. The Proposed Regulations provide that, if the QOZF investment is made prior to June 29, 2027, then the 10-year gain exclusion election is available even though the QOZ’s designations expire on December 31, 2028. Taxpayers holding a QOZF investment for at least 10 years are permitted to make an election to adjust the basis in their investment to its fair market value on the date that the investment is sold or exchanged which results in the exclusion from taxation of any gains on the appreciation of a taxpayer's QOZF interest. Premature Disposition of QOZF Interest. A QOZF investor who sells all of his or her interest in an QOZF before December 31, 2026, is allowed to retain the original tax deferral on the deferred gain by reinvesting the proceeds from the sale into a new QOZF within 180 days. This provision, as a practical matter, allows an investor to take advantage of a particular situation, whatever it might be, without forfeiting the tax deferral benefits. QUALIFIED OPPORTUNITY ZONE FUNDS Organization of QOZFs (and QOZBs). A QOZF must be “organized” as a corporation or partnership. The Regulations clarified that so long as a limited liability company (“LLC”) is taxed as a partnership (with at least two members) or a corporation for Federal income tax purposes, it can serve as a QOZF. Qualified Opportunity Zone Funds (“QOZF”) (and Qualified Opportunity Zone Businesses (“QOZB”) must be organized in one of the 50 states, the District of Columbia, or a U.S. possession. The Proposed Regulations clarify that if a QOZF is organized in U.S. possession, then the QOZF must be organized for the purpose of investing trades or businesses operated in a U.S. possession in which it is organized. (This also true for the QOZB which, if organized in a U.S. possession, then QOZB must actively conduct a trade or business in the U.S. possession in which it was organized). Finally, there are no restrictions precluding pre-existing entities from operating as QOZFs (or QOZBs) so long as they satisfy all rules. Self-Certification of QOZF. A qualified entity self certifies as a QOZF by filing IRS Form 8996. It must identify the first taxable year and first month in which it intends to conduct business. In the event the QOZF fails to select the first month, it will, by default, become the first month of its taxable year. For a QOZF investment to qualify for the tax deferral on the gains, it must be made on or after the date the entity becomes a QOZF. Compliance with the 90% Asset Test. By law, a QOZF must invest 90% of its assets in Qualified Opportunity Zone Property (“QOZP”). Compliance is measured by computing the average of the percentage of QOZP held in the QOZF on the last day of the first six-month period of the taxable year in which it is organized and on the last day of its taxable year (i.e., June 30 and December 31 for a calendar year QOZF) (the “90% Asset Test”). The Proposed Regulations provide guidance regarding the application of this test with respect to the QOZF’s first year. A QOZF must meet the after the "first 6-month period of the fund" that are composed of months within the same tax year. Consequently, if a calendar-year qualified business entity becomes a QOZF in May, the testing dates for the QOZF are the end of November, which is the end of the first six months of the QOZF and the end of December of the same year. If the calendar-year entity chooses a month after June as its first month as a QOZF, the only testing date is December 31, the last day of its tax year. In calculating compliance for the 90% Asset Test, a QOZF is required to use an applicable financial statement (“AFS”), to determine the fair market value of the asset reported on the AFS for the reporting period. An AFS is defined as a financial statement prepared in accordance with U.S. GAAP and either: filed with a federal agency besides the IRS, such as the SEC; or audited and relied upon to make financial decisions. Where a QOZF does not prepare an AFS, it must use the cost basis of each of its assets for the calculation. The Treasury is seeking comments as to whether adjusted basis or another valuation method is a better measurement than cost. QUALFIED OPPORTUNITY ZONE BUSINESS The “Substantially All” Test Applicable to QOZBs. To qualify as a Qualified Opportunity Zone Business (“QOZB”), 70% of all the tangible property owned or leased by the QOZB must be Qualified Opportunity Zone Business Property (“QOZBP”). The Proposed Regulations define, for this purpose only, “substantially all” as 70% of the QOZB’s tangible assets. What this means in practice is that a QOZF that owns a QOZB can have as little as 63% of its capital invested in QOZBP (i.e., 90% in the QOZB per the 90% Asset Test multiplied by 70% of the QOZBP). The Proposed Regulations provide alternative methods for determining compliance with the “substantially all” test, based either on the values in a QOZB’s AFS, or, if the business does not prepare an AFS, applying the same methodology used by its QOZF for determining their compliance with the 90% asset test (subject to the 5% investor rule). The Conduct of the Active Trade/Business Tests. The Proposed Regulations clarify that (i) at least 50% of the gross income of a QOZB must be derived from the active conduct of a trade or business in a QOZ; and (ii) a substantial portion of the intangible property of a QOZB must be used in the active conduct of a trade or business in a QOZ Safe Harbor for Reasonable Working Capital. The Proposed Regulations provide a working capital safe harbor for investments in a QOZB that acquire, construct, or rehabilitate tangible business property. A QOZB can accumulate working capital for a period of up to 31 months so long as (i) there is a written plan identifying the intended use of such capital (i.e., used for the acquisition, construction or substantial improvement of tangible property in a QOZ), (ii) there is a reasonable written schedule of expenditures and (iii) the working capital is actually used in a manner consistent with the plan and schedule. Gross income earned on the working capital during the reasonable working capital period is counted as gross income for purposes of the 50% active trade/business test. Original Use of QOZP -Treatment of Real Estate and Improvements. Qualified Opportunity Zone Property (“QOZP”) is tangible property used in a trade or business of the QOZF. Rev. Rul. 2018-29 was issued on October 19th, simultaneously with the release of the Proposed Regulations. The Regulations specifically address the original use requirement as it applies to land and improvements and concludes that: (i) land, given its permanence, can never have an original use and is excluded from the original use requirement; (ii) the original use of a building in the QOZ is not considered to have commenced with the QOZF, and (iii) if the QOZF purchases an existing building and the underlying land, it is only required to substantially improve (“double the basis”) the building and is not required to separately substantially improve the land. Over the past eight months, stakeholders have labored to understand the nuances of the program in order to match the objectives of the investors with the economic and social impacts intended for the Opportunity Zones. While the release of the Proposed Regulations and Rev. Rul. 2018-29 prove very helpful in addressing and clarifying key issues, a number of important questions still remain which have yet to be answered, including but not limited to; (i) what is the income tax treatment of any capital gains a QOZF reinvests from the sale or exchange of QOZP?; (ii) what constitutes a “reasonable period” for a QOZF to reinvest proceeds from the sale or exchange of QOZP?; and (iii) whether the IRS/Treasury will provide a safe harbor rule on the amount of time a QOZF has to invest the cash it receives from an eligible investor in QOZP? The U.S. Treasury has stated that it will address these issues along with others in a second and possibly third round of proposed regulations which hopefully will be released by year end. The Opportunity Zone legislation has the potential to be a powerful driver of investment activity in communities that have suffered in the past from the lack of economic development. With many of the uncertainties removed by the Proposed Regulations, it is now up to the stakeholders to fulfill the respective roles to make the Opportunity Zone program a success. The race is on. ¹The Opportunity Zone Program must go through the formal rule-making process before the program can be finalized. The U.S. Treasury Department (the “Treasury”) must first propose a structure for implementing the new rule, after which the agency will issue a notice of proposed rule-making and will request public comments on the proposal. The comment period typically lasts from 30 to 60 days. Upon reviewing the comments and making any necessary changes to the rule, the Treasury will issue a final rule that formally sets up the Opportunity Zone Program. James C. Seiffert Jameson M. Seiffert Business Services Entrepreneurial Services Corporate General Services Opportunity Zones Atlanta 404-739-8800 Jeffersonville 812-282-7566 Covington 859-652-7600 Frankfort 502-223-3477 Lexington 859-226-2300 Louisville 502-587-3400 Mason 513-445-6596 Franklin 615-595-0636 Memphis 901-866-8975 Nashville 615-782-2200 Alexandria 703-739-4900 © 2022 Stites & Harbison, PLLC | Privacy Policy | Terms of Use Advertising Material

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professional_accounting

TAX / BUSINESS & INDUSTRY Navigating the R&D Tax Credit BY DANIEL KARNIS, CPA Although it has a well-deserved reputation for complexity and uncertainty for taxpayers, the research tax credit of IRC § 41 nonetheless remains a valuable source of support to businesses that conduct qualified research and development. In fiscal year 2009 alone, the credit represented an estimated $5.6 billion federal subsidy for R&D. On the government’s side, although questions persist over whether the temporary credit effectively and equitably accomplishes its goal of encouraging new research and development, Congress has renewed it almost continually for 28 years and has often advanced proposals to make it a permanent part of the Tax Code. Many of the provision’s difficulties stem from its perennially temporary status. The Government Accountability Office in a recent study concluded that the credit did foster innovation and economic growth, reducing businesses’ costs of new qualified research by between 6.4% to 7.3% (see The Research Tax Credit’s Design and Administration Can Be Improved, GAO-10-136). At the same time, however, the GAO recommended that Congress amend the law and that the Treasury Department provide new guidance, which the latter agreed to do. As of this writing, the R&D credit is among a number of “extender” provisions still awaiting congressional authorization for 2010 (see sidebar “The R&D Credit: Outlook for 2010,” below). This would be the 14th temporary extension of the credit and the ninth retroactive extension in a row. CHALLENGING ISSUES FOR THE R&D CREDIT Despite a consensus in Congress that the R&D credit is a valuable incentive, its administration has been complicated by uncertainty in a number of areas, as identified by the GAO, most notably: (1) disparities between taxpayers in the amount and incentive effects of credit received, (2) what costs constitute qualified research expenses (QREs) eligible for the credit, and (3) the required manner of documenting and substantiating those expenses. DIFFERENT METHODS, DISPARATE RESULTS The R&D tax credit is for taxpayers of any size that design, develop or improve products, processes, techniques, formulas or software. It is calculated on the basis of increases in research activities and expenditures; thus it is intended to reward, in general, not static programs but those that pursue innovation with continually increasing investment. However, an alternative simplified method allows taxpayers to claim research credits if research costs remain the same or even decline when compared with prior years. One generally acknowledged Shortcoming of the R&D credit is that its regular method of calculating the credit (the regular research credit, or RRC) uses a base period that can reach back as far as 1984, with disparate results that can reward some taxpayers with a windfall and deny a credit to others. The GAO recommended that Congress consider eliminating the RRC in favor of a revised version of the only other method available for tax years beginning on or since Jan. 1, 2009—the alternative simplified credit (ASC). The ASC became available in 2007. It replaces the alternative incremental research credit (AIRC), which was available for QREs paid or incurred on or before Dec. 31, 2008. For details and examples of calculating the credit under the RRC and ASC methods, see “How the Credit Is Calculated.” WHICH CALCULATION METHOD SHOULD YOU USE? Taxpayers should carefully evaluate which of the two credit calculation methods, the RRC or the ASC, may yield the best results as well as determine whether the components of the calculation are readily available and can be sufficiently documented. Taxpayers with the following facts may benefit from using the ASC method: High base amount under the RRC. Incomplete records to determine the startup base period. Significant growth of gross receipts in recent years. A complex history of organizational activity (mergers, acquisitions and dispositions). Calculating and substantiating the RRC can be difficult. Election of the ASC relieves much of this administrative burden by shifting the measurement of research incrementally over the three prior years. For some taxpayers, one key benefit in electing the ASC is the removal of gross receipts from the equation if the facts reflect a rising revenue stream. In addition, manufacturing and high-technology companies especially may benefit from this change if their facts reflect a limitation in the amount of RRC available to them due to a shift in the relationship of QREs to gross receipts from the base period to those in recent years. For example, during 1984–1988, it was common for manufacturing companies to spend significant amounts on R&D in relation to sales. As these companies in later years increased productivity by developing more efficient, cost-effective processes, their relative sales may have increased faster than their increase in research spending. As a result, the ratio of QREs to gross receipts has been decreasing, effectively limiting the amount of credit available under the RRC (see Exhibit 1). Even with a decrease in current QREs, the taxpayer can still claim the credit under the ASC method. Under the RRC method, in general, a similar decrease in QREs can significantly limit or even eliminate the ability to claim the credit—even more so with higher fixed-base percentages. For example, even under Scenario 1 in Exhibit 1, the current-year credit under the RRC method would be zero with a fixed-base percentage of 9%. Based on this and other problems with the RRC, the GAO in its November 2009 study recommended that Congress consider eliminating it in favor of the ASC with a minimum base of 50% of current-year QREs. ELIGIBLE QREs The costs eligible for the research credit as QREs must meet the definition of IRC § 174, which permits taxpayers to elect either to deduct “research or experimental expenditures” or to amortize the costs over a period of not less than 60 months. Those expenses are limited to: In-house wages and supplies attributable to qualified research; Certain time-sharing costs for computer use in qualified research; and 65% of contract research expenses, that is, amounts paid to outside contractors in the U.S. for conducting qualified research on the taxpayer’s behalf. The phrase “research or experimental expenditures” is a term of art for tax purposes. The term is similar to the term “research and development costs,” as used for financial accounting purposes (FASB Accounting Standards Codification Topic 730). As a practical matter, most corporate taxpayers use their financial accounting system determination of R&D costs as the starting point in determining their research or experimental expenditures for tax purposes. Moreover, the IRS generally requires that taxpayers provide a more complete justification of classifying costs as research or experimental expenditures for tax purposes where the costs are not so classified for financial purposes. Beyond the regulations under IRC § 174, the term “research or experimental expenditures” in that provision has not been the subject of extensive interpretation by the courts and the IRS. This lack of interpretation may be due to the fact that, in the case of an active and ongoing business, expenditures that are not deductible as research expenditures under section 174 may be deductible as ordinary and necessary business expenses under section 162 (but only if not capital expenditures). The 1986 Tax Reform Act targeted the definition of qualified research with respect to which the credit is allowed. Initially, the term “qualified research” is defined as research with respect to which expenditures may be treated as expenses under section 174. In addition, section 41(d) sets forth three other requirements, some of which have been subject to extensive controversies between the IRS and taxpayers. Specifically, to constitute qualified research: The research must be undertaken for the purpose of discovering information that is technological in nature; Substantially all of the research activities must constitute a process of experimentation; and The experimentation must relate to a permitted purpose. This definition is relatively broad and encompasses such activities as: Developing new or improved products, processes or formulas; Developing prototypes or models; Developing or applying for patents; Certification testing; Developing new technology; Environmental testing; Developing or improving software technologies; Building or improving manufacturing facilities; and Streamlining internal processes. RESEARCH CREDIT SUPPORTING DOCUMENTATION To substantiate its qualified research, a taxpayer must prepare and retain documentation on paper or electronically. Numerous court cases over the years reflect difficulties by the IRS and taxpayers in administering the research tax credit. Some of the most recent court cases, such as U.S. v. McFerrin (docket no. H-05-3730, S.D. Texas, vacated and remanded, 5th Cir., 2009) and Union Carbide Corp. v. Commissioner (TC Memo 2009-50), have addressed research credit substantiation and credible documentation, a key issue in IRS exams. In these cases, the courts ruled that the taxpayers, in the absence of certain contemporaneous records such as a time tracking or project accounting system, may still estimate research and experimentation expenses by looking to testimony of credible personnel and other available evidence. As mentioned earlier, research and experimental expenses alternately may be deducted or capitalized. Under section 174 the taxpayer must elect either to deduct or amortize such expenses or, on the other hand, claim the credit for them, but may not do both. Under section 280C(c), taxpayers may reduce their deduction or amortization by the amount of expenses for which they claim a credit. They may also elect to reduce their credit in proportion to an increased deduction or amortization, but this election (yearly election) must be made before the filing date (including extensions) for the taxable year and is irrevocable (section 280C(c)(3)(C)). As mentioned above, the ASC election must be made on the original return; however, the taxpayer can file Form 6765, Credit for Increasing Research Activities, with the ASC election as a placeholder in the original return and file an amended claim later. This is not the case for the RRC, where the taxpayer does not need to make an election on the original return. The R&D credit is also subject to limitations of the general business credit. The total of it and others of the 35 incentive credits enumerated in section 38(b) are limited to 25% of the taxpayer’s net tax liability over $25,000. To the extent that a research credit is not available for use in the current year or immediate prior year, unused credits have a 20-year carryforward. The Housing and Economic Recovery Act of 2008 provides tax relief for corporations in alternative minimum tax (AMT) or net operating loss (NOL) positions. Companies can elect to accelerate a portion of their unused research credit carryforwards in lieu of the 50% “bonus” depreciation enacted as part of the Economic Stimulus Act of 2008. Any company that is making or plans to make capital expenditures and that has significant R&D tax credit carryforwards might benefit from this legislation. However, the 50% bonus depreciation provision expired on Dec. 31, 2009. While it is expected that it will be retroactively extended in the first quarter of 2010, until then, companies may not elect to accelerate a portion of their unused research credit carryforwards in lieu of the 50% bonus depreciation for property placed in service after Jan. 1, 2010. In addition to the federal credit, research tax credits have been adopted by many states. While many states follow the R&D tax credit, it is advisable to confirm with the state the current R&D tax credit legislation. The research tax credit has also been designated a Tier 1 issue by the IRS, which requires the IRS to follow certain protocols when reviewing R&D credit claims. The R&D Credit: Outlook for 2010 Although the IRC § 41 R&D credit has been extended numerous times—most recently in 2008 for 2009—as of this writing it has not been made permanent and had expired Dec. 31, 2009. While the Obama administration and many members of Congress support making the credit permanent, cost considerations may lead to yet another temporary extension. As of mid-January 2010, another one-year extension was awaiting Senate action as one of a number of “extender” items that the House passed in early December 2009. Leaders of both parties on the Senate Finance Committee have announced their intention to retroactively extend the credit. The research and development credit of IRC § 41 can be a significant advantage for businesses that develop, design or improve products, techniques, software and similar activities. It can be calculated under either the regular research credit (RRC) method or the alternative simplified credit (ASC) method. Under the RRC method, the credit equals 20% of qualified research expenditures (QREs) for a tax year over a base amount established by the taxpayer in 1984–1988 or by another method for companies that started up subsequently. This method may be best for companies that can document a low base amount. The ASC equals 14% (for the 2009 tax year) of QREs over 50% of the average annual QREs in the three immediately preceding tax years. If the taxpayer has no QREs in any of the three preceding tax years, the ASC may be 6% of the tax year’s QREs. This method may be the best choice for taxpayers with incomplete records from the mid-1980s, taxpayers complicated by mergers and acquisitions, or taxpayers with a high base amount from that period. “Research or experimental expenditures” eligible for the R&D credit are defined in section 174. They include in-house wages and supplies attributable to qualified research, certain computer time-sharing costs and a percentage of contract research expenses. Generally, however, defining such expenditures has been the subject of extensive interpretation by the courts and the IRS. Daniel Karnis ([email protected]) is a director in the national Tax Projects Delivery Group of PricewaterhouseCoopers LLP. To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at [email protected] or 919-402-4434. AICPA RESOURCES JofA article “Internal-Use Software and the Research Credit,” Dec. 99, page 79 Use journalofaccountancy.com to find past articles. In the search box, click “Open Advanced Search” and then search by title. The Tax Adviser articles “News Notes: Proposed Regs. Would Simplify Reduced Research Credit Election,” Oct. 09, page 662 “Tax Clinic: Reduced Credit for Increasing Research Activities,” June 08, page 341 “Tax Clinic: Enhanced Research Credit for 2007,” March 07, page 134 Go to aicpa.org/pubs/taxadv to find past articles from The Tax Adviser. Click on “Archives” and then search by issue. CPE self-study AICPA’s Tax Update for Financial Executives (#745571) AICPA’s 2009 Corporate Tax Review & Update: Real World Applications! (#733422) Closely Held Business Taxation: 49 Practical Ways to Cut Taxes (#753400) AICPA National CFO Conference, May 13–14, La Jolla, Calif. AICPA TECH+ Conference, June 7–9, Las Vegas AICPA Small Business Practitioners’ Tax Conference, July 12–13, Coral Gables, Fla. For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077. The Tax Adviser and Tax Section The Tax Adviser is available at a reduced subscription price to members of the Tax Section, which provides tools, technologies and peer interaction to CPAs with tax practices. More than 23,000 CPAs are Tax Section members. The Section keeps members up to date on tax legislative and regulatory developments. Visit the Tax Center at aicpa.org/TAX. The current issue of The Tax Adviser is available at aicpa.org/pubs/taxadv. Government study The Research Tax Credit’s Design and Administration Can Be Improved , Governmental Accountability Office report GAO-10-136

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professional_accounting

Is Stock Value The Procedure Of Manipulative Academic Values Of Businesses? | Help More! The stock is a kind of safety that point toward ownership in a company and signifies an assortment on a fraction of the corporation’s earnings and assets. There are two most significant types of stock value: favorite and common. Common stock often entitles the proprietor to obtain dividends and to make your choice at shareholders’ meetings. Preferred stock usually does not have voting rights, but has an advanced claim on earnings and assets than the normal shares. For instance, before ordinary shareholders, owners of preferred stock receive dividends and have a preference in the event that a company goes bankrupt and is established. The capital stock of a business creature signifies the original capital invested or paid into in the business by its founders. It helps as safekeeping for the creditors of commerce since it cannot be withdrawn to the damage of the creditors. The stock market is dissimilar from the property and the assets of a business which may change in value and quantity. Capital Asset Exchange and Trading offers consumers the principal source of secondary assets equipment, and makes purchasing across the world a safe undertaking, by executing a tough diligence process to ensure that each piece of equipment sold equals the buyer’s technical requirements and condition. A stock exchange is an organization that provides military for traders and stock brokers to trade bonds, stocks, and other securities. Stock exchanges also provide conveniences for deliverance and questions of securities and other economic instruments, and capital proceedings including the payment of dividends and income. Securities traded on a stock exchange include shares issued by unit trusts, companies, derivatives, mutual investment bonds and products. The stock of a business is divided into numerous shares, the amount of which has to be stated at the time of business organization. A share has a definitely declared face charge, given the total amount of money invested in the business, commonly known as the correspondence value of a share. The stock prices are the value of a solitary share of a number of commercial stocks of a company. The owner becomes a shareholder of the company that issued the share once the stock is bought. The average value is the least possible amount of money that a business may concern and sell shares for in many authorities and it is the value exemplified as capital in the accounting of the business. However, in other jurisdictions, shares may not have a related par value at all. Such stock is often known as non-par stock. For investment, stock picks are ways for selecting a stock. A business may announce different kinds of shares, each having characteristic ownership rules, share values or privileges. Ownership of shares is acknowledged by the issuance of a stock certificate. A stock certificate is a legal document that identifies the amount of shares owned by the stockholder, and other essentials of the shares, such as the correspondence worth, if any, or the course group of the shares. The biggest responsibility of Capital Asset Exchange and Trading is to qualify and originate requirements and assets. The most significant possible draw on of these approaches is to forecast normal market prices or more, prospect market prices, and as a result to earnings from price association -stocks that are judged devalued (with regard to their academic value) are purchased, while stocks that are judged overvalued are sold, in the probability that undervalued stocks will, on the whole, rise in value, while overestimated stocks will, on the whole, go down.

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professional_accounting

As filed with the Securities and Exchange Commission on February 9, 2021 Registration No. 333-251559 UNDER THE SECURITIES ACT OF 1933 NB Merger Corp. Room 801, Building C SOHO Square, No. 88 Zhongshan East 2nd Road, Huangpu District Shanghai, 200002, China Wenhui Xiong Copies of communications to: Emily K. Sheahan Loeb & Loeb LLP David Alan Miller Eric Schwartz Graubard Miller The Chrysler Building Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and after all conditions under the Merger Agreement are satisfied or waived. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. £ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. £ Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) £ Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) £ CALCULATION OF REGISTRATION FEE Title of each class of securities to be registered Registered(1) offering price Amount of Common Stock to be issued to Stockholders of Nuvve Corporation (“Nuvve”)(4) Common Stock to be issued to Stockholders of Nuvve pursuant to the Earn-Out Arrangement Common Stock underlying Options of Nuvve(4) Common Stock to be issued to Shareholders of Newborn Acquisition Corp. (“Newborn”) Common Stock to be issued to Rightsholders of Newborn Warrants to be issued to Warrantholders of Newborn Common Stock underlying Warrants to be issued to Warrantholders of Newborn Common Stock included in Units underlying Unit Purchase Options Common Stock issuable in respect of Rights included in Units underlying Unit Purchase Options Warrants included in Units underlying the Unit Purchase Options Common Stock underlying Warrants included in the Units underlying the Unit Purchase Options Common Stock to be issued to advisors upon closing of business combination(4) (1) Pursuant to Rule 416(a) of the Securities Act, there are also being registered an indeterminable number of additional securities as may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions. (2) Estimated pursuant to Rule 457(c) solely for the purpose of computing the amount of the registration fee, and based on the average of the high and low prices of the shares and warrants Newborn Acquisition Corp. on the Nasdaq Capital Market. (3) Previously paid. (4) Represents a good faith estimate of the maximum number of shares of the Registrant’s common stock that may be issued upon the closing the business combination described herein. The shares of the Registrant’s common stock underlying outstanding options of Nuvve are being registered solely for issuance in the event such options are exercised prior to the closing of the business combination described herein. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction or state where the offer or sale is not permitted. SUBJECT TO COMPLETION DATED FEBRUARY 9, 2021 PROXY STATEMENT FOR EXTRAORDINARY GENERAL MEETING OF NEWBORN ACQUISITION CORP. PROSPECTUS FOR COMMON STOCK AND WARRANTS OF Proxy Statement/Prospectus dated February 15, 2021 and first mailed to the shareholders of Newborn Acquisition Corp. To the Shareholders of Newborn Acquisition Corp.: You are cordially invited to attend the extraordinary general meeting of Newborn Acquisition Corp. (“Newborn,” “NBAC,” “we”, “our”, or “us”), which will be held at Room 801, Building C, SOHO Square, No. 88, Zhongshan East 2nd Road, Huangpu District, Shanghai, 200002, China on March 17, 2021 at 8:00 a.m., Hong Kong Time (7:00 p.m. Eastern Time on March 16, 2021) (the “Extraordinary General Meeting”). Due to the coronavirus (“COVID-19”) pandemic, we are encouraging our shareholders to attend the Extraordinary General Meeting virtually by means of a teleconference. We are a Cayman Islands exempted company incorporated as a blank check company for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities, which we refer to as a “target business.” On November 11, 2020, we entered into a merger agreement (the “Merger Agreement”), which provides for a business combination between Newborn and Nuvve Corporation, a Delaware corporation (“Nuvve”). Pursuant to the Merger Agreement, the business combination will be effected in two steps: (i) subject to the approval and adoption of the Merger Agreement by the shareholders of Newborn, Newborn will reincorporate to the State of Delaware by merging with and into NB Merger Corp., a Delaware corporation and wholly-owned subsidiary of Newborn (“PubCo”), with PubCo surviving as the publicly traded entity (the “Reincorporation Merger”); and (ii) immediately after the Reincorporation Merger, Nuvve Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of PubCo (“Merger Sub”), will be merged with and into Nuvve, with Nuvve surviving as a wholly-owned subsidiary of PubCo (the “Acquisition Merger”). The Merger Agreement is by and among Newborn, PubCo, Merger Sub, Nuvve and Ted Smith, an individual, as the representative of the stockholders of Nuvve (“Stockholders’ Representative”). A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus. The Reincorporation Merger and the Acquisition Merger are collectively referred to herein as the “Business Combination.” Concurrently with the execution of the Merger Agreement, Newborn entered into subscription agreements with certain accredited investors, pursuant to which such investors agreed to purchase an aggregate of 1,425,000 ordinary shares, par value $0.0001 per share, of Newborn (“NBAC Ordinary Shares”), at a purchase price of $10.00 per share, for an aggregate purchase price of $14,250,000 (the “PIPE Investment”). The investors will also receive warrants to purchase 1,353,750 NBAC Ordinary Shares. The warrants will have the same terms as Newborn’s public warrants, each of which entitles the holder to purchase one-half of one NBAC Ordinary Share at a price of $11.50 per whole NBAC Ordinary Share (“NBAC Warrants”). Also concurrently with the execution of the Merger Agreement, Nuvve entered into a bridge loan agreement with an accredited investor, pursuant to which, on November 17, 2020, the investor purchased a $4,000,000 convertible debenture from Nuvve (the “Bridge Loan”). The PIPE Investment will close, and the debenture will automatically convert into shares of Nuvve common stock, immediately prior to the closing of the transactions contemplated by the Merger Agreement. At the closing of the Acquisition Merger, each share of common stock, par value $0.0001 per share, of Nuvve (“Nuvve Common Stock”) outstanding immediately prior thereto (including the shares issued upon conversion of Nuvve’s preferred stock and upon conversion of the Bridge Loan as described elsewhere in this proxy statement/prospectus) automatically will be converted in the Acquisition Merger into a number of shares of common stock, par value $0.0001 per share, of PubCo (“PubCo Common Stock”) equal to the Closing Exchange Ratio (as described elsewhere in this proxy statement/prospectus). Each outstanding option to purchase Nuvve Common Stock (“Nuvve Options”) will be assumed by PubCo and converted into an option to purchase a number of shares of PubCo Common stock equal to the number of shares of Nuvve Common Stock subject to such option immediately prior to the closing multiplied by the Closing Exchange Ratio, at an exercise price equal to the exercise price immediately prior to the closing divided by the Closing Exchange Ratio. We presently estimate that the Closing Exchange Ratio will be approximately 0.2124. Upon the closing of the Acquisition Merger, based on the estimated Closing Exchange Ratio set forth above and assuming no existing Nuvve Options are exercised and no additional Nuvve Options are granted prior to the closing, an estimated 9,068,574 shares of PubCo Common Stock will be issued to the Nuvve stockholders (after the repurchase of 600,000 shares from one of the Nuvve stockholders as described elsewhere in this proxy statement/prospectus) and 1,301,563 shares of PubCo Common Stock will be reserved for issuance pursuant to the Nuvve Options assumed by PubCo. Of the shares issued to the Nuvve stockholders, an estimated 912,288 shares of PubCo Common Stock will be held in escrow to satisfy any indemnification obligations under the Merger Agreement. Nuvve’s stockholders (other than the Bridge Loan investor) will be entitled to receive an additional 4,000,000 “earn-out” shares of PubCo Common Stock if, for the fiscal year ending December 31, 2021, PubCo’s revenue equals or exceeds $30,000,000. At the closing of the Reincorporation Merger, which will occur immediately prior to the Acquisition Merger, Newborn’s outstanding securities will be converted into a like number of equivalent securities of PubCo, except that each of Newborn’s rights (the “NBAC Rights”) will be converted automatically into one-tenth of one share of PubCo Common Stock in accordance with its terms. In addition, the financial advisor to Newborn will receive a success fee of an estimated 208,526 shares of PubCo Common Stock. The financial advisor introduced Newborn to Nuvve, assisted with the structure of the transaction, and provided advice on the transaction process to Newborn. The financial advisor also acted as agent in the $14,250,000 PIPE Investment that was announced concurrently with the signing of the definitive Merger Agreement. It is anticipated that, immediately after consummation of the PIPE Investment and the Business Combination, Newborn’s shareholders, including the initial shareholders, and rightsholders will own 43.0% of the issued PubCo Common Stock, Nuvve’s stockholders will own 48.3% of the issued PubCo Common Stock, and the investors in the PIPE Investment will own 7.7% of the issued PubCo Common Stock. These relative percentages assume that (i) none of Newborn’s existing public shareholders exercise their redemption rights as discussed herein, (ii) no PubCo Warrants or unit purchase options of PubCo (“PubCo UPOs”) are exercised, and (iii) no existing Nuvve Options are exercised and no additional Nuvve Options are granted prior to the closing. If any of Newborn’s existing public shareholders exercise their redemption rights, the anticipated percentage ownership of Newborn’s existing shareholders will be reduced. You should read “Summary of the Proxy Statement/Prospectus — The Business Combination and the Merger Agreement” and “Unaudited Pro Forma Condensed Combined Financial Statements” for further information. At the Extraordinary General Meeting, Newborn shareholders will be asked to consider and vote upon the following proposals: 1. approval by special resolution of the Reincorporation Merger, which we refer to as the “Reincorporation Merger Proposal” or “Proposal No. 1;” 2. approval by separate special resolution of each material difference between the proposed Amended and Restated Certificate of Incorporation of PubCo (the “proposed charter”), a copy of which is attached to this proxy statement/prospectus as Annex B, and the amended and restated memorandum and articles of association of Newborn, which we refer to as the “Charter Proposals” or “Proposal No. 2;” 3. approval by ordinary resolution of the Acquisition Merger, which we refer to as the “Acquisition Merger Proposal” or “Proposal No. 3;” 4. approval by ordinary resolution: (i) for purposes of complying with Nasdaq Listing Rule 5635(a) and (b), the issuance of more than 20% of the issued and outstanding Newborn ordinary shares and the resulting change in control in connection with the Acquisition Merger, and (ii) for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of more than 20% of Newborn ordinary shares in connection with the PIPE Investment, which we refer to as the “Nasdaq Proposal” or “Proposal No. 4;” 5. approval by ordinary resolution of the appointment of Gregory Poilasne, Ted Smith, Richard A. Ashby, Angela Strand, Kenji Yodose, H. David Sherman and Jon M. Montgomery to serve on PubCo’s board of directors effective as of the closing of the Business Combination in accordance with the Merger Agreement, which we refer to as the “Director Election Proposal” or “Proposal No. 5;” 6. approval by ordinary resolution of PubCo’s 2020 Equity Incentive Plan (the “Incentive Plan”), a copy of which is attached to this proxy statement/prospectus as Annex C, which we refer to as the “Incentive Plan Proposal” or “Proposal No. 6;” and 7. approval by ordinary resolution to adjourn the Extraordinary General Meeting under certain circumstances, as more fully described in the accompanying proxy statement/prospectus, which we refer to as the “Adjournment Proposal” or “Proposal No. 7” and, together with the Reincorporation Merger Proposal, the Charter Proposals, the Acquisition Merger Proposal, the Nasdaq Proposal, the Director Election Proposal and the Incentive Plan Proposal, the “Proposals.” The NBAC Ordinary Shares, the NBAC Rights, the NBAC Warrants and Newborn’s units, each consisting of one NBAC Ordinary Share, one NBAC Right and one NBAC Warrant (the “NBAC Units”), are currently listed on the Nasdaq Capital Market under the symbols “NBAC,” “NBACR,” “NBACW” and “NBACU,” respectively. PubCo intends to apply to list the PubCo Common Stock and PubCo Warrants on the Nasdaq Capital Market under the symbols “NVVE” and “NVVEW,” respectively, in connection with the closing of the Business Combination. Newborn cannot assure you that the PubCo Common Stock and PubCo Warrants will be approved for listing on Nasdaq. Pursuant to Newborn’s amended and restated memorandum and articles of association, Newborn is providing its public shareholders with the opportunity to redeem all or a portion of their NBAC Ordinary Shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in Newborn’s trust account as of two business days prior to the consummation of the Business Combination, including interest, less taxes payable, divided by the number of then outstanding NBAC Ordinary Shares that were sold as part of the NBAC Units in Newborn’s initial public offering (“IPO”), subject to the limitations described herein. Newborn estimates that the per-share price at which public shares may be redeemed from cash held in the trust account will be approximately $10.069 at the time of the Extraordinary General Meeting (based on the balance in the trust account of approximately $57,896,340 as of February 5, 2021). On February 5, 2021, the last sale price of NBAC Ordinary Shares was $19.10. Newborn’s public shareholders may elect to redeem their shares even if they vote for the Reincorporation Merger or do not vote at all. Newborn has no specified maximum redemption threshold under its amended and restated memorandum and articles of association. However, under its amended and restated memorandum and articles of association, Newborn shall not redeem public shares that would cause its net tangible assets to be less than $5,000,001 immediately prior to or upon the consummation of the Business Combination. In addition, it is a condition to Nuvve’s obligations under the Merger Agreement that PubCo shall have not less than $15,000,000 of cash available to it immediately after the closing, including net proceeds from the trust account and the PIPE Investment. Although we expect these conditions to be met as a result of the PIPE Investment, if redemptions by Newborn’s public shareholders cause this closing condition not to be met, then Nuvve will not be required to consummate the Business Combination, although it may, in its sole discretion, waive this condition. In the event that Nuvve waives this condition, Newborn does not intend to seek additional shareholder approval or to extend the time period in which its public shareholders can exercise their redemption rights. Holders of outstanding NBAC Warrants, NBAC Rights and unit purchase options of Newborn (“NBAC UPOs”) do not have redemption rights in connection with the Business Combination. Newborn is providing this proxy statement/prospectus and accompanying proxy card to its shareholders in connection with the solicitation of proxies to be voted at the Extraordinary General Meeting and at any adjournments or postponements thereof. Newborn’s initial shareholders, including NeoGenesis Holding Co. Ltd. (“Sponsor”), and its officers and directors, who own approximately 22.9% of NBAC Ordinary Shares as of the record date, have agreed to vote their NBAC Ordinary Shares in favor of the Reincorporation Merger Proposal and the Acquisition Merger Proposal, which transactions comprise the Business Combination, and intend to vote for the Charter Proposals, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal, although there is no agreement in place with respect to voting on those proposals. Each Newborn shareholder’s vote is very important. Whether or not you plan to attend the Extraordinary General Meeting in person (or via teleconference), please submit your proxy card without delay. Newborn shareholders may revoke proxies at any time before they are voted at the meeting. Voting by proxy will not prevent a shareholder from voting in person or through the virtual meeting platform if such shareholder subsequently chooses to attend the Extraordinary General Meeting. If you are a holder of record and you attend the Extraordinary General Meeting and wish to vote in person (or via teleconference), you may withdraw your proxy and vote in person or through the virtual meeting platform. Under Cayman Islands law, abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the Extraordinary General Meeting, and accordingly will have no effect on any of the Proposals. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of the Proposals presented at the Extraordinary General Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the Extraordinary General Meeting in person (or via teleconference), the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Extraordinary General Meeting and, if a quorum is present, will have no effect on any of the Proposals. Investing in PubCo securities involves a high degree of risk. We encourage you to read this proxy statement/prospectus carefully. In particular, you should review the matters discussed under the caption “Risk Factors” beginning on page 30. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the Business Combination or otherwise, or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense. Newborn’s board of directors has unanimously approved the Merger Agreement and the Plans of Merger, and unanimously recommends that Newborn shareholders vote “FOR” approval of each of the Proposals. When you consider Newborn’s board of director’s recommendation of these Proposals, you should keep in mind that Newborn’s directors and officers have interests in the Business Combination that may conflict or differ from your interests as a shareholder. See “Proposal No. 3 The Acquisition Merger Proposal — Interests of Certain Persons in the Business Combination.” If you would like to receive additional information or if you want additional copies of this document, agreements contained in the appendices or any other documents filed by Newborn with the Securities and Exchange Commission, such information is available without charge upon written or oral request. Please contact our proxy solicitor, at: Advantage Proxy Collect: 206-870-8565 Email: [email protected] If you would like to request documents, please do so no later than March 8, 2021 to receive them before the Extraordinary General Meeting. Please be sure to include your complete name and address in your request. Please see “Where You Can Find More Information” to find out where you can find more information about Newborn, PubCo and Nuvve. On behalf of the Newborn’s board of directors, I thank you for your support and we look forward to the successful consummation of the Business Combination. NOTICE OF EXTRAORDINARY GENERAL MEETING TO BE HELD ON March 17, 2021 NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Newborn Acquisition Corp., a Cayman Islands exempted company (“Newborn”), will be held at Room 801, Building C, SOHO Square, No. 88, Zhongshan East 2nd Road, Huangpu District, Shanghai, 200002, China on March 17, 2021 at 8:00 a.m., Hong Kong Time (7:00 p.m. Eastern Time on March 16, 2021), and virtually by means of a teleconference using the following dial-in information: Local — China, Beijing Local — China, Shanghai Local — Hong Kong Participant Passcode: The Extraordinary General Meeting will be held for the following purposes: 1. To consider and vote upon a proposal to approve by special resolution the merger of Newborn with and into PubCo, its wholly owned Delaware subsidiary, with PubCo surviving the merger. The merger will change Newborn’s place of incorporation from Cayman Islands to Delaware. We refer to the merger as the Reincorporation Merger. This proposal is referred to as the “Reincorporation Merger Proposal” or “Proposal No. 1.” 2. To consider and vote upon a set of separate proposals to approve by special resolution each material difference between the proposed Amended and Restated Certificate of Incorporation of PubCo and the amended and restated memorandum and articles of association of Newborn. These proposals are collectively referred to as the “Charter Proposals” or “Proposal No. 2.” 3. To consider and vote upon a proposal to approve by ordinary resolution the merger of Merger Sub, a wholly-owned subsidiary of PubCo, with and into Nuvve, with Nuvve surviving the merger as a wholly-owned subsidiary of PubCo. We refer to the merger as the Acquisition Merger. This proposal is referred to as the “Acquisition Merger Proposal” or “Proposal No. 3.” 4. To consider and vote upon a proposal to approve by ordinary resolution (i) for purposes of complying with Nasdaq Listing Rule 5635(a) and (b), the issuance of more than 20% of the issued and outstanding Newborn ordinary shares and the resulting change in control in connection with the Acquisition Merger, and (ii) for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of more than 20% of Newborn ordinary shares in connection with the PIPE Investment. This proposal is referred to as the “Nasdaq Proposal” or “Proposal No. 4.” 5. To consider and vote upon a proposal to approve by ordinary resolution the appointment of Richard A. Ashby and Jon M. Montgomery as Class A directors serving until PubCo’s 2022 annual meeting of stockholders; Angela Strand and H. David Sherman as Class B directors serving until PubCo’s 2023 annual meeting of stockholders; and Gregory Poilasne, Ted Smith and Kenji Yodose as Class C directors serving until PubCo’s 2024 annual meeting of stockholders; and in each case, effective as of the closing of the Business Combination in accordance with the Merger Agreement. This proposal is referred to as the “Director Election Proposal” or “Proposal No. 5.” 6. To consider and vote upon a proposal to approve by ordinary resolution the Incentive Plan, which we refer to as the “Incentive Plan Proposal” or “Proposal No. 6.” 7. To consider and vote upon a proposal to approve by ordinary resolution the adjournment of the Extraordinary General Meeting under certain circumstances, as more fully described in the accompanying proxy statement/prospectus. This proposal is called the “Adjournment Proposal” or “Proposal No. 7.” The proposals set forth above are sometimes collectively referred to herein as the “Proposals.” The Business Combination is conditioned upon the approval of the Reincorporation Merger Proposal, the Acquisition Merger Proposal, the Charter Proposals, the Nasdaq Proposal, the Director Election Proposal and the Incentive Plan Proposal. The Charter Proposals, the Nasdaq Proposal, the Director Election Proposal and the Incentive Plan Proposal are dependent upon the consummation of the Business Combination. It is important for you to note that in the event that either of the Reincorporation Merger Proposal or the Acquisition Merger Proposal is not approved, or if any of the Charter Proposals, the Nasdaq Proposal, the Director Election Proposal or the Incentive Plan Proposal is not approved and the applicable condition in the Merger Agreement is not waived, then Newborn will not consummate the Business Combination. In the absence of shareholder approval for an extension, if Newborn does not consummate the Business Combination and fails to complete another initial business combination by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), Newborn will be required to dissolve and liquidate. As of February 10, 2021, the record date, there were 7,460,000 NBAC Ordinary Shares issued and outstanding and entitled to vote. Only Newborn shareholders who hold shares of record as of the close of business on the record date are entitled to vote on the Proposals at the Extraordinary General Meeting or any adjournment thereof. This proxy statement/prospectus is first being mailed to Newborn shareholders on or about February 16, 2021. Approval of each of the Reincorporation Merger Proposal and the Charter Proposals will require a special resolution under Cayman Islands law, being the affirmative vote of holders of at least two-thirds of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting. Approval of each of the Acquisition Merger Proposal, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal will require an ordinary resolution under Cayman Islands law, being the affirmative vote of holders of a majority of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting. Under Cayman Islands law, abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the Extraordinary General Meeting, and accordingly will have no effect on any of the Proposals. Whether or not you plan to attend the Extraordinary General Meeting in person (or via teleconference), please submit your proxy card without delay to our transfer agent, Continental Stock Transfer & Trust Company, not later than the time appointed for the Extraordinary General Meeting or adjourned meeting. Voting by proxy will not prevent you from voting your shares in person or through the virtual meeting platform if you subsequently choose to attend the Extraordinary General Meeting. If you fail to return your proxy card and do not attend the meeting in person (or via teleconference), the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Extraordinary General Meeting. You may revoke a proxy at any time before it is voted at the Extraordinary General Meeting by executing and returning a proxy card dated later than the previous one, by attending the Extraordinary General Meeting and voting in person or through the virtual meeting platform, or by submitting a written revocation to Advantage Proxy, Attention: Karen Smith, E-mail: [email protected], that is received by our proxy solicitor before we take the vote at the Extraordinary General Meeting. If you hold your shares through a bank or brokerage firm, you should follow the instructions of your bank or brokerage firm regarding revocation of proxies. The Newborn’s board of directors unanimously recommends that you vote “FOR” approval of each of the Proposals. ABOUT THIS PROXY STATEMENT/PROSPECTUS WHERE YOU CAN FIND MORE INFORMATION FREQUENTLY USED TERMS FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION AND THE EXTRAORDINARY GENERAL MEETING SUMMARY OF THE PROXY STATEMENT/PROSPECTUS SELECTED FINANCIAL INFORMATION OF NUVVE SELECTED HISTORICAL FINANCIAL INFORMATION OF NEWBORN SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION COMPARATIVE PER SHARE INFORMATION SECURITIES AND DIVIDENDS THE EXTRAORDINARY GENERAL MEETING PROPOSAL NO. 1 THE REINCORPORATION MERGER PROPOSAL PROPOSAL NO. 2 THE CHARTER PROPOSALS PROPOSAL NO. 3 THE ACQUISITION MERGER PROPOSAL PROPOSAL NO. 4 THE NASDAQ PROPOSAL PROPOSAL NO. 5 THE DIRECTOR ELECTION PROPOSAL PROPOSAL NO. 6 THE INCENTIVE PLAN PROPOSAL PROPOSAL NO. 7 THE ADJOURNMENT PROPOSAL MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE BUSINESS COMBINATION BUSINESS OF NUVVE NUVVE’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEWBORN’S BUSINESS NEWBORN’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE AFTER THE BUSINESS COMBINATION CURRENT DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF NEWBORN EXECUTIVE OFFICER AND DIRECTOR COMPENSATION BENEFICIAL OWNERSHIP OF SECURITIES SHARES ELIGIBLE FOR FUTURE SALE DESCRIPTION OF PUBCO’S SECURITIES SHAREHOLDER PROPOSALS AND OTHER MATTERS OTHER STOCKHOLDER COMMUNICATIONS DELIVERY OF DOCUMENTS TO SHAREHOLDERS ANNEX A — MERGER AGREEMENT AND PLAN OF MERGER ANNEX B — PUBCO’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION ANNEX C — PUBCO’S 2020 EQUITY INCENTIVE PLAN You should rely only on the information contained in this proxy statement/prospectus in deciding how to vote on the Business Combination. None of Newborn, PubCo or Nuvve has authorized anyone to give any information or make any representation about the Business Combination or their companies that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that have been incorporated into this proxy statement/prospectus by reference. Therefore, if anyone does give you any such information, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of the date of this proxy statement/prospectus unless the information specifically indicates that another date applies. Nuvve has proprietary rights to trademarks used in this prospectus, including GIVe™. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “®” or “™” symbols, but such references are not intended to indicate, in any way, that Nuvve will not assert, to the fullest extent possible under applicable law, its rights to these trademarks and trade names. This document, which forms part of a registration statement on Form S-4 filed by PubCo (File No. 333-251559) with the SEC, constitutes a prospectus of PubCo under Section 5 of the Securities Act, with respect to the issuance of (i) the PubCo Common Stock to Newborn’s shareholders (other than the PIPE investors) and rightsholders, (ii) the PubCo Warrants to Newborn’s warrantholders (other than the PIPE investors), (iii) the PubCo Common Stock underlying the PubCo Warrants (other than the PubCo Warrants issued to the PIPE investors), (iv) the PubCo Common Stock to Nuvve’s stockholders, (v) the PubCo Common Stock underlying the Nuvve Options assumed by PubCo, and (vi) the PubCo Common Stock to Newborn’s financial advisor. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Exchange Act, with respect to the Extraordinary General Meeting at which Newborn’s shareholders will be asked to consider and vote upon the Proposals to approve the Reincorporation Merger, the Charter Proposals, the Acquisition Merger, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal. This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is not lawful to make any such offer or solicitation in such jurisdiction. PubCo has filed this proxy statement/prospectus as part of the registration statement on Form S-4 with the SEC under the Securities Act. The registration statement contains exhibits and other information that are not contained in this proxy statement/prospectus. The descriptions in this proxy statement/prospectus of the provisions of documents filed as exhibits to the registration statement are only summaries of those documents’ material terms. In addition, Newborn files reports, proxy statements and other information with the SEC as required by the Exchange Act. You can read copies of the registration statement and Newborn’s SEC filings over the Internet at the SEC’s website at www.sec.gov. Information and statements contained in this proxy statement/prospectus, or any annex to this proxy statement/prospectus, are qualified in all respects by reference to the copy of the relevant contract or other annex filed with this proxy statement/prospectus. All information contained in this proxy statement/prospectus relating to Newborn, PubCo and Merger Sub has been supplied by Newborn, and all information relating to Nuvve has been supplied by Nuvve. Information provided by either of Newborn or Nuvve does not constitute any representation, estimate or projection of the other party. If you would like additional copies of this proxy statement/prospectus, or if you have questions about the Business Combination, you should contact Newborn’s proxy solicitor, Advantage Proxy, Attention: Karen Smith, E-mail: [email protected]. Unless otherwise stated in this proxy statement/prospectus: • “Chardan” refers to Chardan Capital Markets, LLC, the representative of the underwriters in the IPO. • “Closing Date” refers to the date on which the Business Combination is consummated. • “Companies Law” refers to the Companies Law (2020 Revision) of the Cayman Islands as the same may be amended from time to time. • “Exchange Act” refers to the Securities Exchange Act of 1934, as amended. • “initial shareholders” refers to the shareholders of Newborn immediately prior to the IPO. • “IPO” refers to the initial public offering of 5,750,000 units (including the 750,000 units after the full exercise of the over-allotment option) of Newborn consummated on February 19, 2020. • “Loeb” refers to Loeb & Loeb LLP. • “LOI” refers to a letter of intent. • “Merger Agreement” refers to the merger agreement by and among Newborn, PubCo, Merger Sub, Nuvve and Ted Smith, an individual, as the representative of Nuvve’s stockholders. • “Plan of Merger” refers to a plan of merger by and between Newborn and PubCo. • “public shareholders” means the holders of the ordinary shares of Newborn which were sold as part of the IPO, or “public shares,” whether they were purchased in the IPO or in the aftermarket, including any of our initial shareholders to the extent that they purchase such public shares (except that our initial shareholders will not have conversion or tender rights with respect to any public shares they own); • “Securities Act” refers to the Securities Act of 1933, as amended. • “Sponsor” refers to NeoGenesis Holding Co. Ltd., a British Virgin Islands entity that is owned and controlled by Wenhui Xiong, Newborn’s chairman and chief executive officer. • “US Dollars,” “$” and “USD$” refer to the legal currency of the United States. • “U.S. GAAP” refers to accounting principles generally accepted in the United States. This proxy statement/prospectus contains forward-looking statements, including statements about the parties’ ability to close the Business Combination, the anticipated benefits of the Business Combination, and the financial conditions, results of operations, earnings outlook and prospects of PubCo, Newborn and/or Nuvve and other statements about the period following the consummation of the Business Combination. Forward-looking statements appear in a number of places in this proxy statement/prospectus including, without limitation, in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Nuvve” and “Business of Nuvve.” In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements are based on the current expectations of the management of Newborn and Nuvve, as applicable, and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including those relating to: • the occurrence of any event, change or other circumstances that could delay the Business Combination or give rise to the termination of the agreements related thereto; • the outcome of any legal proceedings that may be instituted against Newborn or Nuvve following announcement of the transactions; • the inability to complete the Business Combination due to the failure to obtain approval of the shareholders of Newborn, or other conditions to closing in the merger agreement; • disruption of Nuvve’s current plans and operations as a result of the announcement of the transactions; • Nuvve’s ability to realize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition and the ability of Nuvve to grow and manage growth profitably following the Business Combination; • diversion of management attention from ongoing business operations due to the proposed Business Combination; • costs related to the Business Combination; and • the possibility that Nuvve may be adversely affected by other economic, business, and/or competitive factors. The section in this proxy/statement prospectus entitled “Risk Factors” and the other cautionary language discussed in this proxy statement/prospectus provide examples of other risks, uncertainties and potential events that may cause actual developments to differ materially from those expressed or implied by the forward-looking statements, including those relating to: Nuvve’s Business • Nuvve’s early stage of development, its history of net losses, and its expectation for losses to continue in the future; • Nuvve’s ability to manage growth effectively; • Nuvve’s reliance on charging station manufacturing and other partners; • existing and future competition in the EV charging market; • pandemics and health crises, including the COVID-19 pandemic; • Nuvve’s ability to increase sales of its products and services, especially to fleet operators, • Nuvve’s participation in the energy markets; • the interconnection of Nuvve’s GIVeTM platform to the electrical grid; • significant payments under the agreement pursuant which Nuvve acquired certain of its key patents; • Nuvve’s international operations, including related tax, compliance, market and other risks; • Nuvve’s ability to attract and retain key employees and hire qualified management, technical and vehicle engineering personnel; • inexperience of Nuvve’s management in operating a public company; • acquisitions by Nuvve of other businesses; EV Charging Industry • the improvement of technologies that affect the demand for EVs; • changes to fuel economy standards; • the rate of adoption of EVs; • the availability of rebates, tax credits and other financial incentives; • the rate of technological change in the industry; • the accuracy of market opportunity and market growth forecasts; Nuvve’s Technology, Intellectual Property and Infrastructure • Nuvve’s ability to protect its intellectual property rights; • Nuvve’s ability to obtain patents; • the possibility Nuvve will become subject to infringement claims; • Nuvve’s investment in research and development; • the existence of undetected defects, errors or bugs in its hardware or software; • interruptions, delays in service or inability to increase capacity at third-party data center facilities; • the occurrence of computer malware, viruses, ransomware, hacking or phishing attacks or similar disruptions; Nuvve’s Customers • the renewal of customer service contracts; • Nuvve’s ability to offer high-quality support to customers; • Nuvve’s reliance on a limited number of customers; • Nuvve’s ability to expand its sales and marketing capabilities; • Nuvve’s ability to leverage customer data in its research and development operations; Financial, Tax and Accounting Matters • Nuvve’s ability to continue as a going concern; • Nuvve’s ability to raise additional funds when needed; • the effective allocation of Nuvve’s cash and cash equivalents; • fluctuations in Nuvve’s quarterly operating results; • the effect of U.S. tax laws and regulations generally, and changes to such laws and regulations; • the effect of any changes in U.S. GAAP; • the expense and administrative burden of being a public company; • Nuvve’s ability to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act; • the existence of identified material weaknesses in its internal control over financial reporting; • PubCo’s status as an “emerging growth company” within the meaning of the Securities Act, which could make its securities less attractive to investors; • the unaudited pro forma financial information included herein, which may not be indicative of what Nuvve’s actual financial position or results of operations would have been; Legal and Regulatory Matters • electric utility statutes and regulations and changes to such statutes or regulations; • privacy concerns and laws; • anticorruption and anti-money laundering laws, including the Foreign Corrupt Practices Act (“FCPA”); • laws relating to employment; • existing and future environmental, health and safety laws and regulations; The Ownership of PubCo’s Securities • PubCo’s ability to meet the initial and continued listing requirements of Nasdaq; • concentration of ownership among PubCo’s officers, directors and their affiliates; • future sales of a substantial number of shares of PubCo Common Stock in the public market; • the exercise of registration rights granted in connection with the PIPE Investment and Business Combination; • Nuvve’s ability to issue common and preferred stock without further stockholder approval; • the absence of cash dividends in the future; • volatility in the trading price of PubCo’s securities; • analyst coverage of PubCo’s securities; and • anti-takeover provisions in PubCo’s governing documents. Should one or more of these risks or uncertainties materialize, or should any of the assumptions made by the management of Newborn, Nuvve and PubCo prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. All subsequent written and oral forward-looking statements concerning the Business Combination or other matters addressed in this proxy statement/prospectus and attributable to Nuvve, Newborn, PubCo or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement/prospectus. Except to the extent required by applicable law or regulation, Nuvve, Newborn and PubCo undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events. QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION AND THE EXTRAORDINARY GENERAL MEETING Questions and Answers About the Merger Q: Why are Newborn and Nuvve proposing to enter into the Business Combination? A: Newborn is a blank check company formed specifically as a vehicle to effect a merger, capital stock exchange, asset acquisition, share purchase, reorganization, recapitalization or similar business combination with one or more target businesses. In the course of Newborn’s search for a Business Combination partner, Newborn investigated the potential acquisition of many entities in various industries, including Nuvve, and concluded that Nuvve was the best candidate for a Business Combination with Newborn. For more details on Newborn’s search for a Business Combination partner and the board’s reasons for selecting Nuvve as Newborn’s Business Combination partner, see “Proposal No. 3 The Acquisition Merger Proposal — Background of the Business Combination” and “Proposal No. 3 The Acquisition Merger Proposal — Newborn’s Board of Director’s Reasons for Approving the Business Combination” included in this proxy statement/prospectus. Q: What is the purpose of this document? A: Newborn and Nuvve have agreed to the Business Combination under the terms of the Merger Agreement that is described in this proxy statement/prospectus. The Merger Agreement also is attached to this proxy statement/prospectus as Annex A, and is incorporated into this proxy statement/prospectus by reference. The Business Combination consists of the Reincorporation Merger and the Acquisition Merger, each of which is described in this proxy statement/prospectus. Newborn’s shareholders are being asked to consider and vote upon a proposal to approve each of the Reincorporation Merger and the Acquisition Merger. Newborn’s shareholders are also being asked to consider and vote upon the Charter Proposals, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal. This proxy statement/prospectus contains important information about the proposed Business Combination and the other matters to be acted upon at the Extraordinary General Meeting. You are encouraged to carefully read this proxy statement/prospectus, including “Risk Factors,” and all the annexes hereto. Approval of each of the Reincorporation Merger Proposal and the Charter Proposals will require a special resolution under Cayman Islands law, being the affirmative vote of holders of at least two-thirds of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting or any adjournment thereof. Approval of each of the Acquisition Merger Proposal, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal will require an ordinary resolution under Cayman Islands law, being the affirmative vote of holders of a majority of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting or any adjournment thereof. Q: I am a Newborn warrant holder. Why am I receiving this proxy statement/prospectus? A: The holders of Newborn warrants will receive PubCo Warrants entitling them to purchase PubCo Common Stock at a purchase price of $11.50 per share after the closing of the Business Combination. This proxy statement/prospectus includes important information about PubCo and the business of PubCo and its subsidiaries following the closing of the Business Combination. Because holders of PubCo Warrants will be entitled to purchase PubCo Common Stock after the closing of the Business Combination, we urge you to read the information contained in this proxy statement/prospectus carefully. Q: Are any of the proposals conditioned on one another? A: Yes, the Business Combination is conditioned upon the approval of the Reincorporation Proposal, the Acquisition Proposal, the Charter Proposals, Nasdaq Proposal, Director Election Proposal and Incentive Plan Proposal. The Charter Proposals, the Nasdaq Proposal, the Director Election Proposal and the Incentive Plan Proposal are dependent upon the consummation of the Business Combination. It is important for you to note that in the event that either of the Reincorporation Merger Proposal or the Acquisition Merger Proposal is not approved, or if the Charter Proposals, Nasdaq Proposal, Director Election Proposal or Incentive Plan Proposal are not approved and the applicable condition in the Merger Agreement is not waived, then Newborn will not consummate the Business Combination. In the absence of shareholder approval for a further extension, if Newborn does not consummate the Business Combination and fails to complete an initial business combination by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), Newborn will be required to dissolve and liquidate. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other Proposals. Q: When is the Business Combination expected to occur? A: Assuming the requisite shareholder approvals are received, Newborn expects that the Business Combination will occur as soon as practicable following the Extraordinary General Meeting and no later than March 31, 2021. Q: Who will manage PubCo? A: The current management team of Nuvve, including Gregory Poilasne and Ted Smith, who currently serve as Nuvve’s Chief Executive Officer and Chief Operating Officer, respectively, will serve as PubCo’s Chairman and Chief Executive Officer and the President and Chief Operating Officer, respectively, following the consummation of the Business Combination. David Robson will become PubCo’s Chief Financial Officer. For more information on PubCo’s current and anticipated management, see “PubCo’s Directors and Executive Officers after the Business Combination” in this proxy statement/prospectus. Q: What happens if the Business Combination is not consummated? A: If the Business Combination is not consummated, Newborn may seek another suitable business combination. In the absence of shareholder approval for a further extension, if Newborn does not consummate a business combination by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 10, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), then pursuant to Article 48.7 of its amended and restated memorandum and articles of association, Newborn’s officers must take all actions necessary in accordance with the Companies Law to dissolve and liquidate Newborn as promptly as reasonably possible. Following dissolution, Newborn will no longer exist as a company. In any liquidation, the funds held in the trust account, plus any interest earned thereon (net of taxes payable), together with any remaining out-of-trust net assets will be distributed pro-rata to holders of NBAC Ordinary Shares who acquired such shares in Newborn’s IPO or in the aftermarket. The estimated consideration that each NBAC Ordinary Share would be paid at liquidation would be approximately $10.069 per share for shareholders based on amounts on deposit in the trust account as of February 5, 2021. The closing price of NBAC Ordinary Shares on Nasdaq as of February 5, 2021, was $19.10. Our initial shareholders and the Sponsor have waived the right to any liquidation distribution with respect to any NBAC Ordinary Shares held by them. There will be no distribution from the trust account with respect to the NBAC Warrants or the NBAC Rights, which will expire worthless. Q: What happens to the funds deposited in the trust account following the Business Combination? A: Following the closing of the Business Combination, holders of NBAC Ordinary Shares exercising redemption rights will receive their per share redemption price out of the funds in the trust account. The balance of the funds will be released to PubCo and utilized to pay transaction expenses, including deferred underwriting fees payable to Chardan. As of February 5, 2021, there was approximately $57,896,340 in Newborn’s trust account. Newborn estimates that approximately $10.069 per outstanding share issued in Newborn’s IPO will be paid to the public investors exercising their redemption rights. Any funds remaining in the trust account after such payments will be used for working capital and other general corporate purposes of the combined company. Q: Did Newborn’s board of directors obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Business Combination? A: Newborn did not obtain a third-party valuation or fairness opinion in connection with the Business Combination. Newborn is not required to obtain an opinion from an unaffiliated third party that the price it is paying is fair to its public shareholders from a financial point of view. Newborn has conducted its own due diligence and calculations and has engaged in comprehensive discussions with Nuvve. Based on these efforts, Newborn believes the valuation offered by Nuvve is favorable to Newborn and its shareholders. Newborn’s board of directors believes that because of the background of its directors, it was qualified to conclude that Newborn’s fair market value was at least 80% of Newborn’s net assets. Because Newborn’s board of directors did not obtain a fairness opinion to assist it in its determination, Newborn public shareholders must rely solely on the judgment of Newborn’s board of directors and Newborn’s board of directors may be incorrect in its assessment of the Business Combination. Q: Do any of Newborn’s directors or officers have interests that may conflict with the interests of Newborn’s shareholders with respect to the Business Combination? A: Newborn’s directors and officers may have interests in the Business Combination that are different from your interests as a shareholder. For example, in May 2019, Newborn issued an aggregate of 1,150,000 ordinary shares to its initial shareholders. We subsequently declared a share dividend of 0.25 shares for each outstanding ordinary share, resulting in 1,437,500 ordinary shares being outstanding. We refer to these shares as “insider shares.” The aggregate purchase price for the insider shares was $25,000, or approximately $0.017 per share. Simultaneously with the closing of the IPO, Newborn consummated a private placement with the Sponsor of 272,500 units (the “Private Units”) at a price of $10.00 per Private Unit, generating total proceeds of $2,725,000. Our initial shareholders, officers and directors will not have redemption rights with respect to any ordinary shares owned by them, directly or indirectly, whether acquired prior to the IPO, in the IPO or in the aftermarket. In the absence of shareholder approval for a further extension, if Newborn does not consummate the Business Combination or another initial business combination by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), Newborn will be required to dissolve and liquidate and the securities held by our initial shareholders, including the Sponsor, will be worthless because the initial shareholders and the Sponsor have agreed to waive their rights to any liquidation distributions. Newborn’s directors and officers have additional interests that differ from yours as a shareholder. See “Proposal No. 3 The Acquisition Merger — Interests of Certain Persons in the Business Combination.” The exercise of Newborn’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes or waivers are appropriate and in Newborn shareholders’ best interests. Q: Do any of Nuvve’s directors or officers have interests that may conflict with the interests of Nuvve’s other stockholders with respect to the Business Combination? A: Nuvve’s directors and officers may have interests in the Business Combination that are different from the interests of Nuvve’s other stockholders. For example, Gregory Poilasne, the Chairman and Chief Executive Officer of Nuvve, will continue as the Chairman and Chief Executive Officer and a director of PubCo, and Ted Smith, the Chief Operating Officer and a director of Nuvve, will continue as the President, Chief Operating Officer and a director of PubCo (assuming that the Director Election Proposal is approved as described in this proxy statement/prospectus). Each of Messrs. Poilasne and Smith will enter into an employment agreement with PubCo providing for increased compensation to him, including an increased base salary, performance and discretionary bonuses and one-time equity grants, as more fully described in “Executive Officer and Director Compensation” below. In addition, Mr. Poilasne and Mr. Smith will receive approximately $1,000,000 and $260,000, respectively, in compensation in respect of their services to Nuvve in prior years, which will become payable in connection with the successful completion of the Business Combination. Additionally, Kenji Yodose, a director of Nuvve, will continue as a director of PubCo after the closing of the Business Combination (assuming that the Director Election Proposal is approved as described in this proxy statement/prospectus). As such, in the future, he will receive any cash fees, stock options or stock awards that PubCo’s board of directors determines to pay to its non-executive directors. Furthermore, EDF Renewables, which owns approximately 19.3% of Nuvve’s capital stock and which has an employee serving as a director of Nuvve, has entered into a purchase and option agreement with PubCo, which provides that PubCo will repurchase, immediately after the closing, 600,000 shares of PubCo Common Stock from EDF Renewables at a price of $10.00 per share. In addition, EDF Renewables will have the option to sell up to an additional $2,000,000 of shares of PubCo Common Stock back to PubCo within a year after the closing at a price per share equal to the then-current market price. Nuvve’s directors and officers have additional interests that differ from yours as a shareholder. See “Proposal No. 3 The Acquisition Merger — Interests of Certain Persons in the Business Combination.” The exercise of Nuvve’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes or waivers are appropriate and in the other Nuvve stockholders’ best interests. Q: Will I experience dilution as a result of the Business Combination? A: Prior to the PIPE Investment and the Business Combination, the Newborn shareholders who hold shares issued in the IPO own approximately 77.1% of the issued and outstanding NBAC Ordinary Shares as of February 10, 2021. After giving effect to the PIPE Investment and the Business Combination, including the issuance of (i) 9,068,574 shares of PubCo Common Stock in the Acquisition Merger (which gives effect to the repurchase of 600,000 shares from one of the Nuvve stockholders as described elsewhere in this proxy statement/prospectus and assumes no exercise of existing Nuvve Options and no grant of additional Nuvve Options prior to the closing), (ii) 8,885,000 shares of PubCo Common Stock to the Newborn shareholders in connection with the Reincorporation Merger (which gives effect to the issuance of the NBAC Ordinary Shares in the PIPE Investment immediately prior to the closing and assumes no Newborn shareholders exercise their redemption rights), and (iii) an aggregate of 602,250 shares of PubCo Common Stock upon automatic conversion of the NBAC Rights, and further assuming no exercise of the PubCo Warrants or the PubCo UPOs, Newborn’s current public shareholders and rightsholders will own approximately 43.0% of the issued and outstanding PubCo Common Stock. Q: What happens if a substantial number of public shareholders vote in favor of the business combination proposal and exercise their redemption rights? A: Newborn’s public shareholders may vote in favor of the Business Combination and still exercise their redemption rights, although they are not required to vote for or against the Business Combination, or vote at all, in order to exercise such rights. Accordingly, the Business Combination may be consummated even though the funds available from the trust account and the number of PubCo stockholders are substantially reduced as a result of redemptions by public shareholders. Although the requirement that PubCo has at least $5,000,001 of net tangible assets and $15,000,000 in available cash and cash equivalents is expected to be satisfied as a result of the PIPE Investment even if all of the public shares are converted, with fewer public shares and public stockholders, the trading markets for PubCo Common Stock and PubCo Warrants following the closing of the Business Combination may be less liquid than the markets for NBAC Ordinary Shares and NBAC Warrants were prior to the Business Combination, and PubCo may not be able to meet the listing standards of the Nasdaq or an alternative national securities exchange. In addition, with less funds available from the trust account, the capital infusion from the trust account into Nuvve’s business will be reduced and Nuvve may not be able to fully achieve its business plans or goals. Q: Will Newborn enter into any financing arrangements in connection with the Business Combination? A: Yes. Immediately prior to the Reincorporation Merger, Newborn will consummate the sale of an aggregate of 1,425,000 NBAC Ordinary Shares at a purchase price of $10.00 per share, for an aggregate purchase price of $14,250,000, to the investors in the PIPE Investment. The investors will also receive NBAC Warrants to purchase 1,353,750 NBAC Ordinary Shares. The NBAC Ordinary Shares and NBAC Warrants issued in the PIPE Investment will convert into shares of PubCo Common Stock and PubCo Warrants as described elsewhere in this proxy statement/prospectus. Q: Are Nuvve’s stockholders required to approve the Acquisition Merger? A: Yes. Nuvve’s stockholders’ adoption and approval of the Merger Agreement and the Acquisition Merger is required to consummate the Business Combination. Concurrently with the execution of the Merger Agreement, certain of Nuvve’s officers, directors, founders and holders of more than 5% of its voting stock who collectively own approximately 55% of the outstanding Nuvve Common Stock and approximately 55% of Nuvve’s outstanding Series A preferred stock entered into support agreements, pursuant to which each such holder agreed to vote in favor of the Business Combination, subject to the terms of such shareholder support agreements. The vote of the Nuvve stockholders who are party to the support agreements is sufficient to approve the Business Combination, including the Acquisition Merger. Nuvve’s stockholders are not required to approve the Reincorporation Merger Proposal or the other Proposals. Q: Is the consummation of the Business Combination subject to any conditions? A: Yes. The obligations of each of Newborn, Nuvve, Merger Sub and PubCo to consummate the Business Combination are subject to conditions, as more fully described in “Summary of the Proxy Statement/Prospectus — The Business Combination and the Merger Agreement” in this proxy statement/prospectus. Q: Will holders of NBAC Ordinary Shares, NBAC Rights or NBAC Warrants or holders of Nuvve Common Stock or Nuvve Options be subject to U.S. federal income tax on the PubCo Common Stock or PubCo Warrants received in the Business Combination? A: As discussed more fully under the section titled “Material U.S. Federal Income Tax Consequences of the Business Combination,” although it is intended that the Reincorporation Merger qualify as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code, which generally provides for tax-free treatment, the Business Combination is likely to be a taxable event for U.S. Holders of Newborn securities under the passive foreign investment company (“PFIC”) rules of the Code as a result of the likelihood that Newborn is classified as a PFIC. In addition, certain U.S. Holders may also be subject to tax under Section 367(b) of the Code as a result of the inbound transfer of assets from Newborn to the United States. If the Reincorporation Merger does not qualify as a reorganization, then a U.S. Holder that exchanges its Newborn securities for PubCo securities will recognize gain or loss equal to the difference between (i) the sum of the fair market value of the PubCo Common Stock and PubCo Warrants received and (ii) the U.S. Holder’s adjusted tax basis in the NBAC Ordinary Shares, NBAC Rights, and NBAC Warrants exchanged. Assuming that the Acquisition Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the U.S. federal income tax consequences of the Acquisition Merger to U.S. Holders of Nuvve Common Stock are as follows: • a U.S. Holder of Nuvve Common Stock will not recognize any gain or loss realized on the exchange of shares of Nuvve Common Stock for shares of PubCo Common Stock; • the aggregate tax basis of the PubCo Common Stock received in the Merger will be the same as the aggregate tax basis of the Nuvve Common Stock surrendered in exchange for the PubCo Common Stock; and • the holding period of PubCo Common Stock received in exchange for shares of Nuvve Common Stock will include the holding period of the Nuvve Common Stock surrendered in exchange for the PubCo Common Stock. If any requirement for the Acquisition Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code is not satisfied, a U.S. Holder of Nuvve Common Stock generally would recognize gain or loss for U.S. federal income tax purposes on each share of Nuvve Common Stock surrendered in the Acquisition Merger in an amount equal to the difference between (1) the fair market value of the Acquisition Merger consideration received in exchange for such surrendered share upon completion of the Acquisition Merger and (2) the holder’s basis in the share of Nuvve Common Stock surrendered. The provisions of the Code that govern reorganizations are complex, and due to the absence of direct guidance on the application of Section 368(a)(1)(F) to a merger of a corporation holding only investment-type assets such as Newborn, the qualification of the Reincorporation Merger as an “reorganization” within the meaning of Section 368(a)(1)(F) of the Code is not entirely clear. For a more detailed discussion of certain U.S. federal income tax consequences of the Reincorporation Merger, the Acquisition Merger, and the Business Combination, see “Material U.S. Federal Income Tax Consequences” in this proxy statement/prospectus. Holders should consult their own tax advisors to determine the tax consequences to them (including the application and effect of any state, local or other income and other tax laws) of the Business Combination. Questions and Answers About the Extraordinary General Meeting Q: What is being voted on at the Extraordinary General Meeting? A: Below are the Proposals that the Newborn’s shareholders are being asked to vote on: • The Reincorporation Merger Proposal to approve the Reincorporation Merger; • The Charter Proposals to approve the material differences between PubCo’s Proposed Charter and Newborn’s amended and restated memorandum and articles of association; • The Acquisition Merger Proposal to approve the Acquisition Merger; • The Nasdaq Proposal to approve (i) for purposes of complying with Nasdaq Listing Rule 5635 (a) and (b), issuance of more than 20% of the issued and outstanding Newborn ordinary shares and the resulting change in control in connection with the Acquisition Merger, and (ii) for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of more than 20% of Newborn ordinary shares in connection with the PIPE Investment; • The Director Election Proposal to approve the appointment of PubCo’s Board of Directors effective as of the closing of the Business Combination in accordance with the Merger Agreement; • The Incentive Plan Proposal to approve PubCo’s Incentive Plan; and • The Adjournment Proposal to approve the adjournment of the Extraordinary General Meeting if it is determined by the officer presiding over the Extraordinary General Meeting that more time is necessary for Newborn to consummate the Business Combination and the other transactions contemplated by the Merger Agreement. Approval of each of the Reincorporation Merger Proposal and the Charter Proposals will require a special resolution under Cayman Islands law, being the affirmative vote of holders of at least two-thirds of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting or any adjournment thereof. Approval of each of the Acquisition Merger Proposal, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal will require an ordinary resolution under Cayman Islands law, being the affirmative vote of holders of a majority of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting or any adjournment thereof. As of the record date, 1,710,000 shares held by our initial shareholders including the Sponsor and our officers and directors, or approximately 22.9% of the outstanding NBAC Ordinary Shares, intend to vote in favor of each of the Proposals. Q: When and where is the Extraordinary General Meeting? A: The Extraordinary General Meeting will take place at Room 801, Building C, SOHO Square, No. 88, Zhongshan East 2nd Road, Huangpu District, Shanghai, 200002, China on March 17, 2021 at 8:00 a.m., Hong Kong Time (7:00 p.m. Eastern Time on March 16, 2021), and virtually by means of a teleconference using the following dial-in information: Q: Who may vote at the Extraordinary General Meeting? A: Only holders of record of NBAC Ordinary Shares as of the close of business on February 10, 2021, the record date, may vote at the Extraordinary General Meeting. As of the record date, there were 7,460,000 NBAC Ordinary Shares outstanding and entitled to vote. Please see “The Extraordinary General Meeting — Record Date; Who is Entitled to Vote” for further information. Q: What is the quorum requirement for the Extraordinary General Meeting? A: Newborn shareholders representing a majority of the shares of capital stock issued and outstanding as of the record date and entitled to vote at the Extraordinary General Meeting must be present in person (or via teleconference) or represented by proxy in order to hold the Extraordinary General Meeting and conduct business. This is called a quorum. NBAC Ordinary Shares will be counted for purposes of determining the existence of a quorum if the shareholder (i) is present in person (or via teleconference) and entitled to vote at the meeting, or (ii) has properly submitted a proxy card or voting instructions through a broker, bank or custodian. In the absence of a quorum, the Extraordinary General Meeting will be adjourned to the next business day at the same time and place or to such other time and place as the directors may determine. Q: What vote is required to approve the Proposals? A: Approval of each of the Reincorporation Merger Proposal and the Charter Proposals requires a special resolution under Cayman Islands law, being the affirmative vote of holders of at least two-thirds of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting or any adjournment thereof. Approval of each of the Acquisition Merger Proposal, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of holders of a majority of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting or any adjournment thereof. Under Cayman Islands law, abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the Extraordinary General Meeting, and accordingly will have no effect on any of the Proposals. Q: How will the initial shareholders vote? A: Newborn’s initial shareholders including the Sponsor and our officers and directors, who as of the record date, owned 1,710,000 NBAC Ordinary Shares, or approximately 22.9% of the issued and outstanding NBAC Ordinary Shares, have agreed to vote their respective ordinary shares acquired by them prior to the IPO, any shares they purchase in the open market in or after the IPO, in favor of the Reincorporation Merger Proposal and Acquisition Merger Proposal and intend to vote such shares in favor of other Proposals. Q: What do I need to do now? A: We urge you to read carefully and consider the information contained in this proxy statement/prospectus, including the annexes, and consider how the Business Combination will affect you as a Newborn shareholder. You should vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card. Q: Do I need to attend the Extraordinary General Meeting to vote my shares? A: No. You are invited to attend the Extraordinary General Meeting to vote on the Proposals described in this proxy statement/prospectus in person or through the virtual meeting platform. Due to the COVID-19 pandemic, however, we are encouraging our shareholders to attend the Extraordinary General Meeting virtually by means of a teleconference. However, you do not need to attend the Extraordinary General Meeting to vote your NBAC Ordinary Shares. Instead, you may submit your proxy by signing, dating and returning the applicable enclosed proxy card in the pre-addressed postage paid envelope. Your vote is important. We encourage you to vote as soon as possible after carefully reading this proxy statement/prospectus. Q: Am I required to vote against the Reincorporation Merger and the Acquisition Merger Proposal in order to have my NBAC Ordinary Shares redeemed? A: No. You are not required to vote against the Reincorporation Merger Proposal and the Acquisition Merger Proposal, nor do you have to be a holder of NBAC Ordinary Shares as of the record date, in order to have the right to demand that Newborn redeem your NBAC Ordinary Shares for cash equal to your pro rata share of the aggregate amount then on deposit in the trust account (including interest earned on your pro rata portion of the trust account, net of taxes payable) before payment of deferred underwriting commissions. These redemption rights in respect of the NBAC Ordinary Shares are sometimes referred to herein as “redemption rights.” If the Business Combination is not completed, holders of NBAC Ordinary Shares electing to exercise their redemption rights will not be entitled to receive such payments and their NBAC Ordinary Shares will be returned to them. Q: How do NBAC shareholders exercise their redemption rights? A: If you are a public shareholder and you seek to have your shares redeemed, you must (i) demand, no later than 7:00 p.m., eastern time on March 12, 2021 (two business days before the Extraordinary General Meeting), that Newborn redeem your shares for cash, and (ii) submit your request in writing to Newborn’s transfer agent, at the address listed at the end of this section and deliver your shares to Newborn’s transfer agent (physically, or electronically using the DWAC (Deposit/Withdrawal At Custodian) system) at least two business days prior to the vote at the Extraordinary General Meeting. Any corrected or changed written demand of redemption rights must be received by Newborn’s transfer agent two business days prior to the Extraordinary General Meeting. No demand for redemption will be honored unless the holder’s shares have been delivered (either physically or electronically) to the transfer agent at least two business days prior to the vote at the Extraordinary General Meeting. Public shareholders may seek to have their shares redeemed regardless of whether they vote for or against the Business Combination and whether or not they are holders of NBAC Ordinary Shares as of the record date. Any public shareholder who holds NBAC Ordinary Shares on or before March 12, 2021 (two business days before the Extraordinary General Meeting) will have the right to demand that his, her or its shares be redeemed for a pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid, at the consummation of the Business Combination. If you have questions regarding the certification of your position or delivery of your shares, please contact: One State Street Plaza, 30th Floor Attn: Mark Zimkind E-mail: [email protected] Q: How can I vote? A: If you were a holder of record of NBAC Ordinary Shares on February 10, 2021, the record date for the Extraordinary General Meeting, you may vote by attending the Extraordinary General Meeting and voting in person or through the virtual meeting platform, or by submitting a proxy by mail so that it is received prior to 9:00 a.m., Eastern Time, on March 16, 2021, in accordance with the instructions provided to you under “The Extraordinary General Meeting.” If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee. You should contact your broker, bank or nominee in advance to ensure that votes related to the shares you beneficially own will be properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares. Your broker or bank or other nominee may provide you with a form of voting instruction card (including any telephone or Internet voting instructions) for this purpose. Alternatively, if you wish to attend the Extraordinary General Meeting and vote in person or through the virtual meeting platform, you must obtain a proxy from your broker, bank or nominee. Q: If my shares are held in “street name” by my bank, brokerage firm or nominee, will they automatically vote my shares for me? A: No. Under applicable rules, your broker, bank or nominee cannot vote your NBAC Ordinary Shares with respect to non-discretionary matters unless you provide instructions on how to vote your shares in accordance with the procedures communicated to you by your broker, bank or nominee. Newborn believes the Proposals are non-discretionary and, therefore, your broker, bank or nominee cannot vote your NBAC Ordinary Shares without your voting instructions. If you do not provide instructions with your proxy, your bank, broker or other nominee may submit a proxy card expressly indicating that it is NOT voting your NBAC Ordinary Shares; this indication that a bank, broker or nominee is not voting your NBAC Ordinary Shares is referred to as a “broker non-vote.” Under Cayman Islands law, broker non-votes will be considered present for the purposes of establishing a quorum but will have no effect on any of the Proposals. Because your bank, broker or other nominee can vote your NBAC Ordinary Shares only if you provide voting instructions, it is important that you instruct your broker how to vote. Q: What if I abstain from voting or fail to instruct my bank, brokerage firm or nominee? A: Newborn will count a properly executed proxy marked “ABSTAIN” with respect to a particular Proposal as present for the purposes of determining whether a quorum is present at the Extraordinary General Meeting. For purposes of approval under Cayman Islands law, an abstention on any Proposal will have no effect on such Proposal. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the Extraordinary General Meeting in person (or via teleconference), the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Extraordinary General Meeting and, if a quorum is present, will have no effect on any of the Proposals. Q: May I seek statutory dissenter rights with respect to my NBAC shares? A: No. Dissenter rights are not available to holders of NBAC Ordinary Shares under the Companies Law or under the governing documents of Newborn in connection with the Proposals. Q: What happens if I sell my NBAC Ordinary Shares before the Extraordinary General Meeting? A: The record date for the Extraordinary General Meeting is earlier than the date that the Business Combination is expected to be consummated. If you transfer your NBAC Ordinary Shares after the record date, but before the Extraordinary General Meeting, unless the transferee obtains from you a proxy to vote those shares, you would retain your right to vote at the Extraordinary General Meeting. However, you would not be entitled to receive any shares of PubCo Common Stock following the consummation of the Business Combination because only Newborn shareholders at the time of the consummation of the Business Combination will be entitled to receive PubCo Common Stock in connection with the Business Combination. In addition, you will not be entitled to exercise redemption rights. Q: Can I change my vote after I have mailed my proxy card? A: Yes. You may change your vote at any time before your proxy is voted at the Extraordinary General Meeting. You may revoke your proxy by executing and returning a proxy card dated later than the previous one, or by attending the Extraordinary General Meeting and casting your vote in person or through the virtual meeting platform or by submitting a written revocation stating that you would like to revoke your proxy that our proxy solicitor receives prior to the Extraordinary General Meeting. If you hold your NBAC Ordinary Shares through a bank, brokerage firm or nominee, you should follow the instructions of your bank, brokerage firm or nominee regarding the revocation of proxies. If you are a record holder, you should send any notice of revocation or your completed new proxy card, as the case may be, to our proxy solicitor, Advantage Proxy, Attention: Karen Smith, E-mail: [email protected]. Q: Should I send in my share certificates now? A: Shareholders who do not elect to have their shares redeemed for a pro rata share of the trust account need not submit their certificates at this time. If you intend to have your shares redeemed, you should send your certificates or tender your shares electronically no later than two business days before the Extraordinary General Meeting. Please see “The Extraordinary General Meeting — Redemption Rights” for the procedures to be followed if you wish to redeem your ordinary shares for cash. Q: What are the U.S. federal income tax consequences of exercising my redemption rights? A: In the event that a U.S. Holder elects to redeem its NBAC Ordinary Shares for cash, the treatment of the transaction for U.S. federal income tax purposes will depend on whether the redemption qualifies as sale or exchange of the NBAC Ordinary Shares under Section 302 of the Internal Revenue Code (the “Code”) or is treated as a distribution under Section 301 of the Code. Whether the redemption qualifies as a sale or exchange or is treated as a distribution will depend on the facts and circumstances of each particular U.S. Holder at the time such U.S. Holder exercises his, her, or its redemption right. If the redemption qualifies as a sale or exchange of the NBAC Ordinary Shares, the U.S. Holder will be treated as recognizing capital gain or loss equal to the difference between the amount realized on the redemption and such U.S. Holder’s adjusted tax basis in the NBAC Ordinary Shares surrendered in such redemption transaction. Any such gain is likely to be subject to the PFIC rules of the Code because Newborn is likely classified as a PFIC. The deductibility of capital losses is subject to limitations. See “Material U.S. Federal Income Tax Consequences — U.S. Holders — Certain U.S. Federal Income Tax Consequences to U.S. Holders of Newborn Securities of Exercising Redemption Rights” and “Material U.S. Federal Income Tax Consequences — U.S. Holders — U.S. Federal Income Tax Consequences of the Business Combination to U.S. Holders of Newborn Securities — Passive Foreign Investment Company Status” for a more detailed discussion of the U.S. federal income tax consequences of a U.S. Holder electing to redeem its NBAC Ordinary Shares for cash, including with respect to NBAC’s likely classification as a PFIC and certain tax implications thereof. Q: Who can help answer my questions? A: If you have questions about the Proposals or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card you should contact Newborn’s proxy solicitor at: You may also obtain additional information about Newborn from documents filed with the SEC by following the instructions in “Where You Can Find More Information.” DELIVERY OF DOCUMENTS TO Newborn’s shareholders Pursuant to the rules of the SEC, Newborn and vendors that it employs to deliver communications to its shareholders are permitted to deliver to two or more shareholders sharing the same address a single copy of this proxy statement/prospectus, unless Newborn has received contrary instructions from one or more of such shareholders. Upon written or oral request, Newborn will deliver a separate copy of this proxy statement/prospectus to any shareholder at a shared address to which a single copy of this proxy statement/prospectus was delivered and who wishes to receive separate copies in the future. Shareholders receiving multiple copies of the proxy statement/prospectus may likewise request that Newborn deliver single copies of this proxy statement/prospectus in the future. Shareholders may notify Newborn of their requests by contacting our proxy solicitor as follows: This summary highlights selected information from this proxy statement/prospectus but may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement/prospectus, including the Merger Agreement and the Plan of Merger attached as Annex A, the PubCo’s Amended and Restated Certificate of Incorporation attached as Annex B and the Incentive Plan attached as Annex C. Please read these documents carefully as they are the legal documents that govern the Business Combination and your rights in the Business Combination. Unless otherwise specified, all share calculations assume no exercise of the redemption rights by Newborn’s shareholders. The Parties to the Business Combination Newborn is a Cayman Islands exempted company incorporated on April 12, 2019 as a blank check company, for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities, which we refer to as a “target business.” Newborn’s efforts to identify prospective target businesses were not limited to any particular industry or geographic location. On February 19, 2020, Newborn consummated the IPO of 5,750,000 units, which includes the full exercise of the over-allotment option of 750,000 units. Each unit consists of one ordinary share, one warrant entitling its holder to purchase one-half of one ordinary share at a price of $11.50 per whole share, and one right to receive one-tenth (1/10) of one ordinary share upon the consummation of an initial business combination. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $57,500,000. Simultaneously with the closing of the IPO, Newborn consummated the sale of 272,500 Private Units at a price of $10.00 per unit in a private placement to the Sponsor, generating total proceeds of $2,725,000. The Private Units are identical to the units sold in the IPO except that the warrants included in the Private Units are non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held by the Sponsor or its permitted transferees. A total of $57,500,000 of the net proceeds from the sale of units in the IPO (including the over-allotment option units) and the private placement on February 19, 2020 were placed in a trust account established for the benefit of Newborn’s public shareholders at JPMorgan Chase maintained by Continental Stock Transfer & Trust Company, acting as trustee. Newborn’s units, ordinary shares, warrants and rights are each quoted on Nasdaq, under the symbols “NBACU,” “NBAC,” “NBACW” and “NBACR,” respectively. Newborn’s units commenced trading on Nasdaq on February 14, 2020 and Newborn’s ordinary shares, warrants and rights commenced separate trading on Nasdaq on April 30, 2020. Nuvve Corporation Nuvve was incorporated under Delaware law on October 15, 2010 under the name “Nuvve Corporation.” Nuvve is a green energy technology company that provides, directly and through business ventures with its partners, a globally-available, commercial vehicle-to-grid (“V2G”) technology platform that enables electric vehicle (“EV”) batteries to store and resell unused energy back to the local electric grid and provide other grid services. Simply put, Nuvve bridges the gap between transportation and energy. Its proprietary V2G technology — Nuvve’s Grid Integrated Vehicle (GIVeTM) platform — has the potential to refuel the next generation of EV fleets through cutting-edge, bi-directional charging solutions. Nuvve believes its GIVeTM platform is the most advanced V2G platform on the market, as it is the only one qualified by multiple grid system operators around the world to provide grid services. Nuvve’s principal executive offices are located at 2468 Historic Decatur Road, San Diego, CA 92106, and Nuvve’s telephone number is (619) 456-5161. NB Merger Corp., or PubCo, was incorporated under Delaware law on November 10, 2020, as a wholly-owned subsidiary of Newborn for the purpose of effecting the Business Combination and to serve as the publicly traded parent company of Nuvve following the Business Combination. Nuvve Merger Sub Inc. Nuvve Merger Sub Inc., or Merger Sub, was incorporated under Delaware law on November 10, 2020, as a wholly-owned subsidiary of PubCo for the purpose of effecting the Business Combination and to serve as the vehicle for, and be subsumed by, Nuvve pursuant to the Acquisition Merger. The Business Combination and the Merger Agreement The Merger Agreement was entered into by and among Newborn, PubCo, Merger Sub, Nuvve and certain other parties on November 11, 2020. Pursuant to the terms of the Merger Agreement, the Business Combination will be completed through a two-step process consisting of the Reincorporation Merger and the Acquisition Merger. The Reincorporation Merger Newborn will reincorporate to Delaware by merging with and into the PubCo, a Delaware corporation and wholly-owned subsidiary of Newborn. The separate corporate existence of Newborn will cease and PubCo will continue as the surviving corporation and the public entity. At the closing of the Reincorporation Merger, which will occur immediately prior to the Acquisition Merger, Newborn’s outstanding securities will be converted into equivalent securities of PubCo, as follows: • each NBAC Ordinary Share outstanding immediately prior to the Reincorporation Merger (other than any redeemed shares) will be converted automatically into one share of PubCo Common Stock; • each NBAC Right outstanding immediately prior to the Reincorporation Merger will be converted automatically into one-tenth of one share of PubCo Common Stock; • each NBAC Warrant outstanding immediately prior to the Reincorporation Merger will be converted automatically into one PubCo Warrant; • each NBAC Unit will be automatically separated into its constituent securities, with each constituent security being automatically converted into a security of PubCo as described in the preceding bullet points; and • each NBAC UPO outstanding immediately prior to the Reincorporation Merger will be converted automatically into one PubCo UPO. Immediately prior to the Reincorporation Merger, Newborn will consummate the sale of an aggregate of 1,425,000 NBAC Ordinary Shares at a purchase price of $10.00 per share, for an aggregate purchase price of $14,250,000, to the investors in the PIPE Investment. The investors will also receive NBAC Warrants to purchase 1,353,750 NBAC Ordinary Shares. The NBAC Ordinary Shares and NBAC Warrants issued in the PIPE Investment will converted into shares of PubCo Common Stock and PubCo Warrants as described above. Upon the closing of the Reincorporation Merger, after consummation of the PIPE Investment and assuming none of Newborn’s existing public shareholders exercise their redemption rights as discussed herein, 8,885,000 shares of PubCo Common Stock will be issued to Newborn shareholders, 602,250 shares of PubCo Common Stock will be issued to the Newborn rightsholders, 8,730,000 PubCo Warrants will be issued to the Newborn warrantholders and 316,250 PubCo UPOs will be issued to the holders of the NBAC UPOs. The Acquisition Merger Immediately after the Reincorporation Merger, Merger Sub, a Delaware corporation and wholly-owned subsidiary of PubCo, will be merged with and into Nuvve, with Nuvve surviving as a wholly-owned subsidiary of PubCo. Concurrently with the execution of the Merger Agreement, Nuvve entered into an agreement providing for the Bridge Loan with an accredited investor, pursuant to which, on November 17, 2020, the investor purchased a $4,000,000 convertible debenture from Nuvve. The principal amount of the Bridge Loan and all accrued and unpaid interest thereon will convert into shares of Nuvve Common Stock immediately prior to the Acquisition Merger. In addition, upon approval by a majority of the holders of Nuvve’s Series A preferred stock, pursuant to Nuvve’s certificate of incorporation, as amended, each share of Nuvve’s outstanding Series A Preferred Stock will convert into one share of Nuvve Common Stock immediately prior to the Acquisition Merger. At the closing of the Acquisition Merger, each share of Nuvve Common Stock outstanding immediately prior thereto (including the shares issued upon conversion of Nuvve’s preferred stock and upon conversion of the Bridge Loan) automatically will be converted in the Acquisition Merger into a number of shares of PubCo Common Stock equal to the Closing Exchange Ratio. Each outstanding Nuvve Option will be assumed by PubCo and converted into an option to purchase a number of shares of PubCo Common stock equal to the number of shares of Nuvve Common Stock subject to such option immediately prior to the closing multiplied by the Closing Exchange Ratio, at an exercise price equal to the exercise price immediately prior to the closing divided by the Closing Exchange Ratio. The “Closing Exchange Ratio” is the ratio of (i) a number of shares of PubCo Common Stock equal $100,000,000 (subject to adjustment as described elsewhere in this proxy statement/prospectus) divided by $10.00 per share, over (ii) the total number of shares of Nuvve Common Stock outstanding as of immediately prior to closing (including the shares issued upon conversion of Nuvve’s preferred stock, but excluding the shares issued upon conversion of the Bridge Loan), plus the total number of shares of Nuvve Common Stock issuable upon exercise of Nuvve Options outstanding immediately prior to the closing. We presently estimate that the Closing Exchange Ratio will be approximately 0.2124. Nuvve’s stockholders (other than the Bridge Loan investor) will be entitled to receive an additional 4,000,000 “earn-out” shares of PubCo Common Stock if, for the fiscal year ending December 31, 2021, PubCo’s revenue equals or exceeds $30,000,000. The “earn-out” shares will be allocated among Nuvve’s stockholders in proportion to the number of shares issued to them at the closing of the Acquisition Merger that continue to be held by them. In addition, the financial advisor to Newborn will receive a success fee of an estimated 208,526 shares of PubCo Common Stock. The financial advisor introduced Newborn to Nuvve, assisted with the structure of the transaction, and provided advice on the transaction process to Newborn. The financial advisor also acted as agent in the $14.25 million PIPE Investment that was announced concurrently with the signing of the definitive Merger Agreement. Post-Business Combination Ownership and Impact on the Public Float It is anticipated that, immediately after consummation of the PIPE Investment and the Business Combination, Newborn’s shareholders, including the initial shareholders, and rightsholders will own 43.0% of the issued PubCo Common Stock, Nuvve’s stockholders will own 48.3% of the issued PubCo Common Stock, and the investors in the PIPE Investment will own 7.6% of the issued PubCo Common Stock. These relative percentages assume that (i) none of Newborn’s existing public shareholders exercise their redemption rights as discussed herein, (ii) no PubCo Warrants or PubCo UPOs are exercised, and (iii) no existing Nuvve Options are exercised and no additional Nuvve Options are granted prior to the closing. If the actual facts are different than these assumptions, the percentage ownership retained by our public shareholders following the business combination will be different. If any of Newborn’s existing public shareholders exercise their redemption rights, the anticipated percentage ownership of Newborn’s existing shareholders will be reduced. The PubCo Warrants and the PubCo UPOs will become exercisable upon the completion of the Business Combination and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. For more information about the Business Combination, please see “Proposal No. 1 The Reincorporation Merger Proposal” and “Proposal No. 3 The Acquisition Merger Proposal.” A copy of the Merger Agreement and the Plan of Merger is attached to this proxy statement/prospectus as Annex A. Board of Directors Following the Business Combination Effective as of the closing of the Business Combination, the board of directors of PubCo will consist of seven directors, five of whom will be designated by Nuvve and two of whom will be designated by Newborn. A majority of the directors will qualify as independent directors under rules of Nasdaq. If the nominees identified in this proxy statement/prospectus are elected, Richard A. Ashby and Jon M. Montgomery will be Class A directors serving until PubCo’s 2022 annual meeting of stockholders; Angela Strand and H. David Sherman will be Class B directors serving until PubCo’s 2023 annual meeting of stockholders; and Gregory Poilasne, who is currently Nuvve’s Chief Executive Officer, Ted Smith, who is currently Nuvve’s Chief Operating Officer, and Kenji Yodose, who is currently a member of Nuvve’s board of directors, will be Class C directors serving until PubCo’s 2024 annual meeting of stockholders, and in each case, until their successors are elected and qualified. See “PubCo’s Directors and Executive Officers after the Business Combination” for additional information. Other Agreements Relating to the Business Combination In addition to the Merger Agreement, the following agreements have been entered into in connection with the closing of the Business Combination. Indemnification Escrow Agreement At the closing of the Business Combination, PubCo, the Stockholders’ Representative of Nuvve and an escrow agent will enter into an escrow agreement pursuant to which PubCo will deposit an estimated 912,288 shares of PubCo Common Stock in escrow to secure the indemnification obligations as contemplated by the Merger Agreement. Earn-out Escrow Agreement In connection with the transactions, PubCo, Mr. Ted Smith as the representative of the Nuvve’s existing stockholders and an escrow agent will enter into an escrow agreement pursuant to which PubCo will deposit 4,000,000 shares of PubCo Common Stock in escrow, to be released to the Nuvve stockholders (other than the Bridge Loan investor) who continue to hold the shares of PubCo Common Stock issued to them in the Acquisition Merger if the condition to the earn-out is satisfied. Lock-up Agreements In connection with the closing of the Business Combination, each existing stockholder of Nuvve will submit a letter of transmittal that includes certain lock-up provisions, pursuant to which each such stockholder will agree not to, within one year of the closing, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of PubCo Common Stock issued in connection with the Acquisition Merger, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of such shares, whether any of these transactions are to be settled by delivery of any such shares, in cash, or otherwise. One-half of the shares may be released prior to the one-year anniversary if the volume weighted average price of PubCo Common Stock is at or above $12.50 for 20 out of any 30 consecutive trading days commencing six months after the closing of the Acquisition Merger. In addition, the Newborn initial shareholders will enter into new lock-up agreements, pursuant to which certain shares of PubCo Common Stock and the PubCo Warrants held by the initial shareholders will be locked up for six months after the closing, with respect to 50% of such shares of PubCo Common Stock and PubCo Warrants, and for one year, with respect to the remaining 50% of such shares of PubCo Common Stock and PubCo (subject to certain exceptions contained therein). The new lock-up agreements will supersede the existing restrictions on transfer applicable to such securities at the execution of the Merger Agreement. Registration Rights Agreement In connection with the Business Combination, PubCo, Newborn’s initial shareholders and certain existing stockholders of Nuvve will enter into an amended and restated registration rights agreement to provide for the registration of the PubCo Common Stock received by them in the Acquisition Merger and the Reincorporation Merger. The initial shareholders and each of the Nuvve stockholders will be entitled to (i) make a written demand for registration under the Securities Act of all or part of their shares and (ii) “piggy-back” registration rights with respect to registration statements filed following the consummation of the Business Combination. PubCo will bear the expenses incurred in connection with the filing of any such registration statements. Purchase and Option Agreement Pursuant to a purchase and option agreement between PubCo and EDF Renewables, Inc. (“EDF Renewables”), the owner of approximately 19.3% of Nuvve’s capital stock, PubCo will repurchase, immediately after the closing, 600,000 shares of PubCo Common Stock from EDF Renewables at a price of $10.00 per share. In addition, EDF Renewables will have the option to sell up to an additional $2,000,000 of shares of PubCo Common Stock back to PubCo within a year after the closing at a price per share equal to the then-current market price. In the event EDF Renewables exercises its option, two of Nuvve’s executive officers, Gregory Poilasne and Ted Smith, have committed to repurchase such shares from PubCo at the same price PubCo paid for them. Stockholder Agreement Pursuant to a stockholder agreement between PubCo and Toyota Tsusho Corporation (“TTC”), a significant shareholder of Nuvve prior to the Business Combination and of PubCo after the Business Combination, TTC will have the right to designate one member of PubCo’s board of director for appointment or election as a director for so long as TTC continues to beneficially own 5% of the outstanding PubCo Common Stock. Subject to certain exceptions, PubCo will agree to appoint the designee as a director and include the designee in management’s slate of director nominees. Kenji Yodose will be TTC’s initial designee. PIPE Investment Concurrently with the execution of the Merger Agreement, Newborn entered into subscription agreements with certain accredited investors, pursuant to which the investors agreed to purchase 1,425,000 NBAC Ordinary Shares, at a purchase price of $10.00 per share, for an aggregate purchase price of $14,250,000, in the PIPE Investment. The investors also will receive NBAC Warrants to purchase 1,353,750 NBAC Ordinary Shares. The warrants will be exercisable at $11.50 per share and have the same terms as the other NBAC Warrants. The investors will receive demand and piggyback registration rights in connection with the securities issued to them. The PIPE Investment will close immediately prior to the closing of the transactions contemplated by the Merger Agreement. The purpose of PIPE Investment is to fund the Business Combination and related transactions and for general corporate purposes of the surviving entity. Redemption Rights Pursuant to Newborn’s amended and restated memorandum and articles of association, Newborn’s public shareholders may elect to have their shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (i) the aggregate amount on deposit in the trust account as of two business days prior to the consummation of the Business Combination, including interest (net of taxes payable), by (ii) the total number of then-outstanding public shares. As of February 5, 2021, this would have amounted to approximately $10.069 per share. You will be entitled to receive cash for any public shares to be redeemed only if you: (i) (x) hold public NBAC Ordinary Shares or (y) hold public NBAC Ordinary Shares through NBAC Units and you elect to separate your NBAC Units into the underlying public NBAC Ordinary Shares, public NBAC Rights and public NBAC Warrants prior to exercising your redemption rights with respect to the public NBAC Ordinary Shares; and (ii) prior to 7 p.m., Eastern Time, on March 12, 2021, (a) submit a written request to the transfer agent that Newborn redeem your public shares for cash and (b) deliver your public shares to the transfer agent, physically or electronically through the Depository Trust Company, or DTC. Holders of outstanding NBAC Units must separate the underlying NBAC Ordinary Shares, NBAC Warrants and NBAC Rights prior to exercising redemption rights with respect to the NBAC Ordinary Shares. If NBAC Units are registered in a holder’s own name, the holder must deliver the certificate for its NBAC Units to the transfer agent with written instructions to separate the NBAC Units into their individual component parts. This must be completed far enough in advance to permit the mailing of the certificates back to the holder so that the holder may then exercise his, her or its redemption rights upon the separation of the NBAC Ordinary Shares from the NBAC Units. If a broker, dealer, commercial bank, trust company or other nominee holds NBAC Units for an individual or entity (such individual or entity, the “beneficial owner”), the beneficial owner must instruct such nominee to separate the beneficial owner’s NBAC Units into their individual component parts. The beneficial owner’s nominee must send written instructions by facsimile to the transfer agent. Such written instructions must include the number of NBAC Units to be separated and the nominee holding such NBAC Units. The beneficial owner’s nominee must also initiate electronically, using DTC’s DWAC system, a withdrawal of the relevant NBAC Units and a deposit of an equal number of NBAC Ordinary Shares, NBAC Warrants and NBAC Rights. This must be completed far enough in advance to permit the nominee to exercise the beneficial owner’s redemption rights upon the separation of the NBAC Ordinary Shares from the NBAC Units. While this is typically done electronically the same business day, beneficial owners should allow at least one full business day to accomplish the separation. If beneficial owners fail to cause their NBAC Ordinary Shares to be separated in a timely manner, they will likely not be able to exercise their redemption rights. Any request for redemption, once made, may be withdrawn at any time up to the closing of the Business Combination. Furthermore, if a shareholder delivered his certificate for redemption and subsequently decided, at any time up the closing of the Business Combination, not to elect redemption, he may simply request that the transfer agent return the certificate (physically or electronically). If a holder exercises its redemption rights, then such holder will be exchanging its public shares for cash and will no longer own shares of the post-Business Combination company. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to our Transfer Agent in accordance with the procedures described herein. Please see “The Extraordinary General Meeting — Redemption Rights” for the procedures to be followed if you wish to redeem your public shares for cash. A redemption payment will only be made in the event that the proposed Business Combination is consummated. If the proposed Business Combination is not completed for any reason, then public shareholders who exercised their redemption rights would not be entitled to receive the redemption payment. In such case, Newborn will promptly return the share certificates to the public shareholder. The Proposals At the Extraordinary General Meeting, Newborn’s shareholders will be asked to vote on the following: • the Reincorporation Merger Proposal; • the Charter Proposals; • the Acquisition Merger Proposal; • the Nasdaq Proposal; • the Director Election Proposal; • the Incentive Plan Proposal; and • the Adjournment Proposal. Please see “The Extraordinary General Meeting” on page 60 for more information on the foregoing Proposals. Voting Securities, Record Date As of February 10, 2021, the record date, there were 7,460,000 NBAC Ordinary Shares issued and outstanding. Only Newborn’s shareholders who hold NBAC Ordinary Shares of record as of the close of business on the record date are entitled to vote at the Extraordinary General Meeting or any adjournment thereof. Approval of each of the Reincorporation Merger Proposal and the Charter Proposals will require a special resolution under Cayman Islands law, being the affirmative vote of holders of at least two-thirds of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting. Approval of each of the Acquisition Merger Proposal, the Nasdaq Proposal, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal will require an ordinary resolution under Cayman Islands law, being the affirmative vote of holders of a majority of the issued and outstanding NBAC Ordinary Shares present and entitled to vote thereon and who vote at the Extraordinary General Meeting. As of the record date, the initial shareholders collectively owned and were entitled to vote 1,710,000 NBAC Ordinary Shares, or approximately 22.9% of Newborn’s issued and outstanding shares. With respect to the Business Combination, the initial shareholders including the Sponsor and our officers and directors, which own approximately 22.9% of Newborn’s issued and outstanding shares as of the record date, have agreed to vote their NBAC Ordinary Shares in favor of the Reincorporation Merger Proposal and the Acquisition Merger Proposal, and intend to vote for the other Proposals although there is no agreement in place with respect to voting on the other Proposals. At any time prior to the annual meeting, during a period when they are not then aware of any material nonpublic information regarding Newborn or its securities, the Sponsor, Newborn’s officers and directors, Nuvve or Nuvve’s stockholders and/or their respective affiliates may purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the business combination proposal, or execute agreements to purchase shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire Newborn ordinary shares or vote their shares in favor of the business combination proposal or not elect to convert their shares into a pro rata portion of the trust account. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirement that the holders of a majority of the shares entitled to vote at the annual meeting to approve the business combination proposal vote in its favor and that the conditions to the closing of the Business Combination (such as the condition that PubCo’s common stock be listed on the Nasdaq) otherwise will be met, where it appears that such requirements or conditions would otherwise not be met, and to maximize the net proceeds available to PubCo from the trust account following the consummation of the Business Combination. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and the transfer to such investors or holders of shares or warrants owned by the Newborn initial stockholders for nominal value. Entering into any such arrangements may have a depressive effect on Newborn’s ordinary shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares it owns, either prior to or immediately after the annual meeting. No agreements dealing with the above arrangements or purchases have been entered into as of the date of this proxy statement/prospectus. Newborn will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the business combination proposal or the satisfaction of any closing conditions. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons. Anticipated Accounting Treatment The Business Combination will be accounted for as a “reverse recapitalization” in accordance with U.S. GAAP. Under this method of accounting, Newborn will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the Business Combination, Nuvve’s stockholders are expected to have 48.3% of the voting power of the combined company, Nuvve will comprise all of the ongoing operations of the combined entity, Nuvve will comprise a majority of the governing body of the combined company, and Nuvve’s senior management will comprise all of the senior management of the combined company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Nuvve issuing shares for the net assets of Newborn, accompanied by a recapitalization. The net assets of Newborn will be stated at historical costs. No goodwill or other intangible assets will be recorded. Operations prior to the Business Combination will be those of Nuvve. The Reincorporation Merger, the Acquisition Merger and the other transactions contemplated by the Merger Agreement are not subject to any additional material U.S. federal or state regulatory requirements or approvals, or any material regulatory requirements or approvals under the laws of the Cayman Islands. Dissenter Rights Dissenter rights are not available to holders of NBAC Ordinary Shares under the Companies Law or under the governing documents of Newborn in connection with the Proposals. Interests of Certain Persons in the Business Combination When the Newborn shareholders consider the recommendation of Newborn’s board of directors in favor of adoption of the Reincorporation Merger Proposal, the Acquisition Merger Proposal and the other related Proposals, they should keep in mind that Newborn’s directors and officers have interests in the Business Combination that are different from, or in addition to, their interests as shareholders, including the following: • If the proposed Business Combination is not completed February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), Newborn will be required to dissolve and liquidate. In such event, 1,437,500 NBAC Ordinary Shares held by the initial shareholders which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless because the initial shareholders and the Sponsor have agreed to waive their rights to any liquidation distributions. Such shares had an aggregate market value of approximately $27,456,250 based on the closing price of NBAC Ordinary Shares of $19.10 on Nasdaq as of February 5, 2021. • If the proposed Business Combination is not completed by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), 272,500 Private Units purchased by the Sponsor for a total purchase price of $2,725,000, will be worthless because the Sponsor has agreed to waive its rights to any liquidation distributions. Such Private Units had an aggregate market value of approximately $6,948,750 closing price of NBAC Units of $25.50 on Nasdaq as of February 5, 2021. • To extend Newborn’s time to complete a business combination by up to an additional six months as provided in its amended and restated memorandum and articles of association, Newborn’s Sponsor or our directors and officers must deposit $575,000 into the trust account for each three-month extension. If the Business Combination is consummated by the extended deadlines, the amount deposited in the trust account will be repaid. However, if the Business Combination is not consummated by the extended deadline, the amount deposited will not be repaid and will be included in the liquidation distribution to Newborn’s shareholders. • If the proposed Business Combination is not completed by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), Wenhui Xiong, a member of our Board of Directors, will be personally liable under certain circumstances described herein to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Newborn for services rendered or contracted for or products sold to Newborn. If Newborn consummates a business combination, on the other hand, PubCo will be liable for all such claims. • The Sponsor and Newborn’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Newborn’s behalf, such as identifying and investigating possible business targets and business combinations. However, if the proposed Business Combination is not completed by February 19, 2021 (or May 19, 2021 if Newborn’s time to complete a business combination is extended by approval of Newborn’s shareholders at the extraordinary general meeting scheduled for February 18, 2021, or August 19, 2021 if Newborn’s time to complete a business combination is otherwise extended as provided in its amended and restated memorandum and articles of association), they will not have any claim against the trust account for reimbursement. Accordingly, Newborn may not be able to reimburse these expenses if the Business Combination or another business combination is not completed within the allotted time period. As of the record date, the Sponsor and Newborn’s officers and directors and their affiliates had incurred approximately $100,000 of unpaid reimbursable expenses. • It is currently contemplated that H. David Sherman, who is currently a director of Newborn, will continue to be a director of PubCo after the closing of the Business Combination (assuming that the director election proposal is approved as described in this proxy statement/prospectus). As such, in the future, he will receive any cash fees, stock options or stock awards that PubCo’s board of directors determines to pay to its non-executive directors. • The Merger Agreement provides for the continued indemnification of Newborn’s current directors and officers and the continuation of directors and officers liability insurance covering Newborn’s current directors and officers. • Newborn’s officers and directors (or their affiliates) may make loans from time to time to Newborn to fund certain capital requirements. As of the date of this proxy statement/prospectus, no such loans have been made, but loans may be made after the date of this proxy statement/prospectus. If the Business Combination is not consummated, the loans will not be repaid and will be forgiven except to the extent there are funds available to Newborn outside of the trust account. Because of the existence of these interests, the exercise of Newborn’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in our shareholders’ best interest. In addition, the Nuvve stockholders should be aware that aside from their interests as stockholders, Nuvve’s officers and members of Nuvve’s board of directors have interests in the Business Combination that are different from, or in addition to, those of other Nuvve stockholders generally. Nuvve stockholders should take these interests into account in evaluating the Business Combination. These interests include, among other things: • Gregory Poilasne, the Chairman and Chief Executive Officer of Nuvve, will continue as the Chairman and Chief Executive Officer and a director of PubCo, and Ted Smith, the Chief Operating Officer and a director of Nuvve, will continue as the President, Chief Operating Officer and a director of PubCo (assuming that the Director Election Proposal is approved as described in this proxy statement/prospectus). Each of Messrs. Poilasne and Smith will enter into an employment agreement with PubCo providing for increased compensation to him, including an increased base salary, performance and discretionary bonuses and one-time equity grants, as more fully described in “Executive Officer and Director Compensation” below. In addition, Mr. Poilasne and Mr. Smith will receive approximately $1,000,000 and $260,000, respectively, in compensation in respect of their services to Nuvve in prior years, which will become payable in connection with the successful completion of the Business Combination. • Kenji Yodose, a director of Nuvve, will continue to be a director of PubCo after the closing of the Business Combination (assuming that the Director Election Proposal is approved as described in this proxy statement/prospectus). As such, in the future, he will receive any cash fees, stock options or stock awards that PubCo’s board of directors determines to pay to its non-executive directors. • EDF Renewables, which owns approximately 19.3% of Nuvve’s capital stock and which has an employee serving as a director of Nuvve, has entered into a purchase and option agreement with PubCo, which provides that PubCo will repurchase, immediately after the closing, 600,000 shares of PubCo Common Stock from EDF Renewables at a price of $10.00 per share. In addition, EDF Renewables will have the option to sell up to an additional $2,000,000 of shares of PubCo Common Stock back to PubCo within a year after the closing at a price per share equal to the then-current market price. • TTC, which owns approximately 16.1% of Nuvve’s capital stock and which has an employee, Mr. Yodose, serving as a director of Nuvve, has entered into a stockholder agreement with PubCo, which provides that TTC will have the right to designate one member of PubCo’s board of director for appointment or election as a director for so long as TTC continues to beneficially own 5% of the outstanding PubCo Common Stock. Recommendations of Newborn’s Board of Directors to the Newborn’s Shareholders After careful consideration of the terms and conditions of the Merger Agreement, Newborn’s board of directors has determined that the Business Combination and the transactions contemplated thereby are fair to and in the best interests of Newborn and its shareholders and also concluded that Nuvve’s fair market value was at least 80% of the balance in Newborn’s trust account (excluding any deferred underwriting discounts and commissions and taxes payable on the income earned on the trust account). In reaching its decision with respect to the Reincorporation Merger and the Acquisition Merger, Newborn’s board of directors reviewed various industry and financial data and the due diligence and evaluation materials provided by Nuvve. Newborn’s board of directors did not obtain a fairness opinion on which to base its assessment. Newborn’s board of directors recommends that Newborn’s shareholders vote: • FOR the Reincorporation Merger Proposal; • FOR the Charter Proposals; • FOR the Acquisition Merger Proposal; • FOR the Nasdaq Proposal; • FOR each of the director nominees in the Director Election Proposal; • FOR the Incentive Plan Proposal; and • FOR the Adjournment Proposal. In evaluating the Business Combination and the Proposals to be considered and voted on at the Extraordinary General Meeting, you should carefully review and consider the risk factors set forth under “Risk Factors” beginning on page 30 of this proxy statement/prospectus. The occurrence of one or more of the events or circumstances described in that section, alone or in combination with other events or circumstances, may have a material adverse effect on (i) Newborn’s ability to complete the Business Combination and (ii) the business, cash flows, financial condition and results of operations of PubCo following consummation of the Business Combination. The data below as of and for the years ended December 31, 2019 and 2018 has been derived from Nuvve’s audited consolidated financial statements and the data as of September 30, 2020 and for the nine months ended September 30, 2020 and September 30, 2019 has been derived from Nuvve’s unaudited condensed consolidated financial statements, which are included in this proxy statement/prospectus. Nuvve’s management has prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in their opinion, all adjustments, consisting only of normal recurring adjustments that management considers necessary for a fair statement of the financial information set forth in those statements. Nuvve’s historical results are not necessarily indicative of the results that may be expected for any other period in the future and its interim results for the nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the full year ending December 31, 2020, or any other period. The information is only a summary and should be read in conjunction with Nuvve’s audited combined and consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Nuvve” contained elsewhere in this proxy statement/prospectus. Consolidated Statements of Operations Data Year Ended Cost of products and services revenue Research and development expense Operating loss Equity in net loss of investment Other income with related party Change in fair value of conversion option on convertible notes Total other income (expense) Net loss per share attributable to common stockholders, basic and diluted Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted Consolidated Balance Sheet Data Total stockholders’ equity (deficit) The following table sets forth selected historical financial information derived from Newborn’s audited financial statements for the period from April 12, 2019 (inception) through December 31, 2019, which is included elsewhere in this proxy statement/prospectus. Such financial information should be read in conjunction with the audited financial statements and related notes included elsewhere in this proxy statement/prospectus. The data for the nine months ended September 30, 2020 has been derived from Newborn’s unaudited condensed financial statements, which is included elsewhere in this proxy statement/prospectus. The historical results of Newborn included below and elsewhere in this proxy statement/prospectus are not necessarily indicative of the future performance of Newborn. You should read the following selected financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Newborn” and the financial statements and the related notes appearing elsewhere in this proxy statement/prospectus. (Inception) (in thousands, except share and per-share data) Income Statement Data: Interest income on cash and marketable securities held in the trust account Less: Income attributable to ordinary shares subject to redemption Net loss attributable to ordinary shareholders Weighted average shares outstanding, basic and diluted

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professional_accounting

Why do Appraised Values Change from year to year? How do I Question the Appraised Value of my property? What is SAVE OUR HOMES? How can the assessment of my homestead property increase even when there has been a reduction in my fair market value? How can I report exemption abuse? What are the details of Amendment 1? What is the "Save Our Seniors" Exemption? What Other Exemptions can I file for? What other Property is Entitled to Tax Exemption? How may property Qualify for an Agricultural Classification? What are the Guidelines for Agricultural Classification? What is the Citrus Health Response Program (CHRP) Abandoned Grove Initiative? Who are the Taxing Authorities for Lake County? That is the Property Appraiser's job. He is an appraiser of property. It's not quite that simple, however, because he has to find what this value would be for every piece of property in the County, no matter how big or how small, on the appraisal date, which is January 1 of each year. In fact, he has to find the values for over 170,000 individual parcels of land and the buildings on them, many acres of citrus land, thousands of acres of pasture and farm land and 33,000 personal property accounts. In addition to appraising property the Property Appraiser must administer over 78,500 homestead exemptions, determine the eligibility for certain religious, charitable, educational and municipal property tax exemptions as well as administer widow, widower and disability exemptions. When market value changes, naturally so does appraised value. For instance, if you were to increase the total market value of your property by building a swimming pool in your backyard, the appraised value would increase proportionately. Similarly, should your property's value be decreased by fire, the appraised value would decrease to show the downward effect of this damage on the market value of your property. The Lake County Property Appraiser has not created this value. He simply has the legal responsibility to discover it as it exists and appraise the property accordingly, since people make value by their transactions in the marketplace. If your opinion of the value of your property differs from the Property Appraiser's Appraisal, you are encouraged to come in and discuss the matter with us. Also, If you have evidence that the appraisal is more than the actual fair market value of your property, we will welcome the opportunity to review all pertinent facts. After talking with us, if you still find a significant difference between our appraisal and what you feel your property's market value is, you may be heard before the Value Adjustment Board. A written application must be filed with the Clerk of the Board of County Commission. Applications may also be obtained from the Property Appraiser's Office. The Value Adjustment Board has no jurisdiction or control over taxes or tax rates. Their one and only function is to hear evidence as to whether or not properties called to their attention are appraised at more or less than their market value. If such is the case, the Board has the authority to change the appraised value. They cannot change your appraised value for any other reason. The Board can also hear appeals on denial of exemptions and agricultural classifications. Please see us first. The Property Appraiser and his staff are at your service, and will be glad to assist in all matters pertaining to County Appraisals and Exemptions. The Property Appraiser's office reminds you that our office is your office, so feel free at all times to visit and examine our records. Save Our Homes was implemented for the first time in 1995. The 3% homestead property assessment limitation is a constitutional benefit approved by Florida voters in 1992 which places a limitation of 3% on any annual assessment increases on homestead properties in Florida. In 2008, a constitutional amendment was passed allowing for Homesteaded homeowners to transfer their existing Save Our Homes benefit to a new homestead, up to $500,000 or the same percentage of value, whichever is lower. Please note that this cap does not apply to any new construction, any previously non-assessed improvements, or to the new owner of a new or existing home the first year they are added to the tax roll. The ability to transfer up to $500,000 of accumulated Save Our Homes “savings” from an existing or prior homestead property to a new homestead property within two years of abandoning your existing or prior homestead. Portability was made possible with the passage of Amendment 1 to the State Constitution in 2008 by Florida voters. The Save Our Homes “savings” is the difference in Market Value and Assessed Value. This is the amount which has been “protected” or “untaxed” due to the benefit of the Save Our Homes 3% assessment limitation or “cap”. Every person who has the legal or equitable title to real estate and maintains it as his permanent residence (i.e., is a legal Florida resident) or as the residence of another legally or naturally dependent upon the owner shall be entitled to $25,000 homestead exemption. In 2008, a constitutional amendment was passed creating an additional homestead exemption of $25,000 for home values above $50,000. School tax levies are exempt from this exemption. File an Affidavit of Florida Resident with the Clerk of the Circuit Court. Present proof of regular Florida driver's and automobile licenses. Resident aliens must have a residency (green) card in addition to items 2 and 3 above. You must have legal or equitable title to the property on or before January 1st and as of January 1st reside therein. Under current Florida Law property receiving a homestead exemption also receives an additional exemption known as Save Our Homes. Save Our Homes limits the increase in the assessed value of your homestead property from year to year. The limitation percentage is linked to the Consumer Pricing Index. The maximum increase in assessed value from year to year is 3% as long as no change has been made to the property or in ownership. This limitation causes the fair market value to be different from the assessed value. As long as the fair market value of the homestead property is greater than the assessed value, then the assessed value must be adjusted upward. This occurs even when the fair market value drops but there is still a difference between the fair market value and the assessed value. Please click here for an example of how Save Our Homes would cause this issue. If you know of a property in Lake County currently receiving a tax reduction from a homestead exemption or an agricultural classification, which you believe should not be receiving such reduction due to an abuse of the law, we urge you to report the property by filling out the online form or calling our Exemption Department at (352) 253-2154. Amendment 1 is the constitutional amendment voted in by Floridians on January 29, 2008. This amendment has provisions for Portability, Additional Homestead Exemption, Non-residential Assessment cap and a $25,000 Tangible Personal Property Exemption and is retroactive to January 1, 2008 (excluding the assessment cap). Portability - Homesteaded homeowners may transfer their Save Our Homes benefit to a new homestead, up to $500,000 or the same percentage of value, whichever is lower. Additional Homestead Exemption - An additional exemption of $25,000 for home values above $50,000. School tax levies are exempt from this exemption. Assessment Cap - An assessment growth limitation of 10% for all non-homesteaded properties. School tax levies are exempt from this limitation. The assessment cap does not go into effect until 2009. Tangible Personal Property Exemption - An exemption of $25,000 for all tangible personal property. Seniors that qualify receive a $50,000 exemption on county taxes, and a $25,000 exemption on city taxes for participating municipalities. To file for a Widow's/Widower's Exemption you must be a legal resident and a widow/widower prior to January 1st of the tax year and bring proof of your spouse's death. Divorced or remarried persons do not qualify for widow's/widower's exemption when their former spouse dies. F.S. 196.101 provides that real estate used and owned, as a homestead by a quadriplegic is exempt from taxation. The homestead of a paraplegic, hemiplegic or any other totally and permanently disabled person, who must use a wheelchair for mobility or is legally blind and CAN PRODUCE A CERTIFICATE OF THIS FROM TWO PROFESSIONALLY UNRELATED LICENSED FLORIDA DOCTORS OR THE VETERANS ADMINISTRATION, and the income of all persons residing upon the homestead does not exceed a specified amount including Social Security benefits*, shall be exempt from ad valorem taxation upon the homestead. F.S. 196.081 provides that real estate used and owned as a homestead by a veteran (or that veteran's surviving spouse if the veteran is deceased), honorably discharged with a SERVICE CONNECTED total and permanent disability and having a letter from the U.S. Government or U.S. Veterans Administration of this disability shall be exempt from ad valorem taxation. *Call the appraiser's office (352-253-2150) for the specific amount of income. To be wholly or partially exempt from ad valorem taxation, property must be used exclusively or predominantly for charitable, religious, educational, governmental, literary or scientific purposes. All property owned and used exclusively for exempt purposes shall be exempt from ad valorem taxation. All property owned and used predominantly for exempt purposes shall be exempt from ad valorem taxation to the extent of the ratio that such a predominant use bears to the non-exempt use. No application for exemption may be approved for religious, literary, scientific or charitable use of property until the application has been found by the Property Appraiser, or upon appeal by the Value Adjustment Board, to be non-profit as defined in F.S. 196.196. "Educational institution" means a federal, state, parochial, church, or private school, college, or university conducting regular classes and courses of study required for eligibility to certification by, accreditation to, or membership in, the State Department of Education of Florida, Southern Association of Colleges and Secondary Schools, or the Florida Council of Independent Schools. To qualify land for an Agricultural classification (greenbelt), an application must be filed with the Property Appraiser between January 1st AND MARCH 1st of the tax year. Only lands, which are used for Bona Fide Commercial Agricultural Purposes, shall be classified agricultural. "Bona Fide Commercial Agricultural Purposes" means good faith commercial agricultural use of the land. Lands which are not being used for, or diverted from, agricultural use. Land that has been zoned non-agricultural at the request of the owner. Land on which a subdivision plat is recorded. Land which is purchased for a price three or more times the agricultural appraisal placed on the land. In addition, the Board of County Commission may reclassify land to non-agricultural when there is contiguous urban or metropolitan development and the continued use of such land for agricultural purposes will act as a deterrent to the timely and orderly expansion of the community. January 1st is the statutory assessment date; therefore the property must be in use as bona fide COMMERCIAL agriculture on this date. All applications are field checked systematically to verify use and to ensure correct assessments. Additional information will be requested from the property owner to determine continuance of eligibility. This information will probably be in the form of IRS returns, income and expense documents, purchase or sales receipts and will be requested on a regular basis. Any residence on the property causes a minimum of one acre to be removed from the agricultural classification. This portion of the property is assessed at the current market value and is referred to as a home site and may be eligible for homestead if the owner qualifies under Chapter 196, F.S. Only the acreage that is actually used for the agricultural operation can be classified agricultural. Intent to use it cannot be considered. Sale of land for a purchase price which is three or more times the agricultural assessment placed on the land shall create a presumption that such land is not used primarily for bona fide agricultural purposes. Upon a showing of special circumstances by the landowner demonstrating that the land is to be continued in bona fide agriculture, this presumption may be rebutted. Application for agricultural classification must be made every year between January 1st and March 1st. The initial application is made on the long form (DR-482) and is available in the Property Appraiser’s Office or on our web site, www.lcpafl.org. If the application is approved, you will receive notification by July 1st. If the application is denied, you will receive your copy of the denial no later than July 1st. Once an Ag application is approved, you will receive a renewal card at the beginning of each year. Please read this card carefully, note any changes, sign and date it, and return it to the Property Appraiser’s Office prior to March 1st. Even if the classification has been renewed, the application can still be denied if the operation does not meet the proper criteria from year to year. The appraiser’s office MUST be notified of ANY change in the agricultural use or status of the property. When the property is sold, or when the name of the owner is changed in any way, the agricultural classification is automatically removed and a new application must be made on the long form (DR-482). A cooperative between the Florida Department of Agriculture, Florida Citrus Mutual, property appraisers and landowners has begun to identify abandoned groves. Groves that are registered under the Citrus Health Response Program (CHRP) maybe eligible for agricultural classification for up to two years when removing living citrus trees that are not actively managed for citrus (abandoned groves) and may act as a harbor for citrus pests and diseases. Once abandoned grove pest threat is eliminated, the property owner is eligible for a CHRP abandoned grove compliance agreement. CHRP abandoned grove compliance agreements will be valid for a minimum of two years and may be extended in one-year increments based upon a written request justifying the need for additional time to complete land use transition. For more information contact the CHRP office in Tavares by calling (352) 253-4547. Tangible Personal Property is everything used in a business other than items of Real Estate. Known as Business Personal Property, it includes: machinery, equipment, furniture, fixtures, signs, window air conditioners, supplies, leased, loaned, borrowed, or rented equipment and manufactured home attachments on rented land (cabanas, carports, etc.). Every person, firm, corporation,etc., owning, leasing, managing, having control or custody, direction or supervision of any tangible personal property in Lake County is required to file a Return. All tangible personal property returns must be filed prior to April 1st of each year to avoid penalties. Penalties may be imposed for failing to file, or improper or late filing of a Tangible Return. Filing after due date - 5% per month. Failing to properly file - 15% of corrected value. Failure to file a return or to otherwise properly submit the property for taxation does not relieve the taxpayer of any requirement to pay all taxes assessed against the property. Explain the layout of the Truth in Millage (TRIM) Notice. Your TRIM Notice is NOT a tax bill; it simply is intended to notify you of any changes in the valuation of your property and of the proposed taxes that may appear on the November Tax Bill. Remember: If you have any Additional Homestead, it DOES NOT apply to the taxes you pay to Schools. The Senior Exemption ONLY applies to the County taxes and the City taxes of Clermont, Lady Lake, Mount Dora, Minneola and/or Tavares. Market Value is the value your property could have expected to sell for as of January 1, 2011. Market Value is also considered a value not forced upon either the seller or the buyer, a sale price not under duress or threat of financial problem. See the the Tax Collector's Taxing Authorities page for a list of Lake County Taxining Authorities and their contact information.

{'timestamp': '2019-04-21T00:13:25Z', 'url': 'https://www.lakecopropappr.com/frequently-asked-questions.aspx', 'language': 'en', 'source': 'c4'}

professional_accounting

Effective six-month return YTM/2 assuming we can reinvest all coupons at the coupon rate 8, effective Annual. Short-term zero coupon bonds generally have maturities of less than one year and are called bills. Each of these investments then pays a single lump sum. For example, if the face value of a bond is 1,000 and its coupon rate is 2, the interest income equals. These packages may consist of a combination of interest (coupon) and/or principal strips. In the United States, a zero-coupon bond would have Original issue discount (OID) for tax purposes. 1, note that this definition assumes a positive time value of money. The decision on whether or not to invest in a specific bond depends on the rate of return an investor can generate from other securities in the market. It does not make periodic interest payments, or have so-called coupons, hence the term zero-coupon bond. Physically created strip bonds (where the coupons are physically clipped and then traded separately) were created in the early days of stripping in Canada and the.S., but have virtually disappeared due to the high costs and risks associated with them. More simply, a zero-coupon bond has the important advantage of being free of reinvestment risk, though the downside is that there is no opportunity to enjoy the effects of a rise in market interest rates. The problem is you get paid based on the prevailing rates, so lets say the rates go up quite a bit while you hold the bond but when it finally matures the rates are lower than when you initially purchased, then you have a problem. Suppose the bank holds 3 assets Duration of total assets: 6, example Bank Assets: Asset 1: PV 8MD*12.5 Asset 2: PV38MD*18.0 Asset 3: PV 2MD*.75 Total PV 48M v 1 8/480.17, v 2 38/480.79v 3 2/480.04 Modified Duration of Portfolio:.17.5) (0.79. Possible to incorporate convexity into analysis above. Instead of paying interest, the issuer sells the bond at a price less than the face value at any time before the maturity date. (Which may not be face.) What happens is that as interest rates rise and fall, the price that a bond will buy or sell for adjusts so that the YTM matches the current YTM of new similar bonds. The coupon rate represents the actual amount of interest earned by the bondholder annually while the yield to maturity is the estimated total rate of return of a bond, assuming that it is held until maturity.

{'timestamp': '2019-04-24T18:42:03Z', 'url': 'http://listwebonline.info/64000-zero-coupon-bond-interest-rate-risk.html', 'language': 'en', 'source': 'c4'}

professional_accounting

How do secondary transactions impact your company’s 409A valuation? This article will discuss the concept of secondary transactions and their impact on 409A valuation. GET 409A VALUATION In general, a secondary stock transaction is a process in which a securities holder proceeds to sell their shares of the company to a third party. Typically, when an investor buys a company’s shares from existing shareholders, it is considered a secondary transaction. While you might have heard about 409A valuation and its relevance for private companies. Well, a 409A valuation is a way to determine the fair market value (FMV) of a stock, as defined by the Internal Revenue Code. But how does secondary transaction work, how can it impact 409A valuation, and what else do you need to know about it? This article will discuss the concept of secondary transactions and their impact on 409A valuation. Secondary transaction and 409A valuation A secondary transaction is a sale of the company’s stock to an investor from existing stockholders, such as company employees, founders, and investors. During a secondary stock transaction, the company’s shares are sold in order for the seller to obtain cash, and the company does not have any involvement. On the other hand, according to the Internal Revenue Code, a 409A valuation is a process in which the fair market value of a stock is determined. As a private company, the shares are not listed on an exchange, and thereby, there are no current market prices. In such a scenario, the fair market value is determined by a qualified 409A appraiser, and the IRS regulations specify how it should be determined. Understand 409A valuation To determine the fair market value of a private company’s stock, a 409A valuation is used. 409A valuation is a specific type of fair market value analysis that determines the value of securities that are not traded in public markets. The purpose of 409A valuation is to ascertain the value of the company’s stock, and thereby, with the help of FMV, companies can issue shares to private equity investors, grant equity compensation, calculate tax liabilities, or for other purposes where FMV of share is required. Companies may hire third-party appraisers like Eqvista to accurately determine the FMV of their stock in a streamlined and consistent manner. Understand secondary transaction In private companies, the shares are not traded on an exchange. However, when an existing shareholder decides to sell their shares of the company to an investor, the transaction is termed a secondary transaction. The funds from the sale of shares are directly transferred to the seller, and thus, the company does not engage in the process. Typically, it can be referred to as reselling the shares from the company’s shareholder to another person or entity. In general, the deal takes place between the seller and investor, and thus, the secondary stock transaction process is not done by the company but by the existing shareholder. Types of Secondary Transactions Well, there are two types of secondary transactions, secondary sales and repurchases. Following are the detailed descriptions for both types of secondary transactions. Secondary Sale – Typically, the sale under a secondary transaction is known as a secondary sale. It involves selling a company’s shares from an existing shareholder to a third party. However, many companies restrict secondary sales to third parties without board approval, and thereby, it may also be subject to the rights of the first refusal by the company or by investors. Repurchases – When a company first offers stock shares, it is usually known as a repurchase option. For repurchases, the company may buy back the shares from the shareholders who generally own them at a future date. The repurchases are often done within a preset time period, and hence it allows companies to protect their security from competitors. How does a 409A valuation work? Under the 409A valuation process, there are various valuation methods that can be applied to determine the fair market value of a company’s stock, such as the asset-based, market-based, income-based approach, or backsolve method. The methods can be applied based on the factors and assumptions that are alternatively relied upon. Generally, financial projections, mathematical calculations, and estimates made by the company and appraiser are used to determine the value of the stock. As a result, the FMV of the stock is determined. How does secondary transactions work for employees and founders? Founders of a private company tend to retain ownership of their shares while employees are usually allocated shares as a part of their equity compensation plan. Assuming that founders and employees have a portion of the company’s equity. However, unlike public companies, where shareholders can sell or trade their shares, this is not the case for private companies. In such a scenario, if an employee or founder wishes to sell their shares, they can only do so through a secondary transaction. This might be beneficial for the seller (existing shareholder), however, the company may not be compensated for the transaction. How does secondary transaction work for VCs? VCs are a vital part of private companies, and they often choose to provide capital in return for a stake in the company. While if VCs want to invest, they may be unable to do so because the round has been oversubscribed. Thus, in this case, VCs can acquire shares from the company’s existing shareholders through secondary transactions. This allows VCs to participate in the investment round despite the oversubscription. As such, secondary transaction offers high-level liquidity to existing shareholders of the company. Secondary Transactions vs. Funding Round Well, the purpose of a secondary transaction is to sell the shares of a company to an investor from the existing shareholders. While a funding round might be similar in nature, as it is designed to deliver capital from investors to the company. The fundamental difference between a secondary transaction and a funding round is that during a funding round, the company itself proceeds with the process of bringing in capital from outside investors. Whereas in a secondary transaction, no involvement is made by the company, and only existing shareholders sell the shares. In a secondary stock transaction, the funds that result from the transaction are directly transferred to the seller, and on the other hand, in a funding round, the funds are transferred to the company and usually for the purpose of expansion, growth and development. Hence, secondary transactions and funding rounds differ in process, intent, and outcomes. How does secondary transaction impact 409A valuation? As a part of a secondary transaction, an existing shareholder is selling shares to an investor. This lends the existing shareholder some liquidity, and the new investor gains access to the company’s equity. As a result of the secondary stock transactions, it definitely has a direct impact on the 409A valuation of the company. However, the impact on 409A valuation can vary depending upon certain circumstances, facts, and factors. Below mentioned are a few factors that might influence the impact of 409A valuation. Factors that affect the secondary transaction Here are a few factors that can play a pivotal role, based on which the impact of the secondary transactions can vary: Similarities of sold securities – As a matter of fact, secondary transactions frequently involve granting the buyer additional rights and preferences that a common shareholder normally does not have. Suppose a preferred stock was sold in the secondary stock transaction, for instance. In that case, those preferred shares will include liquidation preferences, voting rights, and information privileges that are not available to common shareholders. The impact of the transaction on the 409A valuation is reduced as a result of meld valuation such that the variations from common shares are considerable. Buyers and seller’s motivation – Buyers and sellers of secondary transactions may be influenced by their personal goals and desires. Let’s say that the seller desires liquidity and is willing to accept a lower value than the current FMV in order to obtain funds. While the buyer is ready to buy the stock at a higher price than the FMV. As a result, there is an inefficiency in the secondary stock transaction, and irrespective of the FMV, the transaction can go through. Consequently, the impact on 409A valuation is reduced. Transaction size – It should be noted that the level of influence depends on the size of the transaction, typically the number of shares and the percentage of ownership involved. Secondary transactions may involve a small number of shares and, likewise, a small portion of ownership, which will have no impact on the 409A valuation. In general, less than 10% of the fully diluted shares of a company have no impact on the 409A valuation. Tender offer – Usually, tender offers are made with the objective of achieving sufficient liquidity and removing any uncertainties regarding ownership structure. In private companies, investors or groups of investors acquire shares through tender offers, and hence, existing shareholders are replaced by new shareholders in a secondary transaction. While the impact of 409A valuation depends upon the price and size at which the tender offer is conducted. Timing proximity – At the time of execution of the secondary transaction, if in case a material event has occurred, it may have a direct impact on the 409A valuation. Such events include mergers, acquisitions, or consolidations with another company. However, prior to any of these events, if secondary transactions take place, the impact on 409A valuation is very low. As a result, the timing proximity is the most relevant factor that can affect the impact of 409A valuation. Information asymmetry – In the case of information asymmetry, the buyer has limited knowledge about the company’s financial position, operations, and capital structure. The impact of information asymmetry on the 409A valuation is reduced to a great extent. On the other hand, the impact becomes more pronounced if the buyer has complete information about the company. As such, in case of a higher degree of knowledge, the buyer will have a better understanding, and thus, this increases the potential to negotiate a better deal. Deal structure – The structure of the deal is also vital in determining the impact on 409A valuation. Usually, secondary transactions are less structured, as commonly, and the traction takes place for the purpose of exchanging cash. However, if the traction has additional pricing clauses like a share escrow or an upside share arrangement, the impact on 409A valuation is reduced as it is a structured deal. The transactions that are structured will typically have less or no impact on 409A valuation. Company history and plan for the future secondary transaction – Another important fact that determines the impact of secondary transactions on 409A valuation is company history as well as the company’s future plan. If a company is planning to raise funds and expand its interests, the company should not consider secondary stock transactions as they can create uncertainty and instability. As a result, the negotiations can take place in a manner that results in the impact on 409A valuation. When should companies ignore secondary transactions? There are various circumstances or reasons that will lead a company to ignore secondary transactions. The Board of Directors should properly strategize and determine the best course of action. Well, if the company has plans to raise funds or a material transaction is expected to occur soon, the company should ignore or typically black out the secondary stock transactions. In addition to this, every quarter or year-end, the company should evaluate, and according to the maturity of the business, the company should ignore secondary transactions. As a result, the company should either ignore or black out the transactions during certain times. How to reduce risk of secondary transactions on a 409A valuation? We have seen that the impact on 409A valuation depends on various factors such as the deal structure, timing proximity, transaction size and so on. But how do companies reduce the risk of secondary transactions on a 409A valuation? Well, there is no one-size-fits-all solution. Every company should conduct its own study based on the circumstances and factors that are relevant to the situation. However, the following are a few measures that can be taken to minimize the risk of secondary transactions: The size of the transaction should be reduced, thereby, less than 10% of the fully diluted shares of a company will have minimum or no impact on the 409A valuation. Thus, the fewer the shares involved, the less or no impact on 409A valuation. The structure of the deal should be designed in such a manner that it will have minimum impact on the 409A valuation. It should be noted that a pricing model such as share escrow or an upside share arrangement will have little or no impact on the 409A valuation. The initial transaction can be structured in a loan instead of an outright purchase. This is because as soon as the shares are purchased, this automatically implies an ownership transfer and subsequent impact on 409A valuation. Why are common shares prices different from 409A in secondary transactions? A material event that takes place between the previous 409A valuation and the secondary transaction can potentially impact the 409A valuation. In such cases, the price of the common shares may not be consistent with the price of 409A in a secondary transaction. Furthermore, the buyer of a secondary sale may possess various considerations to value the seller’s share including potential dilution, projected returns, cost of capital and so on. It is indeed at the discretion of the buyer to value the seller’s shares, and thus this is where the price discrepancy between common share prices and 409A valuation occurs. Get a 409A valuation from Eqvista! As you have read in this article, the impact of secondary transactions on a 409A valuation is not linear, and it depends on various factors. Thus, to avoid any risk or downsides, it is advisable to get your 409A valuation in a timely manner. Are you confused and looking for a reliable and credible partner for your 409A valuation? Well, Eqvista is a leading company that provides comprehensive solutions for 409A valuation and other similar services related to other financial instruments. Let our team of certified professionals do the work for you! Sign up today to avail of our services and get your 409A valuation at a reasonable price! More about 409A valuation 409A Valuation in Singapore 409A Valuation for Series B Funded Startups 409A Valuation for Series C Funded Startups 409A Valuation for Series A Funded Startups 409A Valuation for Seed Funded Startups 409A Valuation for Pre-Seed Funded Startup 5 steps to reprice your options after a 409A valuation When to get a second opinion on your 409A valuation? 409A Compliance - Importance of Getting Your 409A Valuation In Order 409a valuation - Guide for Founders Is 409a Valuation Required When Converting LLC to C Corp? 409a Valuation for Pre-Revenue Startups 409A Valuation for Different Funding Stages 409a valuation in China 409a valuation in Europe 409a valuation for LLC - A Complete Guide 409a valuation in South Korea 409A Valuation in India 409a valuation for Hong Kong 409a valuation in Canada 409a Valuation in United Kingdom How to Read a 409A Valuation Report How can a Real Estate Business manage a 409A valuation? How can eCommerce Companies manage a 409a valuation? How can Education or EdTech Companies manage a 409a valuation? How can Healthcare Companies manage a 409a valuation? How can Cannabis Companies manage a 409a valuation? How can Pharma R&D Companies manage a 409a valuation? How can Saas Companies manage a 409a valuation? How can Fintech Companies manage a 409a valuation? Get 409a Valuation for Your Startup 409a Valuation Report - Sample & Example 409a Valuation for Crypto Companies 409a Valuation For Employees What is the cost of a 409a Valuation? 5 things you need to know about 409a valuation 409A Valuations - Startups 409A Valuations: Understanding the Process & Managing Risk Employee stock options and 409a valuations IRS Section 409A Basics of the 409a Valuation Report Important information & documents for 409a valuation 409a Valuation - The Complete Guide for Your Business

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professional_accounting

This site is best viewed with javascript enabled. For help enabling javascript please click here. Jump to news feeds Get in touch: Tel: +44(0)1202 597400Email: [email protected] Why Amtec Policy for WEEE Amtec Careers Support/Maintenance Engineering & Installation Advantages of Partnering Amtec Computer Corporation Limited 13. Consequences of Termination 2. Orders and Scope of the Services 3. The Customer’s Responsibilities 15. Assignment and Sub-Contracting 4. Website/Software Development and Acceptance 16. Confidentiality and Publicity 5. Supply and Installation of Goods 6. Charges and Payment 7. Warranties and Indemnity 8. Limitation of Remedies and Liability 10. Performance and Maintenance 1.1 In these Terms the following words and phrases shall, unless the context otherwise requires, have the following meanings: The acceptance or deemed acceptance of the Software by the Customer pursuant to clause 4; Acceptance Tests: The tests to be carried out on the Software by Amtec as referred to in clause 4; Amtec: Amtec Computer Corporation Limited, company number 02715785, whose registered office is at 229 West Street, Fareham, Hampshire PO16 0HZ; Business Day: Any day (other than a Saturday or Sunday) when banks are generally open for business in London; The charges in respect of the Goods and Services set out in Amtec’s quotation or standard price list at the date of Acceptance or invoice (as applicable) together with any charges arising from agreed variations thereto; Any person who accepts a quotation from Amtec or whose order is accepted by Amtec; Customer Data: Any data provided to Amtec by the Customer from time to time for incorporation in, or use in relation to, the Software, or inputted by the Customer or its employees, agents or contractors into any program containing the Software; The goods that Amtec is to supply; Intellectual Property Rights: All intellectual property rights wherever in the world arising, whether registered or unregistered (and including any application), including copyright, know-how, confidential information, trade secrets, business names and domain names, trade marks, service marks, trade names, patents, petty patents, utility models, design rights, semi-conductor topography rights, database rights and all rights in the nature of unfair competition rights or rights to sue for passing off; Shall have the meaning given in the Data Protection Act 1998; The Software development, product supply and/or installation, support, maintenance and/or consultancy services (as applicable) to be provided by Amtec pursuant to these Terms; The software (including any website) commissioned by the Customer (if applicable) and the underlying code; The specification for the Goods and/or the functionality of the Software set out in Amtec’s quotation or agreed in writing from time to time; These terms and conditions as amended from time to time in accordance with their terms; Third Party Products: Those third party software, hardware and other products to be provided to the Customer as described in Amtec’s quotation and/or notified to the Customer from time to time. 1.2 The headings in these Terms do not affect their interpretation. Save where the context otherwise requires, references to clauses are to clauses of these Terms. 1.3 Unless the context otherwise so requires: 1.3.1 References to Amtec and the Customer include their permitted successors and assigns; 1.3.2 References to statutory provisions include those statutory provisions as amended or re-enacted; and 1.3.3 References to any gender include all genders. 2.1 All Goods and Services are supplied subject to these Terms. 2.2 Subject to availability, Amtec shall provide the Goods and/or Services from time to time agreed with the Customer in writing. No order submitted by the Customer shall be deemed to be accepted by Amtec unless and until confirmed by Amtec and in most cases shipment of your order will be deemed acceptance of your order. All orders must be submitted on Amtec’s standard form. The parties may agree to vary the Services in the same manner. 2.3 The Customer is responsible for ensuring the accuracy of the terms of any order (including any applicable specification). 2.4 No order which has been accepted by Amtec may be cancelled by the Customer except with the agreement in writing of Amtec and on terms that the Customer shall indemnify Amtec in full against all loss (including loss of profit), costs (including the cost of all labour and materials used), damages, charges and expenses incurred by Amtec as a result of cancellation. Without limitation any deposit shall be non refundable. 2.5 Amtec reserves the right to make without notice any minor modifications in the Goods, Specifications, designs or materials as Amtec thinks necessary or desirable. 3.1 The Customer acknowledges that Amtec’s ability to provide the Goods and/or Services is dependent upon the full and timely co-operation of the Customer (which the Customer agrees to provide). Accordingly, the Customer shall provide Amtec with access to, and use of, all information, data and documentation reasonably required by Amtec for the performance by Amtec of its obligations under these Terms. 3.2 For the duration of these Terms, the Customer will permit designated employees and contractors of Amtec: 3.2.1 to access such of the Customer’s equipment and software as is necessary to enable Amtec to provide the Services; and 3.2.2 subject to such conditions as aforesaid, to enter the Customer’s offices during agreed hours for the purpose of performing the Services. 3.3 Where Amtec carries out work at the Customer’s premises the Customer must comply with any applicable laws and regulations. 3.4 The Customer shall appoint a project manager who shall: 3.4.1 provide professional and prompt liaison with Amtec; and 3.4.2 have the necessary expertise and authority to commit the Customer. 3.5 The Customer agrees to make a reasonable amount of relevant human resource available at its premises to assist Amtec at crucial times such as during the Acceptance Tests. 4.1 Once Amtec has completed design and development of the Software (and any further works agreed from time to time) in accordance with these Terms (or as otherwise agreed) Amtec shall run the Acceptance Tests as it sees fit. 4.2 The Acceptance Tests shall test compliance of the Software with the Specification. 4.3 Acceptance of the Software shall occur when the Software has passed the Acceptance Tests. Amtec shall notify the Customer when the tests have been passed. 4.4 If any failure to pass the Acceptance Tests results from a defect which is caused by an act or omission of the Customer or by one of the Customer’s sub-contractors or agents for which Amtec has no responsibility (“Non-Supplier Defects”), the Software shall be deemed to have passed the Acceptance Tests notwithstanding such Non-Supplier Defect. Amtec shall provide assistance reasonably requested by the Customer in remedying any Non-Supplier Defects by supplying additional services or products. If so requested, the Customer shall pay Amtec in full for all such additional services and products at Amtec's then current fees and prices. 4.5 Acceptance of the Software shall be deemed to have taken place upon the happening of any of the following events: 4.5.1 the Customer uses any part of the Software “live” (that is for any purposes other than for internal test purposes); or 4.5.2 the Customer unreasonably delays the start of relevant Acceptance Tests or any retest for a period of 7 (seven) working days from the date when Amtec is ready to commence running the Acceptance Tests or retests. 4.6 All times quoted for delivery or work are estimates only and shall not be of the essence. 5.1 Risk in the Goods shall pass to the Customer on delivery. 5.2 The Customer shall prepare the site for installation and provide all necessary facilities. If Amtec is unable to install when planned due to the act or omission of the Customer, it may invoice the Customer for all additional time which may be incurred at its standard day rates and for all expenses incurred. 5.3 The Customer shall inspect the Goods on delivery or installation (as applicable) and unless the Customer notifies any defects within 7 days of such date shall be deemed to have accepted them. After acceptance the Customer shall not be entitled to reject Goods which are not in accordance with the Terms. In no event shall the Customer be entitled to reject the Goods on the basis of any defect or failure which is so slight that it would be unreasonable for the Customer to reject. 5.4 Where Amtec is an accredited reseller, the Third Party Products will be supplied in accordance with the relevant licensor’s standard terms. Where applicable, the one-off licence fee for such Third Party Products is included in the Charges payable pursuant to clause 6. 5.5 Notwithstanding delivery and the passing of risk in the Goods, or any other provision of these Terms, the property in the Goods shall not pass to the Customer until Amtec has received in cleared funds payment in full of the price of the Goods and all other items agreed to be sold by Amtec to the Customer for which payment is then due. 5.6 Until such time as the property in the Goods passes to the Customer, it shall: 5.6.1 hold them as Amtec's fiduciary agent and bailee, shall keep them separate from those of the Customer and third parties and properly stored, protected and insured and identified as Amtec's property but may use them in the ordinary course of its business; 5.6.2 it shall deliver up the Goods to Amtec on demand and, if the Customer fails to do so immediately, Amtec may enter any premises of the Customer or any third party where the Goods are stored and repossess them and charge the Customer for all costs and expenses associated with the repossession. 6.1 Amtec shall issue an invoice in respect of the Charges, and the Customer shall pay to Amtec the Charges set out in Amtec’s invoice within 30 (thirty) days of the date of delivery or Amtec’s invoice (whichever is the sooner). Time of payment shall be of the essence. Late payment shall result in withdrawal of credit and subsequent orders must be paid for on order 6.2 All Charges are exclusive of VAT. Rates of tax and duties on the goods and services will be those applying at the time of delivery. 6.3 All quotations given by Amtec lapse after 30 days (unless otherwise stated) if Amtec does not withdraw them earlier. 6.4 The price for services is based on work carried out between 8am and 5pm, Monday to Friday. Amtec may charge premium rates for out of hours work. 6.5 If the Customer fails to pay any amount payable by it under these Terms, Amtec shall be entitled but not obliged to charge the Customer interest on the overdue amount, payable by the Customer forthwith on demand, from the due date up to the date of actual payment, after as well as before judgment, at the rate of 2% a year above the base rate for the time being of Barclays Bank plc. Such interest shall accrue on a daily basis and be compounded quarterly. Amtec reserves the right to claim interest under the Late Payment of Commercial Debts (Interest) Act 1998. 6.6 The Customer does not have the right to withhold any retention money or to set off any money the Customer may claim from Amtec against anything the Customer may owe Amtec. 6.7 While the Customer owes money to Amtec, Amtec has a right to keep any property it may hold of the Customer’s until the Customer has paid Amtec in full (a lien). 6.8 Payment shall be applied to invoices in the order in which they were issued and to the Goods and Services in the order in which they are listed in the invoice(s). 7.1 Each of the parties warrants to the other that it has full power and authority to enter into and perform these Terms. 7.2 Amtec shall perform the Services with reasonable care and skill. 7.3 Except as set out in clause 10.1, Amtec gives no warranty (and excludes any warranty, term or condition that would otherwise be implied), including without limitation as to the quality of the Goods or Software or their fitness for any purpose or the potential performance of the Software. Amtec does not warrant that the operation of the Software will be uninterrupted or error free. 7.4 These Terms set out the full extent of Amtec’s obligations and liabilities in respect of the supply of the Goods and Services. All conditions, warranties or other terms concerning the Goods and/or Services which might otherwise be implied into these Terms or any collateral contract (whether by statute or otherwise) are hereby expressly excluded. 7.5 The Customer agrees to fully indemnify Amtec from and against all actions, costs, claims, demands, expenses, liabilities, losses and proceedings (including, where relevant, fines, penalties, legal fees, fees of consultants or experts) whether direct or consequential (including, but without limitation, any economic loss or other loss of turnover, profits, business or goodwill), incurred by Amtec as a result of or in connection with the Customer Data, breach by the Customer of any term of these Terms or any relevant law, or the use of the Software or any website by the Customer’s employees, agents or contractors. 7.6 The Customer expressly acknowledges that the provisions of clauses 7, 8 and 10 satisfy the requirements of reasonableness specified in the Unfair Contract Terms Act 1977 and that the Customer shall be stopped from claiming the contrary at any future date in the event of any dispute with Amtec concerning liability under these Terms. 8.1 Nothing in these Terms shall operate to exclude or limit Amtec’s liability for: 8.1.1 death or personal injury caused by its negligence; 8.1.2 any breach of the terms implied by section 12 of the Sale of Goods Act 1979 or section 2 of the Supply of Goods and Services Act 1982; 8.1.3 fraud; or 8.1.4 any other liability which cannot be excluded or limited under applicable law. 8.2 Subject to condition 8.1, Amtec shall not be liable to the Customer for any increased costs, expenses, loss of profits, loss of or corruption to data, loss of goodwill, business, contracts, revenues or anticipated savings or any type of special, indirect or consequential loss (including loss or damage suffered by the Customer as a result of a claim made by a third party) even if such loss was reasonably foreseeable or Amtec had been advised of the possibility of the Customer incurring the same. 8.3 Subject to clause 8.1, Amtec’s aggregate liability in respect of claims based on events in any calendar year arising out of or in connection with these Terms or any collateral contract, whether in contract or tort (including negligence) or otherwise, shall in no circumstances exceed the total Charges paid by the Customer to Amtec under these Terms in that calendar year. 8.4 The Customer acknowledges that no representations were made prior to entering into these Terms. The Customer agrees that, in entering into these Terms, it did not rely on any representations (whether written or oral) of any kind or of any person other that those expressly set out in these Terms. The Customer shall have no remedy in respect of any representation (whether written or oral) made to it upon which it relied in entering into these Terms and Amtec shall have no liability otherwise than pursuant to the express terms of these Terms. 9.1 All Intellectual Property Rights in the Goods and Software, but excluding the Customer Data, arising in connection with these Terms shall remain the property of Amtec or its licensors and Amtec hereby grants the Customer a non-transferable non-exclusive licence of such Intellectual Property Rights for the purposes of operating the Goods and/or Software in accordance with these Terms only. On any breach of these Terms the licence shall immediately terminate. 9.2 The Customer shall fully indemnify Amtec against all damages, losses and expenses arising as a result of any action or claim that the Customer Data infringes Intellectual Property Rights of a third party. 9.3 The Customer shall have no right to copy, adapt, reverse engineer, decompile, disassemble or modify the Software in whole or in part except as permitted by law; and/or to the extent that such action is legitimately required for the purposes of integrating the operation of the Software with the operation of other software or systems used by the Customer where Amtec is not prepared to carry out such action at a reasonable fee. 9.4 Without prejudice to the right of the Customer or any third party to challenge the validity of any of Amtec’s Intellectual Property Rights, the Customer shall not do or authorise any third party to do any act which would or might invalidate or be inconsistent with Amtec’s Intellectual Property Rights and shall not omit (or authorise any third party to omit) to do any act which could, if not done, invalidate or be inconsistent with any Amtec’s Intellectual Property Rights. 10.1 Unless otherwise stated by Amtec and subject to the terms of any warranty given to Amtec by the manufacturer of the Goods (details available on request), Amtec warrants that the Goods (excluding any Software) will perform substantially in accordance with the Specification for a period of 12 (twelve) months from delivery. Subject to clause 10.2, if the Goods do not so perform, then Amtec shall for no additional charge ensure that the Goods substantially comply with the Specification or refund the charges paid in respect of the Goods. The Client shall have no other remedy. 10.2 The above warranty does not apply in respect of any defect arising from fair wear and tear, wilful damage, negligence (including improper storage), improper use or maintenance, abnormal working conditions, failure to follow Amtec's instructions (whether oral or in writing), alteration or repair without Amtec's approval, Customer Data, any Third Party Products for which Amtec is not an accredited reseller, if any sum owing by the Customer to Amtec has not been paid, if the Customer moves the System, use of the Goods in combination with any equipment or software not provided by Amtec or any fault in any such equipment or software, any act or omission of any person for which Amtec is not responsible and any breach of the Customer’s obligations under these Terms. 10.3 Unless otherwise stated by Amtec, the Charges exclude maintenance, and the hosting of any website by Amtec. Following Acceptance or delivery (as applicable) Amtec may provide maintenance/support services on the terms of the maintenance agreement entered into by the parties on or around the date of these Terms. Amtec warrants that to the extent it processes any Personal Data on behalf of the Customer: 11.1 it shall act only on instructions from the Customer; and 11.2 it has in place appropriate technical and organisational security measures against unauthorised or unlawful processing of Personal Data and against accidental loss or destruction of, or damage to, Personal Data. 12. Terms and Termination 12.1 These Terms may be terminated by either party on 30 days’ notice. 12.2 Each party shall have the right, without prejudice to its other rights or remedies, to terminate these Terms immediately by notice to the other if the other: 12.2.1 is in material or persistent breach of any of its or its obligations under these Terms and either that breach is incapable of remedy or it shall have failed to remedy that breach within 30 days after receiving written notice requiring it to do so; or 12.2.2 is unable to pay its debts (within the meaning of section 123 of the Insolvency Act 1986); or becomes insolvent; or is subject to an order or a resolution for its liquidation, administration, winding-up or dissolution (otherwise than for the purposes of a solvent amalgamation or reconstruction); or has an administra­tive or other receiver, manager, trustee, liquidator, administrator or similar officer appointed over all or any substantial part of its assets; or enters into or proposes any composition or arrangement with its creditors generally; or is subject to any analogous event or proceeding in any applicable jurisdiction. 12.3 Amtec shall have the right, without prejudice to its other rights or remedies, to termi­nate these Terms immediately by notice to the Customer, if the Customer: 12.3.1 sells all of its assets or is merged or re-organised in circumstances where it is not the surviving entity; or 12.3.2 disputes the ownership or validity of Amtec’s Intellectual Property Rights. 13.1 On termination of these Terms: 13.1.1 the Customer’s right to receive the Goods and/or Services shall cease automatically; 13.1.2 each party shall immediately return to the other all property and materials containing Confidential Information belonging to the other; and 13.1.3 all amounts due from the Customer under these Terms shall be paid immediately by the Customer. 13.2 Any termination of these Terms (howsoever occasioned) shall not affect any accrued rights or liabilities of either party nor shall it affect the coming into force or the continuance in force of any provision of these Terms which is expressly or by implication intended to come into force or continue in force on or after that termination. Amtec shall not be liable to the Customer for any delay or non-performance of its obligations under these Terms arising from any cause or causes beyond its reasonable control including, without limitation, any of the following: act of God, governmental act, war, fire, flood, explosion or civil commotion. 15.1 The Customer may not assign, sub-license, sub-contract, mortgage or otherwise transfer any of its rights or obligations under these Terms without the prior written consent of Amtec. 15.2 Amtec may sub-contract any of its obligations under these Terms on notice to the Customer provided that it shall remain liable to the Customer for the performance of all such obligations. 16.1 The Customer agrees and undertakes that during the term of these Terms and thereafter it will keep confidential all, and will not use for its own purposes nor without the prior written consent of Amtec disclose to any third party any, information of a confiden­tial nature (including trade secrets and information of commercial value and the technical details of the code in the Website or Software or any of it, and the content of the Training) which may become known to the Customer in the course of the Services (“Confidential Information”) unless such information is public knowledge or already known to the Customer at the time of disclosure or subsequently becomes public knowledge other than by breach of these Terms or subsequently comes lawfully into the possession of the Customer from a third party. 16.2 For the avoidance of doubt, nothing in these Terms shall prevent Amtec from referring in its literature, website and advertising and marketing material or elsewhere to the fact that Amtec supplied the Goods and/or designed and developed the Software, and including details. 16.3 The provisions of this clause 16 shall remain in full force and effect notwithstanding any termination of these Terms. 17.1 The Customer shall not either on his own account or in conjunction with or on behalf of any person, firm or company and whether directly or indirectly invite solicit or induce any officer, employee, agent or contractor of Amtec involved with any of the Services to terminate their employment or engagement with Amtec, or attempt to do so. 17.2 The restriction in clause 17.1 shall continue in force during the continuance of the Services, supply of Goods, or licence of any intellectual property rights under these Terms (whichever is the longer) and for a period of six months thereafter. 17.3 The Customer: 17.3.1 agrees that its obligations arising pursuant to clause 17.1 and 17.2 are separate and severable; and 17.3.2 acknowledges that, while such obligations are considered by the Customer to be reasonable in all the circumstances as at the date of the contract under these Terms, they may by their nature become invalid because of changing circumstances or other unforeseen reasons; and 17.3.3 agrees that if any of the obligations arising pursuant to clauses 17.1 and/or 17.2 shall be judged to be void or ineffective for whatever reason but would be judged to be valid and effective if part of the wording of the relevant undertaking were amended to reduce the extent of the obligation, the relevant obligation shall apply with such modifications as may be necessary to make it valid and effective. 17.4 The obligations under this clause 17 shall survive the expiry or the termination of these Terms for whatever reason. 18.1 By placing an order with Amtec, the Customer is expressly waiving any printed terms the Customer may have to the extent that they are inconsistent with the Terms. 18.2 No forbearance or delay by either party in enforcing its rights will prejudice or restrict the rights of that party, and no waiver of any such rights or of any breach of any contractual terms will be deemed to be a waiver of any other right or of any later breach. If any provision of these Terms is judged to be illegal or unenforceable, the contin­uation in full force and effect of the remainder of the provisions will not be prejudiced. Any amendment, waiver or variation of these Terms shall not be binding on the parties unless set out in writing, expressed to amend these Terms and signed by or on behalf of each of the parties. No term of these Terms is intended to confer a benefit on, or to be enforceable by, any person who is not a party to these Terms. Notices (regarding, for example, termination of or claims under these Terms) shall be in writing, and shall be sent to the other party marked for the attention of the person at the address set out for such party in these Terms. Notices may be sent by first-class mail or facsimile or electronic mail transmission provided that facsimile and electronic mail transmissions are confirmed within 24 hours by first-class mailed confirmation of a copy. Correctly addressed notices sent by first-class mail shall be deemed to have been delivered 72 hours after posting and correctly directed facsimile transmissions shall be deemed to have been received instantaneously on transmission provided that they are confirmed as set out above. Unless stated otherwise, the provisions of this clause 22 shall not apply to day-to-day communications relating to the performance of the Services. 23.1 These Terms and the documents annexed hereto or otherwise referred to herein contain the whole agreement between the parties relating to the subject matter hereof and supersede all prior agreements, arrangements and understandings between the parties relating to that subject matter. 23.2 All brochures, catalogues and other promotional materials are to be treated as illustrative only. Their contents form no part of any contract between Amtec and the Customer should not rely on them in entering into any contract with Amtec. Any typographical, clerical or other error or omission in any sales literature, quotation, price list, acceptance of offer, invoice or other document or information issued by Amtec shall be subject to correction without any liability on the part of Amtec. 23.3 Amtec's employees or agents are not authorised to make any representations concerning the Goods and/or Software unless confirmed by Amtec in writing. In entering into this agreement the Customer acknowledges that it does not rely on, and irrevocably waives any claim it may have for damages for or right to rescind this agreement for any such representations which are not so confirmed (unless such representations were fraudulently made). 23.4 Any advice or recommendation given by Amtec or its employees or agents to the Customer or its employees or agents as to the storage, application or use of the Goods and/or Software which is not confirmed in writing by Amtec is followed or acted upon entirely at the Customer's own risk and, accordingly, Amtec shall not be liable for any such advice or recommendation which is not so confirmed. 23.5 Nothing in these Terms affects or limits Amtec’s liability for fraudulent misrepresentation. These Terms shall be governed by and construed in accordance with English law and each party hereby submits to the exclusive jurisdiction of the English courts. © Copyright. All Rights Reserved | Amtec Group Ltd. Adido

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professional_accounting

This site is best viewed with javascript enabled. For help enabling javascript please click here. Jump to news feeds Get in touch: Tel: +44(0)1202 597400Email: [email protected] Why Amtec Policy for WEEE Amtec Careers Support/Maintenance Engineering & Installation Advantages of Partnering Amtec Computer Corporation Limited 13. Consequences of Termination 2. Orders and Scope of the Services 3. The Customer’s Responsibilities 15. Assignment and Sub-Contracting 4. Website/Software Development and Acceptance 16. Confidentiality and Publicity 5. Supply and Installation of Goods 6. Charges and Payment 7. Warranties and Indemnity 8. Limitation of Remedies and Liability 10. Performance and Maintenance 1.1 In these Terms the following words and phrases shall, unless the context otherwise requires, have the following meanings: The acceptance or deemed acceptance of the Software by the Customer pursuant to clause 4; Acceptance Tests: The tests to be carried out on the Software by Amtec as referred to in clause 4; Amtec: Amtec Computer Corporation Limited, company number 02715785, whose registered office is at 229 West Street, Fareham, Hampshire PO16 0HZ; Business Day: Any day (other than a Saturday or Sunday) when banks are generally open for business in London; The charges in respect of the Goods and Services set out in Amtec’s quotation or standard price list at the date of Acceptance or invoice (as applicable) together with any charges arising from agreed variations thereto; Any person who accepts a quotation from Amtec or whose order is accepted by Amtec; Customer Data: Any data provided to Amtec by the Customer from time to time for incorporation in, or use in relation to, the Software, or inputted by the Customer or its employees, agents or contractors into any program containing the Software; The goods that Amtec is to supply; Intellectual Property Rights: All intellectual property rights wherever in the world arising, whether registered or unregistered (and including any application), including copyright, know-how, confidential information, trade secrets, business names and domain names, trade marks, service marks, trade names, patents, petty patents, utility models, design rights, semi-conductor topography rights, database rights and all rights in the nature of unfair competition rights or rights to sue for passing off; Shall have the meaning given in the Data Protection Act 1998; The Software development, product supply and/or installation, support, maintenance and/or consultancy services (as applicable) to be provided by Amtec pursuant to these Terms; The software (including any website) commissioned by the Customer (if applicable) and the underlying code; The specification for the Goods and/or the functionality of the Software set out in Amtec’s quotation or agreed in writing from time to time; These terms and conditions as amended from time to time in accordance with their terms; Third Party Products: Those third party software, hardware and other products to be provided to the Customer as described in Amtec’s quotation and/or notified to the Customer from time to time. 1.2 The headings in these Terms do not affect their interpretation. Save where the context otherwise requires, references to clauses are to clauses of these Terms. 1.3 Unless the context otherwise so requires: 1.3.1 References to Amtec and the Customer include their permitted successors and assigns; 1.3.2 References to statutory provisions include those statutory provisions as amended or re-enacted; and 1.3.3 References to any gender include all genders. 2.1 All Goods and Services are supplied subject to these Terms. 2.2 Subject to availability, Amtec shall provide the Goods and/or Services from time to time agreed with the Customer in writing. No order submitted by the Customer shall be deemed to be accepted by Amtec unless and until confirmed by Amtec and in most cases shipment of your order will be deemed acceptance of your order. All orders must be submitted on Amtec’s standard form. The parties may agree to vary the Services in the same manner. 2.3 The Customer is responsible for ensuring the accuracy of the terms of any order (including any applicable specification). 2.4 No order which has been accepted by Amtec may be cancelled by the Customer except with the agreement in writing of Amtec and on terms that the Customer shall indemnify Amtec in full against all loss (including loss of profit), costs (including the cost of all labour and materials used), damages, charges and expenses incurred by Amtec as a result of cancellation. Without limitation any deposit shall be non refundable. 2.5 Amtec reserves the right to make without notice any minor modifications in the Goods, Specifications, designs or materials as Amtec thinks necessary or desirable. 3.1 The Customer acknowledges that Amtec’s ability to provide the Goods and/or Services is dependent upon the full and timely co-operation of the Customer (which the Customer agrees to provide). Accordingly, the Customer shall provide Amtec with access to, and use of, all information, data and documentation reasonably required by Amtec for the performance by Amtec of its obligations under these Terms. 3.2 For the duration of these Terms, the Customer will permit designated employees and contractors of Amtec: 3.2.1 to access such of the Customer’s equipment and software as is necessary to enable Amtec to provide the Services; and 3.2.2 subject to such conditions as aforesaid, to enter the Customer’s offices during agreed hours for the purpose of performing the Services. 3.3 Where Amtec carries out work at the Customer’s premises the Customer must comply with any applicable laws and regulations. 3.4 The Customer shall appoint a project manager who shall: 3.4.1 provide professional and prompt liaison with Amtec; and 3.4.2 have the necessary expertise and authority to commit the Customer. 3.5 The Customer agrees to make a reasonable amount of relevant human resource available at its premises to assist Amtec at crucial times such as during the Acceptance Tests. 4.1 Once Amtec has completed design and development of the Software (and any further works agreed from time to time) in accordance with these Terms (or as otherwise agreed) Amtec shall run the Acceptance Tests as it sees fit. 4.2 The Acceptance Tests shall test compliance of the Software with the Specification. 4.3 Acceptance of the Software shall occur when the Software has passed the Acceptance Tests. Amtec shall notify the Customer when the tests have been passed. 4.4 If any failure to pass the Acceptance Tests results from a defect which is caused by an act or omission of the Customer or by one of the Customer’s sub-contractors or agents for which Amtec has no responsibility (“Non-Supplier Defects”), the Software shall be deemed to have passed the Acceptance Tests notwithstanding such Non-Supplier Defect. Amtec shall provide assistance reasonably requested by the Customer in remedying any Non-Supplier Defects by supplying additional services or products. If so requested, the Customer shall pay Amtec in full for all such additional services and products at Amtec's then current fees and prices. 4.5 Acceptance of the Software shall be deemed to have taken place upon the happening of any of the following events: 4.5.1 the Customer uses any part of the Software “live” (that is for any purposes other than for internal test purposes); or 4.5.2 the Customer unreasonably delays the start of relevant Acceptance Tests or any retest for a period of 7 (seven) working days from the date when Amtec is ready to commence running the Acceptance Tests or retests. 4.6 All times quoted for delivery or work are estimates only and shall not be of the essence. 5.1 Risk in the Goods shall pass to the Customer on delivery. 5.2 The Customer shall prepare the site for installation and provide all necessary facilities. If Amtec is unable to install when planned due to the act or omission of the Customer, it may invoice the Customer for all additional time which may be incurred at its standard day rates and for all expenses incurred. 5.3 The Customer shall inspect the Goods on delivery or installation (as applicable) and unless the Customer notifies any defects within 7 days of such date shall be deemed to have accepted them. After acceptance the Customer shall not be entitled to reject Goods which are not in accordance with the Terms. In no event shall the Customer be entitled to reject the Goods on the basis of any defect or failure which is so slight that it would be unreasonable for the Customer to reject. 5.4 Where Amtec is an accredited reseller, the Third Party Products will be supplied in accordance with the relevant licensor’s standard terms. Where applicable, the one-off licence fee for such Third Party Products is included in the Charges payable pursuant to clause 6. 5.5 Notwithstanding delivery and the passing of risk in the Goods, or any other provision of these Terms, the property in the Goods shall not pass to the Customer until Amtec has received in cleared funds payment in full of the price of the Goods and all other items agreed to be sold by Amtec to the Customer for which payment is then due. 5.6 Until such time as the property in the Goods passes to the Customer, it shall: 5.6.1 hold them as Amtec's fiduciary agent and bailee, shall keep them separate from those of the Customer and third parties and properly stored, protected and insured and identified as Amtec's property but may use them in the ordinary course of its business; 5.6.2 it shall deliver up the Goods to Amtec on demand and, if the Customer fails to do so immediately, Amtec may enter any premises of the Customer or any third party where the Goods are stored and repossess them and charge the Customer for all costs and expenses associated with the repossession. 6.1 Amtec shall issue an invoice in respect of the Charges, and the Customer shall pay to Amtec the Charges set out in Amtec’s invoice within 30 (thirty) days of the date of delivery or Amtec’s invoice (whichever is the sooner). Time of payment shall be of the essence. Late payment shall result in withdrawal of credit and subsequent orders must be paid for on order 6.2 All Charges are exclusive of VAT. Rates of tax and duties on the goods and services will be those applying at the time of delivery. 6.3 All quotations given by Amtec lapse after 30 days (unless otherwise stated) if Amtec does not withdraw them earlier. 6.4 The price for services is based on work carried out between 8am and 5pm, Monday to Friday. Amtec may charge premium rates for out of hours work. 6.5 If the Customer fails to pay any amount payable by it under these Terms, Amtec shall be entitled but not obliged to charge the Customer interest on the overdue amount, payable by the Customer forthwith on demand, from the due date up to the date of actual payment, after as well as before judgment, at the rate of 2% a year above the base rate for the time being of Barclays Bank plc. Such interest shall accrue on a daily basis and be compounded quarterly. Amtec reserves the right to claim interest under the Late Payment of Commercial Debts (Interest) Act 1998. 6.6 The Customer does not have the right to withhold any retention money or to set off any money the Customer may claim from Amtec against anything the Customer may owe Amtec. 6.7 While the Customer owes money to Amtec, Amtec has a right to keep any property it may hold of the Customer’s until the Customer has paid Amtec in full (a lien). 6.8 Payment shall be applied to invoices in the order in which they were issued and to the Goods and Services in the order in which they are listed in the invoice(s). 7.1 Each of the parties warrants to the other that it has full power and authority to enter into and perform these Terms. 7.2 Amtec shall perform the Services with reasonable care and skill. 7.3 Except as set out in clause 10.1, Amtec gives no warranty (and excludes any warranty, term or condition that would otherwise be implied), including without limitation as to the quality of the Goods or Software or their fitness for any purpose or the potential performance of the Software. Amtec does not warrant that the operation of the Software will be uninterrupted or error free. 7.4 These Terms set out the full extent of Amtec’s obligations and liabilities in respect of the supply of the Goods and Services. All conditions, warranties or other terms concerning the Goods and/or Services which might otherwise be implied into these Terms or any collateral contract (whether by statute or otherwise) are hereby expressly excluded. 7.5 The Customer agrees to fully indemnify Amtec from and against all actions, costs, claims, demands, expenses, liabilities, losses and proceedings (including, where relevant, fines, penalties, legal fees, fees of consultants or experts) whether direct or consequential (including, but without limitation, any economic loss or other loss of turnover, profits, business or goodwill), incurred by Amtec as a result of or in connection with the Customer Data, breach by the Customer of any term of these Terms or any relevant law, or the use of the Software or any website by the Customer’s employees, agents or contractors. 7.6 The Customer expressly acknowledges that the provisions of clauses 7, 8 and 10 satisfy the requirements of reasonableness specified in the Unfair Contract Terms Act 1977 and that the Customer shall be stopped from claiming the contrary at any future date in the event of any dispute with Amtec concerning liability under these Terms. 8.1 Nothing in these Terms shall operate to exclude or limit Amtec’s liability for: 8.1.1 death or personal injury caused by its negligence; 8.1.2 any breach of the terms implied by section 12 of the Sale of Goods Act 1979 or section 2 of the Supply of Goods and Services Act 1982; 8.1.3 fraud; or 8.1.4 any other liability which cannot be excluded or limited under applicable law. 8.2 Subject to condition 8.1, Amtec shall not be liable to the Customer for any increased costs, expenses, loss of profits, loss of or corruption to data, loss of goodwill, business, contracts, revenues or anticipated savings or any type of special, indirect or consequential loss (including loss or damage suffered by the Customer as a result of a claim made by a third party) even if such loss was reasonably foreseeable or Amtec had been advised of the possibility of the Customer incurring the same. 8.3 Subject to clause 8.1, Amtec’s aggregate liability in respect of claims based on events in any calendar year arising out of or in connection with these Terms or any collateral contract, whether in contract or tort (including negligence) or otherwise, shall in no circumstances exceed the total Charges paid by the Customer to Amtec under these Terms in that calendar year. 8.4 The Customer acknowledges that no representations were made prior to entering into these Terms. The Customer agrees that, in entering into these Terms, it did not rely on any representations (whether written or oral) of any kind or of any person other that those expressly set out in these Terms. The Customer shall have no remedy in respect of any representation (whether written or oral) made to it upon which it relied in entering into these Terms and Amtec shall have no liability otherwise than pursuant to the express terms of these Terms. 9.1 All Intellectual Property Rights in the Goods and Software, but excluding the Customer Data, arising in connection with these Terms shall remain the property of Amtec or its licensors and Amtec hereby grants the Customer a non-transferable non-exclusive licence of such Intellectual Property Rights for the purposes of operating the Goods and/or Software in accordance with these Terms only. On any breach of these Terms the licence shall immediately terminate. 9.2 The Customer shall fully indemnify Amtec against all damages, losses and expenses arising as a result of any action or claim that the Customer Data infringes Intellectual Property Rights of a third party. 9.3 The Customer shall have no right to copy, adapt, reverse engineer, decompile, disassemble or modify the Software in whole or in part except as permitted by law; and/or to the extent that such action is legitimately required for the purposes of integrating the operation of the Software with the operation of other software or systems used by the Customer where Amtec is not prepared to carry out such action at a reasonable fee. 9.4 Without prejudice to the right of the Customer or any third party to challenge the validity of any of Amtec’s Intellectual Property Rights, the Customer shall not do or authorise any third party to do any act which would or might invalidate or be inconsistent with Amtec’s Intellectual Property Rights and shall not omit (or authorise any third party to omit) to do any act which could, if not done, invalidate or be inconsistent with any Amtec’s Intellectual Property Rights. 10.1 Unless otherwise stated by Amtec and subject to the terms of any warranty given to Amtec by the manufacturer of the Goods (details available on request), Amtec warrants that the Goods (excluding any Software) will perform substantially in accordance with the Specification for a period of 12 (twelve) months from delivery. Subject to clause 10.2, if the Goods do not so perform, then Amtec shall for no additional charge ensure that the Goods substantially comply with the Specification or refund the charges paid in respect of the Goods. The Client shall have no other remedy. 10.2 The above warranty does not apply in respect of any defect arising from fair wear and tear, wilful damage, negligence (including improper storage), improper use or maintenance, abnormal working conditions, failure to follow Amtec's instructions (whether oral or in writing), alteration or repair without Amtec's approval, Customer Data, any Third Party Products for which Amtec is not an accredited reseller, if any sum owing by the Customer to Amtec has not been paid, if the Customer moves the System, use of the Goods in combination with any equipment or software not provided by Amtec or any fault in any such equipment or software, any act or omission of any person for which Amtec is not responsible and any breach of the Customer’s obligations under these Terms. 10.3 Unless otherwise stated by Amtec, the Charges exclude maintenance, and the hosting of any website by Amtec. Following Acceptance or delivery (as applicable) Amtec may provide maintenance/support services on the terms of the maintenance agreement entered into by the parties on or around the date of these Terms. Amtec warrants that to the extent it processes any Personal Data on behalf of the Customer: 11.1 it shall act only on instructions from the Customer; and 11.2 it has in place appropriate technical and organisational security measures against unauthorised or unlawful processing of Personal Data and against accidental loss or destruction of, or damage to, Personal Data. 12. Terms and Termination 12.1 These Terms may be terminated by either party on 30 days’ notice. 12.2 Each party shall have the right, without prejudice to its other rights or remedies, to terminate these Terms immediately by notice to the other if the other: 12.2.1 is in material or persistent breach of any of its or its obligations under these Terms and either that breach is incapable of remedy or it shall have failed to remedy that breach within 30 days after receiving written notice requiring it to do so; or 12.2.2 is unable to pay its debts (within the meaning of section 123 of the Insolvency Act 1986); or becomes insolvent; or is subject to an order or a resolution for its liquidation, administration, winding-up or dissolution (otherwise than for the purposes of a solvent amalgamation or reconstruction); or has an administra­tive or other receiver, manager, trustee, liquidator, administrator or similar officer appointed over all or any substantial part of its assets; or enters into or proposes any composition or arrangement with its creditors generally; or is subject to any analogous event or proceeding in any applicable jurisdiction. 12.3 Amtec shall have the right, without prejudice to its other rights or remedies, to termi­nate these Terms immediately by notice to the Customer, if the Customer: 12.3.1 sells all of its assets or is merged or re-organised in circumstances where it is not the surviving entity; or 12.3.2 disputes the ownership or validity of Amtec’s Intellectual Property Rights. 13.1 On termination of these Terms: 13.1.1 the Customer’s right to receive the Goods and/or Services shall cease automatically; 13.1.2 each party shall immediately return to the other all property and materials containing Confidential Information belonging to the other; and 13.1.3 all amounts due from the Customer under these Terms shall be paid immediately by the Customer. 13.2 Any termination of these Terms (howsoever occasioned) shall not affect any accrued rights or liabilities of either party nor shall it affect the coming into force or the continuance in force of any provision of these Terms which is expressly or by implication intended to come into force or continue in force on or after that termination. Amtec shall not be liable to the Customer for any delay or non-performance of its obligations under these Terms arising from any cause or causes beyond its reasonable control including, without limitation, any of the following: act of God, governmental act, war, fire, flood, explosion or civil commotion. 15.1 The Customer may not assign, sub-license, sub-contract, mortgage or otherwise transfer any of its rights or obligations under these Terms without the prior written consent of Amtec. 15.2 Amtec may sub-contract any of its obligations under these Terms on notice to the Customer provided that it shall remain liable to the Customer for the performance of all such obligations. 16.1 The Customer agrees and undertakes that during the term of these Terms and thereafter it will keep confidential all, and will not use for its own purposes nor without the prior written consent of Amtec disclose to any third party any, information of a confiden­tial nature (including trade secrets and information of commercial value and the technical details of the code in the Website or Software or any of it, and the content of the Training) which may become known to the Customer in the course of the Services (“Confidential Information”) unless such information is public knowledge or already known to the Customer at the time of disclosure or subsequently becomes public knowledge other than by breach of these Terms or subsequently comes lawfully into the possession of the Customer from a third party. 16.2 For the avoidance of doubt, nothing in these Terms shall prevent Amtec from referring in its literature, website and advertising and marketing material or elsewhere to the fact that Amtec supplied the Goods and/or designed and developed the Software, and including details. 16.3 The provisions of this clause 16 shall remain in full force and effect notwithstanding any termination of these Terms. 17.1 The Customer shall not either on his own account or in conjunction with or on behalf of any person, firm or company and whether directly or indirectly invite solicit or induce any officer, employee, agent or contractor of Amtec involved with any of the Services to terminate their employment or engagement with Amtec, or attempt to do so. 17.2 The restriction in clause 17.1 shall continue in force during the continuance of the Services, supply of Goods, or licence of any intellectual property rights under these Terms (whichever is the longer) and for a period of six months thereafter. 17.3 The Customer: 17.3.1 agrees that its obligations arising pursuant to clause 17.1 and 17.2 are separate and severable; and 17.3.2 acknowledges that, while such obligations are considered by the Customer to be reasonable in all the circumstances as at the date of the contract under these Terms, they may by their nature become invalid because of changing circumstances or other unforeseen reasons; and 17.3.3 agrees that if any of the obligations arising pursuant to clauses 17.1 and/or 17.2 shall be judged to be void or ineffective for whatever reason but would be judged to be valid and effective if part of the wording of the relevant undertaking were amended to reduce the extent of the obligation, the relevant obligation shall apply with such modifications as may be necessary to make it valid and effective. 17.4 The obligations under this clause 17 shall survive the expiry or the termination of these Terms for whatever reason. 18.1 By placing an order with Amtec, the Customer is expressly waiving any printed terms the Customer may have to the extent that they are inconsistent with the Terms. 18.2 No forbearance or delay by either party in enforcing its rights will prejudice or restrict the rights of that party, and no waiver of any such rights or of any breach of any contractual terms will be deemed to be a waiver of any other right or of any later breach. If any provision of these Terms is judged to be illegal or unenforceable, the contin­uation in full force and effect of the remainder of the provisions will not be prejudiced. Any amendment, waiver or variation of these Terms shall not be binding on the parties unless set out in writing, expressed to amend these Terms and signed by or on behalf of each of the parties. No term of these Terms is intended to confer a benefit on, or to be enforceable by, any person who is not a party to these Terms. Notices (regarding, for example, termination of or claims under these Terms) shall be in writing, and shall be sent to the other party marked for the attention of the person at the address set out for such party in these Terms. Notices may be sent by first-class mail or facsimile or electronic mail transmission provided that facsimile and electronic mail transmissions are confirmed within 24 hours by first-class mailed confirmation of a copy. Correctly addressed notices sent by first-class mail shall be deemed to have been delivered 72 hours after posting and correctly directed facsimile transmissions shall be deemed to have been received instantaneously on transmission provided that they are confirmed as set out above. Unless stated otherwise, the provisions of this clause 22 shall not apply to day-to-day communications relating to the performance of the Services. 23.1 These Terms and the documents annexed hereto or otherwise referred to herein contain the whole agreement between the parties relating to the subject matter hereof and supersede all prior agreements, arrangements and understandings between the parties relating to that subject matter. 23.2 All brochures, catalogues and other promotional materials are to be treated as illustrative only. Their contents form no part of any contract between Amtec and the Customer should not rely on them in entering into any contract with Amtec. Any typographical, clerical or other error or omission in any sales literature, quotation, price list, acceptance of offer, invoice or other document or information issued by Amtec shall be subject to correction without any liability on the part of Amtec. 23.3 Amtec's employees or agents are not authorised to make any representations concerning the Goods and/or Software unless confirmed by Amtec in writing. In entering into this agreement the Customer acknowledges that it does not rely on, and irrevocably waives any claim it may have for damages for or right to rescind this agreement for any such representations which are not so confirmed (unless such representations were fraudulently made). 23.4 Any advice or recommendation given by Amtec or its employees or agents to the Customer or its employees or agents as to the storage, application or use of the Goods and/or Software which is not confirmed in writing by Amtec is followed or acted upon entirely at the Customer's own risk and, accordingly, Amtec shall not be liable for any such advice or recommendation which is not so confirmed. 23.5 Nothing in these Terms affects or limits Amtec’s liability for fraudulent misrepresentation. These Terms shall be governed by and construed in accordance with English law and each party hereby submits to the exclusive jurisdiction of the English courts. © Copyright. All Rights Reserved | Amtec Group Ltd. Adido

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professional_accounting

What is being implemented in Guyana? What financial products are traded on exchange? Why does there have to be a special market for stocks and shares? Can’t they be bought and sold like cars or houses or goods in any other market? Does the Stock Market have to be organised by a Stock Exchange? What is the use of a Stock Market – in general? What is the use of a stock market - in Guyana when so many people have so little money? Why does it not use the Trinidad Stock Exchange? Who pays for the Stock Market? How can the Exchange enhance a company’s access to new capital? Why should companies want to be “listed”? When should a company consider listing on the Exchange? How does a company prepare to list on the Exchange? Why should companies issue shares to the public? What else can companies issue besides shares? Will unlisted companies also be traded on the GASCI stock market? How can a stock market succeed if the economy is doing badly? How can a stock market succeed if there are very few stocks? How can investors obtain reliable information from companies? What information must issuers provide investors? What factors are important when analysing a company? How are stocks and shares valued? What makes the price of common stocks and bonds go up and down? What risks are involved in owning common stocks? What makes the price of bonds go up and down? What are the benefits of owning bonds? What risks are involved in owning bonds? What are the risks of investing on the stock market? Who can use the market? How can you buy or sell securities on the Exchange? What does a limited service broker do? What does a broker/dealer do? How are securities paid-for on the Exchange? When does trading take place on Exchange? What about private deals outside the market? A stock market is a place where stocks and shares are traded; it may either be a physical room where the traders gather together or a communications network linking the traders’ offices. Stock markets need to be regulated more than other markets because they deal in large amounts of money and because the customers and the members of the market must have confidence in it. In particular they must be confident that prices are fair and equally available to everyone; they must also be confident that any trade executed on the market will be honoured. A stock exchange is a company which organises and supervises a stock market to be used by its members, either on their own behalf or on behalf of their customers. Does the Stock Market have to be organised by a Stock Exchange? Can’t it be done by a computer bureau? A stock market in Guyana must legally be organised and supervised by a company whose members are traders on the market. Technically it is possible to trade some securities in some countries without involving a stock exchange, but it would not be feasible in Guyana even if it were legal. A stock market allows owners of stocks and shares to dispose of them at a fair price, it allows new investors to buy them at a fair price, and it allows companies to sell new shares to finance the growth of their businesses. Most new investment is by or for people saving up for their retirement. People buy stocks and shares with the expectation that they will be able to sell them again, unlike companies who generally issue stocks with no expectation of ever having to buy them back. This means that older people selling their shares when they retire have to dispose of them, not to the companies that issued them, but to younger people who are building up their savings. This process cannot take place unless there is a reliable marketplace in which to buy and sell. A further benefit of a market is that it provides a basis for valuing businesses, whether for the purposes of stock trading, or for establishing credit with banks and other lenders, or for negotiating mergers and acquisitions. The total volume of savings in Guyana is quite high, but it is held mainly in cash or short term bonds. If it could be mobilised to help finance the growth of the economy through purchase of new shares issued by companies, savers would have a better return on their savings and the economy would grow. There is, in fact, a shortage of stocks and shares in which to invest. If there were more stocks available and a reliable market savings should increase and funds should be attracted from overseas. Initially most of the costs of the GSC and GASCI are being paid for by the British Government. In the longer term the main contribution to financing GASCI is expected to come from issuers, through listing fees. “Listing” literally means being admitted to the Stock Exchange Official List which indicates that the stocks and shares that are listed are freely transferable and validly issued – not non-transferable, or forged, or otherwise tainted; it also means that the issuer meets the requirements of law and regulation in the management of its business and in the disclosure of adequate, timely and accurate information about its business to investors. Listing makes companies more credit-worthy and reduces the cost of borrowing. Listing also permits institutional investors who are not permitted to hold unlisted securities to buy a stock. Listing also increases the visibility of a company. “Listing” is a seal of approval; it is good for a company’s image; it may reduce its cost of borrowing from banks; it may make it eligible to be invested in by major financial institutions like certain US mutual funds which are only permitted to buy listed securities. Listed shares are usually more highly valued than unlisted; this usually makes the cost of new finance for listed companies lower than for unlisted. When the conditions for raising money at advantageous rates are favourable – because the market is buoyant, or because the company is doing well, or both. It consults its professional advisers – lawyers, accountants and bankers. It starts a dialogue with the Exchange or the listing authority. It starts preparing as early as possible. At first companies may be reluctant to issue shares because they may think that it dilutes the ownership and that it requires them to disclose information about their business that they would not otherwise have to reveal. But there is a trade off; they can obtain additional capital and they can increase the value of their business through public issue; they may also be able to issue new shares to merge with or acquire other businesses. Most important of all, they can reduce over dependence on bank borrowing which can be very risky. They can issue bonds which can replace borrowing from the bank at a lower interest rate and for a longer term before repayment. Stock markets can function in bad times as well as good. Prices are lower and trading less active, but the task of providing buyers and sellers with a service can continue to be met. The important thing is to avoid excessive operating costs which lead to the market organisation operating at a loss. Most stock markets round the world – excluding the senior markets of New York, Tokyo, London and Frankfurt – concentrate the major volume of trading activity on a relatively small number of stocks. This is particularly true in the Caribbean. Whatever the size of the market and whatever the number of securities traded, it is essential to match costs to expenditure. Very small informal exchanges can succeed and fulfil their economic function just as well as large formal exchanges. Under the law all publicly held companies are required to be “Reporting Issuers” subject to strict requirements on disclosure to investors and the market, under the regulation of the GSC. Issuers must provide investors with the information specified in the Securities Industry Act making regular periodic reports and special ad hoc disclosures when there has been a significant change in their business or their prospects. Profits, dividends, assets, management and prospects. Common stocks represent a share in the ownership of a company and their value mainly depends on the level of profits. Bonds represent debts owing by a company and their value mainly depends upon financial strength. Shares – which represent part ownership of a company – are usually valued partly by reference to the dividend they pay (which is comparable with the interest received on a bond) and partly by reference to the profits earned by the company and available to pay dividends or to be reinvested by the company in fixed or working capital. For both bonds and shares, the income is measured by the “yield” and for shares the profit is measured by reference to the “price earnings ratio”. It gives the investor an opportunity to participate in the success of a company through increasing dividends or increasing asset value. The risk that the companies who have issued the stocks are unsuccessful or, ultimately, insolvent, in which case the value of the common stock may be nil, In addition the price of common stocks is relatively volatile, moving up and down with the market. Bond prices rise and fall with interest rates, partly on changes in inflation expectations and partly on the supply and demand for credit. A relatively secure and predictable monetary return in the form of interest and/or repayment at a premium over the cost of purchase. The price of bonds is relatively more stable than of common stocks. Default in the payment of interest and/or the repayment of capital. The price of stocks and shares can go down as well as up. Only brokers and dealers who are both registered with the GSC and who are members of GASCI are permitted to trade directly on the stock market, but anyone may place an order with a broker dealer to buy or sell stocks and shares. A limited service broker executes transactions on behalf of investors, but does not provide advice or other ancillary services. A broker dealer carries on business both as an agent for his customers and as a principal for his own account. The buyer of a security pays his broker who pays the seller’s broker who pays the seller; at the same time, the seller passes evidence of ownership to his broker who passes it to the buyer’s broker who passes it to the buyer. It is good practice for payment of money to be matched by transfer of ownership at each stage. Private deals are permitted but they are subject to stamp duty. The issuance of bonus shares to shareholders; such an issue does not change the value of the company, it simply increases the number of shares outstanding. Short-term investments (usually no longer than three (3) months) with insignificant risk of changes in value, that can be readily converted to cash. The increase or decrease in a company's cash due to operating, investing and financing activities. Cash refers to cash on hand, cash at bank and cash equivalents. An arrangement with respect to property of any description the purpose or effect of which is to enable the persons taking part to participate in or receive profits or income arising from such property. [SIA - abbreviated] Unit trusts are collective investment schemes. Any issue of shares that are (1) called "common stock" or (2) not designated as being other than common stock (e.g. "deferred" stock, or "non-voting" stock, or "preferred" stock) or (3) limited in their entitlements to less than those specified under "share" in this glossary. A practice by which stocks and shares listed on one exchange are also listed on another in a different country. (i) Another word for dividend. (ii) A specialised term for the purposes of the SIA relating to newly issued securities or securities subject to public offerings. The net profit available to shareholders divided by the total number of shares outstanding. A bank, investment company, insurance company, building society, unit trust, mutual fund or other entity providing savings facilities to the public. (i) A natural person carrying on the business of broking or dealing [SIA]. (ii) Any broker who acts as an agent between investors. Initial Public Offering, a first public offer of stock by an issuer, often connected with "going public" by obtaining a listing on the stock exchange. A company or public sector body that issues stocks. A securities market that is not associated with an exchange, also called an OTC market. A company any of whose issued shares or debentures are or were part of a distribution or an offer to the public, or, which has issued a security that is beneficially owned by more than fifty persons. UK term for "Transfer Agent" - see below. The day upon which a trade is settled and the contractual obligations between the buyer and seller in respect of the trade are discharged. The time between trade date and settlement date: the international standard is three days. Fractional ownership of a company, entitling the holder to vote at general meetings, to receive dividends approved at general meeting, to participate in distribution of capital, and to participate in liquidation. An increase in the number of shares by subdivision; the effect is the same as a capitalisation issue. A trading system which processes a large number of buying and selling orders simultaneously to generate the single price at which the greatest volume of orders can be matched. (i) US term for a stock market transaction. It is a contractual agreement between buyer and seller to transfer ownership of a specified number of shares or quantity of stock for a specified payment on "settlement day". (ii) A general term in the SIA (3)(2)(z) applying to transactions in general and to activities in furtherance of transactions. The process by which ownership of stocks and shares is transferred from seller to buyer; in Guyana full legal ownership is transferred when seller and buyer have signed a transfer form.

{'timestamp': '2019-04-24T02:39:22Z', 'url': 'http://gasci.com/faq.htm', 'language': 'en', 'source': 'c4'}

professional_accounting

Announcement of Interim Results for the six months ended 30 September 2013 Back to Corporate Announcements Good overall financial performance with headline revenue growth across all of the Group’s main business areas Revenue up 44 per cent to £504.2 million (H1 FY 2013: £349.8 million), including five months’ contribution from LCH.Clearnet; revenue up 8 per cent on organic and constant currency basis Total income (excluding unrealised gains/losses at LCH.Clearnet) up 34 per cent at £567.1 million (H1 FY 2013: £423.7 million); down 4 per cent on organic and constant currency basis Underlying operating expenses kept broadly flat, reflecting continued good cost control Adjusted operating profit1 up 6 per cent at £229.9 million (H1 FY 2013: £217.2 million); down 13 per cent on organic and constant currency basis; operating profit of £151.0 million (H1 FY 2013: £186.8 million) Adjusted basic EPS1 of 48.2 pence (H1 FY 2013: 51.8 pence); basic EPS of 24.9 pence (H1 FY 2013: 43.0 pence) Interim dividend up 4 per cent to 10.1 pence per share (H1 FY 2013: 9.7 pence per share) Acquisition of majority stake in LCH.Clearnet completed in May 2013, with major project programmes now live to deliver operational efficiencies, synergies and other benefits; new LCH.Clearnet Group CEO appointed SwapClear discussions are ongoing to ensure EMIR compliance Numerous new products, services and projects live in the period, including: a CSD in Luxembourg; MTS swaps service; a London-based derivatives market; the launch of FTSE Super Liquid contracts; new FTSE fixed income indices business and acquisition of majority stake in the EuroTLX retail bond platform Commenting on performance of the Group, Xavier Rolet, Chief Executive said: “This has been a good overall first half for the Group. The 44 per cent rise in our revenue reflects an underlying increase of 8 per cent, with growth across all our business divisions, as well as the first time inclusion of LCH.Clearnet. Particular highlights include strong performances from our fixed income business, the resurgent IPO market and further growth in FTSE from both the organic business and the new fixed income indices business. “The Group is increasingly international and diverse and we are well positioned in a wide range of businesses and markets. We remain focused on developing growth opportunities, realising the benefits from the acquisition of LCH.Clearnet, and delivering on our strategy.” 1 before amortisation of purchased intangibles, non-recurring items and unrealised net investment gains/losses at LCH.Clearnet. All comparisons are against the same corresponding period in the previous year unless stated otherwise. Further information is available from: Victoria Brough – Media Paul Froud – Investor Relations Citigate Dewe Rogerson Patrick Donovan/Grant Ringshaw Additional information on London Stock Exchange Group can be found at www.lseg.com The Group will host a presentation of its Interim Results for analysts and institutional shareholders today at 10.00am at 10 Paternoster Square, London EC4M 7LS. The presentation will be accessible via live web cast which can be viewed at http://www.lseg.com/investor-relations or listened to on the numbers below: Participant UK FreeCall Dial-In Numbers: 0800 694 0257 Participant Std International Dial-In: +44 (0) 1452 555 566 Conference ID # 98505369 For further information, please call the Group’s Investor Relations team on +44 (0) 20 7797 3322. Over the last four years, the Group has been successfully executing on its strategy to grow and diversify revenues and to develop its international scale and reach, both organically and by selected acquisitions. We continue to make good progress, in particular with the completion of the acquisition of a majority stake in LCH.Clearnet during the period, which gives us a systemically important financial infrastructure asset with significant international scale. This acquisition also provides us with the ability to further transform our business over coming years, working in partnership with customers, by developing growth opportunities in OTC and other markets and by implementing operational efficiencies and service improvements. While still early days, we have formed detailed programmes to start achieving the various benefits of this transaction, and we will report further in future periods as we make progress. The Group also established an international fixed income indices business, FTSE TMX Global Debt Capital Markets, in April 2013. This transaction increases FTSE’s profile in North America and strengthens its position in fixed income, the fastest growing asset class in the ETF and mutual fund segments. In addition, the Group acquired a 70 per cent stake in EuroTLX, an Italian multilateral trading facility in the retail fixed income market. A number of new initiatives were also launched, including: a Central Securities Depository in Luxembourg, which extends the Group’s CSD services through an open-access model to help customers meet regulatory obligations, with the first major bank customer already signed to use the service; MTS Swaps, a new platform that will give buy-side institutions the ability to trade interest rate swaps electronically; and a new contract, FTSE UK Large Cap Super Liquid index (FTSE UK SLQ) futures, available to trade on the new London Stock Exchange Derivatives Market. We highlight the major factors determining Group performance in our principal business segments, over the past six months, in the commentary below. Information Services revenues increased 14 per cent to £168.3 million (up 9 per cent on an organic and constant currency basis). This growth mainly reflects the strong performance by the FTSE indices business, with revenues up 29 per cent to £83.9 million, which includes contribution from the Vanguard contract win as funds completed the switch to FTSE indices as well as from the new fixed income indices business which contributed £5.8 million in the period. Nearly two years following completion of the acquisition of the outstanding 50 per cent share of FTSE, the Group is on track to achieve the aggregate target £28 million revenue and cost synergies from the transaction, and expects to exceed the £10 million cost saving by the end of the three year timetable. The number of professional users of real time UK data at 30 September 2013 declined 7 per cent year on year to 80,000, while the number of professional users of Italian data reduced by 9 per cent over the same period. Helping to offset the reduction in real time sales was a 6 per cent increase in revenue from other information services. Post Trade Services, comprising CC&G and Monte Titoli in Italy, grew revenue by 8 per cent to £48.1 million (up 1 per cent at constant currency) with clearing revenues impacted by the reduction in Italian equity and derivatives trading volumes. Settlement revenues rose 11 per cent (up 4 per cent at constant currency) as total settlement instructions increased, while custody revenues grew 7 per cent (flat at constant currency). Treasury income decreased as expected, declining 59 per cent to £28.1 million. CC&G completed the move to the 95 per cent secured investment level for cash margin, needed to meet EMIR requirements, by September 2013, with a consequent reduction in yields. LCH.Clearnet contributed revenue of £111.2 million and net treasury income of £30.5 million in the five month period as part of the Group. The SwapClear OTC IRS clearing business performed well, contributing clearing revenue of £41 million with increased dealer and client membership (one of the principal revenue drivers) and a 24 per cent year on year increase in notional value cleared. Revisions to the profit sharing arrangements were agreed for the period, whereby LCH.Clearnet's share of profit from Swapclear is expected to be approximately 34 per cent in 2013. As part of this revision, LCH.Clearnet commenced funding a proportion of the future development expenditure for the SwapClear service. Further discussions are also in progress regarding the way in which SwapClear and other LCH.Clearnet services are structured, governed and managed, to ensure they meet EMIR and other regulatory requirements for clearing houses. While the transaction was only completed in May, we remain even more convinced of the opportunities in the business, and we have progressed speedily in a number of areas to start the process of achieving benefits from the change in majority ownership. Work is underway to quantify further efficiencies in addition to the synergies already documented at the time of the transaction. Investment continues where needed to drive growth, enhance risk management and ensure on-going regulatory compliance. A new Group CEO, Suneel Bakhshi, was recently appointed, due to start in Q1 calendar 2014. He brings substantial experience in risk management and process change in complex organisations, which should prove invaluable as LCH.Clearnet executes its strategy as part of LSEG. Revenue for the Group’s Capital Markets segment, which includes primary and secondary market activities, increased 12 per cent to £145.2 million. In primary markets, the total amount of capital raised increased 114 per cent to £16.3 billion, reflecting a good recovery in equity issuance for domestic and international companies across our markets. In total, 52 companies were admitted to trading on AIM, 6 companies came to market in Italy and 21 issuers joined our main markets in London. Looking ahead, the pipeline of companies working on joining our markets remains encouraging. In Italy, the ELITE programme, which helps companies that are exploring listing, has grown to over 130 firms. In secondary markets, average daily value traded in the UK cash equities market increased 2 per cent to £4.2 billion, while in Italy the average daily number of trades reduced by 8 per cent to 209,000, reflecting a generally weak trend across many markets in Europe. Trading on Turquoise was stronger, with a 63 per cent rise in average daily equity value traded on a pan-European basis. The Group’s derivatives markets experienced weak conditions with 34 and 24 per cent declines in volume traded in the UK and Italy respectively. The fixed income business produced a good performance with trading volumes on the MTS repo markets up 10 per cent year on year while the MTS cash market and BondVision (the dealer to client electronic bond platform) increased 37 per cent. MOT, the Italian retail bond market, grew 7 per cent. Revenues for Technology Services increased 15 per cent to £29.4 million, up 6 per cent on an organic constant currency basis. MillenniumIT performed well, with revenues up 11 per cent at constant currency, mostly relating to growth in the Enterprise Service Provision operation. Revenues from other technology services also grew, with contribution from the recently acquired specialist GATELab IT business. Unless otherwise stated, all figures below refer to the six months ended 30 September 2013. Comparative figures are for the six months ended 30 September 2012 (H1 FY 2013). Variance is also provided at organic and constant currency. The basis of preparation is set out at the end of this report. Organic and £m LCH.Clearnet Net treasury income through CCP business: CC&G LCH.Clearnet unrealised gain / (loss) Total income including unrealised Total income excluding unrealised Adjusted operating profit* Amortisation of purchased intangibles and non-recurring items Basic earnings per share (p) Adjusted basic earnings per share (p)* Dividend (p) * before amortisation of purchased intangibles, non-recurring items and unrealised net investment gains/losses at LCH.Clearnet LCH.Clearnet results represent five months ended 30 September 2013; for equivalent period comparatives in 2012 (prior to being part of LSEG), see section “Operating Performance – Key statistics” below Organic growth is calculated in respect of businesses owned for at least 12 months and so excludes EuroTLX, FTSE TMX Global Debt Capital Markets, GATElab and LCH.Clearnet. The Group produced a good overall financial performance. Revenue (excluding unrealised gains/losses at LCH.Clearnet) increased 44 per cent to £504.2 million (H1 FY 2013: £349.8 million) and total income (excluding unrealised gains/losses at LCH.Clearnet) rose 34 per cent to £567.1 million (H1 FY 2013: £423.7 million). The increase in both lines reflects contribution from LCH.Clearnet since 1 May 2013, offsetting the expected decline in net treasury income from CC&G, which was £40 million lower than the same period last year following changes in investment of cash margin and lower spreads achieved. Operating expenses, before amortisation of purchased intangibles and non-recurring items, rose 63 per cent to £337.2 million (H1 FY 2013: £206.5 million), mainly reflecting the inclusion of LCH.Clearnet for a five month period. Adjusting for currency changes, estimated inflation and the impact of the acquisitions, principally being LCH.Clearnet and the FTSE TMX fixed income indices business, operating costs were broadly flat, reflecting continued control of our underlying cost base. Adjusted operating profit for the period, before amortisation of purchased intangibles, non-recurring items and unrealised losses, increased 6 per cent to £229.9 million (H1 FY 2013: £217.2 million). Net finance costs were £35.0 million, up from £21.4 million in H1 last year, reflecting the increased cost of carry of the £300 million retail bond (issued in November 2012) that replaced short-dated bank debt, the drawing of credit facilities to fund the acquisition of the majority stake in LCH.Clearnet in May 2013 and also arrangement fees totalling £3 million for new bank revolving facilities, signed in July 2013. The underlying effective Group tax rate was 27.1 per cent, lower than the rate for the year ended 31 March 2013 (29.0 per cent). Net cash inflow from operating activities was £156.4 million (H1 FY 2013: £172.5 million), reflecting the decline in net treasury income, partly offset by cash from LCH.Clearnet after payment of interest of £11 million on their Preferred Securities. Capital expenditure in the period amounted to £35.3 million (H1 FY 2013: £26.7 million). Net cash generated after capex, other investments and dividends was £64.7 million (H1 FY 2013: £79.5 million). Free cash flow per share (post net interest paid, tax paid and investment activities) was 44.3p (H1 FY 2013: 50.0p). At 30 September 2013, adjusted net debt was £1,179.9 million (after setting aside £200 million of cash for regulatory and operational support purposes for the core LSEG businesses, and assuming no surplus cash at LCH.Clearnet) while drawn borrowings of £1,312.5 million are £515.7 million higher than at the start of the current financial year. This increase in borrowings mainly reflects financing of the acquisition of the majority stake in LCH.Clearnet, its subsequent capital raise and consolidation of the LCH.Clearnet Group Preferred Securities. Committed debt and credit lines available for general group purposes at 30 September 2013 totalled £1.5 billion, extending out to 2016 or beyond. At 30 September 2013, pro forma net debt:EBITDA was 2.2 times. In July 2013, the Group signed a new £700 million unsecured, committed revolving facility package, on improved terms, to replace its existing credit lines. The new facility package comprises a mix of 5 and 3 year commitments which extend the Group’s debt maturity profile and underpin its financial flexibility. The Group had net assets of £1,898.7 million at 30 September 2013 (31 March 2013: £1,599.0 million), including LCH.Clearnet following the acquisition of a 57.8 per cent stake from 1 May 2013. The central counterparty clearing business assets and liabilities within both CC&G and, for the first time, LCH.Clearnet are shown gross on the balance sheet as the amounts receivable and payable, which largely offset each other, are unable to be netted under accounting treatments. Interim Dividend The Directors have declared an interim dividend of 10.1 pence per share, an increase of 4 per cent on the interim dividend paid last year. The interim dividend will be paid on 6 January 2014 to shareholders on the register on 6 December 2013. The Group has delivered good overall six month results, reflecting growth both within the core businesses and from new additions to the Group. The Group is increasingly international and diverse and we are well positioned in a wide range of businesses and markets. Looking forward, the IPO pipeline appears healthy with a number of companies poised to join our markets, we are making good progress at FTSE and integration work streams are underway following the acquisition of a majority stake in LCH.Clearnet. We remain focused on developing growth opportunities, realising the benefits from the acquisition of LCH.Clearnet and delivering on our stated strategy. Chris Gibson-Smith Operating Performance – Key statistics To assist investors in understanding the underlying performance of the Group, percentage changes are also presented on a constant currency basis. Capital Markets comprises the Group’s primary markets activities, providing access to capital for corporates and others, and the secondary market trading of cash equities, derivatives and fixed income. Primary Markets Secondary Markets Cash equities UK & Turquoise Cash equities Italy Capital Markets - Primary Markets UK Main Market, PSM & SFM UK AIM Company Numbers (as at period end) Market Capitalisation (as at period end) UK Main Market (£bn) UK AIM (£bn) Borsa Italiana (€bn) Borsa Italiana (£bn) Total (£bn) Money Raised (£bn) UK New UK Further Borsa Italiana new and further Capital Markets - Secondary Markets Totals for period UK value traded (£bn) Borsa Italiana (no of trades m) Turquoise value traded (€bn) SETS Yield (basis points) Average daily Borsa Italiana (no of trades '000) Derivatives (contracts m) LSE Derivatives MTS cash and Bondvision (€bn) MTS money markets (€bn term adjusted) MOT number of trades (m) The Post Trade Services division principally comprises the Group’s Italian-based clearing, settlement and custody businesses. Custody & other Net treasury income CC&G Clearing (m) Equity clearing (no of trades) Derivative clearing (no of contracts) Open interest (contracts as at period end) Initial margin held (average €bn) Pre Settlement instructions (trades m) Settlement instructions (trades m) Total Settlement Custody assets under management (average €tn) The LCH.Clearnet division principally comprises the Group’s majority owned global clearing business. Five months ended Pro forma SwapClear ForexClear/CDSClear Non-OTC Listed derivatives Cash equities Total Clearing fee revenue Unrealised gain / (loss) IRS notional outstanding ($trn) IRS notional cleared ($trn) SwapClear members CDSClear Open interest (€bn) Notional cleared (€bn) CDSClear members ForexClear Notional value cleared ($bn) ForexClear members Fixed income - Nominal value (€trn) Commodities (lots m) Listed derivatives (contracts m) Cash equities trades (m) Average cash collateral (€bn) The Information Services division consists of real time data products and a number of other discrete businesses, including Global Indices products, Trade Processing operations, Desktop and Work Flow products. variance1 Other information services As at UK Terminals Professional - UK Professional - International Borsa Italiana Professional Terminals ETFs assets under management benchmarked ($bn) Technology Services comprises technology connections and data centre services for clients of London Stock Exchange and Borsa Italiana, plus the MillenniumIT software business, based in Sri Lanka, which provides technology for the Group as well as third party sales and enterprise services. MillenniumIT Results for the Italian business have been translated into Sterling using the exchange rates set out below. Constant currency growth rates have been calculated by translating prior period results at the average exchange rate for the current period. Closing € : £ rate Average € : £ rate for the period ended For the full presentation please visit the Investor Relations section of the website http://www.lseg.com/investor-relations

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professional_accounting

The Audit Committee (AC) serves in an expert advisory capacity to assist the Executive Board and the Executive Director in exercising their governance responsibilities for financial reporting, internal control arrangements, risk management processes and other audit related matters. The membership of the Audit Committee is wholly independent and external to the WFP Executive Board Secretariat and the Board. See the Revised Terms of Reference of the Audit Committee (revised in November 2018) See the latest Annual Report of the Audit Committee (June 2020) Previous Annual Reports: 2019 |2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 Audit Committee Term Dates - Appointment and CVs Mr. Suresh Kana (Chairperson 2017-2018 - South Africa) - 15 November 2015 to 14 November 2018* - Appointment and CV Mr. Omkar Goswami (India) - 15 November 2015 to 14 November 2018* - Appointment and CV Ms. Elaine J. Cheung (ZHANG Qiling) (China) - 15 November 2015 to 14 November 2018* - Appointment and CV Ms. Agnieszka Slomka-Golebiowska (Poland) - 30 July 2017 to 29 July 2020** - Appointment and CV Mr. Robert Samels (Canada) - 01 March 2019 to 28 February 2022 - Appointment and CV *Re-appointed for a second term, effective 15 November 2018 **Re-appointed for a second term, effective 30 July 2020 Left to Right: Mr. R. Samels (Canada), Ms. Elaine J. Cheung (ZHANG Qiling) (China), Mr. S. Kana (South Africa) Chairperson 2017-2020, Ms. A. Slomka-Golebiowska (Poland), Mr. O. Goswami (India) All Audit Committee Members of the World Food Programme Evolution of the WFP Audit Committee 1984 – The AC was created as an entirely internal management committee. WFP was among the first United Nations organizations to establish such a committee, followed by UNESCO and UNFPA in 2004. Following the 2003 and 2004 reviews of best practice mechanisms for governance and oversight presented to the Executive Board, the Executive Director proposed new Terms of Reference and the AC composition included five members: three external (including the Chairperson) and two internal. 2005 – For the first time, the AC’s report to the Executive Director was presented to the Executive Board for information. 2007 – For the first time, the AC was comprised entirely of external members, making WFP the first United Nations agency to have an AC with such composition. 2009 – The AC reporting line was revised to include both the Executive Director and the Executive Board. 2010 – The mandate of the AC was reinforced to include advice to WFP management on evaluation of operational risks, assessments of audit programmes and consultation on the appointments of the Inspector General, as well as the Director of Internal Audit and the Director of Inspections and Investigations. 2011 – The role of the Executive Board was enhanced to periodically review the Terms of Reference, nominate candidates for AC membership, and have the AC selection panel report its recommendations to the President of the Executive Board in addition to the Executive Director. 2017 – The Terms of Reference were revised twice to reflect the latest best practices among which are WFP's strengthened oversight activities, including advice by the AC on the performance of the Inspector General; comments for consideration by the External Auditor in the independent determination of the External Auditor's work plan and reports; advice on ethics; extending cooling off periods for ex members of the Audit Committee and of the Executive Board as well as WFP staff; and reconstituting the selection panel for the appointment of Audit Committee members to five Executive Board representatives, one from each of the electoral Lists. 2018 – In response to recommendations in the Joint Inspection Unit review of audit/oversight committees in the United Nations system (project number A.434), the Terms of Reference were revised to include a sentence in paragraph 27 (As part of its rules of procedure, the AC shall conduct an annual self-assessment of its performance and report thereon to the Executive Board and the Executive Director.) and a sentence in paragraph 38 (As part of onboarding activities, incoming members shall receive a one-day induction, similar to that arranged for new Executive Board Members and Observers, prior to their first meeting.) The WFP AC has been acknowledged as a benchmark for implementing all the best practices recommended by the Good Governance in the Public Sector Framework, as outlined in the Special Report No 27/2016: Governance at the European Commission – best practice of the European Court of Auditors: Role/Composition of Audit Progress Committee and selected audit committees compared to best practices recommended by Good Governance in the Public Sector Framework [1] Sources: World Food Programme: Terms of reference for the Audit Committee of the World Food Programme (November 2011), European Investment Bank: Audit Committee Charter (June 2007), World Bank Group: World Bank Resolution Standing Committees (2009), Annex A Terms of Reference of the Audit Committee, United Nations: Terms of reference for the Independent Audit Advisory Committee and strengthening the Office of Internal Oversight Services (June 2007). [2] Source: ECA. The APC Charter also refers to external audit (see paragraph 30). 3rd Meeting of UN System Oversight Committees On 11-12 December 2018, the 3rd meeting of Oversight Committees from the United Nations system took place in New York. Mr. Suresh Kana, the current Chairperson of the WFP Audit Committee since 2017, joined the meeting. The agenda included, among others, the following items: • Assessing organizational culture, including in the context of digitalization, and how oversight committees can stimulate the discussion of purpose and future orientation of an organization; • The role of oversight committees in supporting and overseeing the implementation of the 2030 Agenda for Sustainable Development; and • Statement on internal control framework and how oversight committees can add value, including identifying the indicators of significant control or risk management deficiencies. WFP Audit Committee Chairperson Mr. Suresh Kana (South Africa), second row, the fifth from the left. 2nd Meeting of UN System Oversight Committees On 12-13 December 2017, the 2nd meeting of Oversight Committees from the United Nations system took place in New York. Mr. Suresh Kana, the current Chairperson of the WFP Audit Committee since 2017, joined the meeting. The agenda included the following items: Addressing new and emerging risks, in particular, cyber-security, and digitalization; Examining the role of oversight committees in the United Nations system setting, including its relationship with external auditors; Discussing good practices and challenges in addressing the performance and resourcing of the internal oversight function; and Briefing from KPMG on the outcome of the global survey pertaining to the role of audit committees. All of these issues have been noted in recent reports of the WFP Audit Committee and are thus of great relevance for the organization. Chairperson Mr. Suresh Kana (South Africa) in the middle, first row, the sixth from the left.

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professional_accounting

PKTMX Balanced | Target Maturity Seeks to provide total return over time, consistent with the Fund’s strategic target allocation. Overall Rating - Target-Date 2015 Category As of 12/31/2020 the Fund had an overall rating of 1 stars out of 97 funds and was rated 1 stars out of 97 funds, N/A stars out of N/A funds and N/A stars out of N/A funds for the 3-, 5- and 10- year periods, respectively. Duy Nguyen, CFA, CAIA Jacob Borbidge, CFA, CAIA Top Equity Holdings | View all Invesco Core Plus Bond Fund 17.44 Invesco S&P 500 High Dividend Low Volatility ETF 9.57 Invesco Variable Rate Preferred ETF 8.99 Invesco Income Fund 8.48 Invesco S&P 500 Enhanced Value ETF 8.06 Invesco Floating Rate ESG Fund 8.01 Invesco International Bond Fund 7.01 Invesco Global Real Estate Income Fund 6.03 Invesco S&P International Developed Low Volatility ETF 4.99 Invesco Fundamental High Yield Corporate Bond ETF 4.98 NAV 12/29/2017 N/A 4.42 3.53 3.53 4.43 N/A N/A Load 12/29/2017 5.50 2.48 -2.16 -2.16 2.48 N/A N/A Custom Invesco Peak Retirement 2015 Benchmark 1.28 4.36 10.04 7.11 N/A N/A Management Fee N/A Other Expenses 23.43 Total Other Expenses 23.43 Total Annual Fund Operating Expenses 24.14 Contractual Waivers/Reimbursements -23.33 3-Year Alpha -5.00% Number of Securities 14 Total Assets $1,150,015.00 Benchmark: Custom Invesco Peak Retirement 2015 Benchmark United States 96.76 Allocation Risk. The Fund’s investment performance depends, in part, on how its assets are allocated among the underlying funds or asset classes. The Adviser’s evaluations and assumptions regarding the asset classes or the underlying funds in which the Fund invests may be incorrect, causing the Fund to be invested (or not invested) in one or more asset classes or underlying funds at an inopportune time, which could negatively affect the Fund’s performance. Bank Loan Risk. There are a number of risks associated with an investment in bank loans including, credit risk, interest rate risk, liquidity risk and prepayment risk. Lack of an active trading market, restrictions on resale, irregular trading activity, wide bid/ask spreads and extended trade settlement periods may impair an underlying fund’s ability to sell bank loans within its desired time frame or at an acceptable price and its ability to accurately value existing and prospective investments. Extended trade settlement periods may result in cash not being immediately available to an underlying fund. As a result, an underlying fund may have to sell other investments or engage in borrowing transactions to raise cash to meet its obligations. The risk of holding bank loans is also directly tied to the risk of insolvency or bankruptcy of the issuing banks. These risks could cause an underlying fund to lose income or principal on a particular investment, which in turn could affect the underlying fund’s returns. The value of bank loans can be affected by and sensitive to changes in government regulation and to economic downturns in the United States and abroad. Bank loans generally are floating rate loans, which are subject to interest rate risk as the interest paid on the floating rate loans adjusts periodically based on changes in widely accepted reference rates. Borrowing Risk. Borrowing money to buy securities exposes an underlying fund to leverage and will cause an underlying fund’s share price to be more volatile because leverage will exaggerate the effect of any increase or decrease in the value of an underlying fund’s portfolio securities. Borrowing money may also require an underlying fund to liquidate positions when it may not be advantageous to do so. In addition, an underlying fund will incur interest expenses and other fees on borrowed money. There can be no assurance that an underlying fund’s borrowing strategy will enhance and not reduce the underlying fund’s returns. Cash/Cash Equivalents Risk. In rising markets, holding cash or cash equivalents will negatively affect an underlying fund’s performance relative to its benchmark. Changing Fixed Income Market Conditions Risk. The current low interest rate environment was created in part by the Federal Reserve Board (FRB) and certain foreign central banks keeping the federal funds and equivalent foreign rates near, at or below zero. Increases in the federal funds and equivalent foreign rates may expose fixed income markets to heightened volatility and reduced liquidity for certain fixed income investments, particularly those with longer maturities. In addition, decreases in fixed income dealer market-making capacity may also potentially lead to heightened volatility and reduced liquidity in the fixed income markets. As a result, the value of an underlying fund’s investments and share price may decline. Changes in central bank policies could also result in higher than normal shareholder redemptions, which could potentially increase portfolio turnover and an underlying fund’s transaction costs. Collateralized Loan Obligations Risk. CLOs are subject to the risks of substantial losses due to actual defaults by underlying borrowers, which will be greater during periods of economic or financial stress. CLOs may also lose value due to collateral defaults and disappearance of subordinate tranches, market anticipation of defaults, and investor aversion to CLO securities as a class. The risks of CLOs will be greater if an underlying fund invests in CLOs that hold loans of uncreditworthy borrowers or if an underlying fund holds subordinate tranches of the CLO that absorbs losses from the defaults before senior tranches. In addition, CLOs carry risks including interest rate risk and credit risk. Commodities Tax Risk. The tax treatment of commodity-linked derivative instruments may be adversely affected by changes in legislation, regulations or other legally binding authority. If, as a result of any such adverse action, the income of an underlying fund from certain commodity-linked derivatives was treated as non-qualifying income, an underlying fund might fail to qualify as a regulated investment company and be subject to federal income tax at the fund level. As a result of a recent announcement by the Internal Revenue Service, an underlying fund intends to invest in commodity-linked notes: (a) directly, generally only to the extent that it obtains an opinion of counsel confirming that income from such investments should be qualifying income because such commodity-linked notes constitute securities under section 2(a)(36) of the 1940 Act or (b) indirectly through the Subsidiary. Should the Internal Revenue Service issue further guidance, or Congress enact legislation, that adversely affects the tax treatment of an underlying fund’s use of commodity-linked notes or a wholly-owned subsidiary (which guidance might be applied to the underlying fund retroactively), it could, among other consequences, limit the underlying fund’s ability to pursue its investment strategy. Commodity Risk. An underlying fund may have investment exposure to the commodities markets and/or a particular sector of the commodities markets, which may subject an underlying fund to greater volatility than investments in traditional securities, such as stocks and bonds. Volatility in the commodities markets may be caused by changes in overall market movements, domestic and foreign political and economic events and policies, war, acts of terrorism, changes in domestic or foreign interest rates and/or investor expectations concerning interest rates, domestic and foreign inflation rates, investment and trading activities of mutual funds, hedge funds and commodities funds, and factors such as drought, floods, weather, livestock disease, embargoes, tariffs and other regulatory developments, or supply and demand disruptions. Because an underlying fund’s performance may be linked to the performance of volatile commodities, investors should be willing to assume the risks of potentially significant fluctuations in the value of an underlying fund’s shares. Convertible Securities Risk. The market values of convertible securities are affected by market interest rates, the risk of actual issuer default on interest or principal payments and the value of the underlying common stock into which the convertible security may be converted. Additionally, a convertible security is subject to the same types of market and issuer risks as apply to the underlying common stock. In addition, certain convertible securities are subject to involuntary conversions and may undergo principal write-downs upon the occurrence of certain triggering events, and, as a result, are subject to an increased risk of loss. Convertible securities may be rated below investment grade. Credit Linked Notes Risk. Risks of credit linked notes include those risks associated with the underlying reference obligation including but not limited to market risk, interest rate risk, credit risk, default risk and, in some cases, foreign currency risk. An investor in a credit linked note bears counterparty risk or the risk that the issuer of the credit linked note will default or become bankrupt and not make timely payment of principal and interest of the structured security. Credit linked notes may be less liquid than other investments and therefore harder to dispose of at the desired time and price. In addition, credit linked notes may be leveraged and, as a result, small changes in the value of the underlying reference obligation may produce disproportionate losses to an underlying fund. Debt Securities Risk. The prices of debt securities held by an underlying fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause an underlying fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce an underlying fund’s distributable income because interest payments on floating rate debt instruments held by an underlying fund will decline. An underlying fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer’s financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. An underlying fund’s adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event. Defaulted Securities Risk. Defaulted securities pose a greater risk that principal will not be repaid than non-defaulted securities. Defaulted securities and any securities received in an exchange for such securities may be subject to restrictions on resale. Depositary Receipts Risk. Investing in depositary receipts involves the same risks as direct investments in foreign securities. In addition, the underlying issuers of certain depositary receipts are under no obligation to distribute shareholder communications or pass through any voting rights with respect to the deposited securities to the holders of such receipts. An underlying fund may therefore receive less timely information or have less control than if it invested directly in the foreign issuer. Derivatives Risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay an underlying fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in an underlying fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the underlying fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the underlying fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the underlying fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the underlying fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions. These risks are greater for certain underlying funds than mutual funds that do not use derivative instruments or that use derivative instruments to a lesser extent than certain underlying funds to implement their investment strategies. Dividend Paying Security Risk. Securities that pay high dividends as a group can fall out of favor with the market, causing such companies to underperform companies that do not pay high dividends. Also, changes in the dividend policies of the companies in an underlying fund’s underlying index and the capital resources available for such companies’ dividend payments may affect an underlying fund. Dollar Roll Transactions Risk. Dollar roll transactions occur in connection with TBA transactions and involve the risk that the market value of the securities an underlying fund is required to purchase may decline below the agreed upon purchase price of those securities. Dollar roll transactions add a form of leverage to an underlying fund’s portfolio, which may make the Fund’s returns more volatile and increase the risk of loss. In addition, dollar roll transactions may increase an underlying fund’s portfolio turnover, which may result in increased brokerage costs and may lower an underlying fund’s actual return. Exchange-Traded Fund Industry Concentration Risk. In following its methodology, an underlying exchange-traded fund’s underlying index from time to time may be concentrated to a significant degree in securities of issuers located in a single industry or sector. To the extent that an underlying fund’s underlying index concentrates in the securities of issuers in a particular industry or sector, an underlying fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or sector, an underlying fund faces more risks than if it were diversified broadly over numerous industries or sectors. Such industry-based risks, any of which may adversely affect the companies in which an underlying fund invests, may include, but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry; competition for resources, adverse labor relations, political or world events; obsolescence of technologies; and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or sector may be out of favor and underperform other industries or the market as a whole. Exchange-Traded Funds Risk. In addition to the risks associated with the underlying assets held by the exchange-traded fund, investments in exchange-traded funds are subject to the following additional risks: (1) an exchange-traded fund’s shares may trade above or below its net asset value; (2) an active trading market for the exchange-traded fund’s shares may not develop or be maintained; (3) trading an exchange-traded fund’s shares may be halted by the listing exchange; (4) a passively-managed exchange-traded fund may not track the performance of the reference asset; and (5) a passively managed exchange-traded fund may hold troubled securities. Investment in exchange-traded funds may involve duplication of management fees and certain other expenses, as the Fund or an underlying fund indirectly bears its proportionate share of any expenses paid by the exchange-traded funds in which it invests. Further, certain exchange-traded funds in which the Fund or an underlying fund may invest are leveraged, which may result in economic leverage, permitting the Fund or an underlying fund to gain exposure that is greater than would be the case in an unlevered instrument, and potentially resulting in greater volatility. Exchange-Traded Notes Risk. Exchange-traded notes are subject to credit risk, counterparty risk, and the risk that the value of the exchange-traded note may drop due to a downgrade in the issuer’s credit rating. The value of an exchange-traded note may also be influenced by time to maturity, level of supply and demand for the exchange-traded note, volatility and lack of liquidity in the underlying market, changes in the applicable interest rates, and economic, legal, political, or geographic events that affect the referenced underlying market or assets. An underlying fund will bear its proportionate share of any fees and expenses borne by an exchange-traded note in which it invests. For certain exchange-traded notes, there may be restrictions on an underlying fund’s right to redeem its investment in an exchange-traded note, which is meant to be held until maturity. Foreign Currency Tax Risk. If the U.S. Treasury Department were to exercise its authority to issue regulations that exclude from the definition of “qualifying income” foreign currency gains not directly related to an underlying fund’s business of investing in securities, the underlying fund may be unable to qualify as a regulated investment company for one or more years. In this event, the underlying fund’s Board of Trustees may authorize a significant change in investment strategy or other action. Foreign Government Debt Risk. Investments in foreign government debt securities (sometimes referred to as sovereign debt securities) involve certain risks in addition to those relating to foreign securities or debt securities generally. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and an underlying fund may have limited recourse in the event of a default against the defaulting government.Without the approval of debt holders, some governmental debtors have in the past been able to reschedule or restructure their debt payments or declare moratoria on payments. Foreign Securities Risk. An underlying fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which an underlying fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. Unless an underlying fund has hedged its foreign securities risk, foreign securities risk also involves the risk of negative foreign currency rate fluctuations, which may cause the value of securities denominated in such foreign currency (or other instruments through which an underlying fund has exposure to foreign currencies) to decline in value. Currency exchange rates may fluctuate significantly over short periods of time. Currency hedging strategies, if used, are not always successful. Fund of Funds Risk. The Fund’s performance depends on that of the underlying funds in which it invests. Accordingly, the risks associated with an investment in the Fund include the risks associated with investments in the underlying funds. The Fund will indirectly pay a proportional share of the fees and expenses of the underlying funds in which it invests. There are risks that the Fund will vary from its target weightings (if any) in the underlying funds, that the underlying funds will not achieve their investment objectives, that the underlying funds’ performance may be lower than their represented asset classes, and that the Fund may withdraw its investments in an underlying fund at a disadvantageous time. Geographic Focus Risk. An underlying fund may from time to time invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. Adverse economic, political or social conditions in those countries may therefore have a significant negative impact on an underlying fund’s investment performance. High Yield Debt Securities (Junk Bond) Risk. Investments in high yield debt securities (“junk bonds”) and other lower-rated securities will subject an underlying fund to substantial risk of loss. These securities are considered to be speculative with respect to the issuer’s ability to pay interest and principal when due, are more susceptible to default or decline in market value and are less liquid than investment grade debt securities. Prices of high yield debt securities tend to be very volatile. Hybrid Securities Risk. Although generally considered an equity security within an issuer’s capital structure, a hybrid security may exhibit characteristics akin to a debt security, convertible security, or other evidence of indebtedness on which the value of the interest, or principal of which, is determined by reference to changes in the value of a reference instrument or financial strength of a reference entity (e.g., a security or other financial instrument, asset, currency or interest rate). The price of a hybrid security and any applicable reference instrument may not move in the same direction or at the same time. An investment in a hybrid security may entail significant risks not associated with a similar investment in a traditional equity security. The risks of a particular hybrid security will depend upon the terms of the instrument, but may include the possibility of significant changes in the value of any applicable reference instrument. Hybrid securities potentially are more volatile than traditional equity securities. Hybrid instruments may carry credit risk of their issuer, as well as liquidity risk, since they often are “customized” to meet the needs of an issuer or a particular investor, and therefore the number of investors that buy such instruments in the secondary market may be small. Indexing Risk. An underlying fund is operated as a passively managed index fund and, therefore, the adverse performance of a particular security necessarily will not result in the elimination of the security from the underlying fund’s portfolio. Ordinarily, the underlying fund’s adviser will not sell the underlying fund’s portfolio securities except to reflect additions or deletions of the securities that comprise the underlying fund’s underlying index, or as may be necessary to raise cash to pay underlying fund shareholders who sell underlying fund shares. As such, the underlying fund will be negatively affected by declines in the securities represented by its underlying index. Also, there is no guarantee that the underlying fund’s adviser will be able to correlate the underlying fund’s performance with that of its underlying index. Inflation-Indexed Securities Risk. The values of inflation-indexed securities generally fluctuate in response to changes in real interest rates, and an underlying fund’s or the Fund’s income from its investments in these securities is likely to fluctuate considerably more than the income distributions of its investments in more traditional fixed income securities. Inflation-Indexed Securities Tax Risk. Any increase in the principal amount of an inflation-indexed security may be included for tax purposes in an underlying fund’s or the Fund’s gross income, even though no cash attributable to such gross income has been received by the underlying fund or the Fund. In such event, the underlying fund or the Fund may be required to make annual distributions to shareholders that exceed the cash it has otherwise received. In order to pay such distributions, the underlying fund or the Fund may be required to raise cash by selling portfolio investments. The sale of such investments could result in capital gains to the underlying fund or the Fund and additional capital gain distributions to the Fund. In addition, adjustments during the taxable year for deflation to an inflation-indexed bond held by an underlying fund or the Fund may cause amounts previously distributed to the Fund in the taxable year as income to be characterized as a return of capital, which could increase or decrease the Fund’s ordinary income distributions to you, and may cause some of the Fund’s distributed income to be classified as a return of capital. Liquidity Risk. An underlying fund may be unable to sell illiquid investments at the time or price it desires and, as a result, could lose its entire investment in such investments. Liquid securities can become illiquid during periods of market stress. If a significant amount of the an underlying fund’s securities become illiquid, an underlying fund may not be able to timely pay redemption proceeds and may need to sell securities at significantly reduced prices. Management Risk. An underlying fund is actively managed and depends heavily on an underlying fund’s adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for an underlying fund’s portfolio. An underlying fund could experience losses if these judgments prove to be incorrect. Because an underlying fund’s investment process relies heavily on its asset allocation process, market movements that are counter to the portfolio managers’ expectations may have a significant adverse effect on the Fund’s net asset value. Additionally, legislative, regulatory, or tax developments may adversely affect management of an underlying fund and, therefore, the ability of the underlying fund to achieve its investment objective. Market Risk. The market values of an underlying fund’s investments, and therefore the value of an underlying fund’s shares, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual stock prices tend to go up and down more dramatically than those of certain other types of investments, such as bonds. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by an underlying fund will rise in value. Market Trading Risk. An underlying exchange-traded fund faces numerous market trading risks, including the potential lack of an active market for its shares, losses from trading in secondary markets, and disruption in the creation/redemption process of an underlying fund. Any of these factors may lead to an underlying fund’s shares trading at a premium or discount to an underlying fund’s net asset value (NAV). MLP Risk. An underlying fund invests in securities of MLPs, which are subject to the following risks: Limited Partner Risk. An MLP is a public limited partnership or limited liability company taxed as a partnership under the Internal Revenue Code of 1986, as amended (the Code). Although the characteristics of MLPs closely resemble a traditional limited partnership, a major difference is that MLPs may trade on a public exchange or in the over-the-counter market. The risks of investing in an MLP are similar to those of investing in a partnership, including more flexible governance structures, which could result in less protection for investors than investments in a corporation. Investors in an MLP normally would not be liable for the debts of the MLP beyond the amount that the investor has contributed but investors may not be shielded to the same extent that a shareholder of a corporation would be. In certain circumstances, creditors of an MLP would have the right to seek return of capital distributed to a limited partner, which right would continue after an investor sold its investment in the MLP. Liquidity Risk. The ability to trade on a public exchange or in the over-the-counter market provides a certain amount of liquidity not found in many limited partnership investments. However, MLP interests may be less liquid than conventional publicly traded securities and, therefore, more difficult to trade at desirable times and/or prices. Interest Rate Risk. In addition, MLP distributions may be reduced by fees and other expenses incurred by the MLP. MLPs generally are considered interest-rate sensitive investments. During periods of interest rate volatility, these investments may not provide attractive returns. General Partner Risk. The holder of the general partner or managing member interest can be liable in certain circumstances for amounts greater than the amount of the holder’s investment in the general partner or managing member. Additionally, if an underlying fund were to invest more than 25% of its total assets in MLPs that are taxed as partnerships this could cause an underlying fund to lose its status as regulated investment company under Subchapter M of the Code. MLP Tax Risk. MLPs taxed as partnerships do not pay U.S. federal income tax at the partnership level. A change in current tax law, or a change in the underlying business mix of a given MLP, however, could result in an MLP being classified as a corporation for U.S. federal income tax purposes, which would have the effect of reducing the amount of cash available for distribution by the MLP and, as a result, could result in a reduction of the value of an underlying fund’s investment, and consequently the Fund’s investment in an underlying fund and lower income. Money Market Fund Risk. The share price of certain underlying money market funds may fluctuate and the Fund may lose money by investing in an underlying money market fund. The share price of money market funds can fall below the $1.00 share price. An underlying money market fund’s sponsor has no legal obligation to provide financial support to an underlying money market fund, and you should not rely on or expect that the sponsor will enter into support agreements or take other actions to provide financial support to an underlying money market fund or maintain an underlying money market fund’s $1.00 share price at any time. The credit quality of an underlying money market fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on an underlying money market fund’s share price. An underlying money market fund’s share price can also be negatively affected during periods of high redemption pressures, illiquid markets, and/or significant market volatility. Furthermore, amendments to money market fund regulations could impact an underlying money market fund’s operations and possibly negatively impact its return. An underlying money market fund’s Board may elect to impose a fee upon the sale of the Fund’s shares or temporarily suspend the Fund’s ability to sell shares in the future if an underlying money market fund’s liquidity falls below required minimums because of market conditions or other factors. Mortgage- and Asset-Backed Securities Risk. Mortgage- and asset-backed securities are subject to prepayment or call risk, which is the risk that a borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. This could result in an underlying fund reinvesting these early payments at lower interest rates, thereby reducing an underlying fund ’s income. Mortgageand asset-backed securities also are subject to extension risk, which is the risk that an unexpected rise in interest rates could reduce the rate of prepayments, causing the price of the mortgage- and asset-backed securities and an underlying fund’s share price to fall. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool will adversely affect the value of mortgage-backed securities and will result in losses to an underlying fund. An underlying fund may invest in mortgage pools that include subprime mortgages, which are loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages. Privately issued mortgage-related securities are not subject to the same underwriting requirements as those with government or government-sponsored entity guarantees and, therefore, mortgage loans underlying privately issued mortgage-related securities may have less favorable collateral, credit risk or other underwriting characteristics, and wider variances in interest rate, term, size, purpose and borrower characteristics. Municipal Securities Risk. The risk of a municipal obligation generally depends on the financial and credit status of the issuer. Constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives, and the issuer’s regional economic conditions may affect the municipal security’s value, interest payments, repayment of principal and an underlying fund’s ability to sell the security. Failure of a municipal security issuer to comply with applicable tax requirements may make income paid thereon taxable, resulting in a decline in the security’s value. In addition, there could be changes in applicable tax laws or tax treatments that reduce or eliminate the current federal income tax exemption on municipal securities or otherwise adversely affect the current federal or state tax status of municipal securities. Non-Diversification Risk. An underlying fund is non-diversified and can invest a greater portion of its assets in the obligations or securities of a small number of issuers or any single issuer than a diversified fund can. A change in the value of one or a few issuers’ securities will therefore affect the value of an underlying fund more than would occur in a diversified fund. Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities. Preferred securities also may be subordinated to bonds or other debt instruments, subjecting them to a greater risk of non-payment, may be less liquid than many other securities, such as common stocks, and generally offer no voting rights with respect to the issuer. REIT Risk/Real Estate Risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to an underlying fund’s holdings. Shares of real estate related companies, which tend to be small- and mid-cap companies, may be more volatile and less liquid. Repurchase Agreement Risk. If the seller of a repurchase agreement defaults or otherwise does not fulfill its obligations, an underlying fund may incur delays and losses arising from selling the underlying securities, enforcing its rights, or declining collateral value. Risk of Subordinated Debt. Perpetual subordinated debt is a type of hybrid instrument that has no maturity date for the return of principal and does not need to be redeemed by the issuer. These investments typically have lower credit ratings and lower priority than other obligations of an issuer during bankruptcy, presenting a greater risk for nonpayment. This risk increases as the priority of the obligation becomes lower. Payments on these securities may be subordinated to all existing and future liabilities and obligations of subsidiaries and associated companies of an issuer. Additionally, some perpetual subordinated debt does not restrict the ability of an issuer’s subsidiaries to incur further unsecured indebtedness. Sampling Risk. An underlying fund’s use of a representative sampling approach will result in its holding a smaller number of securities than are in its underlying index and in the underlying fund holding securities not included in its underlying index. As a result, an adverse development respecting an issuer of securities held by the underlying fund could result in a greater decline in the underlying fund’s NAV than would be the case if all of the securities in its underlying index were held. An underlying fund’s use of a representative sampling approach may also include the risk that it may not track the return of its underlying index as well as it would have if the underlying fund held all of the securities in its underlying index. Sector Focus Risk. An underlying fund may from time to time invest a significant amount of its assets (i.e. over 25%) in one market sector or group of related industries. In this event, an underlying fund’s performance will depend to a greater extent on the overall condition of the sector or group of industries and there is increased risk that an underlying fund will lose significant value if conditions adversely affect that sector or group of industries. Short Position Risk. Because an underlying fund’s potential loss on a short position arises from increases in the value of the asset sold short, the underlying fund will incur a loss on a short position, which is theoretically unlimited, if the price of the asset sold short increases from the short sale price. The counterparty to a short position or other market factors may prevent an underlying fund from closing out a short position at a desirable time or price and may reduce or eliminate any gain or result in a loss. In a rising market, an underlying fund’s short positions will cause the underlying fund to underperform the overall market and its peers that do not engage in shorting. If an underlying fund holds both long and short positions, and both positions decline simultaneously, the short positions will not provide any buffer (hedge) from declines in value of the underlying fund’s long positions. Certain types of short positions involve leverage, which may exaggerate any losses, potentially more than the actual cost of the investment, and will increase the volatility of an underlying fund’s returns. Small- and Mid-Capitalization Companies Risks. Small- and mid-capitalization companies tend to be more vulnerable to changing market conditions, may have little or no operating history or track record of success, and may have more limited product lines and markets, less experienced management and fewer financial resources than larger companies. These companies’ securities may be more volatile and less liquid than those of more established companies, and their returns may vary, sometimes significantly, from the overall securities market. Subsidiary Risk. By investing in the Subsidiary, an underlying fund is indirectly exposed to risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the Investment Company Act of 1940, as amended (1940 Act), and, except as otherwise noted in this prospectus, is not subject to the investor protections of the 1940 Act. Changes in the laws of the United States and/or the Cayman Islands, under which an underlying fund and the Subsidiary, respectively, are organized, could result in the inability of an underlying fund and/or the Subsidiary to operate as described in this prospectus and the SAI, and could negatively affect an underlying fund and its shareholders. TBA Transactions Risk. TBA transactions involve the risk of loss if the securities received are less favorable than what was anticipated by an underlying fund when entering into the TBA transaction, or if the counterparty fails to deliver the securities. When an underlying fund enters into a short sale of a TBA mortgage it does not own, an underlying fund may have to purchase deliverable mortgages to settle the short sale at a higher price than anticipated, thereby causing a loss. As there is no limit on how much the price of mortgage securities can increase, an underlying fund’s exposure is unlimited. An underlying fund may not always be able to purchase mortgage securities to close out the short position at a particular time or at an acceptable price. In addition, taking short positions results in a form of leverage, which could increase the volatility of an underlying fund’s share price. U.S. Government Obligations Risk. Obligations of U.S. Government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the U.S. Government, which could affect an underlying fund’s ability to recover should they default. No assurance can be given that the U.S. Government will provide financial support to its agencies and authorities if it is not obligated by law to do so. Value Investing Style Risk. A value investing style subjects an underlying fund to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Variable-Rate Demand Notes Risk. The absence of an active secondary market for certain variable and floating rate notes could make it difficult to dispose of these instruments, which could result in a loss. Volatility Risk. Although an underlying fund’s investment strategy seeks to not exceed a target volatility level (the threshold volatility level), certain of an underlying fund’s investments may appreciate or decrease significantly in value over short periods of time. This may cause an underlying fund’s net asset value per share to experience significant increases or declines in value over short periods of time. When-Issued, Delayed Delivery and Forward Commitment Risks. When-issued and delayed delivery transactions subject an underlying fund to market risk because the value or yield of a security at delivery may be more or less than the purchase price or yield generally available when delivery occurs, and counterparty risk because an underlying fund relies on the buyer or seller, as the case may be, to consummate the transaction. These transactions also have a leveraging effect on an underlying fund because an underlying fund commits to purchase securities that it does not have to pay for until a later date, which increases an underlying fund’s overall investment exposure and, as a result, its volatility. Yield Risk. An underlying fund’s yield will vary as the short-term securities in its portfolio mature or are sold and the proceeds are reinvested in other securities. When interest rates are very low, an underlying fund’s expenses could absorb all or a portion of an underlying fund’s income and yield. Additionally, inflation may outpace and diminish investment returns over time. with Sales Charge N/A without Sales Charge N/A SEC 30-Day Yield N/A Unsub. 30-day yield N/A Distribution Frequency Annually NASDAQ PKTMX CUSIP 00900E100 Fund Type Target Maturity Geography Type Domestic

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professional_accounting

globalen Robeco High Yield Bonds 0DH EUR Index: Bloomberg US Corporate High Yield + Pan Euro HY ex Financials 2.5% Issuer Cap 0DH - EUR 0DH - USD 0EH - EUR 0FH - EUR 0IH - USD BH - EUR EH - EUR FH - EUR IH - EUR Managed with a conservative approach Disciplined and repeatable investment process Experienced team management SFDR Fund reopening The fund is reopening to new investments from July 30, 2021. SFDR classificationArticle8 Robeco High Yield Bonds is an actively managed fund that invests in high yield corporate bonds. The selection of these bonds is mainly based on fundamental analysis. The fund's objective is to provide long-term capital growth. The fund invests in corporate bonds with a sub-investment grade rating, issued primarily by issuers from developed markets (Europe/US). The portfolio is broadly diversified, with a structural bias towards the higher rated part in high yield. Performance drivers are the top-down beta positioning as well as bottom-up issuer selection. Based on transaction prices, the fund's return was 1.04%. The fund underperformed its benchmark by 40 bps in December on the vigorous move tighter in spreads, bringing the full-year relative performance to -0.70%, gross of fees. Both the YTD and the December underperformance are fully explained by the quality bias and conservative positioning with a beta below one. In a year where spreads ultimately tightened 70 bps (from 360 to 290), this position detracted more than 70 bps. The quality bias as such, overweighting BBs at the expense of B and CCC, did not contribute positively either: investors reaching for yield helped lower credit quality outperform. Also, the fear of rising rates led to a market preference for lower ratings, as BBs are more rate-sensitive. Issuer selection contributed positively over 2021 though. We gained on being underweight in the communications sector, mainly by avoiding underperformers Ligado, Telecom Italia and SoftBank. Our issuer selection within the energy sector came out very positive: despite the sector underweight and its strong performance, we added over 20 bps by selecting strong performers. Risk assets experienced a typical year-end rally, with both equities and high yield fully retracing the weakness of November. The driver was the market perception that Omicron will be less severe than initially feared. The global high yield market posted an impressive credit excess return of 2%. Spreads moved from close to the peak to the lower end of the 2021 range of 270-360 bps and ended the year at 290 bps. Meanwhile, Treasury rates were on the rise again in both Europe and the US, dampening total returns in high yield. Inflation continues to be a top-of-mind concern for investors. The hawkish Fed pivot, whereby up to three rate hikes in 2022 are being signaled, led Treasury yields to rise to 2021 peak levels, especially on the front end. Similarly in Europe the ECB announced the end of one of its QE programs, but it still needs to wind down its regular program before thinking about rate hikes. Over the full year, global HY posted a total return of around 4.2% in EUR (5.2% in USD), a combination of a coupon year whereby positive excess return from tightening spreads was counterbalanced by a negative return contribution from rising underlying government bond yields. Robeco High Yield Bonds make use of derivatives for hedging purposes as well as for investment purposes. These derivatives are very liquid. The fund does not distribute dividend. The fund retains any income that is earned and so its entire performance is reflected in its share price. The fund incorporates sustainability in the investment process via exclusions, ESG integration and engagement. The fund does not invest in credit issuers that are in breach of international norms or where activities have been deemed detrimental to society following Robeco's exclusion policy. Financially material ESG factors are integrated in the bottom-up security analysis to assess the impact on the issuer's fundamental credit quality. In the credit selection the fund limits exposure to issuers with an elevated sustainability risk profile. Lastly, where issuers are flagged for breaching international standards in the ongoing monitoring, the issuer will become subject to engagement. Robeco High Yield Bonds is an actively managed fund that invests in high yield corporate bonds. The selection of these bonds is mainly based on fundamental analysis. The fund's objective is to provide long-term capital growth. The fund promotes certain ESG (environmental, social and corporate governance) characteristics within the meaning of Article 8 of the European Sustainable Finance Disclosure Regulation, and integrates ESG and sustainability risks in the investment process. In addition, the fund applies an exclusion list based on controversial behavior, products (including controversial weapons, tobacco, palm oil and fossil fuel) and countries. The fund invests in corporate bonds with a sub-investment grade rating, issued primarily by issuers from developed markets (Europe/US). The portfolio is broadly diversified, with a structural bias towards the higher rated part in high yield. Performance drivers are the top-down beta positioning as well as bottom-up issuer selection. The majority of bonds selected will be components of the benchmark, but bonds outside the Benchmark index may be selected too. The fund can deviate substantially from the weightings of the benchmark. The fund aims to outperform the benchmark over the long run, while still controlling relative risk through the application of limits (on currencies and issuers) to the extent of the deviation from the benchmark. This will consequently limit the deviation of the performance relative to the benchmark. The Benchmark is a broad market-weighted index that is not consistent with the ESG characteristics promoted by the fund. Risk management is fully embedded in the investment process to ensure that positions always meet predefined guidelines. SFDR Classification: Article 8 In Europe and the US, fundamentals will probably be fine. Most likely is that we get a further medium-term economic recovery. But we expect that fundamentals will not be the driver for spreads. Markets have become addicted to cures by central banks and governments in the form of easy money, for each disruption. This has created bubbles – think of Chinese real estate, or US meme stocks. Meanwhile, inflationary pressures are all over the place, and the debate is on whether that really is only transitory. If and when central banks start tapering, it is hard to tell what this will do to the technical picture. Meanwhile, valuations are still expensive in our view, at 0.8x the long-term average: too little compensation given all the tail risks that could play out – central banks getting behind the curve if rising inflation turns out to be sticky, spillover from the real estate crisis in China, geopolitical risks at Europe's eastern borders, new Covid strains, to name a few. With spreads near all-time tights, a cautious positioning makes sense to us: up in quality, with a beta below 1. We prefer European over US HY, as spreads are meaningfully higher for similar credit quality. Sander Bus, Roeland Moraal Sander Bus is Co-Head of the Credit team and Lead Portfolio Manager Global High Yield Bonds. He has been dedicated to High Yield at Robeco since 1998. Previously, Sander worked for two years as a Fixed Income Analyst at Rabobank where he started his career in the industry in 1996. He holds a Master's in Financial Economics from Erasmus University Rotterdam and is a CFA® charterholder. Mr. Roeland Moraal, Vice President, CEFA, Portfolio Manager. Roeland is a Senior Portfolio Manager High Yield within Robeco's Credit team since January 2004. Before assuming this role, he was portfolio manager in our Rates team for two years and worked as an analyst with the Institute for Research and Investment Services for three years. Roeland Moraal is Lead Portfolio Manager European High Yield in the Credit team. Before assuming this role, he was Portfolio Manager in the Robeco Duration team and worked as an Analyst with the Institute for Research and Investment Services. Roeland started his career in the industry in 1997. He holds a Master's in Applied Mathematics from the University of Twente and a Master’s in Law from Erasmus University Rotterdam. The Robeco High Yield fund is managed within Robeco’s credit team, which consists of nine portfolio managers and twenty-three credit analysts. The portfolio managers are responsible for the construction and management of the credit portfolios, whereas the analysts cover the team’s fundamental research. Our analysts have long term experience in their respective sectors which they cover globally. Each analyst covers both investment grade and high yield, providing them an information advantage and benefiting from inefficiencies that traditionally exist between the two segmented markets. Furthermore, the credit team is supported by three dedicated quantitative researchers and four fixed income traders. On average, the members of the credit team have an experience in the asset management industry of seventeen years, of which eight years with Robeco. Bloomberg ROBHYOD LX Valoren 11802891 WKN A1C63H Credit outlook: Imperfect information and imperfect foresight Talk ’22: ‘A season for active credit managers to thrive’ 24-11-2021 | Interview Credit outlook: Common prosperity High Yield Bonds Benefitting from a long-term quality approach pays off in high yield bonds.

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professional_accounting

One of the enduring features of aircraft procurement in the commercial aviation sector is the publicity surrounding, and therefore broad interest in, new aircraft technologies, large volume new aircraft orders and the increasingly diverse customer base for new aircraft. Significant attention is given to events as the two global aircraft manufacturing behemoths dominating the industry, Airbus and Boeing, compete directly and constantly scramble to announce news of their latest successes mostly in and around the series of ‘air shows’ during the calendar year. This is particularly true when the bi-annual events at Farnborough (near London, in the United Kingdom) and Paris (in France) become the focal points for everyone and anything connected to aviation and aerospace and the inevitable series of new aircraft orders makes the headlines. In many respects, this also reflects the vast of amounts of capital investment and therefore risk involved in the relevant aircraft programmes, as well as the way in which air travel is now fundamentally integrated into the economies and daily lives of the world’s population. In other words, “Airbus”, “Boeing” and “new aircraft” have become concepts owned and appreciated by the general public at large, as well as for many informed observers including certain professionals and a swathe of industry participants who view new aircraft and their placement as the only genuine indicator of vibrancy and trends in the sector. This myopic approach does, however, neglect another aircraft industry segment which has become increasingly relevant over a significant period of time, enduring through several of the inevitable industry cycles for which aviation and aerospace is famed, and actually set to become arguably even more apparent going forward, namely the appetite for used aircraft of certain specific types and particularly when the airframe concerned is matched with certain specific engines (or “power plants”), as we shall consider in this general article. In many respects, this appetite is of course directly related to the series of new aircraft orders and delivered to operators and leasing companies which are now so much a feature of the aviation landscape well into the 21st century. Leaving aside the firm phenomenon, particularly in Asia, which is the growth from a position as a start-up of several low-cost carriers who are strongly backed by industrial conglomerate shareholders or simply mega-wealthy entrepreneurs, as new aircraft are absorbed into the airline’s fleet and enter into service they tend to replace, on a unit-by-unit basis, older aircraft types which are phased out and de-commissioned. This in turn creates a supply of often high-quality stock of used aircraft and/or engines which the relevant operator or aircraft owner is motivated to re-deploy by way of a sale or another lease. Of course, the complexities involved in this exercise are considerable and involve a high degree of advance planning by either the airline’s fleet development section or the remarketing capability of the individual aircraft owners, especially where several tens of aircraft are often involved, but nevertheless the waterfall effect of new aircraft creating a cascade of available aviation assets is well-established and well-understood by the market. This aspect of activity rarely attracts the type of press-coverage, general interest and focus that is consistently enjoyed by an announcement that airline or lessor X has agreed with Airbus or Boeing (or sometimes both at the same time) to purchase Y number of Z-type aircraft. In many ways, however, it is of more fundamental importance to the functioning of the industry, the ability of operators to further embed air transport into communities and populations and thereby drive economic growth and social welfare, and to generate the type of forward momentum on a global industrial scale which perhaps, counter-intuitively, the original equipment manufacturers engaged in aircraft production so heavily rely on in their future forecasts and appetite for assuming increasing risk in the various aircraft programmes with which they are involved. As regards the historic development of this phenomenon which is effectively the ongoing demand for “old” aircraft, it is helpful to put some definition around the nature of the product which is the subject of so much interest and appetite on an ongoing basis, as well as the context in many (but not all) cases. It is also relevant to consider the opportunities this demand creates for suppliers to the industry, which in turn helps make the process more efficient and supportable and therefore enduring in its broadest sense. The demand for old aircraft, or at least “non-new”, because the age of an aircraft is also relevant in relation to certain regulatory restrictions which apply in a number of jurisdictions as regards operation and safety, is driven by a number of factors not necessarily linked to the supply opportunities created by new aircraft orders. These factors themselves are partly inter-connected; however, to a greater extent they are a function of the individual requirements of an airline’s particular business plan and the financial circumstances which surround it. As a general principle, first and foremost it is a truism as well as an industrial fact that not many airlines (in fact, statistically speaking, the majority of airlines globally) have the capital resources or indeed the credit rating according to international standards to acquire new aircraft by way of purchase or lease, nor on an ad hoc or consistent basis as part of a cohesive and co-ordinated fleet expansion strategy. As a result, the operators concerned, which as noted above constitute the vast majority of the carriers worldwide, must simply get by with used, older aircraft to facilitate their fleet development plans in support of their business plans. Secondly, there are certain macro-economic developments which tend to influence equipment acquisition decisions, and no greater example of that is the price of crude oil, or rather its tendency to fluctuate to sometimes surprising levels both upwards and downwards. Crude oil directly affects the cost to an operation of kerosene aviation fuel which represents one of the most significant expenses proportionally speaking for an airline. The oil industry itself is characterised by economic booms and busts which then inevitably pass on to the cost of fuel and directly to the bottom line of an aircraft operation. It is of course possible, and not infrequent, for an airline to manage the associated risks and a negative financial impact on its fleet operations in this regard by utilising a series of financial instruments generally referred to as “hedging”, albeit this is with some upfront cost and therefore not within the economic possibilities for many operations. However, a general trend in any case over the most recent industry cycles has seen crude oil drop in price in overall terms as a result of a number of factors, including: an extremely strong US Dollar driving as always a fall in commodity pricing generally; a genuine resolution by OPEC (Organization of the Petroleum Exporting Countries) to stabilise the oil markets by not cutting production in a novel approach which has generally created an oversupply of crude oil; a widespread overall decline in demand for crude oil as a result of increased engine efficiency across a range of mobile assets including motor vehicles, ships and of course aircraft; along with China’s elected currency devaluation which left the world’s largest oil importer reducing its purchases on account of the increased cost to it of crude oil and a consequential wholesale dumping of oil shares by the trader community. As a result of all this and the associated relative cheapness of kerosene aviation fuel, many airlines which had previously pursued the savings available with new-technology, fuel-efficient aircraft are electing to either defer or even cancel their new aircraft orders and continue with their existing fleet composition or to target older equipment which can still sustain business plan profitability due to the price and wide availability of kerosene aviation fuel worldwide. Thirdly, the aircraft original airframe manufacturers (inevitably led once again by Airbus and Boeing) working closely in conjunction with their industrial partners and counter-parties at the engine manufacturers (principally General Electric and its range of joint-venture guises such as CFM International with Safran, Pratt & Whitney and Rolls-Royce) have made significant investment in technology insertion packages into their existing products. While most well-known among this type of technology innovation is the NEO (New Engine Option) aircraft offered by Airbus across its very popular A320 and A321 aircraft range, a number of other design modifications from several manufacturers giving rise to features such as extended range fuel tanks, carbon-fibre fuselage components and enhanced winglets have had the effect of allowing older aircraft to operate more efficiently and relatively longer. This has led to an increase in interest from aircraft operators and leasing companies in the possibility of extending aircraft possibilities longer into their economic lives and the associated fleet management decisions which see non-new aircraft feature more prominently than before. As a final example of the factors stimulating demand in used aircraft, historically rock-bottom interest rates over the recent historical period has generally made the costs of renting or leasing aircraft incredibly cheap compared to previous eras in aviation. With the inevitable greater flexibility of aircraft supply solutions when it concerns used aircraft as opposed to new equipment which is generally a financed purchase or long lease (possibly combined with the option for the aircraft operator lessee to purchase the aircraft and the end of such lease by which time it has invested a considerable amount of capital by way of lease rental), the effectively greater supply of used aircraft at reduced lease rates has stiffened that segment of the market considerably, both as regards established operators and also new-entrant or start-up carriers whose sensitivity to costs and the need to manage them is probably the most of all, leading to an ability and willingness to commit to longer lease periods for used aircraft and engine equipment. All of these things together, plus some other more bespoke developments in the case of individual carriers which affect their immediate environment and own markets as regards their aircraft equipment choices, have given rise to the market’s consistent and sustained mainstream interest in used aircraft, more particularly in so-called “mid-life” aircraft types. The implication that the phenomenon is generally applicable to all used aircraft is (if it indeed arises) misleading in any case. For example, aircraft of a certain vintage (generally, with an age since its respective year of manufacturing of between 15 and 20 years) are very limited in their scope of operations regardless of the aircraft type and the support still provided by an aircraft original manufacturer. Several jurisdictions, and not just the (in aviation terms at least) established first world of USA, Europe and Australasia, have passed very effective legislation and regulation which prohibits the operation of certain vintage aircraft for safety and environmental reasons, principally in relation to air and noise pollution and the need to protect its population from the social and other effects arising. Then, there is the perception of particular used aircraft types as regards characteristics such as their utility, passenger appeal, and operating history, which as regards the latter point unfortunately may include a somewhat chequered past as regards an accident record and pattern of technical unreliability, whether related to the airframe itself or its engines. Additionally, certain initially interesting used aircraft are no longer in production by their original aircraft manufacturer for a variety of reasons unconnected to the product itself (typically bankruptcy of the owning business) giving rise to the notion that they are part of an “orphan” fleet of aircraft which is therefore unsupported in terms of safety procedures, reliable spare parts and invested interest in their safe operation on behalf of its customer airlines and leasing companies, and in turn their own customers. Finally, and possibly most critically of all given the significant sums of capital still required to be committed to a used aircraft whether by way of upfront acquisition costs of through the term of an operating lease which requires supplemental payments, not all used aircraft are viewed positively by the financing community generally; in fact, the opposite is more often than not the case. It is a significant hurdle to overcome, therefore, that there is this absence of available capital and/or an associated appetite for deploying what in many cases are quite eye-watering sums as an upfront financial commitment to the financing of used aircraft. Financing in its simplest terms, especially asset-backed financing where the aircraft itself forms the risk that any loans advanced will be capable of repayment by way of security to the relevant financier, usually requires a solid and predictable view of residual values without which most conventional banks will not proceed. This leads most prospective financiers to focus on predictable new aircraft trends and comfortable relationships with the relevant original aircraft manufacturers which they hope will act as a buffer in circumstances where their aircraft financing fails. However, historical data is available to prove the fact in relation to certain used aircraft types that a strong residual value is maintainable due primarily to demand the ability to re-market the aircraft in case of default. Even where that is not the case, the relevant lease rates for certain used aircraft types in the future will, in all probability, sustain their current levels while the aircraft residual value depreciates, meaning that a combination of aircraft and lease security can sometimes sustain a lender’s repayment risk. This analysis has led to a notably robust market for certain used aircraft as a financing instrument also, capable even of being pooled together with others being leased for a long period on good terms to operators of a certain quality and sold into the capital markets at a significant profit without disturbing the underlying leasing arrangements unduly in a so-called “securitisation” programme. All of these things have collided in the marketplace to give rise to a strong and historical interest in so-called “mid-life” aircraft on the part of certain operators, certain leasing companies and certain financiers, which shows no sign of abating. On the contrary, new aircraft continue to proliferate as deliveries to airlines ramp up in support of the huge volume orders made in recent years. Furthermore, the top 10 companies continue to focus almost exclusively on new aircraft and long order streams leading to significant offloading of their older aircraft assets to either secondary lessors or operators with either or both a lack of a long operating history or an uneven credit rating. “Mid-life” has become something of a term of art for this market phenomenon and, although as referenced elsewhere in this article it itself can relate to a number of different used aircraft types and ages, it generally (at least from the perspective of a leasing company, which tends to be a reliable gauge of market trends) refers to aircraft which are entering into their second lease since a leasing company took delivery from the original aircraft manufacturer. In other words, the aircraft will typically be around 12 years old and, with most accounting standards allocating long-life asset status to aircraft as regards depreciation, the aircraft will therefore be close to economic maturity at the end of its second lease (all things running smoothly as regards lease defaults and aircraft accidents, which is the nature of the business risk aircraft leasing companies assume in return for their projected investment returns at the outset). This essentially means that a purchaser of the aircraft “mid-life” is likely to obtain an aircraft generating significant lease returns and which is soon fully written down as regards its book value such that any subsequent sale generates a pure cash profit which market values (particularly for perennially attractive aircraft examples such as Airbus A320 CEO (Current Engine Option) and Boeing 737-700/800 aircraft) will very likely always sustain in view of the extensive demand factors described above. This is particularly true in relation to the particular engines which may be fitted to the relevant aircraft, particularly in the latest years of an aircraft’s depreciation programme such that engines can account in that period for as much as 80 per cent of the value of a mature aircraft type. Inevitably perhaps, this has given rise to a segmentation of the market for “mid-life” aircraft where speculators seek to obtain access to specific engine types (again, only specific engine types, and sometimes only specific derivatives of them, have the strong demand patterns which are of relevant interest) for on-sale or leasing as spare engines to operators looking to support their fleet operations with additional assets at an economic rate. These investor-types are prepared to acquire (in some cases very) mature aircraft currently on lease to an aircraft operator, await the scheduled expiry of the lease and the planned return of the aircraft to its owner and then engage in a termination process which sees the engines removed for sale, the airframe scrapped for spare parts often in high-demand among a secondary and tertiary airline customer base and the opportunity to make a significant profit on the associated asset sales, all in circumstances where the existing airline operator has agreed to contribute in some way to the overall financial outcome for the new owner in exchange for relief on its lease redelivery obligations, such as allowing the new owner to retain in full and without any claims the amount of maintenance reserves which have been paid in parallel to rent throughout the relevant lease and allocated for scheduled and certain unscheduled maintenance events during the lease. As can be seen, the types of profit which are attainable in this market which does not enjoy anything like the publicity or general interest of the new aircraft world can be more than significant and have reliably and consistently been obtained by those willing to invest time as well as money in the process. As referenced above, the typical transaction structure in an acquisition of a mid-life aircraft generally works as follows (although clearly there will be variations depending on the circumstances of the opportunity involved and the particular motivations of all the parties involved for looking to transact the particular business). A used aircraft will be currently on lease from its owner to an aircraft operator and entering its later years as regards its book value for accounting purposes, hence the aircraft will be depreciating at a faster rate than the lease rental rates it is able to generate. The aircraft itself will be something which an operator is viewing increasingly as a disproportionate cost where it is obliged at the end of the relevant lease term to carry out a significant amount of engineering work on the owner’s property pursuant to the relevant lease agreement in order to comply the so-called contractual “redelivery conditions”. The current aircraft owner is likely on the other hand to be concerned at the inherent risk it now has in an older aircraft asset which it may view as difficult to re-market given its focus on new aircraft and primary airlines and other aircraft operators. Once the relevant commercial negotiations are completed, typically through the vehicle of a partially-binding commitment agreement such as a “letter of intent” or “term sheet” signed by the existing owner and the prospective new owner, the transaction contracts typically prepared by the existing owner become the subject of much further focus and preparation with the aid of professional advisers. The existing aircraft operator in possession of the aircraft will be obliged to participate in the sale and acquisition process and broadly agree to it by virtue of the terms of the existing lease agreement (subject to one or two conditions, which usually revolve around there being no extra obligations arising to the new owner when compared with the existing owner as its lessor). In parallel, the new owner’s technical team spends several long days and nights examining the aircraft records and inspecting the aircraft itself to ensure that there is nothing significant in terms of omissions, irregularities or outright damage which would affect the value of the investment it is about to make. It is a truism that the value of an aircraft is directly connected to the quality of the records which are associated with it, and any discrepancy, omission or inconsistency going “back to birth” when the aircraft was delivered from the factory by the original aircraft equipment manufacturer can have a material impact on the value of the aircraft and therefore the motivation of the new owner to proceed with its investment and acquire the aircraft. At that stage therefore, the pressure and focus is very much on the expertise and experience of the personnel who are conducting the relevant inspections and broader technical due diligence on behalf of the prospective new owner. The product of all of this effort should then manifest itself in a binding sale contract between the existing owner and the new owner and a connected lease novation contract whereby the existing lease is transferred from an arrangement between the existing owner and the operator to one between the new owner and the operator. Both contracts will stipulate the conditions to be fulfilled and the procedures involved before the respective sale and lease novation is completed. Unconditional receipt of purchase price for the aircraft/engines. No trailing obligations whatsoever as regards the aircraft/engines and the lease to the aircraft operator. (i) Fully effective and unconditional good title to the aircraft/engines. (ii) Full set of uninterrupted bills of sale or other title documents “back to birth”. (iii) No liens or third party interests; for example mortgage, unpaid landing charges or Eurocontrol fees. (i) No adverse tax consequences connected with the aircraft/engines purchase. (ii) Location of airframe and engines (if different) at the point of sale to be tax-optimised. (iii) Customs and import status of the aircraft and engines to be fully understood. (i) Technical integrity and the condition of the aircraft and associated records are satisfactory. (ii) Statement by the existing owner that there has been no major incident as regards the aircraft or the engines historically. (iii) Aircraft records are complete, intact and showing no material omissions or deviations. (iv) The relevant Certificate of Airworthiness is valid, current and not showing any exceptions or derivations. (i) Registration of its ownership interests on the relevant aircraft register and (if relevant) the International Register established under the Cape Town Convention. No increased costs or obligations arising from the new arrangements with a new lessor. No or minimal impact from the aircraft sale on its scheduled operations or maintenance programme. No trailing obligations in relation to the aircraft/engines or lease to the existing owner. It can be seen, therefore, that there are a number of elements to be drawn together in terms of the acquisition of a mid-life aircraft or engine asset and it is not an uncomplicated task to bring these together in a synchronised and co-ordinated fashion, particularly when as is often the case the parties involved and the aircraft and related engines themselves are located across jurisdictions and time zones a long away apart. As a result, it has become the case that a relatively small group of investor speculators have become prominent and recognised for their ability to identify mid-life aircraft opportunities and deploy the necessary project management and professional skills to complete the transactions quickly and efficiently while minimising the risks involved as an aircraft and engine owner. And it is that group that stands to benefit most from this market segment going forward, as opportunities arise and the number of competitors drawn away from relatively modest returns on investment in the real estate sector is likely to increase. For the reasons analysed above, the interest in and around mid-life aircraft and other aviation assets is now very much a feature of the industry landscape. The relative lack of glamour and publicity connected with the acquisition and deployment of “older” aircraft should not detract at all from the fundamental role such aircraft play in the sustained growth of passenger numbers, worldwide economic development, and also in enhanced returns for investors prepared to risk extremely significant sums of capital in a segment of the market which is sometimes quite misunderstood. It is true that a lot of learning has resulted from this type of transaction, some of which have caused new aircraft owners to lose significant sums of money on their original investment and projected rates of return. The reasons for those are multiple and probably the subject of a follow-up article; however, the ability to identify a particular aircraft or aircraft engine (or even a specific derivative of them) which will sustain its appeal in the long-term to owners and operators is paramount, as is the talent for managing aviation assets in sometimes difficult jurisdictions with not always cooperative aircraft operators and the initial ability to conduct deep but rapid due diligence on the condition of the aircraft, engines and aircraft records involved. Clearly, an established contractual supply arrangement with aviation services providers to scrap in an environmentally-friendly fashion the relevant aircraft and/or assets and the end of their economic lives or lease termination, plus a connected distribution network for used aircraft components then completes the picture of an efficient project management process designed to maximise the returns, minimise the risks and all the while maintaining good relationships with an aircraft operator and leasing company base which will likely give rise to further similar opportunities going forward for the same reasons. In summary, the embedded interest in and demand for mid-life aircraft will continue to be a major part of the aviation landscape worldwide and may increase going forward. The entrepreneurial eye of the new aircraft owner, the decision-making process of the existing aircraft owner, and the ability of the aircraft operator to deliver on its own business plan (all with the support and guidance of their expert professionals advisors) are set to be tested and scrutinised even more in the future, which is surely a good thing.

{'timestamp': '2019-04-22T10:42:16Z', 'url': 'https://iclg.com/practice-areas/aviation-laws-and-regulations/investing-in-mid-life-aviation-assets', 'language': 'en', 'source': 'c4'}

professional_accounting

AccountingIntermediate Accounting: Reporting And AnalysisRetail Inventory Method Turner Corporation uses the retail inventory method. The following information relates to 2019: Required: Compute the cost of the ending inventory under each of the following cost flow assumptions (round the cost-to-retail ratio to 3 decimal places): 1. FIFO 2. average cost 3. LIFO 4. lower of cost or market (based on average cost) Retail Inventory Method Turner Corporation uses the retail inventory method. The following information relates to 2019: Required: Compute the cost of the ending inventory under each of the following cost flow assumptions (round the cost-to-retail ratio to 3 decimal places): 1. FIFO 2. average cost 3. LIFO 4. lower of cost or market (based on average cost) Problem 10C Chapter 8, Problem 6P Retail Inventory Method Turner Corporation uses the retail inventory method. The following information relates to 2019: Compute the cost of the ending inventory under each of the following cost flow assumptions (round the cost-to-retail ratio to 3 decimal places): 1. FIFO 2. average cost 3. LIFO 4. lower of cost or market (based on average cost) Ch. 8 - Under what circumstances will a company value...Ch. 8 - What is the conceptual justification for reducing...Ch. 8 - Define the terms cost, net realizable value, and...Ch. 8 - For companies that use either LIFO or the retail...Ch. 8 - What three implementation approaches may a company...Ch. 8 - Describe the two approaches to recording the...Ch. 8 - What is the major criticism of the inventory...Ch. 8 - In applying the inventory valuation rules to...Ch. 8 - With regard to write-downs of inventory, how do...Ch. 8 - What are the exceptions to historical cost... Ch. 8 - Under what conditions can inventory be valued...Ch. 8 - Describe five situations in which the gross profit...Ch. 8 - What is the basic assumption underlying the gross...Ch. 8 - What are the advantages of the retail inventory...Ch. 8 - What is the necessary condition for the retail...Ch. 8 - Explain the meaning of the following terms:...Ch. 8 - Describe how a company computes the cost-to-retail...Ch. 8 - What assumptions are necessary for the lower of...Ch. 8 - The retail inventory method indicated an inventory...Ch. 8 - Under what conditions would the dollar-value LIFO...Ch. 8 - Indicate the effect of each of the following...Ch. 8 - Sienna Company uses the FIFO cost flow assumption....Ch. 8 - Moore Company uses the LIFO cost flow assumption...Ch. 8 - A company uses the LIFO cost flow assumption. The...Ch. 8 - The following information is available for Silver...Ch. 8 - Hestor Companys records indicate the following...Ch. 8 - Under the retail inventory method, freight-in...Ch. 8 - The retail inventory method would include which of...Ch. 8 - At December 31, 2019, the following information...Ch. 8 - Estimates of price-level changes for specific...Ch. 8 - A company forgets to record a purchase on credit...Ch. 8 - Brown Company has the following information...Ch. 8 - Black Corporation uses the LIFO cost flow...Ch. 8 - Blue Corporation uses the FIFO cost flow...Ch. 8 - Paul Corporation uses FIFO and reports the...Ch. 8 - Using the information provided in RE8-4, prepare...Ch. 8 - Kays Beauty Supply uses the gross profit method to...Ch. 8 - Uncle Butchs Hunting Supply Shop reports the...Ch. 8 - Use the information in RE8-7. Calculate Uncle...Ch. 8 - Use the information in RE8-7. Calculate Uncle...Ch. 8 - Use the information in RE8-7. Calculate Uncle...Ch. 8 - Johnson Corporation had beginning inventory of...Ch. 8 - Borys Companys periodic inventory at December 31,...Ch. 8 - Refer to the information provided in RE8-4. If...Ch. 8 - Refer to the information provided in RE8-4. If...Ch. 8 - Inventory Write-Down Stiles Corporation uses the...Ch. 8 - Inventory Write-Down Stiles Corporation uses the...Ch. 8 - Inventory Write-Down Byron Company has five...Ch. 8 - Inventory Write-Down The following information for...Ch. 8 - Inventory Write-Down The following information is...Ch. 8 - Inventory Write-Down The inventories of Berry...Ch. 8 - Gross Profit Method: Estimation of Fire Loss On...Ch. 8 - Gross Profit Method: Estimation of Flood Loss On...Ch. 8 - Gross Profit Percentage An accountant sometimes...Ch. 8 - Gross Profit Method: Estimation of Theft Loss You...Ch. 8 - Retail Inventory Method Harmes Company is a...Ch. 8 - Retail Inventory Method The following data were...Ch. 8 - Retail Inventory Method The following information...Ch. 8 - Dollar-Value LIFO Retail Johns Company adopts the...Ch. 8 - Dollar-Value LIFO Retail Wyatt Company adopts the...Ch. 8 - Dollar-Value LIFO Retail On December 31, 2018,...Ch. 8 - Errors A company that uses the periodic inventory...Ch. 8 - Errors During the course of your examination of...Ch. 8 - (Appendix 8.1) Inventory Write-Down The...Ch. 8 - Inventory Write-Down Palmquist Company has five...Ch. 8 - Inventory Write-Down The following are the...Ch. 8 - Inventory Write-Down The inventory records of...Ch. 8 - Gross Profit Method: Estimation of Fire Loss On...Ch. 8 - Gross Profit Method: Estimation of Flood Loss On...Ch. 8 - Retail Inventory Method Turner Corporation uses...Ch. 8 - Retail Inventory Method EKC Company uses the...Ch. 8 - Retail Inventory Method Red Department Store uses...Ch. 8 - Retail Inventory Method Weber Corporation uses the...Ch. 8 - Dollar-Value LIFO Retail The following information...Ch. 8 - Dollar-Value LIFO Retail Intella Inc. adopted the...Ch. 8 - Dollar-Value LIFO Retail and Fire Loss Golden...Ch. 8 - Errors As controller of Lerner Company, which uses...Ch. 8 - Comprehensive: Inventory Adjustments Layne...Ch. 8 - (Appendix 8.1) Inventory Write-Down The following...Ch. 8 - (Appendix 8.1) Inventory Write-Down Frost Companys...Ch. 8 - Inventory Write-Down, Dollar-Value LIFO, and...Ch. 8 - Sandberg Paint Company, your client, manufactures...Ch. 8 - Lower of Cost or Net Realizable Value Rule Blaedon...Ch. 8 - Inventory Valuation Issues Hanlon Company...Ch. 8 - Gross Profit Shelly Corporation is an importer and...Ch. 8 - Retail Inventory Method Retail Inc. sells normal...Ch. 8 - Various Inventory Issues Diane Company, a retailer...Ch. 8 - Various Inventory Issues Hudson Company, which is...Ch. 8 - Analyzing Starbucks Inventory Disclosures Obtain...Ch. 8 - Analyzing Moet Hennessy Louis Vuittons (LVMH)... What is the database model? Working capital and current ratio The following data (in thousands) were taken from recent financial statements... How is the equivalent unit calculation affected when materials are added at the beginning or end of the process... Notes receivable entries The following data relate to notes receivable and interest for Owens Co., a financial ... Entries for bad debt expense under the direct write-off and allowance methods Casebolt Company wrote off the fo... LO3 Which of these assets is not a current asset? (a) Cash (b) Accounts Receivable (c) Office Equipment (d) Mer... During the month, Warwick Co. received 515,000 in cash and paid out 375,000 in cash. a. Do the data indicate th... Ethics in Action Tehra Dactyl is an accountant for Skeds, Inc., a footwear and apparel company. The companys re... What are the systems development objectives? Describe at least three ways in which human decision making differs from that of the rational individual of con... You win 100 in a basketball pool. You have a choice between spending the money now and putting it away for a ye... Identify the three types of salespersons. Explain how relation-ship marketing can move customers up the loyalty ladder. A Nice Manager The management promotion process at Chisum Industries was a benchmark for providing lateral move... (Characteristics of Monopolistic Competition) Why is a firm in monopolistic competition said to be competitive?... Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes half as long to do e... (Marginal Analysis) The owner of a small pizzeria is deciding whether to increase the radius of delivery area b... Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve he... Explain the major differences between business and consumer markets Information Message: Rescheduling interviews. Your boss, Pete Rolhns, has scheduled three appointments to inter... (Supply) What is the law of supply? Give an example of how you have observed the law of supply at work. What is... DEBT TO CAPITAL RATIO Kayes Kitchenware has a market/book ratio equal to 1. Its stock price is 12 per share and... EXPECTED RETURN A stocks returns have the following distribution; Demand for the Companys Products Probability ... What does it mean to say that people like to “play with the house’s money”? Refer to Table 1.6. a. What is the average cost for the tablets? b. Compare the average cost of tablets with a ... What is the purpose of the payroll register? Your uncle owns a small sole proprietorship. He does his own bookkeeping, although he didnt finish the chapter ... Apple Inc. designs, manufactures, and markets personal computers and related software. Apple also manufactures ... Production budget Magnolia Candle Inc. projected sales of 75,000 candles for 2016. The estimated January 1, 201... Selected stock transactions The following selected accounts appear in the ledger of EJ Construction Inc. at the... RESIDUAL DIVIDEND MODEL Buena Terra Corporation is reviewing its capital budget for the upcoming year. It has p... Explain in general terms what each of the following real options is and how it could change projects Nr Vs and ... Why would calling health care a basic human right make it difficult to effectively analyze health care? Consider the data set in Table 1.7 a. Compute the average endowment for the sample. b. Compute the average perc... When an asset increases, a liability must also increase. Explain how buyers willingness to pay, consumer surplus, and the demand curve are related. How does (or could) your university bookstore use technology to improve customer interactions with students, fa... If insurance rates are increased, what effect will this change in fixed costs have on the break-even point? In order not to interfere with the schooling and well-being of minors between the ages of 14 and 16, employers ... Depreciation by three methods; partial years Layton Company purchased tool sharpening equipment on October 1 fo... The best-fitting advertising response function in Example 7.5 fits the observed data. This is because we chose ... In each of the sentences below, choose the correct verb in parentheses. Only one of the free smartphone applica... Suppose the equilibrium wage for a college athlete is 40,000, but, because of NCAA rules, the university can of... Discuss the problems you see in comparing the GDPs of two countries, say, the United States and the Peoples Rep... Can you provide some examples of power spenders of indirect spending and services? How can training help to dep... Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The followi... A tariff is a a. tax on an exported product. b. limit on the number of goods that can be exported. c. limit on ... Plot the following data, and specify the type of relationship between the two variables. (Place Price on the ve... ( Appendix 6A) Recording Purchase Transactions Refer to the information for Mathis Company (p. 336) and assume ... The table that follows shows the stock price, earnings per share, and dividends per share for three companies f... Rod N. Reel owns a dealership that sells fishing boats in an open, price-searcher market. To develop his pricin... What factors determine the cost of producing a good or service? Will producers continue to supply a good or ser... How is the price elasticity of supply calculated? Explain what it measures. Suppose the official unemployment rate is 10 percent. We can conclude without question that a. the same 10 perc... Key Concept: Production possibilities curve Which of the following is not true about a production possibilities... The accompanying table presents the expected cost and revenue data for the Tucker Tomato Farm. The Tuckers prod... Indicate how important each characteristic is to you. Answer according to your feelings about the most recent j...

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professional_accounting

The MSB’s “Internal Auditor”…What exactly is this position and where are the “Internal Audit” reports? By MatsuMuckraker on March 19, 2018 The Municipality of Anchorage has an Internal Auditor. The MOA’s website explains: The primary focus of Internal Audit is to assist the Mayor and the Municipal Assembly in ensuring that proper accountability is maintained over public funds and to improve the efficiency and effectiveness of Municipal government within the constraints of the Anchorage Municipal Code. http://www.muni.org/Departments/internal_audit/Pages/default.aspx The MOA’s Internal Auditor conducts investigations and prepares detailed reports for the Anchorage Mayor and Municipal Assembly and the PUBLIC on everything and anything financial. These reports are published on the MOA’s website – going back almost 25 years! http://www.muni.org/Departments/internal_audit/Pages/AdtRpts.aspx Check out the MOA’s website. For example, in 2017, the Internal Auditor prepared and published a total of 14 reports – on everything from “Cash Control Procedures; Solid Waste Services” and “Municipal Leases Follow-Up; Real Estate Department” to “Annual Municipal Procurement Card Review; Purchasing Department” (i.e. credit card use.) These reports are amazing! Read through some of them. They contain so much detail as well as “findings and recommendations.” The MOA’s internal auditor provides valuable information and gets results. Here is an example: http://www.alaskastar.com/2017-02-13/mac-management-promises-changes-wake-audit#.Wq8PTOjwaUk The Matanuska-Susitna Borough has a Internal Auditor too. Sort of. However, our Internal Auditor doesn’t seem to prepare any reports. Or, if our Internal Auditor does prepare reports, the public is not made aware of them. There is NOTHING about the Internal Auditor and there are no Internal Audit reports posted on the MSB’s website. The MSB’s internal auditor is James Wilson. How Mr. Wilson came to be hired by the MSB is convoluted. Back in the fall of 2010, the MSB was conducting a search for a new Borough Manager to replace longtime manager John Duffy who retired. The Assistant Manager, Elizabeth Gray, was named Acting Manager during the search. James Wilson was one of the applicants for the Manager’s job. He made it to the final 11 and then the final 7, but he did NOT make it to the final 3. http://www.frontiersman.com/news/mat-su-assembly-winnows-candidates-from-to/article_b1d12d0d-f7cf-5ff6-b3cd-e06162e91c61.html http://www.frontiersman.com/news/assembly-winnows-borough-manager-candidates-to/article_ac5aee4a-afa4-5bf3-b6f6-f19a7e3fba41.html On November 30, 2010, following a closed door session, the MSB Assembly announced that it was re-starting the manager search and hiring an executive search firm. 113010 spc mtg re manager vacancy mtg mins The MSB Assembly never explained to the public why they were doing this. Hmmm… http://www.frontiersman.com/news/search-on-again-for-borough-manager/article_feb0687f-2a2f-57bf-9c79-e875f1ce1e0c.html From the above Frontiersman article: For a moment there it looked like the long, complicated process of selecting a new manager to head up Mat-Su Borough government was nearing an end. Two weeks ago, the borough assembly had whittled the list of candidates to three, ranked them, and seemed ready to announce a decision. But on Tuesday the borough assembly decided to bring in an executive consulting firm to drum up some new applicants. And, though the borough announced that decision officially, at least for now, the assembly can’t explain it. “The statement that was made is the statement that the assembly has allowed to go to the public,” said Deputy Mayor Ron Arvin. “I’d like to say more. I know there are a lot of people who would like to have more information, but it’s a complicated process.”… The search for a manager has been ongoing since April when John Duffy resigned after 10 years at the helm. The initial applicant pool contained around 60 names. As of two weeks ago that list had been narrowed to three — Greg Young, city administrator of Ferndale, Wash.; Don Baird, town manager of Granby, Colo.; and Desmond Mayo, finance director for Crowley Petroleum Distribution. Note: This is very confusing. Here are two emails dated Jan 27, 2011, from MSB Clerk Lonnie McKechnie to the Assembly members in which she attaches the new manager candidate list and also mentions that “James Wilson has pulled his application.” So, the MSB Assembly did not choose him as one of the three finalists in November 2010, but after a closed door executive session during which the MSB decided to re-open the search and hire a search firm, somehow his name re-emerged only for him to pull his application!?? Further Note: James Wilson was let go from his position in Galveston, TX in the midst of all this. Galveston_ County_s 5jan2011 wilson The MSB Assembly hired John Moosey (our current manager) a couple of months later on February 26, 2011. Two days after that, James Wilson started working for the MSB as a temporary “Assistant to the Assistant Manager.” He worked for the MSB from 2/28/2011 until 5/12/2011, i.e., during the budget cycle. Here is Mr. Wilson’s resume circa April, 2012 (found online from when he was a finalist for a County Administrator position in Florida): Mr. Wilson’s 2011 newly created temporary budget analyst position was not advertised. There was no job description. There was no documentation of tasks and no final evaluation. The pay grade was 29. [This information comes from a 2013 records/information request from a resident.] Mr. Wilson was paid $17,694.72 for his (two and a half months’ worth of) work for the MSB in 2011. In 2012, the MSB hired Blitch Associates Inc. (i.e. their Vice President Don Grimes) as a contractor to provide budget advice. The cost was $10,000 plus travel expenses for Mr. Grimes. There was no solicitation for this contract. Mr. Grimes’ reports apparently were provided to the MSB Administration but not the public. Then in 2013, James Wilson was hired again by the MSB. The MSB hired Mr. Wilson first as a contractor/budget analyst and then shortly thereafter he was hired permanently as the “Internal Auditor.” [Note: Interestingly, in January 2012, MSB Asst Manager Elizabeth Gray moved to Altus, Oklahoma to work as the city manager there…and she hired James Wilson to be her financial advisor…James Wilson hired as consultant 2012-02-21 City Council – Full Minutes-1378 …See more below] Here is the Feb 19, 2013 Resolution sponsored by Assembly member Jim COLVER directing the Borough Manager to Solicit Proposals from Financial Advisors to Serve as a Budget Analyst for the Assembly. Budge Analyst 2013-RS-031 (1) The MSB did issue a formal solicitation for this temporary budget analyst job (unlike in 2011 and 2012). It was posted on the MSB website from 3/6/13 to 3/18/13 and advertised in the Anchorage Daily News once on 3/6/13 and in the Frontiersman once on 3/8/13. Mr. Wilson was hired and he worked from April 8th until May 22nd 2013 – mostly from his home in Oklahoma. He was paid $55,316.25 plus travel expenses of $3,429.54 for a grand total of $58,745.79 for 38 days of work. $58,745.79 is a LOT of money to pay someone for a 6-week gig. This amount was only disclosed because a member of the public made a public records request. Note: Mr. Wilson did this contract work for the MSB in April and May 2013 WHILE he was also working for the City of Altus, Oklahoma (for former MSB Asst Manager Eliz. Gray) in the very same capacity – advising that city on its finances and budget. It is unclear if Mr. Wilson was a paid employee of Altus or an independent contractor. Nevertheless, he was working for both entities at the exact same time. How did he not get confused re: these two budgets? Then in June, 2013, the MSB Manager approved the new job of “Internal Auditor.” The job was posted on July 8, 2013. James Wilson was hired for this position. NOTE: The job description seems tailored for Mr. Wilson who is not does hold CPA or CIA certificates. Generally, an “Internal Auditor” is supposed to be an accounting professional. What is a Certified Internal Auditor? Anyhow, the MSB “Internal Auditor” job description states that this employee will “Provide the Assembly and Borough Manager with objective information to assist them in determining whether government operations are adequately controlled and whether the required high degree of public accountability is maintained through managing a professional audit staff, conducting audits for management to assess effectiveness of controls, accuracy of financial reports, and efficiency of operations.” Um, where is all of this stuff? Where is the PUBLIC accountability? Where is the professional audit staff? Where are the AUDITS? Why doesn’t the MSB post Audit Reports on our website like the Municipality of Anchorage? This is what the Internal Auditor promised to accomplish back in 2014: Where are these proposed audits or reports? Note: Here are the only two “reports” (a one page memo re: the ferry sale and a three page power point presentation re: the budget) I found on the MSB website which were prepared by Mr. Wilson. (Note: Mr. Wilson has been working as our “Internal Auditor” for almost five years now.) Ferry Sale Financial Points memo https://www.matsugov.us/31-communication/press-releases/17373-how-to-pay-for-government-services?highlight=WyJpbnRlcm5hbCBhdWRpdG9yIl0=&template=msb_bolide What is the MSB’s Internal Auditor doing exactly? Well, he seems to be working on Economic Development. The State of Alaska DOT referred to him as the MSB’s staffer who deals with “Economic Development Projects” in their recent Big Lake Airport Master Plan report. “Economic Development” is written on many of his Travel expense reports. He has been the MSB’s point person on the possible LNG deals and timber deals, etc. He has been travelling all over the place, including taking numerous trips back to Oklahoma and Texas. He drove all over the northern part of the MSB during the summer of 2017 inspecting Timber parcels. (If you ask me, spending most of June, July and and August driving all over the beautiful areas of the MSB to “inspect Timber parcels” and getting paid to do so plus receiving gas reimbursements sounds like a fabulous way to spend the summer.) He met with Japanese Resource Developers: https://www.matsugov.us/news/japanese-resource-developers-eye-port-mac He attends Alaska Industrial Development and Export Authority (AIDEA) meetings: http://www.aidea.org/Portals/0/2015/120315AIDEAMinutes.pdf AIDEA’s Mission Statement To promote, develop, and advance economic growth and diversification in Alaska by providing various means of financing and investment. This doesn’t sound like Internal Auditing. Published in MSB Budget & Finances "Internal Auditor" Where are the Internal Audit Reports? More from MSB Budget & FinancesMore posts in MSB Budget & Finances » The Original Borough Budget (1964) Animal Control Cost Comparison The MSB Animal Control Budget – Is it out of control? The “Throne of Power” A Dozen Ways to Improve the the Mat-Su Borough Government - MatsuMuckraker.com April 1, 2020 […] https://matsumuckraker.com/2018/03/19/the-msbs-internal-auditor-what-exactly-is-this-position-and-wh&#8230; […]

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professional_accounting

Days remain in a Chicagoland Dealers Care contest on Facebook that has 19 area charities vying for three cash awards from the CATA charitable arm. The contest continues through Dec. 12 here. By Dec. 6, nearly 32,000 votes had been cast in the contest, but the eventual winner is becoming clearer. Erin’s AAIM for Change, supported by Joe Rizza Ford of Orland Park, has captured nearly half the votes. The nonprofit was founded in 1997 after Erin Olmstead, a senior at Sandburg High School in Orland Park, was killed by a drunken driver. Visitors to the Facebook page can vote daily through Dec. 12. The Turning Pointe Autism Foundation, backed by the Dan Wolf Automotive Group, trails the leader by about 6,000 votes. A closer race exists for the third prize. Some initiatives have been developed into 15-second spots broadcast on NBC 5, and all are trumpeted on the CATA’s weekly radio show, "Drive Chicago," at 8 a.m. Saturdays on WLS 890 AM; and on the association’s website, ChicagolandDealersCare.com. Former Defense Secretary Robert M. Gates, who will discuss global politics and U.S. foreign policy, joins a lineup of industry and inspirational keynote speakers at the 2013 National Automobile Dealers Association Convention and Expo in Orlando, Fla., next February. Gates served as the 22nd secretary of defense from 2006 to 2011, under both Presidents Barack Obama and George W. Bush, making Gates the only defense secretary in U.S. history to be asked to remain in that office by a newly-elected president. Gates has served eight U.S. presidents. Industry keynote speakers at the NADA convention include John Krafcik, president and CEO of Hyundai Motor America; NADA Chairman Bill Underriner, a new-car dealer in Billings, Mont.; and incoming NADA Chairman David Westcott, a new-car dealer in Burlington, N.C. Captain Mark Kelly, a former NASA astronaut, space shuttle commander of Endeavour’s final mission and husband of former Congresswoman Gabrielle Giffords, will deliver an inspirational address. The 96th annual NADA convention runs from Feb. 8-11, 2013, at the Orange County Convention Center. For more information or to register, visit www.nadaconventionandexpo.org. The association is urgring automakers to stop unfair business practices. Bill Underriner, chairman of the National Automobile Dealers Association, outlined two contentious factory issues facing new-car dealers and urged automakers to support a level playing field for dealerships of all sizes. "Two-tier pricing and mandatory facility upgrades are symptoms of a bigger overall problem: manufacturer intrusion into dealers’ businesses," Underriner said Oct. 23 in remarks to the Automotive Press Association in Detroit. "The NADA wants the automakers to stop unfair practices." The NADA last summer created a special dealer task force to focus on the fairness of stair-step programs, also referred to as two-tier pricing, which is a manufacturer-to-dealer incentive tied to sales goals. "The history of our industry is littered with automaker attempts to impose one-size-fits-all programs on dealers. These efforts at top-down control almost always fail," said Underriner, a Buick, Honda, Hyundai and Volvo dealer. "We favor lawful, equal and fair treatment by a manufacturer for all its dealers. Unfortunately, history shows that, at times, manufacturers create incentive programs that favor some dealers over others." • Dealers are urged to contribute to the ongoing Hurricane Sandy relief efforts. If Sandy is anything like past super storms, requests for financial assistance from dealership employees who suffered damage to their homes will continue over the next six months. As of Nov. 27, nearly 350 dealership employees have received more than $179,000 from the Emergency Relief Fund of the National Automobile Dealers Charitable Foundation, and requests for assistance, mostly from New York and New Jersey, are growing every day. We’re especially grateful to the generosity of dealer associations in New York, the state hit hardest by the hurricane; as well as individual donations from dealers across the country. The Greater New York Auto Dealers Association has contributed $250,000 to the NADA Foundation; the New York State Auto Dealers Association has contributed $50,000; and the Rochester Auto Dealers Association has donated $10,000. Over the first month of the fund-raising campaign, total donations to the NADA Foundation’s hurricane relief efforts exceeded $384,000, but more funds will be needed as the damage assessment continues. Other significant contributions to the Emergency Relief Fund over the past month have included $10,000 from the Louisiana Auto Dealers Association; $10,000 from DCH Auto Group; and $5,000 each from Chicago Automobile Trade Association and the Greater Cleveland Auto Dealers Association. Many dealerships and their employees along the East Coast are still struggling to rebuild after the hurricane, and we’re hearing stories about some dealership employees who have lost everything. It’s not over. That’s why we’re urging dealers to contribute to the Emergency Relief Fund today and assist hurricane victims in need. The Federal Reserve Board and the Consumer Financial Protection Bureau announced that the dollar thresholds in Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) for exempt consumer credit and lease transactions will increase to $53,000 beginning Jan. 1, 2013. This means that beginning Jan. 1, consumer credit transactions and consumer leases at or below $53,000 are subject to the protections of the regulations. These increases are consistent with the Dodd-Frank Act amendments to the Truth in Lending Act and the Consumer Leasing Act to adjust these thresholds annually by the annual percentage increase in the Consumer Price Index. 1. Building repair or maintenance items such as painting should be performed before year-end. However, due to the current anticipated income tax rate increases for 2013, you may want to delay these repairs until 2013. 2. If you plan to make any charitable contributions, consider making them in 2012 to receive a tax deduction. Payments by credit card are deductible on the day they are made even if the payment to the credit card company occurs on a later date. The IRS requires written acknowledgment for each contribution of $250 or more. 3. Confirm you have made all required personal and corporate income tax deposits for 2012, and see that your personal income tax withholding is adequate. Consider paying all of your personal state income tax by the end of the year in order to take a federal income tax deduction for the state tax; however, you should consult with your tax advisor if you think you may be affected by the Alternative Minimum Tax. 4. Consider maximizing your retirement contributions, $17,000 for a 401(k) plan and ($22,500 if over age 50), and $50,000 to profit sharing plans (net of any 401(k) contributions). 5. Consider adopting a change in accounting method for "trade discounts" to expense factory "interest and advertising credits." This change could reduce dealership taxable income and should be considered if you have a large enough new vehicle inventory. 6. If you or the dealership owns stock that has unrealized losses, consider discussing with your tax or investment professional the benefit of selling them by year-end. 7. Confirm you have substantiation for your 2012 meal and entertainment expenses. Travel expenses and the cost of a holiday party for employees or food ordered into the dealership should not be included in this amount. 2. Maximize LIFO deductions. Record all new vehicles that were built and invoiced in 2012 as vehicle purchases in 2012 by keeping the new-vehicle purchase journal open the first few days of 2013. 3. Keep your accounts payable journal open to record all 2012 expenses in 2012, including advertising, interest, utilities, telephone, gasoline, data processing, insurance, etc. 4. Adjust your property tax payable account to equal at least the total you actually paid in 2012. 5. If any vehicle deal is not a 100 percent completed deal in 2012 (all paperwork and funding in 2012), then treat it as a 2013 vehicle sale. 7. Distributions paid to S corporation shareholders should be equalized in accordance to their ownership percentage before year- end. 9. Compare your actual parts inventory to the accounting parts inventory and make adjustments where appropriate. Have your parts manager determine which parts should be considered worthless. Subject to your review, dispose of these parts by year-end. Be sure that your parts manager advises the office manager of the cost of the disposed parts and that the appropriate entry is made to remove the costs from inventory. Your parts manager should provide you with a final parts inventory summary showing the dollar amount of parts in inventory at the end of the year along with an aging of that inventory. 10. All wages and commissions paid in 2013 for 2012 services should be accrued in 2012. Make sure the first payroll in 2013 (even though some portion of the payroll was for 2012 services) is not included on your W-2s for 2011, but will instead be on the W-2s for 2013. a. All accrued payroll for non-shareholders must be paid no later than 3/15/13 for it to be deductible in 2012. b. If you are a C corporation, make sure you pay any salaries, commissions, or bonuses to stockholders and related parties in December (if their ownership exceeds 50 percent) in order to take a 2012 tax deduction. c. If you are an S corporation, wages to a shareholder cannot be accrued. You must pay them in 2012 and include the wages on the 2012 W-2. 5. All payroll tax and sales tax payable accounts must equal the actual amount of the applicable taxes paid in 2013 for the 2012 fourth quarter and year-end filings. The year-end payroll tax accrual can only include taxes owed on wages actually paid in 2012. 6. Compute the Dec. 31, 2012, accrued vacation wages payable and adjust the books accordingly. Vacation wages paid Jan. 1-March 15, 2013, are deductible for tax purposes. No vacation accrual is allowed for any shareholders. 7. Review bank reconciliations for checks (including payroll checks more than 60 days old) that are not expected to clear. These checks should be voided and reissued. Funds owed to payees who cannot be located may be considered unclaimed property, which would require you to remit the funds to the appropriate state agency. Before reissuing a check to a vendor, be sure it has not been paid with a subsequent billing. 1. IRS Form 1099-MISC must be issued to all businesses that are not incorporated (including LLCs) and received $600 or more during 2012 for payment of services, awards, commissions, or fees for services. A Form 1099-MISC must be issued for payments to an attorney even if they are incorporated. When preparing the 1099, for those vendors from whom you purchased parts in conjunction with a service, you must report the total payment made to them on the 1099. Review all of the non-employee activity and determine if they should really be considered employees for payroll tax purposes for 2013. Also, Form 1099-MISC must be issued for all rents paid to non-corporate taxpayers, including shareholders, and Form 1099-INT must be issued for interest paid to shareholders and any other individuals. 3. Be sure you are in compliance with IRS rules and regulations regarding electronic backup of each month’s accounting records. We suggest you keep 60 months of electronic backup of your accounting data. 4. Determine if you are receiving services from individuals who should be considered employees. The IRS is providing a voluntary program that will allow you to convert these individuals from independent contractors to employees with partial relief from federal employment taxes and penalties. Consult your tax advisor for details. 2. There are two IRS-approved methods that can be used for full-time salespersons. The first method provides them with tax-free use of the demo. This method is fairly complicated and restrictive. The second method, used by most dealers, is the partial exclusion method. Under this method, an amount is added to wages on a monthly basis. The IRS has provided daily income amounts based on the value of the vehicle. For example, the daily inclusion is $6 for a vehicle valued at $25,000. Under this method, employees are not required to maintain logs. 4. The amount included in income is to be added to each employee’s W-2. Non-employee family member income amounts must also be included in the employee’s W-2. This income is subject to Social Security and Medicare tax. Shareholders not on the payroll who provide services to the company and any other non-employees must be issued a Form 1099-MISC for the income. 1. Form 8300 must be filed if you receive cash in excess of $10,000 from a customer. Cash includes cashier checks, money orders and traveler checks. Make sure you have properly filed the form for each transaction and notified the customer of the filing. Ask your office staff to provide you with copies of the forms filed for 2012 to confirm that this function is being performed. 2. If the dealership has a section 125 plan (cafeteria plan), make sure eligible employees complete the 2013 election forms before the first 2013 payroll. Remember that stockholders owning more than 2 percent in S corporations (LLCs, etc.) are not eligible to participate. 3. If you offer a health care Flexible Spending Arrangement as part of your cafeteria plan, in order for it to be a qualified benefit under a cafeteria plan, the maximum salary reduction contribution to the health care FSA for 2012 must be limited to $2,500. If a plan allows in excess of $2,500 in salary reductions from an employee, the employee will be taxed on all of the distributions from the health FSA, therefore losing the tax benefit of the FSA contribution. FSAs for other eligible covered expenses have various other limits. Stockholders owning more than 2% in an S corporation or an LLC are not eligible to participate. 4. Beginning in 2013, you will be required on your Federal income tax return to report your sales paid to you by credit or debit cards and from online payments as a separate line item. The credit card companies will be required to send you a Form 1099K with the gross sales data. You should consider how to adjust your accounting systems and/or practices in order to separately track this data and reconcile sales amounts reported on the Form 1099Ks you receive. 5. Beginning in 2013, if you issued more than 250 W-2s in 2012, you will be required to report the cost of each employee's health insurance on their 2013 W-2. 6. If you make gifts to individuals each year for estate tax purposes, the payments must be made by year-end. Michael Silver & Co. can be reached at the firm’s Skokie office at (847) 982-0333. In a nod to David Letterman, KPA offered its annual Top 10 Occupational Safety and Health Administration citations for dealerships and service centers. The list is the most straightforward information about OSHA citations available for businesses in automotive retail and repair. KPA, which provides environment and safety management, developed the Top 10 list by combining OSHA’s annual Most Frequently Cited Regulations for Dealerships and OSHA’s annual Most Frequently Cited Regulations for Repair Shops. KPA pinpointed specific machinery and processes at facilities that were frequently cited.

{'timestamp': '2019-04-23T12:18:58Z', 'url': 'http://www.cata.info/publication/detail/?BulletinId=276', 'language': 'en', 'source': 'c4'}

professional_accounting

‌Buy Solana Buy Dogecoin Buy Ada Coin Buy Ape Coin Buy Tron Buy Etherium Metamask Wallet Best Brokers Best Bitcoin Brokers Best Crypto Brokers Traiding Guides Taxation of Cryptocurrencies Cryptocurrencies and the technology that supports and surrounds them have already become a reality. It is becoming a part of the daily lives of people and companies. It’ll be common to hear, “Hey, I want to pay you with bitcoins.” This is why it’s important to know how to exchange them smoothly. (Article updated in January 2023. This text does not include investment advice or tax advice, the only information that we believe can shed light on how to properly declare your cryptos.) A cryptocurrency is a virtual currency that we can exchange for other traditional currencies. We can use crypto as a means of payment or investment. In the EU, the CNMV has warned more than once that central banks or authorities do not back these currencies. When we talk about cryptocurrencies, we are not only referring to Bitcoin. We are also referring to all those virtual currencies or crypto assets whose major feature is blockchain technology. Examples are Ethereum, Ripple, Litecoin, Dash, Solana, Dogecoin, Polkadot, etc. Are Cryptocurrencies Taxed? Cryptocurrencies are no longer just a way to invest your money; they are also a way to pay for things that aren’t regulated by banks. The Tax Agency has had its sights set on these transactions for several years. In 2018, it was already a part of its annual plan for controlling taxes and customs. Its goal is to look into the tax effects of new technologies like blockchain and cryptocurrencies in particular. The Tax Agency is sending information requests to people and businesses that buy or sell cryptocurrencies. These are mainly financial institutions, exchange bureaus, payment gateways, and entities linked to ATMs. It also applies to companies that accept payments with cryptocurrencies. In addition, it is also working on adding new tax information models so that it can get information from these kinds of bodies. This will help to control and monitor all taxpayers who have cryptocurrencies as assets in the EU. How to Regulate the Taxation of Cryptocurrencies Before starting with the control, it would be of more benefit if the regulation of cryptocurrencies could begin. This would let us know exactly what to do when we own and work with cryptocurrencies. But as in other areas, technology is moving faster than regulation. Presently, the EU does not have specific accounting or tax legislation on cryptocurrencies. There are only binding consultations of the Directorate General of Taxation that show the taxation of transactions for specific issues raised in these consultations. We will highlight some of the interests, though there are a few in the works. As we write this post, we will have to work through publications one by one. Unfortunately, just because there aren’t any particular regulations doesn’t mean there aren’t any taxes that need to be paid. To determine them, we must distinguish how we are using this type of currency. We’re going to look at a few cases based on the ways they have been interpreted so far (we still say there is no regulation). We suggest that you pay attention to the recent changes in how cryptocurrencies are regulated. If you have any doubts, you can seek professional advice. 1. Cryptocurrencies as a means of payment. Are cryptocurrencies subject to VAT? No. The transfer of virtual currencies is not subject to VAT. It only works when we buy goods or services as if we made them in euros. This means that both the buyer and the seller don’t have to pay VAT on the sale of cryptocurrencies. In the binding consultation V1885-21, the Directorate General of Taxes says that “bitcoins, cryptocurrencies, and other digital currencies are currencies because the financial services linked to them are exempt from VAT.” The transfer of bitcoins (and other cryptocurrencies) is subject to and exempt from VAT (art. 20. Uno.18o IVA). Transfer Tax. The law that regulates this tax says that money transfers to pay for goods or professional services will be exempt from this tax. Since we do not use virtual currencies to pay for goods and services, this tax does not apply to them. 2. Cryptocurrencies as an investment. In this case, we use cryptocurrencies as an investment through a broker. Let’s see the taxes that would have to be paid for it. IRPF-Taxation of cryptocurrencies in the income tax return. Trading in cryptocurrencies can lead to a capital gain or loss if it changes the way the taxpayer’s assets are made up (Article 33 of the Personal Income Tax Law). If we invest in cryptocurrencies, we will have to declare the gains directly on the tax return. We will incorporate this into the capital gains of the savings tax base. Capital gains are the difference between the value at the time of the transfer and the value at the time of the purchase. For example, if you buy a Bitcoin for 1,000 euros, that will be the acquisition value, and if you then sell it for 6,000 euros, that will be its transfer value, giving rise to a gain of 5,000 euros. If we carry out more than one transaction with cryptocurrencies, we must apply the FIFO (first in, first out) criterion. In other words, the value of the first transaction is the same as the value of the first cryptocurrency that was sold. Taxation depends on the amount of capital gain generated. With the numbers in the example above, the tax payable would be 19%. The amount of tax you will have to pay depends on the amount you have earned. SAVINGS TAX BASE: CAPITAL GAINS IRPF RATES 2022 From 0 to 6,000 euros From 6,000 to 50,000 euros From 50,000 euros to 200,000 euros More than 200,000 euros If a legal entity carries the transaction out, such as a limited or public limited company, profits made with cryptocurrencies are declared for corporate income tax purposes. Taxation is generally at a flat rate of 25% of the profit. Capital losses If you have made losses on the transaction, we can offset them against other capital gains of the year or income from movable capital up to 25% of their value. If there is no option to offset them, we can offset them over the next four years. The Binding consultation V0808-18 makes it clear that capital gains from the sale of virtual currencies should be counted at the time of delivery, regardless of when the sale price is received. Consultation 0999-18 is notable, which clarifies how the exchange between different cryptocurrencies is taxed. This is the notice that we have seen during 2021 in the tax data of the Tax Agency of several taxpayers: “The data that the State Tax Administration Agency has shows that you have done business with cryptocurrencies.” We want to remind you that the money you make from these transactions is personal income that is taxed as capital gains. Therefore, these gains must be included in box 389, which is headed “Other capital gains,” to be included in the savings tax base. This is because the banks provide information on the operations, and it is a way for the tax authorities to check that cryptocurrency operations are being carried out. What if my cryptocurrencies are stolen? In these cases, which we hope will not happen to you, we consider the amount of the stolen coins a capital loss, as explained in the binding consultation V1979-15 Form 720, assets and rights abroad, and future 721. This information return is filed for assets and rights abroad exceeding 50,000 euros. The law against fraud says that starting in 2021, if you have more than €50,000 in cryptocurrencies in foreign exchange, you will have to file the controversial Form 720. In fact, in 2022, there is already talk of the creation of a similar tax form (there is talk of a form 721) from which the Tax Agency would be informed, on the one hand, as a taxpayer, of the cryptocurrencies that are “held” in foreign exchange. This would oblige European exchanges to report the amounts and holdings of cryptocurrencies held by their clients. This tax is based on who owns all assets and rights with economic value. According to the binding consultation V0250-18, cryptocurrencies must be included in this tax because they are a form of wealth. Bear in mind that there may be regional bonuses that will determine whether we file the wealth tax. The valuation is at a market price determined on the date of the accrual of the tax, i.e., December 31st of each year. As we are talking about a very volatile currency, it is possible that on the same day the value can transform. Inheritance and Gift Tax If you inherit cryptocurrency or get it as a gift, you must report it on your Inheritance and Gift Tax return, taking into account the rules of your autonomous community, such as exemptions and allowances. 3. Cryptocurrencies as an economic activity. Cryptocurrencies are not created but discovered. Mining is the process of using a computer’s processing power to check transactions in virtual currency by doing calculations. In exchange, we get cryptocurrencies. Cryptocurrency mining is an economic activity and, as such, is subject to taxation. Even though there isn’t a specific heading for “cryptocurrency miners,” they have to register under heading 831.9 of Section 1 of the tax on economic activities. The binding consultation V2908-17 explains this. Binding consultation V3625-16 states that mining services are not subject to VAT. This means that VAT doesn’t have to be paid for the money made when we turn cryptocurrencies into regular money. We should note that it will not be possible to deduct VAT on expenses related to the activity. Personal income tax / Corporation tax How are miners taxed? There is a requirement to sign up and pay taxes on income and costs related to the business, such as computer equipment, graphics cards, electricity bills, rent, etc. We can deduct these if they meet the rules set by the tax authorities. The difference between eligible income and deductible expenses is that we should settle profit in the IRPF as income from economic activities or in the corporate income tax depending on whether we do the activity as an individual or a legal entity. Not only do you have to pay taxes, but you also have to meet your Social Security obligations and, if necessary, pay the self-employed fee. Buying and selling cryptocurrencies Consultation V2012-21 clarifies that this type of operation should not be an economic activity. So we should tax it, as we have explained in the IRPF section, on capital gains and losses from cryptocurrencies. This is a cryptocurrency custody service, or deposit service. In this way, we think that this kind of service is an economic activity that needs to pay VAT and is not exempt from it, as stated in the recent binding consultation V2679-21. This is because we can’t call this kind of service “financial,” which means it doesn’t get the exemption that it does. The tax authorities think it’s a service that’s similar to renting safety deposit boxes, so they charge 21% VAT on it. The Tax Agency defines “staking” as an alternative to mining for making blocks and making sure they are correct in the binding consultation. By keeping their coins locked up in a digital wallet, cryptocurrency owners can make money through this process. It is similar to traditional deposit operations. The balances are blocked, and the investor cannot use them freely. Regarding staking, we have to differentiate between the profit and the service. On the one hand, is the profitability derived from the process. Since the return is the result of a transfer of cryptocurrencies, it will not be subject to VAT for professionals or companies. For individuals, we will consider this amount of income to be from movable capital. On the other hand, there is the service itself. We use the term “binding consultation” to describe a consultant who, by subscribing to a smart contract service, lets their clients join staking operations with other investors and pays them a percentage of the profits for this service. We would not define this percentage as a financial service, and it would be subject to and not exempt from VAT. Taxation of NFTs This is a subject we could write about at length. Here is another subject that we are sure will be of interest to you. If you carry out transactions with cryptocurrencies and have doubts about how to declare them, you can contact our experts in fiscal and tax matters. We recommend that you keep track of all transactions and operations, as the Tax Agency could ask for this information if they want to check or inspect your business. We hope these concepts related to the taxation of cryptocurrencies are clear to you. We encourage you to share your thoughts in the comments. Author and expert: Richard Urban LinkedIn: Richard Urban Exodus Wallet Review 2023 for you Overview of the best Cryptocurrency Wallet for Mac Best Android cryptocurrency wallet apps in 2023 Review the BEST Crypto Wallet Apps (2022) Best Ethereum (ETH) wallets in 2023 Current Page: Main © 2023 Long Term Investment Intergroup. longterminvestment.eu All rights reserved.

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professional_accounting

Performance audit reports Our performance audit work contributes to improved public sector administration and accountability through objective reporting on the performance of Australian Government programs and entities. (-) Remove 1999-2000 filter 1999–2000 This page lists completed performance audit reports. View all performance audits in-progress. Published: Wednesday 7 February 2001 Audit Activity Report: July to December 2000 - Summary of Outcomes The report summarises the audit and other related activities of the ANAO in the period June to December 2000. It provides a consolidated report of the ANAO's integrated audit products tabled during the period. Key issues examined in the ANAO's performance audit activity in the period were: risk management in a corporate governance framework; outsourcing and asset sales; contract management; service delivery; data management/management information systems; and legislative implementation. The report also summarised the results of a report summarising the final results of the audits of the financial statements of Commonwealth entities; and dealt with issues regarding financial management issues, controls and processes arising from the financial audit activities conducted during the period. Audit Activity Report Prime Minister & Cabinet Performance audit (Auditor-General Report No. 4 of 2000–01) Published: Monday 14 August 2000 Audit Activity Report: January to June 2000 This report summarises audit and other related activities of the Australian National Audit Office in the period January to June 2000. Performance audit (Auditor-General Report No. 28 of 1999–2000) Published: Thursday 3 February 2000 Audit Activity Report July to December 1999 This report summarises audit and other related activities of the Australian National Audit Office in the period July to December 1999. Across Agency Performance audit (Auditor-General Report No. 6 of 1999–2000) Published: Monday 9 August 1999 Audit Activity Report January to June 1999 Summary of Outcomes Published: Wednesday 5 May 1999 Management of Commonwealth Budgetary Processes: Preliminary Study The objective of the preliminary study was to form a view regarding the quality of, and controls over, the Budget estimates and to inform the decision whether to proceed to a full performance audit at this time. On the basis of the quantitative and qualitative analysis of the budget process undertaken during the study, the ANAO concluded that there are no apparent systemic problems in the cash-based estimating processes in the agencies reviewed that would, in themselves, lead to material statistical inaccuracies in the Budget's projected outcomes. The ANAO decided not to proceed with a full performance audit at this time. Department of Family and Community Services; Australian Customs Service; Department of Prime Minister and Cabinet; Department of the Treasury; Department of Finance and Administration Published: Tuesday 9 March 1999 Audit Activity Report:July to December 1998 Audit Activity Report Jan-Jun '98 - Summary of Outcomes

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professional_accounting

• Counterparty Risk —The Fund bears the risk that the counterparty to derivative transaction, such as a futures contract, defaults or otherwise fails to honor its obligations. If a counterparty defaults, the Fund will lose money and the value of an investment in the Fund may decrease. The Fund may engage in futures transactions with a limited number of counterparties, which may increase the Fund’s exposure to counterparty risk. The effect of the volatility of bitcoin pricing or other aspects of trading in bitcoin futures on futures clearinghouses for bitcoin futures is currently unknown, and may result in increased counterparty risk. From time to time, proxy issues may pose a material conflict of interest between Fund shareholders and the Advisor, the Distributor or any affiliates thereof. Due to the limited nature of the Advisor’s activities (e.g., no underwriting business, no publicly traded affiliates, no investment banking activities and no research recommendations), conflicts of interest are likely to be infrequent. Nevertheless, it shall be the duty of the Committee to monitor potential conflicts of interest. In the event a conflict of interest arises, the Advisor will direct ISS to use its independent judgment to vote affected proxies in accordance with approved guidelines. The Committee will disclose to the Board of Trustees the voting issues that created the conflict of interest and the manner in which voted such proxies were voted. Money Map Press Home Money Map Report Energy Advantage Nova-X Report Private Briefing Fast Fortune Club Energy Inner Circle High Velocity Profits Biotech Insider Alert Radical Technology Profits Stealth Profits Trader Small-Cap Rocket Alert Money Calendar Pro Money Calendar Alert Weekly Money Call Zenith Trading Circle Seismic Profits Alert The 10-Minute Millionaire Insider Night Trader Cryptocurrency Windfalls The Money Zone Heatseekers • Small-and Mid-Cap Company Investment Risk — The Fund may invest in stocks of small-and mid-cap companies. The risk of equity investing may be particularly acute for securities of issuers with smaller market capitalizations. Small-and mid-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid than the stocks of larger companies. Small-and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further, stocks of small-and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small-and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-and mid-cap security prices. Subject to the general supervision by the Board, the Advisor is responsible for decisions to buy and sell securities and derivatives for each of the Funds and the selection of brokers and dealers to effect transactions. Purchases from dealers serving as market makers may include a dealer’s mark-up or reflect a dealer’s mark-down. Purchases and sales of U.S. government securities are normally transacted through issuers, underwriters or major dealers in U.S. government securities acting as principals. Such transactions, along with other fixed income securities transactions, are made on a net basis and do not typically involve payment of brokerage commissions. The cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriters; transactions with dealers normally reflect the spread between bid and asked prices; and transactions involving baskets of equity securities typically include brokerage commissions. As an alternative to directly purchasing securities, the Advisor may find efficiencies and cost savings by purchasing futures or using other derivative instruments like total return swaps or forward contracts. The Advisor may also choose to cross -trade securities between clients to save costs where allowed under applicable law. “Bitcoin Improvement Proposals”, or “BIPs.” If accepted by a sufficient number of miners, BIPs may result in substantial changes to the Bitcoin Network, including changes that result in “forks.” Such changes may influence the price of Bitcoin and Bitcoin Futures Contracts. In particular, it is possible that the price of the Bitcoin Futures Contracts subsequent to a “fork” may be linked to the price of bitcoin on only one of the resulting Bitcoin Networks, rather than the aggregate price of bitcoin on all resulting Bitcoin Networks. The CBOE Futures Exchange (“CFE”) and Chicago Mercantile Exchange (“CME”) have announced different protocols for addressing forks. Purchasers of Shares in Creation Units are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust. Investors will also bear the costs of transferring securities from the Fund to their account or on their order. Investors who use the services of a broker or other such intermediary may be charged a fee for such services. In addition, the Advisor, its affiliates and principals may trade for their own accounts. Consequently, non-customer and proprietary trades may be executed and cleared through any prime broker or other broker utilized by clients. It is possible that officers or employees of the Advisor may buy or sell securities or other instruments that the Advisor has recommended to, or purchased for, its clients and may engage in transactions for their own accounts in a manner that is inconsistent with the Advisor’s recommendations to a client. Personal securities transactions by employees may raise potential conflicts of interest when such persons trade in a security that is owned by, or considered for purchase or sale for, a client. The Advisor has adopted policies and procedures designed to detect and prevent such conflicts of interest and, when they do arise, to ensure that it effects transactions for clients in a manner that is consistent with its fiduciary duty to its clients and in accordance with applicable law. Investors in the ProShares Short Bitcoin Futures Strategy ETF should understand the consequences of the “short” strategy employed by the Fund, which is subject to, among others, compounding and market volatility risk. The Fund may adjust its short exposure as frequently as daily basis which entails obtaining additional short exposure as the Fund experiences gains, and reducing short exposure as the Fund experiences losses. As a result, the Fund’s performance may be more vulnerable to the effects of compounding than funds that do not seek to provide short investment exposure. During periods of high volatility, this risk may be exacerbated and the Fund may have losses as a result of such adjustments. • Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to corporate, political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Further, stocks may underperform other equity investments. Volatility in the markets and/or market developments may cause the value of an investment in the Fund to decrease. and the FTSE Developed Europe Index (the “Indices”) (ii) the figure at which an Index is said to stand at any particular time on any particular day or otherwise, or (iii) the suitability of the Index for the purpose to which it is being put in connection with the ProShares Ultra, Short and UltraShort FTSE China 50 and Ultra and UltraShort FTSE Developed Europe. None of the Licensor Parties have provided or will provide any financial or investment advice or recommendation in relation to the Index to ProShares or its clients. The Index is calculated by FTSE or its agent. None of the Licensor Parties shall be (a) liable (whether in negligence or otherwise) to any person for any error in the Index and (b) under any obligation to advise any person of any error therein. Orders to redeem Creation Units outside the Clearing Process (other than for Global Fund orders), including all cash-only redemptions, must be delivered through a DTC Participant that has executed the Authorized Participant Agreement. A DTC Participant who wishes to place an order for redemption of Creation Units to be effected outside the Clearing Process need not be a “participating party” under the Authorized Participant Agreement, but such orders must state that the DTC Participant is not using the Clearing Process and that the redemption of Creation Units will instead be effected through a transfer of Shares directly through DTC. A redemption order for a Fund must be received by the cut-off times set forth in “Redemption Cut-Off Times” above. The order must be accompanied or preceded by the requisite number of Shares of Funds specified in such order, which delivery must be made through DTC to the Custodian by the second Business Day (T+3) following such transmittal date. All other procedures set forth in the Authorized Participant Agreement must be properly followed in order to receive the next determined NAV. Certain debt securities may be treated as debt securities that were originally issued at a discount. Original issue discount can generally be defined as the difference between the price at which a security was issued and its stated redemption price at maturity. Original issue discount that accrues on a debt security in a given year generally is treated for federal income tax purposes as interest income that is included in a Fund’s income and, therefore, subject to the distribution requirements applicable to RICs, even though the Fund may not receive a corresponding amount of cash until a partial or full repayment or disposition of the debt security. When you hear "margin", you may be thinking that you are borrowing money to trade bitcoin futures. This is not quite true. A key feature of these futures contracts is that the leverage comes from counterparties providing it to one another, not from the exchange lending funds and not from any bitcoin being lent from third parties. The contracts are simply like stocks with a market price, which represents the agreements between traders to take the opposing sides of where price of bitcoin will go, so no actual bitcoins are being exchanged per se, however the profit and loss between counterparties is very real! Although forward currency contracts may be used by the Funds to try to manage currency exchange risks, unanticipated changes in currency exchange rates could result in poorer performance than if a Fund had not entered into these transactions. Even if the Advisor correctly predicts currency exchange rate movements, a hedge could be unsuccessful if changes in the value of a Fund’s position do not correspond to changes in the value of the currency in which its investments are denominated. This lack of correlation between a Fund’s forwards and currency positions may be caused by differences between the futures and currency markets. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service. The Code generally imposes a 3.8% Medicare contribution tax on the net investment income of certain individuals, trusts, and estates to the extent their income exceeds certain threshold amounts. For these purposes, “net investment income” generally includes, among other things, (i) distributions paid by a Fund of ordinary dividends and capital gain dividends as described above, and (ii) any net gain from the sale, redemption or exchange of Fund shares. Shareholders are advised to consult their tax advisors regarding the possible implications of this additional tax on their investment in a Fund. A Parent Fund’s investment in its Subsidiary will potentially have the effect of accelerating the Fund’s recognition of income and causing its income to be treated as ordinary income, regardless of the character of such subsidiary’s income. If a net loss is realized by a Subsidiary, such loss is generally not available to offset the income earned by a Parent Fund. In addition, the net losses incurred during a taxable year by a Subsidiary cannot be carried forward by such Subsidiary to offset gains realized by it in subsequent taxable years. The Parent Funds will not receive any credit in respect of any non-U.S. tax borne by a Subsidiary. In general, a beneficial owner of Fund Shares who or which is a foreign shareholder is not subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on a sale of shares of the Fund unless (i) such gain effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or and certain other conditions are met, or (iii) the special rules relating to gain attributable to the sale or exchange of “U.S. real property interests” (“USRPIs”) apply to the foreign shareholder’s sale of shares of the Fund (as described below). Cryptocurrencies are far more volatile than stocks and bonds, and the industry evolves rapidly. An altcoin that is popular today may not exist a month or a year from now. In other words, traders should consider the possibility of losing everything when they start trading. For this reason, you should put only a very small portion of your portfolio in this sector. After the Transfer Agent has deemed an order for redemption outside the Clearing Process received, the Transfer Agent will initiate procedures to transfer the requisite Fund Securities and the Balancing Amount (minus a redemption Transaction Fee or additional charges for requested cash redemptions), which are expected to be delivered within two Business Days, and the Cash Redemption Amount (by the second Business Day (T+2) following the transmittal date on which such redemption order is deemed received by the Transfer Agent). • A person who exchanges Creation Units for securities generally will recognize a gain or loss equal to the difference between the exchanger’s basis in the Creation Units and the aggregate market value of the securities received and any cash received. However, all or a portion of any loss a person realizes upon an exchange of Creation Units for securities will be disallowed by the Internal Revenue Service if such person purchases other substantially identical shares of the Fund within 30 days before or after the exchange. In such case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. ProShares Crude Oil Strategy ETF is an actively managed fund that seeks to provide total return through actively managed exposure to the West Texas Intermediate (“WTI”) crude oil futures markets. The Fund’s strategy seeks to outperform certain index based strategies by actively managing the rolling of WTI crude oil futures contracts. “Rolling” means selling a futures contract as it nears its expiration date and replacing it with a new futures contract that has a later expiration date. The Fund generally selects between WTI crude oil futures contracts with the three nearest expiration dates (known as the front, second and third month contracts) based on ProShare Advisors’ analysis of the liquidity and cost of establishing and maintaining such positions. Each month, the Fund will evaluate this strategy on or about the fifth business day of the month and may roll its position from the fifth through ninth business days into the contract month determined by the Fund’s active investment strategy. Simply, the OBV is a remarkable technical indicator that can show us if the real money is really buying Bitcoin or quite the contrary they are selling. What we want to see when Bitcoin is failing to break above a resistance level or a swing high and the Ethereum already broke is for the OBV to not only increase in the direction of the trend, but to also move beyond the level it was when Bitcoin was trading previously at this resistance level (see figure below). Here is how to identify the right swing to boost your profit. The BofA Merrill Lynch Marks are trademarks of Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and have been licensed for use by Trust. S&P, MSCI and Russell, respectively, are trademarks of Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and Standard & Poor’s Financial Services LLC, MSCI, Inc. and Frank Russell Company and have been licensed for use by BofA Merrill Lynch. A futures curve shows the forward expectation of an asset’s price. Future rates of an asset can be calculated by extrapolating price from the risk-free theoretical spot rate of the asset. For example, one might calculate the possible future rate of an asset for the short (<1 month), medium (1-3 months) and long term (>3 months). In other words, future curves represent the demand for a specific asset and therefore the expected price evolution for the asset projected into the future. The curve is constructed from a discrete set of data points for various maturities. Initially, futures curves were used for hedging purposes, but with the evolution of the investment management industry, futures curves have become basic investment instruments not only for traditional commodities but also for new emerging asset classes. Interest Rate Risk — The Fund intends to invest a substantial portion of its assets in U.S. Treasury securities and is subject to interest rate risk. Interest rate risk is the risk that debt securities may fluctuate in value due to changes in interest rates. Commonly, investments subject to interest rate risk will decrease in value when interest rates rise and increase in value when interest rates decline. The value of securities with longer maturities may fluctuate more in response to interest rate changes than securities with shorter maturities. A wide variety of factors can cause interest rates to rise (e.g., central bank monetary In addition, the securities of some foreign governments, companies and markets are less liquid, and may be more volatile, than comparable securities of domestic governments, companies and markets. Some foreign investments may be subject to brokerage commissions and fees that are higher than those applicable to U.S. investments. A Fund also may be affected by different settlement practices or delayed settlements in some foreign markets. Moreover, some foreign jurisdictions regulate and limit U.S. investments in the securities of certain issuers. And this is where the BRR comes in. The BRR is the reference rate that is relevant for futures contracts and options in Bitcoin. When a futures contract or call option expires on a certain day, the owner will receive the difference between the BRR and the Bitcoin price in the contract as cash (if the BRR is higher than the price in the contract, of course). The BRTI, in contrast, is a real-time statistic that is not binding for any contracts; it tells you for what price you can currently (in this second) buy or sell Bitcoin on the markets. Contact us at [email protected] | Sitemap xml | Sitemap txt | Sitemap

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professional_accounting

Edgewell Personal Care Co. stock is being sold by the State of New Jersey Common Pension Fund D. (NYSE:EPC). The State of New Jersey Common Pension Fund D reduced its holding in Edgewell Personal Care Co (NYSE: EPC) by 13.1% in the third quarter, according to its most recent filing with the Securities and Exchange Commission. This information is taken from the application as filed. After selling 8,751 shares of the company’s stock during this period, the fund topped the list with 58,044 shares. At the end of its most recent fiscal quarter, the New Jersey State Common Pension Fund D owned approximately 0.11% of Edgewell Personal Care’s stock. At the time, its stock was valued at $2,171,000. These investors have also made changes to the EPC holdings of a number of other large investors. During the second quarter, FMR LLC achieved a 70.2% increase in ownership of Edgewell Personal Care stock. FMR LLC now holds 802,371 shares of the Company’s stock after acquiring an additional 331,059 shares last quarter. The value of FMR LLC stock holdings is $27,698,000. Millennium Management LLC saw its stake in Edgewell Personal Care increase by 2,778.1% in the second quarter of the year. The current value of the Company’s shares held by Millennium Management LLC is $9,877,000. They have a total of 286,117 shares. This is the result of purchasing an additional 276,177 shares during the most recent fiscal quarter to bring the total number of shares held by the company to current levels. Vanguard Group Inc. increased its holdings of Edgewell Personal Care stock by 2.5 percent in the first quarter. Vanguard Group Inc. now directly owns 6,216,241 shares of the Company’s stock, valued at $227,950,000 as a result of the purchase of an additional 153,278 shares during the most recent fiscal quarter. That adds 7.1% to the total number of shares Vanguard Group, Inc., has raised from State Street Corporation in its ownership of Edgewell Personal Care stock during the first three months of 2018. After acquiring an additional 135,214 shares last quarter, State Street Corp. now 2,029,304 shares of the company, valued at $74,702,000. Last but not least, the value of assets held by Allianz Asset Management GmbH at Edgewell Personal Care increased by 1,902.4% in the first three months of 2018. Allianz Asset Management GmbH now holds 125,030 shares after acquiring a further 118,786 shares in the last quarter. The current market price for each of these shares is $4,585,000. The vast majority of shares, amounting to 94.46%, are owned by various types of institutional investors, including hedge funds. Edgewell Personal Care shares were priced at $42.13 per share when trading began on Wednesday. The low over the past year for Edgewell Personal Care Co. was $32.00, while the company’s high over the past year was $51.55. The stock trades at 22.90 times earnings and its beta is 0.94. The market value of the company’s shares is approximately $2.17 billion. The moving averages for the company have been $40.32 for the past 50 days and $39.43 for the past 200 days. At this point, the debt to equity ratio is 0.95, the quick ratio is 0.90, and the current ratio is 1.72. On November 10th the latest quarterly report for Edgewell Personal Care was released. Edgewell Personal Care is a company traded on the NYSE under the symbol “EPC”. The company reported earnings per share (EPS) of $0.79 for the quarter, up $0.02 from the consensus estimate of $0.77 per share. Edgewell Personal Care performed reasonably well, as evidenced by its high return on equity (9.16%) and healthy net margin (4.54%). The company’s revenue for the quarter was $536.90 million, down from what industry experts were expecting of $540.91 million. Sell-side analysts expect Edgewell Personal Care Co. to post earnings of $2.41 per share for the current fiscal year. A quarterly dividend was recently declared and paid by the company, on January 4th. In addition, the company recently announced and paid a dividend. On Tuesday, November 29th, dividend payments of $0.15 per share were mailed to shareholders who had already submitted their information. Because of this, shareholders receive a $0.60 dividend payment each year, and the yield is 1.42%. November 28, a Monday, marked the beginning of the “ex-dividend” period of this dividend. The dividend payout ratio, also known as DPR, for Edgewell Personal Care currently stands at 32.61%. Several different analysts have recently written reports on EPC stocks. These reports discuss recent events. Goldman Sachs Group lowered its price target on Edgewell Personal Care stock to $42.00 from $47.00 and downgraded its rating on the stock to neutral from buy in a report issued on Tuesday, October. They have moved the stock from a “buy” rating to a “neutral” rating on their recommendation scale. In a research note published on Friday, November 11, Morgan Stanley lowered its “underweight” rating on Edgewell Personal Care shares to $35.00 and lowered its price target on the shares to $35.00 from $36.00 . These changes came after the company lowered its share price target from $36.00 to $35.00. StockNews.com reported on Edgewell Personal Care stock on Wednesday, October 12, after publishing a research study earlier in the day. They recommended stockholders to “hold” their shares in the company. Wells Fargo & Company’s target price for Edgewell Personal Care stock was raised to $44.00 and the announcement came in a research report published on November 16. Canaccord Genuity Group provided coverage of Edgewell Personal Care stock in a research report published on Thursday, November 17th. The report has been published. The agenda was complete and this was the last and most important item. They suggested buying shares in the company and setting a price target of $48,000 on the stock. Three analysts have to buy ratings on the stock; Two experts have rated the stock and two analysts currently have sell ratings on the stock. Information provided by Bloomberg shows that the company has an average hold rating and has a target price of $40.80. Additionally, on November 29, company insider John N. Hill sold 1,250 shares of the company’s stock. This was reported in other news about Edgewell Personal Care. The deal was finalized the same day it was discussed. The total amount received from the sale of the shares was $52,012.5 and the average price paid for each share was $41.61. Following the transaction, the business insider now owns 74,986 shares worth $3,120,167.46. If you click on this link, you will be directed to a legal filing filed with the SEC that will provide you with more information about the transaction and will take you there immediately. The current proportion of company shares owned by company insiders is 1.84%. Postal worker accused of misleading police on Interstate 79 in Greene County TikTok about a British tourist bitten by a snake on Kgari (Fraser Island) in Queensland goes viral What is Atlanta’s “Cop City” and why are people protesting about it?

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professional_accounting

FIORE GOLD аnnounces full zear 2020 results and 2021 guidance Posted on 18. December 2020 by Firma Swiss Resource Capital FIORE GOLD LTD. (TSXV: F) (OTCQB: FIOGF) (“Fiore” or the “Company” – https://www.commodity-tv.com/ondemand/companies/profil/fiore-gold-ltd/ ) is pleased to announce that its financial statements and management’s discussion and analysis for the fiscal year ended September 30, 2020, have been filed with the securities regulatory authorities and are available at www.sedar.com and on the Company’s website at www.fioregold.com. 2020 Operational and Financial Highlights (all figures in U.S. dollars unless otherwise indicated) Full-year gold production of 46,031 ounces, an 11% increase over the preceding year and within guidance of 45,000-48,000 ounces Full-year gold sales of 46,334 gold ounces at an average realized price of $1,681 per ounce Full-year mined ore production of 14,961 tons per day at a stripping ratio of 1.5 and grade of 0.015 ounces/ton, all measures within or better than guidance. Fiore consolidated AISC1 per ounce sold of $1,148, Pan Mine AISC1 per ounce sold of $1,026 and cash costs per ounce sold1 of $947 Recorded annual revenues of $77.9 million with mine operating income of $26.9 million Generated Pan operating cash flow1 of $31.7 million and consolidated operating cash flow of $24.3 million, compared to $10.0 million and $4.5 million respectively in 2019 Continued to strengthen our balance sheet with cash of $23.2 million, an increase of $15.9 million relative to reported cash at September 30, 2019, and net working capital of $40.0 million as of September 30, 2020 Pan stand-alone operating income1 of $26.8 million and consolidated operating income of $19.6 million Net income of $18.0 million and basic and diluted earnings of $0.18 per share, compared to $2.4 million, or $0.02 per share in 2019 Worked 297,672 man-hours in the fiscal year 2020 with zero lost-time injuries. Our operations team at Pan received the Small Mine Safety Award from the Nevada Mining Association for the fifth consecutive year. Mining declared an essential business in Nevada and the Pan Mine continues to operate with strict protocols in place focused on protecting the health and safety of our employees 2020 Organic Growth Highlights At Pan, we completed an exploration drilling program of 21,741 metres (71,330 feet) and announced an updated reserve, resource and life of mine plan that extended the mine life by two years into 2025 At Gold Rock, results of a Preliminary Economic Assessment (“PEA”) were released on April 9th demonstrating positive economics with opportunities to further enhance value. The related technical report was filed May 13. Following the completion of the Gold Rock PEA, we initiated a program of resource expansion, metallurgical, geotechnical and condemnation drilling in support of a Gold Rock Feasibility Study. First drill results were announced subsequent to year-end, headlined by 48.8 metres of 2.17 g/t gold and 32.0 metres of 1.41 g/t gold. At our third project, Golden Eagle, in Washington State, we announced a 2.0 million ounce measured and indicated resource Q4 2020 Operational and Financial Highlights Q4 gold production of 12,432 ounces, gold sales of 12,455 gold ounces at an average realized price of $1,920 per ounce Q4 mined ore production of 15,489 tons per day with the stripping ratio reducing as guided to 1.1 and grade of 0.015 ounces/ton, ore tons mined better than plan due to positive ore reconciliation Recorded quarterly revenues of $23.9 million with mine operating income of $10.9 million Generated Pan operating cash flow1 of $11.4 million and consolidated operating cash flow of $9.9 million Net income of $9.3 million and Adjusted net earnings1 of $8.7 million, both new quarterly records Worked 81,219 man-hours, achieving our goal of zero reportable incidents, zero reportable accidents, and zero lost-time injuries Q4 2020 Fiore consolidated AISC1 of $1,106, Q4 2020 Pan Mine AISC1 per ounce sold of $965 and cash costs per ounce sold1 of $886 Commenced construction of heap leach pad expansion phase III Tim Warman, Chief Executive Officer of Fiore, commented: “FY2020 was an excellent year for all Fiore Gold stakeholders. Pan generated record results, most notably net income of $18.0 million, $0.18 earnings per share and operating cash flow of $24.3 million. We also generated $15.9 million of free cash flow in 2020 despite considerable investment in Pan and Gold Rock drilling, as well as the on-going leach pad expansion at Pan. More importantly, our recently announced resource and reserve estimate reflects a two-year mine life extension at the Pan Mine, ensuring we will mine well into 2025. With positive drill results at the adjacent Gold Rock project and a significant resource update at our Golden Eagle project, we continue take tangible steps toward achieving our goal of operating Pan and Gold Rock in unison, creating the only multi-asset, 100% US domestic gold producer.” Gold production of 46,031 ounces was 11% higher than production in 2019. Ore mined was slightly higher than 2019 due to some positive ore reconciliation, whereas waste tons mined decreased reflecting a lower stripping ratio of 1.5:1.0. The increase in cash costs per ounce1 relative to FY 2019 is due to the impact of sustained higher stripping in the second half of FY 2019 and the first half of FY 2020, a full year of processing costs related to the crusher, and general escalation in contractor mining costs. Pan and Fiore Consolidated AISC1 are also impacted by the increase in cash costs per ounce1. Q4 gold production was higher than the prior year quarter as the prior year was impacted by lower grade and some issues during commissioning of the crusher. All key cost metrics trended below Q4 2019 as gold ounces mined and produced were higher. Full-year mined ore production of 14,961 tpd was higher than guidance due to positive ore reconciliation. Strip ratio of 1.5 and grade of 0.015 ounces/ton were slightly better than and within guidance, respectively. Full-year gold production of 46,031 represented an 11% increase over the year ended September 30, 2019 and within the guidance range of 45,000 to 48,000 ounces. Total cash costs per ounce1 ended the year at $947, below the guidance range of $975 to $1,025 per ounce. The average cash cost per ounce was driven down by the stripping ratio coming in slightly below guidance due to positive ore reconciliation as noted above, lower operating cost per ton metrics than utilized within the guidance determination and higher contained gold ounces mined. Pan Mine AISC1 was $1,026 per ounce and Fiore Consolidated AISC1 was $1,148 per ounce, both below their respective guidance ranges. This resulted from lower cash costs per ounce1 as noted above, in addition to lower capital than was estimated in our 2020 AISC guidance determination. The lower capital is in part due to the reclassification of certain expenditures from sustaining capital1 to non-sustaining capital. The Pan Mine 2020 resource expansion drilling program and construction of the phase III heap leach pad were conservatively classified as sustaining capital expenditures during the first three quarters of this fiscal year and for the purpose of 2020 guidance. As announced in our December 8, 2020 news release, the 2020 resource expansion drilling program resulted in a two-year extension of the Pan mine life into 2025, representing a material change in the resources and reserves. Accordingly, this drilling program was determined to be non-sustaining capital under the World Gold Council (“WGC”) guidance as it is a major project materially benefiting the operation, particularly as it has added in excess of 10% to the life of mine production as defined by the WGC measure. A similar reclassification was applied for expenditure incurred for the phase III heap expansion as this expenditure also supports in excess of a 10% increase in life of mine production. Additional leach pad space is required to process the additional reserves from the 2020 Pan Mine resource expansion drilling program. Refer to the AISC Quarterly Presentation at the end of this news release for the quarterly impacts of this re-classification through 2020. The total non-sustaining capital costs of the drilling program and phase III heap leach pad during FY 2020 was $2.3 million and $0.7 million, respectively. Had these expenditures been considered sustaining capital, our resulting AISC cost metrics would still be within guidance. Gold production in FY 2021 will be weighted towards the second half of the fiscal year and is expected to be in the range of 44,000-47,000 ounces, in line with FY 2020 production. Mining rates are expected to stay at approximately 14,000 tpd ore. The strip ratio for full year 2021 is expected to be around 1.8:1.0. The strip ratio is expected to range from 1.6:1.0 to 2.0:1.0 over the course of the year. Life of mine strip ratio, as announced in our resources and reserves update, is 1.66:1. Mined ore grade is forecast to be in the range of 0.012 – 0.014 oz/t, slightly lower than FY2020. Total cash costs per ounce1 is expected in the range of $1,050 – $1,100/oz, Pan Mine AISC1 in the range of $1,125 – $1,175/oz, and Fiore Consolidated AISC1 in the range of $1,300 – $1,350/oz for the full FY 2021. Total cash costs per ounce1 and Pan Mine AISC1 in FY2021 are guided higher than FY2020 primarily due to the higher stripping ratio (which is also moderately higher than the life of mine stripping ratio), increased labor costs in the competitive Nevada marketplace, and increased reagent costs. Fiore Consolidated AISC1 is similarly impacted by the items noted above, as well as an assumed increase in stock-based compensation and corporate G&A, particularly higher insurance expense and increased travel and other costs. As noted above, Pan resource expansion drilling programs and the phase III heap leach pad are determined to be non-sustaining capital under the WGC guidance as they are major projects materially benefiting the operation. As well, capital expenditure related to Gold Rock will be classified as non-sustaining as it is a “new operation” per the WGC definition. Total non-sustaining capital in 2021 for these three items is guided at approximately $20.0 million. Pan drilling expenditure is expected to be higher than past years as we have included geotechnical and metallurgical drilling, as well as a broader metallurgical program to properly characterize our expanding resource base. 1 This is a non-IFRS financial measure. Please refer to “Non-IFRS Financial Measures” at the end of this news release for a description of these non-IFRS financial measures. Pan Mine Subsequent to year-end, we announced an updated resource and reserve estimate for the Pan Mine: Updated Proven and Probable mineral reserves of 23.5 million tons at a gold grade of 0.012 troy ounces per short ton (“oz/st”) or 0.42 grams per tonne (“g/t”) containing 290,500 ounces of gold The updated mineral reserve estimate represents a 6% increase in contained gold ounces and fully replaces reserves mined since the last reserve update in September 2018 Updated Measured and Indicated mineral resources of 31.1 million tons at a gold grade of 0.014 oz/st (0.47 g/t) containing 427,400 ounces of gold The updated mineral resource estimate is 99% of the resource estimate at Fiore Gold’s inception (effective February 10, 2017) An updated Life of Mine (“LOM”) plan based on the updated reserve estimate extends the mine life at Pan by two years into 2025 at a mining rate of 14,000 tons per day of ore while maintaining a low life of mine strip ratio of 1.66:1 The updated reserve and resource estimates continue to support our strategy of replacing ounces at the Pan Mine by methodically and prudently investing internal cash flow to extend the mine life. At Fiore Gold’s inception, the Pan Mine Proven and Probable mineral reserves and Measured and Indicated resources (effective February 10 and March 16, 2017 respectively) were 318,000 ounces and 430,000 ounces, respectively. Despite approximately three years of mining depletion, the updated 2020 Proven and Probable reserves and Measured and Indicated resources are 290,500 ounces (91% of original reserve) and 427,400 ounces (99% of original resource), respectively. The reserve and resource replacement has been achieved while spending approximately $1.5 million on exploration annually over the past three years. Importantly, we have achieved these results without diluting shareholders through additional equity raises or taking on corporate debt since the formation of the Company in 2017. Future drilling programs will aim to replenish the Inferred category, particularly with newly identified targets like Mustang which to date are not included in any resource category. We believe our history of conversion and improved understanding of the geology bode well for our ability to convert Inferred resources going forward. Gold Rock On April 9, 2020, we announced results from a PEA completed for the federally permitted Gold Rock gold project located approximately 8 miles southeast of the Pan Mine. This PEA represents the first ever economic and technical analysis of mining at Gold Rock and shows the project can deliver solid returns for a modest capital investment. The PEA provides an updated mineral resource estimate and a base case assessment of developing the Project as a satellite open pit operation that will share significant infrastructure and management with the adjacent Pan Mine. The PEA also identifies a considerable number of opportunities to enhance the project economics as Gold Rock advances to the Feasibility stage by drilling to increase the mineral resource, further metallurgical testing aimed at improving recoveries, and geotechnical drilling aimed at reducing the stripping ratio. On May 13, 2020, Fiore filed the related technical report. The Company also announced the start of a program at Gold Rock of resource expansion, metallurgical, geotechnical and condemnation drilling to advance the Feasibility Study through 2021. Initial drill results were released on November 24, 2020 and were headlined by 48.8 metres of 2.17 g/t gold and 32.0 metres of 1.41 g/t gold. We look forward to providing more drill results and progress updates during 2021. Revenue increased 45% in 2020 relative to 2019 due to increased gold ounces produced and a higher average realized gold price. Income from mine operations, operating cash flow and net income all increased substantially due to the increased gross margin of 35% in 2020, relative to 22% in 2019. Operating cash flow was $24.3 million compared to prior year of $4.5 million. Net income was $18.0 million compared to prior year of $2.4 million. This resulted in 2020 earnings per share of $0.18. Standalone Q4 2020 was also strong with operating cash flow of $9.9 million and net income of $9.3 million. The cash balance increased relative to September 30, 2019 by $15.9 million. Cash increased despite investments in drilling at both Pan and Gold Rock, as well as the on-going leach pad expansion at Pan. Cash flow from Pan continued to fund all internal growth initiatives during FY 2020. As of September 30, 2020, we continue to have a strong working capital surplus of $40.0 million, consisting of current assets of $50.8 million and current liabilities of $10.7 million. Refer to the Company’s MD&A and Financial Statements for additional information. Our corporate strategy is to grow Fiore Gold into a 150,000 ounce per year gold producer. To achieve this, we intend to: grow gold production at the Pan Mine while also growing the reserve and resource base; advance exploration and development of the nearby Gold Rock project; and acquire additional production or near-production assets to complement our existing operations Fiore Gold will host a webinar with Red Cloud Securities on Thursday, December 17 at 2:00pm EST. Please register at https://www.redcloudfs.com/rcwebinar-f-3/. The webinar will be available for playback at www.fioregold.com. AISC Quarterly Presentation The WGC defines non-sustaining costs as “costs incurred at ‘new operations’ and costs related to ‘major projects at existing operations’ where these projects will materially benefit the operation. A material benefit to an existing operation is considered to be at least a 10% increase in annual or life of mine production, net present value, or reserves compared to the remaining life of mine of the operation. The Pan Mine resource expansion drilling program and construction of the phase III heap leach pad have been conservatively classified as sustaining capital expenditures during the first three quarters of this fiscal year. Per the WGC, the determination of classification as sustaining or non-sustaining requires judgment by a company’s management. The facts and circumstances that lead to a decision may change over time and this may lead to a change in classification between the time the project is originally contemplated and when it is completed. Upon conclusion and review of drilling results, we have determined that costs of the Pan Mine resource expansion drilling program are more appropriately classified as a major project materially benefiting the operation due to the added life of mine production and reserves and therefore classified as non-sustaining capital. Particularly the reserve addition represents in excess of a 10% increase in life of mine production. The phase III heap leach pad is being constructed due to the additional ore added to the Pan Mine reserve from this most recent expansion drilling program and is also more appropriately classified as a major project materially benefiting the operation and therefore classified as non-sustaining capital. Again, this expenditure supports in excess of a 10% increase in life of mine production. The total costs of the drilling program and phase III heap leach pad during FY 2020 was $2.34 million and $0.73 million. The below table reconciles Pan Mine AISC1 and Fiore Consolidated AISC1 for Q1, Q2 and Q3 as previously reported. This earnings and fiscal year end results news release should be read in conjunction with the Management Discussion and Analysis, Financial Statements and Notes to the Financial Statements for fiscal 2020, which have been posted under the Company’s profile on SEDAR and on its website. 1 This is a non-IFRS financial measure. Please refer to “Non-IFRS Financial Measures” at the end of this news release for a description of these non-IFRS financial measures and to the Non-IFRS Financial measures in the September 30, 2020 Management’s Discussion and Analysis for a reconciliation to operating costs from the Company’s financial statements. Qualified Person The scientific and technical information contained in this news release relating to Fiore Gold’s Pan Mine was approved by J. Ross MacLean (MMSA), Fiore Gold’s Chief Operating Officer and a "Qualified Person" under National Instrument 43-101. On behalf of FIORE GOLD LTD. "Tim Warman" [email protected] 1 (416) 639-1426 Ext. 1 www.fioregold.com In Europe: Swiss Resource Capital AG Jochen Staiger [email protected] www.resource-capital.ch Non-IFRS Financial Measures The Company has included certain non-IFRS measures in this document, as discussed below. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers. “Adjusted net earnings” and “adjusted net earnings per share” are non-IFRS financial performance measures. Adjusted net earnings excludes the following from net earnings: certain impairment charges (reversals) related to intangibles, goodwill, property, plant and equipment, and investments; gains (losses) and other one-time costs relating to acquisitions or dispositions; foreign currency translation gains (losses); significant tax adjustments not related to current period earnings; unrealized gains (losses) on non-hedge derivative instruments; and the tax effect and non-controlling interest of these items. The Company uses this measure internally to evaluate our underlying operating performance for the reporting periods presented and to assist with the planning and forecasting of future operating results. We believe that adjusted net earnings are a useful measure of our performance because these adjusting items do not reflect the underlying operating performance of our business and are not necessarily indicative of future operating results. We have adopted “all-in sustaining costs” measures for the Pan Mine and Fiore as a consolidated group, consistent with guidance issued by the World Gold Council (“WGC”) on June 27, 2013. We believe that the use of all-in sustaining costs is helpful to analysts, investors and other stakeholders in assessing our operating performance, our ability to generate cash flow from current operations and our overall value. These measures are helpful to governments and local communities in understanding the economics of gold mining. The “all-in sustaining costs” measure is an extension of existing “cash cost” metrics and incorporates costs related to sustaining production. The WGC definition of all-in sustaining costs seeks to extend the definition of total cash costs by adding reclamation and remediation costs, exploration and study costs, capitalized stripping costs, corporate general and administrative costs and sustaining capital expenditures to represent the total costs of producing gold from current operations. All-in sustaining costs exclude income tax, interest costs, depreciation, non-sustaining capital expenditures, non-sustaining exploration expense and other items needed to normalize earnings. Therefore, these measures are not indicative of our cash expenditures or overall profitability. The WGC defines non-sustaining costs (either capital or exploration) as “costs incurred at ‘new operations’ and costs related to ‘major projects at existing operations’ where these projects will materially benefit the operation. A material benefit to an existing operation is considered to be at least a 10% increase in annual or life of mine production, net present value, or reserves compared to the remaining life of mine of the operation. “Total cash cost per ounce sold” is a common financial performance measure in the gold mining industry but has no standard meaning under IFRS. The Company reports total cash costs on a sales basis. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure, along with sales, is considered to be a key indicator of a Company’s ability to generate operating earnings and cash flow from its mining operations. “Costs of sales per ounce sold” adds depreciation and depletion and share based compensation allocated to production to the cash costs figures. Total cash costs figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is considered the accepted standard of reporting cash cost of production in North America. Adoption of the standard is voluntary, and the cost measures presented may not be comparable to other similarly titled measure of other companies. “Total cash costs per ounce”, “cost of sales per ounce”, “all-in sustaining costs per ounce”, “Corporate G&A and SBC per ounce”, “Non-sustaining exploration per ounce”, “Pan operating income” and “Pan operating cash flow” are intended to provide additional information only and do not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate the measure differently. “Average realized price” is a financial measure with no standard meaning under IFRS. Management uses this measure to better understand the price realized in each reporting period for gold sales. Average realized price excludes from revenues unrealized gains and losses, if applicable, on non-hedge derivative contracts. The average realized price is intended to provide additional information only and does not have any standardized definition under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently. “Sustaining capital” is a non-IFRS financial measure which we define as net capital expenditures that are intended to maintain operation of gold producing assets. Management uses sustaining capital and other sustaining costs to understand the aggregate net result of the drivers of all-in sustaining costs other than total cash costs. Sustaining capital is intended to provide additional information only, it does not have any standardized meaning under IFRS, and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Cautionary Note Regarding Forward Looking Statements This news release contains “forward-looking statements” and “forward looking information” (as defined under applicable securities laws), based on management’s best estimates, assumptions and current expectations. Such statements include but are not limited to, statements with respect to future operations at the Pan Mine, extension of the Pan mine life, development of Gold Rock, drilling plans for Pan and Gold Rock, expected drilling results, expected production, expected costs, expected mining rates, strip ratios, all future statements concerning costs, production and financial performance, current and future estimates of mineral resources and reserves, expectations that the Company will add additional resources and reserves through drilling, projections and estimates in the Gold Rock PEA, expectations and timing for a feasibility study for Gold Rock, projections and estimates in the Golden Eagle resource estimate, expectations regarding capital needs for debt or equity, goal to operate Pan and Gold Rock in unison, company outlook, goal to become a 150,000 ounce producer, goal to acquire additional production or near production assets, and other statements, estimates or expectations. Often, but not always, these forward-looking statements can be identified by the use of forward-looking terminology such as “expects”, “expected”, “budgeted”, “targets”, “forecasts”, “intends”, “anticipates”, “scheduled”, “estimates”, “aims”, “will”, “believes”, “projects” and similar expressions (including negative variations) which by their nature refer to future events. By their very nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Fiore Gold’s control. These statements should not be read as guarantees of future performance or results. Forward looking statements are based on the opinions and estimates of management at the date the statements are made, as well as a number of assumptions made by, and information currently available to, the Company concerning, among other things, anticipated geological formations, potential mineralization, future plans for exploration and/or development, potential future production, ability to obtain permits for future operations, drilling exposure, and exploration budgets and timing of expenditures, all of which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of Fiore Gold to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to vary materially from results anticipated by such forward looking statements include, but not limited to, risks related to the Pan Mine performance, risks related to the COVID-19 pandemic, including government restrictions impacting our operations, risks the pandemic poses to our work-force, impacts the pandemic may have on our ability to obtain services and materials from our supplier and contractors; risks related to the company’s limited operating history; risks related to general economic conditions, actual results of current or future exploration activities, unanticipated reclamation expenses; changes in project parameters as plans continue to be refined; fluctuations in prices of metals including gold; fluctuations in foreign currency exchange rates; increases in market prices of mining consumables; possible variations in ore reserves, grade or recovery rates; uncertainties involved in the interpretation of drilling results, test results and the estimation of gold resources and reserves; failure of plant, equipment or processes to operate as anticipated; the possibility that capital and operating costs may be higher than currently estimated; the possibility of cost overruns or unanticipated expenses in the work programs; availability of financing; accidents, labour disputes, title disputes, claims and limitations on insurance coverage and other risks of the mining industry; delays in the completion of exploration, development or construction activities; the possibility that required permits may not be obtained, maintained or renewed in a timely manner or at all; changes in national and local government regulation of mining operations, tax rules and regulations, and political and economic developments in countries in which Fiore Gold operates, and other factors identified in Fiore Gold’s filings with Canadian securities authorities under its profile at www.sedar.com respecting the risks affecting Fiore and its business. Although Fiore has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements and forward-looking information are made as of the date hereof and are qualified in their entirety by this cautionary statement. Fiore disclaims any obligation to revise or update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements or forward-looking information contained herein to reflect future results, events or developments, except as require by law. Accordingly, readers should not place undue reliance on forward-looking statements and information. FY 2021 Guidance projections used in this document are considered “forward-looking statements” and represent management’s good faith estimates or expectations of future production results as of the date hereof. Guidance is based upon certain assumptions, including, but not limited to, metal prices, oil prices, operating costs, ore grades and recoveries, and other assumptions. Additional details of these assumptions can be found in the Company’s Management’s Discussion and Analysis under its profile at www.sedar.com. Such assumptions may prove to be incorrect and actual results may differ materially from those anticipated. Consequently, guidance projections cannot be guaranteed. As such, investors are cautioned not to place undue reliance upon guidance as there can be no assurance that the plans, assumptions or expectations upon which they are based will occur. Poststrasse 1 CH9100 Herisau Telefon: +41 (71) 354-8501 Telefax: +41 (71) 560-4271 http://www.resource-capital.ch E-Mail: [email protected] Originalmeldung der Swiss Resource Capital AG Alle Meldungen der Swiss Resource Capital AG This entry was posted in General and tagged aisc1, cloud, drill, drilling, fiore, market, mineral, mineralization, mustang, ounce1, ounces, revenue, satellite, statements, with. Bookmark the permalink. ← How packaging learned to talk: Labelling is what makes packaging smart INEOS Styrolution hosts groundbreaking ceremony for its new 600kt ABS plant in Ningbo, China → Tv-Domain – the Domain of first Choice for Television and Audiovisual Media Parisian roof terrace at the Pavillon d’Armenonville Online Tech day – Automotive Electrification Testing Workshop (Webinar | Online) Infotag: Börse, Aktien und Trading (Vortrag | Heidelberg) Arrow University goes virtual am 04.03.2021! (Networking-Veranstaltung | Online) Copyright PR - Web

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Companies (Statutory Audits) Act 2018 Open Pdf Oscail PDF Number 22 of 2018 Preliminary and General 1. Short title, collective citations, construction and commencement 3. Repeals and revocations Amendment of Principal Act 4. Amendment of section 2 of Principal Act 5. Amendment of section 35 of Principal Act 6. Amendment of section 322 of Principal Act 10. Amendment of Principal Act - substitution of sections 363 and 364 11. Amendment of section 380 of Principal Act 16. Function imposed on Registrar under section 930D 27. Amendment of Principal Act - insertion of sections 930A to 930D 28. Provisions in relation to recognition by Supervisory Authority under section 930 29. Amendment of section 931A of Principal Act 30. Provisions that apply when recognised accountancy body is not able to perform Part 27 function 31. Consultation by Supervisory Authority regarding standards and qualifications 32. Intervention in disciplinary process of prescribed accountancy bodies and supervision of recognised accountancy bodies 33. Resolution of suspected non-compliance by agreement - relevant body 34. Investigation of possible breaches of standards of prescribed accountancy bodies or relevant contraventions by statutory auditors 35. Amendment of Principal Act - insertion of sections 934A to 934I 37. Amendment of Principal Act - insertion of sections 936A and 936B 46. Amendment of section 1097 of Principal Act 49. Amendment of section 1401A of Principal Act 51. Statutory audits 52. Amendment of Schedule 5 to Principal Act 53. Amendment of Principal Act - insertion of Schedules Consequential Amendments 54. Definitions (Part 3) 55. Amendment of section 13 of Act of 1893 58. Penalties for certain offences 61. Amendment of Schedule II to Act of 1893 65. Offence to contravene section 26(4) or (5) 66. Amendment of section 100 of Act of 1896 68. Amendment of section 2 of Industrial and Provident Societies (Amendment) Act 1913 69. Amendment of section 10B of Ministerial and Parliamentary Offices Act 1938 70. Amendment of section 8 of Seanad Electoral (Panel Members) Act 1947 71. Amendment of section 25C of Electoral Act 1992 72. Amendment of section 114 of Credit Union Act 1997 73. Amendment of Electoral Act 1997 74. Amendment of Irish Collective Asset-management Vehicles Act 2015 75. Amendment of European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 Acts Referred to Companies Act 2014 (No. 38) Credit Union Act 1997 (No. 15) Credit Union Acts 1997 to 2012 Data Protection Acts 1988 to 2018 Electoral Act 1992 (No. 23) Electoral Acts 1992 to 2016 Electronic Commerce Act 2000 (No. 27) Friendly Societies (Amendment) Act 1977 (No. 17) Friendly Societies Act 1896 (59 & 60 Vict., c. 25) Friendly Societies Acts 1896 to 2014 Industrial and Provident Societies (Amendment) Act 1913 (No. 32) Industrial and Provident Societies Act 1893 (56 & 57 Vict., c. 39) Industrial and Provident Societies Acts 1893 to 2014 Irish Collective Asset-management Vehicles Act 2015 (No. 2) Ministerial and Parliamentary Offices Act 1938 (No. 38) Ministerial and Parliamentary Offices Acts 1938 to 2009 Oireachtas (Ministerial and Parliamentary Offices) (Amendment) Act 2014 (No. 6) Seanad Electoral (Panel Members) Act 1947 (No. 42) Seanad Electoral (Panel Members) Acts 1947 to 2015 An Act to give further effect to Directive 2006/43/EC of the European Parliament and of the Council of 17 May 20061 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC, as amended by Directive 2014/56/EU of the European Parliament and of the Council of 16 April 20142 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts, and giving further effect to certain provisions of Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 20143 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC and, for that purpose, to amend the Companies Act 2014 ; to make provision for certain other amendments to that Act; to provide for the amendment of certain other enactments; and to provide for related matters. [25th July, 2018] Be it enacted by the Oireachtas as follows: Short title, collective citations, construction and commencement 1. (1) This Act may be cited as the Companies (Statutory Audits) Act 2018. (2) The Industrial and Provident Societies Acts 1893 to 2014 and section 54 (in so far as that section relates to the definition of “Act of 1893”) and sections 55 to 61 and 68 may be cited together as the Industrial and Provident Societies Acts 1893 to 2018 and shall be read together as one. (3) The Friendly Societies Acts 1896 to 2014 and section 54 (in so far as that section relates to the definition of “Act of 1896”) and sections 62 to 67 may be cited together as the Friendly Societies Acts 1896 to 2018 and shall be read together as one. (4) The Ministerial and Parliamentary Offices Acts 1938 to 2009, the Oireachtas (Ministerial and Parliamentary Offices) (Amendment) Act 2014 and section 69 may be cited together as the Ministerial and Parliamentary Offices Acts 1938 to 2018. (5) The Seanad Electoral (Panel Members) Acts 1947 to 2015 and section 70 may be cited together as the Seanad Electoral (Panel Members) Acts 1947 to 2018. (6) The Electoral Acts 1992 to 2016 and sections 71 and 73 may be cited together as the Electoral Acts 1992 to 2018 and shall be read together as one. (7) The Credit Union Acts 1997 to 2012 and section 72 may be cited together as the Credit Union Acts 1997 to 2018 and shall be read together as one. (8) This Act shall come into operation on such day or days as the Minister for Business, Enterprise and Innovation may by order or orders appoint either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes and different provisions. 2. In this Act, “Principal Act” means the Companies Act 2014 . Repeals and revocations 3. (1) Each of the following provisions of the Principal Act is repealed: (a) section 344; (b) section 935A; (c) section 935B; (d) section 935C; (e) section 935D; (f) section 936; (g) section 941A; (h) subsections (4) and (5) of section 996; (i) subsections (7) and (8) of section 1220; (j) subsections (3) and (4) of section 1277; (k) section 1441; (l) section 1448. (2) Section 72 of the Industrial and Provident Societies Act 1893 is repealed. (3) Section 30 of the Friendly Societies Act 1896 is repealed. (4) Paragraph (c) of section 3 (1) of the Friendly Societies (Amendment) Act 1977 is repealed. (5) Regulation 6 of the Friendly Societies Regulations 1988 ( S.I. No. 74 of 1988 ) is revoked. (6) Subject to section 1462 and Chapter 22 of Part 27 of the Companies Act 2014 , the European Union (Statutory Audits) (Directive 2006/43/EC, as amended by Directive 2014/56/EU, and Regulation (EU) No 537/2014) Regulations 2016 ( S.I. No. 312 of 2016 ) are revoked. Amendment of section 2 of Principal Act 4. Section 2 of the Principal Act is amended, in subsection (1)— (a) by the deletion of the definition of “2016 Audits Regulations”, (b) by the substitution of the following definition for the definition of “statutory auditor”: “ ‘statutory auditor’ means an individual or a firm (within the meaning of Part 27) that stands approved as a statutory auditor or statutory audit firm, as the case may be, under Part 27, and includes a firm registered in accordance with section 1465;”, (c) by the insertion of the following definitions: “ ‘public-interest entity’ has the meaning given to it by Part 27; ‘Regulation (EU) 2016/679’ means Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 20164 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and repealing Directive 95/46/EC (General Data Protection Regulation);”. Amendment of section 35 of Principal Act 5. Section 35 of the Principal Act is amended, in subsection (7), by the substitution of “section 1535(2) or (3)” for “Regulation 93(2) or (3) of the 2016 Audits Regulations”. Amendment of section 322 of Principal Act 6. Section 322 of the Principal Act is amended, in subsection (4), by the substitution of “Part 27” for “the 2016 Audits Regulations”. 7. Section 336 of the Principal Act is amended— (a) in subsection (2)(a), by the substitution of “identify” for “include an introduction identifying”, (b) in subsection (9A)(b), by the substitution of “his or her” for “his, her or its” in each place where it occurs, and (c) by the insertion of the following subsection after subsection (9A): “(10) The Supervisory Authority may prescribe additional requirements, by reference to auditing standards within the meaning of section 1461, in relation to the content of the statutory auditors’ report for all undertakings, or a class of undertakings, only— (a) if those requirements are necessary in order to give effect to legal requirements in the State relating to the scope of statutory audits, or (b) to the extent necessary to add to the credibility and quality of the report.”. 8. Section 337 of the Principal Act is amended, in subsection (2), by the substitution of “Part 27” for “the 2016 Audits Regulations” in each place where it occurs. 9. Section 346 of the Principal Act is amended, in subsection (2)(a), by the substitution of “56 days” for “28 days”. Amendment of Principal Act - substitution of sections 363 and 364 10. The Principal Act is amended by the substitution of the following sections for sections 363 and 364: “Audit exemption (non-group situation) not available in certain cases 363. (1) Subject to subsection (2) and notwithstanding that section 358 is complied with, a company is not entitled to the audit exemption referred to in that section in respect of its statutory financial statements for the 2 financial years immediately succeeding a financial year (in this section referred to as the ‘relevant financial year’) where the company failed to deliver to the Registrar, in compliance with section 343, the company’s annual return to which the statutory financial statements or (as appropriate) abridged financial statements for the relevant financial year are annexed. (2) Subsection (1) shall not apply in the case of an annual return of a company which is the company’s first annual return referred to in section 349. Audit exemption (group situation) not available in certain cases 364. (1) Subject to subsection (3), in this section a reference to a relevant body is a reference to the holding company or any other member of the group. (2) Subject to subsection (4) and notwithstanding that section 359 is complied with, a holding company and the other members of the group are not entitled to the audit exemption referred to in that section in respect of their statutory financial statements for the 2 financial years immediately succeeding a financial year (in this section referred to as the ‘relevant financial year’) where any relevant body failed to deliver to the Registrar, in compliance with section 343, the annual return of that relevant body to which such body’s statutory financial statements or (as appropriate) abridged financial statements for the relevant financial year are annexed. (3) There shall not be reckoned as another member of the group for the purposes of this section (other than for the purposes of the expression ‘other members of the group’ in subsection (2)) a subsidiary undertaking that is not a company registered under this Act or an existing company and the construction provided for by subsection (1) (of references to each of the relevant bodies) shall be read accordingly. (4) Subsection (2) shall not apply in the case of an annual return which is a relevant body’s first annual return referred to in section 349.”. 11. Section 380 of the Principal Act is amended— (a) in subsection (5), in paragraph (iii), by the substitution of “the relevant provisions (within the meaning of section 900)” for “the 2016 Audits Regulations”, and (b) by the insertion of the following subsection after subsection (5): “(6) A contractual clause which has the effect of restricting the choice by the general meeting of shareholders or members of a company pursuant to this Part to certain categories or lists of statutory auditors as regards the appointment of a particular statutory auditor to carry out the statutory audit of that company shall be prohibited and shall be void.”. 12. Section 390 of the Principal Act is amended by the substitution of “Part 27” for “the 2016 Audits Regulations”. 13. Section 394 of the Principal Act is amended, in paragraph (a), by the substitution of “Part 27” for “the 2016 Audits Regulations”. 14. Section 865 of the Principal Act is amended, in subsection (2)— (a) by the substitution, in paragraph (r), of “section 1460(3);” for “section 1460(3).”, and (b) by the insertion of the following paragraphs after paragraph (r): “(s) section 1487(4); (t) section 1488(3).”. (a) in subsection (1)— (i) in paragraph (b), by the deletion of “or”, (ii) in paragraph (c), by the substitution of “876;” for “876.”, and (iii) by the insertion of the following paragraph after paragraph (c): “(d) Part 27.”, (b) in subsection (2), by the insertion of “or Part 27,” after “or 876,”. Function imposed on Registrar under section 930D 16. Part 15 of the Principal Act is amended, in Chapter 1, by the insertion of the following section after section 899: “899A.Section 930D makes additional provision with regard to the performance of functions by, amongst others, the Registrar.”. (i) by the substitution of the following definition for the definition of “recognised accountancy body”: “ ‘recognised accountancy body’ means a body of accountants recognised under section 930 for the purposes of the relevant provisions;”, (ii) by the insertion of the following definitions: “ ‘applicable provisions’, in relation to a Part 27 function and a recognised accountancy body, means, in addition to the provision of this Act that confers that function— (a) any other provisions of this Act or of a statutory instrument made under this Act, (b) the provisions of any section 931 notice given to the body that are relevant to that function, (c) the provisions of Regulation (EU) No 537/2014 that are relevant to that function, and (d) the provisions of any rule, guideline, term or condition, relevant obligation, or direction, referred to in section 906 that are relevant to that function, in accordance with which that function shall be performed by that body; ‘Audit Directive’ has the meaning assigned to it by Part 27; ‘court’ means the High Court; ‘firm’ has the meaning assigned to it by Part 27; ‘monetary sanction’— (a) in relation to a specified person who falls within paragraph (a) of the definition of ‘specified person’, means the monetary sanction referred to in section 934(8), and (b) in relation to a specified person who falls within paragraph (b) of the definition of ‘specified person’, means the monetary sanction referred to in section 934C(2)(g); ‘Part 27 function’ means a function conferred on a recognised accountancy body by a provision of Part 27 or of Schedule 19 or 20; ‘public notice of relevant sanction imposed’, in relation to a specified person, means the publication in accordance with section 934F(1) of the specified person’s particulars referred to in that section together with the other related particulars referred to in that section; ‘Regulation (EU) No 537/2014’ has the meaning assigned to it by Part 27; ‘relevant body’ has the meaning assigned to it by section 933(1); ‘relevant contravention’ means— (a) a breach of the standards of a prescribed accountancy body by a member of that body, or (b) a contravention by a statutory auditor of a provision of— (i) section 336 or 337, (ii) Part 27, or (iii) Regulation (EU) No 537/2014; ‘relevant decision’, in relation to a specified person, means— (a) a decision under section 934(8) or (9) that a specified person has committed a relevant contravention, (b) if, in consequence of a decision referred to in paragraph (a), the Supervisory Authority decides under section 934(8) or (9) to impose a relevant sanction on the specified person, the decision to impose that sanction, or (c) both such decisions; ‘relevant director’ means a director or former director of a public-interest entity; ‘relevant provisions’ means the provisions of— (a) this Chapter, (b) Part 27, and (c) Regulation (EU) No 537/2014; ‘relevant sanction’— (a) in relation to a specified person who falls within paragraph (a) of the definition of ‘specified person’, means a sanction referred to in section 934(8), and (b) in relation to a specified person who falls within paragraph (b) of the definition of ‘specified person’, means a sanction referred to in section 934C(2); ‘section 931 notice’ shall be read in accordance with section 931(2); ‘section 933A agreement’ shall be read in accordance with section 933A(2); ‘section 934E agreement’ shall be read in accordance with section 934E(1); ‘specified person’, in relation to a relevant contravention, means— (a) if the relevant contravention falls within paragraph (a) of the definition of ‘relevant contravention’, the member or former member concerned of the prescribed accountancy body, and (b) if the relevant contravention falls within paragraph (b) of the definition of ‘relevant contravention’, the statutory auditor or former statutory auditor concerned;”, (b) by the deletion of subsection (3). 18. Section 904 of the Principal Act is amended, in subsection (1), by the substitution of the following paragraph for paragraph (e): “(e) oversee statutory auditors and the conduct of statutory audits in accordance with the relevant provisions and perform functions under those provisions in relation to such oversight.”. (a) by the substitution of the following paragraph for paragraph (a): “(a) grant recognition to bodies of accountants for the purposes of the relevant provisions,”, (b) in paragraph (d), by the substitution of “paragraph (a)(ii) or (iii) or (b)(ii) of the definition of ‘approved investigation and disciplinary procedures’ in subsection (1) of that section” for “subsection (1)(a)(ii) or (iii) or (1)(b)(ii) of that section”, (c) by the substitution of the following paragraph for paragraph (e): “(e) impose under section 933 sanctions on prescribed accountancy bodies in relation to enquiries referred to in paragraph (d),”, (d) by the insertion of the following paragraphs after paragraph (e): “(ea) conduct under section 933 enquiries into whether a recognised accountancy body has complied with the applicable provisions in performing a Part 27 function, (eb) impose under section 933 sanctions on recognised accountancy bodies in relation to enquiries referred to in paragraph (ea),”, (e) in paragraph (f), by the insertion of “by a member of that body” after “body”, (f) by the insertion of the following paragraphs after paragraph (f): “(fa) undertake under section 934 investigations into possible contraventions of a provision of section 336 or 337, Part 27 or Regulation (EU) No 537/2014 by a statutory auditor, (fb) impose under section 934 sanctions on members of prescribed accountancy bodies and statutory auditors for relevant contraventions committed by such members,”, (g) by the substitution of the following paragraph for paragraph (g): “(g) supervise how each recognised accountancy body monitors its members and statutory auditors for which the recognised accountancy body has responsibility by virtue of performing a Part 27 function,”, (h) by the deletion of paragraph (h), (i) in paragraph (i), by the substitution of “Part 27” for “the 2016 Audits Regulations”, (j) by the deletion of paragraph (l), (k) in paragraph (ma), by the substitution of “Part 27” for “the 2016 Audits Regulations”, (l) in paragraph (n), by the substitution of “Part 27 and Regulation (EU) No 537/2014, the performance of (and, where permitted by that Part, that Regulation or any other Part of this Act (including this Part), perform)” for “the 2016 Audits Regulations and Regulation (EU) No 537/2014, the performance of (and, where permitted by those Regulations, that Regulation or this Act, perform)”, and (m) by the insertion of the following paragraph after paragraph (n): “(na) enable, by virtue of recognition under section 930 or a section 931 notice, functions under paragraph (n) to be performed by recognised accountancy bodies,”. (i) in paragraph (b), by the substitution of “2003),” for “2003) or section 931 to the recognition of that body, or”, (ii) by the insertion of the following paragraphs after paragraph (c): “(d) a recognised accountancy body to comply with a section 931 notice that is relevant to the body’s recognition under section 930 or to the performance of a Part 27 function by the body, or (e) a relevant body to comply with a direction given to it by the Supervisory Authority under section 934A(2) or 934C(5),”, (iii) by the substitution of “, obligation or obligations, notice or direction” for “or obligation or obligations”, (b) in subsection (5)(c), by the substitution of “Part 27” for “the 2016 Audits Regulations”. 21. Section 907 of the Principal Act is amended, in subsection (2A), by the substitution of “at least one area relevant to the conduct of statutory audits as specified in Schedule 19” for “areas relevant to the conduct of statutory audits as specified in Schedule 1 to the 2016 Audits Regulations”. (a) in subsection (2), by the substitution of “Subject to subsection (3), the Supervisory Authority” for “The Supervisory Authority”, and “(3) The Supervisory Authority may use money referred to in subsection (2) that comprises any part of any money paid to the Supervisory Authority pursuant to section 934C(2)(g) only for the purpose of meeting expenses incurred by it in undertaking an investigation under section 934.”. 23. Section 916 of the Principal Act is amended by the insertion of the following subsection after subsection (7): “(8) Levies imposed under this section on that class of prescribed accountancy bodies comprising recognised accountancy bodies may be used for the purposes of meeting expenses properly incurred by the Supervisory Authority in performing its function referred to in section 905(2)(ma).”. 24. Section 918 of the Principal Act is amended by the substitution of the following subsection for subsection (3): “(3) Money received by the Supervisory Authority under this section may be used only for the purposes of meeting expenses properly incurred by it in performing its functions as the competent authority under Regulation (EU) No 537/2014 or this Act (including a function under section 905(2)(n)) in relation to statutory auditors of public-interest entities.”. (a) in subsection (4), by the substitution of the following paragraphs for paragraphs (c) and (d) respectively: “(c) any amounts paid to the Supervisory Authority under section 933(6) or (7) or 934(8) or (10), and (d) any amounts paid to the Supervisory Authority under section 934C(2)(g).”, (a) by the substitution of the following subsections for subsection (1): “(1) Subject to subsection (1A), the Supervisory Authority may grant recognition in writing to a body of accountants for the purposes of the relevant provisions but may only grant such recognition if satisfied— (a) that the standards relating to training, qualifications and repute required by that body for the approval of a person as a statutory auditor are not less than those specified in Articles 4, 6 to 8 and 10 of the Audit Directive, (b) as to the standards that body applies to its members in the area of ethics, codes of conduct and practice, independence, professional integrity, auditing and accounting standards, quality assurance, continuing education and investigation and disciplinary procedures, (c) as to the capacity of the body to institute and apply effective arrangements to ensure compliance with, and the enforcement of, the standards referred to in paragraphs (a) and (b) in relation to its members having regard to the body’s ongoing performance, financial soundness, staffing and other relevant resources of the body, and (d) that the body will effectively perform the Part 27 functions concerned (which may be all of them). (1A) Subject to sections 931 and 931B, a recognised accountancy body shall not perform a Part 27 function unless the body’s recognition under this section states that the body may perform that function.”, (b) in subsection (2), by the substitution of “the relevant provisions and, subject to sections 931 and 931B, for such recognition to have stated that each such body may perform each of the Part 27 functions” for “the 2016 Audits Regulations and section 1441”, and (c) by the insertion of the following subsections after subsection (2): “(3) A body of accountants granted recognition under subsection (1) or (2) shall continue to satisfy the Supervisory Authority as referred to in subsection (1) for the duration of such recognition. (4) A body granted recognition under subsection (1) or (2) may make a request in writing to the Supervisory Authority for the Authority to revoke its recognition under section 931.”. Amendment of Principal Act - insertion of sections 930A to 930D 27. The Principal Act is amended by the insertion of the following sections after section 930: “Designation of competent authority 930A. (1) Subject to subsection (2), the Supervisory Authority is designated as the competent authority for the oversight of statutory auditors in accordance with the Audit Directive and Regulation (EU) No 537/2014. (2) Subject to subsection (4), the Director is designated as the competent authority for the purpose of imposing relevant sanctions (within the meaning of section 957AA) on relevant directors. (3) The Supervisory Authority is designated as the competent authority for the purposes of public oversight, quality assurance (if applicable), investigations and penalties of third-country auditors and third-country audit entities (within the meaning of Part 27) registered under section 1573(1). (4) (a) Subject to paragraph (b), to the extent that the Director is a competent authority by virtue of subsection (2), a reference in this Chapter (other than this section) and Part 27 to the Supervisory Authority shall include a reference to the Director. (b) The Supervisory Authority shall perform the functions under this Chapter and Part 27 that would, but for this subsection, otherwise fall to be performed by the Director by virtue of subsection (2). (c) The Director shall cooperate with the Supervisory Authority so as to enable the Supervisory Authority to perform the functions referred to in paragraph (b). (5) The Supervisory Authority shall, as soon as is practicable on or after the commencement of section 27 of the Companies (Statutory Audits) Act 2018, publish on its website information on the designation of competent authorities effected by this section between the Supervisory Authority and the Director. Annual audit programme and activity report 930B. (1) The Supervisory Authority shall, not later than 6 months after the end of each financial year, prepare a report (in this Act referred to as the ‘annual audit programme and activity report’ or ‘AAPA report’) in accordance with this section on, amongst others, its oversight functions referred to in section 930A performed during that year. (2) The AAPA report shall contain the following information: (a) an activity report on the functions performed by the recognised accountancy bodies during the financial year to which the AAPA report relates; (b) a work programme concerning the oversight functions referred to in section 930A that the Supervisory Authority proposes to perform during the financial year immediately following the financial year to which the AAPA report relates; (c) an activity report regarding the functions of the Supervisory Authority under Regulation (EU) No 537/2014 during the financial year to which the AAPA report relates; (d) a work programme regarding the functions of the Supervisory Authority under Regulation (EU) No 537/2014 that the Supervisory Authority proposes to perform during the financial year immediately following the financial year to which the AAPA report relates; (e) a report for the financial year to which the AAPA report relates on the overall results of the quality assurance system required by section 1494(1), including— (i) information on recommendations issued, follow-up on the recommendations, supervisory measures taken and relevant sanctions (including relevant sanctions within the meaning of section 957AA) and public notices of relevant sanctions imposed (including public notices of relevant sanctions imposed within the meaning of section 957AA), and (ii) quantitative information and other key performance information on financial resources and staffing, and the efficiency and effectiveness of the quality assurance system. (3) The Supervisory Authority shall cause the AAPA report to be published on its website not later than 6 months after the end of the financial year to which the report relates. Operation of certain provisions with regard to particular recognised accountancy bodies 930C. (1) Section 1461 applies to the interpretation of this section as it applies to the interpretation of Part 27. (2) This section applies where the provision referred to in subsection (3), (4), (5) or (6) uses the expression ‘recognised accountancy body’ without qualification and that provision does not, by its express terms, itself indicate which recognised accountancy body is being referred to. (3) A provision of the relevant provisions that confers a function on a recognised accountancy body in relation to a statutory auditor or audit firm shall be read as conferring that function— (a) in the case of a statutory auditor who is not a member of a statutory audit firm, on the recognised accountancy body of which the statutory auditor is a member, (b) in the case of a statutory auditor who is a member of a statutory audit firm, on the recognised accountancy body of which the statutory audit firm is a member, and (c) in the case of a statutory audit firm, on the recognised accountancy body of which the statutory audit firm is a member. (4) With regard to the function conferred by section 1464 on a recognised accountancy body in relation to an individual or firm, subsection (3) applies as if, for each reference in that subsection to a statutory auditor or audit firm, as the case may be, there were substituted a reference to the individual or firm, as appropriate. (5) A provision of the relevant provisions requiring that an act is to be done, or enabling an act to be done, by a person (other than a person referred to in subsection (6)(b)) in relation to a recognised accountancy body shall be read as requiring or enabling it to be done by the person in relation to— (a) if the person is not a member of a statutory audit firm, the recognised accountancy body of which the person is a member, (b) if the person is a member of a statutory audit firm, the recognised accountancy body of which the statutory audit firm is a member, and (c) if the person is a statutory audit firm, the recognised accountancy body of which the statutory audit firm is a member. (6) Subsection (7) applies in the case— (a) of a provision of the kind referred to in subsection (3), (4) or (5), and (b) where the provision falls to be applied to a Member State auditor, a Member State audit firm, a third-country auditor (within the meaning of Part 27) or any other person who is not a member of a recognised accountancy body (or, as the case may be, the firm of which the person is a member is not a member of a recognised accountancy body). (7) The recognised accountancy body that shall perform the function concerned or, as the case may be, in relation to which the act concerned is required or enabled to be done shall be determined— (a) by reference to arrangements in writing entered into by the recognised accountancy bodies amongst themselves for the purpose (which arrangements those bodies are empowered by this subsection to enter into), or (b) in default of— (i) such arrangements being entered into, or (ii) the provision of such arrangements dealing with the particular case falling to be determined, by the Supervisory Authority. (8) On a determination being made by the Supervisory Authority for the purposes of subsection (7)(b), a direction in writing, reflecting the terms of the determination, shall be given by it (which direction the Supervisory Authority is empowered by this subsection to give). (9) Arrangements shall not be entered into under subsection (7)(a) by the recognised accountancy bodies save after consultation by them with the Supervisory Authority. (10) Subject to subsection (11), if in consequence of the operation of this section, the function of withdrawal of a particular approval of a statutory auditor or audit firm falls to be discharged by a recognised accountancy body (in this section referred to as the ‘first-mentioned accountancy body’) that is different from the recognised accountancy body (in this section referred to as the ‘second-mentioned accountancy body’) that granted the approval— (a) the first-mentioned accountancy body shall notify in writing the second-mentioned accountancy body of the proposal by it to withdraw the approval, and (b) the second-mentioned accountancy body shall provide such assistance by way of provision of information or clarification of any matter, to the first-mentioned accountancy body, as the latter considers it may require so as to inform itself better on any issue bearing on the performance of the function of withdrawal. (11) The procedures adopted for the purposes of subsection (10) by the first-mentioned accountancy body and the second-mentioned accountancy body shall be such as will— (a) avoid any unnecessary delay in the performance of the function of withdrawal, and (b) respect the requirements of procedural fairness as concerns the auditor or audit firm concerned being able to answer any part of the case made against him or her that is informed by those procedures being employed. (12) In a case falling within subsections (10) and (11), if the approval concerned is withdrawn, the first-mentioned accountancy body, in addition to making the notifications required by section 1482 and (where it applies) section 1483, shall notify the second-mentioned accountancy body of the withdrawal of approval. Conflicts of interest to be avoided 930D.(1) The persons to whom this subsection applies shall organise themselves in such a manner so that conflicts of interest are avoided in the performance of their respective functions under this Act. (2) Subsection (1) applies to— (a) the Supervisory Authority, (b) the Director, (c) the Registrar, and (d) the recognised accountancy bodies.”. Provisions in relation to recognition by Supervisory Authority under section 930 28. The Principal Act is amended by the substitution of the following section for section 931: “931. (1) This section applies at any of the following times: (a) at the time of the grant of a recognition under section 930 (in this section referred to as the ‘relevant recognition’) to a body of accountants (in this section referred to as the ‘body concerned’); (b) at any time during the currency of the relevant recognition. (2) The Supervisory Authority may give the body concerned a notice in writing (in this section referred to as a ‘section 931 notice’) providing for any, or any combination of, the following: (a) directing the body, with regard to the relevant recognition, to take the action or actions specified in the notice regarding such matters specified in the notice as the Authority thinks necessary or expedient; (b) attaching to the relevant recognition such terms and conditions specified in the notice as the Authority thinks necessary or expedient. (3) The Supervisory Authority may, by a further section 931 notice given to the body concerned, amend, replace or revoke one or more than one earlier section 931 notice given to the body. (4) The Supervisory Authority may, by notice in writing given to the body concerned, revoke, or suspend for a period specified in the notice, the relevant recognition if— (a) the Supervisory Authority ceases to be satisfied as referred to in section 930(1), or (b) the body fails to comply with any of the provisions of a section 931 notice. (5) Without prejudice to the generality of subsection (2), a section 931 notice may— (a) direct the body concerned (including a body referred to in section 930(2)) to cease, or again cease, performing the Part 27 function specified in the notice, either (as specified in the notice) in all cases or in a particular case, on and from the date, or the occurrence of the event, specified in that notice, (b) direct the body concerned to commence, or again commence, performing the Part 27 function specified in the notice, either (as specified in the notice) in all cases or in a particular case, on and from the date, or the occurrence of the event, specified in that notice (and notwithstanding any case where the body’s recognition under section 930 does not otherwise permit it to perform that function), or (c) attach terms and conditions to the relevant recognition that relate to the performance by the body concerned of a Part 27 function, either (as specified in the notice) in all cases or in a particular case. (6) (a) Subject to paragraph (b), the Supervisory Authority shall not give a section 931 notice, or a notice under subsection (4), to the body concerned unless, in the interests of procedural fairness, it has first— (i) given the body a notice in writing stating the nature of the notice that it is minded to give the body and the reasons why it is so minded, and (ii) given the body a reasonable opportunity, in the circumstances concerned, to make representations in writing to the Supervisory Authority on what is stated in the notice referred to in subparagraph (i). (b) Paragraph (a) shall not apply in any case where a section 931 notice is giving effect to a request referred to in section 930(4). (7) The Supervisory Authority may publish information on its website regarding— (a) a section 931 notice given to the body concerned and the body’s response (if any) thereto, or (b) a notice under subsection (4) given to the body concerned and the body’s response (if any) thereto. (8) Where a disciplinary committee of the body concerned has reasonable grounds for believing that a category 1 or 2 offence may have been committed by a person while the person was a member of the body, the body shall, as soon as is practicable, provide a report to the Director giving details of the alleged offence and shall furnish the Director with such further information in relation to the matter as the Director may require. (9) Where the body concerned fails to comply with subsection (8) or a requirement of the Director under that subsection, the body, and any officer of that body to whom the failure is attributable, shall be guilty of a category 3 offence. (10) Any terms and conditions which were, immediately before the commencement of section 28 of the Companies (Statutory Audits) Act 2018, attached under this section as in force immediately before that commencement to the relevant recognition of the body concerned shall, on and from that commencement, be deemed to be terms and conditions attached to that recognition by virtue of a section 931 notice, and section 906(4)(d) and the other provisions of this section (including subsection (3)) shall be read accordingly.”. Amendment of section 931A of Principal Act 29. Section 931A of the Principal Act is amended, in subsection (1), by the substitution of the following definition for the definition of “relevant person”: “ ‘relevant person’, in relation to an investigation of a member or former member of a prescribed accountancy body, means— (a) that member or any other member or former member of the prescribed accountancy body, (b) a client or former client of the member, (c) if the client or former client is a body corporate, a person who is or was an officer, employee or agent of the client or former client, (d) the prescribed accountancy body or a person who is or was an officer, employee or agent of that body, (e) if the member is an individual, a person who is or was an employee or agent of the member, (f) if the member is a firm, a person who is or was an officer, member, partner, employee or agent of the firm, or (g) any person whom the prescribed accountancy body reasonably believes has information or documents relating to the investigation other than information or documents the disclosure of which is prohibited or restricted by law.”. Provisions that apply when recognised accountancy body is not able to perform Part 27 function 30. The Principal Act is amended by the insertion of the following section after section 931A: “931B. (1) In this section— ‘recognised accountancy body A’ means a recognised accountancy body which is not able to perform, either in all cases or in a particular case, one or more than one Part 27 function by virtue of section 930(1A) or a section 931 notice; ‘recognised accountancy body B’ means a recognised accountancy body which is able to perform, in all cases, the relevant Part 27 function by virtue of its recognition under section 930 or a section 931 notice; ‘relevant members’, in relation to a relevant Part 27 function, means the statutory auditors or potential statutory auditors of recognised accountancy body A in relation to whom that body is not able to perform that function; ‘relevant Part 27 function’ means that one or more than one Part 27 function referred to in the definition of ‘recognised accountancy body A’. (2) The following provisions shall apply in the case of the relevant Part 27 function and the relevant members: (a) the Supervisory Authority may perform that function in relation to those members and, accordingly, the applicable provisions shall be read with any necessary modifications to take account of the fact that that function will, in relation to those members, be performed by the Supervisory Authority until such time (if any) as the Supervisory Authority gives a section 931 notice— (i) to recognised accountancy body A to again perform that function in relation to those members, or (ii) to recognised accountancy body B to perform that function in relation to those members until the date, or the occurrence of the event, specified in the notice; (b) any obligations which, by virtue of the standards referred to in section 930(1)(a) and (b), the relevant members owed to recognised accountancy body A, in so far as such obligations relate to the relevant Part 27 function, are owed to the Supervisory Authority or, if the Supervisory Authority has given a section 931 notice referred to in paragraph (a) to recognised accountancy body B, to recognised accountancy body B; (c) subject to subsection (3) and section 941(4) and (4A), the costs, as determined by the Supervisory Authority, incurred by the Supervisory Authority or recognised accountancy body B in performing the relevant Part 27 function in relation to the relevant members shall be defrayed by recognised accountancy body A or by money received by the Supervisory Authority under section 916. (3) For the purposes of subsection (2)(c)— (a) the Supervisory Authority may prescribe by regulations— (i) that specified procedures and methods of calculation shall apply in the determination of the amount of costs referred to in that subsection incurred by it or recognised accountancy body B, and (ii) requirements otherwise as to the liability of recognised accountancy body A for, and the manner in which that body shall pay, that amount, (b) in default of payment of that amount to the Supervisory Authority, the Authority may recover that amount as a simple contract debt in any court of competent jurisdiction. (4) Where the recognition granted under section 930 of a body of accountants is revoked under section 931, neither the Supervisory Authority nor a recognised accountancy body owes any obligation under this Act, in so far as this Act relates to statutory audits, to a statutory auditor who is a member of the first-mentioned body but without prejudice to any such obligation owed to that statutory auditor if the auditor is a member of another body of accountants which is recognised under section 930. (5) Recognised accountancy body A may appeal to the court against a decision made by the Supervisory Authority under subsection (2)(c) determining an amount of costs to be paid by that body. (6) An appeal under subsection (5) shall be brought within 3 months after the date on which recognised accountancy body A was notified by the Supervisory Authority of its decision.”. Consultation by Supervisory Authority regarding standards and qualifications “932. Before granting, renewing, withdrawing, revoking, suspending or refusing a recognition of a body of accountants under section 930 for the purposes of the relevant provisions, the Supervisory Authority may consult with any body of persons or other person as to the conditions or standards required by the body of accountants concerned in connection with membership of that body or, as the case may be, the approval of persons as statutory auditors.”. Intervention in disciplinary process of prescribed accountancy bodies and supervision of recognised accountancy bodies “933. (1) In this section— ‘approved investigation and disciplinary procedures’ means— (a) in relation to a prescribed accountancy body that is a recognised accountancy body, the investigation and disciplinary procedures approved under— (i) section 905(2)(c), (ii) section 9(2)(c) of the Act of 2003, or (iii) the Act of 1990, whether before or after the amendments of that Act that were made by section 32 of the Act of 2003, (b) in relation to any other prescribed accountancy body, the investigation and disciplinary procedures approved under— (i) section 905(2)(c), or (ii) section 9(2)(c) of the Act of 2003; ‘relevant body’ means— (a) in relation to an enquiry referred to in subsection (2), the prescribed accountancy body the subject of the enquiry, and (b) in relation to an enquiry referred to in subsection (3), the recognised accountancy body the subject of the enquiry. (2) Following a complaint or on its own initiative, the Supervisory Authority may, for the purpose of determining whether a prescribed accountancy body has complied with the approved investigation and disciplinary procedures, enquire into— (a) a decision by that body not to undertake an investigation into a possible breach of its standards by a member, (b) the conduct of an investigation by that body into a possible breach of its standards by a member, or (c) any other decision of that body relating to a possible breach of its standards by a member, unless the matter is or has been the subject of an investigation under section 934 relating to that member. (3) The Supervisory Authority may, for the purpose of determining whether a recognised accountancy body has complied with the applicable provisions in performing a Part 27 function, enquire into the performance by the body of that function (including, where applicable, enquire into the conduct by that body of an investigation into the conduct of a member of that body). (4) For the purposes of an enquiry under this section, the Supervisory Authority may— (a) inspect and make copies of all relevant documents in the possession or control of the relevant body, (b) if the relevant body falls within paragraph (a) of the definition of ‘relevant body’, require the body to explain why it reached a decision referred to in subsection (2)(a) or (c) or explain how it conducted its investigation, or (c) if the relevant body falls within paragraph (b) of the definition of ‘relevant body’, require the body to explain how it complied (if it in fact did comply) with the applicable provisions in performing the Part 27 function concerned (and, also, to explain how it conducted an investigation referred to in subsection (3) if the conduct of that investigation is, in the opinion of the Supervisory Authority, relevant to the enquiry). (5) If at any time before completing an enquiry under this section into a matter relating to a member of a relevant body, the Supervisory Authority forms the opinion that it is appropriate or in the public interest that a matter be investigated under section 934 as regards a possible relevant contravention committed by a specified person, the Authority may apply to the court for permission to investigate the matter under that section. (6) (a) Paragraph (b) applies if the Supervisory Authority is not satisfied, after completing the enquiry— (i) if the relevant body falls within paragraph (a) of the definition of ‘relevant body’, that the body complied with the approved investigation and disciplinary procedures, or (ii) if the relevant body falls within paragraph (b) of the definition of ‘relevant body’, that the body complied with the applicable provisions in performing the Part 27 function. (b) Subject to section 941(4) and (4A), the Supervisory Authority may advise, or admonish, the relevant body or may censure it by doing one or more of the following: (i) annulling all or part of a decision of that body relating to the matter that was the subject of the enquiry; (ii) directing that body to conduct an investigation or a fresh investigation into the matter; (iii) directing that body to perform the function that was the subject of the enquiry again in accordance with any directions or terms and conditions that the Supervisory Authority considers appropriate; (iv) directing that body, where it in future performs the function that was the subject of the enquiry, to do so in accordance with any directions or terms and conditions that the Supervisory Authority considers appropriate; (v) requiring that body to pay to the Supervisory Authority an amount not exceeding the greater of the following: (I) €125,000; (II) the amount prescribed under section 943(1)(e). (c) In default of payment of an amount referred to in paragraph (b)(v), the Supervisory Authority may recover that amount as a simple contract debt in any court of competent jurisdiction. (7) Subject to subsection (14) and section 941(4) and (4A), where, as referred to in subsection (5), the Supervisory Authority is not satisfied as referred to in subsection (6), the relevant body concerned is, in addition to any liability or obligation to pay an amount or do a thing by virtue of subsection (6), liable to pay the amount specified by the Supervisory Authority towards its costs in conducting the enquiry under this section. (8) Where the Supervisory Authority applies under subsection (5) to the court for permission to investigate, under section 934, any matter relating to a member of a relevant body or decides to direct under subsection (6)(b)(ii) a relevant body to conduct an investigation or fresh investigation into any matter, the following rules apply: (a) in the case of an application to the court to investigate a matter, any decision of that body relating to the matter is suspended if and as soon as the body is notified by the Supervisory Authority that permission has been granted under section 941(3); (b) in the case of a direction to conduct an investigation or a fresh investigation, any decision of that body relating to the matter is suspended if and as soon as the body is notified by the Supervisory Authority that the direction has been confirmed as referred to in section 941(4A). (9) The Supervisory Authority may publish on its website each decision made under subsection (6) or each decision made specifying an amount under subsection (7) and the reasons for the decision after giving the relevant body and the member (if any) thereof concerned not less than 3 months notice in writing of its intention to do so. (10) The relevant body or the member thereof (if any) concerned may appeal to the court against a decision made by the Supervisory Authority under subsection (6) (which may be the decision under subsection (6)(a) or the decision under subsection (6)(b), or both) or a decision made by it specifying an amount under subsection (7). (11) An appeal under subsection (10) shall be brought within 3 months after the date on which, as appropriate, the relevant body or the member thereof (if any) concerned was notified by the Supervisory Authority of its decision. (12) If the Supervisory Authority is not satisfied that a relevant body has, when undertaking an investigation or fresh investigation into any matter as required by a direction under subsection (6)(b)(ii)— (a) if the relevant body falls within paragraph (a) of the definition of ‘relevant body’, complied with the approved investigation and disciplinary procedures, or (b) if the relevant body falls within paragraph (b) of the definition of ‘relevant body’, complied with the applicable provisions in performing the Part 27 function, the Supervisory Authority may appeal to the court against any decision of the relevant body relating to the matter. (13) An appeal under subsection (12) shall be brought within 3 months after the date on which the Supervisory Authority was notified by the relevant body of its decision. (14) For the purpose of subsection (7)— (i) that specified procedures and methods of calculation shall apply in the determination of the amount of costs referred to in that subsection incurred by it, and (ii) requirements otherwise as to the liability of the relevant body for, and the manner in which that body shall pay, that amount, (15) Nothing in this section shall be construed to prevent the undertaking of one enquiry under this section into 2 or more matters concerning the same body of accountants where one or more than one of such matters falls within subsection (2) and one or more than one of such matters falls within subsection (3). (16) For the purposes of this section— (a) any decision made or any investigation conducted by the disciplinary committee of a relevant body is considered to have been made or conducted by the relevant body, and (b)‘member’, in addition to the meaning given to that expression by section 900(1), includes, in relation to a relevant body that is a recognised accountancy body, an individual or firm who or which, though not a member of the recognised accountancy body, is an individual or firm in relation to whom that body may perform functions under the relevant provisions.”. Resolution of suspected non-compliance by agreement - relevant body 33. The Principal Act is amended by the insertion of the following section after section 933: “933A. (1) Section 933(1) applies to the interpretation of this section as it applies to the interpretation of section 933. (2) Subject to subsection (3), if the Supervisory Authority believes on reasonable grounds— (a) if the relevant body falls within paragraph (a) of the definition of ‘relevant body’, that the body did not comply with the approved investigation and disciplinary procedures, or (b) if the relevant body falls within paragraph (b) of the definition of ‘relevant body’, that the body did not comply with the applicable provisions in performing the Part 27 function, the Supervisory Authority and the relevant body may, at their absolute discretion, enter into an agreement (in this section referred to as a ‘section 933A agreement’) to resolve the matters the subject of the non-compliance. (3) The following provisions shall apply to the section 933A agreement: (a) the agreement may be entered into notwithstanding that no enquiry under section 933 into the non-compliance has been commenced; (b) the agreement may be entered into after an enquiry under section 933 into the non-compliance has been commenced but not, subject to paragraph (d), after it has been completed; (c) without prejudice to the generality of the terms of the agreement, such terms may include terms under which the relevant body accepts— (i) the imposition of one or more sanctions that may be imposed under section 933(6)(b), and (ii) if an enquiry under section 933 into the non-compliance has been commenced, the payment of costs referred to in section 933(7); (d) the agreement may be entered into after an enquiry under section 933 has been undertaken and carried out only to the extent to determine which sanctions (if any) referred to in paragraph (c)(i) to impose on the relevant body; (e) the terms of the agreement are binding on the Supervisory Authority and the relevant body. (4) Subject to subsection (5), where the relevant body with whom the Supervisory Authority has entered into the section 933A agreement fails to comply with one or more of the terms of the agreement, the Supervisory Authority may apply to the court for an order compelling that body to comply with those terms. (5) In default of payment, any amount agreed to be paid to the Supervisory Authority by the relevant body under the section 933A agreement may be recovered by the Supervisory Authority from the body as a simple contract debt in any court of competent jurisdiction. (6) The Supervisory Authority may, at its discretion, publish a section 933A agreement on its website. (7) Section 941 shall be disregarded for the purposes of a section 933A agreement.”. Investigation of possible breaches of standards of prescribed accountancy bodies or relevant contraventions by statutory auditors ‘client’ includes an individual, a body corporate, an unincorporated body of persons and a partnership; ‘relevant person’— (a) in relation to an investigation of a member or former member of a prescribed accountancy body, means— (i) that member or any other member or former member of the prescribed accountancy body, (ii) a client or former client of the member, (iii) if the client or former client is a body corporate, a person who is or was an officer, employee or agent of the client or former client, (iv) the prescribed accountancy body or a person who is or was an officer, employee or agent of that body, (v) if the member is an individual, a person who is or was an employee or agent of the member, (vi) if the member is a firm, a person who is or was an officer, member, partner, employee or agent of the firm, or (vii) any person whom the Supervisory Authority reasonably believes has information or documents relating to the investigation other than information or documents the disclosure of which is prohibited or restricted by law, (b) in relation to an investigation of a statutory auditor or former statutory auditor, means— (i) that auditor and any other statutory auditor or former statutory auditor who is or was a member of the same recognised accountancy body as the first-mentioned statutory auditor, (ii) a client or former client of the auditor, (iv) the recognised accountancy body or a person who is or was an officer, employee or agent of that body, (v) if the auditor is an individual, a person who is or was an employee or agent of the auditor, (vi) if the auditor is or was an audit firm, a person who is or was an officer, member, partner, employee or agent of the auditor, or (vii) any person whom the Supervisory Authority reasonably believes has information or documents relating to the investigation other than information or documents the disclosure of which is prohibited or restricted by law. (2) (a) Subject to paragraph (b) and subsection (3), the Supervisory Authority may undertake an investigation into a possible relevant contravention committed by a specified person— (i) following a complaint, or (ii) on its own initiative. (b) The Supervisory Authority shall not undertake an investigation into a possible relevant contravention committed by a specified person who falls within paragraph (a) of the definition of ‘specified person’ unless the Supervisory Authority is of the opinion that it is appropriate or in the public interest to do so. (3) An investigation shall not be undertaken into a matter that is or has been the subject of an enquiry under section 933 relating to the specified person except with the permission of the court granted on application under section 933(5). (4) For the purposes of an investigation under this section, the Supervisory Authority may require a relevant person to do one or more of the following: (a) produce to the Supervisory Authority all books or documents relating to the investigation that are in the relevant person’s possession or control; (b) attend before the Supervisory Authority; (c) give the Supervisory Authority any other assistance in connection with the investigation that the relevant person is reasonably able to give. (5) For the purposes of an investigation under this section, the Supervisory Authority may— (a) examine on oath, either by word of mouth or on written interrogatories, a relevant person, (b) administer oaths for the purposes of the examination, and (c) record, in writing, the answers of a person so examined and require that person to sign them. (6) The Supervisory Authority may certify the refusal or failure to the court if a relevant person refuses or fails to do one or more of the following: (a) produce to the Supervisory Authority any book or document that it is the person’s duty under this section to produce; (b) attend before the Supervisory Authority when required to do so under this section; (c) answer a question put to the person by the Supervisory Authority with respect to the matter under investigation. (7) On receiving a certificate of refusal or failure concerning a relevant person, the court may enquire into the case and after hearing any evidence that may be adduced, may do one or more of the following: (a) direct that the relevant person attend or re-attend before the Supervisory Authority or produce particular books or documents or answer particular questions put to him or her by the Supervisory Authority; (b) direct that the relevant person need not produce particular books or documents or answer particular questions put to him or her by the Supervisory Authority; (c) make any other ancillary or consequential order or give any other direction that the court thinks fit. (8) Subject to sections 934G and 941(4) and (4A), if, in the case of a specified person who falls within paragraph (a) of the definition of ‘specified person’, the Supervisory Authority finds that the person committed a relevant contravention, the Supervisory Authority may impose on the person such sanction to which the person is liable under the approved constitution and bye laws of the prescribed accountancy body of which the person is a member (including a monetary sanction) as the Supervisory Authority considers appropriate after having regard to the circumstances referred to in section 934D(2). (9) Subject to section 941(4) and (4A), if, in the case of a specified person who falls within paragraph (b) of the definition of ‘specified person’, the Supervisory Authority finds that the person has committed a relevant contravention, the Supervisory Authority may impose such relevant sanction on the person as the Supervisory Authority considers appropriate after having regard to the circumstances referred to in section 934D(2). (10) Subject to subsection (15) and section 941(4) and (4A), if subsection (8) or (9) applies, the costs incurred by the Supervisory Authority in investigating and determining a matter under this section (other than any costs of or incidental to an enquiry by the court under subsection (7)) shall be defrayed by, in the case of a specified person who falls within paragraph (a) of the definition of ‘specified person’, the prescribed accountancy body of which the specified person is a member and, in any other case, by the specified person. (11) Subject to subsection (12), the specified person who is the subject of a relevant decision made by the Supervisory Authority may appeal to the court against the decision. (12) An appeal under subsection (11) shall be brought within 3 months after the date on which the specified person concerned was notified by the Supervisory Authority of the relevant decision. (13) The prescribed accountancy body or specified person, as appropriate, may appeal to the court against a decision made by the Supervisory Authority specifying an amount of costs under subsection (10). (14) An appeal under subsection (13) shall be brought within 3 months after the date on which the prescribed accountancy body or specified person, as appropriate, was notified by the Supervisory Authority of the decision. (15) For the purposes of subsection (10)— (i) that specified procedures and methods of calculation shall apply in the determination of the amount of costs so incurred by it, and (ii) requirements otherwise as to the liability of, as appropriate, the prescribed accountancy body or specified person for, and the manner in which that body or person shall pay, that amount, (16) The production of any books or documents under this section by a person who claims a lien on them does not prejudice the lien. (17) Nothing in this section shall be construed to prevent the undertaking of one investigation under this section into 2 or more possible relevant contraventions committed by the same specified person where one or more of such possible contraventions fall within paragraph (a) of the definition of ‘relevant contravention’ and one or more of such possible contraventions fall within paragraph (b) of that definition.”. Amendment of Principal Act - insertion of sections 934A to 934I “Supplemental provisions to section 934 - certain specified persons 934A. (1) This section applies to a specified person the subject of a decision under section 934(8) that the person has committed a relevant contravention. (2) Where applicable, the Supervisory Authority shall direct the prescribed accountancy body of which the specified person referred to in subsection (1) is a member to take any necessary action on foot of the imposition of a relevant sanction on the person and that body shall comply with the direction. (3) The Supervisory Authority shall, as soon as is practicable after imposing a relevant sanction on a specified person referred to in subsection (1), notify the prescribed accountancy body of which the specified person is a member of the imposition of the sanction together with such particulars of the person, the relevant contravention concerned and the sanction as the Supervisory Authority considers appropriate. Immediate action required to protect public 934B. (1) This section applies if the Supervisory Authority is of the opinion that the nature or gravity of the possible relevant contravention committed by a specified person warrants, in the interest of protecting the public, a direction to the specified person prohibiting him or her from carrying out statutory audits or signing statutory auditors’ reports, or both, until steps or further steps are taken under section 934 in relation to that contravention by that person. (2) The Supervisory Authority may make an ex parte application to the court for a direction referred to in subsection (1) until the steps or further steps referred to in that subsection are taken. Sanctions which Supervisory Authority may impose on statutory auditor for relevant contravention 934C. (1) This section applies to a specified person the subject of a decision under section 934(9) that the person has committed a relevant contravention. (2) Subject to section 934D, the Supervisory Authority may impose on the specified person one or more of the following sanctions in relation to the relevant contravention: (a) a direction by the Supervisory Authority to the specified person that he or she cease the conduct giving rise (whether in whole or in part) to the contravention and to abstain from any repetition of that conduct; (b) a direction by the Supervisory Authority to the specified person to remediate the conduct giving rise (whether in whole or in part) to the contravention; (c) a reprimand or severe reprimand by the Supervisory Authority to the specified person in relation to the conduct giving rise (whether in whole or in part) to the contravention; (d) a declaration by the Supervisory Authority that the statutory auditors’ report concerned does not meet the requirements of section 336 or 337 or, where applicable, Article 10 of Regulation (EU) No 537/2014; (e) a direction by the Supervisory Authority to the specified person (being any one or more of a statutory auditor or key audit partner (within the meaning of Part 27)) prohibiting him or her, for the period specified in the direction (which may be up to and including an indefinite period), from carrying out statutory audits or signing statutory auditors’ reports, or both; (f) if the specified person is an audit firm, a direction by the Supervisory Authority to the firm, or to an officer, member or partner of the firm, or to both, prohibiting the firm or, as the case may be, the officer, member or partner, for the period specified in the direction (which may be up to and including an indefinite period) from performing functions— (i) in the case of the firm, as an audit firm, or (ii) in the case of the officer, member or partner, in audit firms or public-interest entities; (g) subject to section 934G, a direction by the Supervisory Authority to the specified person to pay an amount, as specified in the direction but not exceeding— (i) €100,000 in the case of a specified person who is an individual, or (ii) in the case of a specified person which is an audit firm, €100,000 multiplied by the number of statutory auditors in the firm at the time that the relevant contravention occurred (and irrespective of whether any particular statutory auditor was or was not a party to the relevant contravention), to the Supervisory Authority; (h) an order excluding the specified person from having his or her particulars entered, or continuing to be entered, in the public register (within the meaning of Part 27) in respect of one or more recognised accountancy bodies. (3) In default of payment of an amount referred to in subsection (2)(g), the Supervisory Authority may recover that amount as a simple contract debt in any court of competent jurisdiction. (4) A person the subject of a direction under subsection (2) shall comply with the direction. (5) Where applicable, the Supervisory Authority shall direct the recognised accountancy body of which the specified person is a member to take any necessary action on foot of the imposition of a relevant sanction on the person and that body shall comply with the direction. (6) The Supervisory Authority shall, as soon as is practicable after imposing a relevant sanction on a specified person, notify the recognised accountancy body of which the specified person is a member of the imposition of the sanction together with such particulars of the person, the relevant contravention concerned and the sanction as the Supervisory Authority considers appropriate. Relevant circumstances to be considered in imposing relevant sanctions on specified person 934D. (1) This section applies to a specified person the subject of a decision under section 934(8) or (9) that the person has committed a relevant contravention. (2) In imposing a relevant sanction on a specified person, the Supervisory Authority shall consider the following circumstances: (a) the gravity and duration of the relevant contravention; (b) the degree of responsibility of the specified person; (c) the financial strength of the specified person (including, in the case of a specified person who is not an individual, the total turnover of the specified person or, in the case of a specified person who is an individual, the annual income of the individual); (d) the amount of profits gained or losses avoided by the specified person in consequence of the relevant contravention, in so far as they can be determined; (e) the level of cooperation of the specified person with the Supervisory Authority; (f) previous relevant contraventions committed by the specified person. Resolution of suspected relevant contravention by agreement - specified person 934E. (1) Subject to subsection (2), if the Supervisory Authority believes on reasonable grounds that a specified person is committing, or has committed, a relevant contravention, the Supervisory Authority and the person may, at their absolute discretion, enter into an agreement (in this section referred to as a ‘section 934E agreement’) to resolve the matters the subject of the contravention. (2) The following provisions shall apply to the section 934E agreement: (a) the agreement may be entered into notwithstanding that no investigation under section 934 into the contravention has been commenced; (b) the agreement may be entered into after an investigation under section 934 into the relevant contravention has been commenced but not, subject to paragraph (d), after it has been completed; (c) without prejudice to the generality of the terms of the agreement, such terms may include terms under which the specified person accepts— (i) the imposition of one or more relevant sanctions that may be imposed under section 934(8) or (9), as appropriate, and (ii) if an investigation under section 934 into the contravention has been commenced, the payment of costs referred to in section 934(10); (d) the agreement may be entered into after an investigation under section 934 has been undertaken and carried out only to the extent to determine which sanctions (if any) referred to in paragraph (c)(i) to impose on the specified person; (e) the terms of the agreement are binding on the Supervisory Authority and the specified person. (3) Subject to subsection (6), the provisions of sections 934C, 934D, 934F, 934G and 934H shall apply, with any necessary modifications, to any relevant sanctions imposed on a specified person pursuant to a section 934E agreement as those sections apply to any relevant sanctions imposed on a specified person otherwise than pursuant to a section 934E agreement. (4) Subject to subsection (5), where the specified person with whom the Supervisory Authority has entered into the section 934E agreement fails to comply with one or more of the terms of the agreement, the Supervisory Authority may apply to the court for an order compelling that person comply with those terms. (5) In default of payment, any amount agreed to be paid to the Supervisory Authority by the specified person under the section 934E agreement may be recovered by the Supervisory Authority from the person as a simple contract debt in any court of competent jurisdiction. (6) The necessary modifications referred to in subsection (3), in so far as section 934F is concerned, include reading that section as if— (a) the following subsection were substituted for subsection (1) of that section: ‘(1) Subject to subsection (3), the Supervisory Authority shall, in so far as a relevant decision imposes a relevant sanction on a specified person, as soon as is practicable, publish on its website particulars of the relevant contravention for which the relevant sanction was imposed, particulars of the relevant sanction imposed and particulars of the specified person on whom the relevant sanction was imposed.’, (b) subsections (2) and (4) of that section were deleted, and (c) in subsection (5) of that section, the reference to ‘or (2)’ were deleted. (7) Section 941 shall be disregarded for the purposes of a section 934E agreement. Publication of relevant sanction imposed on specified person, etc. 934F. (1) Subject to subsections (2) and (3), the Supervisory Authority shall, in so far as a relevant decision imposes a relevant sanction on a specified person, as soon as is practicable after— (a) that decision has been confirmed by the court as referred to in section 941(4A), or (b) a decision of the court under section 941(2)(b) has been made to impose a different relevant sanction on the specified person, publish on its website particulars of the relevant contravention for which the relevant sanction was imposed, particulars of the relevant sanction imposed and particulars of the specified person on whom the relevant sanction was imposed. (2) Subject to subsection (4), if there is an appeal to the court from a confirmation referred to in subsection (1)(a), or a decision referred to in subsection (1)(b), the Supervisory Authority shall, as soon as may be, as it considers appropriate, publish particulars on its website of the status or outcome of the appeal. (3) The Supervisory Authority shall publish the particulars, comprising a public notice of a relevant sanction imposed, on an anonymous basis on its website in any one or more of the following circumstances: (a) the Supervisory Authority, following an assessment of the proportionality of the publication of those particulars in accordance with subsection (1) in so far as personal data are concerned, is of the opinion that, in relation to the relevant sanction imposed on a specified person who is an individual, such publication would be disproportionate; (b) the Supervisory Authority is of the opinion that the publication of those particulars in accordance with subsection (1) would jeopardise the stability of financial markets or an ongoing criminal investigation; (c) the Supervisory Authority is of the opinion that the publication of those particulars in accordance with subsection (1) would cause disproportionate damage to the specified person. (4) Subsection (2) shall not apply in any case where subsection (3) applies. (5) The Supervisory Authority shall ensure that particulars published on its website in accordance with subsection (1) or (2) remain on its website for at least 5 years. Limitations on imposing monetary sanctions on specified person 934G. (1) If the Supervisory Authority decides to impose a monetary sanction on a specified person, the Supervisory Authority shall not impose an amount— (a) that would be likely to cause the specified person to cease business, or (b) that would, if the specified person is an individual, be likely to cause the person to be adjudicated bankrupt. (2) If the conduct engaged in by the specified person has given rise (whether in whole or in part) to 2 or more relevant contraventions, the Supervisory Authority shall not impose more than one monetary sanction on the person in respect of the same conduct. Specified person not to be liable to be penalised twice for same relevant contravention 934H. (1) If the Supervisory Authority imposes a monetary sanction on a specified person and the conduct engaged in by the person that has given rise (whether in whole or in part) to the relevant contravention is an offence under the law of the State, the person shall not be liable to be prosecuted or punished for the offence under that law. (2) The Supervisory Authority shall not impose a monetary sanction on a specified person if— (a) the person has been charged with having committed an offence under a law of the State and has either been found guilty or not guilty of having committed the offence, and (b) the offence involves the conduct engaged in by the person that has given rise (whether in whole or in part) to the relevant contravention. Reporting of relevant contraventions 934I. (1) The Supervisory Authority and each recognised accountancy body shall establish effective mechanisms to encourage the reporting to it of relevant contraventions or suspected relevant contraventions. (2) The mechanisms referred to in subsection (1) shall include at least: (a) specific procedures (including follow-up procedures) for the receipt of reports of relevant contraventions and suspected relevant contraventions; (b) the protection of personal data concerning both the person who reports the relevant contravention or suspected relevant contravention and the specified person concerned in compliance with the principles laid down in the Data Protection Acts 1988 to 2018 and Regulation (EU) 2016/679. (3) A statutory auditor which is an audit firm shall, as soon as is practicable after the commencement of section 35 of the Companies (Statutory Audits) Act 2018, establish effective procedures within the firm for employees to report relevant contraventions or suspected relevant contraventions.”. (i) in paragraph (a), by the substitution of “Part 27” for “the 2016 Audits Regulations”, and (ii) in paragraph (b)(i), by the substitution of “that Part” for “those Regulations”, (b) in subsection (2)— (i) by the substitution of “section 934(8)” for “section 934(7)”, (ii) by the substitution of “Chapters 2 to 4, or Chapter 8, of Part 27” for “Part 4 or Chapter 2 of Part 8 of the 2016 Audits Regulations”, and (iii) by the substitution of “that Part” for “those Regulations”, (c) by the substitution of the following subsection for subsection (3): “(3) Where such an approval is withdrawn by the Supervisory Authority, section 1479(13) to (15) or, as the case may be, section 1480(13) to (15), shall, with all necessary modifications, apply to that withdrawal and section 934(11) and (12) shall not apply to that withdrawal.”, (d) in subsection (4)— (i) by the substitution of “section 934(8)” for “section 934(7)”, and (ii) by the substitution of “Part 27” for “the 2016 Audits Regulations”, (e) in subsection (5), in the definition of “member”, by the substitution of “Part 27” for “the 2016 Audits Regulations”. Amendment of Principal Act - insertion of sections 936A and 936B 37. The Principal Act is amended by the insertion of the following sections before section 937: “Supplemental provisions in relation to section 934 - relevant directors 936A. (1) This section applies if— (a) either— (i) a specified person is the subject of a decision under section 934(9) that he or she has committed a relevant contravention, or (ii) the Supervisory Authority and a specified person who falls within paragraph (b) of the definition of ‘specified person’ have entered into a section 934E agreement in respect of a relevant contravention that the Supervisory Authority reasonably believes that the person has committed, (b) that contravention relates, whether directly or indirectly, to the audit of a public-interest entity. (2) The Supervisory Authority shall, as soon as is practicable, give the Director particulars of— (a) the specified person, (b) the relevant contravention, and (c) the public-interest entity. (3) The Supervisory Authority shall, in addition to complying with subsection (2), give the Director such information and documents and assistance as the Director may reasonably require for the Director to decide whether or not— (a) to investigate under Part 13 a relevant director, or (b) to impose, under section 957B, a relevant sanction (within the meaning of section 957AA) on a relevant director for engaging in conduct giving rise (whether in whole or in part) to the relevant contravention, Communication with the CEAOB 936B. (1) The Supervisory Authority shall immediately communicate to the CEAOB particulars of— (a) any direction under section 934(8) that is equivalent to a direction referred to in paragraph (b), (b) any direction given by the Authority under section 934C(2)(e) or (f), and (c) any direction given by the Director under section 957C(2)(b). (2) The Supervisory Authority shall, as soon as may be after the end of a year, give to the CEAOB aggregated information in relation to— (a) all relevant sanctions imposed by it on specified persons (being specified persons who fall within paragraph (b) of the definition of ‘specified person’) during the year in accordance with this Chapter, (b) all public notices of relevant sanctions imposed by it on specified persons (being specified persons who fall within paragraph (b) of the definition of ‘specified person’) during the year in accordance with this Chapter, (c) all relevant sanctions (within the meaning of Chapter 9 of Part 27) imposed by it on specified persons (within the meaning of that Chapter) during the year in accordance with that Chapter, (d) all public notices of relevant sanctions imposed (within the meaning of Chapter 9 of Part 27) by it on specified persons (within the meaning of that Chapter) during the year in accordance with that Chapter, (e) all relevant sanctions (within the meaning of section 957AA) imposed by the Director during the year in accordance with Chapter 3, and (f) all public notices of relevant sanctions imposed (within the meaning of section 957AA) by the Director during the year in accordance with Chapter 3. (3) A recognised accountancy body shall immediately communicate to the Supervisory Authority particulars of any temporary prohibition referred to in point (c) or (e) of Article 30a(1) of the Audit Directive imposed by the body on a relevant person. (4) The Supervisory Authority shall immediately communicate to the CEAOB particulars which have been communicated to it under subsection (3). (5) Without prejudice to the generality of sections 1523 and 1556, a recognised accountancy body shall, as soon as may be after the end of a year, give to the Supervisory Authority aggregated information in relation to— (a) all sanctions equivalent to relevant sanctions imposed by it on relevant persons during the year in accordance with Part 27, and (b) all notices equivalent to public notices of the sanctions first-mentioned in paragraph (a) imposed by it on relevant persons during the year in accordance with Part 27. (6) The Supervisory Authority shall, as soon as may be after it is given the information referred to in subsection (5), give the information to the CEAOB. (7) In this section, ‘relevant person’, in relation to a recognised accountancy body, means— (a) a member of the body, or (b) an auditor or audit firm in relation to whom, by virtue of section 930C, the body may perform functions, who is a statutory auditor or former statutory auditor.”. (a) in subsection (1), by the substitution of “sections 933 to 934I, 935 and 936B and Chapter 9 of Part 27” for “sections 933 to 936”, and “(3A) The Supervisory Authority may delegate some or all of the functions under sections 933 to 934I, 935 and 936B and Chapter 9 of Part 27 to any of its officers or employees or any other person duly authorised by it in that behalf.”. (a) in subsection (1), by the substitution of “or 935” for “, 935 or 935B”, (b) in subsection (3), by the substitution of “or 935” for “, 935, 935B or 936”, (c) by the substitution of the following subsections for subsections (4) and (5): “(4) Subject to subsection (5), the Supervisory Authority may make regulations respecting the procedures to be followed in conducting enquiries under section 933 and investigations under section 934 or 935. (5) There is no obligation to make regulations under subsection (4) with respect to a particular provision referred to in that subsection.”, (d) by the insertion of the following subsections after subsection (5): “(6) The Supervisory Authority shall, as soon as is practicable after making any regulations under subsection (4), publish the regulations on its website. (7) Any information produced or answer given by a person (howsoever described) in compliance with a requirement under section 933, 934 or 935 may be used in evidence against the person in any proceedings whatsoever, save proceedings for an offence (other than perjury in respect of such an answer). (8) A finding or decision of the Supervisory Authority under section 933, 934 or 935 is not a bar to any civil or criminal proceedings against the person (howsoever described) who is the subject of the finding or decision.”. “(5) Nothing in this section shall operate to prevent the Supervisory Authority from complying with its obligations under the relevant provisions.”. (a) in subsection (1), by the substitution of “section 931B(5), 933(10) or (12) or 934(11) or (13)” for “section 933(9) or (11), 934(10) or 935B(7)”, (ii) by the substitution of “relevant contravention committed by a specified person” for “breach of a prescribed accountancy body’s rules by a member”, and (iii) in paragraph (b), by the substitution of “such person” for “the member”, (c) by the substitution of the following subsections for subsection (4): “(4) Subsection (4A) applies to the following decisions of the Supervisory Authority: (a) a decision under section 931B(2)(c); (b) a decision under section 933(6) in so far as it relates to the advisement, or admonishment, or censure referred to in that section of a relevant body; (c) a decision under section 933(7); (d) a decision under section 934(10); (e) a relevant decision in so far as it relates to the imposition of a relevant sanction on a specified person. (4A) A decision to which this subsection applies does not take effect until the decision is confirmed by the court either— (a) on appeal under section 931B(5), 933(10) or 934(11) or (13), or (b) on application by the Supervisory Authority under subsection (5).”, (d) in subsection (5), by the substitution of “to which subsection (4A) applies” for “referred to in subsection (4)”, (e) in subsection (6), by the substitution of the following paragraphs for paragraphs (b) and (c): “(b) a term or condition of recognition, (c) an obligation or obligations referred to in that subsection, (d) a section 931 notice, or (e) a direction under section 934A(2) or 934C(5),”, (f) by the insertion of the following subsections after subsection (6): “(7) On an application under section 933A(4) for an order compelling compliance with a section 933A agreement, the court may make any order or give any direction as it thinks fit. (8) On an application under section 934B(2) for a direction referred to in section 934B(1), the court may make any order or give any direction as it thinks fit. (9) On an application under section 934E(4) for an order compelling compliance with a section 934E agreement, the court may make any order or give any direction as it thinks fit.”. (a) by the deletion of subsection (2), and (b) in subsection (4)(b), by the substitution of “subsection (1)” for “subsections (1) and (2)”. 43. Section 943 of the Principal Act is amended, in subsection (1), by the substitution of the following paragraphs for paragraphs (e) and (f): “(e) prescribing the amount of a penalty under section 933(6)(b)(v); (f) prescribing for the purposes of section 933(9) the manner in which notice is to be given;”. “(1A) Sections 930A and 930D make additional provision with regard to the performance of functions by, amongst others, the Director.”. 45. Part 15 of the Principal Act is amended, in Chapter 3, by the insertion of the following sections before Chapter 4 of that Part: “Definitions (sections 957A to 957I) 957AA. In this section and sections 957B to 957I— ‘monetary sanction’, in relation to a relevant director, means the monetary sanction referred to in section 957C(2)(c); ‘public notice of relevant sanction imposed’, in relation to a relevant director, means the publication in accordance with section 957F(1) of the relevant director’s particulars referred to in that section together with the other related particulars referred to in that section; ‘relevant contravention’ has the meaning assigned to it by section 900; ‘relevant decision’, in relation to a relevant director, means— (a) a decision under section 957B(2) that the director has engaged in conduct giving rise (whether in whole or in part) to a relevant contravention, (b) if, in consequence of a decision referred to in paragraph (a), the Director decides under section 957B(2) to impose a relevant sanction on the relevant director, the decision to impose that sanction, or ‘relevant director’ has the meaning assigned to it by section 900; ‘relevant sanction’, in relation to a relevant director, means a sanction referred to in section 957C(2); ‘Supervisory Authority’ has the meaning assigned to it by section 900. Provisions applicable where Director receives particulars, etc., from Supervisory Authority concerning relevant contravention and relevant director 957B. (1) This section applies where— (a) the Director has received from the Supervisory Authority particulars referred to in section 936A(2) and (where applicable) information and documents and assistance referred to in section 936A(3), and (b) in consequence thereof, the Director has investigated under Part 13 a relevant director in order to find whether or not the relevant director has engaged in conduct giving rise (whether in whole or in part) to a relevant contravention. (2) Subject to section 957I(3) and (4), where the Director finds that a relevant director has engaged in conduct giving rise (whether in whole or in part) to the relevant contravention, the Director may impose such relevant sanction on the relevant director as the Director considers appropriate after having regard to the circumstances referred to in section 957D(2). (3) Subject to subsection (4), the relevant director the subject of a relevant decision may appeal to the court against the decision. (4) An appeal under subsection (3) shall be brought within 3 months after the date on which the relevant director was notified of the relevant decision by the Director. (5) A finding or relevant decision of the Director under this section is not a bar to any civil or criminal proceedings against the relevant director who is the subject of the finding or relevant decision. (6) Subject to subsection (7), the Director shall, as soon as is practicable after imposing under this section a relevant sanction on a relevant director, give particulars of the relevant director and of the sanction imposed to the Supervisory Authority. (7) The Director shall immediately communicate to the Supervisory Authority particulars of any direction given by the Director under section 957C(2)(b). Sanctions which Director may impose on relevant director for certain conduct 957C. (1) This section applies to a relevant director the subject of a decision under section 957B(2) that the director has engaged in conduct giving rise (whether in whole or in part) to a relevant contravention. (2) Subject to section 957D, the Director may impose on the relevant director one or more of the following sanctions in relation to the relevant contravention: (a) a direction to the relevant director that he or she cease the conduct giving rise (whether in whole or in part) to the contravention and abstain from any repetition of that conduct; (b) a direction to the relevant director prohibiting the director, for the period specified in the direction (being a period of not more than 3 years’ duration), from performing functions in audit firms or public-interest entities; (c) subject to section 957G, a direction to the director to pay an amount, as specified in the direction but not exceeding €100,000, to the Director. (3) In default of payment of an amount referred to in subsection (2)(c), the Director may recover that amount as a simple contract debt in any court of competent jurisdiction. Relevant circumstances to be considered in imposing relevant sanctions on relevant director 957D. (1) This section applies to a relevant director the subject of a decision under section 957B(2) that the director has engaged in conduct giving rise (whether in whole or in part) to a relevant contravention. (2) In imposing a relevant sanction on a relevant director, the Director shall consider the following circumstances: (b) the degree of responsibility of the relevant director; (c) the financial strength of the relevant director (including the annual income of the director); (d) the amount of profits gained or losses avoided by the relevant director in consequence of the contravention, in so far as they can be determined; (e) the level of cooperation of the relevant director with the Supervisory Authority or Director, or both; (f) previous impositions of relevant sanctions on the relevant director. Resolution of suspected certain conduct by agreement - relevant director 957E. (1) Subject to subsection (2), if the Director believes on reasonable grounds that a relevant director has engaged in conduct (in this section referred to as the ‘relevant conduct’) giving rise (whether in whole or in part) to a relevant contravention referred to in section 936A(1), the Director and the relevant director may, at their absolute discretion, enter into an agreement (in this section referred to as a ‘section 957E agreement’) to resolve the matters relating to such conduct. (a) the agreement may be entered into notwithstanding that no investigation under Part 13 into the relevant conduct has been commenced; (b) the agreement may be entered into after an investigation under Part 13 into the relevant conduct has been commenced but not, subject to paragraph (d), after it has been completed; (c) without prejudice to the generality of the terms of the agreement, such terms may include terms under which the relevant director accepts the imposition of one or more relevant sanctions that may be imposed under section 957B(2); (d) the agreement may be entered into after an investigation under Part 13 has been undertaken and carried out only to the extent to determine which sanctions (if any) referred to in paragraph (c) to impose on the relevant director; (e) the terms of the agreement are binding on the Director and the relevant director. (3) Subject to subsection (6), the provisions of sections 957C, 957D, 957F, 957G and 957H shall apply, with any necessary modifications, to any relevant sanctions imposed on a relevant director pursuant to a section 957E agreement as those sections apply to any relevant sanctions imposed on a relevant director otherwise than pursuant to a section 957E agreement. (4) Subject to subsection (5), where the relevant director with whom the Director has entered into the section 957E agreement fails to comply with one or more of the terms of the agreement, the Director may apply to the court for an order compelling that relevant director to comply with those terms. (5) In default of payment, any amount agreed to be paid to the Director by the relevant director under the section 957E agreement may be recovered by the Director from the relevant director as a simple contract debt in any court of competent jurisdiction. ‘(1) Subject to subsection (3), the Director shall, in so far as a relevant decision imposes a relevant sanction on a relevant director, as soon as is practicable, publish on his or her website particulars of the relevant contravention to which the relevant sanction relates, particulars of the relevant conduct, particulars of the relevant sanction imposed and particulars of the relevant director on whom the relevant sanction was imposed.’, (7) Section 957I shall be disregarded for the purposes of a section 957E agreement. Publication of relevant sanction imposed on relevant director 957F. (1) Subject to subsections (2) and (3), the Director shall, in so far as a relevant decision imposes a relevant sanction on a relevant director, as soon as is practicable after— (a) that decision has been confirmed by the court as referred to in section 957I(4), or (b) a decision of the court under section 957I(2)(b) has been made to impose a different relevant sanction on the relevant director, publish on his or her website particulars of the relevant contravention to which the relevant sanction relates, particulars of the relevant conduct, particulars of the relevant sanction imposed and particulars of the relevant director on whom the relevant sanction was imposed. (2) Subject to subsection (4), if there is an appeal to the court from a confirmation referred to in subsection (1)(a), or a decision referred to in subsection (1)(b), the Director shall, as soon as may be, as he or she considers appropriate, publish particulars on his or her website of the status or outcome of the appeal. (3) The Director shall publish the particulars, comprising a public notice of a relevant sanction imposed, on an anonymous basis on the Director’s website in any one or more of the following circumstances: (a) the Director, following an assessment of the proportionality of the publication of those particulars in accordance with subsection (1) in so far as personal data are concerned, is of the opinion that, in relation to the relevant sanction imposed on the relevant director, such publication would be disproportionate; (b) the Director is of the opinion that the publication of those particulars in accordance with subsection (1) would jeopardise the stability of financial markets or an ongoing criminal investigation; (c) the Director is of the opinion that the publication of those particulars in accordance with subsection (1) would cause disproportionate damage to the relevant director. (5) The Director shall ensure that particulars published on his or her website in accordance with subsection (1) or (2) remain on his or her website for at least 5 years. (6) The Director shall, as soon as is practicable after publishing a public notice of a relevant sanction imposed in relation to a relevant director, give particulars of the relevant director and of the relevant sanction imposed to the Supervisory Authority. Limitations on imposing monetary sanctions on relevant director 957G. (1) If the Director decides to impose a monetary sanction on a relevant director, the Director shall not impose an amount that would be likely to cause the relevant director to be adjudicated bankrupt. (2) If the conduct engaged in by the relevant director has given rise (whether in whole or in part) to 2 or more relevant contraventions, the Director shall not impose more than one monetary sanction on the relevant director in respect of the same conduct. Relevant director not to be liable to be penalised twice for same conduct 957H. (1) If the Director imposes a monetary sanction on a relevant director and the conduct engaged in by the relevant director that has given rise (whether in whole or in part) to the relevant contravention is an offence under the law of the State, the relevant director shall not be liable to be prosecuted or punished for the offence under that law. (2) The Director shall not impose a monetary sanction on a relevant director if— (a) the relevant director has been charged with having committed an offence under a law of the State and has either been found guilty or not guilty of having committed the offence, and (b) the offence involves the conduct engaged in by the relevant director that has given rise (whether in whole or in part) to the relevant contravention. Appeals to and orders of court, including orders confirming decisions of Director 957I. (1) In an appeal under section 957B(3), the court may consider any evidence adduced or argument made, whether or not adduced or made to the Director. (2) On the hearing of such an appeal, the court may make any order or give any direction it thinks fit, including an order— (a) confirming the decision under appeal, or (b) modifying or annulling that decision. (3) A relevant decision, in so far as it relates to the imposition of a relevant sanction on a relevant director, does not take effect until that decision is confirmed by the court either— (a) on appeal under section 957B(3), or (b) on application by the Director under subsection (4). (4) On application by motion on notice by the Director for an order confirming a decision referred to in subsection (3), the court may make an order confirming the decision or may refuse to make such an order. Amendment of section 1097 of Principal Act 46. Section 1097 of the Principal Act is amended by the substitution of “section 1551 (which relates to an obligation of a public-interest entity to establish an audit committee)” for “Regulation 115 (which relates to an obligation of a public-interest entity to establish an audit committee) of the 2016 Audits Regulations”. 47. Section 1291 of the Principal Act is amended, in subsection (1)(a)(iv), by the substitution of “section 1293” for “section 1292”. 48. Section 1305 of the Principal Act is amended, in subsection (3)(b), by the substitution of “the Audit Directive (within the meaning of Part 27)” for “the Audit Directive (within the meaning of the 2016 Audits Regulations)”. Amendment of section 1401A of Principal Act 49. Section 1401A of the Principal Act is amended, in subsection (4), in the substituted subsection (1) of section 376, by the substitution of “section 366” for “section 367”. 50. Section 1438 of the Principal Act is amended, in subsection (3), by the insertion of “, and Part 27,” after “Part 6”. Statutory audits 51. The Principal Act is amended by the insertion of the following Part after Part 26: Preliminary and interpretation Interpretation (Part 27 and Schedules 19 and 20) 1461. (1) In this Part and Schedules 19 and 20— ‘2010 Audits Regulations’ means the European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 ( S.I. No. 220 of 2010 ) revoked by Regulation 2(1) of the 2016 Audits Regulations; ‘2016 Audits Regulations’ means the European Union (Statutory Audits) (Directive 2006/43/EC, as amended by Directive 2014/56/EU, and Regulation (EU) No 537/2014) Regulations 2016 ( S.I. No. 312 of 2016 ) revoked by section 3 (6) of the Companies (Statutory Audits) Act 2018; ‘AAPA report’ shall be read in accordance with section 930B(1); ‘additional report to the audit committee’ means the report submitted to the audit committee of a public-interest entity by the statutory auditor or audit firm carrying out statutory audits as referred to in Article 11 of Regulation (EU) No 537/2014; ‘approved’, in relation to a statutory auditor or audit firm, means approved under this Part; ‘aptitude test’ means an aptitude test referred to in section 1476(1); ‘audit committee’, in relation to a public-interest entity, means the audit committee established for the entity under section 1551; ‘Audit Directive’ means Directive 2006/43/EC of the European Parliament and of the Council of 17 May 20065 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC, as amended by Directive 2014/56/EU of the European Parliament and of the Council of 16 April 20146 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts; ‘audit working papers’, in relation to a statutory auditor or audit firm, means material (whether in the form of data stored on paper, film, electronic media or other media or otherwise) prepared by or for, or obtained by the statutory auditor or audit firm in connection with, the performance of the audit concerned, and includes— (a) the record of audit procedures performed, (b) relevant audit evidence obtained, and (c) conclusions reached, and a reference to audit working papers in relation to a Member State auditor or audit firm, or a third-country auditor or third-country audit entity, shall be read accordingly; ‘auditing standards’ means the standards adopted by the Supervisory Authority under section 1526 in accordance with which statutory audits shall be carried out; ‘client’ has the meaning assigned to it by section 934(1); ‘Commission’ means Commission of the European Union; ‘counterpart authority’ shall be construed in accordance with section 1553; ‘disciplinary committee’ has the meaning assigned to it by section 900; ‘financial year’— (a) in relation to the Supervisory Authority and an audited undertaking, shall be read in accordance with section 288, and (b) in relation to a statutory auditor or audit firm, means any period in respect of which a profit and loss account or income statement is prepared by the auditor or audit firm for income tax or other business purposes, whether that period is of a year’s duration or not; ‘firm’ includes a body corporate; ‘Member State’ means a Member State of the European Union or an EEA state; ‘Member State audit firm’ means an audit entity approved in accordance with the Audit Directive by the counterpart authority of another Member State to carry out audits of accounts or consolidated accounts as required by European Union law; ‘Member State auditor’ means an auditor approved in accordance with the Audit Directive by the counterpart authority of another Member State to carry out audits of accounts or consolidated accounts as required by European Union law; ‘penalty’ includes a sanction and a measure; ‘public-interest entities’ means undertakings that— (a) have transferable securities admitted to trading on a regulated market of any Member State, (b) are credit institutions, (c) are insurance undertakings, or (d) are undertakings that are otherwise designated, by or under any other enactment, to be entities referred to in point (d) of Article 2(13) of the Audit Directive; ‘public register’ shall be read in accordance with section 1484; ‘recognised accountancy body’ has the meaning assigned to it by section 900; ‘Regulation (EU) No 537/2014’ means Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 20147 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC; ‘relevant provisions’ has the meaning assigned to it by section 900; ‘relevant sanction’ (except in Chapter 9) has the meaning assigned to it by section 900; ‘standards’ means those standards, as defined in section 900, of a prescribed accountancy body which is a recognised accountancy body; ‘statutory audit’ means an audit of entity financial statements or group financial statements in so far as— (a) required by European Union law, or (b) required by national law as regards small companies; ‘statutory audit firm’ means— (a) an audit firm which is approved in accordance with this Part to carry out statutory audits, or (b) an audit firm which is registered in accordance with section 1465 to carry out statutory audits; ‘statutory auditor’ means an individual who is approved in accordance with this Part to carry out statutory audits; ‘third country’ means a country or territory that is not a Member State or part of a Member State; ‘third-country competent authority’ means an authority in a third country with responsibilities, as respects auditors and audit entities in that country, equivalent to those of the Supervisory Authority. (2) A reference in this Part or in Schedule 19 or 20 to a registered third-country auditor or third-country audit entity is a reference to a third-country auditor or third-country audit entity registered under Chapter 21. (3) A word or expression that is used in this Part or in Schedule 19 or 20 and is also used in the Audit Directive shall have in this Part and that Schedule the same meaning as it has in the Audit Directive. (4) A word or expression that is used in this Part or in Schedule 19 or 20 and is also used in Regulation (EU) No 537/2014 shall have in this Part and that Schedule the same meaning as it has in that Regulation. 1462. (1) Subject to Chapter 22, the 2016 Audits Regulations, as in force immediately before the date of commencement of section 3 (6) of the Companies (Statutory Audits) Act 2018— (a) in so far as they related to the conduct of statutory audits and the duties and powers of statutory auditors and audit firms in relation thereto for financial years commencing before that date, shall continue to apply to the conduct of statutory auditors and audit firms in relation thereto for those financial years, and (b) as regards each other matter provision for which was made by those Regulations before that date, shall continue to make such provision before that date. (2) For the purposes only of enabling the 2016 Audits Regulations to operate, for the financial years referred to in subsection (1), on and after the date referred to in that subsection, as those Regulations operated immediately before that date, a reference in those Regulations to this Act or a provision of this Act shall be read as a reference to this Act or such provision, as the case may be, as in force immediately before that date. 1463. Save where otherwise provided (including provided by Regulation (EU) No 537/2014), this Part applies— (a) in so far as it relates to the conduct of statutory audits and the duties and powers of statutory auditors and audit firms in relation thereto, to the conduct of statutory audits for financial years commencing on or after the date referred to in section 1462(1), and (b) as regards each other matter provision for which is made by this Part, on and from that date. Approval of statutory auditors and audit firms Applications for approval, general principle as to good repute, etc. 1464. (1) A recognised accountancy body may, on application made to it by an individual or a firm, approve, under this Part, the applicant as a statutory auditor or audit firm. (2) A recognised accountancy body may, on foot of an application under subsection (1), grant approval under this Part only to— (a) individuals, or (b) firms, who are of good repute. (3) A recognised accountancy body may, on application made to it by a third-country auditor and in accordance with Chapter 20, approve, under this Part, the applicant as a statutory auditor. (4) Subsection (5) applies in the case of an application under subsection (1)— (a) by a firm that is a Member State audit firm in the circumstances where it is not seeking registration in accordance with section 1465, or (b) by a Member State auditor. (5) For the purposes of this section, the fact that the applicant is a Member State audit firm or Member State auditor shall constitute conclusive evidence that the applicant is of good repute unless, arising out of the cooperation that the State is required to engage in by virtue of Part VIII of the Audit Directive, the counterpart authority in the Member State where the applicant is approved as a statutory audit firm or auditor has notified the Supervisory Authority or a recognised accountancy body that the counterpart authority has reasonable grounds for believing that the good repute of the audit firm or auditor has been seriously compromised. (6) On approving a person as a statutory auditor or audit firm, a recognised accountancy body shall assign an individual identification number to the person. (7) The recognised accountancy body shall maintain a record in writing of all numbers assigned by it under subsection (6). Basis on which audit firms approved in other Member States may carry out audits in State 1465. (1) An audit firm which is approved in another Member State shall be entitled to carry out statutory audits in the State if the key audit partner who carries out those audits on behalf of the audit firm, both at the time of registration (in accordance with subsection (2)) and at all times during the registration of the firm, complies with the requirements of sections 1464 to 1472. (2) (a) An audit firm that wishes to carry out statutory audits in the State where the State is not its home Member State shall, before carrying out any such audit, register with the recognised accountancy body by which the key audit partner referred to in subsection (1) is approved. (b) The recognised accountancy body shall ensure that an audit firm which complies with subsection (1) is registered in accordance with the requirements of Chapter 5 and Schedule 20. (3) (a) The recognised accountancy body shall register the audit firm if it is satisfied that the audit firm is registered with the counterpart authority in the audit firm’s home Member State. (b) Where the recognised accountancy body intends to rely on a certificate, issued by the counterpart authority in the home Member State, attesting to the registration of the audit firm in the home Member State, the recognised accountancy body may require that such certificate be issued on a date falling within the 3 months immediately preceding that date on which the recognised accountancy body is given that certificate. (4) On registering the audit firm, the recognised accountancy body shall assign an individual identification number to the firm. (6) The recognised accountancy body shall inform the counterpart authority in the home Member State of the registration of the audit firm. (7) Where a recognised accountancy body receives a notification from another Member State that an audit firm whose home Member State is the State has registered with the counterpart authority in the host Member State, the recognised accountancy body shall ensure that the registration is recorded in the public register. Restriction as to persons who may carry out statutory audits 1466. Statutory audits shall be carried out only by— (a) auditors or audit firms that are approved under this Part, or (b) audit firms registered in accordance with section 1465. Restriction on acting as statutory auditor 1467. A person shall not— (a) act as a statutory auditor, (b) describe himself or herself as a statutory auditor, or (c) so hold himself or herself out as to indicate, or be reasonably understood to indicate, that he or she is a statutory auditor, unless he or she has been approved in accordance with this Part. Restriction on acting as statutory audit firm 1468. A firm shall not— (a) act as a statutory audit firm, (b) describe itself as a statutory audit firm, or (c) so hold itself out as to indicate, or be reasonably understood to indicate, that it is a statutory audit firm, unless it has been approved in accordance with this Part or registered in accordance with section 1465. Offence for contravening section 1466, 1467 or 1468 1469. A person who contravenes section 1466, 1467 or 1468 shall be guilty of a category 2 offence. Conditions for approval as statutory auditor 1470. A person shall not be eligible for approval as a statutory auditor unless he or she is— (a) a member of a recognised accountancy body and holds an appropriate qualification as referred to in section 1472, (b) a Member State auditor and complies with section 1476, or (c) a third-country auditor and complies with section 1476 and Chapter 20. Transitional provisions applicable to certain deemed approvals under Regulation 44 of 2016 Audits Regulations 1471. (1) Subject to sections 1479, 1582 and 1583, a deemed approval of a person as a statutory auditor continued in force under the 2016 Audits Regulations by virtue of Regulation 44(1) of those Regulations and in force immediately before the commencement of section 3 (6) of the Companies (Statutory Audits) Act 2018 shall continue in force under this Part as if it were a deemed approval of that person as a statutory auditor under this Part. (2) Subject to sections 1480, 1582 and 1583, a deemed approval of a firm as a statutory audit firm continued in force under the 2016 Audits Regulations by virtue of Regulation 44(2) of those Regulations and in force immediately before the commencement of section 3 (6) of the Companies (Statutory Audits) Act 2018 shall continue in force under this Part as if it were a deemed approval of that firm as a statutory audit firm under this Part. Appropriate qualification for purpose of section 1470(a) 1472. (1) An individual holds an appropriate qualification, as required by section 1470(a), if he or she holds a qualification granted by a recognised accountancy body whose standards relating to training and qualifications for the approval of a person as a statutory auditor are not less than those specified in Schedule 19. (2) In subsection (1), ‘qualification’ means a qualification to undertake an audit of entity financial statements and group financial statements in so far as required by European Union law. (3) A recognised accountancy body may exempt in writing a person who has passed a university or equivalent examination, or who holds a university degree or equivalent qualification, in one or more of the subjects referred to in the test of theoretical knowledge specified in Schedule 19 if the body is satisfied that the passing of that examination, or the holding of that university degree or equivalent qualification, renders it unnecessary for the person to undergo that test in so far as those subjects are concerned. (4) The Supervisory Authority shall, at such times as it thinks it appropriate to do so, issue guidelines to recognised accountancy bodies as to the specific matters that should be given regard to in reaching a decision under subsection (3) whether or not to grant an exemption under that subsection to a person. Conditions for approval as statutory audit firm 1473. (1) In this section, references to a firm include references to a Member State audit firm if the firm is not seeking registration in accordance with section 1465. (2) A firm shall not be eligible for approval as a statutory audit firm unless— (a) the individuals who carry out statutory audits in the State on behalf of the firm are approved as statutory auditors in accordance with this Part, (b) the majority of the voting rights in the firm are held by— (i) individuals who are eligible for approval in the State or in any other Member State as statutory auditors, (ii) audit firms approved as statutory audit firms in the State or in any other Member State, or (iii) a combination of such individuals and audit firms, (c) subject to subsection (3), the majority of the members of the administrative or management body of the firm are— (iii) a combination of such individuals and audit firms. (3) Where the administrative or management body of a firm has no more than 2 members, then, for the purposes of subsection (2)(c), one of those members shall satisfy at least the requirements of that subsection. Powers of Director 1474. (1) The Director may demand of a person— (a) acting as a statutory auditor or audit firm of an undertaking, or (b) purporting to have obtained approval under this Part, or registration in accordance with section 1465, to so act, the production of evidence of the person’s approval under this Part or, if applicable, registration in accordance with section 1465 in respect of any period during which the person so acted or purported to have obtained such approval. (2) If the person concerned refuses or fails to produce the evidence referred to in subsection (1) within 30 days after the date of the demand referred to in that subsection, or such longer period as the Director may allow, the person shall be guilty of a category 3 offence. (3) In a prosecution for an offence under this section, it shall be presumed, until the contrary is shown, that the defendant did not, within 30 days, or any longer period allowed, after the day on which the production was demanded, produce evidence in accordance with subsection (1). Evidence in prosecutions under section 1474 1475. (1) Subject to subsection (2), in proceedings for an offence under section 1474, the production to the court of a certificate purporting to be signed by a person on behalf of a recognised accountancy body and stating that the defendant is not approved under this Part or, if applicable, is not registered in accordance with section 1465, by that recognised accountancy body shall be sufficient evidence, until the contrary is shown by the defendant, that the defendant is not so approved or registered, as the case may be. (2) Subsection (1) shall not apply unless a copy of the certificate concerned is served by the prosecution on the defendant, by registered post, not later than 28 days before the day the certificate is produced in court in the proceedings concerned. (3) If the defendant in those proceedings intends to contest the statement contained in such a certificate, he or she shall give notice in writing of that intention to the prosecution within 21 days, or such longer period as the court may allow, after the date of receipt by him or her of a copy of the certificate from the prosecution. Aptitude test to be passed 1476. (1) Subject to subsection (2), a Member State auditor or third-country auditor applying for approval as a statutory auditor in the State is required to sit and pass an aptitude test to demonstrate his or her knowledge of the enactments and practice that are relevant to statutory audits in the State. (2) Subsection (1) shall not apply to a Member State auditor or third-country auditor if the recognised accountancy body is satisfied that he or she has otherwise demonstrated sufficient knowledge of the enactments and practice referred to in that subsection. (3) The Supervisory Authority shall, at such time as it thinks it appropriate to do so, issue guidelines to each recognised accountancy body as to the specific matters that should be given regard to in reaching a decision under subsection (2) whether or not a person has demonstrated the knowledge referred to in subsection (1). (4) A recognised accountancy body may charge and impose on a Member State auditor or third-country auditor a fee (of an amount specified from time to time by the Minister sufficient to meet the body’s administrative expenses in respect of the following) in respect of the administration of an aptitude test under this section in relation to him or her. (5) A fee imposed under subsection (4) may, in default of payment, be recovered from the Member State auditor or third-country auditor concerned as a simple contract debt in any court of competent jurisdiction. (6) The amount of a fee imposed under Regulation 49(4) of the 2016 Audits Regulations as those Regulations were in force immediately before the date of commencement of section 3 (6) of the Companies (Statutory Audits) Act 2018 shall be the amount of the fee imposed under subsection (4) until such time as the Minister exercises his or her power under that subsection to specify a different amount of such fee. Scope of aptitude test 1477. (1) The aptitude test shall— (a) be conducted in either the Irish language or the English language, and (b) relate only to the applicant’s adequate knowledge of the enactments and practice that are relevant to statutory audits in the State. (2) Subject to subsection (3), the various matters that shall constitute the contents of the aptitude test shall be decided by the recognised accountancy body after it has received the approval of the Supervisory Authority to the contents of the test. (3) A recognised accountancy body shall not alter the contents of an aptitude test approved under subsection (2) unless such alteration has been approved by the Supervisory Authority. Adequate standards to be applied in administration of aptitude test 1478. (1) Subject to subsection (2), a recognised accountancy body shall apply adequate standards in the administration of the aptitude test. (2) No standards shall be used by a recognised accountancy body for the purposes of subsection (1) unless those standards have (with respect to that use) first been approved by the Supervisory Authority. Withdrawal of approval Grounds for mandatory withdrawal of approval in case of statutory auditor 1479. (1) For the purposes of this section, the cases that can constitute circumstances of an auditor’s good repute being seriously compromised include cases of professional misconduct or want of professional skill on the part of the auditor. (2) Without prejudice to section 1502 and subject to subsections (4) to (6), a recognised accountancy body shall withdraw an approval of an auditor under this Part if, but only if— (a) circumstances arise (involving acts or omissions on the part of the auditor) from which a recognised accountancy body can reasonably conclude that the auditor’s good repute is seriously compromised, (b) the auditor no longer falls within section 1470(a), (b) or (c), or (c) in the case of a person who is a statutory auditor referred to in section 1471(1)— (i) the auditor no longer falls within section 1470(a), (ii) the auditor is not registered as a statutory auditor in the public register, or (iii) the auditor is not subject to the regulation of a recognised accountancy body. (3) Unless there do not exist internal appeal procedures of a recognised accountancy body as referred to in subsection (8)(a), references in subsections (4) to (7) to a recognised accountancy body shall be read as references to a recognised accountancy body acting through the disciplinary committee that deals with matters at first instance. (4) Subject to subsection (7), subsection (5) applies where, having— (a) complied with the requirements of procedural fairness in that regard, and (b) served any notices required for that purpose or as required by its investigation and disciplinary procedures, a recognised accountancy body is satisfied that subsection (2)(a), (b) or (c) applies in the case of an auditor. (5) Subject to subsection (7), the recognised accountancy body shall serve a notice in writing on the auditor stating that— (a) it is satisfied that subsection (2)(a), (b) or (c) applies in the case of the auditor, (b) the auditor shall take specified steps to cause subsection (2)(a), (b) or (c) to cease to apply to him or her within a specified period (which shall be not less than one month), and (c) if those steps are not taken, it shall withdraw the approval of the auditor. (6) Where the recognised accountancy body has served a notice under subsection (5) on a statutory auditor and the auditor has not, before the expiration of the specified period referred to in subsection (5)(b), taken the steps referred to in subsection (5)(b), the recognised accountancy body shall withdraw the approval of the auditor under this Part. (7) The procedure specified in subsection (5) need not be employed if the acts or omissions concerned referred to in subsection (2)(a) are such as, in the opinion of the recognised accountancy body, constitute professional misconduct or want of professional skill on the part of the auditor of a degree that employing that procedure would not be in the public interest but nothing in this subsection affects the application of the requirements of procedural fairness to the withdrawal of approval. (8) If— (a) there exist applicable internal appeal procedures of the recognised accountancy body, and (b) the investigation and disciplinary procedures of the recognised accountancy body provide that a decision of its disciplinary committee, being a decision of a nature to which this section applies, shall stand suspended or shall not take effect until, as the case may be— (i) the period for making an appeal under those procedures has expired without such an appeal having been made, (ii) such an appeal has been made and the decision to withdraw the approval confirmed, or (iii) such an appeal that has been made is withdrawn, then, notwithstanding anything in the preceding provisions of this section, the operation of the withdrawal of approval by that disciplinary committee shall stand suspended until the occurrence of an event specified in paragraph (b)(i), (ii) or (iii). (9) Subsection (10) applies if— (b) the investigation and disciplinary procedures of the recognised accountancy body do not provide, as referred to in subsection (8)(b), for the decision of the disciplinary committee referred to in that provision to stand suspended or not to take effect. (10) Notwithstanding the internal appeal procedures referred to in subsection (9)(a), the auditor to whom the decision referred to in subsection (8)(b) relates may apply to the High Court for an order suspending the operation of the withdrawal pending the determination by the relevant appellate committee of an appeal that he or she is making under those procedures and, where such an application is made, subsections (13) to (15) apply to that application with— (a) the substitution of references to an appeal under those internal appeal procedures for reference to an appeal under section 1481, and (b) any other necessary modifications. (11) If the relevant appellate committee referred to in subsection (10) is of the opinion, having regard to the particular issues that have arisen on that appeal, that, in the interests of justice, the disposal by it of an appeal referred to in that subsection ought to include its proceeding in the manner specified in subsections (5) and (6), then, in disposing of that appeal, it shall proceed in the manner so specified. (12) The recognised accountancy body shall take all reasonable steps to ensure that any appeal to the relevant appellate committee referred to in subsection (10) is prosecuted promptly and it shall be the duty of that appellate committee to ensure that any such appeal to it is disposed of as expeditiously as may be and, for that purpose, to take all such steps as are open to it to ensure that, in so far as is practicable, there are no avoidable delays at any stage in the determination of such an appeal. (13) Where the recognised accountancy body has made a decision to withdraw the approval of an auditor under this Part (that is to say, a final decision of the recognised accountancy body on the matter after the internal appeal procedures (if any) of it have been employed and exhausted), the auditor may apply to the High Court for an order suspending the operation of the withdrawal pending the determination by the High Court of an appeal under section 1481 that he or she is making against the withdrawal. (14) On the hearing of an application under subsection (13), the High Court may, as it considers appropriate and having heard the recognised accountancy body and, if it wishes to be so heard, the Supervisory Authority (which shall have standing to appear and be heard on the application)— (a) grant an order suspending the operation of the withdrawal, or (b) refuse to grant such an order, and an order under paragraph (a) may provide that the order shall not have effect unless one or more conditions specified in the order are complied with (and such conditions may include conditions requiring the auditor not to carry out statutory audits save under the supervision of another statutory auditor or not to carry out such audits save in specified circumstances). (15) The High Court may, on application to it by the auditor or the recognised accountancy body concerned, vary or discharge an order under subsection (14)(a) if it considers it just to do so. (16) The procedures under this section are in addition to those procedures in the cases to which section 930C(10) to (12) apply, that are required by section 930C(10) to (12) to be employed. Grounds for mandatory withdrawal in case of statutory audit firm 1480. (1) For the purposes of this section, the cases that can constitute circumstances of a statutory audit firm’s good repute being seriously compromised include cases of professional misconduct or want of professional skill on the part of the audit firm or any of the one or more auditors through whom it acts. (2) Without prejudice to section 1502 and subject to subsections (4) to (6), the recognised accountancy body shall withdraw an approval of an audit firm under this Part if, but only if— (a) circumstances arise (involving acts or omissions on the part of the audit firm or auditor or auditors through whom it acts) from which the recognised accountancy body can reasonably conclude that the firm’s good repute is seriously compromised, (b) the audit firm (not being a firm referred to in paragraph (c)) no longer falls within section 1473(2)(a), (b) and (c), or (c) in the case of a firm which is a statutory audit firm referred to in section 1471(2), the firm no longer falls within section 1473(2)(a). (3) Unless there do not exist internal appeal procedures of the recognised accountancy body as referred to in subsection (8)(a), references in subsections (4) to (7) to a recognised accountancy body shall be read as references to a recognised accountancy body acting through the disciplinary committee that deals with matters at first instance. the recognised accountancy body is satisfied that subsection (2)(a), (b) or (c) applies in the case of an audit firm. (5) Subject to subsection (7), the recognised accountancy body shall serve a notice in writing on the audit firm stating that— (a) it is satisfied that subsection (2)(a), (b) or (c) applies in the case of the audit firm, (b) the audit firm shall take specified steps to cause subsection (2)(a), (b) or (c) to cease to apply to it within a specified period (which shall not be less than one month), and (c) if those steps are not taken, it shall withdraw the approval of the firm. (6) Where the recognised accountancy body has served a notice under subsection (5) on a statutory audit firm and the firm has not, before the expiration of the specified period referred to in subsection (5)(b), taken the steps referred to in subsection (5)(b), the recognised accountancy body shall withdraw the approval of the audit firm under this Part. (7) The procedure specified in subsection (5) need not be employed if the acts or omissions concerned referred to in subsection (2)(a) are such as, in the opinion of the recognised accountancy body, constitute professional misconduct or want of professional skill on the part of the audit firm (or the auditor or auditors through whom it acts) of a degree that employing that procedure would not be in the public interest but nothing in this subsection affects the application of the requirements of procedural fairness to the withdrawal of approval. (10) Notwithstanding the internal appeal procedures referred to in subsection (9)(a), the audit firm to which the decision referred to in subsection (8)(b) relates may apply to the High Court for an order suspending the operation of the withdrawal pending the determination by the relevant appellate committee of an appeal that it is making under those procedures and, where such an application is made, subsections (13) to (15) apply to that application with— (13) Where the recognised accountancy body has made a decision to withdraw the approval of an audit firm under this section (that is to say, a final decision of the recognised accountancy body on the matter after the internal appeal procedures (if any) of it have been employed and exhausted), the audit firm may apply to the High Court for an order suspending the operation of the withdrawal pending the determination by the High Court of an appeal under section 1481 that it is making against the withdrawal. and an order under paragraph (a) may provide that the order shall not have effect unless one or more conditions specified in the order are complied with (and such conditions may include conditions requiring the audit firm not to carry out statutory audits save under the supervision of one or more statutory auditors or one or more statutory audit firms or not to carry out such audits save in specified circumstances). (15) The High Court may, on application to it by the audit firm or the recognised accountancy body concerned, vary or discharge an order under subsection (14)(a) if it considers it just to do so. Appeals against withdrawal of approval 1481. (1) Subject to subsection (2), a person may appeal to the High Court against the withdrawal by the recognised accountancy body of approval under this Part of the person as a statutory auditor or audit firm. (2) An appeal shall not lie under subsection (1) unless and until any applicable internal appeal procedures of the recognised accountancy body have been employed and exhausted by the person referred to in that subsection. (3) An appeal under subsection (1) shall be made within one month— (a) unless paragraph (b) applies, after the date of the withdrawal of approval, or (b) after the confirmation of that withdrawal on foot of the internal appeal procedures of the recognised accountancy body having been employed. (4) On the hearing of an appeal under subsection (1), the High Court may— (a) cancel the withdrawal of the approval, or (b) confirm the withdrawal of the approval. (5) The High Court may, on the hearing of an appeal under subsection (1), consider evidence not adduced or hear an argument not made to the recognised accountancy body if the Court is satisfied that— (a) there are cogent circumstances justifying the failure to adduce the evidence or make the argument to the recognised accountancy body, and (b) it is just and equitable for the Court to consider the evidence or hear the argument, as the case may be. (6) A notification of the outcome of an appeal under this section (or of any appeal from a decision of the High Court thereunder) shall be made by the recognised accountancy body to the same persons to whom a notification of a withdrawal of approval shall be made by section 1482 and (where it applies) section 1483. Certain persons to be notified of withdrawal of approval 1482. Without prejudice to section 1483, where the approval under this Part of a statutory auditor or audit firm is withdrawn for any reason by a recognised accountancy body, that fact and the reasons for the withdrawal shall be communicated by the recognised accountancy body to— (a) the Supervisory Authority, and (b) the Registrar, as soon as possible, but not later than one month after the date of withdrawal of approval. Other persons to be notified of withdrawal of approval 1483. (1) Where the approval under this Part of a statutory auditor is withdrawn for any reason by a recognised accountancy body, the recognised accountancy body shall, in addition to making the communication specified in section 1482, notify the relevant competent authorities of the host Member States, where the statutory auditor is also approved and entered in the public registers of those States pursuant to Articles 15 to 19 of the Audit Directive, of the fact of the withdrawal and the reasons for it. (2) Where the approval under this Part of an audit firm is withdrawn for any reason by a recognised accountancy body, the recognised accountancy body shall, in addition to making the communication specified in section 1482, notify the relevant competent authorities of the host Member States, where the audit firm is also registered and entered in the public registers of those States pursuant to Articles 15 to 19 of the Audit Directive, of the fact of the withdrawal and the reasons for it. (3) If the approval under this Part of a statutory auditor or audit firm is withdrawn by the Supervisory Authority, this section and section 1482 (other than paragraph (a) of it) shall apply in relation to the withdrawal as if the references in them to the recognised accountancy body were references to the Supervisory Authority and with any other necessary modifications. (4) The notifications under this section shall be made as soon as possible, but not later than one month after the date of withdrawal of approval. 1484. (1) Subject to subsection (2) and sections 887(2), 934C(2)(h), 1506(1)(h), 1573 and 1575, the Registrar shall maintain a particular register (in this Part referred to as the ‘public register’) which shall contain the information set out in Schedule 20 in relation to— (a) statutory auditors and audit firms (other than audit firms which fall within paragraph (b) of the definition of ‘statutory audit firm’), (b) third-country auditors and third-country audit entities, and (c) audit firms approved in another Member State which have been registered in accordance with section 1465. (2) Subject to sections 1582 and 1583, the public register referred to in Regulation 84 of the 2016 Audits Regulations, as that register was in being immediately before the date of commencement of section 3 (6) of the Companies (Statutory Audits) Act 2018, shall, on and from that date, be deemed to be the public register referred to in subsection (1), and the other provisions of this Part (including provisions relating to the removal or alteration of entries in the public register) shall apply to that register accordingly. Notification of information to Registrar 1485. (1) (a) An auditor or audit firm (other than a statutory audit firm which falls within paragraph (b) of the definition of ‘statutory audit firm’) shall, as soon as may be after he or she is approved under this Part as a statutory auditor or audit firm, notify the relevant information to the recognised accountancy body. (b) A Member State audit firm shall, as soon as may be after it is registered in accordance with section 1465, notify the relevant information to the recognised accountancy body. (c) A third-country auditor shall, as soon as may be after he or she is approved under this Part as a statutory auditor, notify the relevant information to the recognised accountancy body. (2) On receipt of a notification under subsection (1) and its having carried out any verification of the information as seems to it to be necessary, the recognised accountancy body, as appropriate, shall notify to the Registrar— (a) the relevant information contained in the notification, and (b) (i) subject to subparagraph (ii), the individual identification number assigned by it to the auditor, audit firm or third-country auditor under section 1464(6) or a Member State audit firm under section 1465(4), and (ii) where— (I) under section 1464(6) or 1465(4) such a number exists, and (II) by reason of the circumstances referred to in paragraph (b) of the definition of ‘relevant information’ in subsection (4), the relevant information notified to the recognised accountancy body or Supervisory Authority does not include that number, the number referred to in paragraph 1(c)(ii) or 2(g) of Schedule 20. (3) The notifications under subsections (1) and (2) shall each be made in such form and manner as the Registrar specifies. (4) In this section, ‘relevant information’ means the information set out in paragraph 1 or 2, as the case may be, of Schedule 20, other than that set out— (a) in subparagraph (b) of that paragraph 1 or 2, or (b) if, due to the simultaneous registration of a statutory audit firm and the statutory auditors that comprise that firm, the number there referred to is not available at that time, in subparagraph (c)(ii) of that paragraph 1 or subparagraph (g) of that paragraph 2. (5) For the avoidance of doubt, in the event that a recognised accountancy body is no longer recognised by the Supervisory Authority for the purposes of the relevant provisions or otherwise ceases to exist, the notifications under subsections (1) and (2) shall cease to have effect and the Registrar shall remove all information contained in such notifications from the public register. Prohibition on certain acts unless registered 1486. (1) A person shall not— (a) act as, or (b) represent himself or herself, or hold himself or herself out, as being, a person falling within a category of persons entered, or entitled to be entered, in the public register unless the person is entitled to be entered, and the name of the person is duly entered, in the public register. (2) A person who contravenes subsection (1) shall be guilty of a category 2 offence. Obligation of statutory auditor or audit firm to notify certain information 1487. (1) Each statutory auditor and audit firm and Member State audit firm shall, as soon as may be but not later than one month after the event, notify the recognised accountancy body of any change in the information contained in the public register relating to him or her. (2) On receipt of a notification under subsection (1) and its having carried out any verification of the information stated to have changed as seems to it to be necessary, the recognised accountancy body shall notify the change in information to the Registrar without undue delay. (3) The Registrar shall, as soon as may be but not later than one month after receipt of the notification referred to in subsection (2), amend the public register to reflect the change of information so notified. (4) A person who, without reasonable excuse, contravenes subsection (1) shall be guilty of a category 4 offence. Information shall be signed 1488. (1) Information notified under section 1485(1) or 1487(1) by a statutory auditor or audit firm (including a Member State audit firm) shall be signed by the statutory auditor or, as the case may be, a person on behalf of the statutory audit firm. (2) The signature referred to in subsection (1) may be an electronic signature (within the meaning of Article 3(10) of Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 20148 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC) if the provision of a signature in that form complies with any requirements in that behalf of the Registrar of the kind referred to in section 13 (2)(a) of the Electronic Commerce Act 2000 . (3) If information is notified under section 1485(1) or 1487(1) without being signed as required by subsection (1), the person concerned shall be guilty of a category 4 offence. Standards for statutory auditors 1489. (1) It shall, by virtue of this section alone, be a condition of a statutory auditor’s approval (or, in the case of a statutory auditor referred to in section 1471, deemed approval) granted under this Part (or under any predecessor to this Part) that he or she shall take part in appropriate programmes of continuing education in order to maintain his or her theoretical knowledge, professional skills and values, including, in particular, in relation to auditing, at a sufficiently high level. (2) The Supervisory Authority shall, at such times as it thinks it appropriate to do so, issue guidelines to the recognised accountancy bodies with regard to what constitutes compliance with the condition referred to in subsection (1). 1490. A recognised accountancy body shall subject statutory auditors and audit firms to principles of professional ethics, including at least their public interest function, their integrity and objectivity and their professional competence and due care. Independence, objectivity and professional scepticism 1491. Statutory auditors and audit firms are subject to the independence, objectivity and professional scepticism requirements of sections 1533 to 1544 and 1547. Standards for purposes of sections 1489 to 1491 1492. (1) A recognised accountancy body shall, in respect of statutory auditors and audit firms— (a) have adequate standards requiring those auditors and audit firms to comply with the obligations specified in sections 1489 to 1491, and (b) institute adequate arrangements for the effective monitoring and enforcement of compliance with such standards. (2) No standards shall be used by a recognised accountancy body for that purpose unless those standards have (with respect to that use) first been approved by the Supervisory Authority in accordance with section 905(2)(c). Arrangements for enforcement of standards 1493. The arrangements for enforcement referred to in section 1492(1)(b) shall include, in accordance with sections 1501 and 1502, provision for— (a) sanctions which include— (i) at the discretion of the recognised accountancy body, in accordance with section 1501, the withdrawal of approval under this Part as a statutory auditor or audit firm, (ii) appropriate penalties, (iii) appropriate disciplinary measures, (iv) appropriate regulatory sanctions, (b) making available to the public information relating to the measures taken and the penalties imposed in respect of statutory auditors and audit firms. Quality assurance by Supervisory Authority of statutory audit of public-interest entities and third-country auditors, etc. 1494. (1) The Supervisory Authority shall put in place a quality assurance system as set out in Article 26 of Regulation (EU) No 537/2014. (2) The Supervisory Authority shall ensure that it has in place a quality assurance system of registered third-country auditors and third-country audit entities to whom this Part or Regulation (EU) No 537/2014 applies. (3) Sections 1496 and 1497 shall not apply to the statutory audit of entity and group financial statements of public-interest entities unless specified in Regulation (EU) No 537/2014. (4) The Supervisory Authority may publish on its website the findings and conclusions of individual inspections undertaken as part of the quality assurance system referred to in subsection (1). System of quality assurance to be put in place 1495. (1) The Supervisory Authority, in accordance with this Part, shall oversee the quality assurance system implemented by the recognised accountancy bodies. (2) A recognised accountancy body shall ensure that it has in place a system of quality assurance of— (a) the body’s members’ activities as statutory auditors and audit firms of entities not referred to in section 1494(1) and (2), and (b) the activities, as statutory auditors and audit firms, of persons who, though not members of the recognised accountancy body, are persons in relation to whom the body may perform functions under the relevant provisions. Organisation of quality assurance system 1496. (1) A recognised accountancy body shall organise its quality assurance system in such a manner that— (a) the system is independent of the reviewed statutory auditors and audit firms, (b) the funding for the system is secure and free from any possible undue influence by statutory auditors or audit firms, (c) the system has adequate resources, (d) the persons who carry out quality assurance reviews have appropriate professional education and relevant experience in statutory audit and financial reporting combined with specific training on quality assurance reviews, (e) the selection of reviewers for specific quality assurance reviews is effected in accordance with an objective procedure designed to ensure that there are no conflicts of interest between reviewers and the statutory auditor or audit firm under review, (f) the scope of quality assurance reviews of audits, supported by adequate testing of selected audit files, includes, except where otherwise agreed with the Supervisory Authority, an assessment of— (i) compliance with applicable auditing standards and independence requirements, (ii) the quantity and quality of resources spent, (iii) the audit fees charged, and (iv) the internal quality control system of the audit firm, (g) each quality assurance review is the subject of a report in writing which includes the main conclusions of the review, (h) a quality assurance review of each statutory auditor or audit firm takes place on the basis of an analysis of risk, at least, subject to subsection (5) and section 1497, every 6 years, (i) statutory auditors and audit firms take all reasonable steps to ensure that recommendations arising from quality assurance reviews of them are implemented within a reasonable period, (j) there is published annually by it the overall results of quality assurance reviews carried out by it in the year concerned, and (k) quality assurance reviews are appropriate and proportionate in view of the scale and complexity of the activity of the reviewed statutory auditor or audit firm. (2) For the purpose of subsection (1)(e), at least the following criteria shall apply to the selection of reviewers: (a) reviewers have appropriate professional education and relevant experience in statutory audit and financial reporting combined with specific training on quality assurance reviews; (b) a person does not act as a reviewer in a quality assurance review of a statutory auditor or audit firm until at least 3 years have elapsed since that person ceased to be a partner or an employee of, or otherwise associated with, that statutory auditor or audit firm; (c) reviewers shall declare (if such be the case) that there are no conflicts of interest between them and the statutory auditor and the audit firm to be reviewed. (3) For the purpose of subsection (1)(k), a recognised accountancy body, when undertaking quality assurance reviews of the statutory audits of entity or group financial statements of medium or small companies, shall take account of the fact that auditing standards adopted in accordance with Article 26 of the Audit Directive are designed to be applied in a manner that is proportionate to the scale and complexity of the business of the audited undertaking. (4) If a statutory auditor or audit firm fails to take all reasonable steps to ensure that recommendations arising from a quality assurance review of him or her are implemented within a reasonable period, the recognised accountancy body shall take appropriate action, including, where applicable, subjecting the statutory auditor or audit firm, as the case may be, to the system of disciplinary actions or penalties referred to in the relevant provisions. (5) The period of at least 6 years referred to in subsection (1)(h) shall be a continuation of the system that was in place under the 2010 Audits Regulations when the first quality assurance reviews were required to be completed and as that system was continued by the 2016 Audits Regulations. Quality assurance review deemed to include individual auditors in certain cases 1497. For the purpose of section 1496(1)(h), a quality assurance review conducted in relation to a statutory audit firm shall be regarded as a quality assurance review of all statutory auditors carrying out audits on behalf of the firm provided that the firm has a common quality assurance policy with which each such statutory auditor is required to comply. Right of recognised accountancy body as regards professional discipline 1498. A recognised accountancy body shall have the right to take disciplinary actions or impose sanctions in respect of statutory auditors and audit firms who carry out audits and shall have procedures in place to facilitate the taking or imposition of such action or sanctions. Investigations and sanctions System of investigation and penalties 1499. (1) Subject to subsection (2), each recognised accountancy body shall, in respect of those auditors and audit firms in relation to whom, by virtue of section 930C, it may perform functions, institute arrangements to ensure that there are effective systems of investigations and penalties to detect, correct and prevent the inadequate execution of a statutory audit by those statutory auditors and audit firms. (2) Subsection (1) shall not be construed to empower a recognised accountancy body referred to in that subsection to impose a penalty on a statutory auditor or audit firm of a public-interest entity in the case of a relevant contravention committed by that auditor or audit firm that relates (whether in whole or in part) to that entity. Privileges, etc. 1500. (1) A witness before a recognised accountancy body is entitled to the same immunities and privileges as a witness before the High Court. (2) Nothing in the arrangements referred to in section 1499(1) compels the disclosure by any person of any information that the person would be entitled to refuse to produce on the grounds of legal professional privilege or authorises the inspection or copying of any document containing such information that is in the person’s possession or control. (3) Any information produced or answer given by a person (howsoever described) in compliance with arrangements referred to in section 1499(1) may be used in evidence against the person in any proceedings whatsoever, save proceedings for an offence (other than perjury in respect of such an answer). (4) A finding or decision of a recognised accountancy body under arrangements referred to in section 1499(1) is not a bar to any civil or criminal proceedings against the person (howsoever described) who is the subject of the finding or decision. Duty of each recognised accountancy body with regard to sanctions 1501. (1) Each recognised accountancy body shall ensure that the contractual and other arrangements that exist between it and its members are such as enable the imposition by it of effective, proportionate and dissuasive penalties in respect of statutory auditors and audit firms in cases where statutory audits are not carried out by them in accordance with the relevant provisions. (2) The contractual and other arrangements referred to in subsection (1) shall comply with the requirements of procedural fairness. (3) By virtue of this section, the contractual and other arrangements referred to in subsection (1) that subsist for the time being between a recognised accountancy body and its members shall operate and have effect so as to enable the imposition by the recognised accountancy body— (a) of penalties of a like character to those referred to in that subsection, and (b) in the cases referred to in that subsection, in respect of persons who, though not members of the recognised accountancy body, are persons in relation to whom it may, by virtue of section 930C, perform functions under the relevant provisions. Scope of penalties and publicity in relation to their imposition 1502. (1) The penalties referred to in section 1501, provision for which shall be made by the means referred to in that section, shall, where appropriate, include withdrawal of approval under this Part or, if applicable, withdrawal of registration under section 1465 and a temporary prohibition referred to in point (c) of Article 30a(1) of the Audit Directive and a temporary prohibition (in so far as it relates to a member of an audit firm) referred to in point (e) of that Article. (2) Subsection (1) is without prejudice to sections 1479 and 1480. (3) Unless there do not exist internal appeal procedures of a recognised accountancy body as referred to in section 1479(8)(a) or 1480(8)(a), the reference in subsection (4) to a recognised accountancy body shall be read as a reference to a recognised accountancy body acting through the disciplinary committee that deals with matters at first instance. (4) Without prejudice to section 930C(10) to (12), a recognised accountancy body may, save where, in its opinion, proceeding in this manner would not be in the public interest, adopt procedures analogous to those in section 1479(4) to (6) or 1480(4) to (6) as regards affording the statutory auditor or audit firm an opportunity to rectify the matters that have occasioned the investigation concerned and the proposed exercise of the power of withdrawal of approval referred to in subsection (1). (a) there exist internal appeal procedures, as referred to in section 1479(8)(a) or 1480(8)(a), of a recognised accountancy body, and (b) the investigation and disciplinary procedures of the recognised accountancy body provide that a decision of its disciplinary committee referred to in subsection (3), being a decision of a nature to which this section applies, shall stand suspended or shall not take effect until, as the case may be— then notwithstanding anything in the preceding provisions of this section, the operation of the withdrawal of approval by that disciplinary committee shall stand suspended until the occurrence of an event specified in paragraph (b)(i), (ii) or (iii). (b) the investigation and disciplinary procedures of the recognised accountancy body do not provide, as referred to in subsection (5)(b), for the decision of the disciplinary committee referred to in that provision to stand suspended or not to take effect, then, notwithstanding anything in those procedures, the auditor or audit firm to whom that decision relates may apply to the High Court for an order suspending the operation of the withdrawal pending the determination by the relevant appellate committee of an appeal that he or she is making under those internal appeal procedures. (7) Where an application under subsection (6) is made to the High Court, subsections (10) to (12) apply to the application with— (a) the substitution of references to an appeal under those internal appeal procedures for references to an appeal under section 1481, and (8) If the relevant appellate committee referred to in subsection (6) is of the opinion, having regard to the particular issues that have arisen on that appeal, that, in the interests of justice, the disposal by it of an appeal referred to in that subsection ought to include procedures analogous to those, as referred to in subsection (4), provided by section 1479(4) to (6) or 1480(4) to (6) being adopted by it, then, in disposing of that appeal, it shall adopt procedures analogous to those in section 1479(4) to (6) or 1480(4) to (6). (9) A recognised accountancy body shall take all reasonable steps to ensure that any appeal to the relevant appellate committee referred to in subsection (6) is prosecuted promptly and it shall be the duty of that appellate committee to ensure that any such appeal to it is disposed of as expeditiously as may be and, for that purpose, to take all such steps as are open to it to ensure that, in so far as is practicable, there are no avoidable delays at any stage in the determination of such an appeal. (10) Where a recognised accountancy body has made a decision to withdraw the approval of an auditor or audit firm under this section (that is to say, a final decision of the recognised accountancy body on the matter after the internal appeal procedures (if any) of it have been employed and exhausted), the auditor or audit firm may apply to the High Court for an order suspending the operation of the withdrawal pending the determination by the High Court of an appeal under section 1481 that he or she is making against the withdrawal. (11) On the hearing of an application under subsection (10), the High Court may, as it considers appropriate and having heard the recognised accountancy body concerned and, if it wishes to be so heard, the Supervisory Authority (which shall have standing to appear and be heard on the application)— and an order under paragraph (a) may provide that the order shall not have effect unless one or more conditions specified in the order are complied with (and such conditions may include conditions requiring the auditor or audit firm not to carry out statutory audits save under the supervision of one or more other statutory auditors or audit firms or not to carry out such audits save in specified circumstances). (12) The High Court may, on application to it by the auditor or audit firm or recognised accountancy body concerned, vary or discharge an order under subsection (11)(a) if it considers it just to do so. (13) The fact of one or more— (a) measures having been taken against, or (b) one or more penalties having been imposed on, a statutory auditor or audit firm by a recognised accountancy body shall be disclosed by the recognised accountancy body to the public and that disclosure shall, if the recognised accountancy body considers it appropriate, include such further particulars with respect to the matter as it thinks fit. (14) Subject to subsection (15), the manner of such disclosure, and the time at which it is made, shall be such as the recognised accountancy body determines to be appropriate. (15) The recognised accountancy body shall establish, in writing, criteria the purpose of which is to govern the determination by it of the matters referred to in subsection (14), and those criteria shall require the prior approval of the Supervisory Authority. Actions to be taken after decision by recognised accountancy body that statutory auditor or audit firm of public-interest entity has committed relevant contravention Definitions (Chapter 9) 1503. In this Chapter— ‘contravention concerned’, in relation to a specified person, means the relevant contravention committed by the specified person in consequence of which the relevant decision was made; ‘monetary sanction’ means the monetary sanction referred to in section 1506(1)(g); ‘public notice of relevant sanction imposed’, in relation to a specified person, means the publication in accordance with section 1508(1) of the specified person’s particulars referred to in that section together with the other particulars referred to in that section; ‘relevant decision’, in relation to a specified person, means a decision under section 1504(6) by the Supervisory Authority to impose a relevant sanction on the specified person for the relevant contravention committed by the specified person; ‘relevant sanction’ means a sanction referred to in section 1506(1); ‘specified person’ means the statutory auditor or audit firm the subject of a relevant decision. Initial actions to be taken after decision by recognised accountancy body that statutory auditor or audit firm of public-interest entity has committed relevant contravention 1504. (1) Without prejudice to the generality of sections 933, 934 and 934E and subject to subsection (9), this section applies where— (a) a recognised accountancy body has completed an investigation of a statutory auditor or audit firm of a public-interest entity and— (i) has found that the auditor or audit firm has committed a relevant contravention that relates (whether in whole or in part) to that entity, and (ii) would, but for section 1499(2), be minded to impose a penalty on the auditor or audit firm for that contravention, (b) the period within which an appeal (if any) referred to in Chapter 8 may be made against the decision referred to in paragraph (a) has expired without any such appeal having been made or, if such an appeal has been made, that decision has been confirmed or the appeal has been withdrawn. (2) The recognised accountancy body shall, as soon as is practicable after this section applies to a statutory auditor or audit firm of a public-interest entity and a relevant contravention committed by the auditor or audit firm, give the Supervisory Authority— (a) particulars of the auditor or audit firm, the public-interest entity and the relevant contravention, (b) copies of any reports arising out of the investigation, together with copies of any other documents relevant to the investigation, that explain how the recognised accountancy body conducted the investigation and reached the decision referred to in subsection (1)(a), and (c) particulars of the penalty referred to in subsection (1)(a)(ii). (3) Where the Supervisory Authority receives from the recognised accountancy body the particulars and copies referred to in subsection (2) but is not satisfied that it has sufficient information to perform its functions under subsections (5) to (8), it may, by notice in writing given to the recognised accountancy body, require the body to provide it with such further information specified in the notice within the period (being a period of not less than 30 days from the body’s receipt of the notice) specified in the notice. (4) The recognised accountancy body shall comply with a notice under subsection (3) given to it. (5) Subsection (6) applies where the Supervisory Authority receives from the recognised accountancy body the particulars and copies referred to in subsection (2) (and, if applicable, any further information required by a notice under subsection (3) given to that body) and, after considering those particulars and copies (and, if applicable, that further information), it is satisfied that the statutory auditor or audit firm has committed the relevant contravention and the Supervisory Authority is minded to impose a relevant sanction on the auditor or auditor firm for that contravention. (6) Subject to section 1511(3) and (4), the Supervisory Authority may impose a relevant sanction on the statutory auditor or audit firm of the public-interest entity for the relevant contravention and, for that purpose, it shall have regard to (but is not bound by) the penalty referred to in subsection (1)(a)(ii). (7) Where under subsection (6) the Supervisory Authority imposes a relevant sanction on the statutory auditor or audit firm of the public-interest entity for the relevant contravention, it shall, as soon as is practicable after so imposing such sanction, by notice in writing given to the recognised accountancy body, give particulars of the sanction imposed. (8) Where the Supervisory Authority is not satisfied as referred to in subsection (5), it shall, as soon as practicable after reaching that decision, by notice in writing given to the recognised accountancy body, advise the body that it is not so satisfied and the reasons therefor. (9) (a) Subject to paragraph (b), where a recognised accountancy body is minded to commence an investigation of a statutory auditor or audit firm in respect of a statutory audit of a public-interest entity, it shall, before commencing such investigation and in the interests of assisting the Supervisory Authority to make a decision as to whether or not, instead of the investigation, it would be more appropriate for the Supervisory Authority to take action under section 934 or 934E, give the Supervisory Authority particulars of the auditor or audit firm and the public-interest entity and the grounds on which it is so minded. (b) The recognised accountancy body shall not commence an investigation referred to in paragraph (a) until it has the consent in writing of the Supervisory Authority to do so. Appeal against relevant decision 1505. (1) Subject to subsection (2), the specified person may appeal to the High Court against the relevant decision. (2) An appeal under subsection (1) shall be brought within 3 months after the date on which the specified person was notified by the Supervisory Authority of the relevant decision. Sanctions which Supervisory Authority may impose on specified person 1506. (1) Subject to section 1507, the Supervisory Authority may impose on the specified person one or more of the following sanctions in relation to the contravention concerned: (e) a direction by the Supervisory Authority to the specified person (being any one or more of a statutory auditor or key audit partner) prohibiting him or her, for the period specified in the direction (which may be up to and including an indefinite period), from carrying out statutory audits or signing statutory auditors’ reports, or both; (g) subject to section 1509, a direction by the Supervisory Authority to the specified person to pay an amount, as specified in the direction but not exceeding— (h) an order excluding the specified person from having his or her particulars entered, or continuing to be entered, in the public register in respect of one or more recognised accountancy bodies. 1507. In imposing a relevant sanction on a specified person, the Supervisory Authority shall consider the following circumstances: (a) the gravity and duration of the contravention concerned; (d) the amount of profits gained or losses avoided by the specified person in consequence of the contravention concerned, in so far as they can be determined; (e) the level of cooperation of the specified person with the Supervisory Authority and the recognised accountancy body of which the specified person is a member; 1508. (1) Subject to subsections (2) and (3), the Supervisory Authority shall, in so far as a relevant decision imposes a relevant sanction on a specified person, as soon as is practicable after— (a) that decision has been confirmed by the High Court as referred to in section 1511(3), or (b) a decision of the High Court under section 1511(2)(b) has been made to impose a different relevant sanction on the specified person, publish on its website particulars of the contravention concerned, particulars of the relevant sanction imposed and particulars of the specified person on whom the relevant sanction was imposed. (2) Subject to subsection (4), if there is an appeal from the High Court from a confirmation referred to in subsection (1)(a), or a decision referred to in subsection (1)(b), the Supervisory Authority shall as soon as may be, as it considers appropriate, publish particulars on its website of the status or outcome of the appeal. (3) The Supervisory Authority shall publish the particulars, comprising a public notice of relevant sanction imposed, on an anonymous basis on its website in any one or more of the following circumstances: 1509. (1) If the Supervisory Authority decides to impose a monetary sanction on a specified person, the Supervisory Authority shall not impose an amount— (2) If the conduct engaged in by the specified person has given rise (whether in whole or in part) to 2 or more contraventions concerned, the Supervisory Authority shall not impose more than one monetary sanction on the person in respect of the same conduct. 1510. (1) If the Supervisory Authority imposes a monetary sanction on a specified person and the conduct engaged in by the person that has given rise (whether in whole or in part) to the contravention concerned is an offence under the law of the State, the person shall not be liable to be prosecuted or punished for the offence under that law. (b) the offence involves the conduct engaged in by the person that has given rise (whether in whole or in part) to the contravention concerned. Appeals to and orders of High Court, including orders confirming relevant decisions of Supervisory Authority 1511. (1) In an appeal under section 1505, the High Court may consider any evidence adduced or argument made, whether or not adduced or made to the Supervisory Authority or recognised accountancy body concerned. (2) On the hearing of such an appeal, the High Court may make any order or give any direction as it thinks fit, including an order— (b) modifying or annulling the decision. (3) A relevant decision does not take effect until that decision is confirmed by the High Court either— (a) on appeal under section 1505, or (b) on application by the Supervisory Authority under subsection (4). (4) On application by motion on notice by the Supervisory Authority for an order confirming a relevant decision, the High Court may make an order confirming the decision or may refuse to make such an order. Appointment of statutory auditors or audit firms Prohibition of contractual clauses restricting choice of auditors 1512. (1) Section 380(6) shall, with any necessary modifications, apply to an audited undertaking which is not a company and to which this Part applies as that section applies to an audited undertaking which is a company and to which this Part applies. (2) An audited undertaking that is a public-interest entity shall directly and without delay report to the Supervisory Authority any contractual clause referred to in section 380(6) that purports to affect it and the circumstances which gave rise to that clause. (3) The Supervisory Authority, on receipt of a report under subsection (2), may share the report with— (a) the Director, (b) the Revenue Commissioners, (c) the Workplace Relations Commission, (d) the Central Bank, or (e) any body responsible for the regulation of the public-interest entity. Selection procedures for statutory auditors or audit firms by public-interest entities 1513. (1) Subject to subsection (2), the following selection procedures apply, for financial years commencing on or after 17 June 2016, to the appointment of a statutory auditor or audit firm to a public-interest entity: (a) the audit committee shall prepare a recommendation for the directors of the entity by carrying out the selection procedure specified in Article 16(3) of Regulation (EU) No 537/2014; (b) the audit committee shall submit a recommendation to the directors of the entity for the appointment of statutory auditors or audit firms; (c) the recommendation— (i) shall be justified and contain at least 2 choices for the audit engagement and shall express a duly justified preference for one of them, and (ii) shall state (if such be the case) that the recommendation is free from influence by a third party and that, on and from 17 June 2017, no clause of the kind referred to in section 380(6) has been imposed upon it; (d) the proposal by the directors to the general meeting of shareholders or members of the entity for the appointment of statutory auditors or audit firms— (i) shall include the recommendation referred to in paragraph (b) and the preference referred to in paragraph (c)(i), (ii) if it departs from the preference of the audit committee, shall justify the reasons for not following the recommendation of the audit committee, and (iii) shall state if the statutory auditor or audit firm recommended by the directors participated in the selection procedure referred to in subsection (2)(a). (2) Subsection (1) shall not apply if— (a) a selection procedure in accordance with Article 16(3) of Regulation (EU) No 537/2014 has been carried out in respect of the appointment of the statutory auditor or audit firm in relation to one or more of the preceding 9 financial years, and (b) the statutory auditor or audit firm appointed by the public-interest entity was appointed for the previous financial year. (3) Where the public-interest entity is exempt from the requirement for an audit committee under section 1551, this section applies to the directors of the public-interest entity. (4) Where a public-interest entity relies on the provisions of section 382, 384 or 385, the public-interest entity shall, as soon as is practicable, inform the Supervisory Authority of that fact. (5) The appointment of an auditor or audit firm shall be invalid if the appointment contravenes a provision of this section. (6) (a) Subject to paragraph (b), a public-interest entity shall keep records demonstrating that the selection procedures referred to in subsection (1) have been carried out. (b) The public-interest entity shall keep those records for at least 6 years from the date on which the selection procedures were completed. (7) A person who contravenes subsection (6)(a) or (b) shall be guilty of a category 4 offence. Appointment of statutory auditors or audit firms by public-interest entities - informing the Supervisory Authority 1514. (1) Subject to subsection (2)— (a) where a statutory auditor or audit firm is first appointed by a public-interest entity on or after 17 June 2016, the statutory auditor or audit firm shall inform the Supervisory Authority within one month after the date of such appointment that the statutory auditor or audit firm has been appointed to hold office, and (b) where a statutory auditor or audit firm which has complied with paragraph (a) is subsequently appointed by the same or a different public-interest entity, the statutory auditor or audit firm shall inform the Supervisory Authority within one month after the date of such appointment that the statutory auditor or audit firm has been appointed to hold office only if, immediately before the time of such appointment, the statutory auditor or audit firm held no such office with any public-interest entity. (2) The information shall be submitted in such form and manner as the Supervisory Authority specifies and may be used by the Supervisory Authority in the performance of its functions. Removal of statutory auditors or audit firms by public-interest entities - supplementary provisions 1515. (1) In the case of a statutory audit of a public-interest entity— (a) shareholders representing 5 per cent or more of the voting rights or of the share capital, or (b) the Supervisory Authority, may bring a claim before the High Court for the removal of the statutory auditor or audit firm subject to there being good and substantial grounds for bringing such a claim before the Court. (2) The grounds for bringing the claim before the High Court shall relate to— (a) the conduct of the auditor or audit firm with regard to the performance of his or her duties as auditor of the public-interest entity or otherwise, or (b) the petitioner’s opinion that it is in the best interests of the public-interest entity to do so. (3) For the purposes of subsection (2)— (a) diverging opinions on accounting treatments or audit procedures cannot constitute the basis for the passing of any resolution for the purposes of that subsection, and (b) ‘best interests of the public-interest entity’ shall not include any illegal or improper motive with regard to avoiding disclosures or detection of any contravention by the entity of this Act. Directors’ report to include date of last appointment of statutory auditor or audit firm 1516. (1) The directors’ report shall contain details of the date of appointment of the public-interest entity’s statutory auditor or audit firm. (2) Where a public-interest entity has sought an extension from the Supervisory Authority under section 1548, pursuant to Article 17(6) of Regulation (EU) No 537/2014, the directors’ report shall also contain details of the extension granted. (3) In this section, ‘directors’ report’ means the directors’ report required by section 325. Rules of confidentiality to apply 1517. (1) The rules of confidentiality and secrecy of a recognised accountancy body (of which the statutory auditor or audit firm concerned is a member) shall apply with respect to information and documents to which a statutory auditor or audit firm has access when carrying out a statutory audit. (2) The statutory auditor or audit firm, as the case may be, shall comply with those rules of confidentiality and secrecy. (3) In the case of an audit firm registered in accordance with section 1465, the rules of confidentiality and secrecy of the recognised accountancy body of which the key audit partner who carries out the statutory audit on behalf of the audit firm is a member shall apply with respect to information and documents to which the audit firm (or a statutory auditor on behalf of the firm) has access when carrying out a statutory audit. Supplemental provisions in relation to section 1517 1518. (1) Section 1517 shall continue to apply with respect to the carrying out of a statutory audit notwithstanding— (a) that the statutory auditor or audit firm referred to in that section has ceased to be engaged in that audit, or (b) that the auditor or audit firm referred to in that section ceases to be— (i) a statutory auditor or audit firm, or (ii) an auditor or audit firm. (2) Accordingly, in such a case— (a) the statutory auditor or, as the case may be, audit firm, or (b) the former such auditor or, as the case may be, audit firm, shall continue to comply with the rules of confidentiality and secrecy concerned. 1519. (1) Nothing in section 1517 or 1518 shall operate to prevent the recognised accountancy body from complying with its obligations under the relevant provisions. (2) Nothing in section 1517 or 1518 shall operate to impede the enforcement of the relevant provisions. Rules of confidentiality in relation to entities in third countries 1520. (1) Where a statutory auditor or audit firm carries out a statutory audit of an undertaking which is part of a group whose holding undertaking is situated in a third country, the confidentiality and professional secrecy rules referred to in section 1517(1) shall not impede the transfer by the statutory auditor or the audit firm of relevant documentation concerning the audit work performed to the group auditor situated in a third country if such documentation is necessary for the performance of the audit of consolidated financial statements of the holding undertaking. (2) A statutory auditor or an audit firm that carries out the statutory audit of an undertaking which has issued securities in a third country, or which forms part of a group issuing statutory consolidated financial statements in a third country, may only transfer the audit working papers or other documents relating to the audit of that undertaking that he or she holds to the competent authorities in the relevant third countries under the conditions set out in Chapter 19. (3) The transfer of information to the group auditor situated in a third country shall comply with the Data Protection Acts 1988 to 2018 and Regulation (EU) 2016/679. Incoming statutory auditor or audit firm to be afforded access to information 1521. Where a statutory auditor or audit firm is replaced by another statutory auditor or audit firm, the former statutory auditor or audit firm shall provide access to all relevant information concerning the audited undertaking and the most recent audit of that undertaking to the incoming statutory auditor or audit firm. Access by recognised accountancy body to audit documents 1522. (1) Where it considers it reasonably necessary to do so for the purpose of performing a particular function under the relevant provisions, a recognised accountancy body may inspect and make copies of all relevant documents in the possession or control of a statutory auditor or audit firm; for that purpose, it may, by notice in writing served on a statutory auditor or audit firm, require the auditor or firm either (as shall be specified) to— (a) furnish to it specified documents, or (b) permit it to have access, under specified circumstances, to all relevant documents in the possession or control of the auditor or firm, within a specified period. (2) Without prejudice to the generality of subsection (1), the powers under that subsection are exercisable in relation to a statutory auditor or audit firm where a complaint is made to a recognised accountancy body that the statutory auditor or audit firm has contravened a requirement of the relevant provisions. (3) Where the powers under subsection (1) are exercisable, the following additional power may be exercised by a recognised accountancy body if it considers that the exercise of it is reasonably necessary to enable it to clarify any matter arising from its inspection of the documents concerned, namely a power to require the statutory auditor or a member of the statutory audit firm to— (a) attend before it, and (b) explain any entry in the documents concerned and otherwise give assistance to it in clarifying the matter concerned. (4) In this section, ‘specified’ means specified in the notice concerned. (5) Without prejudice to subsection (6), if a person fails, without reasonable excuse, to comply with a requirement under subsection (1) or (3), the person shall be guilty of a category 3 offence. (6) Where a person fails to comply with a requirement under subsection (1) or (3), the recognised accountancy body concerned may apply to the High Court for an order compelling compliance by the person with the requirement, and, on the hearing of such application, the Court may make such an order or such other order as it thinks just. Access by Supervisory Authority to information and documents held by recognised accountancy bodies or relevant persons 1523. (1) Where it considers it reasonably necessary to do so for the purposes of performing a particular function under the relevant provisions, the Supervisory Authority may request information and inspect and make copies of all relevant documents in the possession or control of a recognised accountancy body or a relevant person; for that purpose, it may, by notice in writing served on the recognised accountancy body or relevant person, require the recognised accountancy body or relevant person either (as shall be specified) to— (a) furnish to it specified documents or information, or (b) permit it to have access, under specified circumstances, to all relevant documents in the possession or control of the recognised accountancy body or relevant person, (2) In this section, ‘relevant person’ means— (a) a member of a recognised accountancy body, (c) if the client or former client is a body corporate, a person who is or was an officer, employee or agent of the client or former client, or (d) any person whom the Supervisory Authority reasonably believes has information or documents in relation to the particular function other than information or documents the disclosure of which is prohibited or restricted by law. (3) Without prejudice to the generality of subsection (1), the powers under that subsection are exercisable in relation to a recognised accountancy body or relevant person where a complaint is made to the Supervisory Authority that the recognised accountancy body or relevant person has contravened a requirement of the relevant provisions. (4) Where the powers under subsection (1) are exercisable, the following additional power may be exercised by the Supervisory Authority if it considers that the exercise of it is reasonably necessary to enable it to clarify any matter arising from its inspection of the information or documents concerned, namely a power to require an officer of the recognised accountancy body or relevant person to— (b) explain any entry in the information or documents concerned and otherwise give assistance to it in clarifying the matter concerned. (6) If a person fails, without reasonable excuse, to comply with a requirement under subsection (1) or (4), the person shall be guilty of a category 3 offence. (7) Nothing in this section derogates from the powers exercisable by the Supervisory Authority in the circumstances, and under the conditions, specified in section 933 or 934. Professional privilege 1524. Nothing in this Chapter compels the disclosure by any person of any information that the person would be entitled to refuse to produce on the grounds of legal professional privilege. No liability for acts done in compliance with obligations imposed by relevant provisions 1525. (1) No professional or legal duty to which a statutory auditor or audit firm is subject by virtue of his or her appointment as a statutory auditor or audit firm shall be regarded as contravened by reason of compliance with the obligations imposed by the relevant provisions. (2) No liability to the undertaking audited or being audited, its shareholders, creditors, or other interested parties shall attach to the statutory auditor or audit firm by reason of such compliance. (3) For the avoidance of doubt, nothing in this section affects the liability of a statutory auditor or audit firm for negligence or breach of duty in the conduct of a statutory audit by him or her. Auditing standards and audit reporting Auditing standards to be applied 1526. (1) The Supervisory Authority shall adopt the auditing standards to be applied and statutory auditors and audit firms shall carry out statutory audits in accordance with those standards. (2) On and from the adoption of international auditing standards, statutory auditors and audit firms shall carry out statutory audits in accordance with those standards. (3) The reference in subsection (2) to the adoption of international auditing standards is a reference to the adoption by the Commission, in accordance with the procedure referred to in Article 26 of the Audit Directive, of international auditing standards. (4) The Supervisory Authority may prescribe by regulations audit procedures or requirements, in addition to the international auditing standards adopted by the Commission under Article 26 of the Directive, only— (a) if those audit procedures or requirements are necessary in order to give effect to legal requirements in the State relating to the scope of statutory audits, or (b) to the extent necessary to add to the credibility and quality of financial statements. (5) The Supervisory Authority shall communicate the audit procedures or requirements referred to in subsection (4) to the Commission at least 3 months before their entry into force or, in the case of requirements already existing at the time of adoption of an international auditing standard, at the latest within 3 months of the adoption of the relevant international auditing standard. (6) In the case of the statutory audit of small companies, the Supervisory Authority may provide that the application of the auditing standards referred to in subsection (1) is to be proportionate to the scale and complexity of the activities of such companies and may take the measures necessary in order to ensure the proportionate application of the auditing standards to the statutory audits of small companies. (7) In this section, ‘standards’ include standards on professional ethics and internal quality control in addition to standards on auditing. Audit of group accounts - responsibility of group auditor 1527. (1) Where a statutory audit of the group financial statements of a group is carried out— (a) in relation to the group financial statements, the group auditor shall bear the full responsibility for the statutory auditors’ report, and (b) where the holding undertaking is a public-interest entity, the group auditor shall bear the full responsibility for ensuring that the requirements of Articles 10 and 11 of Regulation (EU) No 537/2014 are met in relation to the audit carried out on that public-interest entity. (2) The group auditor shall— (a) evaluate the audit work carried out by any auditors for the purpose of the group audit, and (b) document the nature, timing and extent of the work carried out by those auditors, including the group auditor’s review of the relevant parts of audit documentation. (3) For the purposes of the group audit, auditors may be one or more of the following: (a) statutory auditors; (b) statutory audit firms; (c) Member State auditors; (d) Member State audit firms; (e) third-country auditors; (f) third-country audit entities. (4) The group auditor shall carry out a review, and maintain documentation of such review, of the work of whoever referred to in subsection (3) performed audit work for the purposes of the group audit. (5) The documentation referred to in subsections (2)(b) and (4) to be retained by the group auditor shall be such as enables the Supervisory Authority, or the recognised accountancy body where applicable, to conduct a quality assurance inspection or review, as the case may be, under Chapter 7. (6) The group auditor shall request the agreement of the auditors concerned referred to in subsection (3)(a) to (f) to transfer relevant documentation during the carrying out of the audit of group financial statements as a condition of the reliance by the group auditor on the work of such auditors. (7) (a) Where the group auditor is unable to secure an agreement referred to in subsection (6), he or she shall take appropriate measures in order to form an audit opinion and inform the relevant Supervisory Authority or the recognised accountancy body where applicable. (b) Such measures shall, as appropriate, include carrying out additional statutory audit work, either directly or by outsourcing the additional statutory audit work, in the relevant subsidiary. (8) (a) The group auditor who is subject to a quality assurance inspection or review or an investigation concerning the statutory audit of the group financial statements of a group shall, when requested, make available to the Supervisory Authority or the recognised accountancy body where applicable the relevant documentation he or she retains concerning the audit work performed by the auditors concerned referred to in subsection (3)(a) to (f) for the purpose of the group audit, including any working papers relevant to the group audit. (b) The Supervisory Authority may request additional documentation on the audit work performed by a statutory auditor or audit firm for the purpose of the group audit from the competent authorities in other Member States where applicable pursuant to Chapter 17. Further responsibility of group auditor 1528. (1) Subject to subsection (2), the Supervisory Authority may request additional documentation on the audit work performed by any third-country auditor or third-country audit entity on a holding undertaking or on a subsidiary undertaking of a group from the relevant competent authorities from third countries through the working arrangements referred to in section 1568(1)(c) or 1569(c). (2) Where— (a) a statutory audit of the group financial statements of a group is carried out, and (b) a holding undertaking or subsidiary undertaking of the group is audited by one or more third-country auditors or third-country audit entities that have no working arrangements as referred to in section 1568(1)(c) or 1569(c), the group auditor is responsible for ensuring proper delivery, when requested, to the Supervisory Authority of the additional documentation of the audit work performed by those auditors or audit entities, including the audit working papers relevant to the group audit. (3) To ensure such delivery, the group auditor shall retain a copy of such audit documentation, or alternatively— (a) agree, with one or more third-country auditors or third-country audit entities concerned, arrangements for the group auditor’s proper and unrestricted access, upon request, to the documentation, or (b) take any other appropriate action. (4) Where audit working papers cannot, for legal or other reasons, be passed from a third country to the group auditor, the documentation retained by the group auditor shall include— (a) evidence that he or she has undertaken the appropriate procedures in order to gain access to the audit documentation, and (b) in the case of an impediment other than a legal one arising from legislation of the third country or countries concerned, evidence supporting the existence of such an impediment. Additional report to audit committee 1529. (1) Where a public-interest entity is exempt from the requirement to have an audit committee, as provided for under this Part, the additional report to the audit committee shall be submitted to the directors of the public-interest entity. (2) Subject to subsection (1), the audit committee of a public-interest entity shall submit the additional report to the audit committee to the directors of the public-interest entity. (3) The Supervisory Authority may set out additional requirements to those listed in points (a) to (p) of Article 11(2) of Regulation (EU) No 537/2014 in relation to the content of the additional report to the audit committee, or directors, as applicable, only where this provides further information to the audit committee on the audit work undertaken. (4) The audit committee (or, if there is no audit committee, the directors of the public-interest entity) shall disclose the additional report to any of the following persons upon request where the information is required in order for the person to perform the person’s functions: (a) the Supervisory Authority; (b) the Director; (c) the Revenue Commissioners; (d) the Workplace Relations Commission; (e) the Central Bank; (f) any body responsible for the regulation of the public-interest entity. (5) A disclosure by the audit committee (or, if there is no audit committee, the directors of the public-interest entity) in accordance with subsection (4) shall not be treated, for any purpose, as a breach of any restriction of disclosure by that committee (or, as appropriate, such directors) imposed by or under any other enactment, rule of law or otherwise. Auditors’ reporting obligations under Article 12 of Regulation (EU) No 537/2014 1530. (1) Reports by statutory auditors or audit firms referred to in Article 12 of Regulation (EU) No 537/2014 shall be submitted to the Supervisory Authority unless they are already required to be submitted to the Central Bank under— (a) Regulation 134(1) of, or Schedule 16 to, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 ( S.I. No. 352 of 2011 ), (b) Regulation 52 of the European Union (Capital Requirements) Regulations 2014 ( S.I. No. 158 of 2014 ), or (c) Regulation 78 of the European Union (Insurance and Reinsurance) Regulations 2015 ( S.I. No. 485 of 2015 ). (2) The obligation imposed on a person by subsection (1) to disclose information that he or she has to the Supervisory Authority is in addition to, and not in substitution for, any other obligation that the person has to disclose information to the Supervisory Authority or any other person, but that subsection shall not require the first-mentioned person to disclose that information to the Supervisory Authority more than once. (3) (a) The Central Bank may, by notice in writing given to a statutory auditor or audit firm, require the auditor or firm to give it, within the period specified in the notice, additional information if such information is necessary for effective financial market supervision as provided for in the law of the State. (b) The statutory auditor or audit firm the subject of a notice under paragraph (a) shall comply with the notice. 1531. (1) Statutory auditors and audit firms shall keep the documents and information referred to in Article 15 of Regulation (EU) No 537/2014 for a period of at least 6 years. (2) Where a transaction, act or operation is the subject of an investigation, inquiry, claim, assessment, appeal or proceeding which has already commenced within that 6 year period, then the relevant documents and information shall be retained until such time as the investigation, inquiry, claim, assessment, appeal or proceeding has been concluded or for a period of at least 6 years, whichever is the longer. Future viability 1532. Without prejudice to the reporting requirements referred to in sections 336, 337 and 391 and, where applicable, Articles 10 and 11 of Regulation (EU) No 537/2014, the scope of the statutory audit shall not include assurance on the future viability of the audited undertaking or on the efficiency or effectiveness with which the directors of the undertaking have conducted or will conduct the affairs of the undertaking. Requirement for independence - general 1533. (1) During the period in which a statutory audit is being carried out— (a) the statutory auditor or audit firm, as the case may be, (b) in the latter case, any statutory auditor of the statutory audit firm, and (c) any individual in a position to directly or indirectly influence the outcome of the statutory audit, shall be independent of, and not involved in the decision-taking of, the audited undertaking. (2) During the period in which a statutory audit is being carried out, a statutory auditor or audit firm, as the case may be, shall take all reasonable steps to ensure that his or her independence is not affected by— (a) any existing or potential conflict of interest, or (b) any business or other direct or indirect relationship, involving the statutory auditor or audit firm carrying out the statutory audit. (3) Subsection (2) also applies, with any necessary modifications, to— (a) the network of the statutory auditor or audit firm, (b) the managers, auditors, employees or any other individuals whose services are placed at the disposal or under the control of the statutory auditor or audit firm, (c) any person directly or indirectly linked to the statutory auditor or audit firm by control, and (d) managers, auditors, employees or any other individuals whose services are placed at the disposal or under the control of a person linked to the statutory auditor or audit firm by control. (4) The obligations referred to in subsections (1) and (2) shall be required at least during both the period to which the financial statements to be audited relate and the period during which the statutory audit is carried out. Professional scepticism 1534. (1) When carrying out a statutory audit, the statutory auditor or the audit firm shall— (a) maintain professional scepticism throughout the audit, (b) maintain professional scepticism when reviewing management estimates relating to fair values, the impairment of assets, provisions, and future cash flow relevant to the audited undertaking’s ability to continue as a going concern, and (c) recognise the possibility of a material misstatement due to facts or behaviour indicating irregularities, including fraud or error, notwithstanding the statutory auditor’s or the audit firm’s past experience of the honesty and integrity of the audited undertaking’s management and of the persons charged with its governance. (2) For the purposes of this section, ‘professional scepticism’ means an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. Prohibited relationships - specific provisions to secure independence 1535. (1) A statutory auditor or audit firm shall not carry out a statutory audit if there is any threat of self-review, self-interest, advocacy, familiarity, or intimidation, created by any direct or indirect financial, personal, business, employment or other relationship between— (a) the statutory auditor or audit firm or network to which he or she belongs or any individual in a position to influence the outcome of the statutory audit, and (b) the audited undertaking, as a result of which an objective, reasonable and informed third party, taking into account the safeguards applied, would conclude that the statutory auditor’s or audit firm’s independence is compromised. (2) Without prejudice to the generality of subsection (1), a person shall not act as a statutory auditor of an undertaking if he or she is— (a) an officer or servant of the undertaking, (b) a person who has been an officer or servant of the undertaking within a period in respect of which accounts would fall to be audited by the person if he or she were appointed auditor of the undertaking, (c) a parent, spouse, brother, sister or child of an officer of the undertaking, (d) a person who is a partner of or in the employment of an officer of the undertaking, (e) a person who is disqualified under this subsection for appointment as auditor of a body corporate that is a subsidiary or holding undertaking of the undertaking or a subsidiary of the undertaking’s holding undertaking, or would be so disqualified if the body corporate were a company, or (f) a person in whose name a share in the undertaking is registered, whether or not that person is the beneficial owner of the share. (3) Without prejudice to the generality of subsections (1) and (2), a statutory audit firm, regardless of its legal structure, shall not carry out a statutory audit of an undertaking if— (a) any principal of the audit firm is an officer or servant of the undertaking, (b) any principal of the audit firm has been an officer or servant of the undertaking within a period in respect of which accounts would fall to be audited by the firm if the firm was appointed auditor of the undertaking, or (c) the firm is disqualified under this subsection for appointment as auditor of any other body corporate that is a subsidiary or holding undertaking of the undertaking or a subsidiary of the undertaking’s holding undertaking, or would be so disqualified if the body corporate were a company. (4) Without prejudice to the generality of subsections (1) to (3), a person shall not carry out a statutory audit of an undertaking on behalf of a statutory audit firm if he or she is— (a) a person in whose name a share in the undertaking is registered, whether or not that person is the beneficial owner of the share, or (b) a parent, spouse, brother, sister or child of an officer of the undertaking. Prohibited relationships - financial or beneficial interest 1536. (1) A statutory auditor, an audit firm, the key audit partner of an audit firm, the employees of the statutory auditor or audit firm, and any other individual whose services are placed at the disposal or under the control of the statutory auditor or audit firm and who is directly involved in statutory audit activities, and persons closely associated with them within the meaning of Article 1(2) of Commission Directive 2004/72/EC of 29 April 20049 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers’ transactions and the notification of suspicious transactions, shall not— (a) hold or have a material and direct beneficial interest in, or (b) engage in any transaction in any financial instrument issued, guaranteed, or otherwise supported by, any audited undertaking within their area of statutory audit activities, other than interests owned indirectly through diversified collective investment schemes, including managed funds such as pension funds or life assurance. (2) A statutory auditor, an audit firm, the key audit partner of the audit firm, the employees of the statutory auditor or audit firm, and any other individual referred to in subsection (1), shall not participate in or otherwise influence the outcome of a statutory audit of any particular audited undertaking if he or she— (a) owns financial instruments of the audited undertaking, other than interests owned indirectly through diversified collective investment schemes, (b) owns financial instruments of any undertaking related to the audited undertaking, the ownership of which may cause, or may be generally perceived as causing, a conflict of interest, other than interests owned indirectly through diversified collective investment schemes, or (c) has had an employment, business or other relationship with the audited undertaking within the period to which the financial statements to be audited relate and the period during which the statutory audit is carried out that may cause, or may be generally perceived as causing, a conflict of interest. (3) A statutory auditor, an audit firm, the key audit partner of the audit firm, the employees of the statutory auditor or audit firm, and any other individual referred to in subsection (1), shall not solicit or accept pecuniary or non-pecuniary gifts or favours from the audited undertaking or any undertaking related to an audited undertaking unless an objective, reasonable and informed third party would consider the value thereof as trivial or inconsequential. Prohibited relationships - mergers and acquisitions 1537. (1) If, during the period to which the financial statements relate, an audited undertaking is acquired by, merges with, or acquires, another undertaking, the statutory auditor or audit firm shall identify and evaluate any current or recent interests or relationships, including any non-audit services provided to that undertaking, which, taking into account available safeguards, could compromise the statutory auditor’s or audit firm’s independence and ability to continue with the statutory audit after the effective date of the merger or acquisition. (2) As soon as possible, and in any event within 3 months of the merger or acquisition referred to in subsection (1), the statutory auditor or audit firm shall take all such steps as may be necessary to terminate any current interests or relationships that would compromise his or her independence and shall, where possible, adopt safeguards to minimise any threat to his or her independence arising from prior and current interests and relationships. Threats to independence and other information to be recorded 1538. A statutory auditor or audit firm shall document in the audit working papers all significant threats to his or her independence as well as the safeguards applied to mitigate those threats. Preparation for statutory audit and assessment of threats to independence 1539. A statutory auditor or audit firm shall, before accepting or continuing an engagement for a statutory audit, assess and document the following: (a) whether he or she complies with the requirements set out in sections 1533 and 1535 to 1538; (b) whether there are threats to his or her independence and the safeguards applied to mitigate those threats; (c) whether he or she has the competent employees, time and resources needed in order to carry out the statutory audit in an appropriate manner; (d) whether, in the case of an audit firm, the key audit partner is approved as statutory auditor in the Member State requiring the statutory audit. Non-intervention by certain persons in execution of audit 1540. Neither— (a) the owners or shareholders of a statutory audit firm or the owners or shareholders of an affiliated firm, nor (b) the members of the administrative, management or supervisory body of such a firm or of an affiliated firm, shall intervene in the execution of a statutory audit in any way which jeopardises the independence and objectivity of the statutory auditor who carries out the statutory audit on behalf of the statutory audit firm. Internal organisation of statutory auditors and audit firms 1541. (1) A statutory auditor or audit firm shall comply with the following organisational requirements: (a) the audit firm shall establish appropriate policies and procedures to ensure that no person, including any partner, director, member or shareholder of the audit firm or of a firm in its network, intervenes in the carrying out of a statutory audit in any way which jeopardises the independence and objectivity of the statutory auditor who carries out the statutory audit on behalf of the audit firm; (b) the statutory auditor or audit firm shall have sound administrative and accounting procedures, internal quality control mechanisms, effective procedures for risk assessment, and effective control and safeguard arrangements for information processing systems; (c) the statutory auditor or audit firm shall establish appropriate policies and procedures to ensure that his or her employees and any other individuals whose services are placed at his or her disposal or under his or her control, and who are directly involved in the statutory audit activities, have appropriate knowledge and experience for the duties assigned; (d) (i) the statutory auditor or audit firm shall establish appropriate policies and procedures to ensure that the undertaking by other persons of important audit functions is not done in such a way as to impair the quality of the statutory auditor’s or audit firm’s internal quality control and the ability of the competent authorities to supervise the statutory auditor’s or audit firm’s compliance with the obligations laid down in the relevant provisions; (ii) the statutory auditor or audit firm shall ensure that any audit functions carried out by such other persons does not affect his or her responsibility towards the audited undertaking; (e) the statutory auditor or audit firm shall establish appropriate and effective organisational and administrative arrangements to prevent, identify, eliminate or manage and disclose any threats to his or her independence as referred to in sections 1533, 1535 to 1539 and 1547; (f) the statutory auditor or audit firm shall establish appropriate policies and procedures for carrying out statutory audits, coaching, supervising and reviewing employees’ activities and organising the structure of the audit file as referred to in section 1543; (g) the statutory auditor or audit firm shall establish an internal quality control system to ensure the quality of the statutory audit so that— (i) such system includes, at least, the policies and procedures referred to in paragraph (f), and (ii) responsibility for such system lies with a person who is qualified as a statutory auditor; (h) the statutory auditor or audit firm shall use appropriate systems, resources and procedures to ensure continuity and regularity in the carrying out of his or her statutory audit activities; (i) the statutory auditor or audit firm shall also establish appropriate and effective organisational and administrative arrangements for dealing with and recording incidents which have, or may have, serious consequences for the integrity of his or her statutory audit activities; (j) the statutory auditor or audit firm shall have in place adequate remuneration policies, including profit-sharing policies, providing sufficient performance incentives to secure audit quality but the amount of revenue that the statutory auditor or audit firm derives from providing non-audit services to the audited undertaking shall not form part of the performance evaluation and remuneration of any person involved in, or able to influence the carrying out of, the audit; (k) the statutory auditor or audit firm shall monitor and evaluate the adequacy and effectiveness of his or her systems, internal quality control mechanisms and arrangements established in accordance with the relevant provisions and take appropriate measures to address any deficiencies; (l) the statutory auditor or audit firm shall— (i) carry out an annual evaluation of the internal quality control system referred to in paragraph (g), and (ii) keep records of the findings of that evaluation and any proposed measure to modify the internal quality control system. (2) A statutory auditor or audit firm shall communicate, in writing, his or her policies and procedures referred to in subsection (1) to the employees of the statutory auditor or audit firm. (3) A statutory auditor or audit firm shall take into consideration the scale and complexity of his or her activities when complying with the requirements set out in subsection (1). (4) A statutory auditor or audit firm shall be able to demonstrate to the recognised accountancy body or Supervisory Authority that the policies and procedures designed to achieve compliance with this section are appropriate given the scale and complexity of activities of the statutory auditor or audit firm. Organisation of work of statutory auditors and audit firms 1542. (1) An audit firm, when carrying out a statutory audit of an undertaking, shall designate at least one key audit partner who shall be actively involved in the carrying out of the statutory audit. (2) An audit firm shall— (a) provide the key audit partner with sufficient resources and with personnel that have the necessary competence and capabilities to discharge his or her duties appropriately, and (b) ensure that the main criteria in selecting the key audit partner are securing audit quality, independence and competence. (3) A statutory auditor, when carrying out a statutory audit of an undertaking, shall devote sufficient time to the engagement and shall assign sufficient resources to enable him or her to carry out his or her duties appropriately. (4) A statutory auditor or audit firm shall keep records of any contraventions by him or her of the relevant provisions. (5) A statutory auditor or audit firm shall keep records of any consequences of any contravention referred to in subsection (4), including the measures taken to address such contravention and to modify his or her internal quality control system. (6) A statutory auditor or audit firm shall prepare an annual report containing an overview of any measures taken pursuant to subsection (5) and, in the case of an audit firm, shall communicate that report internally to the partners or directors, as may be appropriate, of the audit firm. (7) A statutory auditor or audit firm shall document each request made and advices received where he or she asks external experts for advice. Organisation of work of statutory auditors and audit firms - audit files 1543. (1) A statutory auditor or audit firm shall maintain a client account record that includes the following data for each audit client: (a) the name, address and place of business; (b) in the case of an audit firm, the name of the key audit partner; (c) the fees charged for the statutory audit and the fees charged for other services in any financial year. (2) A statutory auditor or audit firm shall create an audit file for each statutory audit which shall be closed not later than 60 days after the date of signature of the statutory auditors’ report concerned and, where applicable, the reports referred to in Articles 10 and 11 of Regulation (EU) No 537/2014. (3) A statutory auditor or audit firm shall document and retain at least the data recorded pursuant to section 1538, and, where applicable, Articles 6 to 8 of Regulation (EU) No 537/2014 for a period of at least 6 years. (4) A statutory auditor or audit firm shall retain any other data and documents that are of importance in support of the statutory auditors’ report and, where applicable, the reports referred to in Articles 10 and 11 of Regulation (EU) No 537/2014 and for monitoring compliance with the relevant provisions and other applicable legal requirements. (5) A statutory auditor or audit firm shall keep records of any complaints made in writing about the performance of the statutory audits carried out by him or her. Restrictions with regard to fees 1544. A recognised accountancy body shall ensure that its standards include provisions that fees for statutory audits— (a) are not to be influenced by, or determined by, the provision of additional services to the audited undertaking, and (b) are not to be based on any form of contingency. Restrictions with regard to fees exemption on exceptional basis 1545. (1) A statutory auditor or audit firm may, pursuant to Article 4(2) of Regulation (EU) No 537/2014, request the Supervisory Authority for an exemption from the limits in that Article on total fees for services provided by him or her to a public-interest entity for a period of up to 2 financial years on an exceptional basis. (2) A request shall be made in such form and manner as the Supervisory Authority specifies. (3) On receipt of a request in the form specified in subsection (2), the Supervisory Authority shall— (a) grant the exemption as requested, (b) grant a shorter exemption than that requested, or (c) refuse to grant the exemption. (4) Where the Supervisory Authority, on receipt of a request for an exemption, considers that it requires additional information before making a decision under subsection (3), it may give notice of that to the statutory auditor or audit firm that made the request. (5) The notice referred to in subsection (4) shall set out the additional information required by the Supervisory Authority. (6) On receipt of a response to the notice from the statutory auditor or audit firm containing the additional information referred to in subsection (4), the Supervisory Authority shall— (7) Where the Supervisory Authority grants an exemption under subsection (3) or (4), it shall— (a) do so on an exceptional and case by case basis only, and (b) publish its decision on its website. (8) Where the Supervisory Authority refuses to grant an exemption under subsection (3)(c) or (6)(c), it shall provide reasons for its decision to the statutory auditor or audit firm. Rotation of key audit partner in cases of public-interest entities 1546. The key audit partner responsible for carrying out a statutory audit of a public-interest entity shall cease his or her participation in the statutory audit of the entity not later than 5 years from the date of his or her first appointment to carry out such audit. Moratorium on taking up certain positions in audited undertakings or public-interest entities 1547. (1) There shall not be taken up by— (a) a statutory auditor who carries out a statutory audit of an undertaking, or (b) the key audit partner who carries out, on behalf of an audit firm, a statutory audit of an undertaking, any of the positions in that undertaking, specified in subsection (2), before a period of at least one year has elapsed since the day following the end of his or her direct involvement as a statutory auditor or key audit partner from the audit engagement. (2) The specified positions referred to in subsection (1) are— (a) a key management position in the audited undertaking, (b) a position on the audit committee, or where such committee does not exist, such body as performs the equivalent functions to the audit committee, of the audited undertaking, or (c) a non-executive member position of the audited undertaking or a member’s position of that undertaking. (3) There shall not be taken up by— (a) a statutory auditor who carries out a statutory audit of a public-interest entity, or (b) the key audit partner who carries out, on behalf of an audit firm, a statutory audit of a public-interest entity, any of the positions in that entity, specified in subsection (4), before a period of at least 2 years has elapsed since the day following the end of his or her direct involvement as a statutory auditor or key audit partner from the audit engagement. (a) a key management position in the audited entity, (b) a position on the audit committee, or where such committee does not exist, such body as performs the equivalent functions to the audit committee, of the audited entity, or (c) a non-executive member position of the audited entity or a member’s position of that entity. (5) Where an employee or partner, other than the key audit partner, of a statutory auditor or audit firm, or any other individual whose services are placed at the disposal or under the control of the statutory auditor or audit firm, and when such employee, partner or other individual is personally approved as a statutory auditor, there shall not be taken up by such employee, partner or other individual any of the positions referred to in subsections (2) and (4), before a period of at least one year has elapsed since the day following (should such occur) his or her involvement in the statutory audit engagement of that audited undertaking. Rotation of statutory auditor and audit firms in case of public-interest entities - extension 1548. (1) A public-interest entity may, pursuant to Article 17(6) of Regulation (EU) No 537/2014, under exceptional circumstances request the Supervisory Authority for an extension to reappoint a statutory auditor or audit firm for a period of up to 2 years on an exceptional basis. (2) The grounds for the exceptional basis may be events in the nature of mergers, acquisitions and special investigations but, in any case, it will be a matter for the Supervisory Authority to determine such grounds. (a) grant the extension as requested, (b) grant a shorter extension than that requested, or (c) refuse to grant the extension. (5) Where the Supervisory Authority, on receipt of a request for an extension, considers that it requires additional information before making a decision under subsection (4), it shall give notice of that to the public-interest entity that made the request. (7) On receipt of a response to the notice from the public-interest entity containing the additional information referred to in subsection (5), the Supervisory Authority shall— (8) Where the Supervisory Authority grants an extension under subsection (4) or (5), it shall— (9) Where the Supervisory Authority refuses to grant an extension under subsection (4)(c) or (7)(c), it shall provide reasons for its decision to the public-interest entity. Rotation - reports by statutory auditor and audit firm in case of public-interest entities 1549. (1) If there is uncertainty as to the date on which a statutory auditor or audit firm began carrying out consecutive statutory audits for a public-interest entity (including due to firm mergers, acquisitions, or changes in ownership structure), the statutory auditor or audit firm shall immediately report (in accordance with Article 17(8) of Regulation (EU) No 537/2014 and in such form and manner as the Supervisory Authority specifies) such uncertainty to the Supervisory Authority. (2) On receipt of a report in the form specified in subsection (1), the Supervisory Authority shall— (a) determine the relevant date for the purposes of that subsection, or (b) request additional information from the statutory auditor or audit firm before making a decision referred to in paragraph (a). (3) Where the Supervisory Authority, on receipt of a report, considers that it requires additional information from the statutory auditor or audit firm or public-interest entity before making a decision under subsection (2)(a), it shall— (a) give notice of that to the statutory auditor or audit firm or public-interest entity within 2 weeks after the receipt of the report, and (b) set out, in the notice, the additional information required by the Supervisory Authority. (4) On receipt of a response to the notice from the statutory auditor or audit firm or public-interest entity containing the additional information referred to in subsection (3), the Supervisory Authority shall— (a) determine the relevant date for the purposes of subsection (1), and (b) provide reasons for its decision to the statutory auditor or audit firm and public-interest entity. Provision of certain prohibited non-audit services by auditors of public-interest entities 1550. (1) Subject to subsection (2), a statutory auditor or audit firm carrying out the statutory audit of a public-interest entity, or any member of the network to which the statutory auditor or the audit firm belongs, may provide the following non-audit services to the audited entity, to its holding undertaking within the European Union or to its controlled undertakings (within the meaning of point (f) of Article 2(1) of the Transparency (Regulated Markets) Directive as defined in section 1379) within the European Union: (a) tax services relating to— (i) preparation of tax forms, (ii) identification of public subsidies and tax incentives where support from the statutory auditor or audit firm in respect of such services is required by law, (iii) support regarding tax inspections by tax authorities where support from the statutory auditor or audit firm in respect of such inspections is required by law, (iv) calculation of direct and indirect tax and deferred tax, or (v) provision of tax advice, (b) valuation services, including valuations performed in connection with actuarial services or litigation support services. (2) The non-audit services referred to in subsection (1) may only be provided as specified in that subsection if— (a) they have no direct or have immaterial effect, separately or in the aggregate, on the audited financial statements, (b) the estimation of the effect on the audited financial statements is comprehensively documented and explained in the additional report to the audit committee, and (c) the principles of independence set out in this Part are complied with by the statutory auditor or audit firm. (3) The audit committee or the directors of the public-interest entity, as applicable, shall, at such times as it or they, as the case may be, thinks or think it appropriate to do so, issue guidelines with regard to the non-audit services referred to in subsection (1). Audit committees Audit committees for public-interest entities 1551. (1) Subject to the other provisions of this section, the directors of each public-interest entity shall establish an audit committee for the entity. (2) The majority of the members of the audit committee shall be non-executive directors of the public-interest entity, that is to say, directors— (a) the terms of appointment of whom indicate or state that they are being appointed in a non-executive capacity, and (b) who otherwise possess the requisite degree of independence (particularly with regard to each of them satisfying the condition in subsection (3)) so as to be able to contribute effectively to the committee’s functions. (3) The condition referred to in subsection (2)(b) is that the director does not have, and at no time during the period of 3 years preceding his or her appointment to the committee did have— (a) a material business relationship with the public-interest entity, either directly, or as a partner, shareholder, director (other than as a non-executive director) or senior employee of a body that has such a relationship with the entity, or (b) a position of employment in the public-interest entity. (4) At least one of the directors referred to in subsection (2) shall be a person who has competence in accounting or auditing. (5) For the purposes of subsections (2) and (3)(a), a non-executive director is a director who is not engaged in the daily management of the public-interest entity or body concerned, as the case may be. (6) The members of the audit committee as a whole shall have competence relevant to the sector in which the audited entity is operating. (7) The chairman of the audit committee shall be appointed by its members and shall be independent of the audited entity. (8) Any proposal of the directors of a public-interest entity with respect to the appointment of a statutory auditor or audit firm to the entity shall be based on a recommendation made to the directors by the audit committee. (9) The statutory auditor or audit firm shall report to the audit committee of the public-interest entity on key matters arising from the statutory audit of the entity, and, in particular, on material weaknesses in internal control in relation to the financial reporting process. (10) (a) Subject to paragraph (b), subsection (1) shall not apply to public-interest entities which meet the criteria set out in points (f) and (t) of Article 2(1) of the 2003 Prospectus Directive provided that the functions assigned to an audit committee are performed by the board of directors as a whole. (b) The chairman of the board of directors, being an executive member, shall not act as chairman while the board is performing the functions of the audit committee. (11) Subsection (1) shall not apply to a public-interest entity if it is— (a) a public-interest entity which is a subsidiary undertaking within the meaning of point 10 of Article 2 of the Accounting Directive if that entity fulfils the requirements set out in subsections (1) and (2) and Articles 11(1) and (2) and 16(5) of Regulation (EU) No 537/2014 at group level, (b) any public-interest entity which is a UCITS (within the meaning of the UCITS Regulations as defined in section 1385), or an alternative investment fund (within the meaning of the European Union (Alternative Investment Fund Managers) Regulations 2013 ( S.I. No. 257 of 2013 )), (c) subject to subsection (12), any public-interest entity the sole business of which is to act as an issuer of asset backed securities as defined in point 5 of Article 2 of the Prospectus Regulation (within the meaning of section 1348), or (d) any credit institution within the meaning of point 1 of Article 3(1) of Directive 2013/36/EU of 26 June 201310 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC whose shares are not admitted to trading on a regulated market of any Member State and which has, in a continuous or repeated manner, issued only debt securities admitted to trading on a regulated market, provided that the total nominal amount of all such debt securities remains below €100,000,000 and that it has not published a prospectus under the 2003 Prospectus Directive. (12) A public-interest entity that avails itself of the exemption under subsection (11)(c) shall, by means of a statement to that effect included in a published document, such as— (a) in any annual report published by it, or (b) in an annual return or other periodic statement delivered by it to the Registrar or Central Bank, set forth the reasons for why it considers the establishment of an audit committee by it is not appropriate and, accordingly, why it has availed itself of that exemption. (13) (a) Subject to paragraph (b), subsection (1) shall not apply to a captive insurance undertaking or captive reinsurance undertaking (in each case within the meaning of Regulation 3 of the European Union (Insurance and Reinsurance) Regulations 2015 ( S.I. No. 485 of 2015 )) provided that it has a body or bodies performing equivalent functions to an audit committee, established and functioning in accordance with provisions in place in the State in which the public-interest entity to be audited is registered (in such case the entity shall disclose on its website which body carries out those functions and how that body is composed). (b) A captive insurance undertaking or captive reinsurance undertaking which falls within paragraph (a) shall satisfy the following conditions: (i) it shall not be owned by a credit institution; (ii) it shall not issue transferable securities admitted to trading on a regulated market. (14) Without prejudice to the responsibility of the directors of the public-interest entity, the responsibilities of the audit committee shall include— (a) informing directors of the entity of the outcome of the statutory audit and explaining how the statutory audit contributed to the integrity of financial reporting and what the role of the audit committee was in that process, (b) monitoring the financial reporting process and submitting recommendations or proposals to the directors of the entity to ensure its integrity, (c) monitoring the effectiveness of the entity’s internal quality control and risk management systems and, where applicable, its internal audit, regarding the financial reporting of the entity, without breaching its independence, (d) monitoring the statutory audit of the entity and group financial statements, in particular, its performance, taking into account any findings and conclusions by the Supervisory Authority pursuant to Article 26(6) of Regulation (EU) No 537/2014, (e) reviewing and monitoring the independence of the statutory auditors or the audit firms in accordance with sections 1535 to 1541 and Article 6 of Regulation (EU) No 537/2014, and, in particular, the appropriateness of the provision of non-audit services to the audited entity in accordance with Article 5 of that Regulation, and (f) being responsible for the procedure for the selection of a statutory auditor or audit firm and recommending the statutory auditor or audit firm to be appointed in accordance with Article 16 of Regulation (EU) No 537/2014 except when Article 16(8) of that Regulation is applied. (15) Subsection (8) applies to a proposal of the directors (with respect to the appointment of a statutory auditor or audit firm to a public-interest entity) made at any time after the establishment of the audit committee in respect of the entity. (16) The other provisions of the relevant provisions with regard to the performance of a function by the audit committee apply with respect to financial statements of the public-interest entity for financial years beginning on or after the establishment of the audit committee in respect of the entity. (17) A person who, without reasonable excuse, contravenes subsection (12) shall be guilty of a category 3 offence. (18) Section 167 shall not apply to a public-interest entity which is both a UCITS referred to in subsection (11)(b) and a company. (19) In this section, ‘2003 Prospectus Directive’ has the meaning assigned to it by section 1348. Cooperation with other Member States 1552. (1) With regard to the cooperation that the State is required to engage in by virtue of Article 33 of the Audit Directive, the Supervisory Authority is assigned responsibility in that behalf. (2) For the purpose of discharging that responsibility, the Supervisory Authority shall put in place appropriate mechanisms, including arrangements with competent authorities in other Member States. Specific requirements with regard to cooperation 1553. (1) Subject to section 1552, the Supervisory Authority, the recognised accountancy bodies and the Registrar with functions relating to approval, registration, quality assurance, inspection and discipline under the relevant provisions shall cooperate with the counterpart authorities in other Member States and the relevant European Supervisory Authorities whenever necessary for the purpose of those authorities or bodies (or, as the case may be, the counterpart authorities) carrying out their respective functions under the relevant provisions or, as the case may be, the laws of the other Member State concerned that implement the Audit Directive. (2) Subject to section 1552, the Supervisory Authority, the recognised accountancy bodies and the Registrar with the foregoing functions under the relevant provisions shall render assistance to the counterpart authorities in other Member States and to the relevant European Supervisory Authorities and, in particular, shall exchange information and cooperate with them in investigations relating to the carrying out of statutory audits. (3) In this section, ‘counterpart authorities in other Member States’ means competent authorities or bodies in other Member States with functions corresponding to those of the Supervisory Authority, the recognised accountancy bodies and the Registrar with regard to approval, registration, quality assurance, inspection and discipline under the relevant provisions. Confidentiality of information 1554. (1) A person shall not disclose, except in accordance with law, information that— (a) is obtained in performing functions under any provision of the relevant provisions, and (b) has not otherwise come to the notice of members of the public. 1555. Without prejudice to section 1554, the persons to whom that section applies shall include the following: (a) a member or director or former member or director of any board or committee, howsoever called, of the Supervisory Authority, the recognised accountancy bodies or the Registrar; (b) an employee or former employee of the Supervisory Authority, the recognised accountancy bodies or the Registrar; (c) a professional or other advisor to the Supervisory Authority, the recognised accountancy bodies or the Registrar including a former advisor. Obligation to supply information required for certain purposes and saving concerning confidential information 1556. (1) The Supervisory Authority or a recognised accountancy body shall, on request and without undue delay, supply any information required for the purpose referred to in section 1553. (2) Section 1554 shall not prevent the Supervisory Authority or a recognised accountancy body from complying with any such request or exchanging confidential information. Obligation of Supervisory Authority or recognised accountancy body to gather information 1557. (1) Where necessary, the Supervisory Authority or a recognised accountancy body, on receiving a request referred to in section 1556(1), shall, without undue delay, take the necessary measures to gather the required information. (2) If the Supervisory Authority or a recognised accountancy body of whom a request under subsection (1) is made is not able to supply, without undue delay, the required information, it shall notify the counterpart authority in the other Member State that made the request of— (a) the fact of the delay, and (b) the reasons therefor. Application of section 1554 to certain information 1558. Section 1554 shall apply to information received by the Supervisory Authority, a recognised accountancy body or the Registrar pursuant to the cooperation or exchange of information that is required of counterpart authorities of Member States by this Chapter. Requesting authority to be notified if its request not complied with 1559. (1) If— (a) the Supervisory Authority or a recognised accountancy body of whom a request referred to in section 1556(1) is made does not comply with the request, and (b) the case is neither— (i) one of a delay in complying with the request to which section 1557(2) relates, nor (ii) one of a refusal to comply with the request on any of the grounds referred to in section 1560, the Supervisory Authority or recognised accountancy body, as appropriate, shall notify the counterpart authority in the other Member State that made the request of the reasons for that failure to comply. (2) If it is a recognised accountancy body as referred to in subsection (1)(a), it shall also notify the Supervisory Authority of the reasons for the failure referred to in that subsection. Grounds for refusing request for information 1560. (1) The Supervisory Authority or a recognised accountancy body may refuse to comply with a request referred to in section 1556(1) if— (a) the ground referred to in point (a) of paragraph 4 of Article 36 of the Audit Directive applies, (b) proceedings in any court in the State have already been initiated in respect of the same actions and against the same statutory auditor or audit firm, the subject of the request, or (c) a final determination has already been made by the Supervisory Authority or recognised accountancy body in respect of the same actions and the same statutory auditor or audit firm, the subject of the request. (2) A recognised accountancy body shall not exercise the power under subsection (1) to refuse to comply with a request save after consultation with the Supervisory Authority. (3) The Supervisory Authority or a recognised accountancy body that refuses, under subsection (1), to comply with a request shall notify the counterpart authority in the other Member State that made the request of the reasons for the refusal. (4) A recognised accountancy body, referred to in subsection (3), shall also notify the Supervisory Authority of the reasons for the refusal referred to in that subsection. Use to which information may be put 1561. (1) The Supervisory Authority or a recognised accountancy body may use relevant information only for the performance by it of its functions under the relevant provisions and then only in the context of steps it takes in— (a) investigating and detecting failures to comply with the relevant provisions, and (b) initiating and employing disciplinary procedures, or maintaining proceedings in any court, in respect of any such failures. (2) Subject to section 1552, subsection (1) is without prejudice to any obligations, by virtue of any proceedings being maintained in any court, to which the Supervisory Authority or a recognised accountancy body or European Supervisory Authority is subject as regards the use to which it may put information referred to in that subsection and in the context of administrative or judicial proceedings specifically related to the performance of those functions. (3) (a) The Supervisory Authority may transmit to the competent authorities in other Member States responsible for supervising public-interest entities, to central banks, to the European System of Central Banks and to the European Central Bank, in their capacity as monetary authorities, and to the European Systemic Risk Board, confidential information intended for the performance of their respective functions. (b) Such authorities or bodies shall not be prevented from communicating, to the Supervisory Authority, information that the Supervisory Authority may need in order to perform its functions under Regulation (EU) No 537/2014. (4) In this section, ‘relevant information’ means information that the Supervisory Authority or a recognised accountancy body receives pursuant to the cooperation or exchange of information that is required of counterpart authorities of Member States in this Chapter. Counterpart authority to be notified of non-compliance with Audit Directive and Regulation (EU) No 537/2014 1562. Where the Supervisory Authority or a recognised accountancy body forms, on reasonable grounds, the opinion that activities contrary to the provisions of the Audit Directive or of Regulation (EU) No 537/2014 are being, or have been, carried out on the territory of another Member State, it shall, as soon as possible— (a) notify the counterpart authority in the other Member State of that opinion, and (b) include in that notification specific details of the matter and the grounds for its opinion. Counterpart authority may be requested to carry out investigation 1563. (1) In relation to activities that it suspects have been, or are being, carried on contrary to the provisions of the Audit Directive or Regulation (EU) No 537/2014, the Supervisory Authority or a recognised accountancy body may request the counterpart authority in another Member State to carry out an investigation in the territory of that Member State. (2) A request under subsection (1) of the counterpart authority may be accompanied by a further request that one or more of the officers, or members of staff, of the Supervisory Authority or a recognised accountancy body be allowed to accompany officers, or members of staff, of the counterpart authority in the course of the investigation. (3) A recognised accountancy body shall notify the Supervisory Authority of the making of a request by it under subsection (1) and, if such be the case, the making of the further request by it under subsection (2). Duty of Supervisory Authority or recognised accountancy body to take certain action 1564. (1) Where the Supervisory Authority or a recognised accountancy body receives a notification from— (a) the entity specifically responsible, pursuant to the laws of another Member State that implement Article 36 of the Audit Directive, for ensuring the cooperation referred to in that Article, or (b) the counterpart authority in another Member State, that activities contrary to the provisions of the Audit Directive or Regulation (EU) No 537/2014 are being, or have been, carried on in the State, it shall take appropriate action under the relevant provisions. (2) The Supervisory Authority or a recognised accountancy body shall inform the notifying entity or authority of the outcome of that action, and to the extent possible, of significant developments in the period pending that outcome. (3) A recognised accountancy body shall— (a) notify the Supervisory Authority of the taking by it of the action referred to in subsection (1), and (b) in addition to so informing, under subsection (2), the notifying entity or authority of those matters, inform the Supervisory Authority of the outcome of that action, and to the extent possible, of significant developments in the period pending that outcome. Due consideration to be given to counterpart authority’s request for investigation 1565. (1) The Supervisory Authority or a recognised accountancy body shall give due consideration to a request made of it, pursuant to the laws of another Member State that implement Article 36 of the Audit Directive, to carry out an investigation in the State. (2) If a request under subsection (1) is acceded to by the Supervisory Authority or a recognised accountancy body, the investigation shall be subject to the overall control of the Supervisory Authority or recognised accountancy body that receives the request. (3) For the purpose of this section— (a) the reference in subsection (1) to a request that is made pursuant to the laws of another Member State that implement Article 36 of the Audit Directive is a reference to such a request, whether or not it is accompanied by a further request (made pursuant to those laws) that one or more of the officers, or members of staff, of the requesting authority be allowed to accompany officers, or members of staff, of the Supervisory Authority or a recognised accountancy body in the course of the investigation, and (b) the investigation is subject to the control as referred to in subsection (2) even if that further request is acceded to by the Supervisory Authority or a recognised accountancy body. (4) A recognised accountancy body shall notify the Supervisory Authority— (a) of the making of a request of it referred to in subsection (1), and (b) if the request is acceded to by it, of the fact of the request being so acceded to. Grounds for refusing request for investigation 1566. (1) The Supervisory Authority or a recognised accountancy body may refuse to accede to a request referred to in section 1565(1) made of it or a further request of the kind referred to in section 1565(3)(a) made of it if— (c) a final determination has already been made by the Supervisory Authority or a recognised accountancy body in respect of the same actions and the same statutory auditor or audit firm, the subject of the request. (2) A recognised accountancy body referred to in subsection (1) shall not exercise the power thereunder to refuse to accede to a request save after consultation with the Supervisory Authority. (3) The Supervisory Authority or a recognised accountancy body that refuses, under subsection (1), to accede to a request shall notify the counterpart authority in the other Member State that made the request of the reasons for the refusal. (4) A recognised accountancy body referred to in subsection (3) shall also notify the Supervisory Authority of the reasons for the refusal referred to in that subsection. Mutual recognition of regulatory arrangements between Member States 1567. To the extent that the preceding provisions of this Part, or, where applicable, Regulation (EU) No 537/2014 do not operate to achieve the following effects in the law of the State, this Part or Regulation (EU) No 537/2014 and those preceding provisions (notwithstanding anything in them to the contrary) shall be read as operating, in a manner so that— (a) (i) the principle of home-country regulation and oversight by the Member State in which the statutory auditor or audit firm is approved and the audited undertaking has its registered office is respected, and (ii) without prejudice to subparagraph (i), audit firms approved in one Member State that perform audit services in another Member State in accordance with section 1465 shall be subject to quality assurance review in the home Member State and oversight in the host Member State of any audit carried out there, (b) the imposition of additional requirements on a statutory auditor or audit firm in relation to the statutory audit concerning registration, quality assurance review, auditing standards, professional ethics and independence is prohibited in the case of— (i) a statutory audit of consolidated financial statements, required by a Member State, of a subsidiary established in another Member State, and (ii) an undertaking the securities of which are traded on a regulated market in another Member State to that in which it has its registered office, by that Member State, regarding the statutory audit of the accounts or consolidated accounts of that undertaking, (c) a statutory auditor or audit firm, approved under section 1464 or Chapter 20, which is registered in any Member State and provides audit reports concerning accounts or consolidated accounts in accordance with section 1573, the systems of oversight, quality assurance, investigation and sanctions of the Member State where registration took place will apply. Transfer of audit working papers, etc., to third-country competent authorities Transfer of audit documentation to third-country competent authority 1568. (1) Subject to section 1569, audit working papers or other documents held by a statutory auditor or audit firm and inspection or investigation reports relating to the audits concerned may be transferred to a third-country competent authority only if the Supervisory Authority, on a request being made of it in that behalf by the first-mentioned authority, determines that the following conditions are complied with (and authorises such transfer accordingly), namely— (a) those audit working papers or other documents relate to the audit of an undertaking which— (i) has issued securities in the third country concerned, or (ii) forms part of a group that issues group financial statements in the third country concerned, (b) the third-country competent authority meets requirements which have been declared adequate in accordance with Article 47(3) of the Audit Directive, (c) there are working arrangements on the basis of reciprocity agreed between the Supervisory Authority and the third-country competent authority, and (d) the transfer of personal data to the third country concerned is in accordance with the Data Protection Acts 1988 to 2018 and Regulation (EU) 2016/679. (2) The working arrangements referred to in subsection (1)(c) shall ensure that— (a) justification as to the purpose of the request for audit working papers and other documents is provided by the third-country competent authority concerned, (b) the audit working papers and other documents are only transferred if— (i) an obligation similar to that provided by section 1554 is provided under the laws of the third country concerned in relation to persons whilst in, and in any period subsequent to their ceasing to be in, the employment of the third-country competent authority, and (ii) the protection of the commercial interests of the audited undertaking, including its industrial and intellectual property, is not undermined, (c) the third-country competent authority uses audit working papers and other documents only for the performance of its functions of public oversight, quality assurance and investigations that meet requirements equivalent to those of Articles 29, 30 and 32 of the Audit Directive, and (d) the request from a third-country competent authority for audit working papers or other documents held by a statutory auditor or audit firm can be refused by the Supervisory Authority if— (i) the first ground referred to in point (d) of paragraph 2 of Article 47 of the Audit Directive applies, (ii) proceedings in any court in the State have already been initiated in respect of the same actions and against the same statutory auditor or audit firm, the subject of the request, or (iii) a final determination has already been made by the Supervisory Authority in respect of the same actions and the same statutory auditor or audit firm, the subject of the request. (3) The Supervisory Authority has, for the purposes of the performance of its functions under the preceding subsections (including the taking of any steps that necessitate the perusal by it of the papers and other documents concerned so as to determine whether the transfer should be refused on any of the grounds referred to in subsection (2)(d)), the power to require the statutory auditor or audit firm concerned to produce to it the audit working papers and other documents; the statutory auditor or audit firm shall comply with such a requirement made of him or her by the Supervisory Authority. Derogation from section 1568 in exceptional cases 1569. By way of derogation from section 1568, the Supervisory Authority may, in exceptional cases, allow a statutory auditor or audit firm to transfer audit working papers and other documents directly to a third-country competent authority, provided that— (a) an investigation has been initiated by that competent authority in the third country concerned, (b) such transfer does not conflict with the obligations with which statutory auditors and audit firms are required to comply in relation to the transfer of audit working papers and other documents to the Supervisory Authority, (c) there are working arrangements with the third-country competent authority of a reciprocal nature that allow the Supervisory Authority direct access to audit working papers and other documents of audit entities in the third country concerned, (d) the third-country competent authority informs in advance the Supervisory Authority of each direct request for information, indicating the reasons therefor, and (e) conditions similar to those specified in section 1568(2)(a) to (d) are satisfied. Particulars of working arrangements to be notified 1570. (1) Where the Supervisory Authority enters into working arrangements with a third-country competent authority in accordance with section 1568(1)(c), particulars of those working arrangements shall be published by the Supervisory Authority on its website without delay and those particulars shall include— (a) the name of the third-country competent authority, and (b) the jurisdiction in which it is established. (2) Particulars of those working arrangements shall also be notified by the Supervisory Authority to the Commission. Joint inspections 1571. The Supervisory Authority may perform the functions (whether in whole or in part) referred to in section 905(2)(n)(iii) in so far as such functions are part of a joint inspection under— (a) Commission Implementing Decision (EU) 2016/1156 of 14 July 201611 on the adequacy of the competent authorities of the United States of America pursuant to Directive 2006/43/EC of the European Parliament and of the Council, or (b) any other Commission Implementing Decision made pursuant to Article 47(3) of the Audit Directive on the adequacy of competent authorities for the purposes of joint inspections. International aspects Approval of third-country auditor 1572. (1) Without prejudice to Chapter 3 and subject to subsection (2), a recognised accountancy body may approve a third-country auditor as a statutory auditor if that person has furnished proof that he or she complies with requirements equivalent to those specified in sections 1464 and 1472. (2) A third-country auditor shall not be approved under subsection (1) unless reciprocal arrangements with the third country concerned are in place, that is to say arrangements that enable a statutory auditor to carry out audits in that third country— (a) by virtue of the law of that third country, and (b) on fulfilment by the statutory auditor concerned of requirements no more onerous than those specified by this section and Chapter 3 for the third-country auditor’s approval under subsection (1). Registration and oversight of third-country auditors and third-country audit entities Registration of third-country auditors and third-country audit entities 1573. (1)(a) Subject to paragraph (b), subsection (6) and section 1580, the Supervisory Authority shall, in accordance with the relevant provisions of Chapter 5 and Schedule 20, cause to be registered in each year in the public register every third-country auditor and third-country audit entity that indicates, in writing to it, his or her intention to provide an audit report concerning the accounts or consolidated accounts of an undertaking falling within subsection (3). (b) Paragraph (a) shall not apply to a third-country auditor or third-country audit entity that provides audit reports concerning the annual or group financial statements of undertakings incorporated in third countries in respect of which— (i) the Commission has not yet made a decision that the public oversight, quality assurance and investigation and penalty systems for third-country auditors and third-country audit entities meet requirements which shall be considered equivalent to those of Articles 29, 30 and 32 of the Audit Directive, or (ii) such a decision was made but for a specified period of time which has now expired. (2) Registration in the public register pursuant to subsection (1) shall have effect for a period of 12 months from the date on which the registration is effected. (3) The undertaking referred to in subsection (1) is one— (a) incorporated outside the European Union, not being a collective investment undertaking, and (b) whose transferable securities are admitted to trading on a regulated market in the State. (4) There shall accompany the indication in writing by a third-country auditor or third-country audit entity referred to in subsection (1) a notification, in such form and manner as the Supervisory Authority specifies, of the following information (in relation to the auditor or audit entity) to it. (5) That information is the information referred to in paragraph 3 of Schedule 20 but does not include the information referred to in paragraph 1(b) or 2(b) (as applied by that paragraph 3) of that Schedule. (6) Subsection (1) shall not apply if the undertaking referred to in that subsection is an issuer exclusively of outstanding debt securities for which one of the following applies: (a) prior to 31 December 2010, the undertaking was admitted to trading on a regulated market, and the denomination per unit of which is at the date of issue at least €50,000 or, in case of debt securities denominated in another currency, equivalent, at the date of issue, to at least €50,000; (b) from 31 December 2010, the undertaking was admitted to trading on a regulated market, and the denomination per unit of which is at the date of issue at least €100,000 or, in case of debt securities denominated in another currency, equivalent, at the date of issue, to at least €100,000. (7) Section 1487 shall apply to third-country auditors and third-country audit entities so registered with the substitution of references to the recognised accountancy body for references to the Supervisory Authority and any other necessary modifications. (8) Section 1488 shall apply, with any necessary modifications, to a notification of information by a third-country auditor or third-country audit entity under— (a) subsection (4) to the Supervisory Authority, and (b) section 1487, as applied by subsection (7), to that Authority. (9) In subsection (3), ‘collective investment undertaking’ does not include such an undertaking of the closed-ended type. Exemption from quality assurance 1574. (1) The Supervisory Authority may exempt from Chapter 7 a third-country auditor or third-country audit entity registered under Chapter 5 pursuant to section 1573 if a quality assurance review has, under another Member State’s or third country’s system of quality assurance, been carried out in relation to the auditor or audit entity during the 3 years preceding the making of the application. (2) On the making of that application, if— (a) the Supervisory Authority is satisfied that the quality assurance review referred to in subsection (1) has been carried out as referred to in that subsection, and (b) the system of quality assurance referred to in that subsection has been assessed as equivalent in accordance with section 1580, the Supervisory Authority shall grant the exemption and the third-country auditor or third-country audit entity shall be exempted from Chapter 7 accordingly. Removal of third-country auditor or third-country audit entity registered in accordance with section 1573 from public register 1575. (1) Subject to subsections (2) and (3), the Supervisory Authority may require the Registrar, in the case of a third-country auditor or third-country audit entity registered pursuant to section 1573, to remove the third-country auditor or third-country audit entity from the public register if— (a) the auditor or audit entity does not provide all the information or clarifications necessary for the renewal of his or her registration or does not pay the appropriate fee under section 1579, or (b) the outcome of a quality assurance inspection or investigation and disciplinary process requires it. (2) A third-country auditor or third-country audit entity the subject of a quality assurance inspection or investigation shall not be removed from the public register until the completion of that inspection or investigation. (3) The Supervisory Authority shall not exercise its power under subsection (1) unless it has first given the third-country auditor or third-country audit entity concerned a reasonable opportunity, in the circumstances concerned, of making representations in writing on the grounds (which the Supervisory Authority shall make known to such auditor or entity) that the Supervisory Authority is minded to exercise such power. (4) The Supervisory Authority shall, at such times as it thinks it appropriate to do so, issue guidelines with regard to what constitutes a reasonable opportunity referred to in subsection (3). (5) The Supervisory Authority may publish on its website the name of the third-country auditor or third-country audit entity that has been removed from the public register in accordance with this section along with the reasons for such removal. Audit by non-registered auditor or audit entity - consequence 1576. Without prejudice to section 1580 and unless section 1573(6) applies to it, an audit report provided by a third-country auditor or third-country audit entity concerning the accounts or consolidated accounts of an undertaking falling within section 1573(3) shall have no legal effect in the State if the third-country auditor or third-country audit entity that provides it is not registered under Chapter 5. Conditions for registration of third-country auditor or third-country audit entity 1577. (1) The Supervisory Authority may cause to be registered a third-country auditor or third-country audit entity pursuant to section 1573 only if— (a) where the applicant for registration is an audit entity (referred to in this section as the ‘potential registrant’), the applicant satisfies so many of the conditions specified in subsection (2) as are applicable to an entity, and (b) where the applicant for registration is an auditor (also referred to in this section as the ‘potential registrant’), the applicant satisfies so many of the conditions specified in subsection (2) as are applicable to an individual. (2) The conditions are as follows: (a) the majority of the members of the administrative or management body of the potential registrant meet requirements equivalent to those of sections 1464 and 1472; (b) the third-country auditor carrying out the audit on behalf of the potential registrant meets requirements equivalent to those of sections 1464 and 1472; (c) the audits of the accounts or consolidated accounts referred to in section 1573(1) are carried out in accordance with international auditing standards as referred to in section 1526, as well as the requirements referred to in section 1491, or with equivalent standards and requirements; (d) the potential registrant publishes annually on a website, being a website maintained by or on behalf of the potential registrant, a report which includes the information referred to in Article 13 of Regulation (EU) No 537/2014 in relation to the year concerned or the potential registrant complies with equivalent disclosure requirements. Supervisory Authority may assess matter of equivalence for purposes of section 1577(2)(c) 1578. (1) For so long as the Commission has not taken, in accordance with the procedure referred to in Article 48(2) of the Audit Directive, the decision under Article 45(6) of that Directive in relation to the matter of equivalence of standards and requirements referred to in section 1577(2)(c), the Supervisory Authority may, for the purposes of that provision, make an assessment of that equivalence. (2) When assessing the equivalence concerned, the Supervisory Authority shall use the general equivalence criteria established by the Commission in assessing whether the audits of the financial statements referred to in section 1573(1) are carried out in accordance with the standards and requirements referred to in section 1577(2)(c). (3) The general equivalence criteria referred to in subsection (2) shall apply to all third countries. Certain fees chargeable by Supervisory Authority 1579. (1) (a) For the purposes specified in paragraph (b), the Supervisory Authority may charge and impose annual fees, where necessary on an interim basis, having obtained the Minister’s consent and subject to paragraph (c), on a third-country auditor or third-country audit entity referred to in section 1573(1), in respect of registration, effected or provided in relation to the auditor or audit entity under and in accordance with this Part. (b) Money received by the Supervisory Authority under this subsection may be used only for the purposes of meeting the Authority’s reasonable administrative expenses in performing its functions and exercising its powers under section 1573 and under any other provision of this Act that contains consequential or incidental provisions on, or in relation to, section 1573. (c) The Supervisory Authority— (i) shall submit the rationale for the level of fee to the Minister for approval before imposing a fee— (I) initially when the fee is proposed, and (II) at any time thereafter that the fee is proposed to be amended, (ii) may charge fees on an annual basis to meet the reasonable administrative costs associated with the following tasks: (I) the annual registration of such auditor or audit entity that is a statutory auditor or audit firm registered in a public register of a Member State pursuant to Articles 15 to 19 of the Audit Directive; (II) the annual registration assessment and the annual registration of such auditor or audit entity that is not registered in a public register of a Member State pursuant to Articles 15 to 19 of the Audit Directive as a statutory auditor or audit firm. (2) (a) For the purposes specified in paragraph (b), the Supervisory Authority may charge and impose fees, where necessary on an interim basis, having obtained the Minister’s consent and subject to paragraph (c), on a third-country auditor or third-country audit entity referred to in section 1573(1) in respect of the oversight, quality assurance and the related matters of investigation, discipline and penalties, effected or provided in relation to the auditor or audit entity under and in accordance with the relevant provisions. (b) Money received by the Supervisory Authority under this subsection may be used only for the purposes of meeting the Authority’s reasonable administrative expenses in performing its functions and exercising its powers under section 930A, Chapter 7 and this Chapter and under any other provision of this Act that contains consequential or incidental provisions on, or in relation to, section 930A, Chapter 7 and this Chapter. (i) shall establish criteria, as set out in subsection (3), for charging and imposing fees on a third-country auditor or third-country audit entity referred to in section 1573(1), (ii) shall submit the criteria to the Minister for approval before imposing fees— (I) initially when the criteria are established, and (II) at any time thereafter that the criteria are amended, (iii) may charge fees on an interim basis to meet the reasonable administrative costs associated with the functions of oversight, quality assurance and the related matters of investigation, discipline and penalties— (I) before the function is performed, (II) more than once, if necessary, during the performance of the function, and (III) when the performance of the function is completed. (3) Established criteria for charging and imposing fees on an interim basis on a third-country auditor or third-country audit entity referred to in section 1573(1) shall be based on costs incurred to meet the Supervisory Authority’s reasonable administrative expenses in relation to— (a) location (including any necessary and consequential travel costs), (b) the testing of the internal quality control system undertaken (including the time taken to review audit firms), (c) the number and nature of the Irish relevant audit clients, (d) how many third-country auditors are within the firm, (e) staffing resources, being how many staff are required, at what level and for what period, (f) expertise required (including the use (if any) of consultants located outside the State to undertake on-site inspections), (g) the nature and significance of the findings (including the time allocated to inspection, drafting the report and follow-up to the recommendations), (h) associated miscellaneous costs (including the translation of working papers relevant to the audit), and (i) legal and other costs. (4) Notwithstanding that the particular audit of a public-interest entity has been carried out by a statutory auditor, no fee under this section shall be imposed on the statutory auditor if he or she was designated by a statutory audit firm to carry out the audit, and the fees under this section shall, in those circumstances, be imposed on the statutory audit firm instead. (5) A fee imposed under subsection (1) or (2) may, in default of payment, be recovered from the third-country auditor or third-country audit entity concerned as a simple contract debt in any court of competent jurisdiction. Exemptions in case of equivalence 1580. (1) A third-country auditor or third-country audit entity may apply to the Supervisory Authority for an exemption from all or any of the provisions of sections 1573 and 1574 on the basis that the third-country auditor or third-country audit entity is subject to systems of public oversight, quality assurance and investigations and penalties in the third country concerned that meet requirements equivalent to those of section 930A, Chapter 7 and this Chapter. (a) the Commission has, in accordance with Article 46(2) of the Audit Directive, assessed the systems referred to in subsection (1) as meeting requirements equivalent to those in the corresponding provisions of the Audit Directive, and (b) the Supervisory Authority is satisfied that the law of the third country concerned affords reciprocal rights to a statutory auditor or audit firm with regard to being granted corresponding exemptions under that law, the Supervisory Authority may rely on the equivalence decided by the Commission, partially or entirely, and thus to disapply or modify the requirements in sections 1573 and 1574 partially or entirely and the third-country auditor or third-country audit entity shall be partially or entirely exempted accordingly. (3) The Supervisory Authority shall notify the Commission of the main elements of its cooperative arrangements with systems of public oversight, quality assurance and investigations and penalties of the third country concerned, arising out of arrangements it has entered into with that third country for the purposes of the reciprocity referred to in subsection (2)(b). 1581. Sections 934 to 934I shall, with any necessary modifications, apply to third-country auditors and third-country audit entities as those sections apply to statutory auditors and audit firms and audited entities. Savings for disciplinary proceedings in being Savings for disciplinary proceedings in being - 2010 Audits Regulations 1582. (1) Nothing in the Companies (Statutory Audits) Act 2018 (and, in particular, provisions amending this Act) affect disciplinary proceedings in being before 17 June 2016 by a recognised accountancy body against any of its members and, accordingly, those proceedings may be continued on and after that date by that body against the member or members concerned. (2) If, as a result of proceedings referred to in subsection (1) in relation to a person referred to in that subsection, the person’s membership of the recognised accountancy body is terminated by the body or the body’s approval (howsoever expressed) of the person to act as an auditor is withdrawn, then any deemed approval of the person as a statutory auditor or audit firm by virtue of section 1471 ceases to have effect. 1583. (1) Nothing in the Companies (Statutory Audits) Act 2018 (and, in particular, provisions amending this Act) affect disciplinary proceedings (not being disciplinary proceedings referred to in section 1582(1)) in being before the date of commencement of section 3 (6) of that Act by a recognised accountancy body against any of its members and, accordingly, those proceedings may be continued on and after that date by that body against the member or members concerned. Savings for disciplinary proceedings in being - prescribed accountancy bodies 1584. Nothing in the Companies (Statutory Audits) Act 2018 (and, in particular, provisions amending this Act) affect disciplinary proceedings (not being disciplinary proceedings referred to in section 1582(1) or 1583(1)) in being before the date of commencement of section 3 (6) of that Act by a prescribed accountancy body against any of its members and, accordingly, those proceedings may be continued on and after that date by that body against the member or members concerned.”. Amendment of Schedule 5 to Principal Act 52. Schedule 5 to the Principal Act is amended by the substitution of the following paragraph for paragraph 5: “5. A company or undertaking engaged in the business of accepting deposits or other repayable funds from the public and granting credit for its own account.”. Amendment of Principal Act - insertion of Schedules 53. The Principal Act is amended— (a) by the insertion of the text set out in Schedule 1 as Schedule 19 to that Act, and (b) by the insertion of the text set out in Schedule 2 as Schedule 20 to that Act. Definitions (Part 3) 54. In this Part— “Act of 1893” means the Industrial and Provident Societies Act 1893 ; “Act of 1896” means the Friendly Societies Act 1896 . Amendment of section 13 of Act of 1893 55. Section 13 of the Act of 1893 is amended— (a) in subsection (1), by the substitution of “statutory auditors” for “public auditors”, and (b) by the insertion of the following subsections after subsection (2): “(3) None of the following persons shall be qualified to act as a statutory auditor of a society registered under this Act: (a) an officer or servant of the society; (b) a person who has been an officer or servant of the society within a period in respect of which accounts would fall to be audited by the person if he or she were appointed auditor of the society; (c) a parent, spouse, civil partner, brother, sister or child of an officer of the society; (d) a person who is a partner of or in the employment of an officer of the society; (e) a person who is disqualified under this subsection for appointment as a statutory auditor of any other society that is a subsidiary or holding undertaking of the society or a subsidiary of the society’s holding undertaking; (f) a person who is disqualified under section 1535 of the Companies Act 2014 for appointment as a statutory auditor of an undertaking that is a subsidiary or holding undertaking of the society. (4) A person shall not act as a statutory auditor at a time when he or she is disqualified under subsection (3). (5) If, during the person’s term of office as a statutory auditor, a person becomes disqualified under this section to act as a statutory auditor, the person shall thereupon vacate his or her office and give notice in writing to the society that he or she has vacated his or her office by reason of such disqualification. (6) A person who contravenes subsection (4) or (5) shall be guilty of an offence under this Act. (7) References in this section to an officer or servant do not include references to a statutory auditor.”. 56. Section 14 of the Act of 1893 is amended, in subsection (2)— (a) in paragraph (a), by the substitution of “statutory auditor” for “auditor or auditors”, (b) by the substitution of the following paragraph for paragraph (d): “(d) shall state whether the audit has been conducted by a statutory auditor and by whom.”, (c) by the substitution of “report of the statutory auditor” for “report of the auditors”. 57. Section 16 of the Act of 1893 is amended by the substitution of “statutory auditor” for “auditors”. Penalties for certain offences 58. The Act of 1893 is amended by the substitution of the following section for section 68: “68. (1) Every society, officer or member of a society, or other person, guilty of an offence under this Act for which no penalty is expressly provided herein, shall be liable to a class A fine. (2) A person guilty of an offence under section 13 shall be liable— (a) on summary conviction, to a class A fine or imprisonment for a term not exceeding 12 months, or both, or (b) on conviction on indictment, to a fine not exceeding €50,000 or imprisonment for a term not exceeding 5 years, or both.”. 59. Section 75 of the Act of 1893 is amended by the substitution of “statutory auditor” for “public auditor”. 60. Section 79 of the Act of 1893 is amended by the insertion of the following definition: “ ‘Statutory auditor’ shall have the same meaning as it has in section 2 of the Companies Act 2014 ;”. Amendment of Schedule II to Act of 1893 61. Schedule II to the Act of 1893 is amended, in paragraph 8, by the substitution of “a statutory auditor” for “auditors or a public auditor”. (a) by the substitution of the following subsection for subsection (1): “(1) Every registered society and branch shall once in every year submit its accounts for audit to a statutory auditor.”, (b) by the insertion of the following subsections: 63. Section 27 of the Act of 1896 is amended, in subsection (2), by the substitution of the following paragraph for paragraph (c): “(c) state whether the audit has been conducted by a statutory auditor and by whom.”. 64. Section 80 of the Act of 1896 is amended, in subsection (1), by the substitution of “any other person” for “public auditor”. Offence to contravene section 26(4) or (5) 65. The Act of 1896 is amended by the insertion of the following section after section 84: “84A. (1) It shall be an offence under this Act if a person contravenes section 26(4) or (5). (2) A person guilty of an offence under subsection (1) shall be liable— Amendment of section 100 of Act of 1896 66. Section 100 of the Act of 1896 is amended by the substitution of “statutory auditor” for “public auditor”. 67. Section 106 of the Act of 1896 is amended by the insertion of the following definition: “The expression ‘statutory auditor’ shall have the same meaning as it has in section 2 of the Companies Act 2014 .”. Amendment of section 2 of Industrial and Provident Societies (Amendment) Act 1913 68. The Industrial and Provident Societies (Amendment) Act 1913 is amended by the substitution of the following section for section 2: “2. Every registered society shall once a year submit its accounts for audit to a statutory auditor.”. Amendment of section 10B of Ministerial and Parliamentary Offices Act 1938 69. Section 10B of the Ministerial and Parliamentary Offices Act 1938 is amended— (a) in subsection (6), by the substitution of “statutory auditor (within the meaning of section 2 of the Companies Act 2014 )” for “public auditor”, and Amendment of section 8 of Seanad Electoral (Panel Members) Act 1947 70. Section 8 of the Seanad Electoral (Panel Members) Act 1947 is amended, in subsection (2)(d)(I)(iii), by the substitution of “statutory auditor (within the meaning of section 2 of the Companies Act 2014 )” for “public auditor”. Amendment of section 25C of Electoral Act 1992 71. Section 25C of the Electoral Act 1992 is amended, in subsection (5)— (a) in paragraph (c)(ii), by the substitution of “statutory auditor (within the meaning of section 2 of the Companies Act 2014 )” for “public auditor”, and (b) by the deletion of paragraph (d). Amendment of section 114 of Credit Union Act 1997 72. Section 114 of the Credit Union Act 1997 is amended by the substitution of the following subsection for subsection (1): “(1) A person shall not be qualified for election as auditor of a credit union unless the person is a statutory auditor within the meaning of section 2 of the Companies Act 2014 .”. Amendment of Electoral Act 1997 73. The Electoral Act 1997 is amended— (a) in section 20— (i) in subsection (2), by the substitution of “statutory auditor (within the meaning of section 2 of the Companies Act 2014 )” for “public auditor”, and (ii) by the deletion of subsection (4), (b) in section 86— (i) in subsections (1) and (4), by the substitution of “statutory auditor” for “public auditor” in each place that it occurs, and (ii) by the substitution of the following subsection for subsection (6): “(6) In this section, ‘statutory auditor’ has the meaning assigned to it by section 2 of the Companies Act 2014 .”. Amendment of Irish Collective Asset-management Vehicles Act 2015 74. The Irish Collective Asset-management Vehicles Act 2015 is amended— (a) in section 2, by the deletion of the definition of “Audits Regulations”, (b) in section 123, by the substitution of the following subsection for subsection (1): “(1) No person other than— (a) a statutory auditor or audit firm approved in accordance with Part 27 of the Companies Act 2014 , or (b) an audit firm registered in accordance with section 1465 of the Companies Act 2014 , shall be eligible for appointment as an auditor of an ICAV.”, (c) in section 131, by the substitution of “ section 1544 of the Companies Act 2014 ” for “Regulation 101 of the Audits Regulations”, and (d) in section 139, by the substitution of “Chapter 11 of Part 27 of the Companies Act 2014 ” for “Chapter 3 of Part 4 of the Audits Regulations”. Amendment of European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 75. The European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 ( S.I. No. 352 of 2011 ) are amended— (a) by the insertion of the following Regulation after Regulation 6 but in Part 2: “Disapplication of sections 1099 to 1110 of Companies Act 2014 to UCITS 6A. For the avoidance of doubt, it is hereby declared that sections 1099 to 1110 of the Companies Act 2014 do not apply to UCITS.”, (b) in Regulation 42A, in paragraph (5), in the substituted subsection for subsection (1) of section 376 of the Companies Act 2014 , by the substitution of “section 366” for “section 367”. Standards Relating to Training and Qualifications for Approval of Individual as Statutory Auditor 1. An individual shall have attained university entrance or equivalent level and then— (a) completed a course of theoretical instruction, (b) undergone practical training, and (c) passed an examination of professional competence which is of at least the standard required in the State for university final or equivalent examination level. 2. (1) The examination of professional competence referred to in paragraph 1 shall be such as guarantees the necessary level of theoretical knowledge of subjects relevant to statutory audit and the ability to apply such knowledge in practice. Part at least of that examination shall be in writing. (2) The test of theoretical knowledge included in the examination shall include the following subjects in particular: (a) general accounting theory and principles; (b) legal requirements and standards relating to the preparation of entity and group financial statements; (c) international accounting standards; (d) financial analysis; (e) cost and management accounting; (f) risk management and internal control; (g) auditing and professional skills; (h) legal requirements and professional standards relating to statutory audit and statutory auditors; (i) international auditing standards as referred to in section 1526; (j) professional ethics and independence. 3. The examination shall also include at least the following subjects in so far as they are relevant to auditing: (a) company law and corporate governance; (b) the law of insolvency and similar procedures; (c) tax law; (d) civil and commercial law; (e) social security law and employment law; (f) information technology and computer systems; (g) business, general and financial economics; (h) mathematics and statistics; (i) basic principles of the financial management of undertakings. 4. (1) In order to ensure the ability to apply theoretical knowledge in practice, a test of which is included in the examination, a trainee shall complete a minimum of 3 years practical training in, amongst others, the auditing of entity financial statements, group financial statements or similar financial statements. A substantial part of such practical training shall be in statutory audit work and at least two thirds of such practical training shall be completed with a statutory auditor or an audit firm approved in any Member State. (2) All such training shall be carried out with persons who a recognised accountancy body is satisfied possess, to an adequate standard, the ability to provide practical training.”. Information required, by Chapter 5 of Part 27, to be Supplied and Entered in Public Register Statutory auditors 1. In relation to a statutory auditor, the public register shall contain at least the following information: (a) the name and address of the auditor; (b) the number under which the auditor is entered in that register; (c) if applicable— (i) the name and address and the website address (if any) of the statutory audit firm by which the auditor is employed, or with whom he or she is associated as a partner or otherwise, and (ii) the number under which that statutory audit firm is entered in that register; (d) the name and address of the recognised accountancy body responsible for the regulation of the auditor; (e) if he or she is so registered with one or more recognised accountancy bodies, counterpart authorities or third-country competent authorities— (i) particulars of his or her registration— (I) as a statutory auditor, with each recognised accountancy body or counterpart authority and the name of each such body or authority, and (II) as an auditor, with each third-country competent authority and the name of such authority, (ii) the number under which he or she is registered with each such body or authority; (f) without prejudice to subparagraph (e), with regard to the auditor’s status (if such be the case) as a Member State statutory auditor, the name and address of each counterpart authority responsible, in relation to him or her, for— (i) approval as referred to in Article 3 of the Audit Directive, (ii) quality assurance as referred to in Article 29 of the Audit Directive and Article 26 of Regulation (EU) No 537/2014, (iii) investigations and sanctions as referred to in Chapter VII of the Audit Directive and Articles 23 and 24 of Regulation (EU) No 537/2014, (iv) public oversight as referred to in Article 32 of the Audit Directive, and (v) performing the functions provided for in Regulation (EU) No 537/2014 and for ensuring the provisions of that Regulation are applied as referred to in Article 20 of that Regulation. Statutory audit firms and audit firms approved in another Member State 2. In relation to a statutory audit firm, the public register shall contain at least the following information: (a) the name and address of the audit firm; (b) the number under which the audit firm is entered in that register; (c) the legal form of the audit firm; (d) the primary contact person in the audit firm and contact details; (e) the address of each office in the State of the audit firm and the website address (if any) of the audit firm; (f) the name of every individual employed by or associated as partner or otherwise with the audit firm who is approved as a statutory auditor under Part 27; (g) the number under which that individual is entered in the register; (h) the name and address of the recognised accountancy body responsible for the regulation of the audit firm in the State; (i) the names and addresses of the owners of, or as appropriate, shareholders in, the audit firm; (j) the names and addresses of the directors, or other members of, as appropriate— (i) the board of directors, (ii) the board of management, or (iii) other administrative or management body, of the audit firm (but where the audit firm comprises a partnership with no management structure, the provision of the address of each individual named, under subparagraph (f), as partner suffices); (k) if applicable, the fact of the audit firm’s membership of a network and either— (i) a list of the names and addresses of member firms and affiliates of the network, or (ii) an indication of where such information is publicly available; (l) if the audit firm is so registered with one or more counterpart authorities or third-country competent authorities— (i) particulars of the firm’s registration— (I) as a statutory audit firm, with each counterpart authority and the name of the authority, (II) as an audit firm, with such third-country competent authority and the name of such authority, and (III) as an audit firm approved in another Member State, who has registered in accordance with Article 3a of the Audit Directive, (ii) the number under which the firm is registered with each such authority; (m) without prejudice to subparagraph (l), with regard to the audit firm’s status (if such be the case) as a Member State statutory audit firm, the name and address of each counterpart authority responsible, in relation to it, for— (ii) where the audit firm is registered in the public register of another Member State pursuant to Article 3a of the Audit Directive and the State is its home Member State— (I) the fact that the firm is so registered, and (II) the name of the host Member State and the counterpart authority in the host Member State, (iii) quality assurance as referred to in Article 29 of the Audit Directive and Article 26 of Regulation (EU) No 537/2014, (iv) investigations and sanctions as referred to in Chapter VII of the Audit Directive and Articles 23 and 24 of Regulation (EU) No 537/2014, (v) public oversight as referred to in Article 32 of the Audit Directive, and (vi) performing the functions provided for in Regulation (EU) No 537/2014 and for ensuring the provisions of that Regulation are applied as referred to in Article 20 of that Regulation; (n) where the audit firm is registered in the public register pursuant to Article 3a(3) of the Audit Directive with the State as its host Member State— (ii) the name of the home Member State and the counterpart authority in the home Member State. Third-country auditors and third-country audit entities 3. (1) In relation to the case provided by section 1573 of the registration of a third-country auditor or third-country audit entity, the public register shall contain at least the information specified in the provisions of paragraph 1 or, as the case may be, 2 (as, in either case, those provisions are applied by subparagraph (2)). (2) The provisions of paragraph 1 or 2, as the case may be, apply for the purposes of this paragraph save so much of them as are inapplicable in the case of a third-country auditor or third-country audit entity, as appropriate. (3) Third-country auditors or third-country audit entities so registered shall be clearly indicated in the register as such and not as statutory auditors or audit firms. Individual identification number and storage of information in electronic form 4. (1) There shall be assigned an individual identification number to each individual, firm and entity that is being entered in the public register, being— (a) in a case where the information entered in respect of the individual or firm is that provided under section 1485, the number notified under subsection (2)(b)(i) of that section to the Registrar, (b) in any other case, such individual identification number as, subject to subparagraph (2), is determined and allocated by the Registrar, and references in paragraphs 1 and 2 to the number under which any of the foregoing persons is entered in the register shall be read as references to that identification number. (2) Instead of its allocating a number for the purposes of subparagraph (1)(b) that has been determined by it, the Registrar may— (a) in specifying under any provision of Part 27 the form in which information is to be notified to it for registration (and the provision concerned of that Part does not itself provide for the notification of such a number), include in that specification a requirement that the form, as completed, includes an identification number allocated to the subject of the notification by the notifier of the information, and (b) if the number so provided in that form is satisfactory for the purpose of distinguishing the subject from other registrants, allocate, for the purposes of subparagraph (1)(b), that number so provided. (3) The information contained in that register shall be stored in electronic form and be capable of being accessed by members of the public by electronic means. 5. In this Schedule, ‘address’, in relation to an individual, firm or entity, means the individual’s, firm’s or entity’s usual business address.”. 1 OJ No. L 157, 9.6.2006, p.87 2 OJ No. L 158, 27.5.2014, p.196 3 OJ No. L 158, 27.5.2014, p.77 4 OJ No. L 119, 4.5.2016, p.1 7 OJ No. L 158, 27. 5.2014, p.77 10 OJ No. L 176, 27.6.2013, p.338 11 OJ No. L190, 15.7.2016, p.83

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