Risk Assessment - Are Your Financial Statements Protected?

Public companies that file under US GAAP must quantify uncertain tax positions under US requirements that have become more definite and rigorous.

FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) requires companies to recognize, measure, present and disclose undetermined tax positions they take, or expect to take, in their tax returns. FIN 48 has significant practical and technical results because it applies to the most complex areas of tax. Effects go well beyond FIN 48's effect on amounts reported in financial statements because the accounting standard requires companies to disclose unpredictable tax positions, including significant transfer pricing issues.

These uncertain tax positions in respect of transfer pricing exist even when related companies use arm's length transfer prices because a taxation authority may challenge transfer pricing policies on the basis of specific facts and circumstances. A systematic process for analyzing and updating the effect of uncertain tax positions is critical. All staff with transfer pricing responsibility should become thoroughly familiar with FIN 48 and consider its implications on their company's transfer pricing policies.

The Financial Accounting Standards Board (FASB) issued interpretation no. 48, accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 explains the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). This Interpretation specifies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years starting after December 15, 2006.

With FIN - 48 in application, the risk assessment of tax benefits recognized in the Indian local books of accounts is to be reviewed on the basis of the technical merits of the position and meeting US tax reporting requirements.

What Manoj Jagram & Associates Offers

Manoj Jagram & Associates global Transfer Pricing practice can provide seasoned assistance to determine and or quantify your FIN 48 transfer pricing exposure.

• Review of various Tax positions occupied by the company and its evaluation under the present tax laws, decided judicial pronouncements, past history of the company, audit developments etc.
• Supporting the review and advice on various tax Positions with clear and unambiguous tax law and more-likely-than-not recognition standards.
• Supporting the evaluation with Documentation considering the appropriate level of evidence to hold management's conclusions, materiality and complexity of the uncertain tax position.
• Effective Tax Rates (ETR) Reconciliation.
• Reporting under FIN 48 in the defined formats.

Contact a member of our Transfer Pricing Practice for assistance with FIN 48 Compliance.