October 2010 Newsletter - Financial Executives International

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4 Politics & Business. . . Building A Relationship The news media, elected officials, regulators, customers, shareholders, and interest groups are all exerting a tremendous amount of influence over policy, politics and boardroom decisions. Two political insiders recently met at an FEI Houston gathering to share perspectives on the impact that the changing regulatory environment and upcoming mid-term elections will have on the private sector. Financial executives saw a lively interaction and debate between Dan Bartlett, President and CEO, Public Strategies, Inc. and former Counselor to President George W. Bush; and Jeff Eller, Vice Chairman, Public Strategies, Inc. and former Media Affairs Director to President Bill Clinton. With Election Day just around the corner, anti-incumbent sentiment high and public opinion of government and corporations at historic lows, the unrest of the electorate is being felt at ballot boxes and boardrooms across the country. From the public’s opinion of government and corporate America to hot topic issues and political predictions, FEI Members gained valuable insight and an “in the trenches” viewpoint on the upcoming elections and the current political landscape. — Michelle Lewis, Public Strategies, Inc. mlewis@pstrategies.com Ph:512.432.1784 Cont’d from Page 1 President’s Corner awareness and creating a pipeline for future members. There are some exciting developments in this area and I look forward to sharing them with you in future communications. Thanks for your continuing support of the San Diego Chapter of FEI and please encourage others who may benefit from being part of our San Diego FEI “Community” to contact me about joining us at an upcoming meeting. Help Steve Martin Build SDFEI Route your dues to SDFEI, P.O. Box 13054, La Jolla, CA 92039. Or call Paul at 619.231.5953 for credit card payment. International Tax Legislation Changes By Patrick Connolly PricewaterhouseCoopers LLP 2010 has shown to be another active year for international tax law reform in the U.S. From the new contract manufacturing regulations becoming effective on January 1, 2010 for calendar year taxpayers (these rules impose current US tax on certain income of a controlled foreign corporation where the foreign corporation engages a contract manufacturer), to the enactment of new withholding, reporting and disclosure requirements (the "FATCA" rules) to address Mr. Connolly. offshore tax compliance, to the codification of economic substance (which denies tax benefits associated with a transaction where the transaction serves no economic purpose other than tax savings). Continuing the wave of international tax reform, President Obama signed into law on August 10, 2010 H.R. 1586 which included eight additional targeted international tax law changes anticipated to generate $11 billion in revenue for the government. One international provision is a change in the foreign tax credit rules related to deemed dividends to the U.S. taxpayer from a second or lower-tiered foreign corporation (typically arising from loans by that foreign corporation to its US parent group, referred to as "section 956 assets"). Under this new rule, a taxpayer may no longer look solely to the pool of foreign taxes paid or accrued by that lower-tiered foreign corporation if a dividend from that corporation to its immediate foreign parent and then up the corporate chain to the U.S. group would have resulted in a lower foreign tax credit being available to the taxpayer. In that case, only the lower foreign tax credit may be claimed. This rule is effective for section 956 assets acquired by a controlled foreign corporation after 12/31/10. Another international provision denies taxpayers foreign tax credits to the extent the foreign tax is on income that will otherwise not be subject to U.S. tax because of a "covered asset acquisition". A "covered asset acquisition" arises, for example, when a taxpayer purchases the stock of a foreign corporation and then makes a U.S. election to increase the tax basis in that foreign corporation's assets (such as goodwill and other intangibles). Annual amortization and/or depreciation deductions of those assets occur solely for U.S. tax purposes as a result of this election, and while the income of the foreign corporation is not decreased for local foreign tax purposes, the deductions result in lower earnings for that foreign corporation for U.S. tax purposes. Consequently, while the foreign corporation may make a future distribution to its U.S. shareholder and the distribution is treated as a dividend for foreign purposes, the distribution may be (continued on page 5)
Environmental Challenges . . . Sempra Tackling Renewable Energy By Mark Fisher, VP & Controller Sempra Generation At Sempra Energy we’re focused on a lowcarbon energy model, and plan to invest nearly $15 billion over the next five years to bring new supplies of clean and reliable energy to our customers. We believe these investments are consistent with public policy initiatives at both the federal and state level. We are expanding the supply of renewable energy through investments in solar and wind fa- Mark Fisher. cilities. One such project is the 48-megawatt Copper Mountain Solar facility, currently being built by our Sempra Generation subsidiary in Nevada. The project consists of over 750,000 solar panels on nearly 400 acres and is one of the largest photovoltaic solar facilities in North America. The primary benefits of renewable energy are: an elimination carbon emission, which reduces global warming; cleaner air; use of natural resources that are not depleted by energy production; and decreased reliance on foreign resources. But, even with all of the benefits, renewable energy faces a variety of challenges that make its development very difficult. A major challenge to the development of renewable energy is the availability of electric transmission capacity. Just as power produced from fossil-fueled sources must travel across transmission lines to reach consumers, so must renewable energy. Often, renewable energy is produced in remote locations that require extensions from the existing transmission network to reach them. Both new electric transmission projects and renewable energy projects typically face long regulatory reviews and legal challenges. Additional challenges are the current economic environment, which is making it difficult for many developers to obtain the financing they need to build projects, and production limitations for supplies of solar panels and wind turbines. But, it’s fair to say that renewable energy is here to stay and will become an increasingly important part of our nation’s energy mix in the coming years. Index of Leading Economic Indicators . . . San Diego Economy Static in August 2010 The USD Burnham-Moores Center for Real Estate's Index of Leading Economic Indicators for San Diego County was unchanged in August, according to Professor Alan Gin of the University of San Diego’s School of Business Administration. Although there was no decline, the unchanged reading breaks a string of 16 consecutive increases in the USD Index. Four of the components in the Index were up: Help wanted advertising and the outlook for the national economy registered medium-sized gains while local stock prices and consumer confidence were positive but virtually unchanged. Rounding out a month that saw no significant changes in either direction, building permits declined moderately while initial claims for unemployment insurance were slightly negative. Cont’d from Page 4 Tax Legislation Changes treated as a non-taxable return of capital for U.S. tax purposes because those deductions may have offset all of the foreign corporation's income. The "covered asset acquisition" rule acknowledges this disparity between the calculation of income for U.S. and foreign tax purposes and prevents a taxpayer from claiming a foreign tax credit for foreign taxes associated with amounts that are not treated as income for U.S. tax purposes due to deductions that arise for U.S. tax purposes but not for foreign tax purposes. This rule is effective for "covered asset acquisitions" after 12/31/10. International tax law changes proposed by President Obama in the President's 2011 budget include an extension through 2011 of (a) the controlled foreign corporation "look-through" exception to current US tax on passive transactions between a taxpayer controlled foreign subsidiaries (e.g., royalty, interest and dividend payments). An unfavorable proposal in the budget is to currently tax a new category of income of a controlled foreign corporation for excess returns generated by the foreign corporation from intangible property transferred by the US shareholder to the foreign corporation if the corporation is low-taxed. The details of this proposal have not yet been provided. What Are Taxpayers to Do? In the face of international tax legislation uncertainty, taxpayers are encouraged to stay up to date on legislative developments and be proactive in their planning. Understanding the impact of the various proposed international tax changes may provide a taxpayer the opportunity to preserve benefits they may have otherwise expected to realize in the future. ABOUT THE AUTHOR Mr. Connolly is a partner in Pricewaterhouse- Coopers' SoCal international tax practice. More: patrick.t.connolly@us.pwc.com. PwC’s SDFEI Sponsoring Partner is Rich Kalenka. 5
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October 2010 Newsletter - Financial Executives International

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