US EAST COAST 2012 - HFMWeek

US EAST COAST 2012
ACCOUNTANCY
UK to visit clients and prospective clients throughout Europe.
He is concerned that the visits could create a taxable
nexus within the countries being visited. The tax partner
explains that just like the US, the UK enters into many tax
treaties with other foreign countries and just like the US
tax treaties, UK tax treaties generally include a permanent
establishment clause that limits the imposition of income
tax to those UK taxpayers that maintain an office or other
habitual presence within the foreign country. Fortunately,
the occasional visit does not generally constitute a habitual
presence, but the tax partner advises the CFO to keep very
accurate records to demonstrate visits to foreign countries
by UK personnel are in fact just occasional.
Does Kick have exposure to income tax in the UK
The CFO knows that the investment management team
is located within the NYC office and the members of the
investment management team will likely join the UK personnel
in visits to clients and prospective clients
located in the UK. The tax partner informs the
CFO that the same type of permanent establishment
clause referred to above provides similar protection
to Kick under the US Tax Treaty with the
UK. However in this case, the tax partner carefully
warns the CFO that because the office of Kick UK
is located in London, the visits by the Kick investment
management team to the UK office may simply
become too frequent to be less than habitual.
Does Kick have exposure to income tax in other
European countries
Again, Kick is saved by the permanent establishment
clause. But this time, it is the permanent establishment
clause contained in the US tax treaty
with each of the foreign countries and not the UK
tax treaty that provides the necessary relief from
the imposition of income tax on Kick.
DURING THE PAST
DECADE, INVESTMENT
MANAGERS HAVE FACED
THE CHALLENGES OF A
GLOBAL ECONOMY AND
A DWINDLING US CLIENT
BASE. EVOLUTION WAITS
FOR NO ONE INCLUDING
INVESTMENT MANAGERS
”
If the Kick financial statements are audited in accordance
with US GAAP, does Kick have to worry about
FIN 48
The tax partner has been down this road many times before.
He explains to the CFO that any uncertainty with
respect to the possible imposition of a state income tax at
the management company (partnership) level is subject to
a FIN 48 Analysis.
Thus, he warns the CFO that investment advisory
services income from clients located in Illinois, New
Hampshire and Washington will likely trigger income tax
liability at the partnership level that cannot be explained
through a more likely than not conclusion that Kick will
receive the benefit of not having to pay an income tax in
these states. However, it is possible that the amount of income
tax could be immaterial to the financial statements.
In the absence of immateriality, the audited financial statements
must disclose an additional income tax liability for
state income taxes.
CONCLUSION
Today’s investment managers compete in a global
economy searching for investors in the four corners
of the world. They have survived through
the worst of economic times by exercising initiative
and ingenuity. They are survivors and they are
a financial resource. The taxing authorities, both
foreign and domestic, are looking for them every
day hoping to share in their success by imposing
taxes in new and more aggressive ways.
In planning for expansion, investment managers
must exercise that same initiative and ingenuity
to avoid paying more than their fair share of taxes.
They must recognise the myriad tax issues that
come with expansion and they must obtain the
right professional advice to accomplish their tax
objectives. n
16 HFMWEEK.COM