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November 3, 2010

Provision – as reporting deadlines draw near, the very word can be enough to cast doubt in the minds of the most seasoned tax professionals. There is a certain sense of uneasiness that can start to grow over the holiday period as tax departments around the world look forward to some late nights crunching the numbers into the New Year. If the year end process at your company is hanging over yourtax department like the fabled sword of Damocles then read on.

In this edition of Tax Advisor Update, Kevin Hindley provides 17 practical tips to help take some of the stress out of your year end process.

1. Who is Who?
It sounds basic enough, but you can virtually guarantee that the one jurisdiction you unexpectedly need to contact over the provision season will be the one whose details you failed to upload into your contacts list. To save the stress and hassle of frantically searching for contact details, prepare a summary schedule in advance. It is a good idea to include the names, phone numbers and e-mail addresses of each responsible party in the company, and also the same details for any local advisors. This can be circulated to the whole international team in advance of year end so that everybody knows who is dealing with what and how to contact them if the need arises.

2. Standardisation
Imposing a standard reporting pack for each jurisdiction can save a lot of time translating schedules into the correct format for tax reporting at year end. Take the time in advance to talk through the tax pack with your local country contacts or tax advisors so that they understand the schedules they need to prepare.

3. Tax Calendar
The compliance requirements for tax vary in different jurisdictions. Having a calendar that summarises the requirements for tax payments, and filing in each jurisdiction in which your company is active, can prove invaluable. Not only does this provide a resource for cross checking tax activity during the year, but at the year end it provides a valuable cross check for payments and prior-year adjustments that need to be booked.

4. Tax Audits
Keeping a control schedule that summarises the progress of all of your tax audits throughout the year provides a snapshot of issues at year end. The control schedule can be updated during the year as the issues in different jurisdictions are closed out, settled or litigated. At year end, this schedule provides a summary of all open issues that are subject to audit by Revenue authorities. This provides instant peace of mind that all tax positions subject to audit are appropriately included in the provision calculation, as well as an understanding of what is excluded.

5. Tax Positions
A similar schedule to the tax audit schedule can be maintained during the year for any known issues that are contentious. For example, if an expense has been filed as deductible in a particular jurisdiction and the local Revenue authorities may challenge the deduction, then the issue should be logged. Maintaining this summary throughout the year will again provide instant feedback at year end and assist in deciding whether a tax provision is adequate and appropriate. Be careful with legal privilege for this schedule, it would probably not be helpful if it ends up in the hands of your tax auditor!

6. Transfer Pricing
There are many advantages to booking transfer pricing adjustments during the year rather than waiting until year end. If any required adjustments are booked monthly or quarterly, it will avoid a scramble to book correct numbers at year end. It also has the advantage that an accurate assessment of cash tax payable can be made during the year without the need for superimposing transfer pricing adjustments over the underlying numbers.

7. Permanent Differences
An easy win is to analyse the detail of the permanent differences throughout the year. We have a number of clients who benefit from pulling detailed P&L information at the end of month 11, and analysing the detail behind potentially disallowable expenditure such as entertainment and legal and professional fees. These companies benefit from being able to roll forward a month at year end with either minimum additional analysis or a small estimate to perform on only the costs for one month rather than the entire year. This makes short work of the analysis and provides more accurate numbers for the tax reconciliation.

8. Fixed Assets
Similar to permanent differences, an awful lot of work can be done on fixed asset timing differences in advance of the year end. Ensuring that additions and disposals are analysed as the year goes by will save time when there are more pressing issues to focus on.

9. Estimate
Remember that a tax provision only needs to be materially accurate, it is not a tax return! Bear in mind that an estimate for an adjustment at provision can save a lot of time, and there may be no need to analyse details to the nth degree. This can always be looked after in the tax filing part of the process.

10. Rate Change
In April 2011, the rate of corporation tax in the UK will drop to 27 per cent and will certainly have an impact upon deferred tax for the 2010 year end. Take time now to ensure that your reporting schedules for deferred tax take account of the rate change so liabilities are provided and assets are recognised at the correct rate going forward. We also recommend enquiring with your local country contacts as to whether there are any rate changes overseas well in advance of the year end.

11. Return to Provision
As we approach December, most UK companies and many overseas entities will have filed their tax computations and returns for the year ended 31 December 2009. Instead of waiting for the year end to reconcile the positions filed to the provision made for 2009, this work can be performed in advance to save time.

12. Prior Year Adjustments
Utilise fully the return to provision working, along with the standard schedules for tax audits in progress and tax positions that your company has taken. If you maintain these schedules, you should be able to calculate what balances are appropriate to carry forward for current and deferred tax for prior years. Post the required prior-year adjustments through the tax account in advance of the year end. A simple check to ensure nothing has changed (and taking appropriate action if anything has) is all that should be required on prior years during the provision process. This means you can focus on current-year movements.

13. Tax Account
After you have posted your prior-year adjustments, take the time to reconcile your tax accounts. Ensuring there are no rogue postings that should have gone above the line, and taking account of tax payments for the entities in your group, should mean that -- at year end -- all you need to do are quick checks and posting current-year accruals.

14. Automation
If you are dealing with a very high volume of compliance and reporting information, then you should consider automating your tax provision process. The reduction of management time required in dealing with year end reporting can be significant after a successful automation.

15. Simplify the Structure
Most multinational companies have a raft of old companies they no longer need. Engaging in a joint project between tax, legal and finance to liquidate and strike off entities that are no longer needed helps to reduce the sheer volume of tax reporting information needed at year end. Look for a quieter time during the year to initiate the project or give it to an external advisor. There are administrative savings to be enjoyed as well.

16. Clear the Intercompany Accounts
Large and old intercompany balances can cause a headache for many reasons -- not least of which is the need to impute interest on funding balances under transfer pricing principles. Consider clearing up the intercompany accounts. Planning a series of transactions that could include repayments, paying dividends, dividends in specie, and accessing capital can reduce tax complexity. Even a regular schedule of payments for transactions on intercompany account will go a long way towards keeping it simple.

17. Look After Yourself
If you have done all of the above and you are still facing long nights of burning the midnight oil, then take some steps to ensure you feel as good as possible. It’s easy to forego sleep and good nutrition as the stress of the year end process builds, but this is the time you are likely to need it most. Decisions made in the dead of night are rarely as good as those made with a fresh set of eyes in the morning. Taking an hour out to go to the gym provides an outlet for stress and will help you sleep better. You are looking after your company, so look after yourself too!


Kevin Hindley
Managing Director
Tel: (+44) 207.715.5235

About Alvarez & Marsal Taxand UK
Serving the UK and international corporate tax markets, Alvarez & Marsal Taxand UK LLP offers a fresh, independent and client-focused alternative that delivers the high quality service and proactive advice our clients expect, but without the time-consuming, audit-based conflict checks required by the Big Four. Our experienced tax advisors are passionate about tax and about providing responsive, tailored advice that helps mitigate risk, manage tax burdens and drive business performance.

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This newsletter is not intended or written by Alvarez & Marsal Taxand UK LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding tax penalties that may be imposed on any taxpayer. Readers should not consider this document to be a recommendation to undertake any tax position, nor consider the information contained therein to be complete, and should thoroughly evaluate their specific facts and circumstances and obtain the advice and assistance of qualified tax advisors.

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