U.S. businesses still interpreting 2017 tax legislation will soon need to respond to Biden Administration proposals to fund ambitious plans to rebuild infrastructure and assist families.
In 2017, the U.S. tax base was expanded to include worldwide income through the creation of the Global Intangible Low-Taxed Income (GILTI) provisions, affecting nearly all U.S. multinationals. As detailed in the U.S. Treasury explanation, the Biden proposals would increase the GILTI inclusion by eliminating the offset for the deemed return on tangible assets and reducing the current corporate GILTI deduction from 50% to 25%. Coupled with a new corporate tax rate of 28%, these changes would more than double the tax rate on GILTI income. The proposal also imposes a “per-country” limitation on foreign tax credits available to offset the GILTI tax cost and eliminates the current high-tax exception to GILTI.
Further changes impacting multinationals include the repeal of the Foreign-Derived Intangible Income (FDII) deduction that provided benefits on export sales and the Base Erosion Anti-Avoidance Tax (BEAT). The FDII loss may be offset by new research and development incentives and general credits. The BEAT minimum tax provisions would be replaced by a new mechanism that denies deductions for payments made to related entities that are subject to a low effective tax rate, targeting large companies with more than $500 million in global revenues.
U.S. rules penalizing inversion transactions would be tightened by lowering the continued U.S. ownership threshold to 50% from the current 80%. An additional proposal would impose a minimum tax on book earnings of certain multinational corporations. This would be distinct from the proposed Global Minimum Tax under consideration by the G-7 leadership.
The U.S. objectives for infrastructure and family assistance will carry a significant cost. Revenues will need to be found to pay for these programs, and the continued suspicions cast on businesses working outside the U.S., and the diminished focus on cross-border considerations by most of the American electorate, make international tax increases a politically attractive target for legislators facing re-election challenges.
In Guatemala, the legislation on non-profit entities has not been so severe, so the authorities considered it appropriate to start the supervision and control in a strategic way based on good practices, always respecting constitutional rights, as well as the agreements and treaties that Guatemala has ratified, such as the American Convention on Human Rights, the International Covenant on Civic and Political Rights and the Universal Declaration of Human Rights, providing an incentive for the creation of non-profit entities and the fulfillment of the purpose for which they were constituted.
Decree 04-2020 issued in the Palace of the Legislative Organism, in Guatemala City, on February 11, 2020, contains reforms to the Law of Non-Governmental Organizations -NGO-, Decree No. 2-2003 and the Civil Code, Decree number 106, which will represent that NGOs in Guatemala begin the transition in the inspection, control, and publication of financial information for non-profit entities that administer and execute funds mainly from donations.
However, on March 2, 2020, the Constitutional Court granted provisional protection, preventing compliance with the regulations created by the legislature, and it was until May 2021 that the Constitutional Court declared the constitutional guarantee of protection presented by different NGOs and civil society organizations. The amparos filed were based on the constitutional and conventional violation of the right of association, freedom of action and international relations, arguing that the reform grants discretionary powers to the Executive by having the power to cancel the registration of the NGO, as well as to hold its directors responsible. criminally, administratively and civilly.
The new regulation now in force establishes that NGOs must carry out the following actions that demand greater controls for them and represent greater transparency:
Publish your balance sheet at the close of each accounting year;
Inform the Ministry of Foreign Relations when they receive donations from an external source;
NGOs registered in another country that operate in Guatemala will also be audited and must comply with national legislation;
They must maintain their political independence from donors and financiers;
They must be registered in the Registry of Legal Persons attached to the Ministry of the Interior, in the Planning and Programming Secretariat of the Presidency -SEGEPLAN- when there are changes in the Board of Directors or the Legal Representative.
If it is incorporated abroad, it must register with the Ministry of Foreign Relations and if it receives resources from the national or municipal budget, it must register with the Comptroller General of Accounts -CGC-, and
Only the NGO can manage and receive donor resources.
For Guatemala it is important that there is legislation that grants powers to specialized entities for the control and supervision of organizations that can administer and execute public funds or donations, thus increasing the incentive for foreigners who seek to carry out social welfare projects. With more effective legislation, Guatemalans, through NGOs, can gain greater credibility with donors.
What I am about to narrate to you is the result of more than thirty years of experience in financial information analysis from the perspective of accounting, auditing, and the constant recurring complaints of people who need to make timely decisions, based on comprehensive information on their companies, some of the comments heard are listed below.
“I must prepare a Board of Directors and I need to gather my entire team, this takes me from five to fifteen days, to integrate information from the following areas: Financial Area: Budget, Forecast, Financial Statements, EBIDTA, Cash Flow, behavior of income-generating areas, Indicators.
Commercial: Sales, products, sectors, units.
Legal: Status of processes or situations that positively or negatively impact the business.
Accountant: Must be in previous meetings because the financier requires explanations about any figure.
Design: He is the one who designs the PowerPoint of any meeting
Production: Call production if you transform or are a service provider. It reports the volumes and costs for the purpose of determining the Cost of what is sold and a number of possibilities for decision making.
Audit: If it exists, it is used so that in most cases it is the one that endorses the financial information because everything must be previously audited.
Human Resources: It is one of the most important actors because it is necessary to understand the future impacts of any movement in this area and the cost or expense”.
The above describes the major players required to develop a very important Board of Directors and the associated costs to bring it to a successful result.
Then, on the day of the meeting, the rigorous protocols are complied with and in most cases it begins with the results of sales, cost of sales, gross profit (by cost centers), areas who sold more, and finally, as usually happens in these meetings, there is always the person who crosses the Financial Statements with the sales presentations, or with the cost of sales and requests an explanation about the irregular behavior of what the cost of sales represents on sales during the last twelve months, taking into account that you have the analysis and that you worry about the consistency of gross profits.
However, the information has not been clear, so a look of confusion among the members of the Board is normal, who have to call the Accountant (because no one has the courage to defend the argument made). As for a change, once again it is proposed that a report be rendered for the next meeting to clarify this transcendental concern.
Experience tells us that 95% of companies have problems with determining the cost of their sales, some of the readers will identify with the situations raised above, making sense to them and others may say that this has never happened to them.
However, reality shows that: Companies have an ocean of structured information (financial information system or the management of your business) and unstructured (Excel sheets and others that must be prepared manually). That is, information networks that contain points that are part of the system but that are islands or independent kingdoms that do not flow within the network.
The evolution of management is to obtain information without the need for third-party filters, for any time, place of occurrence and that this information provides us with the necessary knowledge for decision-making.