The Financial Reporting Blog

A weekly update on financial reporting topics curated by Mercer Capital’s Financial Reporting Valuation professionals.

OECD Recommendations on Transfer Pricing

In July 2013, the Organization for Economic Co-operation and Development (“the OECD”) released a whitepaper on transfer pricing documentation surveying the current requirements in various tax jurisdictions as well as outlining compliance issues and making recommendations on transfer pricing documentation going forward. Not surprisingly, the OECD found a lack of congruity among the requirements of taxing authorities in the surveyed countries and a certain level of frustration among business representatives seeking to comply with ever expanding and changing requirements. The OECD is expected to finalize its recommendations and guidelines sometime early this year. It remains to be seen how such recommendations will ultimately impact the global tax environment and if such a level of convergence and cooperation is possible among taxing authorities with varying degrees of resources. Regardless of the OECD’s ultimate recommendations, transfer pricing remains an area where enterprises face stringent compliance requirements.

Equity-Based Compensation: Tax Considerations

As the commentary around the IPO of two major social media companies revealed, tax consequences of equity-based employee compensation are not always straightforward and are sometimes poorly understood. Equity compensation structures are legion, with varying tax consequences for employees and employers. Complicating matters further, prescribed accounting treatment for equity compensation expenses, including measurement dates, differ for tax and financial statement reporting purposes. An understanding of the tax consequences to the employees and the employer can help companies choose the optimal structure and instruments for their equity-based compensation plans.

New Guidance on Valuing Customer Relationships

What are your customer relationships worth? One of the most common intangible assets identified in a business combination is customer relationships, which can include customer lists, order or production backlogs, and contractual or noncontractual customer relationships. Many factors can influence the value of these types of assets, including the type of underlying business, the typical “life” of the relationship between the customer and the firm, and the presence of other assets in the firm (tangible or intangible) that contribute to value.

Fair Value & Bankruptcy: Fresh-Start Accounting

Perhaps because most CFOs would rather not need to be familiar with the special accounting rules that apply in the event of bankruptcy, the standards regarding so-called “fresh-start” accounting receive relatively little attention. For management teams working through a bankruptcy, there are a number of valuation-related considerations.

2013 Mergers and IPOs: A Year of Growth and Opportunities

M&A and IPO activity in the U.S. ended on a high note in 2013. Merger volume picked up in the second half of the year as companies took advantage of a low interest rate environment. Greater competition for deals and rising valuations in the United States have led some private equity firms to seek returns through less expensive (and non-conventional) minority investments and partnerships rather than buyouts. With a strong finish to 2013, there is renewed optimism that the momentum achieved in M&A and the IPO markets will carry on into 2014.

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