Tag: Pandemic

Non-Residents Get Tax Relief From IRS During Pandemic

Posted on by info

Summary

On June 12, 2020, the IRS updated its FAQs for Nonresident Alien Individuals and Foreign Businesses with Employees or Agents Impacted by COVID-19 Emergency Travel Disruptions.
 
The FAQ provides that a nonresident alien, foreign corporation, or a partnership in which either is a partner (Affected Person) may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020, and on or before April 1, 2020 (the COVID-19 Emergency Period), during which services or other activities conducted in the United States will not be taken into account in determining whether the nonresident alien or foreign corporation is engaged in a U.S. trade or business (USTB), provided that such activities were performed by one or more individuals temporarily present in the United States[1] and would not have been performed in the United States but for COVID-19 Emergency Travel Disruptions (e.g., canceled flights and disruptions in other forms of transportation, shelter-in-place orders, quarantines, and border closures, or they may feel unsafe traveling during the COVID-19 Emergency due to recommendations to implement social distancing and limit exposure to public spaces).
 
The FAQs also provide that during an Affected Person’s COVID-19 Emergency Period, services or other activities performed by one or more individuals temporarily present in the United States will not be taken into account to determine whether the nonresident or foreign corporation has a permanent establishment (PE), provided that the services or other activities of these individuals would not have occurred in the United States but for COVID-19 Emergency Travel Disruptions.
 
In addition, the FAQs are updated to provide that an Affected Person’s income earned during the COVID-19 Emergency Period will not be subject to the 30% gross basis tax imposed under section 871(a) or section 881(a) solely because the Affected Person is not treated as having a USTB or PE under the FAQs.
 
In all events, the Affected Person should retain contemporaneous documentation to establish the period chosen as the COVID-19 Emergency Period and that the relevant business activities conducted by individuals temporarily present in the United States during the COVID-19 Emergency Period would not have been undertaken in the United States but for COVID-19 Emergency Travel Disruptions. The Affected Person should be prepared to provide that documentation upon request by the IRS.
 
Lastly, the FAQs provide Nonresident aliens and foreign corporations (including those that are partners in partnerships) may make protective filings of their annual U.S. tax returns, even if they believe they are not required to file for the 2020 taxable year because they were not engaged in a USTB, to avail themselves of the benefits and protections that arise from such filings (such as those relating to deductions, statutes of limitations, and claiming tax treaty-based relief).
 

[1] For purposes of the FAQs, an “individual temporarily present in the United States” means an individual who is present in the United States on or after February 1, 2020, and on or before April 1, 2020, and is a nonresident alien, or a U.S. citizen or lawful permanent resident who had a tax home as defined in section 911(d)(3) outside the United States in 2019 and reasonably expects to have a tax home outside the United States in 2020. In addition, to determine the nonresident status of an alien, the relief provided in Rev. Proc. 2020-20 is applicable.

Audit Committee Questions During Pandemic

Posted on by info

As audit committees weigh the practical challenges of accounting, reporting and disclosing the impacts of COVID-19, the following series of questions are designed to assist audit committees in execution of their oversight roles and responsibilities to ensure the performance of high-quality audits and issuance of transparent and reliable financial reporting.

Audit Specific Questions

  • What unintended consequences of COVID-19 may increase incentives or pressures on management that may result in management override of controls?
  • Are there changes in controls over financial reporting that need to be evaluated to ensure management certifications are adequate?
  • Are we able to ensure continued proper segregation of duties and monitoring controls given changing physical work situations?
  • Have any significant risks or material weaknesses been identified as a result of impacts from COVID-19?
  • What changes in risk assessments have auditors determined need to be made and how will that impact the audit strategy?
  • Are there known impediments – either by management or by the auditors – that may delay timely filing of financial statements? (e.g., lack of access or ability to obtain audit evidence or other information)
  • What additional resources or expertise may be needed by management to properly account for judgments or estimates or changes related to circumstances brought on by COVID-19?
  • What additional efforts may be required by the auditor to ensure the performance of a high-quality audit?
  • Does my audit firm have the depth of or access to adequate resources to address complex accounting and auditing questions, including industry-specific matters, as they arise?
  • Do my management teams, as well as my auditors, have the ability to properly supervise and direct the work of their staff and teams?
  • Are there additional challenges in performing auditing procedures due to multi-geographical considerations?
  • Has COVID-19 impacted circumstances that may call into question the company’s ability to continue as a going concern? What are management’s plans to address? How do these impact the auditor’s going concern evaluation?
  • Are there any auditor independence issues that have arisen with respect to COVID-19?

Accounting and Reporting Specific Questions

  • Has management adequately assessed changes in risk factors impacting our business? Are these appropriately reflected in our financial statements?
  • Has management properly identified significant accounting areas where impacts from COVID-19 are likely? Has management further accounted for related income tax effects of these impacts?
  • Have we properly accounted for and disclosed changes in significant estimates and judgments impacting the financial statements?
  • Has management, along with the auditors, identified applicable relief opportunities with respect to the 2020 CARES Act and appropriately factored these into the accounting and reporting, including income tax effects, within the financial statements?
  • Are there accounting or disclosure matters that have required significant consultations outside of the audit engagement team?
  • Have the auditors and management identified significant or industry-specific matters related to the interaction of the CARES Act and GAAP or GAAS impacting our financial statements that need regulatory consultation?
  • Has new information arisen regarding COVID-19 events contained in previously filed financial information that requires updating of current disclosures?

Corporate Governance Specific Questions

  • As an audit committee, how are we maintaining our education with respect to COVID-19 considerations, relief efforts and related risks and opportunities?
  • Are we appropriately engaging with internal and external stakeholders and providing transparent and consistent communications about significant impacts on our business?
  • Are we allocating enough time and making ourselves available to discuss critical issues as they arise with management, the auditors and the board?
  • Are we keeping the full board appropriately updated as to significant challenges with respect to financial accounting and reporting?
  • Are we considering responses to anticipated questions from shareholders during upcoming annual meetings?
  • Is management actively and effectively engaging with lenders, customers and other stakeholders in a timely and productive manner and are the results of those engagements reflected in the financial accounting and reporting?
  • Are we, as a board committee, appropriately considering additional risks that have arisen related to other stated committee responsibilities as described in our Audit Committee Charter – e.g., COVID-19 cybersecurity and data privacy risks?

Personal Data Privacy During an Unprecedented Pandemic

Posted on by info

Personal data is a complicated asset. The use of personal information for the provision of a service, research purposes, identity verification, and a countless array of other objectives that range from benign and boring, to potentially predatory and malicious, has become ubiquitous in modern society. Personal data is an extremely valuable tool; it is capable of being leveraged to inform decisions and policies, and reach such specific and targeted conclusions to complicated questions, that it borders on clairvoyance. As is often the case, there are two sides to this coin. Personal data also presents substantial risk, to the individuals to which that data pertains, and to the organizations using it, which now needs to operate under ever-increasing regulation. Governments and companies alike are rushing to leverage personal data to its utmost capacity and bring this pandemic to a speedy end, while still maintaining the privacy of the sick and vulnerable.  

For a law aimed to increase the protection of personal information, it is perhaps surprising that there are provisions within the European Union’s General Data Protection Regulation (GDPR) that allows for the suspension of the rights and requirements of the legislation. Responding to the COVID-19 outbreak is the first instance in which these provisions have been exercised. To better equip itself to fight the spread of COVID-19, the EU is suspending GDPR and loosening restrictions on the processing of what the law calls “special categories” of personal information. These special categories were created to place firmer limitations on types of personal data that presented increased risk, such as race/ethnicity information, political affiliations, and sexual orientation. However, also within this group of special categories is health data. Privacy protections were put in place to benefit the public, but under current circumstances curtailing the access to, and use of valuable health data, it would work against that interest. As a result, France now allows the transfer of personal health data to “any partner involved in the control, prevention and evaluation of the epidemic, in particular the General Directorate of Health.” Italy has issued an ordinance permitting the processing of any personal health data “necessary for the performance of the civil protection function.” Even the U.S. Department of Health and Human Services has announced that there are multiple scenarios under which covered entities may share personal health information without an individual’s consent in order to combat the virus.

This loosening of reins, however, is not absolute. While it is completely reasonable to determine that such a public crisis requires more flexibility, the risks of processing personal data are still very much present and in need of mitigating. Even the ways in which suspensions are being made to the GDPR requirements seem to reflect this fact. Italy’s new ordinance is effective only until July, and France limits its new data sharing policies to “only the data strictly necessary for the accomplishment of the mission.” While some sharing of HIPAA protected health data within the United States may now be permissible under the cover of serving public health interests, it is still important to protect an individual’s privacy and only share such information to those with a legitimate need to know basis.

As individual enterprises look to their own practices to make decisions regarding COVID-19 and their employee’s personal data, risks will need to be evaluated; in terms of the potential harm to the individual, and the potential benefits to the enterprise and individual, arising from the release of information. As a result, there are items that should be on an enterprise’s checklist to help them weigh the balance:

  • Do not reveal the identities of individuals to the public or provide information that could accurately identify people who are under investigation for exposure to COVID-19.
  • Be prudent with your employees in sharing the latest CDC information regarding prevention and efforts by government and businesses in limiting exposure of people to COVID-19.
  • Use continued due diligence in collecting, using, and storing health information of employees. Publicizing of employees who have contracted the disease is counterproductive.
  • Assess your organization’s third-party relationships, including business and strategic partners, which might involve the transfer, sharing or release of employee data.
  • Ensure that proper authentication and authorization controls are in place to access sensitive information. How does the organization verify the identity of calls wishing to either access their health information or inquire about the status of its employees?
  • Assure your employees of the continued control posture that their data is maintained in the enterprise. Continue to educate employees regarding your organization’s privacy policy.
  • Continue with security efforts to monitor networks and access for anomalies, since others may think your attention is diverted to pandemic issues.

Data privacy regulations are still attempting to nail down the balance between extracting value from personal data and protecting the individuals that are the sources of such data. The managing of the COVID-19 outbreak by governments worldwide will represent the equivalent of case law, further fine-tuning our understanding of where and when to protect personal data, and where and when to leverage it.

Sources: