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During June of 2015, David Springsteen, Partner and Practice Leader of Withum’s National Tax Services Group, Kimberlee Phelan, Partner and Practice Leader of Withum’s International Services Group and myself, Richard Ingunza, an accountant in Withum’s National and International Tax Services Group in New York, traveled to Cuba to see first-hand what commercial opportunities might eventually emerge from the normalization of relations between the United States and Cuba. We saw both potential and challenges. We remain in close contact with our HLB affiliate accounting firm, Interaudit S.A., in order to spot opportunities and find great promise in the recently announced changes to the regulations that govern commerce between the U.S. and Cuba.

On January 27, the U.S. government published its third set of regulations designed to expand commerce and contact with Cuba and its people. The new regulations follow significant regulatory changes announced in both January and September of 2015. The changes are part of the current administration’s policy of whittling away the embargo on U.S.-Cuban commerce and trade that can only be lifted by congressional action. To date, such action by congress has not been forthcoming. The recently announced measures cover export financing, aviation, construction, the organization of professional conferences and sports and entertainment events and a broadening of the list of U.S. exports now permitted without the need of a special license.

In order to encourage exports to Cuba, restrictions related to the financing of non-agricultural exports have been removed. Previously, U.S. exporters, while sheltered from Cuban credit risk, were at a disadvantage to exporters from other countries given the latter’s ability to provide export financing. U.S. financial institutions will now be able to provide direct export financing as will U.S. manufacturers. Interestingly, agricultural exports were excluded in the new regulations as the financing of such exports to Cuba is explicitly prohibited by the Trade Sanctions Reform and Export Act of 2000.

planeThe U.S. and Cuba reached a new civil aviation agreement in December that eventually will permit up to 110 regularly scheduled, daily flights between the U.S. and Cuba. U.S. airlines are currently preparing lists of those routes for which they would like to secure landing rights. Options available to the Cuban national carrier, Cubana de Aviación, are also being explored given the risk of asset seizures stemming from U.S. court cases. To facilitate the resumption of regularly scheduled flights and to foster airline safety, restrictions related to the export and re-export of aviation parts to Cuba for use by commercial carriers have been eased and agreements related to blocked-space, code-sharing and leasing will be permitted going forward.

On a case-by-case basis, U.S. companies will now be permitted to export materials for infrastructure projects that the U.S. government considers as directly benefiting the Cuban people. Such projects include those in the areas of water treatment and electricity generation and, most interestingly, represent a departure from previous policy that severely limited direct business contact with Cuban state entities.

Other new categories of exports that should be granted export licenses include those that encourage agricultural production such as pesticides, fertilizers and farm equipment as well as goods that bolster disaster preparedness. Similarly, items related to artistic endeavors, the processing of food, residential construction and public transportation will now routinely be granted export licenses. Currently, all exports to Cuba that are not carried in the accompanying baggage of travelers must be imported through Cuban state-owned enterprises. Through this most recent set of regulations, the U.S. government has explicitly stated that, provided that the exports meet the needs of the Cuban people, importing through Cuban state-owned enterprises is now permitted.

In order to encourage greater business contacts, U.S. nationals will not only be allowed to participate in professional conferences in Cuba, but are now permitted to actively organize such conferences on the island. Similarly, U.S. nationals will now be permitted to organize semi-professional sports events and music performances and art festivals and exhibitions without prior approval from the U.S. Treasury’s Office of Foreign Asset Control and the requirement that profits from such events be donated to not-for-profit organizations has been eliminated.

After announcing the current set of regulatory changes, U.S. government officials called upon the Cuban government to take parallel measures that would allow Cuban citizens to take advantage of the opportunities generated by the new changes. To date, Cuban authorities have been hesitant to undertake policy changes that would enable U.S. and Cuban firms to move forward on business projects that are now feasible given the recent changes in the U.S. regulatory landscape. A case in point is the resumption of ferry service between the U.S. and Cuba. During the summer of 2015, U.S. regulators approved licenses for U.S. operators to recommence ferry service between the two nations. To date, the operators are still waiting for approval from the Cuban government despite strong demand for international ferry service between both nations.

However, the next meeting of the Cuban Communist Party, scheduled for April 16 through the 19 , is quickly approaching and many, on both sides of the Straits of Florida, see an opening for select reforms to be announced by the government in Havana in the coming months.

By Richard Ingunza | 212.829.3219 | ringunza@withum.com

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I’ve never really heard about Perth until getting the opportunity to live here through the HLB secondment program. Here are some things I’ve learned during my stay:

  • No tipping at restaurants – don’t expect to add an extra 20%. Tipping is not expected and there is usually no line on the receipt for it anyway.
  • The average minimum wage in Australia is over A$17 per hour (which explains why there is no tipping).
  • Crossing the street – pedestrians DO NOT have the right of way here in Perth. I’ve learned this after many honks directed towards me. Jaywalking is the only way to survive.
  • Coffee – Dunkin Donuts does not exist and Starbucks has not made its way to Perth yet. Essentially, all you can get is a “Flat White” or a “Long Black.” There’s a coffee/espresso shop on every corner in the city and the menu always looks the same.
  • The sushi is not good – they put chicken and steak in their sushi rolls and call it “gourmet.”
  • Kangaroos – Yes, there are as many kangaroos here as there are deer in New Jersey. The little ones are cute and friendly.

perth

  • The Lingo:
    • Biscuits = cookies
    • Lifts = elevators
    • Macca’s = McDonalds
    • Chips = French fries
    • Rubbish = garbage
    • Australians abbreviate everything
  • Common terms
    • Massive
    • Heaps
    • Reckon
      • (i.e., “I reckon the concert will be massive with heaps of people” – Mindy)
    • No worries
    • No stress
    • Cheers mate
  • No Australian has ever said, “Let’s throw some shrimp on the barbie.” Australians call shrimp “prawn” anyway.
  • Perth is the second most isolated city (with over one million people) in the world. The next closest city to Perth is Adelaide which is 2,138km away (approximately a three-hour flight).
  • Everything in the city of Perth closes early during the week. Most retail stores close at 5:30pm, except Friday when they are open late (9pm). Only about a year ago is when Perth started opening its stores on Sundays from 11am-5pm.

 

By Lonnie Bloom, MBA | 609.520.1188 | lbloom@withum.com

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Lonnie BloomThis summer I had the amazing opportunity to work in Perth, Western Australia for four months as a secondee for HLB Mann Judd. My role as senior auditor included planning, conducting and finalizing all aspects of new and reoccurring audits. I also assisted managers with substantive testing and additional procedures necessary to complete their jobs.

Even though I was using new audit software (CaseWare) and worked on clients in a new industry (Exploration & Mining), I felt a sense of similarity when setting up workpapers, documenting analytics and completing long checklists and audit programs. The biggest change for me was getting familiar with the exploration industry and Australian accounting standards. Some interesting facts I noted during my experience were the following:

  • Mining is huge part of Western Australia’s economy. The major commodities include Iron ore, petroleum, gold, alumina, and other various minerals
  • During the mining boom, the mining and the petroleum industry accounted for almost 90 percent of the State’s income from total merchandise exports. In 2009, the industry had a value of $A61 billion. During this time, mining companies held large amounts of cash to pay their employees and on any given mining site, janitors, cooks, and bookkeepers could easily earn over $100k per year
  • Those that have to fly into their mine site are considered Fly in Fly out (FIFO) workers. These miners would fly to their work site for the duration of their roster then fly home when they are off duty. This is typical in the mining industry.
  • The mining industry has been on the decline for the past few years due to unstable resource prices and has caused job cuts and increased unemployment rates. This has also led many companies to seek additional funding and capital raisings to continue their exploration activities
  • An entity is considered a “Mining” company when an exploration and evaluation asset has reached a point when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Companies that have not reached this point of technical feasibility but maintain rights to explore the land are considered exploration companies
  • Mostly all of the clients I dealt with were exploration companies listed with the Australian Stock Exchange (ASX). All of my clients were unique but generally had some similar characteristics. Some activities these companies were facing include the following:
    • Revenue – since these exploration companies have yet to “strike gold”, they only reflected minimal revenue (i.e. interest revenue)
    • Capital raisings – exploration companies listed on ASX are selling shares for pennies. It is common to see companies issue millions of shares in order to raise funds which they would use to continue their exploration. Larger companies and wealthy individuals would purchase these shares also in hopes to “strike gold”
    • Large balance sheets – money spent on these exploration sites (tenements) would be capitalized according to the standard, which would be reflected on their balance sheets
    • Impairment – exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Triggers for impairment include expiration of their rights to explore, substantive expenditure on further exploration is not budgeted or planned, or the entity has decided to discontinue operations since the exploration of specific areas has not led to the discovery of commercially viable quantities of mineral resources. Large impairments were common with my clients
    • Going concern – all exploration clients I dealt with had going concern issues. I grew used to reviewing cash flow forecasts and documenting that the companies would need to seek additional funding in the coming year in order to meet its planned exploration expenditure

Working with new faces and learning the quirks of each manager and partner reviewing your work made things interesting. HLB Mann Judd welcomed me with open arms and made me feel like I’ve been working with the team for years. I am forever grateful for the opportunity and will always remember my experience with a new firm in a foreign country.
The industry was different and the work was challenging at times, but my experience in Australia extends beyond the cubicle walls at HLB Mann Judd, as you will hear about in my next few blog posts.

By Lonnie Bloom, MBA | 609.520.1188 | lbloom@withum.com

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Canada and United States flagsThe U.S. Internal Revenue Service (“IRS”) has released revised Publication 597 (Rev. October 2015), “Information on the United States-Canada Income Tax Treaty” (the “Publication”). The 1980 United States-Canada income tax treaty was signed on 26 September 1980. It has been amended by five protocols, the most recent of which became effective on 1 January 2009.

The Publication provides information on the income tax treaty between the United States and Canada. It discusses a number of treaty provisions that most often apply to U.S. citizens or residents who may be liable for Canadian tax. Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). Therefore, Canadian residents who receive income from the United States may also refer to the Publication to see if a treaty provision affects their U.S. tax liability.

The Publication discusses a number of treaty provisions that often apply to U.S. citizens or residents who may be liable for Canadian tax. Specifically, it discusses the following:

  • Application of the treaty (including saving clause)
  • Personal services
  • Pensions, annuities, social security and alimony
  • Treatment of “other income”
  • Investment income from Canadian sources
  • Charitable contributions
  • Income tax credits
  • Competent authority assistance
  • How to get tax help from the IRS and the Canada Revenue Agency

The Publication further notes that taxpayers who take the position that a U.S. tax is overruled or otherwise reduced by a U.S. treaty, referred to as a treaty-based return position, are generally required to disclose that position to the IRS using IRS Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).”

In addition, the revised Publication includes information on the relief provided by Revenue Procedure 2014-55 to eligible U.S. taxpayers who hold interests in certain Canadian pension plans, including registered retirement savings plans (“RRSP”) and registered retirement income funds (“RRIF”).

If you have any questions, please contact a member of Withum’s International Services Group at international@withum.com.

By Mark Farber, CPA, Partner, International Services Group | 212.751.9100 | mfarber@withum.com

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Cuba In the 1940s and early 1950s, Havana must have been a jewel of a city. Set against the beautiful Caribbean Sea, the Malecón offers the sea to one side and buildings across the boulevard – some restored, some new, but many crumbling after years of neglect. Perhaps that is the best word to describe the city – crumbling. Of course there are beautiful buildings (the National Capital Building and the National Theatre next door), but across the street, buildings are literally falling down. Much to their credit, Cuban authorities are restoring the most significant buildings that comprise their rich architectural patrimony. That said, much is left to be done and we can only hope that growing commercial contact with the outside world will bring more funds to make possible even more ambitious conservation initiatives.

The streets too are generally in need of repair – the potholes give New Yorkers nothing to complain about. It’s quite surprising that the 1950s-era cars (again, some beautifully restored and maintained, and others less so) can drive the streets without further damage. But there are broad beautiful avenues, many with richly planted medians. Again, a city of contrasts and a city in transition.

On the drive from the airport to downtown Havana (about 25 minutes), my colleague, Richard Ingunza, immediately noticed the lack of advertising. The only billboards or signs posted recognized the glory and successes of the revolution. Also noted was the absolute lack of retail. In fact, in two and one-half days, I only saw two “stores.” One was a high-end kitchen appliance store in one of the two modern office building complexes we visited and the other was a “hole-in-the-wall” with racks of eggs and a line out the door (in fact, business was transacted from the door with patrons walking away with dozens of eggs in self-provided plastic shopping bags – talk about putting all of your eggs in one basket – no egg cartons here).

Despite the poor conditions of the roads and buildings, the people tell a different story. No one appears to be malnourished. No one (well, maybe we saw one person) appears to be homeless or destitute. Much to their credit, everyone we encountered was educated. And everyone we met from hotel bellmen to restaurant staff to our guide and driver to our affiliates working for HLB InterAudit seemed content and “happy.” In the evening, it was extraordinary to see the populace step out onto the streets to mingle, share stories and just enjoy the company of their neighbors. Animated conversations could be seen and heard. Children played and parents laughed, exchanged ideas and had heated discussions, much the same way as was occurring out across the Straits of Florida in neighborhoods across Miami and beyond. For us, Havana is a city of contrasts.

By Kimberlee Phelan, CPA, MBA, Practice Leader, WS+B’s International Services Group | 609.520.1188 | kphelan@withum.com

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cubaOn December 17, 2014, the presidents of Cuba and the United States made a joint announcement that had, until then, seemed to be impossible: Cuba and the United States would embark upon a process of normalizing relations between both countries.

Most are aware of the acrimonious and antagonistic relationship that has existed between both nations, and the history that led to the virtual freezing of that relationship for over 50 years. Irrespective of one’s views on the change, the almost eight months since the historic December 17 announcement have brought increased dialogue between both countries, the reopening of the Cuba’s embassy in Washington and the reopening of the U.S. embassy in Havana later this week. How the relationship between Cuba and the United States develops remains to be seen. What is certain is the general hope that whatever form that relationship takes, it will be for the mutual benefit of both Cubans and Americans alike.

At Withum, members of the firm’s International Services Group met what was announced in December, as well as the revised regulations regarding travel to and commerce with Cuba that were issued by the U.S. Treasury and the Department of Commerce in January, with interest. How will the Cuban economy be impacted? What new economic measures will the Cuban government introduce? What will this mean for the emerging private sector in Cuba? What will this mean for Cuban state companies? What commercial opportunities might emerge for our clients? Each of our questions seemed to trigger another.

We realized quickly that the only way to assess the commercial opportunities that might emerge due to the change in relations between Cuba and the U.S. was to travel to Havana and meet with members of the business community. As a member of HLB International, we have an affiliate in Cuba, Interaudit S.A., that is part of the Ministry of Finances and Prices… so, we simply called.

It was my first call to Cuba. On the line was the CEO of Interaudit, Dra. Elvira Armada Trabas. After explaining the purpose of my call, we were surprised to discover that we had reached out to them at an opportune moment. Interaudit’s management had been recently discussing their need to learn more about the system of accounting, audit and tax practiced in the United States. Provided all of the approvals could be gathered, a visit to Havana would be welcomed.

That simple and brief conversation triggered eight weeks of intense work by both firms in order to make Withum’s exploratory trip to Cuba possible.

The first order of business was to secure an official invitation to travel to Cuba for David Springsteen, Partner and Practice Leader of Withum’s National Tax Services Group, Kimberlee Phelan, Partner and Practice Leader of Withum’s International Services Group and myself, Richard Ingunza, an accountant in Withum’s National and International Tax Services Group in New York. To issue the letter, Interaudit’s management had to secure numerous approvals up the chain of command at the Ministry of Finances and Prices and then similarly up the chain of command at the Ministry of Foreign Relations.

While we waited for the formal invitation letter, we began contacting foreign firms in Havana, active across numerous sectors. We reached out to banks, law firms and professional service firms as well as economists and diplomats. Our approach was universally welcomed and, after many calls, we began to fill out our schedule of meetings.

After two weeks, record time as letters of invitation usually take two months, if not longer, our letter arrived in my email in box. With our schedule in place and our working sessions with Interaudit on Cuban and U.S accounting and tax scheduled too, we turned our attention to the challenge of securing our visas to enter Cuba.

Four weeks before our planned departure, we forwarded our paper work to the Cuban Interest Section in Washington. In order to work through our travel arrangements, we hired a travel consultant to help us with air travel, accommodations, local travel and the documentation for the general license to travel from the U.S. to Cuba to perform professional research and hold professional meetings.

We were told it couldn’t be done. Eight weeks was a minimum to secure a visa, possibly as little as six under extraordinary circumstances. However, we felt that this was an extraordinary time; things were changing and we had to go and see for ourselves. Undeterred, we pressed on and waited for a response.

We were told that if things worked out, they would fall into place at the last minute. Three weeks transpired and we heard nothing from the Cuban Interest Section. Two weeks before our planned departure and we had still not heard back. One week out, we still had no news.

cubaFollow-up calls became more frequent and some of the firms we had on our schedule began to make calls on our behalf to both Cuban officials in Havana and in Washington. Our travel consultants worked the phones reaching out to their contacts and we called and called too.

In the end, it went down to the wire. Three and a half days before our departure, we finally received the news: we were being granted permission to enter Cuba. Three days later, in the late afternoon, we boarded our flight in Miami and headed out across the Straits of Florida towards Havana for what would turn out to be an incredible four day visit.

By Richard Ingunza | 212.829.3219 | ringunza@withum.com

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