back to article Top watchdog probes IBM over 'transactions in US, UK, Ireland'

IBM's stock price has taken a hit after the tech titan revealed it is under investigation by the US Securities and Exchange Commission (SEC). Big Blue said in its latest 10-Q filing that for the past two months, the financial watchdog has been looking into its accounting practices. "In August 2015, IBM learned that the SEC is …

  1. Anonymous Coward
    Anonymous Coward

    That's all money to support massive medical, education and other subsidies to Ireland's already affluent middle class. While leaving the lower middle class and below unable to even support one child. The sooner the US puts a stop to state aided tax evasion the better for everyone.

    1. This post has been deleted by its author

      1. Slx

        Re: hmm

        Hang on a moment. This could well be a City of London issue too. It is after all the world's largest money laundry and light touch regulation centre.

        I don't think many countries can call foul on tax and financial regulation, certainly not any of those 3!

        One analyst seems to think it's a fairly mundane investigation into warranty reserves and something possibly being recognised at the wrong time.

        It's quite possibly an accounting error / mix up.

    2. Slx

      Yeah, because that's totally based on facts!

      Ireland has a Gini coefficient (after tax transfers, which is very important) of 29.3 vs UK 34.5 and US 37.8.

      Lower numbers = better wealth distribution. So, it actually puts Ireland into line with Germany and the Netherlands when you factor in its welfare and tax system and how it distributes income.

  2. Dadmin
    Meh

    Here' how to evade the SEC

    1) create fraud in your publicly available accounting

    b) get the SEC to investigate you

    3) offer backdoors to your products for "official government use, and not spying on everyone and everything" to the SEC to hand over to the NSA

    4) and finally: SEC findings are "inconclusive"

    Also, all corporations are tax evading cheats on society at large, this is an earnings-type fraud as in: Look how successful we are when we do our own books! or, We can't pay taxes on making next to zero profits because we're such good guys. Let's send you and your team on an expensive trip to forget about the whole thing. What say you?

    1. a_yank_lurker

      Re: Here' how to evade the SEC

      As far as taxes go, corporate taxes are built in the price. The customer is ultimately paying for the various taxes the company pays to the various kleptocracies aka governments.

      1. Anonymous Coward
        Anonymous Coward

        Re: Here' how to evade the SEC

        Half true.

        In less competitive markets extra costs go all the way to the bottom line. In more competitive markets companies typically absorb as much as they can to avoid losing market share and so it's shareholders who take the hit.

        Either way it's no reason to forego a sensible regulatory burden. Regulation is the sensible counterbalance to limited liability and we need both for capitalism to work well.

        1. Warm Braw

          Re: Here' how to evade the SEC

          Quite. And in theory, it's actually a way for the "customer" to get back some of the money they've paid if it turns out the corporation has taken more than it "needs" (however you might choose to define that for the purposes of economic policy).

          All the "double Irish with a Dutch sandwich" stuff is, in the end, a way of preventing customers in a large market getting that "rebate" by instead paying a similar per-capita sum to a much smaller group of customers in a small market and then keeping the rest in even tinier offshore tax havens.

    2. Anonymous Coward
      Anonymous Coward

      Re: Here' how to evade the SEC

      If they're investigating related to transactions involving Ireland, it sounds like they're concerned that revenue that should have been booked in the US was booked internationally. That doesn't evade taxes permanently (they are still due when the money is brought into the US) but it reduces their current tax liability. And would reduce the money the IRS collects from them if the US government is stupid enough to do another overseas tax holiday.

      Waiting for a second crack at a lower repatriation rate is why US companies work so hard to keep money overseas now - much harder than they used to when it was seen only as a way to stockpile untaxed money overseas that they might use for building overseas manufacturing facilities or doing acquisitions of non-US companies.

      Unfortunately the only way I can see to stop them stockpiling money overseas is to make a law change that increases the repatriation rate above the normal tax rate for money that has been overseas for more than say five years. They'd have quite a big windfall from Apple and Microsoft alone if they did that.

  3. Slx

    All we can do really is wait for the investigation to conclude. However, it sounds like it's a technical accounting issue. These can and do happen, and can be significant if you're a large organisation with big cash flows. It may simply be a case of the company's treatment of some rule differing from the SEC's interpretation of it. It may be nothing to do with a tax efficiency strategy and just some difference of opinion.

    Most of the analysis I've read online doesn't seem to think it's likely to be anything very exciting.

    1. Anonymous Coward
      Anonymous Coward

      However, it sounds like it's a technical accounting issue.

      Only on a narrow definition. The reason the share price has fallen is the ominous words "revenue recognition". In software and services, it is very easy to adjust your turnover and profit by taking a long term contract or licence sale and choosing when you add the turnover and the profit to your results - either to pump up the latest results, or occasionally to defer to the next quarter or even year.

      The real problem with revenue recognition that it lends itself to intentional fraud, usually by bringing forward future revenues and profits. The first time they do it, the directors always intend to sort it out next quarter, sweep it under the carpet, nobody will be any the wiser, nobody lost out. But if as a wide-boy CFO you chose to bring forward 3% of sales into the company's second quarter results to meet investor expectations, then (1) you've not really addressed whatever problem made you miss expectations, (2) next quarter you're already down by the amount you brought forward and you've got to make that up, and (3) your true starting point for the subsequent quarter is now lower than investors expect, but they expect the company to grow from the inflated figures reported.

      In practice this means that what often starts out as a convenient interpretation of accounting rules to earn director bonuses then becomes a systematic fraud because in the subsequent quarter when the directors hoped to make good, for the reasons above they again miss expectations and have to bring forward more revenue, and the gap between true underlying results and what is reported starts to separate exponentially. This is primarily what happened at Nortel, Enron, Worldcom, Global Crossing, Satyam and many many others. That short list had reported assets of around $200bn when they filed for bankruptcy. I've worked for a company that collapsed in part due to revenue recognition fraud, the directors were crooks, but when they started making up the numbers they didn't intend to bankrupt the company or go to jail - but they did both.

      As far as I know nobody is suggesting IBM will go bust, but with the ghost of Enron looking over their shoulder, investors are rightly spooked by a "revenue recognition" investigation. As it involves the US, UK and Ireland, my guess is that it is less about cheating overall corporate results, and more about "adjusting" the books to reduce the tax bill.

  4. Anonymous Coward
    Anonymous Coward

    Stock drop

    Wow, a 4% drop! MASSIVE! Next thing you know, the Wall Street bastards won't be making money off leaving little children hungry!

    And then WHERE will the world be??!

    (in case you missed that, /s)

  5. Erik4872

    Cat and mouse game

    The SEC, IRS, etc. are locked in a constant cat and mouse game with companies and their tax law/accounting firms. How many US companies pay zero or very little tax every year? The problem is that for every single new regulation or law, there are hundreds of lawyers and accountants constantly working on a financial product, revenue recognition scheme or complex web of transactions to just barely skirt around it. Corporations pay their accounting firms, the firms cook up a strategy, and the fees they pay are a drop in the bucket compared to their tax savings.

    I can't wait to see a more regulation-friendly administration start trying to repatriate offshore assets in a sane way...the sparks will fly, to be sure.

  6. RevWrecker

    Tax Evasion???

    Why are many of you so quick to assume the investigation involves tax evasion? If that was the case wouldn't the IRS be the ones investigating?

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